Thursday, December 15, 2016

The Hike

The Fed raised rates by a quarter point yesterday. This was as expected, but the tone of the statement and the press conference was rather hawkish. So everything sold off, including most commodities. Here's my take...

The big number to me was the forecast for growth, at about 2%. If this is true, then the Trump optimism is worth zero. That's the same crappy growth we got during Obama's eight years. It's also a big step down from previous Fed forecasts. Many people may not know that the Fed has been forecasting a return to 3+% growth for about six years. They have been wrong of course. This year they finally threw in the towel, probably at the exact wrong time. I believe 3% is likely.

Any rise in interest rates is bad for commodities, especially monetary-tied ones like gold. But if the rise is due to a stronger economy, that's actually a good thing. The big risk is what happens to emerging markets, where most of the demand growth comes from. A protectionist US would be a great negative. We have to see how Trump policy evolves. However, the people he has picked for his economic advisors are all pretty savvy, and undoubtedly understand what is at stake. So I bet they will tread lightly. In all, I'm still pretty bullish, especially on equities. The major risk here is that many commodities are not longer cheap, so you don't have that long term value working in your favor. But a lot of the companies I hold can do quite well with current prices.

I bought back the South 32 shares I sold last week.

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