(The following is a hypothetical
“love letter” to Federal Reserve Chairman Jerome Powell from an investment
client)……….
Dear Chairman Powell
I’m not one who usually pens fan
letters, but I wanted to write to thank you for your ongoing series of interest
rate hikes. I know there are myriad
numbers of complex reasons for the policy, but for me and my family all you
need to know is that we finally have reason to invest without fear from stock
market volatility exclusively. You
obviously know that the last decade, and more, has a been a period of declining
rates of return primarily because you and your fellow board members had become
preoccupied with stimulating the economy post-Great Recession (2008) and
post-Covid. In such a low interest rate
environment I had been oddly burdened by having to buy stocks as surrogates for
income producing bonds. Yes, there has
been the occasional one-off success in the stock market, like tech stocks or
biopharmaceuticals, but by and large the stress of managing my expectations
with the stock market gyrating constantly has been too overwhelming for me to
accept.
I remember years ago when interest
rates were quite high…as much as 12 percent on money market funds. My financial advisor and I are resigned to
the fact that those types of returns, without risk, are no longer available to
me. Instead, my children have grown up
in a generation of near-linear positive, and quite unrealistic, equity market
returns, always having to worry about when or if the plentitude might
capitulate. Sure, we watch the evening
business news shows where they talk about things like GDP, unemployment, and
inflation. But for the most part these
are not outcomes we think about on a day to day basis. Thank goodness you and your contemporaries
are there to do the heavy lifting on these matters. So….your recent interest rate hikes have been
just the thing we need right now to steady our investment path, generating
competitive rates of return on non-equity securities in our portfolio.
The irony of all that data they talk
about on television is not lost on me, however.
The pundits tell us that we are a nation “at full employment” and that
the economy is “in a rebound”. Why,
then, do I feel insecure about my job and the factories in my city, watching
several of my neighbors getting laid off; why am I frustrated by the price of
groceries such as eggs, dairy, and meats?
It seems as if the decoupling between what “they” say and what I see is
profound, so I trust that you and your partners in government have our best
interests in mind before taking any further action.
I mean no disrespect when I observe
that things look out of control….war in Ukraine; political discord in
Washington and elsewhere; global immigration policies which exclude the
indigent; more virulent diseases that interrupt the flow of our life; not to
mention fear, loathing, and resentment of those who are perceived as
“different”. Is an improvement in my
bank CD rate really sufficient to address all these matters? Should I
care? Do you know?
I suppose that the extent of one’s
anxieties over these and other issues is determined by one’s capital reserves
and their station in life. I mean,
without having a magic wand to wave over the world, there will always be the
haves and have-nots, right? I was taught
a person’s character was the most important thing. But it sure seems as if the size of their
pocketbook also plays a role in determining their fate.
In conclusion, I’m not a sophisticated
market guru nor consumed by all the data and information you have at your
disposal. I’m just a client of my
investment advisor, with a significant portfolio of assets that I care about
preserving and growing modestly. Lately,
I have been concerned about the inordinate amount of risk that I have been
forced to take in order to achieve my investment objectives. Now, thanks to your hefty increases in
interest rates, I can safely and efficiently generate a competitive return and
add balance to my asset allocations. For
that, I offer my heartfelt thanks.
Sincerely,
Joe Client
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