Washington, DC and the End of the Federal Reserve Conspiracy

Change is difficult. We're in Washington, DC attending an investment advisor forum as I write this week's Periscope, and this town is stressed out. Can you imagine all the moving boxes in the hallways of the capital? The new president will appoint more than 4,000 jobs.

I didn't brush up my résumé. I did, however, give careful thought to the future of retiree's investments. Although my own retirement is likely several decades from now, yours and the rest of our clients' retirements are front and center in my mind as we walk around the hallways of the most powerful government in the history of the world. The fear of change sometimes feels overwhelming and retirement is changing.

I imagine Trump's priorities might cause confusion for you, in your area of expertise. You might be in healthcare, environmental sciences, law or education, defense, technology, automotive, service, manufacturing, or other industries. Is there anything that a changing of the guards in Washington, DC doesn't unsettle?

If you've already retired, my friend, you are brave. Facing retirement in times of political change is even more of a threat! After all, you have the time to watch television, read editorials, and maybe even visit with your elected official. We are all unsure about what lies ahead.

The enduring message from Washington, DC is two-fold: First, the more things change, the more they stay the same. The bureaucracy is much bigger than Trump. And it is hard to steer this ship; even steering it slowly seems nearly impossible. The old dog in the crowd likely speaks for many when he says, "I've heard it all before." Many people in DC are skeptical anything will change. Even those who oppose Trump are optimistic that the sheer size of the government prevents a radical, too-fast change.

The second message from DC is that this change is surprising, unsettling, and surprisingly welcome. Republicans are excited to make changes. They are shut behind their doors, working hard. Their staffers are stressed and busy. Some Democrats are happy to re-invent themselves and cooperate, particularly on infrastructure spending. The President-elect's agenda, including the proposed tax plans I'll talk about next week, could happen fast. President Trump's abilities to issue executive orders to offset, modify, or eliminate President Obama's executive orders could happen with the stroke of a pen. Executive rules have significant effects on many companies, their employees, and their clients. From my perspective, the mood in DC is optimistic and opportunistic.

Finally, and this is a dangerous aside, can we please put the nail in the coffin of the Federal Reserve Conspiracy Theories?

I'll write a story for Forbes Magazine along these lines, but the abbreviated version goes something like this: Since the election, 10-year Treasury Note rates have risen 30% from 1.75% to 2.25% and the Federal Reserve did nothing. No announcement. No meeting. No promise of an announcement or a meeting. No conspiracy. Not even a rumor of a possible promise or an announcement or a meeting by any conspirators. Nothing to do with the Federal Reserve, this tremendous, sudden increase in interest rates. The dramatic rise in rates came completely from investors, like you and me. Because, you see, we control interest rates, not the Fed.

(Click here to view a larger version of this image.)*

674D5E81 9927 4A3E 8F75 2FAAA87BB10E

The Federal Reserve does not control interest rates. Period. Stop making that mistake. If a friend of yours makes that mistake, ask them, politely, "What on earth gave you that idea?" Listen attentively, without judgment. Don't bother to engage in an argument. The interbank lending rate has little, if anything, to do with the real world of lending and investing that you and I live in...and the Fed's control of even that rate is occasionally dubious.

Rest assured there is nothing anyone can attribute to the Federal Reserve that actually mattered over the past two weeks. Nothing the Federal Reserve can do will move interest rates remotely as much, or as fast, as what we all just witnessed on election day. Interest rates are controlled by the market's invisible hand.

*Source of chart: www.stockcharts.com

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