Yesterday, the thing that many feared, happened.

The Federal Reserve raised interest rates by a ¼% or 25 basis points. 

Over the last couple of months, I have talked to clients, friends, colleagues and associates about this rate hike, and there were mixed reviews. Some thought they should leave the rate at 0% and others thought rates should have been raised a long time ago. We even hear that head of the International Monetary Fund (IMF), Christine LaGarde asked for the Fed to hold back any plans to raise rates because the global economy is too fragile and this could have an adverse affect on the rest of the world's economies. 

For me, it's not a big deal. The Federal Reserve hasn't raised rates since 2006 and has had approximately a 0% interest rate environment in the Unites States since 2008. The Federal Reserve needs to begin the process of raising interest rates to avoid any potential hiccups within the economy if (and this is a big IF) inflation gets out of control. 

INFLATION 

In my opinion, we have a greater chance of experiencing deflation, which is a fall in overall price levels, in the short- to mid-term time frame, then we do to experience inflation. Nobody saw oil prices falling like this over the last year. I was estimating that oil would be at $50 a barrel of oil by now. I was wrong, like so many others. 

Many publicly traded companies got a little too happy with low interest rates and overextended themselves by taking on debt to fuel things like share buy backs, but their revenues have remained flat or declining. The Energy industry is a perfect example of this. Oil companies are shutting down rigs and laying people off, all while having a boatload of debt to service.  

Fundamentally, it's hard to conceive of inflation growth with corporations putting an end to their big spending and laying off their workforce. With a weakening workforce, you won't see wage growth. Without wage growth, it's really hard to envision a massive inflation increases. 

For now, I think we will have to pick our spots for investing and be patient. 

Below, I have listed a few ideas that I am following and starting to execute.

INVESTMENT IDEAS 

Raise in long-term interest rates- This is something I have started to position client portfolios in by shorting the 10 Year Treasury (anticipating a fall in the price level). The US 10 Year Treasury Yield has been hovering at all time lows. Much of this is due to the strengthening in the US dollar. However, this low level in interest rates cannot persist for too much longer. 

Declining Euro- As the ECB looks to stimulate the Eurozone economy, they are pumping more monetary stimulus into the economy, very similar to what the US did a few years ago. This will put downward pressure on their currency. It will also create a very positive environment for European equities, which is something else I will evaluate for client portfolios.

Kinder Morgan (KMI)- Has been in the news quite very recently for their massive debt issues. They recently cut their dividend and the stock has fallen by over 60+. I am still watching Kinder for now, but they pay a decent dividend and are the biggest operator in their space. 

Stay tuned for new developments as we move into the new year.

Have a great day,

Camari