Yesterday’s testimony by Fed chair Ben Bernanke makes it clear that QE is here to stay for the foreseeable future. Rather than tilt at windmills, you need to accept this fact, and adjust accordingly.

Here are a few of the things that you should be doing in response to zero interest rate policy:

Refinance your home, locking in a 30 year fixed rate (if you can afford a 15 year fixed, do that). This is a no-brainer and the best way to take  advantage of zero rates for most families.

Shorten the duration of your bond holdings. Rates will go up eventually, so those 10 year durations and longer should be 7 years max.

Buy or Lease a new car. (Ben wants you to) assuming you can afford to.

Evaluate your risk assets:  Since the March 2009 lows, stocks are up over 100%. If you participated in most or all of this, congrats.  If you completely missed a move where equities doubled, you need to think about why. Perhaps its time to make suitable changes.

Anticipate and plan for the next correction: Monday’s 2% whackage should have made you think about what the next 10-20% move down will be like. What should your response be? What is it more likely to be? Anticipating panic decision-making in advance helps you avoid the worst of it.

Reduce/renegotiate any outstanding consumer debt. This is the worst sort of debt, used to pay for depreciating baubles. If you must, refinance it at lower rates.

• Are you a trader or an investor? Make the appropriate plans for your own timeline.  Traders don’t hold losers after their prices drop; Investors don’t flit in and out of markets.

Remember, review the emergency procedures in the card (seat back in front of you) when you are on the ground — not after an engine flames out at 30,000 feet.

Category: Credit, Investing, Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “QE is Still Here (and what you should do)”

  1. dan10400 says:

    Refinancing is a no-brainer, but what about buying? In this environment when people buy to a payment, it seems more than likely you will get stuck holding the bag on a big capital loss.

  2. “Remember, review the emergency procedures on the card (seatback in front of you) when you are on the ground — not after an engine flames out at 30,000 feet.”

    BR,

    as a ‘Public Service’, that Line, above, could, almost, be a Second sub-Title for TBP..

    though, probably, Better, People should seriously consider having it Tattooed on their Forearm..

  3. MayorQuimby says:

    Agree with all except duration.

    Owning long term debt is potentially great if deflation reasserts itself. The likelihood of 2008 repeating is greater than a booming economy imo. At the very least – own a little bit of everything if you crave safety (and you should).

    Also, refi but do so in the context of paying off your debt earlier. Extending loans is a poor choice if you plan on using that extra income short-term. Of course that is precisely what Ben wants you to do.

  4. VennData says:

    “….If you completely missed a move where equities doubled, you need to think about why…”

    Anytime a Socialist is given the reigns of power, you sell everything. That way one of these days you’ll be right, because a stopped clock is right, eventually. Think of yourself (as a GOP-lover. emotional, focused on a few media outlets, angry, filled with hatred… reading unsubstantiated, unsigned, large font emails all day and forwarding them) as a stopped clock, where time has stopped and you want things to go back to the good ole days of George W. Bush. There’s no place like home. There’s no place like home.

  5. theexpertisin says:

    I appreciate BR sharing practical ideas profiting from the current QE reality. Investing in prudent life tactics to benefit from government actions is just as important to net wealth as betting on financial instruments.

  6. Chief Tomahawk says:

    QE hammered my greenback the wrong way for my recent trip to Prague. I see as recent as 12/1 it was 20 Czech to the dollar. For my visit I was getting 18 Czech (after the moneychangers commission).

    Just checked again: Monday’s whackage must’ve led to a dollar rebound and now it’s back to ~20 again. Harrumph!

    At least the food was good and the beer was cheap (and good).

  7. BennyProfane says:

    @VennData

    I fail to see how anyone can talk Socialist/Capitalist or Republican/Democrat when they see who was just made Treasury secretary or who will probably be made the head of the SEC. I mean, really.

  8. Concerned Neighbour says:

    All good points except I would argue for the “anticipate the next 10-20% correction”. I simply fail to see how even a 10% correction is possible any longer. Any daily loss – as rare as those now are – inevitably seem to be more than made up for shortly after.

  9. jhaw says:

    I refinanced in December. We could have afforded a 15 year mortgage but I went with a 30 year fixed rate mortgage. Call me crazy, but if someone wants to loan me money at 3.25% then I want to borrow it for as long as possible.

  10. donna says:

    We’re working on refinancing a 10 year loan…

  11. joinvestor says:

    “Anticipate and plan for the next correction”

    I would strongly strongly agree. I already have. I will go out on a limb and predict we will see an intermediate correction starting within the next week or two. We may have already seen the peak last week on the 19th. However, I do also think this is merely an intermediate-term correction in a longer-term upward cycle so the alternative to pulling out of equities would be to accumulate whatever extra cash is possible and hold it in reserve to buy as near as possible to the low points of the upcoming short-term correction.

  12. kek says:

    “The likelihood of 2008 repeating is greater than a booming economy imo” The likelihood of a muddle through enviroment is far greater the two polar opposite extreme events of 2008 and a booming economy.

    A market correction should matter little to a long term investor.

  13. beaufou says:

    I don’t think I ever said it…so thank you for all your free advice Barry.

  14. Well said, BR…

    “Avoiding danger is no safer in the long run than outright exposure. The fearful are caught as often as the bold.” ~ Helen Keller