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Winners and losers in this cup – and betting day

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Today is Cup Day.

And the Day of bets.

Not a good day to try to get people to focus on something else.

So…let’s talk racing and betting. [In my best Beverly Hillbillies voice:] Interest rates, that is.

In general, I am not a fan of horse racing.

I’m not sure that’s humane, and I’m not sure that a “sport” that is essentially just a glamorous front for the gambling industry deserves this much national attention and admiration.

Ahhh, I’ve already endeared myself to some of you with this, while others are already calling me inappropriate names.

Oh good. At least you can’t accuse me of deflecting from controversial topics.

Will it benefit me or the Spotted Fool?

In the short term, no. Why risk alienating some current or potential customers?

But in the long run?

I don’t know

I like to think that being bold in my beliefs is a good thing, and I hope that my/our readers can respect that, and also respect the fact that civil dissent is actually good for our society.

And that you will know that no matter the topic – especially when it comes to finances – I will bring the same sincerity and honesty.

I think it’s better than some soft beige color.

Either that or you’ve already stopped reading and I’m kidding!

But “for a penny, for a pound”, so let’s talk rates.

No one knows for sure what the RBA will do this afternoon.

And whenever interest rates are discussed, there are two parallel issues that need to be separated:

“What should do they do?’ is one of them.

“What will be do they do?’ is different.

Just one word, but these are very different questions.

And frankly, for all the grief the RBA gets when people disagree with them, nobody knows the future, and these economists have spent more time learning and practicing the art of monetary policy than almost anyone else in the country.

That is why I am always careful to say that they are wrong.

It’s like my quote about Warren Buffett: whenever I disagree with him, I always think it’s me who’s making a mistake!

If I were RBA governor, I’d raise rates by 0.5% (the cool kids insist you say “50 basis points” – which is technically a more accurate way to describe it. But, well…)

And it’s not because I don’t care about mortgage payers. Or because I want to make life difficult.

But because inflation is a scourge. Rates may go up and down, but prices? They go up and, with very rare exceptions, stay there.

And at the same time, it will irreversibly damage our standard of living.

Inflation is 7.3%. Last month, retail sales grew by 0.6%. Unfortunately, there are too many costs.

It is definitely a choice between two evils.

But it is much, much better to have temporary higher rates than constantly higher prices.

(By the way, we need to find a better way to stimulate or slow economic growth than simply penalizing one-third of the economy – about one-third of people own outright, about one-third rent, and one-third pay a mortgage. I have a few ideas, but that’s a topic for another day.)

So I think the RBA should do.

What will be do they do

Again, no one knows. But they have just dropped from 0.5% per month to 0.25%. I don’t think they’ll want to jump in again.

I think 0.25% is the most likely course of action, but wouldn’t be surprised if they decided to go back to 0.5%, at least once.

As an investor, I don’t like higher rates either. All other things being equal, they push asset prices down.

Now, if I’m going to be a pure stock buyer, I should actually want lower prices when I buy. So that helps me.

But it is not pleasant to see portfolio down.

And some – many – people reading this will not be pure buyers because they are already retired and living, at least partially, on their Super and their personal investments.

But if the last 3 years (and 13, 23, and 33 years) have shown us anything, it’s that volatility cannot be avoided.

In fact, volatility is a ticket to the dance.

This is something we have to put up with in order to be able to enjoy the long-term wealth creation that the stock market has offered over the past century or more.

And so?

Well, if you are a pure buyer, I would continue to buy. This is what I do.

And when you enter retirement?

It’s fine if you’re lucky enough not to need everything dividends income, reinvesting at lower rates gives you an opportunity.

And if you’re not adding money to the market, my best advice is that in the past, these periods have been uncomfortable, but temporary. And the market has never managed to recover, and then surpass the previous peaks.

No guarantees – no one knows the future – but my guess is that it will happen again this time.

The future is bright, even if the sky is cloudy at times.

Fool!

https://www.fool.com.au/2022/11/01/winners-and-losers-this-cup-and-rates-day/

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