Dear Mr. Berko: In February of 2009, I wrote you for advice on how to invest $60,000 for safety and appreciation, and you told me to invest $6,000 each in AFLAC, United Health, Toyota, Federal Express, Panera Bread, Chevron, Boeing, Chubb, Eli Lilly and Bank of America. My $60,000 is now worth $173,000 thanks to your recommendations. Now that interest rates are increasing, what do you think will happen to the prices of the 10 stocks you had me buy? Should I hold them or sell them?
–BE, Destin, Fla.
Dear BE: You have me confused with someone else. I’d like to take credit for those recommendations; however, I’m “posilutely” certain those issues were not on my 2009 buy list. I’ve never recommended Boeing, Chubb, Panera, Bank of America, Chevron or Toyota. However I don’t know enough about you (age, risk tolerance, other investments, obligations, income, etc.) to provide suitable personal advice. Those 10 are excellent long-term investments that will rise and fall with the market. So if you’re a long-term investor, keep them. I think Janet Yellen wasted a bullet when she raised rates in December.
The biblical tale of Joseph in Genesis relates the story and interpretation of Pharaoh’s dream. Pharaoh dreamt that seven fine and fat cows came out of the river and fed in the meadow. Then seven ugly and gaunt cows came out of the river after them and ate the seven fine-looking fat cows. So Joseph was brought from the dungeon to interpret the dream. He told Pharaoh the seven good cows represented seven years of plenty and abundance while the seven ugly cows meant that seven years of famine would follow. And the years of famine will be so bad that the good years would be forgotten. Certainly, you know the rest of the story.
Well, we’ve had seven good years of near-zero interest rates that were the precursor to three-fold increase in the S&P 500 averages between March of 2009 and today. Now we may have seven bad years of higher rates and a declining S&P, and not because it’s time to raise rates. Rather because Yellen’s quacking and yacking about her intent to raise rates sidetracked her, now she’s has to do something or look foolish.
