The Fed, Fortnite and Heroin

Every month I spend an entire day one-on-one with each of my kids. And at the same time, their mom spends it with the other.

So when I asked my eleven year old what he wanted to do on our upcoming one-on-one Dad/son day. He said, without skipping a beat. I want to play Fortnite.

In a school of over six hundred kids, he was the only one along with his sister who hadn’t played.

If you are not familiar with Fortnite, it’s heroin for kids. See link above if you think I’m kidding. But I was curious. Really heroin?

So I took him to PlayLive Nation, which is basically a retail store with 50 huge flat screen TVs where you can play one of 100 different games sitting in a big Lazy-boy chair with a headset on (read: total immersion).

The place is all black. The lights are low. The walls are black. The floor is black. The Lazy-Boy chairs are black. And there’s no clocks.

I’m pretty sure the same person who designs casinos designed this place, once you step in all forms of time and reality drop off.

But still, I thought how bad could a video game really be?

We played next to each other.

It was the first time for both of us. At least if he was going to be on a modern day heroin drip, I’d be next to him getting the same drug.

We played for 45 minutes. I got a headache and he was having the time of his life. So we stopped.

Then for the next four days. All he wanted to know was when we could go back and play more Fortnite. I’m serious. Everything he asked about involved getting back to PlayLive Nation.

I’m not sure what that 45 minutes did to his underdeveloped eleven year old brain but it worked. And he was hooked just after one 45-minute sitting.

I finally told him on day four that his behavior was concerning and that he wouldn’t be playing Fortnite again until he turned 21.

What Fortnite is to kids brains. The Fed’s policy is to investors behavior.

But unlike my kid on 45 minutes of heroin. The stock market’s been on almost ten years of investment-grade heroin. Dripped right into the stock market.

Let me explain…

Jerome Powell speaks and the markets pop.

In December the stock market was expecting the Federal Reserve to raise rates two or three more times in 2019 AND continue its reduction of its balance.

Then Jerome Powell spoke on January 4th. You can see in the price chart below what Powell’s words did to the market (read: investment heroin).
Without Powell’s speech the markets were poised to drop.

In a nutshell (and in his own words)

We’re listening carefully with – sensitivity to the message that the markets are sending and we’ll be taking those downside risks into account as we make policy going forward,”
– Jerome Powell

Interpretation…

Okay. I’m watching the stock market and I see it’s unhappy with my policy decisions, so I will make a complete about face and not raise rates in 2019 and stop shrinking the Fed’s balance sheet.

But in December, the markets were expecting the worst and they were falling hard. Here’s a good piece that outlines the December Fed news that dropped the market almost -20%.

So what we’ve got is the second longest economic expansion in US history 116 months and counting on all riding on the back of a Fed that will do anything to avoid a 20% drop in the stock market.

This should scare investors.

We are almost ten years past the last recession and this [stock] market still can’t stand up on its own two feet?

I’ve got to tell you, that should be really concerning to everyone. Because there’s going to come a point when the market will become immune to the Fed’s heroin drip of low interest rates and money printing.

And it’s likely to happen sooner than later. But it doesn’t have to hurt you or your money. Yes, it will probably hurt the set-it-and-forget-it portfolio’s designed by Big-Box Advisors but it doesn’t have to be this way.
There’s a better way. A way where math and the weight of evidence prevails over hype, fear and outdated thinking.

In Your Corner,

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RC Peck, CFP

P.S. Whenever you’re ready, we can help you make sure your money is on the right side of the market. We can help you get off the roller coaster. Click here.

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