The Poisonous Cocktail Of Main Street Woes And Federal Reserve Liftoff

Wednesday, November 18, 2015
By Paul Martin

by Tony Sagami via MauldinEconomics.com,
ZeroHedge.com
11/18/2015

Wall Street was impressed with the October jobs report that showed the creation of 271,000 new jobs and a decrease in the unemployment rate to 5.0%.

It is widely believed that those strong jobs numbers paved the way for the Federal Reserve to raise interest rates in December. In fact, the likelihood of a December rate increase jumped from 58% to 70% based on federal-funds futures trading data.

The business of will-they-or-won’t-they predictions is a fool’s game, but “liftoff” is coming—whether in December or sometime in 2016. Wall Street has good reason to pay so much attention to the Federal Reserve: all of the last seven bear markets we’ve seen have been fueled, if not started, by the actions of the Fed.

A common denominator of the last seven bear markets was a sea change in monetary policy in the form of either (a) increasing interest rates or (b) the withdrawal of monetary stimulus.

Today is very different—and more dangerous—because the stock market must deal with the double-whammy of higher interest rates and the removal of quantitative easing.

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At the same time, the signs of economic stress are piling up higher than a hippie in a hot-air balloon.

Stressed Out #1: Treating 401(k)s Like an ATM Machine.

Withdrawing money from your 401(k) before age 59 1/2 is one of the worst moves you can make. Not only do early withdrawals cost you a 10% penalty as well as additional income tax, they also put a giant dent in your retirement savings. That didn’t stop 30 million Americans from tapping their 401(k) in the last year.

Moreover, according to the Employee Benefit Research Institute (EBRI), another 21% of 401(k) savers have borrowed against their account with an average unpaid balance of $7,153.

Stressed Out #2: Hi Mom, I’m Home!

This may hit too close to home for many people reading this column, but an astounding number of young, working-age adults are living in their parents’ basements.

Of women age 18-34, a shocking 36.4% are living with their parents, the highest percentage since record keeping began more than seven decades ago.

The Rest…HERE

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