December 13, 2017

On Wednesday, the S&P 500 was about flat while the DOW was up 0.3% and Toronto was up 0.1%.

With the Democrats grabbing the Senate seat last night, I had expected U.S. markets would likely fall today due to a somewhat lower probability of the Income Tax bill getting passed. However, I now understand that the new Senator may not take office for several weeks so perhaps that’s why the market remains highly confident of the passage of the Bill as well as the fact that either way the Republicans have a slight majority in the Senate.

The FED raised interest rates 0.25% today to 1.5%. With that, I thought that the Canadian dollar might slip somewhat even though the rate rise was very much expected. It started to dip very briefly on the announcement but then rose. This goes to show how difficult it is to predict exchange rates.

These rate hikes are starting to add up to something significant. The FED’s benchmark rate is now 1.25% higher than it was in 2009 to 2015. Warren Buffett (Berkshire Hathaway) has $108 billion in cash. An extra 1% on that amount is 1.08 billion per year (pre-tax). The big U.S. banks keep billions on deposit at the FED. The higher FED rate adds to bank earnings.