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8:30 AM Wednesday, March 23, 2005: This time the Fed's rate increase had some major effects. Interest rates -- long and short-term -- popped up. These charts show interest rates. Divide by ten.

And share prices continued their recent slide.

I don't like where shares are trading or heading. And I don't like where interest rates are moving. But I'm not too sure what to pronounce -- other than my old mantra -- "Cash is King." There is talk of ugly things on the horizon -- inflation, continuing large budget deficits, rising interest rates dampening real estate growth and a consumer recession beginning next year. I'd like to buy muni bonds. But it's still too early. I'm keeping a wary eye on my inviolate 15% stop loss rule. It has kicked in a little -- but not a lot, yet. Fact is we seem to be at some important transition point. Being there doesn't excite me.

Yesterday's Fed rate increase announcement was different. Here's The New York Times reporting on it:

"In a departure from previous declarations, the central bank said there were rising inflationary pressures beyond those tied directly to the recent jumps in oil prices."Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident," the policy-making Federal Open Market Committee said.....

The Fed also changed its assessment of risks to the economy. Last month, it said the risks to inflation and growth were "roughly equal." On Tuesday, it said the risks "should be kept roughly equal," but said its outlook was dependent on "appropriate monetary policy action." That implied that the Fed might have to take tougher action.

The hawkish new language jolted investors, who immediately raised their bets on the possibility of bigger rate increase by the end of June and higher long-term interest rates...

Yields on 10-year Treasury bonds, which are closely tied to mortgage rates, jumped to 4.64 percent from 4.47 after the announcement. That came on top of a rise from about 4.10 percent in mid-February....

Import prices, which had climbed very slowly despite a significant drop in the value of the dollar, have started to rise more rapidly. Commodity prices, measured by the Reuters-CRB index, have climbed to their highest level in 24 years. Possibly more important to Fed officials is the increased ability of companies to pass on higher costs to customers. Fed officials were fixated on the absence of "pricing power" two years ago, when worries about declining prices were dominant.

The Fed's most recent beige book, a collection of anecdotal reports, said that companies across the country were facing higher supply costs but that manufacturers in many districts were "finding it increasingly easy to pass along price increases."

In an effort to reassure investors, the central bank once again said that it could afford to raise rates at a "pace that is likely to be measured." Investors have interpreted that phrase to mean a series of quarter-point rate increases that would bring overnight rates to about 3.5 percent by the end of this year.

The Fed also played down worries about the inflationary impact of higher oil prices, which policy makers view as essentially a one-time event."

I don't believe the bit about oil being "a one-time event." Oil price rises have caused virtually all the recessions of the past 40 years.

If you still have adjustable rate mortgages, lock them into fixed rate loans.

Declining stockmarket prices will make equities attractive at some point -- but not yet.

At least we'll keep eating. I love shopping at Whole Foods (WFMI). A reader writes me: "You have made me a believer in WFMI. Love the store I shop at. It just seems people cannot get enough of them i.e. larger and newer stores as well new offerings within the existing stores."

Some of our real estate syndications are unloading their properties: They've fixed the management, filled the building, raised the rents and are showing higher returns -- actions they figured would take five years, but took only two. Hence, their job is done and the building is worth more. Time to sell. Time to find other situations in need of their fix-up skills. It's amazing to me -- but not to them -- how much the management of large commercial buildings is screwed up.

How do you say Hungry Snake in Australian? This is an Amethystine Python, also known as the Scrub Python. It is Australia's largest python, having been recorded at over nine yards long. Its jaw span is large. These pictures reminded me of a few brokers I have known -- them the snake, me the kangaroo.

Impeccable logic:
One night an 87-year-old woman came home from Bingo to find her 92-year-old husband in bed with another woman.

She became violent and ended up pushing him off the balcony of their 20th floor assisted living apartment .. killing him instantly.

Brought before the court on charge of murder. The judge asked her if she had anything to say in her defense.

"Yes, your honor," she said. "I figured that at 92, if he could have sex ... he could fly."

The Jewish Helicopter
Morris and his wife Esther went to the state fair every year, and every year Morris would say, "Esther, I 'd like to ride in that helicopter."

Esther always replied , "I know Morris, but that helicopter ride is 100 dollars and 100 dollars is 100 dollars."

One year Esther and Morris went to the fair, and Morris said, "Esther, I'm 85 years old. If I don't ride that helicopter, I might never get another chance."

Esther replied, "Morris that helicopter is 100 dollars and 100 dollars is 100 dollars."

The pilot overheard the couple and said, "Folks I'll make you a deal I'll take the both of you for a ride. If you can stay quiet for the entire ride and not say a word I won't charge you, but if you say one word, it's 100 dollars."

Morris and Esther agreed and up they went. The pilot did all kinds of fancy maneuvers, but not a word was heard. He did his dare devil tricks over and over again, but still not a word.

When they landed, the pilot turned to Morris and said, "By golly, I did everything I could to get you to yell out, but you didn't. I'm impressed!"

Morris replied, "Well I was going to say something when Esther fell out. But 100 dollars is 100 dollars."

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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