“I believe that banking institutions are more dangerous to our liberties than standing armies.” Thomas Jefferson
“Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild, founder of the House of Rothschild
It was all going so well… the usual summer doldrums for the market did not materialize as the overall market climate remained positive and continued the advance that started in Feb. 2016. Two weeks ago it was almost as if the markets hit the much talked about TRUMP Wall. Volatility returned because uncertainty reared its ugly head due to the ongoing speculation about the direction of interest rates.
The Federal Reserve meeting takes place this week and the market chaos of late is due to investors trying to anticipate their next move. Head of the Fed, Yellen has been criticized for not raising rates in 2016 after the quarter point increase in December of 2015. Rates have been too low for too long is the mantra. The low rates have caused distortions, increased market prices, without the benefit to the economy that was expected.
The problem with the Federal Reserve is simple… it’s become politicized and is not the “independent body” they claim to be. It’s the same reason the public is so disgusted with DC and everyone involved, almost without exception. Yellen knows the economy is weak, that the jobs numbers are phony, we’re drowning in debt, and that the election might hinge in part on what the Fed does. The assumption is that they will not raise rates going into the election and I would agree. The current administration knows their party has a weak candidate and if the markets get spastic before the election, the odds will improve for the opposing party.
The Fed meeting starts on Tuesday and the results will be announced on Wednesday. Will that be the end of the uncertainty? Generally yes, but with the election so close, I don’t believe there will be a big appetite for equities as long as the race is so tight that there is no way to know at present, which way it will go. The general consensus is that it will remain tight right into election day.
That indicates a “sideways” trend and it’s better to keep your powder dry during periods of uncertainty. A smart investment decision is ruled by discipline. Without discipline there is no structure or method and that is suicide, emotionally and economically.
Trends begin and end with a “breakout” whether it’s an Uptrend or a DOWNtrend. Never try to anticipate the breakout! Follow your discipline and wait for a confirmed breakout before putting your money at risk. Trend followers do NOT predict. They REACT to price which is objective, simple and all that is necessary. Making money in the stock market is not complicated. The hard part is following your discipline and leaving your emotions in the closet.