Does the Fed have an Exit Plan?

The past 7 years has been concerned with social issues, sidestepping the important economic issues befalling us.

After my morning workout, I decided to catch up on the markets, specifically our trades at Adaws and how things look this morning. After adjusting our positions a bit to hedge for exposure, I did a fair bit of reading and discovered this great blog post over titled 20 Reasons To Take Your Foot Off The Gas Pedal.

The article centres around the Fed, it's general plan (or lack thereof), and the fact that we are cycled out of this current bull trend. I'm not necessarily in 100% agreement, but the general sentiment is spot on.

don't fight the fed
Here's an excerpt:

One of the oldest cliché's on Wall Street is "Don't Fight the Fed," to which, I have added "... Especially when they are on a mission."

The current market cycle is an absolutely perfect example of this trading rule. In short, the Fed has been on a mission to make double-darned sure that the U.S. economy does not enter a Japan-style deflationary environment. Therefore, the FOMC has come up with all kinds of new and creative ways to provide liquidity to the system.

And what has happened to all that money, they've been printing, you ask? It would appear that an awful lot of it has wound up in the stock market. The bottom line is that rising stock prices make people feel better. And when people feel better, they spend more time at the malls. In turn, the economy improves, etc., etc., so what's not to like, right?

The problem is that the actions taken from 2007 through 2013 by Bernanke and now Yellen in 2014 have been unprecedented. Therefore, no one really knows what will happen when they try to return interest rates to more "normal" levels (remember, current rates are at generational lows).

However, we DO know that (a) the Fed WILL be starting to exit its easy money policy in the next year and (b) that a rising interest rate environment has not generally been kind to the stock market.

The Problem I Have with Yellen

I have been very concerned about this as well, and my fears are not allayed by Janet Yellen. I feel she's not the best choice for the Fed position, and have made it very clear in previous posts. She doesn't inspire much confidence, and her comments feel more canned than her predecessor. Her focus on 100% job creation appears to be admirable, but that attention is misguided, at least for the moment.

Our country has spent the past 7 years concerned with social issues and has sidestepped the important economic issues befalling us. We can't be about money all the time, but we can't be about who's feelings are getting hurt all the time either.

What We Do Need

We need a government and policies that are actively managed, not leaning heavily to one side or the other. This country will never be served by ineffectual middle management, nor will it be served by heavy partisanship.

What a frustrating time we live in.

Leave a Reply