This week I am going to do something a bit different for the weekly commentary. The main issue this week is whether or not the FOMC (Federal Reserve) will raise interest rates after their two-day meeting this Wednesday and Thursday. My belief is that they will not—something I’ve been repeating for weeks and months.
Instead of repeating why I feel that way, I thought I would let you read/hear from someone who is much smarter than I on this subject: Jim Rickards. Jim is an expert on the Federal Reserve, the International Monetary Fund (IMF), China, etc. and is the author of The Death Of Money and Currency Wars. He is also a Hedge Fund manager and one of the experts that I turn to for research. What you hear from him is also reflected in the Macro/Quantitative research that I follow.
Jim recently did a television interview with a news anchor in Australia wherein he brings up some great points.
As well, here are a couple of excerpts from his weekly commentary:
This Thursday, September 17, 2015 is the moment of truth for the Federal Reserve, and its rate policy committee the FOMC. Eight years of market manipulation are now coming to a head. The Fed will either commit a disastrous policy error by raising rates in a weak economy, or destroy its credibility by failing to raise rates after repeatedly saying it intends to do so.
If the Fed raises rates on September 17, it will lead to a “risk off” emerging markets meltdown. If the Fed does nothing but continues to “talk tough” on future rate increases, we will have more of the volatility we have seen since early August as markets resume the Fed guessing game.
The bottom line is that central banks, including the Federal Reserve, are losing control over their ability to influence the economy. And our economy is slowing and it is becoming more and more likely that we will enter a recession here in the U.S. sometime in 2016. And that would not be an environment (generally) in which I would want to see aging or retired investors have large allocations to equities. On the other hand, those that are able to keep their powder dry while the markets are in turmoil may be afforded a once in a decade opportunity to pick up some bargains.
Now back to this week’s FOMC meeting. The markets will likely remain volatile into and out of the meeting. There is the possibility that stocks will rally if the Fed doesn’t move… we have to wait and see if bad news is interpreted by market as bad or good. Fundamentally, though, growth is slowing and that is one thing they can’t print. Thursday will be interesting, to say the least.
Thanks for reading.
Twitter: @JeffVoudrie
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
