Don’t fight the Fed? Or, don’t trust the Fed.

It’s episode 109, the first podcast of the year and there is a lot going on right now. Europe, emerging markets going through the roof. Interest rates dropping like a rock. Yet the Fed says they’re going to keep rates higher for longer.

Who’s right? The bond market or the Fed? Every economist telling you we’re still going into recession. Yet employment is strong. Inflation is coming down. Well, we’re going to give you our 2 cents on everything today, give you a blueprint for how to look at the economy, and how to look at the stock market this year. And we got tons of questions from you, the listener over this holiday season.

We’re going to answer your questions today to make sure you’re on your path to financial independence.

Don’t fight the Fed? Or, don’t trust the Fed.

The oldest adage on Wall Street is don’t fight the Fed. But it seems like everything they say the opposite is of what’s happening or they’ve done the opposite. Or, they don’t always follow through on what they say they’re going to do. 

The Fed has been reactionary

In the face of good economic data, the Fed says we’re going to raise rates and keep rates higher for longer. Analysts and strategists are believing it is gospel. A year ago they didn’t believe anything the Fed said.

”I’m not listening to the Fed. I'm listening to the bond market.

Bob Payne

Prices have been dropping. Oil, copper, and corn prices have come down a lot. Inflation is dropping. And we somehow believe that the Fed isn’t going to capitulate and lower rates?

Look at the markets, it’s the difference between reality and expectation. That’s where prices are. And misery loves company. So when you have 60% of the economists predicting a recession, it’s comfortable to be there. You don’t want to be the outlier.

It’s not just the Fed. The strategists and analysts talking about recession. I think we’re being a little harsh to the Fed. They’re not the only ones. They’re in good company. Let’s talk about the strategists, the analysts, and the economists that have said that we’re going into recession. But what does the data say? 

Positive signs for the economy. We’ve got a strong labor market. We have inflation coming down, Wages are staying strong. But it is remarkable with all the economic data being relatively strong, professionals and experts are coming to the same conclusion…Recession.

The experts were wrong about Europe. Look at the best-performing part of the portfolio year to date. And the last six months happen to be in Europe and emerging markets. 70% of the markets around the world outperformed the U.S.  We’ve heard the conventional wisdom, “Oh, don’t put your money in Europe, don’t put it in China. China is never going to come out of lockdown.”

The experts were wrong about China. The second-largest economy in the world, and they’re never going to come out of lockdown. They are coming out of lockdown and it’s very good for the global economy. Who would have thought that? And if you read the news last year, nobody was talking about that.