Article Category: Psychology

Fed Holds Course

The Fed chose to err on the side of caution, and when all is said and done, it will be viewed as the right decision. Don't mind the market reaction for now, soon investors will come around to see the Fed's prudence in a positive light, and recognize that the central bank is actually paying attention.

Last week I laid out the arguments in favor of a rate hike and those against. While both sides can make a compelling case, there simply was no dire need to raise rates, and doing so had a negative risk-return tradeoff.

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Posted in: Economy Federal Reserve Inflation Interest Rates Psychology

The Fed’s Dilemma

All eyes will be on the Fed next week, as they deliberate whether to raise rates for the first time innearly a decade. The decision will be arduous, to say the least, as there has been a growing divergence in fundamental indicators, and global markets have already tightened conditions on the Fed's behalf.

If you forced me to place a wager one way or the other, I would lean towards no rate increase. But I'm no oracle so let's walk through some of the data the Fed will be looking at and you can make up your own mind.

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Posted in: Economy Federal Reserve Inflation Interest Rates Psychology Taxes

In the Correction Camp

This correction has been puzzling, to say the least, and I find myself endlessly deliberating whether this is an emotional correction, or as some other analysts have put it: GFC 2.0.

At the moment, based on the information available to me, I find myself heavily favoring the correction camp.

Among the many factors contributing to the recent decline, China has been front and center. Two developments stand out as catalysts for the global selloff: major declines in the Chinese stock market, and the recent currency devaluation. Neither of these issues appears to have the seriousness to match the response they elicited across the financial markets.

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Posted in: Corrections Federal Reserve Momentum Psychology Volatility

Seeing Red

In one fell swoop the stock market has taken out a series of technical levels and moved very close to correction territory.

Corrections are arbitrarily defined as a drop of 10% from previous highs. For the Industrials this would imply a drop below 16480, which represents a 10% decline from the high of 18312 set back in May. For the S&P, a 10% correction would put the index at 1918.

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Posted in: Corrections Dow Theory Economy Momentum Psychology

Fed Targeting the Dollar All Along?

The US is no longer engaged in quantitative easing, but remnants of the policy still remain. The most visible sign left behind is the large, four and a half trillion dollar balance sheet of the Federal Reserve.

If you've been following my commentary, you know that I don't believe quantitative easing was all that effective, at least not by the means generally set forth.

The intended goal of QE was to add liquidity to the banking sector and suppress long-term interest rates. Both effects would theoretically entice consumers and business to borrow, spend, produce and invest, which in turn would rev up the economy.

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Posted in: Dollar Economy Federal Reserve Inflation Interest Rates Psychology

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