This Locker Room Banter is Causing Quite the Kerfuffle
Updated: Jul 16, 2019
In my 20 years working in and analyzing financial markets I can’t remember markets as reactionary to itsy bits of statistics as they are today. The markets are literally hinging on economic reports; the employment rate, unemployment rate, underemployment rate and, let's not forget Ye Ole Bureau of Labor Statistics, JOLTS (Job Openings and Labor Turnover Survey) report, to name a few.
We have Locker Room Banter, from the always straight forward politicians without agendas, on why to raise or not raise rates that send the markets up or down 1-2 % before reversing. We have normally correlated asset classes, the dollar, gold, and oil acting like they’ve never met.
Indeed, even without elections and locker room banter of other sorts, the markets are experiencing quite the kerfuffle.
The purpose of Monetary Policy is to stimulate or stifle the United States Economy.
Simply stated, increasing interest rates stifles the economy by making it more expensive to borrow money, thus removing it from the system, curbing inflation; This approach is known as tightening or as a hawkish policy. In turn, the dollar strengthens, making it a more attractive investment.
On the other hand, decreasing interest rates stimulates the economy, making it less expensive to borrow funds, injecting money into the system. This approach is known as loosening or a dovish policy. In theory, more money induces spending, job creation, and growth. Short term, the dollar gets weaker, and our exports increase.
To raise or not to raise? That is the question.
Here are some facts along with potential implications:
The dollar is apparently rising – it's gaining strength. That’s due, in part, to Banter alluding to potentially raising rates to curb the sizzling US economy. It’s all the talk right now.
What you are not hearing much talk about are the other factors in play here:
Year to Date we’ve witnessed approximate declines in:
· The British Pound 17%
· They Japanese Yen 14%
· The Chinese Yuan 7%.
Hard Brexit, Negative Interest Rates, Government Devaluation to boost exports. It’s just locker room banter. But banter or not, these are major factors fueling strength in the dollar.
Even if the US economy was sizzling right now, which it’s not, perhaps they raise rates to exploit weakness overseas to put more pressure on other currencies and increase our buying power.
Cheaper good leads to higher profits; though, longer term, our exports would suffer because it would be more expensive for foreigners to purchase US Goods.
Today, exports account for approximately 13% of GDP and the latter would increase the trade deficit even more. So, a rate hike might cause more harm than good if the world recession finally spreads this way.
The reality is that no one can predict exactly how the market is going to react to any scenario, so there’s no reason to get all worked up about it. The bottom-line is that, while some of this locker room banter is important, much of it is just noise.
To be a successful investor you need to be able to block out the noise and remove emotions by using technical analysis. A stock chart is a fairly accurate picture of human emotion in relation to the underlying issue being charted. The price of which is directly determined by where the market thinks it should be at that time. Sometimes the porridge is too hot; sometimes it’s too cold; and sometimes it’s just right.
By using sets of rules and indicators developed by some of the greatest technicians in the world, prudent money management techniques are interwoven to develop systems and strategies intended to deliver a return and manage risk.
Regardless of what happens, when it happens, or if it even happens at all, by having a downside exit strategy, you can help manage risk, block out the noise, and take advantage of opportunities with more confidence and conviction.
We are in the longest-running bull market in history and it will stay that way until it doesn’t. So block out the noise and stay disciplined. After all, it’s just Locker Room Banter.
This commentary is provided for information purposes only and does not pertain to any security product or service and is not an offer or solicitation of an offer to buy or sell any product or service. Unless otherwise stated, all information and opinion contained in this publication were produced by Millennial Advisers, LLC (MA) and other sources believed by MA to be accurate and reliable. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice.
All MA employees, including research associates, receive compensation that is based in part upon the overall performance of the firm. MA may have other financial interests in any given security with which this analysis suggests may be benefited from its conclusions. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Past performance does not guarantee future performance.
All content on this Site is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.
Third-Party Comments on MA’s Blogs
Third-party posts do not reflect the views of MA and have not been reviewed for completeness or accuracy. Any inappropriate or offensive comments should be reported to email@example.com