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“If people never did silly things nothing intelligent would ever get done.” – Ludwig Wittgenstein
I knew when writing last week’s “Dear Fed, Please STFU” piece that it might touch a few nerves. My “open letter” to the Fed was meant to be critical of the central bank not for policy, but for over communication. I tried my best to make a logical argument that constant debate over a future which is unknown is not only a waste of time, but creates the very noise in markets that causes distrust in our markets.
On LinkedIn, the piece got the most likes of any article I’ve published there. Comments were uniformly positive, as it seems that most readers were in agreement with the very argument I was making. Yet, some responses were, for lack of a better term, just silly. One response said the piece was “incredibly inappropriate.” Another said they found the content insulting. I’ve always been of the opinion that you know you’re right in an argument when the counter argument isn’t analysis, but rather outrage. Often times, this outrage is driven by the sudden realization that what is being read does not cater towards confirmation bias.
So allow me to be very clear here. The greatest challenge in a world of so much information is maintaining perspective. It is hard to do that when the Fed caters to short-termism by saying one thing when markets are down and another when they turn up. It is hard to do that when the 24/7 news cycle requires something to be said, and noise is the most readily available thing to debate on. One cannot be a successful long-term investor by reacting off of every single little data point one hears about in the media, or every single dot on a dot plot. The Fed, and the media, are encouraging the very behavior which studies show create significant wealth deterioration and opportunity cost to the vast majority of market participants.
Perspective is becoming an incredibly rare commodity nowadays because of the considerable effort it takes for the mind to filter through so much information. Perspective is something we have to fight to maintain, but the Fed makes that incredibly hard through its continuous communications. Human beings naturally gravitate towards confidence, and studies show that those who exhibit overconfidence often get more traction. The Fed’s overconfidence about its ability to control the amplitude of boom and bust cycles is not only unfounded, but creates the extreme tail risks which they are supposed to cut off. Catering to the reactionary part of our biology only causes harm in the long run.
Stop focusing so much on the Fed. You give them too much credit otherwise and reinforce their own sense of perceived power. Focus more on signals which have historically proven merit in terms of identifying risk. Inflation expectations are ticking up from a low level, emerging market outperformance looks extraordinarily early, Utilities are weakening, and stocks are above their moving average. The only rates that matter are long duration ones which are controlled by the market, and odds favor they will rise in the near-term.
Perhaps it’s time to be outraged that most would rather act on words, than real data which historically works. It just seems silly otherwise.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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