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We’ve all read the distilled disclaimer above a thousand times before. And yet, with full frontal cognizance of its universal truth, we ignore the warning for the sake of the still waters of current market conditions and our behavioral predisposition to follow. Follow leaders, trends – follow performance. It’s a hardwired survival trait built into all of us, and generally speaking – exposes our achilles heel at times, when it comes to bends in the road and future expectations.
– The nightmare scenario she wants to avoid is hiking rates only to see financial markets and the economy take such a hit that she has to backtrack. Until the Fed has gotten rates up from the current level near zero to more normal levels, it would have little room to respond if the economy threatened to head into another recession. – Reuters 8/12/14
All things considered, we tend to agree with Pimco’s Paul McCulley that believes “behind the curve” is precisely where the Fed wants to be – for now. Trading more time for inflation risk – that we would argue poses a less long-term threat than many of the hawks continue to posture as severe. With that said and as pragmatic participants, this dynamic should bolster a rising interest in the precious metals sector and commodities – that should benefit from inflationary tendencies and a broad distrust of the Fed as they navigate another difficult policy chapter.
1994, 1999 – 2004. What do they all have in common besides rate tightening cycles ? A broad respect and lionization by participants of Fed policy and their Maestro that conducted the show. Does that sound like today? While we do find great utility in thoughtful comparative reasoning when it comes to market cycles – the fact remains that past performance never guarantees future results. Especially, when the comparisons are so far off the mark.