Investment Climate April 2015


To Raise or Not to Raise? It Really Shouldn't be a Question

Can the world be any more fixated on the next move from the Federal Reserve?  Can markets really “hang in the balance” based on inclusion of the word “patience” or the phrase “extended period of time” as the ultimate determinant of its value?  Frankly, we think not.  However, with the constant attention given to the actions of Central Banks around the world, one would think that economic progress cannot happen if not for the “spigot” of money creation, or lack thereof, emanating from these institutions.  Those words and phrases are perceived as “clues” as to whether or not the Federal Reserve is going to raise interest rates, finally ending the now-ludicrous “zero interest rate policy” that had been adopted as part of the cure for the 2008-9 financial crisis.  They appear, or disappear, in the infamous “minutes” that the Federal Reserve publishes in the interest of “transparency”.  We are all for transparency, especially from quasi-government institutions like the Federal Reserve.  However, it seems to us that so much attention being focused on such machinations puts the emphasis in the wrong place.  It gives far too much credence to the Fed as the determinant of economic outcomes.  To ask whether or not the Fed should raise interest rates at this point in the current economic cycle (and we think they should have some time ago) misses the point of how the economy truly functions and what drives growth.

For those who have been long time readers of our Investment Climate it should come as no surprise that we are bothered by the attention that is given to the Fed’s every move.  It strikes us that perhaps the typical market observer as well as the financial professional has grown so accustomed to this constant scrutiny precisely because the investment world has lost sight of what “investment” truly is.  They have grown so comfortable with “trading” as the primary means of making a return that the idea of capital allocation according to business merit has become blas√©.  Much more emphasis is given to the market as opposed to business fundamentals in the investment decision-making process that we would argue a generation of financial professionals doesn’t even view evaluation of businesses as a key skill in determining the merits of an investment.  In such a world, it is no wonder that market participants are so tuned-in to the Fed’s every move.  What else are they to do? 


So whether or not to raise interest rates shouldn’t be the question.  The Fed should have gotten on with it by now.  For the record, we think they will raise rates, finally, and will be way behind the curve in doing so.  But this isn’t about criticizing the Fed, or Central Banks in other countries.  They are what they are.  What we believe investors will be best served to do is refocus attention on the business of business.  In a world where few seem to really be doing that, we think there are significant opportunities for those who take that approach.  There always have been such opportunities, and we intend to continue finding them.  So especially in this period of change, stay laser-focused on the innovation, the creative opportunism, the entrepreneurial-minded business people that truly drive economic progress, and ultimately growth!