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
blasé. 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!
