Yellen says global growth is at risk and Markets lift. Wait. What?
Let’s put the big picture together before taking it apart and critiquing it.
- Commodity prices, base metals and precious metals have been falling since 2011.
- What this means: Global demand has been weakening since 2011.
- The USD is stronger than most of our trading partner’s currencies.
- What this means: It hinders trade and makes repayment of debt from foreign borrowers cumbersome.
- The US is expected raise rates which would lift the dollar.
- What this means: it would exacerbate number two listed above.
- Inflation, which is every fundamentalist’s watchword, is low in the US…very low.
- What this means: The low interest rates that our US has had since 2009 (an unprecedented amount of time) has not worked to increase demand nor create a booming economy or employment rate.
- The Wealth Effect: Is when assets such as real estate, stocks, Retirement plans, etc. rise in value thus making people feel comfortable with borrowing and spending more than they ought to due to their big ticket assets rising in value.
- What this means: It’s run its course. So much so that Yellen herself has come out saying global demand and growth are tepid at best.
- Herd mentality: Yellen became more dovish upon the dip in the market during the beginning of this year as well as the fears of growth abroad—mainly China.
- What this means: nothing good that’s for sure.
- The herd may be cheering the dovish demeanor of the Fed but don’t be pulled into the herd mentality.
Follow our signals or a methodology you’ve designed for your personality and trading style. Have your stops set in place and the exact actions you want to take written-out before you make them. Don’t let inflation be your watchword. Discipline should be your watchword. Fear and panic selling cause investors to forget their rational approach and become irrational.
The point is simple. Yellen did not describe a global economy prepped for a raging bull market…rather the opposite. Stay nimble.