Don’t Fight The Fed – Fed Tightening Puts Investors In Harm’s Way

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“Don’t Fight the Fed” was a bullish rallying cry that began in 2010. Although there were stumbling blocks along the way, the Federal Reserve’s decade-long easing currency policy fared well for long-term bonds and stocks.

So where is that chanting today?

It is being ignored because it would mean cheering for a bearish investment strategy. Importantly, don’t interpret that silence as meaning that raising the Fed’s interest rate and selling bonds would have a beneficial effect. Whenever the Fed is tighter, it tends to collapse the bond and stock markets as well as the economy. Naturally, investor enthusiasm and consumer optimism follow suit. The problem is that those miserable conditions are needed to reduce rising inflation.

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Last Wednesday’s Fed-induced bond and stock market declines, followed by failed attempts to reverse them on Thursday and Friday, show that the panic in Wall Street is alive. So, now is the time to build cash reserves. The alternative, waiting to see which Wall Street concern moves the markets, is too risky.

But aren’t there stocks that can benefit during this period?

Yes, but your chances of finding one and keeping up with it are slim. Market declines from periods of widespread popularity take time to fully adjust to stock prices and investors’ outlook.

The best time to look for opportunities is at the bottom, when there is widespread negativity. Of course, that’s when the low buying wisdom is hardest to follow.

So, when do we know the bottom is here?

As always, the bottom will come when the idea of ​​buying a stock creates emotional turmoil. (Everyone gets these feelings, even seasoned professional investment managers.)

The times ahead are especially prone to spoilage. (See “Here Comes an Inflationary Storm Like Never Before” for an explanation.) If so, the outlook would have been severely shaken by the end of the stock market’s decline.

To exit such a period while being fully invested would require disconnecting from the world. Most developed, and many less developed, are in a similar situation to the US, so expect a lot of negative news ahead.

Bottom Line: Cash reserves provide a good mental state and an important investment resource in risky times.

Dealing with risk is a challenge because it is never certain. this is Possibility that something bad will happen. Choosing to stay fully invested during such a period can lead to serious financial losses and lead to feelings of guilt and failure.

Keeping cash reserves can prevent dire financial losses and debilitating mental conditions. Like insurance, cash provides investors with the security and peace of mind they need to look ahead and make sound decisions.

In addition, cash reserves are a powerful investment tool. They allow opportunities to be taken advantage of during late bouts of emotional selling.

Disclosure: The author has 100% cash reserves

For more discussion of inflation and the period to come, see the article listed in John Toby’s profile:

more from BusinesshalaJohn S Tobe

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