I’m hoping to heck that the recent bone jarring losses in the stock market aren’t hurting you! If you have followed my advice, you’re sitting pretty. While all about you are losing their heads amid the noise and strife, you took your money home and let it hug you.
If you haven’t taken my advice, but you’ve been in the market for the better part of the past 9 years, there’s still time to harvest the massive gains that you’ve accrued. Then you can rest easy through the difficult times that lie ahead.
In the light of the Fed’s actions yesterday, and Chairman Powell’s words at his press conference, the overwhelming weight of the evidence continues to show that capital preservation is the name of the game.
Powell reiterated that the Fed will ignore stock market declines and will not reverse policy until the economy has an accident. “Some volatility, doesn’t probably leave a mark on the economy.”
Meanwhile, the market is leaving marks on professional investors who ignored Rule Number One – Don’t fight the Fed – and stayed fully invested in stocks.
Skidmarks in their underwear. Chairman Powell doesn’t care.
Steve Goldstein at Marketwatch made the most important point.
One takeaway from the Federal Reserve’s decision and press conference on Wednesday is that the central bank will continue its so-called quantitative tightening policy.
The Fed said it would keep reducing its balance sheet by up to $50 billion per month. And Chairman Powell said that policy would continue.
Then, quoting Powell:
“We thought carefully about how to normalize policy and came to the view that we would effectively have the balance sheet run off on automatic pilot and use monetary policy, rate policy to adjust to incoming data. I think that has been a good decision,” he said.
“I think that the runoff of the balance sheet has been smooth and has served its purpose and I don’t see us changing that. And I do think that we will continue to use monetary policy, which is to say rate policy, as the active tool of monetary policy.”
So, Powell reiterated the policy that Janet Yellen, to her credit, set in stone tablets in religion of central banking. Come hell or high water, the Fed intends to continue shrinking its holdings of Treasuries and MBS. It will do so not only until the market has an accident, but until the economy has one as well.
It means that the market will get much worse before it gets better. In Part 2 of this report, I’ll give you specifics about where the market is probably headed and for how long.
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