Here's a link to a recent article by John Tamny of Forbes entitled "All eyes are on the Federal Reserve, and that's the problem." We believe it should be required reading for anyone who either chooses to invest in market securities or is in any way impacted by the monetary policy of the United States central bank (which is to say, just about everyone).
In the article, Mr. Tamny puts forward the thesis that "the Fed’s machinations have served as a massive barrier to a true bull market." We agree with this assessment.
In fact, we have been saying pretty much the same thing for years. We recommend a quick trip down memory lane to the following posts on this subject:
- "The Fed's oversteering and the wreckage of the past decade," July 23, 2009.
- "Caution: Fed oversteering ahead," August 13, 2009.
- "Why do we want the Fed to steer the economy?" September 01, 2010.
- "Likelihood of Fed oversteering increases," January 25, 2011.
- "The end of QE2," March 29, 2011.
Mr. Tamny's article is also important for contrasting the excessive Fed focus with what investors should be focusing on: business, and particularly successful and innovative businesses.
Rather than judge companies on their individual merits, investors must waste valuable time playing junior Kremlinologist in order to divine the future actions of the second rate economists who populate the Federal Reserve. Investors aren’t doing this because our central bankers have any useful knowledge to impart, but because what should be a low-entropy monetary input has become a high-entropy, bull-in-the-China-shop distortion whose actions must be priced.Far from a driver of positive economic evolution, a Fed that we all have our eyes on has become an economy-shrinking distraction that forces us to consider the macro over the all-important micro. Instead of focusing all of our attention on commercial ideas not yet hatched but that need investment, on existing companies that simply need new direction, not to mention healthy companies that would grow even larger and healthier if entrusted with more funds, investors must, in the words of George Gilder, spend inordinate amounts of time so that they can “predict the exercise of government power” over predicting which technology highflyer will become the next Apple*, or which corporation is best suited to cure cancer.
This contrast is the most important message in the article. We believe it goes right to the core of investing, and that investors should keep this message at the forefront of their thinking at all times.
* At the time of publication, the principals of Taylor Frigon Capital Management owned securities issued by Apple (AAPL).