About the Fed, and about having lots of patience (24 June 2009)

All eyes are on the US Federal Reserve these two days. Expectations currently are that the US Federal Reserve will keep rates at near zero for at least the rest of this year. The main worry of investors was that the Federal Reserve, worried about rising US bond yields and that rising commodity prices might lead to high inflation, would slam on the brakes on any recovery by starting to raise rates too soon.

It is unlikely the Federal Reserve do raise interest rates though. As long as the economy has not yet shown enough signs of picking itself up from its feet, they will not raise interest rates. They may come out with some tough language about monitoring inflation and such, but in the end, talk is cheap and it is actions that speak far more than words. And their likely action (not raising rates) is going to show that the revival of the economy is a far bigger concern right now than rising commodity prices or inflation.

Markets seem to be in a situation of trading sideways these days, up and down each day. There is no clear direction in the short term. This doesn’t mean that the global economy won’t recover. It will. It’s a matter of time. Its just that markets are notoriously short sighted and will only look ahead 3 months, at most 6 months. A bottoming of the economy has been priced in. Now they want recovery numbers to flow in immediately.

However, such numbers will take time, and never arrive fast enough for markets. So, in the meantime, we will see the market gyrate up and down as the bulls and bears tussle and investors are unsure what to expect next.

I prefer to look further out than just the next few months to the broader recovery that will take hold eventually. Hence, I am staying the course with my own investments. Unit trust investing has some advantages to stocks, and one of these is that we tend to be a lot more patient. Also, we take short term changes in markets in our strides better. The short term stock traders are looking around for signals, any kind of signals in an essentially directionless market.

For me, that is like missing the forest for the tree. There is no one single signal, not even by the US Federal Reserve that dictates how markets will move conclusively. So, looking for any one signal and grasping on to it is not a good idea at the moment unless you are a day trader. Patience is the key word for unit trusts investors like me at the moment.