"If we will be quiet and ready enough, we shall find compensation in every disappointment." Henry David Thoreau (1817-1862)
As the investor herd attempts to guess what the Fed's next interest rate move will be, the prudent investor will look beyond the compelling distraction. For the passive investor, enjoy the view from the back seat. For the active investor, "be quiet" until the Fed makes its move. Making a prediction in advance would be foolish...
After filtering through the media "noise" this week, here are some items of interest for your observation. Perspective will follow...
- As the market reprices risk, just how far do prices of stocks, bonds, and real estate need to fall to revert to the mean? The danger of a steep decline certainly exists.
- Market timers are bearish despite a positive, albeit volatile, August. Contrarians view this as bullish.
- September is historically a volatile month. Don't let the swings throw you.
- History does not repeat itself but it does rhyme. Perhaps an historic look at past Bull and Bear markets will add perspective.
- Meanwhile, homes entering into foreclosure are at record levels...
- And the number of previously-owned home sales fell by the most since records began...
- But the Fed said the financial crisis is contained to housing. Could Ben be posturing for no rate cut?
- The risk of recession is up -- but still not likely.
- Amidst all of this uncertainty do you think you know what the Fed will do? Since January 2006, futures forecasts guessed wrong several times.
- If we do get a rate cut, it may not be the best time to buy...
- But if Ben finds his Zen and we do not get a rate cut, prudent investors may find opportunity...
Ultimately, rate cuts indicate a weak economy, which is a poor environment for corporate profits. Rising or steady interest rates indicate a fundamentally healthy economy and a good environment for corporate profits. Ironically, the herd will perceive the latter as a significant disappointment and a larger sell-off would be a typical result. Can you see how the herd tends to act and react in much the opposite way that they should?
TFP readers know that "only in a quiet mind is adequate perception of the world" and that staying on "the main road" is necessary for prudent investing; 
however, the investor herd will price in their "bets," then, before appropriately processing what it means, they react with knee-jerk emotion to the event.
Ultimately, betting on a rate cut is just a bet. The prudent investor will step aside and allow the investor herd to lay down their emotional cards after seeing the Fed's hand. As a bystander, you'll avoid participating in the "bets" but may still find compensation in the potential disappointment to come...
Enjoy your weekend...
TFPAuthor, Kent Thune, is the President and founder of Atlantic Capital Investments, LLC (ACI), a 'fee-only' Registered Investment Advisory firm located in Mount Pleasant, SC.
Comments