I’m writing this from Paris in one of the greatest hotels in the world — Le Meurice. I’ve eaten early to ensure I was home by 8pm (Paris time) to line up with East Coast time for the US. I ate and drank much too fast so I could see the reaction to the Fed’s first interest rate rise (25 basis points) in nearly a decade.
And the first reaction — a 150-point spike in the Dow Jones index — was the right one. It doesn’t matter what happens after, as the hedge fund smarties and short-sellers try their speculative stunts, the real story is that the US central bank believes in the US economic recovery.
This is great news for not only the US but also for the world. It’s step one in the rebuilding of a credible world economy. Sure, it has a few years to go, with Europe and Japan hopefully getting their acts together via their quantitative easing programs. However, today is an “eat my shorts” moment for the much-maligned central bankers, who thought QE, and what economists called Keynesian economics, was the way to beat the Great Recession.
That’s what the Yanks have called what we label the Global Financial Crisis because we didn’t have a recession.
This is a time to cheer, not jeer, because it means that QE has worked and the US is now on the road to being a normal economy again, rather than one that was effectively on life support.
It’s significant that on the day the Fed effectively said “yes the US is ready for proper interest rates” along comes a 10.5% jump in housing starts in November and building permits rose a big 11%.
At the same time, industrial production fell. That’s to be expected, with the greenback rising because this is a much better economy than it was four years ago, when the Yanks used their currency to improve their economy. That’s when we copped it, as our dollar went over parity and hit $US1.10 on 24 July 2011!
I’m writing this before Janet Yellen’s press conference. What she says could help or hurt stock markets today but the bottom line has to be that some of the smartest economic minds in the US think that the US economy is ready to go off life support. That very thing should set us up for a better year for stocks in 2016.
I don’t care how the market ends today — short-term ‘determinators’ of markets don’t interest me. It’s the fundamentals that I care about when working out whether I want to be in stocks and today is a good day for long-term investors!
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