“Don’t Fight the Fed” is one of the basic chestnuts of market wisdom that is impressed upon any newbie coming into the business.
Why don’t you fight the Federal Reserve? There are many good reasons but at the end of the day, the FED’s day job is to create and destroy US dollars at will in the pursuit of the dual mandate of maintaining price stability and promoting economic growth. Unless one moonlights as a counterfeiter, there is nothing big enough in one’s “bag of tricks” that one could conceivably bring to that fight.
When our simple 6 ETF Portfolio told us to swap out of QQQ (NASDAQ 100) for TLT (20 plus year Treasuries) a week and a half ago, my first reaction was to think that I was smarter than the system once again. Surely there is almost no chance that Treasuries could still go up further…
Ah, but then I scanned the news to find out that Operation Twist would most likely get a new lease on life (so I made the switch a few days late). The Wall Street Journal editorial sums up the main issue perfectly. Investors don’t want to fight the FED. So to play along, they need to divert investment funds towards long term Treasuries.
That’s what the Fund King System picked up the other week…that the investment tides were being pulled once again towards the long end of the US Treasury market. What have I learned?
