Market Mechanics

This is a snippet from our recent quarterly commentary. We ask the question about the path toward investment success and wonder if there is another option that plays an important role in moving markets. In addition, we focus in on the Fed and their not-so unbiased nature when it comes to markets. A few interesting points that you may find very interesting.

Market Mechanics

There is an age-old question that has been regularly asked regarding the best way to approach investing in markets: Is it an art or a science?

Art (art) / ärt/

The expression or application of human creative skill and imagination, typically in a visual form such as painting or sculpture, producing works to be appreciated primarily for their beauty or emotional power.

Science (sci·ence)  /?s??ns/

The intellectual and practical activity encompassing the systematic study of the structure and behavior of the physical and natural world through observation and experiment.

By taking the common definitions and the supposition that investing is wholly an art, there is a significant amount of credit that needs to be given to the individual’s decision-making process in their quest for profits. In an inefficient market that makes sense. In that situation, investors would be able to use their investment talent and prowess to find opportunities that have above average potential. They may combine a host of skills, some learned and some innate, to best markets and regularly profit.

If such an environment existed, the best investors would easily be separated from the worst.

On the other hand, if investing was all science, then the average investor wouldn’t have any edge at all. Historical reference, studying cyclical market behavior and technical analysis would be the main tools needed to succeed. As long as markets were efficient and behave as they have always done before is all that would be required for the “investment as a science” camp to come out on top. (Download to read the rest of the story…)

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Cycles and The Fed

As we know, the Federal Reserve is charged with the responsibility of monitoring the health of the economy and the various cycles that come and go.  In order to accomplish this task, they have several tools that they can use during periods of expansion and contraction. The most frequently deployed, and the most well-known is the Fed Funds rate. Essentially, this opens and closes the floodgates for lending/borrowing as they raise and lower rates. Most agree that this is a blunt tool which takes time to make its way through the economy.

For what it is worth, the Fed is partially to blame for….

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