I’m a Central Bank policy junkie. I know, it sounds kind of sad. But in this era of activist policy making from one end of the world to the other, you have to watch what’s going on in policy-making capitals like Washington, Frankfurt, London, or Tokyo if you want to be a better investor.
That brings me to a recent Federal Reserve get-together in New York. Current Federal Reserve Chairman Janet Yellen joined former Fed Chairmen Ben Bernanke, Alan Greenspan and Paul Volcker for a panel discussion at the International House. The meeting covered several topics, including the outlook for unemployment, growth, and interest rates.
But I found the discussion on market bubbles to be even more fascinating. Janet Yellen flat out denied any signs of significant financial excesses, saying this is “not a bubble economy.” Bernanke also downplayed any talk of economic and credit cycles, and shot down the idea that the economy was facing a potential recession this year.
With all due respect, my response would be: “Seriously??” It’s not hard to spot bubbles at all. The greatest, easy money cycle the world has ever seen, inflated bubbles throughout the economy. Just a few examples from my recent columns include: When Central Banks Lose Control and Safe Yields in a Negative Rate World.
Furthermore, the Fed’s forecasting track record on bubbles is simply atrocious. They didn’t see the Dot-Com bust coming. They didn’t see the Housing Bust coming. And either they aren’t seeing the “Everything Bust” coming, or they’re just too afraid to admit it – because there’s little they can do to stop it.
My advice? Make sure you continue to turn to the independent, unbiased advice you get from companies like ours if you want to know where the economy and markets are going. I see a lot of risk in the sectors I just outlined, especially at this point in the credit cycle.
So I would stay away from commercial REITs, auto-sensitive stocks, vulnerable technology firms, and other similar names. Stick with sectors and stocks that can offer safe, reliable yields in a period of economic and bubble risk. Some of my favorite companies are in sectors like utilities, consumer staples, and similar lower-volatility sectors.
Until next time,
Mike Larson is a Senior Analyst for Weiss Research, and is also the creator of the course “How to Profit From Rising Interest Rates”. A graduate of Boston University, Mike Larson formerly worked at Bankrate.com and Bloomberg News, and is regularly featured on CNBC, CNN, Fox Business News and Bloomberg Television as well as many national radio programs. Due to the astonishing accuracy of his forecasts and warnings, Mike Larson is often quoted by the Washington Post, Chicago Tribune, Associated Press, Reuters, CNNMoney and many others.