TGIF! March 20, 2015

March Madness officially began this week, but it’s been wild all month for investors.  Of the 15 trading days in March thus far, 14 of them saw a triple-digit move on the DOW.  The only one that didn’t still moved 80 points.  It’s been very volatile.  The DOW is back above 18,000, and in the green for the year.  

Asset prices have been moving swiftly, and unusually so.  It has been particularly noticeable in currencies and commodities.  The Dollar has been strong.  The Euro has been weak.  The Euro currency has fallen to levels not seen in over a decade.  It’s fallen from $1.24 in December to a $1.04 low this week.  The Euro peaked near $1.50 against the Dollar in 2011.  Those planning European vacations this summer are in luck: the trip is on sale!

Largely responsible for these moves are global central banks.  Europe, Japan and China have been aggressively lowering rates in attempts to stimulate their respective struggling economies.  Conversely, our Fed is preparing to increase interest rates.  This week, Janet Yellen and team formally dropped its “patient” philosophy in its written statement, but still appears to want to be patient with its monetary policy.   The rate hike got pushed out as the Fed downgraded its views on both the US economy and inflation.   Cold weather and cheaper gas prices contributed to their assessment.  The statement put a June increase on the table, but the “dovish” tone (Fed-speak  for gentle or easy-going) suggests the first hike might wait until the Fall.

In the wake of the Fed’s cautious words, the Dollar fell quite a bit. This was a major reversal from the current trend of a strong Dollar, which has been in place for nearly a year.  Dollar strength is putting pressure on many things economic, especially exports and energy.  The Dollar has gone a long way to do the Fed’s work this year.  They’re both taking a breather now.  Inflation is very tame.  We see this volatile price action continuing in 2015.  And we do see a Fed rate hike coming.  The Fed still matters.

It’s been nearly a decade since the Fed raised interest rates.  In 2006, Ben Bernanke made his only rate hike after just 5 months in office.  That put the Fed Funds rate at a whopping 5.25%.  Remember that?  It’s been at zero since the crisis.  Alan Greenspan’s Fed increased rates 16 consecutive times prior.  In 2006, Crash won best picture, Florida beat UCLA for the NCAA basketball title, and I married my beautiful bride.  Much has happened since then.

Welcome Spring!  We’ll be back, dark and early on Monday.

By: Mike Frazier

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