We live in a fluid time filled with fast-paced changes occurring around us. Some matter very little and get vast amounts of print and television coverage. Other things matter significantly and are brushed over with little thought or discussion. My engineer friends call this signal and noise in trying to determine what matters and what doesn’t. There are things we should consider and some we can simply ignore.
This week the government decided to change the way the GDP of the United States is accounted for and did this going all the way back to 1929. The decision was made to move us more in line with the international version of accounting. They went that far back in time so that we could study the impacts of economic development consistently and that the numbers would have some relevance. This will get more discussion time that it deserves because it sounds so interesting.
There is also the report this week that provides revisions for the last five years of economic data. Everyone who cheers for American growth and economic soundness clearly hopes for strong data on job growth and commerce. The equity markets don’t know what to pray for!
How could the alleged “smart minds of Wall Street” be so confused they don’t even know what to hope for? Simple. We have a new chef coming into the kitchen (most likely) and the current chef keeps stirring the pot! The new “chef” will be the next Federal Reserve chairman and the current one is Ben Bernanke.
The last few years the market has been supported by incredible amounts of money being piped into the system. That you already know has been referred to as QE with a number after it referring to which new dish the Fed decided to create at the time. The Federal Reserve has made it anything but clear on how they intend to change the future economic recipe based on either great numbers or horrible numbers.
If the markets are confused, what are we to consider and what should we be doing? The answer is to make certain you review what you own and why you own it. Buying the S&P 500 index fund because it is the cheapest way to go or because you think it is diversified and thus safe from market volatility is not the answer that I would suggest you accept.
The economy is more solid than most people believe based on the numbers we are seeing. That is the great news. You may or may not agree with the Federal Reserve’s tinkering, but honestly that is irrelevant to the decisions you need to consider going forward. The Fed will have to slow down their money machine at some point and the market will react in the short-term. You need to decide if the Fed slowing down or stopping alters the positive trajectory of the overall economy or at least the areas that you have invested in. Consider, decide and take action.
Joseph “Big Joe” Clark, whose column is published Sundays, is a certified financial planner. He can be reached at firstname.lastname@example.org or 640-1524.