WATCH: The 4 Stage Stock Market Cycle


Why you should never try to predict the direction of the economy to build your trading shopping list.

By Chris Rowe October 27, 2006 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

You may have noticed that we have been growing the Tycoon Publishing family of experts at a slow and careful pace. We have to be extremely careful whom we allow into this exclusive club, as they will communicate their thoughts and ideas to our readers.

We only allow investors who have proven to us over time that they have our readers’ best intentions at heart, since our readers are what makes Tycoon so powerful.

That's right. We empower you, and you in turn empower us.

We always give our editors (who are always money managers or ex-money managers with impeccable track records) the flexibility to write what they want, as long as it’s what they truly believe deep down in their hearts.

Although each editor has the freedom to talk about different beliefs, we all happen to share one common belief:

Trying to predict the direction of the economy is impossible to do on a consistent basis.

There are too many variables to be able to predict the economy. We have made far too much money for our readers and our past clients by following our own rules (depending on the investment strategy) to think about which way the economy will move.

Betting your money on what the Federal Reserve’s next couple of moves will be is one great way to lose money.

In fact, since the end of 2005, markets have rallied on three separate occasions when investors thought that the Fed's rate hiking was close to an end – and each time the markets were proven wrong.

Take this past week for example.

Federal Reserve Chairman Ben S. Bernanke learned very quickly that his word is his bond (excuse my lame sense of humor).

The next Fed meeting is on May 10th.

It's obviously a delicate time for markets and the central bank – after 15 straight rate increases, investors are hungry for any sign that the Fed is about to conclude its tightening campaign.

Bernanke told the Congress's Joint Economic Committee on April 27 that the Fed may suspend the increases, even if economic risks are tilted toward faster inflation.

Hopefully you weren't one of the investors who took that to mean that it's time to mortgage the house and make a large bet in the currency markets, bond markets, or on any interest rate-sensitive stocks.

Maria Bartiromo of CNBC reported late Monday that Bernanke said that investors were wrong in thinking he's done lifting interest rates, and that investors misinterpreted his remarks.

Stocks gave back large gains, bond prices fell, and the dollar jumped, in response to the report on Bernanke's more recent remarks, which were part of a conversation at the White House Correspondents Association dinner in Washington on April 29.

You could say that some of the people who placed big bets on the direction of interest rates have had a bad week so far.

The June futures contract still implies a fed funds rate of 5.01%, which suggests a 100% chance of a quarter percentage point rate hike after the Fed's policy-setting meeting on May 10.

But the July contract is now pricing in a 71% chance that Fed funds will be at 5.25% after the next 2 Fed meetings, vs. a 66% chance on Monday.

The best bets that you can make are going to be based on the facts.

There are plenty of facts out there to tell us what our investments will do. But that's only half of the battle. You have to have someone who understands human nature and market psychology to manage your money for you as well.

If you prefer to trade your own accounts, you might prefer to have an experienced money manager/editor to guide you.

That is the type of person that we look for when we bring you new services under the Tycoon umbrella.

I'll be building my "shopping list" over the next week, leading up to the FOMC meeting (next Wednesday) …

… and I'll know exactly what to recommend to The Trend Rider members AFTER I see how the market reacts to the Fed's comments.

Because only then will I have the current facts in front of me, and that's when I make the most money for people.

You might want to spend the next week building a "shopping list" of your own …

… Will you be ready?

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