They Say: 'Don’t Fight the Fed,' Are They Right?

They Say: ‘Don’t Fight the Fed,’ Are They Right?

Posted On June 24, 2020 3:01 pm
By: Steve Smith

Dear Readers,

When I was a kid I started working summers as a runner on the commodities and stock exchange trading floor with my father.

It was a great gig, and I had a lot of fun…

But more importantly, I learned a LOT about investing and trading.

I would venture to say that by the time I went to college I had more time “on the floor” and around experienced traders than most of the stockbrokers in the country at the time.

Sometimes just being around people who know what they are doing can help make you better.

Hours matter. Reps matter.

Time “in the trenches” matters.

One of the things I heard the traders say over and over was, “You can’t fight the Fed.”

What they meant was that monetary policy is such a powerful tool, that the Fed can force the market to move any way it wants it to move.

The Fed wants a bull market, you get a bull market.

The Fed wants to let a bear market go, the market will consolidate.

No matter what “should” happen, the Fed can create the market it wants.

And so, “You can’t fight the Fed.”

We see this playing out in front of our eyes every day in the markets. Liquidity is off the charts….

Well beyond anything anyone has ever seen in the history of the Fed.

The specifics about how the printed money flushes through the system are not important, the important thing to remember is that it shows up in asset prices. That is why stocks are shooting up while the economy still seems to be in a terrible situation.

Of course, all this liquidity has led to record volatility, which is exactly the kind of market in which we can use Main Street Derivatives to grab profits. We can keep our investments in the trades small, and use the MSDs to keep our wins large.

To Your Success,

Steve

P.S. If you aren’t familiar with Main Street Derivatives, you can find out all about them here.

Tagged with: Federal Reserve

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.