Heading into Jackson Hole, many financial market participants are eagerly watching Fed Chairwoman Yellen’s every move. As if they are not already, they will be glued to their smartphones and tablets, watching out for any pop up news of Yellen’s speech. They want to know if September is a go.
This go means Fed hikes rates. To profit and loss minded investors, this will be huge news. The rate hike will determine whether the dollar will resume its appreciation, the equity and bond market will deflate, and international markets will slow down. To casual followers of capital markets and the economy, this means that the government believes in the strength of the US economy and maybe their mortgage rates will go up. However, to most people, this means nothing. Whether young or old, they will look up at their TV, stare across at their computers, or swipe away on their smartphones, thinking “I don’t care and this is boring.”
I do not blame them, but I believe everyone should be paying attention to the Fed and this is to their own benefit. The anticipated 25 basis point interest rate hike, when and if it comes, has a butterfly effect on everyone and those who predict it well has the best chance of survival and prosperity. You may think I am exaggerating, but hear me out.
Just like farmers rely on the weather, modern workers rely on the economy. A farmer can be diligent and resourceful with seeds, but if the weather and conditions are bad, the farmer’s crops will go nowhere. Similarly, a modern worker can be hard working and endowed with money or education, but if the economy trajectory and economy are bad, the workers will have very limited success. A new home buyer couple, a college graduate and a middle management dad during the 2008 financial crisis all suffered. The couple ended up overpaying for a house and are stuck paying mortgage for the next 30 years. The student who did everything right, but still fell short of finding a job after school. The dad, who helped the company throughout the year, got laid off because the corporate said so.
As a result, it is easy to see that the weather and economy have a great impact on the farmer and worker. The difference is that good farmers try their best to predict the weather and adapt to different conditions while good workers generally have little understanding of the economy and allow the economy to batter them around without any adjustment or a clue. At this point, one may have two burning questions: what can workers do and how can they predict the economy?
For the first question, it is no different from the farmer. Just like the farmer who foresaw the poor rains this season and decided to plant a less water intensive crop, one should evaluate conditions before making a big purchase or investment. Whether it is buying a house or going to school, people should make sure their plans (crop) fit the economy (weather). If their plans do not fit, then they should be open, if not eager, to change. The ever growing students at coding schools are a perfect example of this change. Perhaps interested by tech or discouraged by their current field, people adapt to learn skills that seemingly will fit the economy. There is no way for sure to know whether this will work out, but it beats the odds of the stubborn farmer who refuses to leave his barren land.
As for the second question, I say watch the Fed. The Fed is not only stacked with brilliant economists and researchers, but also it is tasked with changing the economy (weather). To understand what I mean here, imagine how farmers observe and predict the weather. The Fed is more than just a wise and experienced farmer who watches the clouds, feel the wind, and observe seasonal patterns to predict the weather. The Fed is an Elon Musk like disrupter who will play god to change the weather and economy. The Elon Musk reference is to his proposal to nuke Mars to induce create a sun and warm up the planet for future inhabitants. Well, unless one thinks Fed’s QE is on the level of Elon Musk’s idea, one should just think of the Fed as a modern day engineer who cloud seeds for rain and build dams and levers to control water. (I will stop here because this is not a blog on Fed’s monetary policy channels, communication, and impact) Therefore, by following the Fed, one should be able to understand the current and future trajectory of the economy. Before people were treated as robots and shuffled inside giant factories or office buildings, they paid attention to and adapted to weather. Today, people should take back this skill and pay attention to and adapt to the economy.
Just like sailors do not set sail without checking for storms, people should not live their lives without paying attention to the economy. The captain and crew can pray to their gods all they want and wish for smooth sailing, but the storm will find them if they do not check and prepare for the weather. People can find “the economy” boring all they want, but the economy will find them if they act like it has no relevance to their lives. Fast forward a few 100 years, it is now easy to find any weather information that is timely and accurate. However, information and accurate views on the economy is more difficult. Given there is no app that will tell you everything you need to know about this week’s weather with just a quick swipe, just do your homework and study the Fed.
So is Murph’s brother Tom a good farmer? He is on a doomed planet, but he does switch around his crops…
