Okay, I don’t know if exciting is the right word, but it certainly was an interesting week; Crimea became a part of Russia early on, while Janet Yellen sent markets into a tizzy on Wednesday… Yes I just said tizzy.  What I think might even be scarier is the fact that word didn’t even try to correct me; on to business.

Geopolitical

The situation in Ukraine moved from Russian activity on the border to Crimea becoming a part of Russia.  While this would seem to be a bad thing, the process came about without any violence, which prompted the market’s to respond positively.

On Tuesday, Russian President Putin made statements that indicated that he was not interested in advancing further into Ukraine.  Whether this was true or not; this prompted a positive reaction from markets as well.

While all of that sounds good, the one word of caution is that Russia was sanctioned by the US and EU.  While these sanctions should prove more costly to Russia, they will undoubtedly have an impact on EU and US production and exports during the month of March and going forward.  While the Russian economy is not massive, it will still create a negative impact to economic production.

Monetary Policy

Wednesday the Federal Reserve Chair, Janet Yellen, spoke after the Federal Open Market Committee (FOMC) meeting and as expected the FOMC moved away from 6.5% unemployment as a benchmark for when they may start raising rates.  Unfortunately, Ms. Yellen also indicated that the FOMC may start raising short term rates as early as 6 months after the unwinding of quantitative easing.  What this means is that as early as next summer we could see short term rates start to move north.  Most economists believed that rates would start rising at the end of 2015 at the earliest, so it was a clear departure from expectations; which sent the Market’s south dramatically.

While I understand the market reaction I have two problems with it:

• 1) The economy has to continue to improve, inflation has to increase to normal levels (typically above 2%, reported last week at 1.1% year over year), and full employment has to be achieved (whatever that means… probably in the neighborhood of 5.5% – 6%).
• 2) Also, if all three of those things are happening… let her raise the rates, it means our economy is probably running around a 3% to 4% GDP and due for a tap on the brakes.

Obviously I do not want her to raise rates any sooner than necessary; but at the same time I don’t want her to wait too long and cause major issues with inflation down the road and eventually cause our economy to over-heat sooner rather than later.

If you would like an in-depth analysis of your current positions and allocation, please feel free to call Jason Roque at 719-313-7536 to schedule an appointment.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services.  Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.  Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.