Option Queen Letter By the Option Royals Jeanette Young , CFP ® , CFTe, CMT, M.S. 4305 Pointe Gate Drive Livingston, New Jersey 07039 www.OptnQueen.com [email protected]May 22, 2016 The steep uptrend of the major indices began in March of 2009 and ended in July of 2015. No, it was not the end of the “Bull Market” but this was the end of the steep uptrend. Since that time, the indices have halted the upward climb and have been range bound with no progress to the up or down sides. This range bound market apparently emerged when the FOMC stopped fueling the markets with asset and treasury buy-backs and, more recently, with a tiny rate hike. This past week, the FOMC minutes indicated that another uptick in rates could come as soon as June. That said, we believe that this group will also recognize the Brexit vote, and might hesitate because of that vote. We also believe that if a rate hick is to occur, it will likely be seen either months prior to the US Presidential Election or after that election. Our markets and our economy are addicted to low interest rates. Our rates have been un-naturally low for such a long time, that markets find it difficult to understand anything other than low interest rates. What will they do as interest rates tick higher? That question will be answered shortly. We have learned that higher interest rates have a two-fold result; money flows to our shores seeking out higher returns on bonds and the US Dollar subsequently moves higher. The higher US Dollar has a chilling effect on exports and a deflationary effect on imports and commodities. Yes, things are cheaper for us to buy because of the strength of the US Dollar but multination’s and even domestically produces products for the US market will be impacted by cheaper imports. Pair this with increasing costs of crude oil and Houston, we have a problem. The ear-marks of this behavior are an economy that has been artificially stimulated by low interest rates for an extended period of time, punctuated by an attempt to begin to withdraw the stimulation. All of this is artificial and a result of a meddling FOMC. Had the natural business cycle been allowed we would not find ourselves in this mess. Yes, we would have had a downdraft or bust, but that would have been followed by a boom. Perhaps, just perhaps, our perpetually gridlocked and "out to lunch" congress would have been forced to get our fiscal books in order. Monetary policy is a powerful tool; however, that does not make it a substitute for good fiscal policy. Today we have a mess, neither boom nor bust, but rather face the abyss of of further deflation and possible recession. Our range bound markets are a reflection of the times. Amid a stagnant global economy, we have become the safest. That is just enough to prop up our
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