What if we all decided to ignore the central banks?
Granted, they have provided material for this blog non-stop from the day it started. They keep financial journalists, economists, analysts, pundits and other financial fortune tellers employed. They keep the stock market pumped up when it can’t achieve new records of its own merit. They appear be the only people in the world tasked with managing the economy (even if they are mismanaging it, rather than managing it).
So why should we ignore them?
They’re frequently wrong. The Federal Reserve Board, our country’s central bank, has a history of causing, not solving crises. Former Fed Chair Alan Greenspan is not even mentioned in “The Big Short,” but some give him top blame for causing the 2007 housing bubble and the financial crisis that followed. 
“Alan Greenspan will go down in history as the person most responsible for the enormous economic damage caused by the housing bubble and the subsequent collapse of the market,” according to The Guardian.
Noting the plunging housing prices and high unemployment in 2013, when the article was written, The Guardian reported that, “The horror story could have easily been prevented had there been intelligent life at the Federal Reserve Board in the years when the housing bubble was growing to ever more dangerous proportions (2002-2006). But the Fed did nothing to curb the bubble. Arguably, it even acted to foster its growth with Greenspan cheering the development of exotic mortgages and completely ignoring its regulatory responsibilities.”
Newsmax, which is as conservative as The Guardian is liberal, also blamed Greenspan, noting that a major reason for the overheated housing market and the resulting bubble was that interest rates were too low.
So here we are two Fed chairs later and interest rates are even lower. Do you expect the outcome to be any different with Janet Yellen at the helm of the Fed?
They’ve turned stock picking into gambling. Analysts, investment managers and other stock traders used to be able to forecast the performance of stocks based on fundamentals and technical models.
Ironically, as the market has set new records, such analysis has become meaningless. The markets, instead, move based on whatever central bankers do. Central bankers are supposed to make decisions that are in the best interest of the economy, but they typically make decisions that instead appear to be designed to prop up the stock market.
As a result, professional stock pickers have been producing not-so-professional results. The 2015 S&P scorecard (see chart) for actively managed U.S. equity funds, showing the percentage of funds that failed to beat their benchmarks over the last one-, five-, and 10-year periods, shows “jaw-droppingly bad numbers,” Zerohedge reported. “And they’d be even worse if you included survivorship bias.”
Whether or not the Fed raises interest rates, according to Zerohedge, “the only question that matters for investors — what do I do with my money? — nothing changes. Stock-picking still won’t work. Quality still won’t work. So long as we hang on every word, uttered or unuttered, by our monetary policy Missionaries, so long as we compel ourselves to pay attention to Monetary Policy Theatre, then we will still be at sea in a policy-driven market where our traditional landmarks are barely visible and highly suspect.”
So, rather than basing your investments on sound principles, today you need to base your investments on your best guess about what the Fed and other central bankers will do next. If you’re not sure what the Fed will do next, there are plenty of economic pontificators and media talking heads who are willing to tell you. Note, though, that to date they have almost always been wrong.
They’re dangerous. Central bankers have played the Pied Piper to childlike investors, driving them into low-quality, risky investments while pumping up the stock market. Chasing yield, many investors have moved into ever-riskier investments.
This unnatural state of affairs will have nasty consequences when the Fed-induced market bloat becomes too much to bear and the risk bubble bursts. It’s all being kept afloat by a false sense of security. Once reality returns, as it surely must someday, it’s bound to get ugly.
Many investors have been obsessed with Fed following — to the point where even a hint of what happens next can have a profound impact on the market.
If investors ignored the Fed, instead of hanging on Janet Yellen’s every word, the market could finally return to normal. Wouldn’t that be a welcome change?!