I remember watching the Apollo space flights as a child, whether it be at home on our small black-and-white television or the big-25 inch TV at school, and the most exciting part was the countdown to liftoff. It was exciting and gave us all a reason to be proud of being Americans (My old teacher would make us recite the pledge of allegiance every time we saw a space flight).
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But soon afterwards, it was over. The spacecraft was on its way to orbit the moon or land and drive a car on the surface, but it was over nonetheless. The feeling is essentially the same as we wait for the Federal Reserve to make the move and lift off into "normalcy." Janet Yellen and company should begin liftoff but let the world know that it's over for now…
One and done. Talk to you in a few months.
Let's be clear about a few market fundamentals. We all understand that the current interest-rate environment is not normal and want the market forces to drive the market to a value area. But the market we have is one in which the central bank acted as the vanguard of the financial system and subsequently ended up supporting the entire system. Check me if I'm wrong, but one of the reasons for the creation of the Fed in the first place was to create some semblance of stability at times when the market called for it. Was there ever a better time for real, hard-core intervention than in 2008? (Maybe in 1929, but the Fed was still in it's infancy with no real power.)
The real difference of opinion among traders and managers falls in the myth that this is a Fed-driven rally caused by cheap money. I would argue that, if that were true, we would see valuations well over the current 15 times S&P 500 earnings. Many of us remember a time when the market traded at 20 to 25 times forward earnings and we had Soviet missiles aimed at our borders! This is a fairly priced stock market -- and one might even argue underpriced in the current interest-rate environment.
The second fundamental that we should all agree upon is that quantitative easing did not cause a debasement of the U.S. dollar and inflationary pressure is nonexistent. This was the result of a twin miracle which happened simultaneously. First, the dollar started to rally against other major currencies as we started to see improvement in our economy while others were late to the game (Trichet!!) Second, the technological advancement here at home in energy.
The U.S. has cemented its place as a leader, not only in military, economic and technological power, but in something the world sees as even more important — energy power. This has created a stable inflationary picture — something the Fed has worked toward successfully.
Employment and housing have reached pre-crisis levels, which show growth in the economy. And underlying conditions of opportunity have improved. The Fed has told us they are data-dependent and the data have been good. The employment number is the best single barometer of the health of the economy. With job creation at levels that can be called fairly normal and housing working through its own issues, the time has come to start to take interest rates back to where they should be … slowly.
The reasons behind those who argue against a rate hike are varied, from the turmoil in the Chinese markets to the migrants in Europe to the strength of the dollar. One fact remains: There will never be a perfect time to start a Fed liftoff. The reality is that the U.S. economy is a global leader. If we do well, the rest of the world usually does well, and it's one of the ancillary effects of exporting U.S.-based free-market capitalism all around the world.
Now is the time to come off of crisis mode and take the long, long road to normal interest rates and send a message load a clear to the rest of the economic world that the US is healthy and ready to lead. Will it be messy? Absolutely. But the time is right and it's necessary for the health of the economy. Dr. Yellen, three, two, one … and we have liftoff?
Commentary by Jack Bouroudjian, CEO of Index Futures Group LLC, a registered independent broker, and CIO of Index Capital Partners, a registered commodity-pool operator. He was also a three-term director of the Chicago Mercantile Exchange and founder and advisor of UCX (Universal Compute Exchange). Follow him on Twitter@JackBouroudjian.
