Once again: Don't fight the Fed!

The corollary of my "Follow the Fed" investment philosophy is "Don't Fight the Fed." Some people in the stock and bond markets are learning that the hard way! As I have said repeatedly in my earlier posts, including The Fed decision: Chairman Ben walks the Greenspan line, the Fed does not want to raise or to lower interest rates if at all possible leading up to the 2008 presidential election.

In short, they want to do nothing! This may not be possible over the next two years. However, right now, economic and political conditions are cooperating. Despite the housing crisis, unemployment is low. Inflation is moderating, even though core inflation is at the high end of the range. There is gridlock in government, and political pressure is developing to resolve the situation in the short-term.

The market is saying that the Fed will be forced to lower rates. Maybe so. However, Chairman Bernanke indicated in his speech yesterday that he is in charge and will do nothing. Many people have lost a lot of money fighting the Fed. It is a 900 pound gorilla! It can last a lot longer in its persisting course of action than you can remain solvent.

Remember to Follow the Fed. It is a good strategy for making money.

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.