Personal Wealth Management / Expert Commentary

Fisher Investments’ Ken Fisher Debunks ”Don’t Fight the Fed”

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher debunks the common myth that investors should not ‘Fight the Fed’. The theory suggests investors should avoid investing in stocks when the Federal Reserve (“Fed”) hikes short-term interest rates and invest when the Fed is loosening rates. However, as Ken wrote in his book Debunkery, Fed rate adjustments tend to have little long-term effect on capital markets.

While rate hikes may cause short-term downward volatility, Ken says the long term impacts on stock prices are largely unaffected by Fed decisions about rates. Ken explains how interest rate adjustments don’t tighten or loosen the amount of money available for lending, they change the price of that money. With history showing rising and falling stock prices regardless of the interest rate environment, Ken recommends putting little weight behind any Fed decisions and to stay disciplined to a long-term investment strategy.

Transcript

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Title screen appears,” Fisher Investments’ Ken Fisher Debunks “Don’t Fight the Fed” “

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A man appears on the screen wearing a navy suit, sitting on a chair, behind him is a white screen with the title “Debunkery”

He begins to speak.

A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher doing hand gestures time to time explaining.

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Ken Fisher: Simply central banks hiking rates, short term rates, or lowering them does not in and of itself tighten or loosen money.

It just changes the price.

It doesn't have anything to do with tightening or loosening, which is about the availability and the presence and the creation of money.

They're separate things.

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On the white screen a title appears “DEBUNKERY” with subtitle “Seeing Through Wall Street’s Money-Killing Myths”

Ken Fisher appears back again in the same position.

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Ken Fisher: Because of everything that's gone on in 2022 and now to 2023, you hear renewed mantra crying don't fight the Fed.

And it's easy to understand why.

I recall that saying, which actually in literature does go back into the 1940s, but not very commonly and not very widespread and not very accepted, is growing hugely in

popularity in the 1960s with the television show led by Lewis Rukeyser, Wall Street Week and The Regular Appearances on it of Martin Zweig, who was a newsletter writer of  some significance and also a money manager, not of terribly great significance.

Ken Fisher: I don't want to get into criticizing Marty Zweig. That's not my purpose here. He's not been around for a long time, but he was this big table pounder on don't fight the Fed.

Don't fight the Fed. Don't fight the Fed.

Ken Fisher: And the concept behind that is, when the Fed hikes rates, they're tightening. When they're loosening rates, they're loosening.

And therefore, you should don’t fight them.

If they're raising rates, get on the side-lines.

If they're lowering rates, be in the market.

This is one of those things that, like a

lot of other broad pieces of long-term market lure lore, they lure you into doing things that don't really work all the time.

Let me give you some examples

of that.

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Ken Fisher reached to something close to his feet and pulled a book.

He is holding the book open and checking some of its pages.

Behind Ken Fisher on the screen a data-grid appears, its shows date of initial hike over time.

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Ken Fisher: In my book, Debunkery,

I have a long section, we're

doing these regular debunkery things here.

I have a long section,

debunkery number 28 on this topic.

And first, I describe why it doesn't work.

I'll come back to that.

It works some of the time.

Anything that's said like this has to work enough of the time, that people keep saying it, but it's pretty 50/50.

And then back over in the next two pages, I give you the actual data from when the book was written about ten years ago, a little over ten years

ago, showing you that it is 50/50.

Now, 50/50 is a random phenomena.

It's not something that leads you to do well.

Ken Fisher: The reason it doesn't really work is, and I've spoken about this so many times, so many ways, simply central banks hiking rates, short-term rates, or lowering them does not in and of itself tighten or loosen money.

It just changes the price of it.

It doesn't have anything to do with tightening or loosening, which is about the availability and

the presence and the creation of money.

They're separate things.

You see that last year from the Fed doing what it's done, which, you know, and I'm not going to go back in detail over that because you do know that you were there.

And the fact that lending started the year with in America, 4% growth rates and ended the year with overall year over year for the year 12% growth rate. Boom, as they raised rates.

You can't do that if they're really tightening money.

You follow that logic?

Banks can't keep lending at such robust levels if in fact they're tightening central bank's tightening.

If it's really tight, if they're really trading tight money.

Just high price loose money.

So then again, here's the data

that shows that in the past.

But I want you to think about current history, because current history is good too.

Ken Fisher: The Fed wasn't really going. In May, I point out that Jerome Powell said, as I've said many times before, that Jerome Powell said, “we aren't even considering 75 basis point hikes”.

Then in June, they rose rates overnight lending rates by 75 basis points.

The next meeting 75 basis points.

The next meeting 75 basis points.

The next meeting 75 basis points.

He said that in May, market fell to October.

Ken Fisher: They're still raising rates.

Where are we now in the market?

We're where we were in May. You follow that?

Now let me take you through that.

If don't fight the Fed worked, you should have gotten out of the market then and I gotten back in.

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Behind Ken Fisher on the white screen a chart appears showing World Return index over the months. The chart is titled “Fighting the Fed”

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Ken Fisher: In fact, it worked from May to June to July to August to September, 4 months.

May to June, July, August, September. Didn't work.

October, November, January, February, 4 months.

There you go.

Back to 50/50.

That's my point.

I'm not suggesting you should do

the reverse of fight the Fed.

I'm not suggesting I think you need to not think of them raising rates, short rates, the way they do, as necessarily tightening money or loosening money.

You need to have a more fundamental concept of what

actually is going on in banking and in capital markets.

Thank you for listening to me.

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A half white/half red screen appears.

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Ken Fisher: I very much hope you enjoyed this video as

part of my series on debunking common market myths.

To watch more videos like this, click the link on the screen and make sure to subscribe to Fisher Investments YouTube channel.

Thanks so much for listening to me.

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Ken Fisher finished talking, and

A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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