Which Is More Important, Tuesday’s Election or Wednesday’s Fed Meeting?

November 1, 2010

Tuesday, Americans will decide whether we should continue spending at the current, yearly rate of $2.2 trillion of tax money plus another $1.5 trillion of borrowed money or whether we should reduce spending and shrink government. Research polls indicate the latter.

Wednesday, the Federal Reserve will meet to decide how much money they will print in an effort to keep interest rates artificially low, “re-inflate” the housing market and incentivize consumer spending. The trillions spent to date have not worked. There is no reason to believe this round of money printing will work either. However, many support it because they believe the “government” must do something.

The more important of the two days is Tuesday. Runaway fiscal policy is the more dangerous policy. The economy needs time, not more spending, to deleverage and get to equilibrium.

The markets at this point, may have priced in much of the election results (unless there is a surprise) and at least some of the expected $1 trillion in new money to be printed. Then, there will have to be a reassessment. Prepare and adjust your portfolios as required.