In my investment activities, I avoid making commitments based on macroeconomic forecasts alone. As Warren Buffett has said many times, macro factors do not influence his decisions when it comes to investing in a high quality business. At the same time, it seems obvious that an investor needs to at least be aware of the condition of the overall economy to understand the climate in which his or her portfolio businesses are operating. Also, for many investors, following economic developments is a fascinating endeavor even if it has no immediate bearing on investment results.
James Grant, publisher of Grant’s Interest Rate Observer, appeared on CNBC today and commented on Federal Reserve policy and his outlook for interest rates and inflation. I found the following quote to be particularly interesting. I highly recommend viewing the video below or, for those reading this via the RSS Feed, click on this link to view the video on CNBC’s site.
“If the Fed examiners were set upon the Fed’s own documents—unlabeled documents—to pass judgment on the Fed’s capacity to survive the difficulties it faces in credit, it would shut this institution down,” he said. “The Fed is undercapitalized in a way that Citicorp is undercapitalized.”