Right now, what China’s central bank does on currency exchange rates, money supply and interest rates is way more important to the global economy and global markets than interest rates and quantitative easing from the Federal Reserve or sovereign debt purchases and bailouts engineered by the European Central Bank.
How central banks operate
The People’s Bank of China, China’s central bank, drives the world’s financial markets.
But before I ship “Don’t fight the Fed” off to the Valhalla for old slogans to drink mead with “Remember the Maine” and “Kilroy was here,” I want to extract some lessons for how to turn this new mantra into investing profits.
No mantra works all the time
Just as “Don’t fight the Fed” worked very profitably most of the time, I think “Don’t fight the People’s Bank” will produce good profits most of the time. But just like the old mantra, the new one is likely to blow up on investors some of the time. All you’ve got to do to turn good profits into great profits is avoid some of the explosions.
And that’s where “Don’t fight the Fed” can give us some important clues for when to follow “Don’t fight the People’s Bank” and when to ignore it.
For example, “Don’t fight the Fed” was a winning strategy in 1997, 1998 and 1999.