It feels like we are living in the Land of Oz and the Fed is the "all-powerful" wizard in control.

From just about every significant group of thought leaders – the press, politicians, economists, analysts, and government officials – the narrative of the past twelve years has been all about government and nothing about the entrepreneur. They say the crisis ended because of government bailouts and easy money. It's an artificial sugar high, covering up fundamental problems that still exist and could come back without the Fed's support.



Those who believe in this narrative had a field day in the fourth quarter, with the Fed raising rates and unwinding Quantitative Easing while equities fell nearly 20% and economic data weakened. Now, with the Fed simultaneously eliminating hikes from its outlook for 2019 and announcing the end of reductions in its balance sheet (Click here for more of our thoughts from last week), the narrative has new legs.

Already, many investors think the Fed has raised rates too far, and the market odds of at least one Fed rate cut in 2019 have risen to 68%, while the odds of any further hikes have fallen to zero. This is based on a belief that economic growth will remain weak and corporate earnings may decline.

We think this is a huge mistake for several reasons.