Watching everyone holding their breath waiting to hear what Janet Yellen was going to say in her speech in Jackson Hole on Friday reminded me of how, when I entered this business 45 years ago, investors would stand at the Dow Jones news wire every Thursday at 4:10 p.m. to see what the money supply was for the week, knowing that it would move the markets the next day. Ridiculous!

Truth is that many investors are focusing on the wrong things. Monetary policy has done enough and cannot do it alone anymore. It is a tool to be used as we near inflection points to boost the economy when needed, and to slow it down to curb inflationary pressures when it heats up. Changes in between are small and are an indication of the anticipated future direction of the economy and of Fed policy.

Talk that the Fed may raise rates in September is just plain premature in our opinion. The reasons are many. The economy and inflation are not heating up near any point of concern; second quarter GNP rose only 1.1 percent; inflation is still well beneath Fed targets; the global economy is still fragile, at best, although improving; corporations are not spending for a multitude of reasons, substituting labor for equipment, which is as good an explanation for falling productivity as you will see; no one has confidence that government will do the right things to promote longer term growth, stability and prosperity; the consumer cannot do it alone forever and the presidential election is in November.

We need to stop focusing on the Fed and monetary policy. The impediment to growth here and abroad is not monetary policy but the failure of governments everywhere to adapt and change their fiscal, tax, regulatory and social policies to stimulate growth to succeed in a globally competitive environment raising the standard of living for all. Finally, members of the Fed and other monetary authorities are pleading for governments to act.

Low interest rates everywhere mitigate the desire to save, which as we know, penalizes investment. And financial institutions that provide money to the economy are being penalized from abnormally low interest rates, which is negative in many key areas of the world. Would you like to be a bank or insurance company in Europe and Japan? We need to stop focusing on monetary policy as it can do no more. In fact, it may inflict harm on the global economies at this point in time.

Growth in employment and wages reflects improvement in consumer demand but more importantly it highlights the failure of corporations to invest in new plant, equipment and capacity, which is sorely needed as operating rates have risen so high that they have breached levels of efficiency. We need capital investment.

If governments enact policies simplifying the tax code, add research tax credits and offer accelerated depreciation on new capital investment, then employment gains and wage pressures will subside. Basically the Fed is getting a "false positive" reading on the strength of the economy by the strong gains in employment and hourly wages over the past year. Growth in employment is happening in large part due to a lack of capital investment. If I see this occurring, why don't they?

Since globalization is a fact of life, all governments, as well as all monetary authorities, must consider the impact of their actions on all other countries and work in concert such that all benefit rather than the strong getting stronger and the weak getting weaker.

Our leaders need to take a holistic view of policies with an understanding that there is no one size that fits all. I was dismayed by the comments and actions of Chairman Merkel in her visits with the heads of France, Italy and Balkan states last week. Clearly, she has not gotten the message of the Brexit vote. It's time that Germany lets other members of the ECB increase spending and lower taxes to stimulate growth even though it may increase deficits near term. She must remember that the real risks remain to the downside and to disinflationary pressures. Germany must stop disempowering the weak.

Clinton and Trump need to start focusing on the real issues facing this country rather than appealing to and appeasing the fringe populists on the far right and left. We have always been, and need to remain, a centrist nation under one tent. We need to strengthen our tax, financial, regulatory and foreign policies to restore our status and credibility in the world. Building walls to stop immigration and voting down international trade deals are not the solution. Opening up America more is. But agreements must be adhered to or penalties will be accessed quickly.

Trickle-down economics does not work nor does redistribution of wealth. Neither approach stimulates growth longer term. We need pro-growth policies that won't change with each administration. Both individuals and corporations need some certainty so they can plan for the long term. What needs to be done is so obvious. Why isn't it done? I blame the politicians and the PACs!  

The economy accelerated over the summer after a revised downward second quarter growth of only 1.1 percent. We expect inventory accumulation alone to add over 1.5 points to second half growth which will average at least 2.8 percent. We continue to have an accordion-like economy, so it is impossible to project this much higher growth in the second half of this year forward into 2017. We continue to look for growth in 2016 and 2017 around 2.0 percent. No big deal but not bad either. The real surprise in the second quarter report was that corporate profits accelerated to a 4.9 percent gain over the first quarter although still down year over year. We continue to look for accelerated S&P earnings growth over the next 18 months especially as earnings comparisons for the energy and materials sectors kick in next year.

We expect the Fed to make a small upward adjustment in the Funds rate in December if the outlook for the global economies continues to improve and the dollar stays range bound. Ironically, this move may end up stimulating growth, as the savings rate increase will exceed the higher interest rate cost expense thereby benefitting consumer demand.

Our portfolio is tilted towards beneficiaries of more economic growth and a slightly steepening yield curve. We continue to own only best in class managements with clear winning strategies in a globally competitive landscape; those with strong earnings growth and generating excess cash used to support long term investment, acquisitions, higher dividends and added buybacks.

Since change is afoot we are concentrating on agile companies who are shifting their mix of businesses to enhance future returns, as they will be revalued upward over time. Financials are one of the largest sectors in our portfolio as they will be the prime beneficiaries of economic growth and a steepening yield curve. On the other hand, we continue to reduce the number of "safe" stocks like consumer nondurables, drugs, retail and utilities. The dividend yield in our portfolio continues to exceed 2.5 percent.

The main risks to our view are that the politicians' continue to focus on the fringes rather than the majority and do nothing to promote economic growth and prosperity; the Fed overreacts to near-term growth and raise rates too soon although a quarter percent increase from this level really won't affect the economy much but may impact investor sentiment near term; Germany continues to disempower other nations in the Eurozone; OPEC does not come to an agreement next month to curb production and oil prices break by $10 or more per barrel destabilizing markets; terrorism escalates impacting economic growth; Russia does not stand down in Ukraine; and then, of course, there is the unknown.

The bottom line is that the global economies are improving including in the Eurozone, which continues to be a positive surprise after the Brexit vote. Low interest rates plus accelerating earnings is a good combination for the financial markets. Remember that this is a market of stocks so selection is key to outperformance. Maintain excess liquidity at all times to be in position to take advantage of unforeseen events and market declines.

Remember to review the facts, pause to reflect on mindset shifts while controlling risk and maintain excess liquidity at all times. Do independent fundamental research and...

Invest Accordingly

William A. Ehrman is managing partner at Paix et Prosperite LLC.