We tried to watch and listen to Bernanke today – it was kind of like giving yourself a lobotomy with a knitting needle. Here’s some “highlights” – with a little of our own editorial comment mixed in. (Our smart-a remarks are in italics)
- FOMC policy will lead to moderate growth and lower inflation. (HUH? How do you encourage and/or stimulate growth in a non-inflationary manner?)
- The slowdown (bubble bursting) in the housing market and the collapse of sub-prime lending are problems, but don’t pose wider contagion risks. The Federal Reserve continues to monitor these areas but is not worried. (Talk about between a rock and a hard place – if you say you are worried, hello panic! If you say you’re not worried, you sound like you have your head in the sand.)
- Inflation is the main worry. (This is always true, except when it’s not. See the first bullet.)
- Growth could go either way. (I really don’t know what to say)
- FOMC has moved away from forward rate guidance, due to risks on both sides. (I guess that rather than say things that have no meaning, or that could be interpreted, they won’t say anything.)
Of course, hours of time and millions of dollars and incalculable amounts of effort and energy will be spent pondering and analyzing whatever the Fed says or doesn’t say. Any comments about today’s market action will include Bernanke’s comments as a reason for the market’s decline. It will all be a waste because there is no actionable news from this.
The last 2 weeks have been “interesting.” Questions abound – a healthy correction? A secular change? The start of a new bear market? Harbinger to a crash?
The issues are multiple:
- China (and other emerging markets) – Chinese government sending mixed signals – echoes of Greenspan’s irrational exuberance? Inexperienced government meddling (similar to Bush treasury appointees?). Raising interest rates at the wrong time?
- Subprime lenders? Tip of the iceberg? End of the financial world as we know it? (Doug Kass of Seabreeze Partners writing on Street Insigt – you can find his comments on TheStreet.com for free. Jim Cramer is the polar opposite – saying this is no big deal)
- Unwinding of the Japanese yen carry trade? Myth or reality? Does it matter?
- Liquidity – there’s lots of money sloshing around, will it dry up? How much is “real” and how much is just paper?
- Buybacks, private equity deals, are they over? Does it make any difference?
This is just a quick stab at things from various commentators and media outlets that have been posed as explanations of the recent market action and platforms to make decisions for the future.
Talk about cognitive overload and dissonance! My point in asking these questions is simply to show that you can find enough to paralyze you or support for any decision you want to make – here’s our take and my synthesis of the noise:
Fundamentally, little has changed. Economies throughout the world are “chugging” along, not in all out growth, not in a slowdown, mostly, doing well but not so well as to be overheated. There are geopolitical risks aplenty, but they remain on the horizon and may or may not come to pass. Anyone who puts together an investment strategy based on what “has to happen” in the middle east or with the US Government (elections, etc.) is most likely to be proven WRONG!, because no one knows or can know what will happen.
Technically, the markets have changed somewhat – the major trendlines of most markets have been broken. If you look at the charts in the past couple of posts, you see that. What’s important here is the significance of those breaks.
Emotionally, the market has racheted up the anxiety level. At the beginning of the month we were in goldilocks mode, not too hot, not too cold, just right. Goldilocks has left the building. The problem is, we don’t know if things are too hot or too cold, we just know that they don’t feel just right.
What to do? If you are really nervous, sell some things, accumulate some cash. Getting paid 5% to sit and wait is not bad. If you think things are really headed south, sell more, maybe hedge some through some inverse funds.
If you don’t know, or if your timeframe is longer, look at the chart of the last year from the previous 2 posts – this could be a replay of last summer, about sic months of churning through confusion. There’s still time to make a decision – and we’ll be here to help.
Coming soon – Market BS! You’ll like it!
