No New Stimulus

by: Roger Nusbaum

By now you probably know that the Fed offered no new ideas for stimulus despite a slowing of some sort recently in various economic data (although ADP was a little better than expected).

I've made quite a few comments over the last few years about the desperate actions that have been implemented by various central banks including the U.S. (the U.S. Treasury too). There have been questions and concerns raised for a little while now about whether the Fed is running out of bullets and if it is, questions about what that means.

The idea that the Fed is out of bullets is probably incorrect because we departed from what most people would think of as being normal policy years ago. The financial crisis is a different type of animal from anything the country has experienced in decades and if the Fed was going to do anything it was going to be very heavy handed compared with anything that most people have experienced previously. Candidly other than deciding to buy up different forms of debt in the market than it has been buying or even buying SPUZ futures I am not sure what else it could do from here that would have a chance of having an impact. Do not take that as an endorsement, just an opinion that something new would simply involve buying more stuff.

The realities of the above have not changed much since 2008 and are unlikely to change much for a couple of years longer at a minimum. This circles back to a few things I've been writing about that I believe to still be relevant. There is no question that U.S. equities have done well far more often than not since the March 2009 low. It seems like a logical conclusion that much of this is attributable to the Fed however the fundamentals of the U.S. still favor owning select foreign markets.

The fundamentals I speak of include the lousy progress with jobs growth, GDP growth and the housing market. It can of course be frustrating when the thing with superior top down fundamentals lags the thing with weaker top down fundamentals but of course that is where patience comes into play. I have unyielding faith that in the long run, fundamentals matter.

Another point to reiterate is avoidance. Europe and the U.S. are working through generational events of which I contend they are not finished yet. Anyone agreeing or believing that much of the lift in the U.S. has come from the Fed might want to avoid or underweight the thing being propped up or going through a once in a lifetime (hopefully) calamitous event.

I get some push back on these ideas and of course they could turn out to be wrong but if they are correct then it is a multi-year process. Several years ago I said I felt that history will look back on the period from 2000-20?? as a depression. It doesn't have to be anything like the 1930s (and it is not) to still be a depression. If it is a depression then it will take many years to fix; although not as bad as the 1930s it is more complex. Plenty of other countries have not been dealing with depression and will not be anytime soon. This describes the countries we own and that I have written about.