Question of the Day|
The Fed seems clueless and as arrogant as ever. I'm not sure what the hell they are doing.
What do you think Ben Bernanke is trying to do and will he be successful?
Knowledge may give weight, but accomplishments give luster, and many more people see than weigh.
Earl of Chesterfield
When President Bush declared "Mission Accomplished" he was just a little early and in the end the mission was simply to leave. The exit was out of his hands, but the question remains-what was the mission? I still can't believe they didn't use the Powell Doctrine of an overwhelming force cleaning out all the nooks while keeping on key personnel of the Iraqi military. There's no doubt that whatever the mission was at the beginning, it became something else later.
When President Obama bragged about pulling the economy out of the ditch, I scratched my head and wondered if he would follow up that line of thinking admitting the economy came out of one ditch and slipped into another. The exodus from the jobs market and massive government spending to spike the last GDP into the November elections painted a false narrative. These days we hear nothing about jobs, only about those petulant children of the Republican Party that can't grasp common sense. Certainly when it comes to fixing the economy, the mission is far from accomplished.
This brings us to Federal Reserve chairman Ben Bernanke.
What the hell is the goal of all this money printing? Last September the Fed added $40.0 billion in monthly buying of mortgage backed securities to his bag of tricks. Then he bumped it up with an additional $45.0 billion of Treasury securities. The numbers are jaw-dropping, surely this could be defined as shock and awe, but the results have only been awful. Officially the Fed has a mandate that covers employment and inflation, but there is no mistake Bernanke is trying to spark a revival in the housing market. On all three fronts Bernanke has the kind of false facade that makes for great backdrops for declaring victory.
At this point, Bernanke & Co may feel they have no choice other than to go for the luster, even if it means moving farther down this insane road, believing it is better than admitting they've tried, they've acquired knowledge, and they've failed.
Jobs = The unemployment rate is down as people sit out this dance. More than 9 million quit the work force.
Inflation = non-existent using government cautions, but that's backfiring as deflation is now a major worry.
Housing = Prices rebounding and inventory scarce, but ownership is plunging as investors gobble up supply.
Great Question (and song) Billy Preston
So, the question is what is Ben Bernanke trying to accomplish-the virtuous cycle? What a joke! You, know, that circle that grows wider and wider with joy and prosperity. Our assets inflate in value, we go shopping to celebrate, they hire more people at malls, shippers, and factories, and the next thing you know our paychecks move higher, too. Just think, we could go in circles like that forever, the perpetual motion machine, once it gets kick-started.
The question of will it fly high like a bird up the sky is really a two-part puzzle. On the surface it's all working well and key components of the economy seem to be flying high. But none have much to do with Ben Bernanke. Heck in 2008 59,180,000 Americans worked for minimum wage, and at the end of 2012 60,367,000 worked for minimum wage. The job situation needle hasn't moved and we wait with serious angst for tomorrow's number. The stock market has benefited from being oversold and led by great American companies making money in all four corners of the planet.
Defining the bad guys these days is a matter of perspective, but one thing is for sure; the good guys aren't winning. People aren't buying houses in part because they can't get a loan (in addition to many simply giving up on that jazz), but where is all that money the Fed is printing going?
Better yet, how does the Fed's purchasing of $40.0 billion in mortgage backed securities and $45.0 billion in treasuries find its way into the pockets of regular Americans? If you subscribe to the notion that the bad guys reside at the top, then this is that once-in-a-while instance when they are winning big time.
The Fed must know this, hence Bernanke says they will either increase the madness or forget luster and go for honesty. It's all so confusing. It's like we're all going round in circles...
Lots of investors are coming back to the market, but they are making even more mistakes than the last time around. The main thing to know is there will be losers, and selling them is the real key to long term success. That being said, I regret 85% of all the exit alerts to take profits I've ever issued and 75% of alerts to take losses.
You have to be prepared to hold through rough times as long as the fundamentals don't change. Yes, macro conditions are factored in, but those are cyclical-taking market share and pricing power mean a whole lot more.
There are a ton of secrets to investing, but the most important is to understand what you own so that you can't be shaken out during down periods or don't hold because of pride and ego. It's easier said than done but necessary unless you're inclined to take losses simply because stocks are lower. If that is the case, consider yourself played. There is no way to ever make money because the puppet masters understand how to shake you out and then how to seduce you back into the game later, at much higher levels.
Markets go up and down, that's their nature, but how they react after difficult sessions is the best way to measured underlying determination. Stocks have been hinting at a nice bounce this morning even before the ECB announced with would cut rates 25 basis points. I actually though the market would sell-off if the cut wasn't 50 bps, but maybe calmer heads prevailed, and like the notion this isn't panicking but just part of the global race to the bottom with respect to rates.
Speaking of the globe, it's still the key driver for American businesses leading the stock market, a point underscored by Visa V which reported yesterday.
Global Card Volume Growth