It wasn't Bernanke, It was Me
I think I made the world markets crash again.
I am very sorry and I will try not to do it again.
Seriously though, this is the 4th week of down days. We are under 11,000 for the Dow and 2150 for the NASDAQ. And world markets are similarly spooked.
It isn't about any one particular thing like oil, inflation or interest rates. When things are negative, people look for bad news: Iran, oil prices, elections, employment figures, whatever. It's simple: the economic cycle is peaking and possibly moderating and the markets want to feel that the US Fed is steering towards a smooth landing. They don't know Bernanke and they also see problems.
There is an unwinding of the housing market - that causes fears about consumer spending.
There are fears about a cheaper dollar - good for the trade balance but bad for consumer spending. It also raises the cost of raw goods - leading to inflation.
There are fears about more interest rate hikes - not because they are inherently evil, but because it is uncertainty. After all, a strong economy is always a good thing, as long as it isn't inflationary.
At the heart of this is the interest rate. Raise it to cool down the economy, and Bernanke risks that the housing markets may crash. Don't raise it and watch inflation take off.
And at the heart of it is a guy who is untested: Bernanke.
The stockmarket is incredibly cheap. In 1994, the average S&P P/E was ~19. It soared to a peak in 2001 of ~45. It is back down to 19.
My point is that Bernanke is not talking down the dollar. He is navigating inflationary waters.
To shore up his anti-inflationary credentials, it is highly likely that today's rate of 5% will end up at 5.5% by year end.
We have until June 24th for the next Fed meeting. The markets will be volatile until then. I haven't looked but we probably got stopped out of a few more stocks (JLG is one).
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Revised to add:
I think there is no safety net under the market. Most institutional buyers are balancing the risk of entering a market in a freefall (down 315 points in 2 days) and obvious opportunities. I imagine that we will be losing quite a lot of money this week and I am in no rush to jump back in until I see institutions buying back in. At the same time, I do not see a lot of short opportunities that haven't already played out.
I am very sorry and I will try not to do it again.
Seriously though, this is the 4th week of down days. We are under 11,000 for the Dow and 2150 for the NASDAQ. And world markets are similarly spooked.
It isn't about any one particular thing like oil, inflation or interest rates. When things are negative, people look for bad news: Iran, oil prices, elections, employment figures, whatever. It's simple: the economic cycle is peaking and possibly moderating and the markets want to feel that the US Fed is steering towards a smooth landing. They don't know Bernanke and they also see problems.
There is an unwinding of the housing market - that causes fears about consumer spending.
There are fears about a cheaper dollar - good for the trade balance but bad for consumer spending. It also raises the cost of raw goods - leading to inflation.
There are fears about more interest rate hikes - not because they are inherently evil, but because it is uncertainty. After all, a strong economy is always a good thing, as long as it isn't inflationary.
At the heart of this is the interest rate. Raise it to cool down the economy, and Bernanke risks that the housing markets may crash. Don't raise it and watch inflation take off.
And at the heart of it is a guy who is untested: Bernanke.
The stockmarket is incredibly cheap. In 1994, the average S&P P/E was ~19. It soared to a peak in 2001 of ~45. It is back down to 19.
My point is that Bernanke is not talking down the dollar. He is navigating inflationary waters.
To shore up his anti-inflationary credentials, it is highly likely that today's rate of 5% will end up at 5.5% by year end.
We have until June 24th for the next Fed meeting. The markets will be volatile until then. I haven't looked but we probably got stopped out of a few more stocks (JLG is one).
-------------------------------------
Revised to add:
I think there is no safety net under the market. Most institutional buyers are balancing the risk of entering a market in a freefall (down 315 points in 2 days) and obvious opportunities. I imagine that we will be losing quite a lot of money this week and I am in no rush to jump back in until I see institutions buying back in. At the same time, I do not see a lot of short opportunities that haven't already played out.
posted by Andrew at
8:17 AM
2 Comments:
that is why I started to sing the song 'I am free, free falling..'. Too much drops in the market, try to stay sideline for now.
I think the market will be volatile for the entire summer until mid September. Buying on big dips and selling on good days is the way to make money in the stocks that have some momentum/resilience like Cisco.
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