It has been a great party. Enjoy the memories!
I watched the
business channels yesterday and winced. I cannot tell you how many times I
heard that, "This was a great opportunity to buy." It is a
great opportunity to buy I suppose if you are a masochist and enjoy people
using a scalpel on your face. Maybe if you enjoy the pain it is
a "great opportunity to buy" equities but that would be about it. For
the rest of you I would suggest moving quickly to cash and maybe buying some
debt where the cash flows at 6.00%-8.00% overcome the price of the securities.
Bonds will eventually bounce back as the flight to safety intensifies but the
timing of this is quite uncertain.
I was also
astounded with the number of people saying that the Fed didn't say anything
new. These people must be living in Borneo and far out into the jungle. The
Fed came out and said as clearly as any Fed has ever said; "We are going
to unwind the trade." Yes, sure, there was the usual huff and
puff about a change in market conditions could change our viewpoint but that is
not relevant. What was relevant is that the Fed stated and quite clearly that,
"The party is over."
At every party
there are two kinds of people. There are those that want to go home and those
that don't. The trouble is that the ones that don't want to leave
will lose money if they do so they try and extend the entertainment.
Now it has been a
four year celebration and the last guests might leave at midnight or 1:00 A.M.
so none of us are quite sure when they will stumble out but the host has made
the announcement. Now it is time for everyone to get ready to go home. The
latest announcement by the Fed was one hundred percent different than
Bernanke's Congressional testimony and to not understand what was said will
cost institutions billions of dollars and some people their jobs.
Yes, the biggest
of American corporations have money. They did
what they should have done during the process. They borrowed money very
cheaply, the paid down debt, they bought back their equity and they took
advantage of what the Fed had provided. Equities and bonds both rallied due to
all of the liquidity. There is no other reason they rallied. None!
The money never
made it to Main Street as exemplified by our growth rate and every
asset class was buoyed and bubbled by just one single thing---lots of newly
created money that had to go somewhere and so it did.
The markets will
bounce on this day and that day and people will cheer but if you
want the trend line, as necessitated by the end of the party, it is down.
Because we live in
a global economy we will now also get impacted by China and Europe. The flow of money
had protected our shores but now we will be exposed and the recession in Europe
and the growth rate in China, probably around a real 3.5%-4.0%, is going to
come bouncing into America. Liquidity has been the one and only god and the Fed
has now told you that this god is going to close up shop.
It has been a
great party. Enjoy the memories!
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