Skip to main content

Sell the Rumor, Buy the Fact

It could also be buy the rumor and sell the fact but more importantly it has rarely failed me during my career. It weighs heavily on the idea that most people are going to be too easily swayed by an idea with no legs. In turn when that idea is empirically proven, well, don't we all feel silly?

So goes the newest saga of affecting the financial markets that began with the densely worded but still unclear musings of Chairman Bernanke of the Federal Reserve who mentioned the idea of slowing down (Tapering) the current stimulus program (QE). While no one was really clear what was said with regard to timing or any other fact the reaction amongst traders and investors was to sell bonds with a speed that in turn concerned stock investors and traders who sold equity holdings. In the end at one point the S&P500 declined by over 7% and 10yr Notes declined by over 15%. The media had a field day.

The result was less than glamorous but the opportunity was clear. Once the dust settled, sounder minds presented conflicting ideas. First came from other members of the Federal Reserve Board who insisted that without improvement in the economy and unemployment the opportunity to taper would be more elusive.

But while the markets then recovered in response the logic seem equally elusive. When the markets moved lower I chose to put new cash to work. The reason being that the spike in interest rates reflected in lower bond prices, easily the more fragile of the capital markets these days, is more responsible for the decline in stocks than fears about tapering. And to further confuse matters, the conventional wisdom (which is often wrong) saw the extension of tapering supporting the idea that stimulus is responsible for the stock market rally. I disagree because I believe tapering is a sign of a more fundamentally stable economy and should therefore be good for stock. 


So, the take away is equity holders win if they taper and win if they don't.  And although tapering is inevitable, the events will be borne out by the statistical evidence (Employment, GDP and Inflation). Which means if the economy is strong along with many more people working and the consumer is unafraid to buy maybe everybody will be too distracted to notice?

Popular posts from this blog

I B!#*$ For A Living

Not really, but I’d like to. The problem is I don’t search, or that is to say I don’t search for this blog. I do search, regularly so, with the same vigor that I flip though a newspaper. I have my pet subjects, finance, art, and sports, politics (not necessarily in that order) I never look at real estate and I rarely look at style articles. One of the reasons I don’t search for this blog is because there is a fine relationship between the price (the value of an asset) and time (the freshness of the analysis) that serve to form my views. That’s the only way I can assure that my posts are mine, grammatical blemishes and all. It also affords me the privilege of some license whereby I’m open to write about almost anything that strikes me as useful in the aim to inform. That’s one of the main reasons I choose to inhabit the space, which brings light to financial news, because it’s so reliant on nearly every other market, across all cultural and political spectrums and best of all it always…

Please Don't Believe Everything You Read

“I have news for you” said Andre
And as I peered through his bad hair weave, and “coke bottle”” glasses I realized he was right.

Nowhere in our collective memories do we ever fully understand the workings of our mind. Driven not by the collective accumulation of information but rather defined by the processes eternally influenced by the random cocktail of chemicals in our heads and poisoned by the principles we carry around in our back pockets with all smug confidence.