“Oh no, really?” he said to his broker over the phone. His tone seemed nonchalant, as if he did not care that the market had plunged over 400 points in two days.
“I am telling you to sell everything, go to cash, and wait for the storm to pass.” His broker’s words carried fear, as if he cared a bit too much about the market dropping on Ben Bernanke’s words yesterday. The Fed chair told the world what the world already knew and expected – the Fed policy of QE would eventually end, and the end would be coming sooner, rather than later if the economy continued to improve.
“No, let’s ride it out,” he told the man who managed his money and others’ money for a living. “The market is not stupid. It might slide for a bit because of technical selling now that the S&P has crashed below key moving averages, but this is not 2008. It will recover once the panic selling stops.”
“Yeh, but the Fed will, might, could, maybe begin to slowly end QE sometime in the future.” The skewed sense of certainty behind his broker’s uncertain words made him smile, although smiling in the face of such a two-day drop in the market was not appropriate. He knew he should take the panic in the market more seriously, but he simply could not.
“What exactly is the problem? The Fed has said all along that QE will end. The market has known this since the program began over four years ago. All we are seeing now are the results of the breathless media pounding the idea that QE is the only reason the market is up over the last four years,” he spoke sternly and with a bit of annoyance. He felt as if he should not have to explain this to a professional money manager. He continued in his forceful but moderated tone.
“Now that the Fed is simply retelling us what we already understood, the breathless media is now pounding the idea that the market will go down, and so it will, but it won’t last for long. The underlying money that understands the market ultimately cares about economic growth and corporate profits will bring the market back.” He spoke with tired conviction. He had been saying this for years, all through the ups and downs of the market in the last four years. Each and every time the market had reacted violently to the breathless media’s perception of reality, the market came roaring back. He knew it would again because nothing fundamentally had changed.
He smiled a wry smile, thinking, “I can’t wait to hear the righteous spewing from the perma-bears and doomsayers who have predicted ad nauseum the market will crash. Surely, they will climb up to the top of the hill and scream the end is coming.”
“Really, you’re not worried?” His broker seemed incredulous.
“No, not really. Again, let’s just sit tight and see what happens over the next few days.” There was nothing left to say. On the other end of the phone was a believer, one who had drunk the cool aid. He knew further words would do little to assure him.
“How about we talk next week? We will have a better idea of the market’s true mood.” He then hung up and smiled. His smile broadened as he thought past the market and the drone of news about the two-day “collapse.” His mind immediately went to the reality that this afternoon, he would pick up his two favorite people from the airport and the three of them would spend the next few days together visiting friends, going to a wedding, and having some fun. After that, he would drive them back to Utah where they would pick up their belongings and move to California to be with him.
He hoped his broker had someone who could turn him from his anxiety, someone who could make him have some fun, but he knew his fear about the market would not allow it. “Too bad,” he thought. “Too bad …”
- The Philadelphia Fed Business Outlook Index was reported at +12.5 in June, which was well above the consensus for a reading of -0.2.
Trade in the day; Invest in your life …
