U.S. stocks staged an explosive rally on Wednesday, driving the Dow and the S&P 500 to all-time closing highs after the Federal Reserve announced it would start to unwind its historic stimulus.
“Candy coated” is one phrase used to describe the Fed’s action regarding QE tapering yesterday. The gist of those analysts in tune with the phrase is the $10 billion per month decrease in bond purchases is minimal and the explosive market reaction yesterday came about not because the market liked that tapering would begin (think resolution – the market likes resolution); rather the market jumped strongly to the upside because the $10 billion tapering is, well, candy coating. The real issue for the market, so “they” say, is low interest rates, the same rates the Fed has kept suppressed for some time now.
Folks, the analysts singing this song would like you to believe the market does not want to see QE go away. They are wrong, and for some reason they cannot bring themselves to admit they are wrong. Instead, they want to make you think they are right – the new lyrics are the market does not actually care about tapering, really; it only cares about extremely low interest rates.
Since May, these analysts have been telling us as soon as the Fed announces it will begin tapering, the bottom of the market will fall out. The market bled in May, recovered, and then bled again several times in the spring, summer, and fall over this supposed calamity waiting to happen. Each time it fell from the breathless media pushing the tapering fear, it recovered when the smart buyers stepped in to pick up the discounted pieces. It happened again yesterday when the Fed finally gave some resolution to the issue. Instead of a calamity, the market rejoiced – Hallelujah, the Fed is finally going to ease up on the presses!
The big lesson here for those of you who are learning about the market, and for those who have learned but still cannot see the forest for the trees is this. Ultimately, the big picture (the forest) is the way to view the market (short and long term), otherwise, you get lost in the minutiae of complex analysis (the trees).
As well, and perhaps more important, it is wise to understand that those who do analyze outside of the big picture (think fundamentals), are wrong more than they are right. Occasionally, they hit the target, and, then, for some reason, the breathless media heralds them for their “uncanny” predictive capabilities. The breathless media then calls upon them time and again to deliver unto us their “wise” predictions about the market. So, given this, please take the excerpt below as wise advice.
- Obviously, no one knows what 2014 will bring. Some respected analysts say a bear market is coming. Others say now is the time to buy. So perhaps the first thing investors need to do in order to prepare for the New Year is to stop listening to every self-proclaimed expert’s opinion and formulate a plan.
Dr. Marc Faber is of the ilk described above. He established his economic credentials early in life and he has moved through the ranks of the financial industry to establish himself as both a talking head and an investment “guru.”
- Dr. Marc Faber studied Economics at the University of Zurich and, at the age of 24, obtained a PhD in Economics magna cum laude.
Well, I don’t know how he does with making money for his newsletter clients (“The Gloom Boom & Doom Report”), but I can assure you after having listened to him and having read his predictions, he is one of those analysts who is more wrong than right. Consider the following prediction he just made today about 2014.
- The market will continue to decline from its November high of 1,813.
Dr. Faber is talking about the intraday high the S&P 500 set on November 29th. What is perplexing is that the S&P 500 (the market) is not continuing to decline. It just set a new record closing high yesterday! Today, it is off that high (barely), but one day does not a trend make, so I wonder on what basis he predicts a market decline for 2014. Certainly, it can’t because the global economy is heading south. Clearly, it is not.
Perhaps, he is basing his 2014 prediction on his rather audacious long-term prediction for the market.
- My sense is that at the present time, the US market is relatively expensive compared to foreign markets, especially to European markets and to emerging markets. On a cyclically-adjusted P/E [price-to-earnings] basis, it is actually going to return very little over the next seven to 10 years.
Clearly, Dr. Faber has established his bona fides with the financial industry, but that says more about the financial industry (think sensational talking heads and the breathless media) than it does about his predictive power.
Again, my advice is stick to a plan that sees the forest. Don’t pay attention to the individual trees. Regarding that, here is one tool that will help you see the larger picture. This web site will help keep you abreast of all the happenings in the global economy.
http://www.fxstreet.com/economic-calendar/
In the end, as I have written countless times before, the market cares about one thing, ultimately – corporations making money. In order for that to happen, economies need to be moving forward. The US economy and the market are still moving forward together, despite Dr. Faber and his fellow talking heads so widely heralded in the financial industry.
Consider the following data, data regarded, arguably, as the most important economic data out there.
- The Conference Board reported that their Leading Economic Index rose +0.8% in November, which was above the consensus for a reading of +0.6% and above last month’s reading of +0.1%.
Yup, stick to a plan …
Trade in the day; Invest in your life …
