Today stunk for me. This chart of the IWM captures the pain nicely:
(As an aside, I’m actually not in any ETFs at all, but I thought the above chart showed the persistence of Tuesday’s lift-off; it’s like the small caps “knew” of Janet’s dovishness before she said a single word).
I wanted to take a big step back here and think out loud about these so-called markets of ours.
Now, more than ever, people are saying you’re a fool if you don’t simply buy the market and stay with it, since the Fed (and other central banks around the world) quite clearly have your back. I would be hard-pressed to argue against this point, since, for some seven years now, those who get long and stay long, irrespective of any reasons to do otherwise, have been proved winners time and again. Today is a microcosm of those past seven years.
Let’s walk through this logic:
(1) Humans are self-interested creatures;
(2) Central Bankers (“CBs”) are humans (more or less), and they likewise are interested in their careers, their power, their reputations, and their wealth;
(3) As such, CBs are going to do anything and everything within their power to keep asset prices high, since that is the clearest, easiest-to-measure outcome to illustrate their success. Forget about all this “dual mandate’ crap. The public judges Yellen based on where the Dow is at.
(4) I used to ask myself, “if this is all so easy, why did they even allow 2008 to take place?” I think the answer is: “Because conditions didn’t permit them to have the kind of power and “tools” at their disposal that they do today, but the financial crisis gave them unprecedented power and unprecedented access to “experiment.”
(5) Given that 2008 did, in fact, take place, my belief is that the CBs have vowed, post-holocaust style, “Never Again.”
(6) They will, therefore, use every legal means at their disposal to forward their agenda which, to date, has met with pretty much 100% success.
