Last week's equity market's decline and bond market gyrations
Much has been written about this past week's securities market's activity, and I did not read much of it. Here are some opinions, hopefully not all a rehash of what has already been said by others.
Within a reasonable range, an equity correction can be good news. The market can't just slowly slide upward forever without setting the stage for a bust of some magnitude. None of us like to see our stocks or mutual funds go down at any time, but a little jolt of reality is not a bad thing. Stocks can and do go down at times. If this is a standard correction, it is a longer term positive for the market. If it is an inflection point leading to a sustained decline it is not. One never knows, but U.S. equities today are by no means significantly, if at all, overvalued as measured by earnings or by historic norms. The media likes to create a degree of panic to keep us tuned in just as a normal thunder storm is foreseen as a precursor of gloom on weather stations. Keep them panicked and they'll stay tuned in.
As to the reason for the market agitation, Bernanke basically said nothing more than that he would not keep printing money and buying up securities at current levels until hell freezes over if there is sustained modest improvement in the economy and no more disturbing unemployment news raises its ugly head. That makes sense, is an obvious comment, but human short term traders, other mostly legal market manipulators in the SAC mold, and high speed algorithmic technologies do not think. Much of the rest of the market feels that they need to follow that group's lead to protect their comparative values.
There are some investors who hold their ground based on their research and long term approach to investing. They cannot be discerned in weeks like the one just experienced. As much as I admire him, and I genuinely do, I sometimes think that we eat at Warren's buffet a little too often. Nevertheless, I'll take another helping.
As to the bond market, this activity creates trading and arbitrage opportunities for those in the know. In general, for the rest of us the uncertainty just creates downward pressure. That said, some level of higher interest rates is inevitably necessary for a healthy balance in the economy. Unless we want to be like the Japan of the last 20 years, how long can we let savers and the elderly continue to bail out Wall Street and the banks.
There is certainly, inevitably, change in the air over the next year. It could be highly positive for astute equity and bond investors, and a tremulous time for those who have just been blithely riding along on the Bernanke meal ticket. Hey, this is not an arrogant comment. I do my best to actively manage what we have but as a retail investor can only do so much.
Within a reasonable range, an equity correction can be good news. The market can't just slowly slide upward forever without setting the stage for a bust of some magnitude. None of us like to see our stocks or mutual funds go down at any time, but a little jolt of reality is not a bad thing. Stocks can and do go down at times. If this is a standard correction, it is a longer term positive for the market. If it is an inflection point leading to a sustained decline it is not. One never knows, but U.S. equities today are by no means significantly, if at all, overvalued as measured by earnings or by historic norms. The media likes to create a degree of panic to keep us tuned in just as a normal thunder storm is foreseen as a precursor of gloom on weather stations. Keep them panicked and they'll stay tuned in.
As to the reason for the market agitation, Bernanke basically said nothing more than that he would not keep printing money and buying up securities at current levels until hell freezes over if there is sustained modest improvement in the economy and no more disturbing unemployment news raises its ugly head. That makes sense, is an obvious comment, but human short term traders, other mostly legal market manipulators in the SAC mold, and high speed algorithmic technologies do not think. Much of the rest of the market feels that they need to follow that group's lead to protect their comparative values.
There are some investors who hold their ground based on their research and long term approach to investing. They cannot be discerned in weeks like the one just experienced. As much as I admire him, and I genuinely do, I sometimes think that we eat at Warren's buffet a little too often. Nevertheless, I'll take another helping.
As to the bond market, this activity creates trading and arbitrage opportunities for those in the know. In general, for the rest of us the uncertainty just creates downward pressure. That said, some level of higher interest rates is inevitably necessary for a healthy balance in the economy. Unless we want to be like the Japan of the last 20 years, how long can we let savers and the elderly continue to bail out Wall Street and the banks.
There is certainly, inevitably, change in the air over the next year. It could be highly positive for astute equity and bond investors, and a tremulous time for those who have just been blithely riding along on the Bernanke meal ticket. Hey, this is not an arrogant comment. I do my best to actively manage what we have but as a retail investor can only do so much.
posted by John Borden at 7:57 PM
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