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I remember it like it was yesterday. But it was yesterday……..plus nine years. That is, September 19, 2008. I was at Prophet’s office, and the CEO of thinkorswim, Lee Barba, was visiting. I had sold Prophet to Investools (its prior name) in early 2005, and Lee would come visit us from time to time to check in, share ideas, and catch up.
The market had been roiled off and on in the first nine months of 2008, and the team of Bernanke and Paulson had enough. During the trading day, several gargantuan initiatives were announced, including TARP and the banning of short-selling in about 800 stocks. (You may notice during the multi-hundred percent gain of the past eight years, no one has suggested banning BUYING stocks. But I digress).
Anyway, the reaction was immediate and ferocious. In the span of just two days, the Dow Industirals exploded 780 points higher, and with the big, bad bears banned, it seemed that Wall Street’s eleven-month dip in stocks was at an end.
If you don’t immediately recognise the title for today’s post then I must first warn you that your knowledge of Lewis Carroll’s literary works is dangerously deficient.
So why am I thinking of Alice in Wonderland today? Well it is Fed day, and for me the Fed always bring Wonderland to mind. I was talking to my older son a few weeks ago explaining that in the same way that lawyers trained for years to achieve a state where they could swallow (figurative) camels and yet still strain at gnats, economists went through a process where after years of patient study that seemed to require at least a PhD, they achieved a state where measures that looked reckless or even suicidal to the less trained eye were revealed as both sensible and necessary.
He asked whether the Fed’s track record at steering the economy in the past was impressive, and I told him that it had delivered a succession of ever greater disasters over recent decades. He then asked why people still nonetheless trusted the Fed to deliver policy, and I replied that people had to believe that the Fed knew what they are doing, as the alternative was just too terrifying. I added that the Fed never admitted to making a mistake, which reassured many, and that Ben Bernanke had an impressively bushy beard that had inspired confidence, though Yellen had needed to manage without one so far for technical reasons. (more…)
It’s another “big day” in the market, and with the entire financial world sitting on their hands until 2:00 EST, I thought I’d just a couple of charts to mull over.
I think it’s pretty obviously that equities are, shall we say, a bit long in the tooth. There’s no law saying they won’t get even toothier. Experience has shown the initial reaction (indeed, the reaction until Thursday morning) isn’t necessarily the medium-term direction of the market. Expect spasms galore.