You can get a sense of Charles' reaction from the title of the post which was "Life’s Not Fair – Get Over It!" Charles, taking the trader's viewpoint, believes that devoting a lot of time to the markets being manipulated is likely to come from someone who is not trading well and looking to blame someone or something. Additionally Charles feels it is simply counter productive to dwell on negative energy.
Long time readers will recognize this title of this post from past posts of mine as a yoga reference meaning don't worry about how the person next to you is doing the poses just focus on what you can do with each pose. You can also tell from the title that I generally agree with Charles' take on this although I do come at this as far less of a trader than Charles.
Although I agree with Charles I do come at this issue differently. If you do not believe the market is manipulated then none of this matters. Charles reminds the reader that the market is often/always being manipulated by someone. This has been true before and will be true again. if you agree with Charles about this, then it seems to me that the manipulation is beyond our control.As a part of my DNA I tend not to worry about things beyond my control and instead focus on things that I can control as a more effective way to solve how something like this might impact me or my clients. As this relates to portfolio management, think about the Quantitative Easing, or more topically QE2. I guess the debate over if is now over and the world has moved on to how big and over what time frame.
That the US is at the point of a second round of QE means we are trying to understand just exactly how bad off the US economy is. QE is an act of policy desperation with very little realistic chance of solving the problem--if nothing else time solves these problems and the government's steps to help solve the problem will either facilitate a faster solution than would naturally occur or serve as an impediment to same (this is a belief of mine).
To the extent that QE is about US economic health then it is also about US economic cyclicality and we know QE2 is an act of desperation to restore normal cyclicality an investor can control the extent to which they are exposed to desperate policy maneuvers. Embedded in this is that part of QE and QE2 is what many people believe is a manipulation of the US markets.
Determining that added all up, the QE2, the manipulation and so forth, US cyclicality is better avoided is a reasonable conclusion and within your control. I think this is different than lamenting over what is wrong or put another way trying to solve the world's problems.
If you are a do-it-yourselfer then you only answer to yourself and can have more regard for solving the world's problems but if you manage other people's money then your job is give your clients' money the best chance possible to grow to the point where they need it to be.
I think it is only logical to avoid or minimize that which relies on QE2 working which is US cyclicality. From the start of this site I've written a lot about the US becoming a less attractive investment destination but current events have exceeded anything I had in mind when this thought first occurred to me. So the task has become finding innovative ways to give whomever you serve (yourself or your clients) the best chance of having what they need when they need it (repeated for emphasis).
While I can appreciate that people may not come at this the same way it is the only conclusion I draw about how to move forward in the portfolio; that is seek out the healthier parts of the world or themes where money will flow (presumably stocks in themes where money will flow would benefit) and avoid countries or market segments relying on desperate measures (also repeated for emphasis).
13 comments:
Good post
But, The Fed has been manipulating the economy and stocks, etc. since the savings and loan crisis in the 90's
They use to do it by easing money by lowering interest rates. Now that they are at zero the fed has changed their manipulation to QE.
People need to wake up and realize the fed has been trying to manipulate recessions away by blowing ever increasing bubbles for almost 2 decades. First bubble was stocks in 2000, second was housing 2006/2007, next one needs to be even bigger or the fed will fail (they will fail eventually). Until they realize they will fail get ready for more QE.
The longer this throwing money away lasts the worse it will be. All you can do is throw the stimulus wasting idiots in congress out in November. Other wise simply follow Rogers advice and invest abroad.
Not fair, not even rational, but focusing on maximizing your portfolio is all you can do.
SEG
Though not nearly as eloquent as this post, I have babbling about "investor confidence" in public capital markets for years. It seems that the capital markets have been manipulated for years. In fact, if I remember my Series 7 materials correctly, Joe Kennedy was hired in the 30's to help corral and minimize manipulation (he was after all the master of the game).
So to your point Roger - we need to understand that, in the words of the great philosopher Forrest Gump, "It Happens" and deal with it on our mats.
I just wonder aloud how much longer will the Main Street investor remain in the public markets? Is it easier to bury our head and ignore the obvious?
Paul if i understand the mutual fund flow data correctly, the huge favoring of bond funds over equity funds might be conveying that mainstreet has been moving away from equities for a little while now.
Indeed Roger, but I mean ALL public capital markets, equity & debt. Seems to me that an opportunity exists for an eccentric multi-billionaire to create a competing marketplace to trade interest in privately held companies. Imagine the possibilities of returning to a marketplace that only allows investors and rejects speculators...ah Utopia.
I'll climb back into the box now.
we should be using tupperware to bury our money not coffee cans because "they" can use metal detectors to find cans of money.
Funny! But they have trained dogs to locate and dig plastic encased cash holds. Best to stock up on canned food and bullets instead...not only do they have useful purposes, they have currency potential as well. Ted Nugent for POTUS!
no speculators - wonderful
no liquidity - maybe not so wonderful
SEG
yeah, less liquidity hasn't worked so well XD
Excellent post Roger. The comments seem peculiar however. The Fed has been in the business of manipulating since 1913. It is why it was created!
Yes, in all probability the markets would right themselves in the long run but as the man said, "in the long run we are all dead"; manipulating helps in the short run in most cases.
For me this market is not difficult to figure out. At the first hint of QE, I backed up the truck and will continue in that mode until the discount rate is raised the second time. I have a great deal of confidence in that strategy.
Roger, regarding the public moving into bonds-"watch what the poor people do and then don't do that".
Roger: Not related directly, but on your mat, one thing you hedge with is 2x short profunds...have you seen the cxo advisory results on them? Abysmal....
http://www.cxoadvisory.com/volatility-effects/multi-year-performance-of-leveraged-etfs/#more-9292
Paul and anon
you are correct the fed has always been manipulating, but since the early 90s it has been EXCESSIVELY manipulating and blowing bubbles IMO
SEG
Quints, thanks for the link. They certainly are not ideal for all times that is not new info but when I needed them the most they did the job. I would put Coxe's commentary in with truly understanding what we buy. Clearly many people did not. Lastly the sector funds have been far less "predictable" than something like SDS which we use.
The markets are always manipulated in some fashion over the shorter term. Long term, valuations and fundamentals rule. You can only manipulate for so long.
QE II will be the same way. Enthusiasm reigns as all risk assets rise with the thought of free money. However, it could get ugly if we see a further slowdown in the economy or recession. The Fed backstop could fail and fail quickly. Be alert.
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