Ben Bernanke continued his love for higher asset prices with hints of some sort of QE3 weapon with his Jackson Hole speech last week. As we all remember last year, QE2 was born and asset valuations around the world rejoiced! Jobs are important, but who’s kidding who. Global stock market valuations/wealth effect is KING. The FED will do anything in its’ power to keep that game going. This year, nothing concrete was discussed, just a future promise of discussion on the topic of QE scheduled for mid September. Well that seems to be enough for the equity traders for the time being, or at least a wicked bear market rally.
People ask me, what do you think about the stock market? What is your allocation?
CASH 90% Commodities 10%. In 2007 the writing was on the wall, own some commodities and SELL stocks. As a trader/investor, I want to know the rules, and since 2007 the rules (by the FED/GOVT) seem to change at will. TARP, TALF, PPIP, repeal FASB rules, SIVs are ok? ….really. Lies. The free market died the minute the fed bailed out Bear. JPM bought it, blah, blah, but WE backstopped it. You cannot trust the market. Like I mentioned before the Bond Market and Currency markets matter, stocks don’t. Valuations are cheap…..? Really, well that is just a plug and play theoretical valuation. I could theoretically make my house worth 1million dollars, but it doesn’t make it true. I will buy this market when the training wheels come off and losses are taken by those who don’t respect risk.
When to buy stocks? Maybe never. But, what comes around goes around. The FED did their rule change dance last week in Jackson Hole. Promising nothing but to continue to manipulate the capital markets. They will do this until they cannot.
Investors are too comfortable due to the FED’s promise to catch them when they fall. One of these times they will not be able to bail out. When that happens it is time to back up the truck, buy the WHOLE market and put it away for a decades. The time will come.
Things are changing. Europe hasn’t gone away, Gold’s correlation is breaking down, the USD is trading is a TIGHT range, the deficit circus will continue soon…..patience is the number #1 rule. Sometimes the best trades you make are the ones you don’t. Good Luck…stay safe.