Happy Ben Bernanke 2.5 Day! Doesn't it feel as if Ben has a ton of unofficial holidays? Where is the love for George Washington? Oddly, very few outside of the financial web are celebrating these glorious, gift-giving occasions -- well, that is, until months later, when their 401k balances are fattened by the sausage the Federal Reserve is stuffing through the financial-system meat grinder. It's oh so sad.
Back in the day, according to a couple of relevant elders in my life, I had a habit of not being too social at family gatherings. It's hard to believe, right? Based on their eyewitness accounts, I would chill in the room and read a book or drill notes for class into my head, line by line.
While I broke this mysterious habit along the way, that feeling of isolation is the inspiration for today's column -- in which I delve into what has to be done in order to think more deeply about the market beyond Thursday's events. Every possible outcome of these festivities has been well-chronicled and has its own probability housed in an economist's multi-factor Excel spreadsheet. Moreover, you are wasting precious moments alive trying to uncover things from a Bernanke press conference that only he knows at this point.
So stop the heroics. On the one hand, you could stew on this particular event and absorb nothing in the process. But, on the other, you could arm yourself with new knowledge to fit alongside those detailed plans you've hopefully constructed weeks ago, or at least after the Jackson Hole, Wyo., Fed symposium. For instance, I myself have pieced together a morning directive that excludes the following references as reasons to buy or sell a stock: "QE"; "Quantitative Easing"; "Stimulus"; "Easing." Halfway down the paper it became abundantly clear that global "easing" is intertwined in the investing doctrine and, boy, that is a longer-term problem.
For example, how could an investor possibly construct a nifty model on Caterpillar (CAT)
and state the stock is presently attractively valued if China fails to "ease?" Another place where "easing" comes into focus is on the topic of the U.S. consumer. Is it safe to buy a Nordstrom (JWN)
at current levels if the Fed eases a little and the effects are minimal? In my view, an ingredient in Nordstrom's rocket run is that easing is supposed to drive the wealth effect, which disproportionately benefits the spending habits of the department store's core customer -- but not, say, Burberry's (BRBY)