The temper tantrums are in full flower. The markets are crying and screaming for the bottle from the Fed. But the Fed has left the crib and is letting the chips fall where they may. (Sorry about the mixed metaphors; at least it makes for colorful reading.) Today’s CNBC show was full of whiners moaning about how poorly the Fed communicated intent. Seriously? What were they supposed to do, send vibrations? give everyone a Ouija board? Probably the interviewees covered their shorts at the top, and it’s sour grapes now that they’ve been sideswiped.
We think the Fed is right to make an early broadcast. This tactic is completely in keeping with past strategy, which is to tell the markets what you’re going to do, do what you’re going to do, then tell the markets what you did. All economic players – banks, companies, consumers, the guy who brought one hundred thousand bottles to the grocery store recycling on Sunday – have a chance to adjust. We also trust this Fed. We think Bernanke wants to normalize, and we trust that he’s going to keep to that path. It would be better for the economy in the long run if we could have true price information in the capital markets, and right now, we don’t.
While we have a wary eye on the housing market and how it will be affected by higher mortgage rates, we think this market downturn is a pause in the bull market, and that the dip should eventually be bought. No use plunging in with every last dollar just yet, but a few more hundred points might give a great buying opportunity. All that cash building up from the sell off has to go somewhere, and we’re thinking it will recycle right back into stocks. In fact, even bonds are more attractive than they were a month ago. Anyone who is retired and looking for income – the job just got easier.