Greetings Limtex,
First I want to wish you and yours a happy new year and a much better next year (from what I gather it could hardly be any worse than the one that we've just been through).
I have not addressed you directly before since I felt that others were doing a much better job than I ever could. Still, this latest missive of yours made me decide to put down my thoughts and crystalize what I have learnt from this year - as RR has said often enough, it is time to think on what has been and to set forth what one is now going to do - reset one's perspective but first reflect on one's perceptions through the year and test them against the reality that was this year. So this is more for my own benefit, and I welcome any criticism or thoughts from anyone and everyone on this.
The single biggest lesson to be learnt this year was that one doesn't fight the Fed. It is the single most powerful force in the markets. One can argue about why they are doing what they are - and I have done so often enough - but one doesn't fight them. As Tom has pointed out, the Fed controls the houses who control the funds etc. all the way down to the market. The Fed. thus, ultimately controls the market - although it does this in a remote and somewhat indirect manner. JW has often, and quite forcefully, stated that the Fed is wrong, and that maybe true, but he will not argue against the fact that they have the power, through their actions to affect the market. Now, I have heard many say that the Fed. fought a foe that did not exist - perhaps that is correct, but what no one has been able to guarantee to me is that if they hadn't raised interest rates, inflation would still have appeared tame - it is a game of what if that is essentially pointless from our percpective as investors. They did raise interest rates and however much we may rail against them for doing so, we need to deal with the consequences of their actions.
We were all quite sanguine in the begining of this year, when they were raising rates, and made a colossal blunder, which has resulted in some fairly disastrous situations. Most of us (the exceptions that I know of being your friend MarginMike and edamo), bought into this hype that the business cycle for Techs and high growth stocks was dead, or atleast was not quite relevant - well that proved not to be the case. This is the second most important lesson that needs to be learnt - the business cycle may have been smoothened out but it is still relevant. It lags a determined effort by the Fed, by about 6-12 months but it will follow what the Fed does.
The third thing is that manias happen, and one can profit from them, but one needs to keep a wary eye - most internet retailers were no more than glorified catalog companies and they eventually ended up with similar valuations. The market reacts both upside and downside to the extreme. It is important to keep one's balance and perspective in all this.
So, what does this lead upto. Well, it is singularly imperative not to make the blunder that most of us made of ignoring the Fed. and this cuts both ways. We ignored the Fed when it was tightening rates. It is now important that we do not do this now that it is going to be cutting them. We now know that the Fed. is in a loosening cycle and that it will begin this process in Jan. We need to prepare ourselves for this.
It maybe that we will still see new lows - I am not a particularly competent prognosticator of the vagaries of the market - perhaps we will see the actual bottoming around the Feb - March period (it has been the general experience that the market does go down after the first cut) which makes sense if you consider the market as having a certain momentum, but it is hardly in doubt that it will turn and rise again. It is therefore very important that we have capital to participate in this upturn - thus, conserve capital - a mantra that is talked by many here.
Technological advance is not coming to an end - we may be just in the begining of that massive spurt which will be heralded through the ages as the golden age - infact it is my firm belief that this is so. I expect to see technological change accelerating in the next few decades since I believe that for the first time in history, we are now building the communications base to actually act in concert to improve the collective intelligence of our species and bring that intelligence to bear on solving the problems that we face. Thus, this current blip is just that - a blip.
Finally, we need to have faith - faith that human beings are not prone to self destruction - quite the opposite in fact. Faith in the people my friend. And so, I think that the Fed. is doing what they feel is correct for the benefit of all - they maybe wrong occassionally - disastrously wrong sometimes - but they are not a bunch of fools sitting around while the house burns. Moreover, there is enough resilience, strength and intelligence inherent in all of us, to counter this, and even take advantage of these opportunities presented by their blunders. We are not so weak...
So, preserve capital for what is coming as surely as the dawn. Persevere and look for opportunities to ease into long term positions - don't be hasty, but don't be hesitant either to take up positions - and above all have faith....
Regards... |
