Now you might say, "Big T you’re being too hard." Maybe I am; but hey, if you wanna run with the big dogs, you'd better be able to at least look like you belong. My goodness! I miss the good old days when we had Robert Rubin running the Treasury. You may not have liked him or his policies, but you couldn’t fault the man’s bedside manner.
When the world was falling apart in 1998, it was Bob Rubin who whispered sweet nothings in Wall Street’s ear to soothe away its fears. The man had a knack for being incredibly reassuring in the middle of a financial panic.
The good news is that Bumbling, Fumbling Ben finally woke up from his coma and cut rates by ¾ of a point. The sad thing is we could have been spared much of this massacre if he had cut last week, or cut 50bps instead of 25bps at the last Fed meeting.
I think it’s awesome that our Fed chairman gets to learn on the job as he goes! I mean, bugger the working man; our Fed Chairman has to get some experience under his belt right?
For those of you that missed it, that was good old British style sarcasm at work.
So where are we now?
The key in markets like this is not to panic. Markets cannot stay oversold anywhere near as long as they can stay overbought. We do not have an equity valuation bubble - current equity valuations are actually quite reasonable. What we have at work is a crisis of confidence in the liquidity and the stability of the global banking system.
That fear has made banks reluctant to lend, which has in turn caused a slowdown in the business cycle. It’s too early to tell whether it’s a recession or a slowdown. Recessions and slowdowns are temporary in nature, with the average recession lasting only 10 months. Typically, by the time we have officially entered a recession, the market begins to turn higher.
The time for fear was when the DOW was at 14,000 ... not at 11,900. We are the world’s largest, most liquid and transparent financial market. We are not falling off the edge of a cliff into financial oblivion.
Bottom line: stocks are bloody cheap. The Fed meets again on the 30th of Jan and we will likely see another 25, maybe even a 50 basis point cut, which would be a good thing. Commodity prices are starting back off as they begin to price in a US slowdown/recession, and that should put a short term lid on inflation talk.
Long story short, at a minimum, we will have a very tradeable rally. I think it’s too early to tell if that rally should be sold into or not. A lot will depend on the preliminary US GDP numbers which are due out next week. If we get a decent GDP number, meaning 1.00% – 1.50% growth, along with a 50 basis point rate cut, then you’ve got the basis to support a very large rally.
Chief Investment Officer
ETF Master Trader