Stocks fall. The Fed speaks. Stocks go up.
And I’ve just arrived in Baltimore a day earlier than planned. The venue for the international publishers’ conference here in Maryland suffered a power, phone, and internet outage around 5:30pm local time.
That’s a problem when there’s a deadline to meet. So there was no other choice but to pack the bags and drive two hours north to Baltimore a day early.
It was a rush. I had to miss the scheduled dinner at the famous JM Clayton crab house. Tucking into Maryland crab cakes is almost compulsory when in this part of the country.
Just as bad was that there was no time to stop at any one of the tens, if not hundreds, of fast food and casual dining venues along the way.
But I’ve made it. So let’s get down to business. What was that about those stocks…?
In the nick of time
Coincidences. The world is full of coincidences. Or rather, things dressed up as coincidences.
Is it a coincidence that on the day the Dow Jones Industrial Average looked set to fall more than 400 points, someone happens to leak details of a Janet Yellen speech to the press?
Of course it isn’t.
Janet Yellen is chairman of the US Federal Reserve.
When the chairman of the Fed speaks, the market takes note.
The fact that Dr Yellen has spoken up now shouldn’t surprise you. It fits in perfectly with the notion that the Fed’s goal is to manipulate the market steadily higher.
It wants neither a crash nor a boom.
If they can engineer annual gains of 8–15% per year, the Fed will feel as though it has done its job.
Check out the report from Bloomberg:
‘Federal Reserve Chair Janet Yellen voiced confidence in the durability of the U.S. economic expansion in the face of slowing global growth and turbulent financial markets at a closed-door meeting in Washington last weekend, according to two people familiar with her comments.
‘The people, who asked not to be named because the meeting was private, said Yellen told the Group of 30 that the economy looked to be on track to achieve growth of around 3 percent. She also saw inflation eventually rising back to the Fed’s 2 percent target as unemployment falls further, according to the people.’
Well, well, well. The most powerful central banker in the world says something ‘last weekend’, and it takes until Wednesday for it to leak to the market.
As I say, just a coincidence.
The news came out sometime just before 2pm. I’ve marked it on the chart below:
Source: Google Finance
I saw the news flash up on my tablet computer as I stepped back into the meeting at the international publishers’ conference here in Maryland. That was about three hours before the power cut.
At that time, the market was just off the low for the day…down more than 400 points. After the wonderfully coincidental release of comments by Dr Yellen, the Dow Jones Industrial Average began to climb.
It closed the day down only 1.06% — a moral victory for the markets.
As I write, the Aussie S&P/ASX 200 index is only down 29 points. There’s no doubt the Aussie market would have fallen further if it wasn’t for the coincidence of the Yellen leak.
But those who worried there wasn’t enough volatility in the market have gotten what they wanted. So how do you play the volatility?
So far this year Vern Gowdie is looking like a genius with his 100% cash call.
I favour investors having an exposure to stocks, cash and gold — in whatever quantities you’re comfortable holding. It’s an active approach in that it involves actively managing investments. But it’s passive in that the strategy doesn’t involve excessive trading.
But when the market is volatile, it gives you opportunities to buy on the dips and sell on the highs.
For Markets and Money
Kris’ article first appeared in yesterday’s Port Phillip Insider.