Individual Investors Should Not Be Confused About Volatility and Market Noise

Famously, John Pierpont (J.P.) Morgan, financier, banker, philanthropist and art collector who dominated corporate finance and industrial consolidation, when asked what the market would do, wistfully answered, "It will fluctuate," and that is the kind of sage advice by which individual investors should be guided.

Markets, whether they be stocks, bonds, commodities or baseball cards are continually in a condition of fluctuation, buffeted about by popular opinion, spin doctors, general sentiment, analyst opinions and the prevailing economic conditions of the time, and this time, like any other, is subject to the same market forces.

Volatility in markets generally is of benefit only to a small, elite group of active traders who are rabid in their pursuit of true value propositions and correct assumptions of price discovery. While the current regime of Fed-induced interest rate and bubble-manic equity markets might be confusing to some, they need not be to the astute, patient and prudent individual investor.

Today's events were dominated by turmoil in the Arabian peninsula - specifically, the fall of order in Yemen and subsequent armed invasion by the Saudis and Egyptians - which first sent stocks down, then up, then down again, etc., and the price of oil up, and only up. However, these knee-jerk reactions are meaningless in the larger scheme of things. A two-dollar rise in the price of WTI crude oil isn't going to affect the purchasing habits of millions of motorists, just as a one or two percent move in major averages like the Dow Jones Industrials or S&P 500 will influence investment decisions.

Military action today will likely be replaced by peace tomorrow, or, at some later date, and prices and markets will return to some semblance of normalcy. Enthusiastic journalists and commentators on CNBC and/or Bloomberg TV might have panic in their voice and fear in their eyes, but they are largely for entertainment purposes only and should never be considered when actual money and investment decisions are at hand.

In a world far away and long ago, that being prior to televised financial nonsense and noise, stocks were relatively calm and decent places in which to park excess cash. Today's monumental stupidity caused by too many people paying attention to talking heads on television and exacerbated by headline-scanning algorithms employed by HFT firms makes for markets that are irrational in the short term and less-than-reliable on a short-term basis, but, when viewed from a six-month or longer perspective, all the bumps and grinds of fast money (and yes, that is a swipe at CNBC's show by the same name) get smoothed out and wrung dry of volatility.

Unless and until there is a major market-moving event like the liquidity and solvency melt-down in 2008 and 2009, or the housing boom and bust that preceded it and extended beyond it, markets will behave in somewhat of a normal fashion. Looking at stocks over the past six years, starting with the bottom in March 2009, they've done nothing but perform brilliantly, and anyone who had simply bought and held the major indices correctly would have handsome profits today.

Oil and other commodities have behaved rather radically over the same time period, but what can be said about some may be applied to all. They are more volatile and subject to price swings. And, when one considers currency - because, honestly, parking all your cash in a single currency could be a bad idea - diversity is the key, though anyone considering a safe play might want to take a serious look at gold, and an even deeper peerage into the value of silver.

Both of the popular precious metals are really nothing more than alternative currencies, and, though they may not be quite as liquid as a stock of $100 bills, they also bear no counter-party risk and have been relatively stable over the near term, residing mostly near bottoms. That both gold and silver are bouncing around low levels is worthy of further consideration, because, beyond being currency, they can also be collateral and they may even offer some gain in terms of rising price. At the worst, either metal may suffer a small decline from current levels of maybe 10-15%, but in no way will they ever be worthless.

They are useful hedges and alternative currencies and not nearly enough investors and individuals have taken advantage of their purposefulness, though the fact that they are tightly held may be a part of their charm.

Overall, days like today and weeks and months in which one has to be subject to the whims and fantasies of speculators, newscasters, pundits, analysts and fools, aren't worth wasting one's time upon. It's far easier to make a few strident choices and be done with it. Life is indeed too short to worry about money, or even about the value of it. The world today seems preoccupied with it, though it should be remembered that it is only a means to an end, and not the end itself.

Dow 17,678.23, -40.31 (-0.23%)
S&P 500 2,056.15, -4.90 (-0.24%)
NASDAQ 4,863.36, -13.16 (-0.27%)

P.S.: If you did absolutely nothing today, i.e., made no trades, you out-performed 70% of the day-or-day-to-day-traders. Give yourself a pat on the back.

Warren Buffet Really Gets Under Your Skin; Big Market Decline Probably Means Nothing

Warrenn Buffett bears a
striking resemblance to the Wizard of Oz.

Announced today, the merger of Kraft and Heinz creates the fifth largest food company in the world and the third-largest in North America.

At the center of this mega-merger is none other than America's cuddliest billionaire, Warren Buffett and his squid-like Berkshire-Hathaway corporation. With this, Buffett now touches nearly all aspects of the average American's daily life, and, most essentially his or her food consumption.

Buffett, it was pointed out by a wily poster on a popular financial website, needs only to buy a significant interest in Monsanto or ADM and Newcomer Funeral Homes and he would have his had firmly in a "cradle to grave" solution for every man and woman in the United States, growing GMO-laced food products which deny nutrition and selling them nationally, slowly killing humans, and then taking a share of their post-breathing lives with embalming, burying or cremation.

Thus, Mr. Buffett has finally gotten under the skin of the average American consumer, and not in a good way. The combination of Heinz (John Kerry's wife, Theresa Heinz is a major owner) and Kraft would have been subject to severe scrutiny by regulators under an effective anti-trust regime, but the antiquated notion of competition has been slowly squeezed from the national conscience long ago.

In our new dystopian world, we will have but a few providers of every necessary service. Reference the merger of Charter Communications and Time Warner Cable, Staples and Office Depot, et. al. Fewer choices, fewer decisions to make. What a wonderful world.

As far as the massive market declines on the day are concerned, they are probably about the same as the last dozen or twenty or so that have occurred since March of 2009, when the current bull market began when the FASB abandoned all reason and did away with mark-to-market accounting. Since then it's been all fraud, all the time, with no end in sight.

Today's big dips in stocks are nothing more than a continuum of the controlled demolition of the global economy, led by the United States stock markets. Sell-offs are nothing more than profit-taking efforts by the controlling interests and their whiz-bang computers, to be followed, in short order, by concentrated buying and new all-time highs.

Nothing new under the sun. And nothing to see here. Move along, now.

Meanwhile, the Atlanta Fed predicts the first quarter 2015 GDP growth at 0.2%, WTI crude oil futures were up 3% on the day in the face of a string of the largest crude stockpile supply growth ever, but likely the cause/result of a falling dollar. Durable goods for February were down for the second straight month.

Some of this actually makes sense, but only on a selected basis.

Dow 17,718.54, -292.60 (-1.62%)
S&P 500 2,061.05, -30.45 (-1.46%)
NASDAQ 4,876.52, -118.21 (-2.37%)

What China is Making, the World Isn't Taking

With not much in the way of company news or economic data to spur stocks in any particular direction, stocks - if you believe there is still a viable market out there - may have taken their queues today from China, where manufacturing slipped to its lowest level in nearly a year.

HSBC's purchasing manager's initial survey for March fell to 49.2, signaling contraction, from January's reading of 50.7, the worst reading in 11 months. The survey is designed so that numbers above 50 indicate expansion, under 50, contraction.

This should not have been a surprise to anyone on Wall Street, because they know how China's dumplings are boiled. They're reliant on exports of manufactured goods, primarily to the United States and Europe.

Therefore, if those two consumer groups are not buying, China isn't selling. And that's exactly what has been going on for months now, if not years. Economic numbers in all areas of the world are slightly skewed by regional and political preference, but when China, widely regarded as the world's engine of growth in the 21st century, actually shows manufacturing in decline, it's likely much worse than reported.

There isn't much about boosting manufacturing that the central banks of the world haven't already tried and found to not work, so it's likely, at this point, up to individuals to get out and spend.

Not. Gonna. Happen.

Europe is bankrupt. The USA has gone, in sixty short years, from being a creditor nation, to debtor nation, to where we are today, on the cusp of becoming a deadbeat nation.

In popular parlance, a deadbeat is somebody who borrows and doesn't pay back its debts. Well, the good, old USA can do attitude hasn't been getting it done for a long, long time. Which is why we have a federal debt of over $16 Trillion. The government doesn't pay off its debts; it rolls them over into new debt, something that, if you or I or your neighbor tried to do, we'd be laughed all the way to the nearest courthouse.

The US government has seemingly been intent upon destroying the country, the currency, and the popular notion of being the "land of the free." The failure of politicians to even attempt to fix the various parts of our fiscal condition that are broken is at the bottom of not only the Fed's Zero Interest Rate Policy (ZIRP) but also is tearing away at the fabric of the nation, and people are beginning, at last, to notice, and worse, they're doing something about it.

They're not buying. They're not buying Chinese products. They're not buying politicians' promises. They're not buying Wall Street's scams. They're not buying government statistics because people in America don't consider themselves statistics. They consider themselves people.

People matter. Governments come and go. It may be getting close to the time that some of the bigger ones get up and leave.

But, they'll probably need a little push... over the cliff.

Dow 18,011.14, -104.90 (-0.58%)
S&P 500 2,091.50, -12.92 (-0.61%)
NASDAQ 4,994.73, -16.25 (-0.32%)

19 CENT CHEESEBURGERS, Ted Cruz and a Dow Mystery

We have a bad monetary system. A shaky one at the very least, but, probably just plain bad.

McDonald's menu, circa 1965

It would take a tome longer than Adam Smith's The Wealth of Nations to explain why. However, in today's world, we have technology, which is, by most accounts, an improvement to the general welfare and happiness of the people of the world, or so we think.

This technology allows us to share images such as the one shown in this simple blog posting.

The point, or points, as there are many diverse levels to this discussion, is that our monetary system is based upon, in no particular order, debt currency, inflation and death.

Ponder, if you will, the fact that the Dow Jones Industrial Average fell roughly 50 points in the final minutes of trading today, and the price of a cheeseburger, roughly 50 years ago, was 19 cents. The question is why did the Dow fall so precipitously at the close and what does that have to do with the price of cheeseburgers?

Yes, 19 cents. Your editor ate many of them, as there was a McDonald's and competing burger joints near his high school.

19 cents, people. Grow up.

Dow 18,116.04, -11.61 (-0.06%)
S&P 500 2,104.42, -3.68 (-0.17%)
NASDAQ 5,010.97, -15.44 (-0.31%)

Sub-note: Consider this: today Ted Cruz, a first term senator from Texas, announced his candidacy for president, officially kicking off the campaign season for the 2016 presidential election. This election is, as of today, 19 months away. In't it time we put limits on when politicians can campaign? Isn't 19 months prior to an election just a tad too early to start thinking about who will be the next president? Mind you, a presidential term lasts four years. Must we spend half of one president's term deciding who should be his or her replacement?

Today, sadly, we have more questions than answers. If we had the answers, assumably, we would probably not be spending time asking questions on a blog.

Weekend Thinking: After Friday's Stock Ramp-fest, Nothing About Which to Worry

Editor's Note: Apologies for the late post. An unrelenting schedule is causing disruption to the usual appointed tasks. This condition may persist for a few months and posts on Money Daily may not - for a while - be as timely and/or detailed.

Friday's trade was all about getting back to the preferred narrative following the "prudent" nature of the latest FOMC release and Fed news conference, that of everything being just peachy, rosy and wonderful in the land of fairy tale economics, where flying unicorns discharge fiat from rainbow skies.

Reality may beg to differ with the ongoing assessment of the national and global economies, but, for the time being, the clowns, gamblers, skimmers and scammers are in control. What will wrest away domination of the markets from the hands of the manipulators is at best uncertain, at worst unknown, but all are aware that adam Smith's "invisible hand" is lurking, ready to snatch back sanity and price discovery to a state of natural order.

What is understandable at present is that Fed policy will remain neatly tucked into its quasi-accommodative commode for at least another six months and very likely longer. It is, in fact, beyond seven years since the past rate increase, and, as has been proven by other central banks, negative yields remain an unexplored horizon. Like the discovery of a new world, the Fed may be eyeing the current 10-year note yield of two percent as merely the shoreline, with untold riches and possibilities lying within the lower bound.

A socialist fantasy dream, bond yields that would cost savers and benefit spenders could be a panacea that eventually turns economic theory completely upon its head and ushers in a new world order of wealth redistribution under some mystical, benevolent oligarchy.

The future may well be one which attempts to disregard the past. And that new world would be brave indeed.

Dow 18,127.65, +168.62 (0.94%)
S&P 500 2,108.10, +18.83 (0.90%)
NASDAQ 5,026.42, +34.04 (0.68%)