Skip to main content

Greed With No Fear

Last week I read a blog written by my friend Brian Schwartz that dealt with the issue of fear and greed in financial markets, and I’ve been thinking about it ever since.    I think that the policies of the last three Fed chairmen have inadvertently contributed to the dissolution of fear as a counterbalancing element, and this has placed the financial world (and thus the world itself) deeply into uncharted and dangerous territory.

During the tenure of Chairman Greenspan, the Fed used easy money policies to save the financial markets from any corrections so often that the concept of a “Greenspan Put” became broadly accepted by traders and investors.  They believed that they could purchase securities at any price knowing that the Fed had their backs and would rescue the market from any downturn.  Under Chairman Bernanke the Fed continued this policy of rescuing financial markets from downturns by flooding the market with cheap money, and for doing this so often Mr. Bernanke became known as “Helicopter Ben.”  It was during his tenure that Quantitative Easing began, and it was his Fed that stepped in to save the banking and financial system from complete collapse in 2008.  Chairwoman Yellen, who was a part of those Fed administrations, has continued the legacy of her predecessors.

As a result, an entire generation of traders and investors now exist that believe this to be normal.  And, for those of us who are older and can faintly recall a time when markets were allowed to collapse without being saved, even we must now consider that there is a new reality, and we must modify our investment style accordingly lest we be left behind.  So, what does this all mean?  It means that everyone who is not long the market, and who is not betting on a continued bull market for securities, is at risk for underperformance.  And, as a result of that sentiment even more are truly vulnerable to a correction such that the Fed’s sentiment that it must save the market lest terrific damage be wreaked is reinforced in a weird self-fulfilling prophecy loop.

The Fed clearly monitors the daily movements of the global financial markets carefully, and calibrates its policies such that it does not inflict damage.  When and if markets turn down, it seems as though the Fed panics and feels the need to intervene on the market’s behalf.  Politicians also seem to monitor the market very carefully.  How often have we heard this administration boast in the past few years, pointing in pride to the stock market’s broad index levels as a sign of their job well done on the economic front?  Those in power want high prices for securities, and seem very committed to doing what they can to insure that outcome.  Questions persist at conference rooms around the world about when will rates rise or when there will be a stock market correction. My main question is: Why would government or the Fed permit either of these outcomes to occur?

Popular posts from this blog

Change is Coming

I sense the winds of change beginning to gather strength and I anticipate that the coming decade will bring with it a new economic reality and, importantly, a new way of thinking about wealth and the valuing of material success. I can vaguely recall the 1960’s and 1970’s when the disparity between wealthy and average seemed to be much less obvious. That was a time when even the wealthiest went out of their way to blend in. It was a time when public displays of wealth were frowned upon and when Jesus’ teachings about how difficult it would be for the wealthy to enter heaven (like a camel passing through the eye of a needle) was broadly taught. It was a time largely without private planes, multiple second homes, and massive mansions. It was a time with far less societal envy and much lower levels of indebtedness. It was a time when working-class people could afford to live decently. I grew up in just such a home, and while we had no luxuries at all we enjoyed a very nice life.

The Appeal of Socialism Examined

The political system that we all label “Socialism,” which I might define as one in which government displaces much of the private sector in providing for its citizens (healthcare, education, banking, resources, etc.) and controls the pricing for whatever is left to the private sector to administer, has never once succeeded in its stated objective of equitable distribution of resources and opportunities. In fact, it has always exacerbated the divide between rich and poor and has always led to depressing poverty for the masses. At the same time, free-market capitalism has raised the level of quality of life for most people, and in almost every single instance. And yet today, in the U.S. and elsewhere, we find that large segments of society favor socialism and distrust capitalism. And this is true even as our hemispheric neighbor Venezuela has experienced a complete collapse thanks to the 20-year pursuit of a socialist agenda. It begs the question of how this could be? Does anyone want t…

Faith: The Lesson of Passover

When most people think of Passover they think of a story of liberation. Indeed, this is a central part of the story, as the Jewish slaves in Egypt were freed through a series of unimaginable miracles.