Saturday, December 21, 2013

Barry Bonds, Lance Armstrong and the Federal Reserve

I was part of a discussion on the comments on Barry Ritholtz’s blog about QE and why this is the most hated bull market of all time.  There is a lot about QE and its impact on the economy that I don’t understand and don’t really have much interest in.  Some people think it has had a profound impact on the market, that it is been the primary driver of the increase in US equities, and some people (like Barry) not so much. 

I don’t know myself.   I think it is likely, and that QE has worked to keep interest rates low.  I believe the low interest rates are the reason for the stock market surge, because there really isn’t any other good place to invest. 

The point of this discussion relates to why the bull market, which has resulted in a 130 percent increase, is so hated.  Most of the comments feel that the QE is setting up the economy for rampant inflation, which will eventually destroy the economy and cause people to lose huge amounts of money.  And that investors cannot make sound decisions because the economy is being “juiced” by easy money.


The issue is, though, why should people pass on the surging market for something that may happen later.  Or even, as they feel, is guaranteed to happen sometime?  Is how the important question, or is how much?

The Analogy

I compared the idea of juicing the market to sports figures that used performance enhancing drugs, particularly Lance Armstrong and Barry Bonds.  They became winners while they used them and fell from into disgrace when it was found out.

You can see the risk from juicing.  What may be great now will have desperate consequences sometime in the future. 

The Difference

There is a difference between being a fan and wagering on an event.  I may not like Barry Bonds (I never really did) but at his peak, it would have been stupid to bet against him.  If I could have wagered on Armstrong, it would have certainly been a smart bet, without regard to whether I approved of how he cheated. 

In the same way, I may not like how the Fed has driven everyone into equities, but since the goal of investing is to make money, it makes no sense to bet against stocks. 

If every horse in a race but one has two legs tied together, I will rant against animal cruelty as I lay my bets down on the unencumbered steed.   

So, for my money, (and money is what we are talking about here) it doesn’t matter if the market is being pushed forward by QE, buybacks or whatever, it just matters that it is.  When the market corrects, as it is sure to do from some reason anyway, I will deal with it then. 

Just my opinion as an investor, not an economist.   This is not a recommendation to buy or sell securities.   

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