Equity Market - "Outlook"

Free-market pricing is too complex for any one individual to completely understand or predict. Bond market, stock market, the dollar - a galaxy of contradicting or reinforcing factors - an immense stew of input that somehow sculpts a closing price, every day. No one, not even Buffett, understands the process (as he has just learned). Certainly not those pundits on the many networks who offer false comfort every evening, pretending they know - an act of fraud.

What we do know is that the Dow is off 30+% since Obama was elected, 45% since the crisis came to a head. We did not predict the crisis but we have isolated the primary cause. Globalization and contagion compounded errors made initially in the US. Late Q4, major central banks successfully prevented a melt down. It was not a solution, only a band aid.

There are a maze of factors which impact the Dow: Bk of Eng policy, GM’s whining, China’s stimulus package, the weather. And there will always be surprises. In investing, the business of the future is to be dangerous. What we may do however is to stand back, away from the thicket, not expecting to predict a turn or bottom necessarily but to at least corral the odds and bring them into our camp. To be, if not more right, then less wrong.

We can learn to become good listeners. Market reaction, hindsight, has signaled that banks/credit must be addressed first. Because Obama has refused to do that the equity market has suffered significantly. There are many other causes of course, some known and some not. The "stimulus" plan is seen by reasonable observers as at best a wash, the stuff for our political blog but not this one, so likely little market-moving impact there. But the budget is seen by reasonable observers as this: Big Government as the ultimate hero; the private sector at best in a supporting role. Who that does not live under a rock does not understand that to the equity market, this is poison? All of it is corrosive to the economic fabric of this country.

The market has told us part of what it needs, that is, that which will provide sustenance. By listening we may not have the Holy Grail but we’ll have a leg up. Thus, until Obama 1) maps a plan for the banks, 2) quits lying about "investment" vs "spending", and "savings" and 3) shows the world markets that he is not a far-left ideologue, meaning he will not try to transform health care, education and energy as the stock market fears he will, be content to stay close to home.

Robert Craven