Saturday, September 8, 2012

The Season for Cynicism - Or - A (potential) Whopper of a Week to Come

Your inbox is about to get a several-day reprieve. Myself, my wife, my dad, and my good friend and fishing partner Dan will be trying to fool a few salmon and halibut into mistaking something that's not their natural food for their natural food. If we're lucky, they won't be (lucky). When I'm fishing the ocean, unlike when I'm fly fishing a mountain stream, it's more about filling the freezer than it is the sport. I honestly (almost) don't care what it takes to fool my prey, as long as it's legal (although I still want them to have a fighting chance). You know - like politics: A pledge is dangled in front of the nose of an unsuspecting citizen, he bites, the hook is set and his vote is counted. The politician entirely doesn't care what it takes to fool his prey, as long as it works. And, sadly, the sea is full of (I'll say it nicely) 'innocent' voters. Forgive me, it's the season for cynicism (which I cast at both sides of the aisle btw).

Anyhow... In that I'm not sure how connected I'll be (although I should have a signal), and next week could be a whopper, I thought I'd get ahead of the major issues and [attempt to] allay any potential angst you may experience - just in case.

1. Mario Monti said this morning that he doesn't expect that Italy will access the ECB bond-buying plan announced last Thursday. The plan that inspired a 200 point rally in the Dow the same day. It'll be interesting to see how the market reacts to Monti's statement, if at all. On one hand, it might be a relief to traders - that Italy's leaders are [apparently] confident that they can contain their situation. On the other, it could be viewed as the Italians desperately trying not to impose upon themselves whatever conditions they'd endure should they apply for a bailout - which is a prerequisite to partaking in the ECB program. The fact that Monti, while not wanting the assistance, could accept it later (if need be), may leave traders simply yawning over this one. We'll see.

2. Next Wednesday the German courts are to rule on the constitutionality of the ESM (the bailout facility a country would have to access before receiving ECB assistance). I don't suspect the market would treat kindly anything but Germany ratifying the ESM.

3. Apple is set to unveil the iPhone 5 next Wednesday. If it's more than just skinnier, and I suspect it will be, it could send the stock higher. I mention this because Apple is a potential market-moving monster. Although next week should be all about Europe and the Fed.

4. The Fed meets Wednesday and Thursday. I believe open-ended QE3 is already baked into the market, and that traders expect it very soon. If however the Fed isn't ready to pull the trigger next week, Bernanke will have to keep the prospect very much alive, or he'll have some splanentodo if he hopes to avoid a sell off.

So what would you expect to hear from me should any of these events go awry, and the Dow takes that audio-commentary-triggering triple-digit decline? As you might imagine, you'd hear the usual "don't sweat it, you're allocated with the long-term in mind, and we'll be exploiting the opportunity, should it extend to your next rebalancing date*." And I'd surely (and oh so sincerely) be trying to convince you that the world will be much better off in the long-run if governments and central banks were to indeed back off and let nature run its course.

Have a great week!

*For more details on our strategy, read Our Strategy...

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