Tuesday, September 3, 2013

Is good news good news again?

Hey, good news was good news today! Well, it was for a few minutes anyway. Early on the Dow was ahead 120+ points. Why? My pat answer is always the most accurate possible: That, for their own reasons, folks came to market with cash, and shareholders, for their own reasons, weren't interested in selling at last Friday's prices. But of course that sort of bottom line won't sell squat. What does sell would be the following: Over the weekend there were no explosions in Syria, China reported surprising growth in manufacturing, the same for Europe, and---as of this morning's report---the same for the U.S.

In terms of the good news/bad news debate: The global manufacturing picture clearly provides some cover for the Fed to begin tapering QE later this month, which, to this point---according to the media---has been the main catalyst for the recent decline in stock prices. The fact that, this morning, (relatively) good economic news may have sparked a rally suggests that the market may have at last resigned itself to the inevitable taper. The fact that the Dow gave up a hundred points upon the report that John Boehner agrees with the President on military action in Syria supports that notion as well---in that a Syrian conflict, should it go weeks or months (rather than days), injects uncertainty that could keep the QE taper on hold until things settle down.

So, for the moment, good news is good news and bad news is bad news. The next test of that opinion will come with this Friday's employment number, and over the next few weeks as Washington wrestles over the budget and the debt ceiling.

Now, all that said, I'll bring it home by repeating the point I made over the weekend

As for you, if you’re truly a long-term investor employing strategic asset allocation, all of the above is utterly meaningless. If overconfidence meets with surprise and a bear market ensues, you’ll rebalance your way into cheaper stocks. If there’s no earth-shattering event(s) and the market continues its ascent, you’ll rebalance your way out at higher levels. Either way you have a plan. How wonderful it is to have a plan!

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