Don't Ask Why Editorial

Time for a little editorializing. One of my premises for this blog is that on any given average day, its just about impossible to say what is moving the market. There will be headlines and pundits that try to give you the reason du jour, but for the most part they are only guessing, and more importantly as an investor or trader that information does you no good. Furthermore, at any point in time during "bull" markets or "bear" markets you can always find plenty of learned people who are arguing that the best of times or the worst of times is about to descend upon us. Since, at best fifty percent of what you read will be true, it makes it pretty frutiless task to read to much of these opinions.

Now I know that there are "forces" that move markets. Forces like economic cycles, political cycles, great events (e.g. 9/11) and groups of individuals, working together or alone, try to influence the markets (e.g. Presidents, the Fed, large speculators, or anyone with a lot of money). All of these things collide together on any given day in the market. Sorting out which one will be today's winner is just about impossible.

I am struck by all the talk of is there a recession or is there not, and how bad is this credit crises. There are a lot of doomsayers out there, but comments by two respected men in the trenches of the economy caught my attention. First, John Chambers of Cisco in their most recent earnings call said "I think we're talking ourselves into this slowdown". This was in a call where they called for solid sales growth (although slower than "expectations"). And Warren Buffett who recently said flat out that we are not in a credit crunch. These are pretty credible people who deserve to listened to. So lets listen for a second.

If were are talking ourselves into a slowdown and there is no credit crunch, why would we do that? Well one scenario would be that if you are a Republican in power and want to have your party to stay in power, its a pretty good scenario to raise the specter of the economy driving to the cliff's edge, but due to your decisive actions (e.g. stimulus plan, rate cuts), you pull the economy back from the brink and its starts perking along later in the year, just about the time people start voting. Sounds good, but economic forecasts are saying that the economy will pick up in the second half of the year. Forecasts don't sell on the campaign trail, you need to give money to people, but you know you really can't throw rebates and deep interest rate cuts at people unless there is a good reason. So you take a real, but manageable problem and make it into a big deal requiring immediate action. Sound cynical? Well just remember these are the same people that orchestrated the run-up to the war in Iraq. There needed to be a good reason to send men and women into combat and that was created by taking a small, manageable problem and blowing up to visions of mushroom clouds.

Its a no lose plan, just like Iraq. The forecasts already say the economy will pick up by itself in the second half, giving it some added juice can't hurt. Right? Maybe, but then the plan was we couldn't lose in Iraq either.

I am not blind to the real economic problems that are out there, but then there has always been a basket of problem for the economy to deal with. Nor am I saying that the scenario I painted above is true. But iff you are going to ask why the market does what it does, then you need to look closely at the people that are trying to move it and what their motives may be for the headlines they write or the rates cut they make. There is always more to the story than gets reported.

For me, I ponder this stuff outside my trading world because its too complex to base trading decisions upon. That is why I watch short term momentum trends and jump on and off for short term gains. Whats going on out there is like a battle between Olympian Gods. Us mere mortals will get squashed if we stay on the playing field for too long. Don't Ask Why there is a battle, or who is winning, just grab some of the coin that falls from their pockets.