11/14 Kelly Letter Topics
Weekly market review
The bottom holds
Big bounce volume
Recession projections
The magic midpoint
LevMark Timer holds
Crocs is dying
Hope for Goldman
Importance of retest
The Kelly Letter has been buying aggressively during this downturn. We have active orders in place to average down on existing positions and to add new positions that we've been watching for months.
The Federal Reserve takes heat no matter what it does. Prior to the credit worries, critics referred to Fed Chairman Ben Bernanke as "Helicopter Ben" for his remark in 2002 that a government with a fiat money system can avoid deflation by just injecting more money into the economy at any time, and his citing Milton Friedman's quote about a helicopter drop of money to save the day. The idea was that, like Greenspan before him, Chairman Bernanke would let loose too much money into the economy and create bubbles.
Then, when sub-prime grew as a concern and that turned into the credit crisis in the fall, people cried that the Bernanke Fed was too slow to loosen the money spigot, even though the Fed began cutting interest rates all the way back in September. It didn't do enough, went the cry.
Then, last week, the Fed came out with an emergency rate cute of 0.75% and investors said that Bernanke was panicking.
Which was it? Was the Fed behind the ball and catching up, or on track and panicking? Either way, when the FOMC meets on Wednesday it is expected to cut an additional 0.25%. That will bring the Fed funds rate to 3.25%, which is a dramatic 2% lower than it was at the beginning of September. Naturally, the crowd is back to calling the chairman "Helicopter Ben" again for his efforts.
Don't bother participating in the easy game of blame the Fed. Instead, focus on what's happening in the economy and the market and see that time is finally on your side.
The market for mortgage-backed securities hasn't fallen for two months. Bank credit is looking healthier. Just about the time those are turning up, we now have both monetary stimulus coming in strong and even fiscal stimulus from Washington. Both of those have worked in the past. They'll work this time, too, regardless of how many people deride them.
Even if a recession squeaks onto the scene, it'll be pretty muted by the Fed's proactive efforts and Washington's helping hand.
Meanwhile, the bargain prices that the market has served up to start the new year are much appreciated. It's hard to go wrong buying stocks this cheap.
