Clearly, the bullish run over the last few days indicates the stock market expects Bernanke to delay the gradual tapering of quantitative easing until later. However, if Bernanke indicates, in today’s press conference, that now is the time to start, then I expect a rout on Wall Street, easily dropping 200 points.
How should the long-term investor, as opposed to the short-term trader, think about all of this?
Yes, the game is fixed by Bernanke — the short-term traders game that is. But, that’s not new. Short-term traders often try to fix the game themselves. Long-term investors, like Warren Buffet, largely ignore the short-term gyrations of the markets. Buy something you like and hold it, until you find something you like better.
The fact that the short-term market is now “fixed” by Bernanke, instead of by the traders, was the price we paid to avoid a depression in 2008-09. He is clearly quite anxious to take the training wheels off the economy by decreasing the amount of quantitative easing. When that happens, short-term traders will panic and sell on the news, but don’t forget Bernanke will not begin the tapering until the economy is stronger, which is good for long-term investors.
Buy something you like and hold it, until you find something you like better. And, yes, that includes . . . cash!