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The Tragedy of Traders


It takes thousands of hours studying economic textbooks and decades of experience to be even a fair economic forecaster.  Last week, a noted hedge fund operator, whose expertise was forecasting, said his skills were irrelevant in this market.  His argument was that Ben Bernanke, Chairman of the Federal Reserve System, has suspended the laws of economics.  He said the trading game is now fixed . . . by Bernanke.  Forecasting now requires more psychological skills in analyzing Bernanke than economic skills in analyzing the economy.  Another pundit observed that traders have become a “bunch of squealing school girls” about Bernanke.

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!

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