June 14, 2015 Fed Up

Risk/Reward Vol 270

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

“Their lips are lying
Only real is real

Grease is the word”---lyrics from “Grease Is The Word” sung by the cast of Grease

“You got to get back up

And when they push you down
You got to get back up”---lyrics from “Get Back Up” sung by T.I. (feat. Chris Brown)

“I’m fed up (ayy), I’m fed up (ayy), I’m fed up (ayy)

I’m so sick and tired of being sick and tired”---lyrics from “Fed Up” sung by DJ Khaled (feat. Lil Wayne)

As a longtime, devoted reader of several financial publications, I can state that, with a few exceptions (e.g. Jon Hilsenrath), financial journalists like their counterparts elsewhere in the Fourth Estate just mail it in. After Wednesday’s huge 236 point jump in the Dow Jones Industrial Average (DJIA), the financial rags were remarkably silent as to the reason ---and, of course, none of them predicted it. Even market-focused Investor’s Business Daily (IBD) disappointed by reporting that “stocks rallied broadly amid signs of progress in Athens.” After Friday’s 140 point drop all IBD could report is “indexes fell as a setback in the bailout talks between Greece and its creditors weighed on sentiment.” Greece? “Greece is the word?” I don’ think so. I think “their lips are lying.” The sad truth is that financial reporters and the publications that employ them don’t help us understand market dynamics. They would rather be silent than be wrong.

Although the indices are stuck in a tight trading range (DJIA up 0.43% and S&P 500 up 1.71% year to date) some individual stocks and sectors have done very well. Year to date, JPMorgan (JPM) is up 7.73%, Goldman Sachs(GS) is up 8.57% and KBE (the banking ETF) is up 9.63%. My hometown stock, Lilly(LLY) (which Barb and I have owned most of our married life) is up 13.23%. But before the “buy and hold” crowd becomes too smug, please note that it was not until 2015 that JPM consistently traded above its 1999 price; that GS still trades far below its 2007 price; and that LLY trades below its year 2000 highs. The years in between have been dominated by forces that “pushed these stocks down.” It is about time that they “got back up/got back up.”

As “sick and tired” as we all are by the Federal Reserve's dominion over the financial world, be prepared to be “Fed up (ayy)/Fed up (ayy)/ Fed up (ayy)” again this week as the Federal Reserve Open Market Committee meets on June 16-17. The conventional wisdom is that if the Fed intends to raise short term interest rates in September, it will so signal in the press release and/or the press conference following this meeting. No signal will be read as postponing the rate increase until December. Either way look for volatility the afternoon of the 17th. If you have not done so already, you may wish to prune some of your interest rate sensitive holdings in advance.

Rest assured, Dear Readers, that even if financial reporters do not spend “Summer Nights” pouring over closing tables, earnings call transcripts and comparative graphs in search of what drives markets, I do. I do so because “You Are the One(s) I Want” to please. I can’t help it. I am “Hopelessly Devoted To You.”