April 7, 2016

Feds policies are hurting savers and helping risk those who need cheap money

My portfolio is now at its largest net short exposure in over a year.

In doing so, I am at odds with The Church of What's Happening Now. I'm also at odds with many of our technically oriented contributors (even as I am respectful of their views and methodology) who react to price trends over fundamental analysis, although some do combine the two!

I recognize the risks of being anticipatory and outside of the herd/crowd. However, being so -- for example, as in 2007-08 -- has served me well. Like nine years ago, my time frame, considering the depth of my fundamental concerns, has been lengthened in duration.

It is logic of argument, the determination of reward versus risk by incorporating fundamentals, valuations and investor sentiment, and the broader financial analysis of the world's economy that guides my investment journey.

Importantly, I see many similarities between that period and today with regard to the build-up of public debt (compared to the last cycle, where debt was concentrated in the private sector.) A nasty recession, somewhat worse than a garden-variety recession, might be the outcome.

From my perch, Yellen's comments resolved nothing as, again, it is not the absence of liquidity, the cost of capital or the level of interest rates that are constraints to growth, as I stated here and here. Rather, lingering -- and some unintended -- structural issues will weigh on the future trajectory of global economic growth.

I find it downright scary that after six to seven years of zero interest rate policy and quantitative easing, Fed talking heads such as Charles Evans say on one hand the economy is fine but, on the other hand, that moving interest rates by 25 to 50 basis points could jeopardize growth. That statement underscores the fragility of a recovery that is vulnerable to any number of exogenous events.

And by rewarding those individuals and entities that don't need cheap money while disadvantaging those who have spent a lifetime saving makes little sense to me and is likely a recipe for long-term failure and potential social issues and threats.

Monetary policy will not induce real growth as would debt reduction, true tax reform and structural changes to our entitlement system. Being fiscally responsible to our representatives in Washington, D.C., seems to be a revolutionary concept, but it really is the responsible thing to do.

I am not even certain that a rise in interest rate will be contained, or, as the consensus now believes, that rates will move lower. Already the "markets" have rescinded the drop in yields that were spurred by Yellen's comments.

The same applies to the consensus that the U.S. dollar will now weaken; I am less certain than most seem to be.

I see Fire and Ice and I am haunted by the answers to the three questions that I ask myself every morning before the market opens as well as The Many Peaks I See.

So I am committed to the short side...

Position: Short SPY 

via thestreet