rogernusbaum

I stumbled across something of a Twitter argument over the various implications of the current round of QE in the US (it isn't really QE but it is). One of people involved in the argument who is at the very least skeptical if not bearish thinks that all of this will end badly. After all, we all learned in economics class the printing money and trying to disrupt the economic cycle through artificial means will end badly in a torrent of unintended consequences. The person on the other side made the points that there's no evidence that supports QE creating a fallout crisis worse than the original crisis, that had the Fed not kept up the QE (or whatever you want to call it) all this time that many people would have been very adversely effected and that it is heartless to wish misery on people.

This is a great example where, as end user investors, you don't have to have an opinion or more correctly, your opinion doesn't have to influence your investment decisions. As a matter of opinion, yeah, I don't see how this ends well, I don't really understand how the stock market has done so well over the last ten+ years but none of that matters.

What does matter is that the market is up a lot over the last 10+ years and anyone relying on stock market growth needed to participate in that move higher. Going forward, yeah, the arguments that growth in the 2020's should be less than the teens resonates with me but I have no idea what will happen.

The action point is to stick to whatever investment process you chose as being best for yourself when not pondering things like QE and so on. I have unyielding confidence that if QE doom turns out to be correct then the equity market will start the bear market cycle like it always does. It will rollover slowly and not be down that much after a couple of months. Look back at past bear markets, this is how they've started. An exception might be the crash of 1987 but the low from that event came along fairly quickly.

Even if that is not the case, the S&P 500 would at some point fairly early on, breach its 200 day moving average (a catalyst for me to take defensive action in client portfolios). If doom started a few days ago, a breach of the 200 DMA would occur about 10% below the high at around SPX 3000. Ten percent drops might be uncomfortable but they are far from doom.

I also wanted to touch briefly on the Coronavirus. It does not feel like people are panicking about this but I am reading some content that seems to be saying that we should indeed be very worried. I certainly don't have any insight on whether this becomes a big deal or remains fairly contained. We know that for now the numbers are microscopic but there is a long, asymptomatic period where people are contagious. It is hard to think there is a market implication at this point but who knows about the future. For now, you won't make it worse by diligently washing your hands.