Sharp Decline In Markets an Overreaction

If you are a fundamental investor, today's sharp decline following comments by Fed Chairman Ben Bernanke that the Fed will not change its current plan to buy bonds and continue to print money, should be taken with a grain of salt. This is largely because the Fed was also upbeat, for the most part on their overall projections of the economy, saying much the same thing they said in May about where they thought things were going.

I would take this as a signal that the Fed believes that the market is on track to meet or exceed projections, but it is still a wait and see game.

I do not like the idea that the Fed wants to continue to print money since this leads to dilution when it comes to how much a dollar happens to be worth, and I think there could have been many more, more effective policy issues that could have curtailed the perceived need by the Fed to prop up the economy through its efforts. But barring that, and of course the Obama administration has only engaged in policies that are frankly, in my opinion, negative toward the prospect of real growth, I don't really believe that the Fed was left with much else of a choice.

My reaction to Wall Street's reaction is that it was an overreaction. And this is something I see as an opportunity to buy more shares of great companies at a discount. The fundamentals of the markets continue to be strong, even if the economy is still lagging, almost staggering behind.

What I drew from Bernanke's remarks is that the Fed will continue on it's current path until such time that some of the projections get closer to becoming foreseeable as becoming true. But to pull the plug too early is perhaps not the best plan...

Especially considering the slow growth we've seen in this recovery, and the fact that, so far as I can tell, Obama has no good policy decisions forthcoming that will speed things up at all. In fact, there may still be some heavy weights put on the economy, especially as Obamacare begins to get closer to full implementation.

Despite today's sharp decline I am bullish on the markets, and I am bullish on the economy as well. I don't expect anything robust economically speaking. But that's the point. I am certain that the economy will continue slowly, very slowly upward. At some point the Fed will leave go of the reigns and allow more natural forces to work. Again, nothing robust. But whatever growth will come more naturally. I think that's a positive. It also, for me, gives a sense of certainty, the counter of which is negative to the markets. I am comfortable with slower growth, because I can see that's the direction. If the economy gets closer to projections, I am confident that Bernanke will leave go of the training wheels, and let the economy do its own thing on its own terms.

Cautious Optimism for the US Markets

Today wound up being another fairly good day in the markets, and certainly the markets have been enjoying some fairly nice runups of late. And while there are definitely positive signs that the economy may slowly be in the beginning stages of coming out of the doldrums, I am still fairly cautious about the moves I make in the markets, but also optimistic going forward that certain stocks will see some nice gains.

Part of the activity in the markets was due to the start of a two-day meeting by the Feds which, for all intents and purposes appears that they will not make any immediate changes, which is positive news overall. It willalso be interesting see what the Fed will have to say about some of the predictions they made in March when they last met in which they said they saw GDP growth around 2.6% through 2013, and a nearly 1 point increase in 2014 to 3.2%. In March the Fed also suggested that unemployment numbers would continue to improve, dropping to 7.4% by the end of 2013, and down to 6.9% by 2014. I think that if the Fed reaffirms these figures, or show better numbers for GDP growth projections and unemployment figures, obviously this will cause the markets to continue to rally. If the Fed adjust these numbers to the negative, it may throw a bit of uncertainty in the markets and cause stocks to go lower. My strong suspicion is that the Fed will not adjust their figures, but rather will state that they are on track to meet these projections they made back in March. That is still a positive, to my mind, and I think the markets will react positively to that news.

I also think that, for the time being, the Fed will maintain monthly purchases of $85 billion worth of bonds. They won't start scaling this back, I believe, until some of the projected figures begin to get closer to becoming fact. Bernanke, I think, tends to be a bit cautious about acting too soon. Although a scaling back of these bond purchases would certainly be a strong signal for the economy, and the markets could see gains as a result.

Stocks I like right now are Ford Motor Company (F), Dunkin Brands Group (DNKN), Target (TGT), and Masco Corp. (MAS).

I picked Ford due to what I perceive as better auto sales figures due to improving employment, an uptick in refinancing of mortgages which may open some money up to potential buyers, and aging fleets which will need to be replaced sometime in the near future which Ford could be a beneficiary of. Dunkin Brands Group was picked due to a good earnings cycle, and strong expansion of their business and upgrading of stores. Dunkin is making a strong push for market share, and I think they have a good chance of getting some of it. Target is my choice because consumer confidence is up slightly, and because I think Target is considered by many consumers as an upgrade to other discount players like Dollar Tree and Walmart. If economic conditions improve, and employment situations improve, consumers may well treat themselves to shopping up at Target over the other discounters. Plus, their stores look great. Masco Corp. is a play on the nearly 7% uptick in new housing starts recently reported, and improving home sales overall. When people buy new or existing homes, they tend to want to spruce things up a bit, and Masco Corp. is definitely a company who offers products new homeowners can turn to to help them to do this.

Will Lincoln ever offer a truck again?

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