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.