I hope you are enjoying today because tomorrow the taper talk begins again.
Yep, tomorrow we get Friday's postponed employment number at 8:30 a.m. and we need to recognize that we will be right back on Washington's red-hot griddle because that's just the way it works these days. You have to figure that no matter what the number, you are being given a reason to sell. If it is too strong, we will hear that the Fed is nervous about the strength of the economy. We will hear Fed governors interviewed who will fret about how it is time to scale back bond-buying. If it is too weak, we are going to hear that the tussle over the shutdown and the debt ceiling killed the U.S. economy and it can't be revived by the Fed's failed efforts.
The confusion will be viewed as a fabulous opportunity to take profits in stocks. You know what? I say bring on the sale. So many stocks have gone up endlessly that we need a sell-off to cool things and give us better opportunities to buy.
Which brings me to the pattern that has plagued the market for years and must be recognized if we are going to be able to dodge bullets and make money: First people decide that there is something in Washington that is more important than anything else that any company could possible say. This Washington preeminence is part of both the aftermath of the great recession and an activist administration that really doesn't care about the stock market, even as it's been pretty darned good despite this administration. In the wave of Washington's hegemony, companies become bit players in the bigger scheme of things and we don't really listen to what they have to say, even during earnings season.
Instead we parse minutes or count heads or gasp at the indecision, the rancor and the partisanship. Some of us are like children waiting for Santa Claus, with Santa being played by the Grand Bargain. I am surprised we don't leave milk and cookies for the Grand Bargain in front of our chimneys so when politicians come sliding down to give us the gift of bipartisanship they get their just rewards.
What people don't realize is that politicians are all Grinches, on both sides of the aisle, and they aren't going to give us anything good because neither party cares about business. Think about how everything from Washington has played out for years. Take this last fracas. If you recall, we had the last Fed meeting and it produced a spectacular rally as the Fed said it wasn't going to taper.
Then, literally, two days after that great rally, we began to hear about how the possibility of a government shutdown and a debt-ceiling wrangle. At first, we ignored it because we figured that the president and Congress wouldn't let any shutdown go on too long and we would never default on our debt. But then it dawned on us that the hatred was so thick between some of the GOP and the president that perhaps, just maybe, the shutdown won't be solved quickly and the debt-ceiling tussle could be far more serious than we thought.
Then we actually get the government shutdown, which hammers the market. And then we got the second punch: the debt-ceiling fight brinksmanship, where it was clear, at least to me, that we had to go down to the last hour before a deal could be reached on either. It was so patently obvious to all but the Santa believers that the issue wouldn't be resolved until right before Armageddon. But the market didn't look at it that way and it kept trading down, bottoming at a 6% decline from the top.
And then we got the deal.
Nothing's new to that rhythm. In fact, if you look at the charts it's obvious what we keep getting: a big run in the stock market courtesy of better-than-expected earnings and then a big sell-off when Washington in any form -- president, Fed, Congress, taxes, whatever -- gets back on the agenda. Then that's resolved and we get another run when Washington recedes again.
Now we've had our break. With the employment number tomorrow morning the chatter and the pain should begin anew and you can do one of two things: sell some stock because the taper talk will run thick, or the recession chatter will take over. Or just strap yourself to the mast and ignore the sirens.
Frankly, I would split the difference. Sell some tomorrow and get ready to buy it back when the taper talk recedes again.