Charles Kirk had a post up that I thought was particularly useful both for the investment implications but also the philosophical implication too. In the post he answered a reader email who feels that the US equity markets are being manipulated by the US government and the reader believes Charles should comment on this more.
You can get a sense of Charles' reaction from the title of the post which was "Life’s Not Fair – Get Over It!" Charles, taking the trader's viewpoint, believes that devoting a lot of time to the markets being manipulated is likely to come from someone who is not trading well and looking to blame someone or something. Additionally Charles feels it is simply counter productive to dwell on negative energy.
Long time readers will recognize this title of this post from past posts of mine as a yoga reference meaning don't worry about how the person next to you is doing the poses just focus on what you can do with each pose. You can also tell from the title that I generally agree with Charles' take on this although I do come at this as far less of a trader than Charles.
Although I agree with Charles I do come at this issue differently. If you do not believe the market is manipulated then none of this matters. Charles reminds the reader that the market is often/always being manipulated by someone. This has been true before and will be true again. if you agree with Charles about this, then it seems to me that the manipulation is beyond our control.
As a part of my DNA I tend not to worry about things beyond my control and instead focus on things that I can control as a more effective way to solve how something like this might impact me or my clients. As this relates to portfolio management, think about the Quantitative Easing, or more topically QE2. I guess the debate over if is now over and the world has moved on to how big and over what time frame.
That the US is at the point of a second round of QE means we are trying to understand just exactly how bad off the US economy is. QE is an act of policy desperation with very little realistic chance of solving the problem--if nothing else time solves these problems and the government's steps to help solve the problem will either facilitate a faster solution than would naturally occur or serve as an impediment to same (this is a belief of mine).
To the extent that QE is about US economic health then it is also about US economic cyclicality and we know QE2 is an act of desperation to restore normal cyclicality an investor can control the extent to which they are exposed to desperate policy maneuvers. Embedded in this is that part of QE and QE2 is what many people believe is a manipulation of the US markets.
Determining that added all up, the QE2, the manipulation and so forth, US cyclicality is better avoided is a reasonable conclusion and within your control. I think this is different than lamenting over what is wrong or put another way trying to solve the world's problems.
If you are a do-it-yourselfer then you only answer to yourself and can have more regard for solving the world's problems but if you manage other people's money then your job is give your clients' money the best chance possible to grow to the point where they need it to be.
I think it is only logical to avoid or minimize that which relies on QE2 working which is US cyclicality. From the start of this site I've written a lot about the US becoming a less attractive investment destination but current events have exceeded anything I had in mind when this thought first occurred to me. So the task has become finding innovative ways to give whomever you serve (yourself or your clients) the best chance of having what they need when they need it (repeated for emphasis).
While I can appreciate that people may not come at this the same way it is the only conclusion I draw about how to move forward in the portfolio; that is seek out the healthier parts of the world or themes where money will flow (presumably stocks in themes where money will flow would benefit) and avoid countries or market segments relying on desperate measures (also repeated for emphasis).
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