Sunday, May 27, 2012

Get Dunked

So just as I finished asking the market gods for some volatility, we get a good old correction which scares me because everyone is calling it a correction, not the beginning of a bear market.  Which is how all bear markets start.  But my stubborn fundamental analysis is still bullish although markedly less so than this time last year.  So like everybody in this game, we have to follow our plan and thus I bought some VTI on 5/18 at the cheap cheap price of ~66.42.  Watch it get even cheaper as my idiocy is recorded for all eternity.

Always remember that currency doesn't exist in a vacuum.  In a vacuum, currency is toilet paper.  Its value is always relative to other currencies (or goods and services, but this is not an econ post).  So looking at a chart of a dollar in of itself is meaningless.  When the chart is bullish, that means some other currency is getting crushed.  In this case, the dollar is currently strong = the euro is currently weak.  But which case is more reflective of what's going on?  Obviously the weak euro right right, for obvious reasons?  The dollar's strength is just a the flipside of Europe's second Dark Age.  It's just schadenfreude folks.

A lot of talk about the death of equity is out there right now.  Bond funds has never been so popular.  Somehow people are again missing the boat and this will end in heartbreak.  Here's why: bond funds are essentially bets on interest rates.  The value of the fund will markedly drop if interest rates rise.  Since rates cannot go lower than zero, the NAV of a bond fund tend to look like a limit graph.  We are seeing that right now with TLT.  Every uptick on that chart means interest rates went a little more down.  Can 20 year treasuries really go down to 2%?  1%?  0%?  Rates will rise because inflation will eventually rise.  This has nothing to with Bernnke's "money printing".  Inflation is inevitable no matter who's Fed chairman and inflation is always fought the same way: higher rates.  This will again demolish dumb money, who's mostly the middle class looking for that lottery ticket to never work again.