Session 15–“FBFH—Fed Bolt From Hell”—The Next Big Thing!

BillActually “FBFH—Fed Bolt From Hell” may be the next big market-moving obsession, sniffed out and fleshed out by CNBC’s Jim Cramer (FBFH is an acronym Mr. Cramer coined).  This appears to be an undercurrent that the Street types tend to be buzzing about and may, according to Cramer, be the source of the market’s next big correction. In a piece posted last Friday (3/15/13) on CNBC’s mobile app., “Cramer said no day matters more next week than the Federal Reserve meeting (Wednesday March, 20).  This is the day when the bears could pounce, depending on developments.  He went on to say, “let me be blunt, we are now on FBFH watch.  What is that?   The Fed Bolt From Hell, my new term to describe how many people (ed. The Street) are solely focused on when the Federal Reserve is going to stop buying $85 billion in U.S. bonds it accumulates every single month to keep rates low.”

Cramer believes that the bears and pundits are all over this already and that it could drive selling when the Q.E. (Quantitative Easing) stops and the Fed begins the reversal of the process.  The obvious result should be a rise in interest rates to more normal, market-related levels and pressure on stocks as fear of a Fed-induced economic slowdown begin to surface.

At any rate, and to the point of this blog, this is something for the media to worry about and to create fear and worry in those who consume their infinite wisdom. Of course, it may also turn out to be a lot of “sound and fury signifying nothing.” If you are a trader, this is red meat and money will be made trying to short ahead of the event, cover and then go long as the fear subsides.  This blog, however, is not for traders, as trading is, in my mind, extremely difficult.  This blog is for investors trying to make sense out of the daily diet of fear, greed and uncertainty served up by the media.

Consider this.  Even though it may be spun to sound like the end of the world, FBFH may really be a good thing that could propel the market forward after the initial emotional reaction. First and foremost, Q.E. was put in place to stimulate the economy and grow employment.  It was one of the final Fed measures taken in response to the 2008 financial collapse.  Sub 2% ten-year treasuries were not a long-term goal.  Ergo, if this policy is reversed, it is a strong sign that the Fed believes that the economy can stand on its own… something all would agree to be positive!

The reversal of Q.E. would also probably be done with great care, as Chairman Bernanke would not like to repeat the performance of the U.S. economy of the 1930’s where support was withdrawn too soon and the nation lapsed back into depression.  For those who continue to fret about a Fed induced recession, please refer to Session 9 (paragraph 6) and the section about Ben Bernanke’s academic expertise on the “Great Depression”. Secondly, as it pertains to the positive impact of the end of Q.E., the market may correct, which is good and healthy,  giving those who wish a chance to add funds, or even begin to own some stocks more reasonable entry level. Finally, to counter the fears that the market may tank in a more severe way,  I will refer you back to my last post, number 14 (“BUY, Sell or Fold”).  In Session 14 we point out that the S & P 500 was last it’s current lofty levels thirteen years ago.  At that time PEs were about double what they are now, the dividend yield was half what it is today, and the competition yield from ten-year-U.S. treasuries was 6.66 percent vs. a little over 2% today.

We have spent 13 years going nowhere in a market where valuations and balance sheets have improved dramatically.  This is very similar to the 16 years we spent between 1966 and 1982.  The big differences between now and then were that stock valuations got much cheaper than they are now, but people were getting paid to stay out of stocks (i.e. 10% plus CDs and 15% 10 year treasuries). Bottom line: be on the lookout for the “Fed Bolt From Hell”, but don’t let it make you crazy.  FBFH may be a lemon from which you to make great lemonade! Your questions and comments are welcomed.

The information presented in represents my own opinions and does not contain recommendations for any particular investment or securities.  I may,  from time to time, mention certain securities for illustrative purpose, names where I personally hold positions.  These are not meant to be construed as recommendations to BUY or SELL.  All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.  

One Response

  1. Harold Sader
    Harold Sader March 18, 2013 at 3:27 pm | | Reply

    Thank you for this very clear and thoughtful presentation.
    I have been a trader in the past which, at the very least, is an exhausting,worrisome and all consuming activity. Today I buy into your advice to invest in a diversified portfolio of solid companies which are realistically valued. Sure the market can move downward as a result of FBFH or any number of other temporary causations (today it is Cyprus). For the most part these non-fundamental movements provide great opportunities to buy more of those solid companies at better prices. In my case, investing compared to trading is more satisfying in that it allows me to analyze target companies to determine solidity and value with the klnowledge and comfort that they will survive, and hopefully prosper, after general downward price movements.

Leave a Reply

%d bloggers like this: