Jesse Felder on what "don't fight the Fed" really means

There's a fascinating irony right now....  The misconception propping up asset prices is this idea of "don't fight the Fed," that there is no alternative to owning stocks when interest rates are suppressed.  So "don't fight the Fed" means you buy financial assets.  At the same time, the Fed is saying "we're going to do everything in our power to create inflation."  So if you're going to really adopt the "don't fight the Fed" mantra, then you would take them at their word and say "they're biasing for higher inflation," which means financial assets are not the place to be.  It's interesting to me that these misconceptions result in this hyprocrisy. 

~ Jesse Felder, "Diego Parilla on Appreciating the Opportunity Set in 'Antibubbles'," Superinvestors and the Art of Worldly Wisdom podcast, 37:15 mark, April 21, 2021

Fred Hickey on QE3

Maybe I've spent too much time in the basement, but it can't be any clearer to me that we're seeing an almost exact replica of what occurred last year.  Last year Ben Bernanke and a "galaxy of Fed officials" fanned out to pave the way for the next round of QE.  This year they're doing the same thing.  Stocks soared for months before and for months after the implementation of QE2.  Now we're in the months leading up to the implementation of QE3 and the stock market has begun to soar again.  Yet there are a lot of stock market bears trying to short this market.  Look, I'd like to be bearish too, based upon the dismal economic fundamentals.  Unfortunately in this case, you can't fight the Fed.

~ Fred Hickey, The High-Tech Strategist, November 6, 2011

Jason Trennert sees new highs in the S&P500 in 12 months

It wouldn't surprise me, candidly, to see the market hit a new high sometime in the next 12 months. Corporate profits, as measured from the GDP accounts, are actually past the prior peak. I would say the quality of the earnings is much better than it was when we were at the previous peak because a third of those earnings just came from one sector, which was financials. I think the Fed, personally, is going to remain a lot easier, longer than people are expecting. I think the whole idea that central banks, particularly the Fed, has made the decision that it won't tolerate deflation makes the asset allocation decisions a lot easier.

Now that you kind of know that inflation, or sticking the landing, are the two most likely outcomes, the equity allocation decision is just beginning. In my view, that is the greatest single catalyst. Hedge funds have already moved a lot of assets towards equities but long-only funds, retail investors, pensions and endowments are just starting to move the turrets toward equities and equity investments. That tends to happen over a very long period of time, it doesn't happen over a two or three month period, which is all we've seen in terms of flows into equity funds.

~Jason Trennert, managing partner, Strategas Research, Consuelo Mack Wealthtrack, April 22, 2011

Bill Miller on how he's adapted his management style to the existence of black swans

We've always had a very robust set of strategies for dealing with all kinds of different kinds of markets, but I think the big mistake that we made, or that I made, was effectively to say, "We need a strategy to deal with anything that's happened in the post-war period." So, inverted yield curves, inflation, a crash like in '87, all different kinds of panics.

But I explicitly ruled out a return, in essence, to depressionary conditons, just like I ruled out a new Civil War, for example. Well, the answer, I think, is you can't rule out anything. Anything. I think you have to look at anything that can hit aggregate demand or aggregate supply. And that's the thing I think we're well prepared for now.

And also, understanding that there are two types of financial crises: one of them, which we've navigated in very well, like the crash of '87, which are liquidity-driven crises. The strategy in a liquidity-driven crisis is pretty simple, which is, when massive liquidity is injected, you buy what the center of the crisis is; in an asset-based crisis, like we had in 2008, that strategy is very bad, as we found out to our chagrin. The proper strategy there, in an asset-based crisis is, you don't do anything until the authorities move to stabilize asset values and preserve them. That was TARP. Everything the Fed had done or the government had done, the Treasury had done up until TARP destroyed equity value. So, wipe equity holders out at Bear Stearns and wiped them out, and even creditors, at Lehman Brothers.

Once they decided to preserve equity values with TARP, that was the beginning of the end of the crisis. That was the time you go in and buy. So, I think we're covered on both kinds of crisis in the future.

~Bill Miller, chairman and CIO, Legg Mason Capital Management, CNBC's Squawk Box, April 6, 2011

Barton Biggs says falling house prices will result in QE3

I don't think [the Fed will be forced to raise rates]. I think Bernanke is obsessed with house prices because he knows how important house prices are for the net worth of the average American, and they're crucial. The fact that house prices are still declining has got to be telling him that QE2 is still not doing what he hoped it was going to do.

So, I think if house prices keep falling there's a good probability that he's not going to end QE2 and there may be a QE3.

~Barton Biggs, managing partner, Traxis Partners, Bloomberg News interview, March 24, 2011

James Altucher on bubble investing

We're on the right side of a bubble now, let's try and take advantage of it by buying stocks.

~James Altucher, investor and author, CNBC interview, circa August 28, 2009

Richard Burnstein says don't fight the Fed in 2011 (or even 2012)

We can argue to great length as to whether all this monetary and fiscal policy is good for the long-term health of the U.S. economy. But it's hard to fight the fact that in the next 12 to 18 to 24 months, this is going to put the wind in the sails of the U.S. economy.

Richard Burnstein, CEO and CIO, Richard Burnstein Advisors, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

Doug Casey on gold

I have to say again that the fundamentals behind this trend for gold are very, very strong. It's going to continue upwards. And although we're moving towards a Mania Phase, it's nothing near a mania today.

[...]

Consider the alternatives – they're quite unattractive. Another old market rule, since I'm quoting old market rules, is: Don't fight the Fed. And never since the Fed was created has there been a more clear signal from the Fed. People have made fun of Bernanke for saying he would drop hundred-dollar bills from helicopters, but that is in essence what he's doing – but with a lot more hundred-dollar bills than you could fit in a helicopter, or even a squadron of helicopters.

You don't want to fight the Fed: buy gold.

[...]

To use poker jargon, Bernanke has made an all-in bet that's going to be inflationary. So I'm inclined to make an all-in bet myself, on gold and gold stocks.

[...]

Hundreds of billions in new liquidity at the stroke of a pen – of course it will impact the stock market, and you don't want to fight the Fed.

~ Doug Casey, "Doug Casey on Gold’s New High, the Fed, and the Greater Depression,"

David Tepper on comparisons between Japan and the US

No, we're not Japan.

We're not Japan because, what's your mortgage rate? Five and change. So, if it's 4%, you save money, right? Do you spend some of that money you will save? Damn, that will work!

Okay, the Fed can buy mortgages. They can make it work. We're not at zero, are we, on mortgages? No. So, we can go to 1%, 1.5%, 2%-- on that way, you're buying stuff.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

David Tepper says don't fight the Fed

[The Fed] said they want economic growth, and not only do we not care if there's inflation, but we want a little more inflation. Have they ever said that before? No. They said they want the market up, so what am I going to say, "No, Fed, I disagree with you, I don't want to be long"?

Right now, what's going to happen? Two things are happening, it's that easy sometimes. Either the economy is going to get better by itself in the next three months, and what assets are going to do well? Stocks will do well, bonds won't do well, gold won't do so well. Or, the economy is not going to pick up in the next three months and the Fed's going to come in with QE, right? Then, what's going to do well?

Everything... in the near term.

So, let's see, what I got is two different situations. One, the economy gets better by itself. Stocks are better, bonds are worse, gold is worse, if you want to talk about those three assets. The other situation is, the Fed comes in with money. Now, up until the point the Fed comes in with money the stock market can go down a little bit-- but not that much! Because I got a put. Ya gotta love a put, especially when the government is issuing it.

So, I can't go down that much. It doesn't mean I go up until that point, but after that it means I go up, so what do I do? I gotta buy! I can't take the chance of not being a little bit longer now.

It's that easy. That's how easy it is.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

Fred Hickey: "I don't regard the selloff as a great short selling opportunity"

Virtually all bear markets in this country's modern history have been preceded by Fed interest rate tightenings. [...]

Today, there's not even a hint of Federal Reserve rate hikes nor of significant liquidity draining. [...]

This kind of support from the Fed makes it unlikely that the current correction will turn into any kind of sustained bear market for stocks. The Fed would likely reinstate its QE [Quantitative Easing] program if stocks declined too sharply. Bernanke told Congress last month that there was nothing that says the Fed couldn't buy more mortgage-backed securities if conditions warranted. Therefore, even though I'm expecting this downturn to continue for a while, I don't regard the selloff as a great short selling opportunity, unlike what I had foreseen in the late 1990s-2000 and again in 2007 when interest rates were hiked.

~ Fred Hickey, The High-Tech Strategist, May 5, 2010

Bill Miller on his decision to increase his holdings of financial stocks in 2007

We bought financials after the Fed [first] injected liquidity [into the market by cutting the discount rate on Aug. 17, 2007, and then the fed-funds rate on Sept. 18, 2007, continuing into 2008.] That's what you do in a liquidity crisis... This turned out to be a collateral-driven crisis caused by underperforming debt... We've analyzed that mistake and tried to make adjustments to risk management and the portfolio-construction process.

~ Bill Miller, portfolio manager, Legg Mason Value Trust, "It's Miller Time!," Barron's, October 12, 2009