By Keith Fitz-Gerald Contributing Editor
Some days you’re the bug and some days you’re the windshield.
Yesterday (Tuesday), there were a whole lot of bugs in the guise of the short-sellers who got squashed on Ben Bernanke’s windshield; they covered their positions at any cost and then limped into the hills to hide.
Trading volume was huge and the rise of the major indices meteoric. But what’s not clear is whether this stunning rally is strong enough to go the full nine innings.
History suggests that Fed-related ‘market bottoms,’ or low points, can serve as the launching pads for powerful rallies. So I won’t rule out the possibility that yesterday’s big stock-price rally – which included the biggest one-day gain by the Dow Jones Industrial Average in nearly five years – will turn into a high-scoring affair.
[For a full news report on yesterday’s Federal Reserve decision, and the surge in stock prices that resulted, click here. For some investment ideas from Martin Hutchinson, our director of global investing research, based on the Fed’s decision yesterday, please click here.]
Even so, I find that I’ve got a bit of a cynical feeling about yesterday’s market action, if for no other reason than similar rate cuts did essentially nothing for stocks in 2001 and 2002 under very similar “bubble-like” conditions.
Nor did big rate cuts help Japan much, either, not even when that country’s central bank slashed interest rates all the way back – to 1% – and that country fell into a 15-year recession. Talk about a shutout!
Therefore, the question in my mind – and the one that I think most people need to be asking themselves over the next couple of days – is this: What does the Fed know about how bad things really are that Bernanke had to go to the central bank’s bullpen, and pull out a rate reduction of a full half a percentage point?
In other words, are we dealing with a bona fide slugger, a true legend-in-the-making, like “Hammerin’ Hank” Aaron? Or is our Fed chairman more of a likable, good-natured duffer like Bob Uecker?
Either way, I think Team Bernanke brought in the heavy artillery much earlier than seemed necessary, and perhaps wasted a shot in the process.
Here is the view from the bleachers, at least as I see it:
What? No strike? Didn’t the ump “ring us up” with a called third strike?
Nope. As bad as a weaker dollar is in global terms, it’s actually great for investors who own what I like to call the “Global Titans.” You’ve heard me talk about these before. These are globally diversified companies, and most of them have nice businesses in Asia, and in China in particular, where the economy is growing at a 12% annual clip. They’re great stocks to hold anytime, but during periods of severe uncertainty (especially uncertainty caused by interest-rate stress), there’s almost nothing better to own on the equity side of the ledger.
An easy way to get in the game is to pick up the SPDR DJ Global Titans (DGT), which is traded both in Frankfurt and New York. It’s a quick way to snap up dividends and draw support from the world’s biggest brands at the same time.
All in all, I think yesterday’s rally was a gift.
On one hand, the Fed got its way. On the other, it highlighted just how fragile the U.S. economy is at a time when the global markets are actually gathering steam.
Batter up!
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