Fundamentally Flawed

Imagine if the outcome of a football game depended more on the weather than on the talent of the players.

Weather, indeed, can have an impact and should, but its role is usually to test the talents of the players, not to be the primary factor in the outcome.  When it is the primary factor, anything can happen.  In such cases, would you put money on the game?

The weather is not the number one factor affecting the performance of the stock market these days, but neither is the talent of the players – that is, the fundamental performance of publicly held companies.

In recent years, The Federal Reserve Board has held sway over the market’s performance via quantitative easing, although under former Chair Ben Bernanke, it was somewhat more predictable than the weather.AUDJPY

Now, with tapering under way, that may change (we’ll see, as many expect plenty of bond buying ahead).  Yet other world events may replace QE in determining the performance of the market.  That means potentially greater volatility than we’ve experienced in the easy money era.

It doesn’t take much to affect today’s global economy, especially when the impact of events is amplified by high-frequency trading.  Consider, for example, the impact of the falling yen and Australian dollar on the S&P 500.

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Economic Stagnation of Olympic Proportions

Russian President Vladimir Putin is a busy man.  He’s found time to prop up Syrian dictator Bashar Assad, negotiate a face-saving chemical weapons deal with President Obama and support violence against Ukrainians, all while overseeing the construction of the most expensive Olympic Village in the history of the games.

The Olympic Village at Sochi had a projected cost of $12 billion.  The actual cost was $50 billion.  So no more complaining about The Big Dig.  It could have been worst.

PutinAnd, like The Big Dig, all that money failed to buy quality construction.  Stories abound of shoddy construction and faulty work.  The Olympic Village is more like a Potemkin Village.

At the Olympics, color, pageantry and the world’s best athletes draw the television cameras, while a few hundred kilometers away, the Ukrainian government, with help from the Russian government, is killing its people.  This week, violence in Ukraine was the worst it’s been since the breakup of the Soviet Union.

As with Syria, the U.S. is leading from behind.  While the European Union has at least announced sanctions, the U.S. is only considering sanctions.  President Obama denounced Ukraine violence “in the strongest terms,” but talking is the weakest action.

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