Liar, Liar, Pants on Fire!

I’m a dad with four kids nowadays, but despite the fact that I turned 40 two weeks ago (our college girl babysitter told me 40 is the new 25…extra tip that night) I can still remember what it feels like to be a kid. Because I can muster the memory of being a child and yet enjoy the current perspective of being a parent I now know a seldom admitted truth. That truth is that sometimes parents lie. Forget the tooth fairy, that’s an obvious one. I find that most parental misrepresentations are done in the name of protection. Like how you answer a five year old when they ask you where babies come from, or how you assure the kids that everything is going to be OK when someone loses their job or gets really sick. This week, as an investor, the Federal Reserve left me feeling like a child being placated by Mom and Dad, but unfortunately with my current perspective as a parent I can recognize when I’m being played. This placation took the form of the statements that followed the Fed Board meeting that was held on Tuesday. In its statement the Fed acknowledged what I think we all kind of already knew on some level and that is that our economic recovery is anemic at best, and in the darker corner of our minds possibly faltering or even reversing. Now it’s one thing to allow yourself to contemplate the monster under the bed on your own, but when Dad, in this case the Fed, openly acknowledges that the source of your anxiety might just be legitimate it puts a whole new spin on the issue. So what you say…we all knew this recovery stinks and now the Fed has just acknowledged the truth… what’s wrong with that? Well the acknowledgement of our precarious economic state was only the first part of the ruse. It was the second part that addressed what policy action could be taken to bolster the strength of our recovery that left me feeling placated. That’s because the policy response basically said “relax things aren’t that bad and everything is going to be OK” when I got the distinct feeling what they were really saying is “sorry son the bear is charging and I’ve got no more bullets for the gun”. The Fed policy response was that they were going to use principal repayments from those $2 trillion in mortgage bonds they bought over the last 20 months to buy more government bonds. In this trillion dollar world, this was about a $30 billion dollar response, or put simply it wasn’t even a band-aid. Now if you read my column you know that I’m not the kind of guy that begs for a big government fix for all our problems. I personally believe that our current economic malaise will only be cured by time, that is, if the medicine the Fed and government keep feeding the patient doesn’t end up killing it first. My disappointment with the Fed statement this week is more about style than content. As a good Dad, I know that if I don’t have a way to slay the dragon then I shouldn’t open the closet door. This week the Fed acknowledged the monster in the closet, turned off the lights and went to bed. So where does that leave us? A glance at the stock market this week answers that question.