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Investing in a World of Intervention

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To succeed in this market, you need to think like a regulator.

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When you're riding 16 hours and there's nothing much to do
and you don't feel much like riding, you just wish the trip was through.
Say, here I am, on the road again. There I am, up on the stage.
Here I go, playing star again.
There I go, turn the page.


Bob Seger and the Silver Bullet Band
"Turn the Page"

Will Turning the Page Be a Silver Bullet?

I'm not sure what makes people believe that turning the calendar to a new year will be a "magic bullet." I have to admit to having my own New Year's resolutions: Lose weight, stop smoking, etc, etc, etc. But resolutions or no, when we wake up on January 1st, not much has changed, right? Our resolve almost immediately starts to fade, and most folks revert to their ways of old. Present company most definitely included.

When the history books have been written, 2008 may very well be remembered as "the Year of Intervention." For those who have read some of my previous pieces, that may sound a bit whiny, and/or frustrated, - and indeed you're right. It is.




Winding one's way through this market and economy is challenging enough without near-daily interruptions and interventions from governmental and quasi-governmental authorities (such as the Treasury Department and the Federal Reserve). The most problematic aspect of these constant interventions? That they ask us to change our behavior as investors - that alone could explain the volatility of truly historic proportions we've been experiencing.

Simply put, free markets are no longer free; outside, seemingly random influences intrude upon them, and seem to make our disciplines moot. But rather than whining, we must ask ourselves how do we, as investors, react to these "outside influences"?

Interaction Versus Intervention

Let's face it: Most of us are used to free markets. In free markets, we're left to our own devices to sort out the good from the bad, the value from the value traps, growth versus value, and so on.

No one has been trained how to act given the near-random, unprecedentedly high levels of intervention.

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No positions in stocks mentioned.

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