Wednesday, August 22, 2007

Finally, Some Reserve at the Fed

Ben Bernanke's reserved response to the credit situation seems to be working if the early returns are any indication. Instead of giving the kids the big lollipop they were asking for - the promise of a Fed Funds rate cut - he gave them something sweet but healthier in the long-term: some pineapple chunks in the form of a discount rate decrease.

After losing about 50% of our Green gains during this recent market meltdown, we're slowly clawing our way back up. Starbucks, interestingly, is back in the black today for us, and is on pace to provide 40% gains to us over the next 12 months.

Even half that would be good, and is, frankly, what I'm hoping for. This stock has been savaged even through the company has hit its earnings targets... has been opening new stores in China like mushrooms... and is actively seeking solutions to its problems (higher drink prices... more localized decor... expanded product lines).

It's hard to get excited by a couple good days for the markets here. I believe we're in for more volatility ahead, and I think the Fed rate cut is not forthcoming in September (which is fine by me).

Here's the bottom line: If you don't like this volatility, and would like to see it avoided in the future, then supporting Bernanke's laissez-faire policy at the Fed makes sense. It was Greenspan's interventionist leanings and contant, artificial stimulation of the economy that created this mess in the first place.

I think Bernanke should be lauded for his handling of this situation. I believe seeking a "dynamic stability" would be best for investors, including ourselves. In other words, you need enough stimulation and volatility in the markets to keep them from going dead (stagflation)... but not so much that stocks are forever riding a dramatic roller coaster.

Bon chance,


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