About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, February 24, 2012

Stock Market Strategy

The SP 500 closed at a new cyclical high today. For one such as I who has been bullish on the
longer term direction of the market since around the end of 2008, this is a gratifying moment.
I use a set of fundamental indicators which did work like a charm in every post WW 2 market.
But the past economic downturn -- more akin to an economic depression than a recession -- did
necessitate going back to the 1932 - 1940 Great Depression period to gain an understanding of
how a stock market recovery could take place in the wake of colossal economic damage and a
severe credit contraction. The key I found was the dramatic reversal in monetary policy to flood
the economic system with liquidity to counterract the deflationary force of credit contraction. It
worked then to support economic recovery and to slowly rebuild confidence and it worked this
time out as well. I also saw clearly that when this naked monetary easing was shut off, the
economy was prone to recession and the stock market suffered. Since we have yet to see a full
blooded resumption of private sector credit growth in the current economic recovery, I plan to
continue to monitor Fed Bank Credit and the monetary base very carefully because the evidence
continues to show that the market struggles or sells off when the Fed turns off the spigot.

The following link (from economagic) shows the monetary base from the 1931 - 1941 period.
It is perishable but I hope it holds up for a while. Economagic

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