The other day I posted a simple contrast of images that made the case for why knowing what Bernanke will do next has no bearing on trading profits. However, reliance on Bernanke, what millions do every day, is a troubling investment strategy.
Want some pretty clear reasons why trend following makes imminently more sense over trusting the Fed for your
cat food retirement years? First, John Hussman makes the trend following case (though not his intention):
..investors…have to assume that they can safely speculate until some particular date arrives on the calendar and they can all take their profits simultaneously…Chairman Bernanke believes that by creating a bubble in speculative assets, people will “feel” wealthier and keep consuming – regardless of the fact that real incomes are stagnant and debt burdens are already intolerable, and despite the fact that there is extremely weak evidence for any such “wealth effect” in the historical record.
Second, these guys pile on the trend following bandwagon (again, not their intention):
The high levels of employment reached during the 2004-2007 period were achieved on the backs of the housing and debt bubbles. During that time, economic growth was boosted by 400% as a result of people taking equity out of their homes (mortgage equity withdrawal). Considering no one has any equity left in their homes to withdraw, economic growth and the jobs that come with it are going to have to find another adrenalin shot. If you know the next big thing – feel free to share it, the World needs it.
60 Minutes? They help make the case too:
Bernanke is essentially trying to pull a Bubba Watson at the 2012 Masters, except if Bubba doesn’t make the shot he finishes 2nd (not dead broke in a van down by the river):
If Bernanke screws the pooch millions who have bought into trusting the Fed as retirement gospel are going to need a permanent allowance…and we all know where that comes from, right? The tooth fairy of course.
Skip the opening acts (i.e. reliance on government cheese) if you want the opportunity at the big wealth still. Trend following will be the long term winner and the historical proof is clear. Bottom line, if you want to be distracted mute Bernanke’s seduction and go straight to Upton’s seduction.
Source: Golf shot.