Investors Lose Out Due To Bad Timing

Stocks took a breather last week after signs of cooling in China, and what some investors saw as a possible change in FED policies. The Nikkei, which has soared since last November on hopes of economic revival, was the hardest hit by Thursday’s 7.32 % fall. Other Asian and European markets dropped as well, but not as dramatically, raising questions whether the bull market has come to an end.

Some investors blame FED chairman Ben Bernanke for the turmoil. Others point to a apparent difference between Bernanke and the board’s published minutes for late April. Investors could, however, blame themselves for unrealistic expectations and their gamble on a change in FED’s policies.

Investors have different motives for a change. Some are appalled by the FED’s money printing and that there is no predicted hyperinflation. Others hope that Bernanke’s monetary experiments will be abandoned, meaning that President Obama’s entire economic policy failed. The third and biggest group of Wall Street investors simply blame themselves for missing out on the stock rally. The general indexes have beaten the hedge funds three times since January.

No wonder many of them are frustrated. This year's fat bonuses might hang on their own wishful thinking for a quick change. Change depends, however, on objective analysis, and a correct reading of Bernanke’s careful wording. In his testimony last week, Bernanke repeated word for word what he stated since last September.

The Fed will continue to buy 85 billion of bonds monthly until the 6.5 % target for unemployment and a steady growth is established. The grunting from dissatisfied FED board members is not something new.Their hopes for a change in policies have been reflected in the last eight FED minutes.

There will, of course, be a change. But the timing will be decided by economic data and the FED’s consideration. Investors lost billions of dollars last week on a wrong bet on the timing for a change. By now, they have hopefully swallowed their anger and are ready to meet markets which are hopefully back on track, rallies and continued new highs.