Pond Life (May) – The Thoughts of Robert Sutherland Smith

As I swim through the still bracing cool waters of the pond up at Hampstead Heath, a duck makes passage across my bows, or to be lucidly un-metaphorical, my nose! There is something comforting about ducks; reliable creatures bobbing along in an unreliable world, asking only the companionship of other ducks and some weed to eat. 

In my mind I hum the tune of that old Roy Rogers (the elegantly attired, spotlessly laundered, white hated singing Hollywood cowboy of my childhood) song about his horse, the reliable and faithful  “Trigger”, “… that four footed friend …he’ll never let you down …….etc” and add my own words:  “That web footed friend, that web footed friend…….etc. It is a wonderful therapy doing something physical and boring enough to make your mind a vacuum into which such abominating thoughts pass through unbidden. Then, come thoughts of the market. As I make my turn by a weed covered buoy – I spot another approaching duck as my thoughts meander across the exceptional May market… Have we all been misguided? 

For most of the month it has disobeyed the old market dictum about selling and going away until St. Leger’s Day. I wonder who St. Leger was and vow to look him up on Google!  Stock market rules, unlike those governing the physical world, are discretionary, sometime working and sometimes not. There are no market laws just unreliable phenomena: more an art than a science. The buoyant market of recent weeks is hardly surprising, since the recovery of the US economy is a seminal event, as engaging as the raising of Lazarus; the Pharisees of the US economically conservative right, amazes by the fact of it.

Confounded also, by the foretelling of the Congressional Budget Committee that the Federal fiscal deficit will be down to 4% by this year end, and to 2.5% by 2015; real American get up and go! In number 11 Downing Street, the curtains are drawn and the occupant decides not to go to work. Inevitably, shares are looking overbought and ahead of trend whilst market makers must be generally short of stock, and itching to get some back on the books. And a wonderful opportunity for profits! 

Unsurprisingly, a convenient mighty Bach chorus of gloomy investment banking observations and prognostications suddenly crashes about our ears. The rising of the ten year US Treasury bond yield to 2.3%, the highest rate for a year in anticipation of the tapering of quantitative easing by the Fed prompts bearish talk, as though equity prices are unsustainable a Fed Fund rate of two and a bit per cent. The rising dollar pushes down the yen, prompting a one day 7.5% sell off of Japanese equities. Is it all coming unstuck! Is recovery at an end! I doubt it?   

With jetty in sight, I push on, cooled by the unseasonal temperature of the water at about 14 degrees Celsius, and calmed the rhythm of my stroke. I conclude that we are not witnessing new truths but a short, over bought market, rationalising itself back to a new strictly short term equilibrium through suitable to investment bankers with expert, analyst observation.

Any small shortfalls in short term market economic forecasts (in reality no more than educated guesses) are magnified into great disappointments. We are admittedly in new territory but the Fed will without doubt handle any tapering of quantitative easing, with the watchful market managing skill to engender the newly found consumer confidence. In Japan, they will have to learn to ask for pay rises as weakened yen makes dollar denominated energy imports more costly. That is all part of the plan and the way economics works. I climb the steps of the jetty in a happy mood of sustained longer term bullishness.

Robert Sutherland Smith