The Ignorant Investor

Wow. Big day. A bigger pop than I expected. I didn't trade during the big drop (though I was finally tempted on Monday, and that should be a lesson for me to remember) or buy in on the dip. I'm still sticking with my plan of putting money into short term bond funds and the S&P 500.

The big increases today came in the exact same areas that were the worst hit over the past week or two- emerging markets, Europe and Japan, gold, small caps. The S&P went up, too, but less. So basically what we appear to be seeing is a lesson in the concept of volatility. I think it's only going to get worse. The long term investors seem cautious to me, and they're not worried about losing out on a double digit increase for the year. So the big piles of cash they have sitting on the sidelines probably will stay there earning what now amounts to decent interest. If you're looking at a 8-9% increase in equities but can get 5% on a short term bond with no risk, you're not going to dump equities altogether, but you'll probably increase your allocations to bonds. And to push the market up sharply, you want people to be going for broke on equities.

Rising interest rates. Rising inflation. Historically high energy prices. These might not kill the economy, but history indicates that at best they'll add drag on the market. At the least, the market will expect them to add drag, and that ends up in something of a self-fulfilling prophecy.

But that will take a while to bleed the market dry of its blood lust. Right now we retracing some ground on the same sectors that have been hot for the past couple of years. We saw huge runups, gave up some gains in a sell off. Now it's anybody's guess what comes next. It's really a traders market: people will make money predicting the daily ups and downs with short term trades, but the long term investors like me are just going to be stuck in a holding pattern.