Last week, the Wall Street Journal published a rather equivocating piece by one of it's columnists, Justin Lahart. I found the piece to be, at best, a waste of time and, at worst, supporting and advocating specious analysis regarding Fed rate cuts and subsequent investment performance.
Consider these quotes from the Lahart's piece,
"Perhaps some of the rules are changing. Investors tend to believe that interest-rate cuts are good for stocks. Research seems to bear that out....
But interest rate cycles don't always appear to be a great guide to stock performance. In the 1960's, for example, stocks did well even as interest rates were rising. It would be unwise to ignore the past 33 years of history, but it might also be unwise to put too much weight on them."
Gee, thanks Justin. Glad you could add value on this issue.
Does Lahart fill us in on inflation rates during the periods involved? That might help us understand the effect of Fed rate cuts, in that the overall market and economic contexts clearly matter. How about GNP growth during the periods, too?
Oh, and what about the market impact of technology in at least three ways: the advent of derivatives trading; computerized trading technology, and; availability of information via computerized technology, to more rapidly and thoroughly react to fundamental and technical information?
Does anyone really believe that you can just compare one activity or measure, such as Fed rate cuts, over time, and assume it will soak up/account for total variance of something like overall stock prices?
Not only is Lahart's piece of no actionable use, it questions credulity as to its reasonability.
I wonder if this thesis would even rate a grade of "D" in any graduate economics course. I expect better from the Money Section of the Wall Street Journal.
Don't you?
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