Sunday, August 29, 2010

Beyond bullish and bearish - just be pragmatic

The past week's news flow included 1) a decline of 27.6% in US home resales during July (a more modest 13.4% decline was expected), 2) US second quarter GDP, as reported by the US Commerce Department, grew at a 1.6% annual rate (a decrease from last months 2.4% estimate and 3) Intel Corp. (US: INTC) cut its third-quarter revenue forecast because of weak consumer demand for personal computers in mature markets. When U.S. Federal Reserve Chairmen Ben Bernanke addressed policy makers and economists in Jackson Hole, Wyoming; he said "the task of economic recovery and repair remains far from complete," and "in many countries, including the United States and most other advanced industrial nations, growth during the past year has been too slow, and joblessness remains too high".

MY TAKE: Bernanke's comment that the Fed "will do all that it can", along with a short-term trading view that "markets are oversold and ready for a bounce" helped support a rally in US equities on Friday. However, debates persist on how to deal with 1) the potential of deflation and/or inflation, 2) slowing economic growth and 3) continued unemployment. There are also concerns that the Fed's ability to address the economic challenges is in decline. Uncertainty is the enemy of investors and uncertainty remains high. Be pragmatic in your investment decisions and heed the words of Warren Buffett: "Rule No.1 is never lose money. Rule No.2 is never forget rule number one."

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