Henry M. Paulson: On the Brink: Inside the Race to Stop the Collapse of the Global Financial SystemA good study in ideology versus the reality of the financial crisis. This is a story that you will not get anywhere else, and it is worth reading.
Vitaliy N. Katsenelson: The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere (Little Books. Big Profits)An engaging and entertaining resource for understanding markets and picking stocks.
Mark D. Wolfinger: The Rookie's Guide to Options: The Beginner's Handbook of Trading Equity Options
Michael Lewis: The Big Short: Inside the Doomsday MachineA captivating story of the crisis, told from the perspective of the winners, but with lessons for all.
Barry Ritholtz: Bailout Nation, with New Post-Crisis Update: How Greed and Easy Money Corrupted Wall Street and Shook the World EconomyAn informative and entertaining account of the financial crisis. Almost anyone will find this stimulating and useful.
Leonard Mlodinow: The Drunkard's Walk: How Randomness Rules Our Lives (Vintage)Great insight for investors seeking to distinguish real indicators from random noise.
Kate Kelly: Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall StreetGood read, good info -- a building block for anyone trying to figure it out. What the heck happened!??
Michael Shermer: Why People Believe Weird Things: Pseudoscience, Superstition, and Other Confusions of Our Time
Graham T. Allison: Essence of Decision: Explaining the Cuban Missile Crisis (2nd Edition)A seminal work on decision-making.
Mancur Olson: The Logic of Collective Action: Public Goods and the Theory of Groups, Second printing with new preface and appendix (Harvard Economic Studies)
Andy Kessler: Wall Street Meat: My Narrow Escape from the Stock Market Grinder
Roger Lowenstein: When Genius Failed: The Rise and Fall of Long-Term Capital Management
Robert A. Caro: Master of the Senate: The Years of Lyndon Johnson, (Vintage)
Ken Uston: Million Dollar Blackjack
Edwin Lefèvre: Reminiscences of a Stock Operator (A Marketplace Book)
Neil Browne: Asking the Right Questions: A Guide to Critical Thinking (8th Edition)
Ralph Vince: Portfolio Management Formulas : Mathematical Trading Methods for the Futures, Options, and Stock Markets
Malcolm Gladwell: Blink: The Power of Thinking Without Thinking
Brett N. Steenbarger: Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology (Wiley Trading)
Robert J. Shiller: Irrational Exuberance
Gene Epstein: Econospinning: How to Read Between the Lines When the Media Manipulate the Numbers
Edward R. Tufte: The Visual Display of Quantitative InformationThe authoritative work on the subject.
Murray Edelman: The Symbolic Uses of Politics
Gary Belsky: Why Smart People Make Big Money Mistakes And How To Correct Them: Lessons From The New Science Of Behavioral Economics
Laurence H. Meyer: A Term at the Fed : An Insider's View
James Altucher: Trade Like a Hedge Fund : 20 Successful Uncorrelated Strategies & Techniques to Winning Profits
Janet Lowe: Warren Buffett Speaks : Wit and Wisdom from the World's Greatest Investor
Nassim Nicholas Taleb: Fooled by Randomness : The Hidden Role of Chance in Life and in the Markets
William Poundstone: Fortune's Formula : The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
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As regular readers of "A Dash" know, I have been monitoring debate about Fed policy for many years. There have been many confusing sources, including some bloggers who built their entire reputation on criticising the Fed. For 5 1/2 years I have suggested a different and profitable way of viewing the Fed:
This approach makes it less fun to read my work, since we cannot all engage in some boo-yah comments about how dumb those guys in Washington really are. Meanwhile, if you focus on accurate prediction of policies, you can make clear-headed decisions about your investments.
For me -- and for my clients -- this is an easy and profitable choice.
A Summary of Known Fed Policy
Here is what we know about the Fed:
Current Mistakes
The mistaken emphasis on politics and economic theory -- what I call a false Fed fixation--- has caused many to miss a terrific rally in stocks. Those who have been completely wrong are compounding the error by engaging in even more political arguments. Enough! It is time to move on.
There is another viewpoint that I see as even more dangerous -- the idea that stocks have rallied only because of QE II. This is a lame excuse offered by those who have been totally wrong about the market fundamentals for many months.
There are some very simple and obvious facts:
Some of this comes from the second order effects of Fed policy, but it is not a direct result of Fed action.
Those who do not understand the fundamental basis of the stock market rally are doomed to miss the next leg.
An Afterthought
I know that a big Wall Street firm has a research report on QE II versus the fundamentals. Joe Wiesenthal at Business Insider, a long-time favorite source, accurately perceived this to be a big story. Please read Joe's article to get the complete background. You will find it compelling, and you will wonder why I disagree.
The story is important. The emphasis on the end of QE II is the big story for the next few months.
We do not need to settle this right now. I hope to review the complete report in more detail, and others will as also. I expect an active and vibrant debate about the reasons for the six-month market rally, as well as the prospects for the next few months.
While I like to think that stock picking is important, I suspect that the focus on overall asset allocation will be even more significant.
Actionable Advice
My wonderful editor at SA always reminds me that articles are more interesting if there is actionable advice. Fair enough
I expect good earnings news, and appreciate the dips. For new accounts, and for those adding funds, we were buying some strong cyclical names like CAT, growth names like AAPL, and energy producers like NE -- as well as ETFs we have mentioned in prior articles.
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