Neither a Bull nor a Bear Be - 01/28/10

	I was surprised neither by the Fed announcement nor by the substance of President's State of the Union address.
	An extreme market view is unwarranted as the S&P 500 settles into the 1,050 to 1,150 range for the foreseeable future.

Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

-- Polonius, from William Shakespeare's Hamlet

I was surprised neither by the Fed announcement nor by the substance of President's "Stake of the Union" address.

The FOMC statement showed little change from the prior communiqué. In all likelihood, this means that the zero-interest policy will be in place for most of 2010. This is in line with market expectations and, as such, should be considered market-neutral. The Fed's curse on cash should remain present, and fixed-income yields will likely be range-bound in the months ahead, despite widespread fears of a spike in interest rates. (For example, I continue to expect the yield on the 10-year U.S. note to stay between 3.5% and 4%.)

President Obama, despite the protestations from many, was forced by political reality to move slightly closer to the center in his speech. This retreat, too, can be viewed as market-neutral as fears of a more extreme populist approach by the administration was seen by many as a reason for spurring the development of a far deeper market drop.

Having said all that, the same economic challenges remain regardless of the Fed's position and the Presidential economic policy:

• Housing is sputtering, and retail sales looks to be on a shaky foundation.

 

• Nontraditional economic headwinds have not died down, and a skeptical view of the consensus forecast of a smooth and self-sustaining recovery still seems justified.

 

• A populist mood and policy initiatives will weigh on market valuations.

Life's but a walking shadow, a poor player,
That struts and frets upon the stage,
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.

-- Macbeth, from William Shakespeare's Macbeth

Perhaps this morning's opening missive is a tale told by an idiot that signifies nothing, but I prefer to think that it is full of sound and fury.

I remain of the view that stocks will stay range-bound and that an extreme market view is not called for as the S&P 500 settles into the 1,050 to 1,150 range for the foreseeable future -- an ideal investment setting for opportunistic traders and sellers of premium but not so great for longer-term investors