By Alan Valdes, Director of Floor Operations at Silverbear Capital
Just when I was about to short some stock positions, I heard Warren Buffett say, “Dow 1,000,000.” (And you thought I was optimistic writing Dow 23,000 by spring.) You’ve gotta love the man! Then I heard the rest of his statement, “… in 100 years.”
So I cut back on my short position just in case the algo missed the last part of his statement. Mr. Buffett is more than likely spot on. Unfortunately, most eyeballs reading this note will not be around to wear those “Dow 1,000,000” hats they pass around at every milestone.
Buffett was speaking at a forum for Forbes Magazine, the cover of which he’s featured on this month. Buffet made the “Forbes 400 Richest Americans” list in 1982, the first year they published the list. At the time, he was worth a mere $250 million, and he stated that most on the list have one thing in common with each other. “You don’t see any short sellers,” he said, then continued, “being short America is a losers’ game.”
The Fed decision
After zigzagging most of the morning yesterday waiting for the 2 p.m. Fed announcement, the statement was a little more hawkish than traders had anticipated. The majority of FOMC members see another rate hike this year and three more next year. The expectation of three rate hikes next year was more than traders had been expecting. However, the overall announcement was enough in line with expectations that it catalyzed the Dow to close at a record high for the 42nd time this year.
Another no-surprise announcement from the Fed was its decision to start reducing the $4.5 trillion balance sheet in October—at first, by $10 billion per month then gradually working up to $50 billion per month. Its plan is to get the balance sheet down to a more manageable $3 trillion or possibly lower. In the past, the markets have not taken too kindly to the reduction of stimulus. Things could be different this time, as the economy in general is much stronger. Time will tell whether the Fed’s move delays Buffett’s Dow 1,000,000 by a few years.