It has been an interesting week for the markets to say the least. Yesterday we saw a 350 point swing in prices after the fed released its statement removing the word patient as far as interest rate increases. I could care less when the Fed does a 25 basis point hike in rates and think it is somewhat ridiculous to see all the psychological turmoil surrounding a tiny move that will be mostly political in nature. I am fascinated by the fact that an entire generation of traders and investors has never seen a rate increase and it will be very interesting to see how they respond.

The really interesting part of the Fed Statement to me was the discussion about the economy and its strength right now. The opening sentence makes it clear that thing may be better but they are hardly good. The Fed led off with “Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. “ Looking at the world that’s not between the rivers or inside the beltway I see and economy that is just kind of muddling along. It is not horrible but it is hardly robust. There is some job creation buts almost all the jobs are on the low end. As the Fed itself has pointed out only highly specialized occupations are seeing wage growth right now.

The current environment has some longer term investors getting frustrated. Unless you are willing to stretch your parameters there is simply not a lot to buy. The only thing that matters right now is central bank moves and commentary and for those of us who rely on actual business values it can be a bit maddening. Fortunately I have been doing this for a very long time and I have seen it before several times in my career. Our day will come and there will be a significant inventory creation event that allows us to pile into stocks but my crystal ball is broken and I have no idea when that will happen. Until it does we will simply bide our time and do lots of research rock kicking so we are ready when it happens.

There is one major positive difference this time in that there is a place to put money to work on favorable terms. Community bank stocks have not fully participated in the stock market recovery and there are still plenty of banks trading at bargain levels with safe balance sheets and sound loan portfolios. As a bonus many of them have active participation by activist investors that should enhance returns. Economic and regulatory conditions make it difficult for many of these little banks to stay independent and they will be looking to sell their banks at a premium to current prices in the future. Continued low rates will keep net interest margins tight and give bankers an even great reason to sell. It also will incentivize larger community banks and regionals to be buyers as the only source of growth is M&A.

Don’t forget this is a free weekend over at RealMoney.Com. You can read all of my articles posted there for free in honor of March Madness. This past week I wrote what I think is a pretty good series on the private equity mindset and private equity style stocks you might like. Of course I have a piece on why you should, but won’t own the community banks. Most people would prefer to just keep chasing the better known stocks and underperforming on a long term basis. Be sure to check it out.

It is of course the NCAA tournament and we shall now see an epic amount of money and time wasted all across the US on bracketology. I have my picks in and we shall see how we do. I am not a huge fan of basketball but I do fill out brackets each year using some new approach. Some have worked okay; some have not and never has a winning approach to picking brackets worked twice. This year I used a mix of defensive stats, three point percentages and point in the pain to fill out the brackets. For my final four I have Louisville, North Carolina, Gonzaga and Kentucky beating the Zags in the finale. I will be satisfied if this beats my wife’s Texas is better but we will include Maryland since my daughter was born there bracket that has Baylor, Texas, SMU and The Terps of Maryland in the final dance.

Cheers,

Tim

Song of the week

Sometimes when it comes to investing https://www.youtube.com/watch?v=ItLzdZV004s