The Fed Helps Fools

Jim Cramer may be able to garner attention from the media, but his pro-Wall Street, made-for-YouTube, crybaby antics don't seem to have swayed the Federal Reserve.

According to a Reuters report on remarks by St. Louis Fed President William Poole, there's no "emergency" rate cut coming to try to calm an increasingly panicked Wall Street.

Good.

As an investor with plenty of money in wilting stocks like Chipotle (NYSE: CMG  ) (NYSE: CMG-B  ) , Home Depot (NYSE: HD  ) , and Johnson & Johnson (NYSE: JNJ  ) , I'm taking it on the chin these days. I imagine you are as well, Fool. But let us not make the same mistake that the national business press does: confusing normal market movements with economic outlooks.

The J-school grads with the fluffy hair, earpieces, and business suits are all over the TV screaming "credit crunch," even though we don't actually have one. It makes for a good headline, of course, but it doesn't seem to fit reality. In truth, a few dozen mortgage brokers have reaped the rewards of speculative lending, and the resulting crash in the junk CDOs that Wall Street created to feed this market have taken down a pile of hedge funds. As they've gotten margin calls, waves of selling have hit stocks, which are finally retreating from the record highs they were setting all day, every day, for months. Lenders of all stripes are finally demanding better returns for the risk of lending, and everyone's paying the price for now.

That's hardly a fundamental, long-term problem. It is, in fact, simply a return to normal, and Poole seems to feel the same way. "It's premature to say that this upset in the market is changing the course of the economy in any fundamental way," he said. He's trying to tell the Street that until there's evidence that businesses can't commit to capital spending, we don't see a real credit crunch, and we're not going to open the spigots.

The blonde hair and bleached teeth on CNBC and Fox Biz news may not know it, but markets and economies are separate things. A bubbling value in equities doesn't necessarily mean a healthy economy, any more than a drop in value indicates bad times ahead.

Of course, stocks may continue to crumble for quite some time. Stocks do that when people panic, especially when they're overpriced to begin with. What's a Fool to do?

If you can't bring yourself to buy, then this is at least the time to sit back and reflect on your advantage over the likes of the short-term, bonus-hunting geniuses at your average hedge fund. Goldman Sachs (NYSE: GS  ) , Bear Stearns (NYSE: BSC  ) Macquarie, BNP Paribas, and many of the other Wise Men used too much leverage and too little reality to make quantitative punts on crummy and unpredictable securities. Their well-deserved beatings are the indications of a healthy market, one where high-return bets don't always pay off.

As a Fool, you're invested for the long term. You don't need capital gains this year, or even next. You don't have to meet someone's arbitrary deadlines for returns, and you don't have to limit yourself. You're free to avoid taking risks like piling on the leverage, and you can buy as much or as little of any company as you see fit. Best of all, you can do it when everyone else is panicking, because you don't have to answer to some bonus-hunting manager down the hall who's screaming for everyone to sell in order to meet margin calls or redemption requests, or simply to try to wait for the momentum to turn.

Those are powerful, meaningful advantages, and they're the reason we Fools advocate investing in individual stocks. We believe that anyone with a bit of smarts, a bit of courage, and the willingness to do some homework can outperform the market, not to mention the experts. Times like these bring the opportunities that make such success possible.

Every time the Fed refuses to pat Mr. Market gently on the back and say "Aww, it's aww wight, snoogums. Heew comes some mowe fwee money fow you to wooz on wisky dewivatives," things get better for us. It may be time to send Mr. Poole and Mr. Bernanke a thank-you card.

Chipotle's "B" shares are a recommendation of Motley Fool Hidden Gems, and its "A" shares are recommended in Rule Breakers. Home Depot is an Inside Value pick. Johnson & Johnson is an Income Investor recommendation. Check out any service free for 30 days.

At the time of publication, Seth Jayson, a top-10 CAPS player, had shares of Chipotle, J&J, and Home Depot but no positions in any other company mentioned here. See his latest CAPS blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.


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