ZIRP: The Return Of The Hissy Fit

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Gerry Frigon, Chief Investment Officer at Taylor Frigon Capital Management comments on the return of the ‘hissy fit’:

We have discussed many times over the last decade or so how the market‘s reactions to scary headlines and prognostications of gloom can be described as a “hissy fit”.


Q3 hedge fund letters, conference, scoops etc

It’s like the reaction of the spoiled child who is told they can’t have any more candy: stomp out of the room in a huff and whine and complain for hours as if that is going to make a difference.

Worse yet, and certainly the root cause of “spoiled child syndrome,” the parent gives in and lets the child have what they want only to find the child finds something else to be “pissy” about.

Obviously, given the way markets have acted lately, clearly the markets are the child, and one might argue a combination of the Federal Reserve and the financial media are the parent.

As we are about to witness yet another Fed meeting this week, and the paranoid in the financial world are all atwitter about what the wizards of money are going to do with interest rates, one would think the sun rises and sets based on their actions.

It is our belief that the economy suffered greatly by the overdone and excessive “zero interest rate” (ZIRP) policy by the Fed in the wake of the 2008-9 financial debacle,  the effects of which served to distort the concept of risk in the minds of investors.

Essentially, with zero percent interest rates, time was considered to have no value and, thus, the desire to risk capital over time considerably dried up.

Just as the Fed has begun to get its sanity about it and taken steps to correct that distortion, the drumbeat has become louder and louder that they should stop raising the target for interest rates, in order to save the economy from certain recession.

These calls are coming from the same folks who have been predicting for ten years now that we were sure to be heading for Armageddon in the financial markets and the economy, only to have been consistently proven wrong.

No doubt, at some point, there will be a “correction” in the economy, and it will likely be due to the Fed overreaching and raising rates too high.

Or it may come from some external shock.  Or it may simply be a normal “cycle correction” — as is perfectly normal in a dynamic economy.

Nonetheless, the violence with which markets have reacted to these fears has amounted to the worst hissy fit we have seen in a few years.  Certainly, correcting stock prices are also a normal occurrence in the markets.

However, the ferocity of this correction and the wild day-to-day swings (even intra-day swings) have been something to marvel at.

We have also noticed that, at least in our portfolios of growing companies, the volume of shares trading has been quite low, given the volatility.  It may be part of why we are seeing this level of “manic” market activity.  It’s been a sort of “buyers’ strike,” if you will.

All of this reminds us of what our mentor, Dick Taylor, used to counsel: “are you going to let 1% of shareholders tell you what your businesses are worth on any given day?”

Those are words by which every investor would be wise to live.  And as markets seem to relentlessly be stuck on a downward spiral, remember that this too shall pass, and those who have taken a business approach to investing will be best served, and live to experience the inevitable recovery.

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