K.I.S.S. – Keep It Simple Stupid – An acronym used in the US military; a design principle; unnecessary complexity should be avoided.

The acronym KISS is just another way of expressing Occam’s Razor or maybe Einstein’s admonition that everything should be as simple as possible but no simpler. That the simplest answer is usually the most correct is an adage that investors would be wise to commit to memory. That applies to the design of your investment program as well as your explanation for the market’s movements. The explanations I’ve been hearing recently for why the stock market is weak do not meet the criteria for KISS. Oil is falling! The Saudis are selling! The Norwegians are selling! The Chinese are selling reserves! Some other emerging market I can’t find on a map is selling! I’m selling my mutual fund!

All of these are variations on a theme, the mysterious seller who is driving the stock market down for no reason. These Rube Goldberg explanations require a map to trace the connection between a rising US Dollar, Chinese capital flight, PBOC reserve liquidation, falling oil prices, emerging market monetary policies, oil producer sovereign wealth fund liquidation, the US stock market and a shadowy figure on the grassy knoll. The contradictions are confounding and it is impossible to disentangle cause and effect. Is the US Dollar rising because the Chinese capital flight is landing here? If the capital flight means the PBOC has to defend the Yuan by selling reserves doesn’t that mean they have to sell Treasuries? Then why are Treasury prices rising? Same with the Saudis. If they are liquidating their sovereign wealth fund to make up the difference between $100 oil and $30 oil doesn’t that mean they too would be selling Treasuries? Who the heck is buying all these Treasuries?

It is impossible to figure out all the flows back and forth and discover anything useful for most investors. I suppose there may be a hedge fund with a bunch of nerds who think they can figure it out and maybe they can but even they are probably wasting their time. There is an easy answer for all this that doesn’t require that you know the inner workings of emerging market reserve management. The easy answer is the one that everyone seems to want to avoid, that no one wants to believe, least of all the Fed – the US economy is slowing and has been for at least a year.

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