Simon Mellon, who’ll be heading up Bonner & Partners Family Office, our soon-to-be-launched money management and tax optimization service, is keeping in close contact with Notes HQ. 
Simon is a global finance insider with a decade’s worth of experience working in capital markets. And right now he’s advising investors to remain cautious until a clearer picture emerges about the market’s direction.

When I was a child I could never sit still on a long road journey. I was always asking, “Are we there yet? Are we there yet? ARE WE THERE YET???” My father would always reply “Nearly, son… Nearly,” even though we were still miles from our destination.

This is exactly how the financial markets seem to me right now. It’s been more than two years since the credit crisis kicked off, and I’m getting itchy in my seat: I want to be back out there playing with the other financial (whizz) kids. But it feels like the end of this current rocky road is still on the distant horizon.

Wall Street wants you to believe things improving… that we are on the road to recovery… and that “green shoots” are starting to appear in the economy. Call me a cynic, but I’m just not convinced.

Wednesday’s central bank actions on both sides of the pond signal that we are NOT there yet. In the US, the Fed left its interest rates on hold… and dangerously close to the zero bound. And it announced that it expected economic activity to remain weak for “some time.” The Fed is also continuing with the $300 billion Treasury repurchase plan (its massive and highly experimental money printing operation).

Meanwhile, the European Central Bank launched its first ever 12-month loan auction (at the 1% benchmark rate). This will pump a whopping €442 billion into the banking system.

With the credit markets still broken, the European banks snapped up the funds. Over 1,000 banks took part. It’s no wonder. Who would say no to a 12-month loan at just 1% when you can lend to Joe Public at over 10%? There’s an arbitrage trade I’d like a piece of… in any market.

To be a true contrarian there has to be a consensus view. And at the moment, market participants are all pulling in different directions. The ‘experts’ are busy trying to call the end to the slowdown. And they’re hoping it sticks. Meanwhile, the the Fed and the Treasury continue to hose the economy down with extra liquidity. This is a brave new world. And an extremely dangerous one for rookie investors or investors reaching retirement or who are already retired – one false move in this type of market could prove fatal.

The Fed’s recent policy message should have resulted in a stock market rally. Bernanke & Co hinted at the much anticipated return to inflation (“the prices of energy and commodities have risen of late”) but then washed all the momentum out of this trade by saying “the Committee expects that inflation will remain subdued for some time”.

Markets hate nothing more than uncertainty. And until we have a more harmonious voice either direction from governments and policymakers this turmoil is going to continue. So I’m burying that impatient kid in me for now and sticking to the safe stuff. And so should you: stick to cash, gold and investment grade fixed income for now.