So the market made a run to the May high and might be failing, although a day and a half may be too little time to draw a conclusion.
This is something I have been writing about for a while. I did not invent this notion it was more of a school of thought that made sense to me at the start of the summer. It seemed like more people were publicly bearish in June and more people were publicly bullish all through August and September, no shock.
There are, and have been, serious issues confronting higher stock prices. In the last couple of days it seems like these have come to the fore a little bit and the yield curve inversion has been getting larger. So either stocks are taking a breather or rolling over. Being consistent, I think a rolling over is more likely but we will see.
Being consistent is an important thing in managing money, yours or someone else's. From the start of the summer I have been consistent about wanting to maintain a slightly more defensive position than normal. At the outset I said that I did not expect to capture all of a move higher while positioned that way and despite a lament or two along the way I have stuck to my knitting as the things that concerned me seem to have deteriorated a tad more, not doomsday just a little worse.
The big concept to tie into this post is that investing requires patience as measured by longer time frames than just days.
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10 comments:
Hi Roger,
Interested in your views on the following...
I am running with the hypothesis that, as long as you have a job, deflation is great. Everything gets cheaper.
Now, if you work for a manufacturing company, you stand to lose your job in a deflationary spiral. But if you have a government job, or you are a day trader, you will be fine.
Can you think of any industries/sectors that would benefit from a deflationary atmosphere?
Thanks! Would love to hear everybody's opinion on this...
Linda P.
Ooh. Not sure about that idea. Anyone know the unemployment rate during the depression? I forget but I think it was less than 30%. So 70-75% (using my number) of the population was working but I would not say things were great for them. Asset values erodes possibly with no place to hide? Economic growth and wealth creation is, at a minimum, hindered.
We have benefited from a contained deflation with consumer electronics ofsetting inflation in food, health costs, education and energy.
I may not be smart enough to see your thesis.
You know...sometimes I wonder if the Fed raised rates recently, just so they would have room to lower if they needed to try to cut off deflation. But, hey! They can always print money. Drop it from a helicopter. hehe.....What's that? The new Toyota costs $1.87 Million? Will you take $1.80?......Interesting times they are!
OK Roger, I guess my post was a little too simplistic...
Obviously, in the scenario I am painting, everyone's quality of life will deteriorate. But again, if you have a job, and money in the bank, you will get thru it ok.
But someone will profit from every situation...they always have...
Linda P.
well I do agree on getting through it. As for as how would profit, my guess would the wealthy who are positioned in such a way going in that they can buy assets from distressed less wealthy sellers and then afford to wait however long it takes.
Linda, deflation is bad news and just about everything does poorly (including jobs) but for those with fewer assets to deploy the cheapest way to insure against it's ravages (and profit from it) that I can think of offhand would be to acquire some longer duration zero-coupon T-bonds before interest rates crash.
Thanks RW,
Zeros worked great in the early 80's.
My concern is that all the cycles move so much faster now, esp. with the amount of data that is at everyone's fingertips.
Alot of the hoarding behaviour that drove oil up in the 70's was due to a complete lack of knowledge about the supply situation.
The Fed did not begin releasing minutes of their meetings until March of 1993, with a 6 to 8 week lag. Now look how fast we "know" what they are thinking..
This is a very interesting time to be in the markets!
Linda P.
Early eighties?
If you had invested in a 20yr zero coupon treasury bond in 1982, then you would have made more money than you would have in the S&P500 during that same period.
American Century still sells the
(previously named) Benham 2025 Treasury Zero Bond Fund.(Bttrx). And other Zero funds in shorter maturities.
Just a heads up for anyone interested in investigating.
Best Regards,
HLP
Linda, I'm not sure cycles are actually moving that much faster these days, it seems more plausible to me that there are now more forces such as larger scale global capital flows in the mix that may alter the typical historical behavior and/or magnitude of national or regional market cycles; e.g., massive international purchases of US bonds stabilizing US interest rates, dollar, etc.
WRT all the data at everyone's fingertips I would argue that while that is certainly a good thing if you have a specific investing model or discipline that uses said data there is, generally speaking, (a) way too much data to be useful, (b) the system has more moving parts as noted above and (c) no one really understands what it all means anyway. Using your examples:
Few citizens, including rather obviously the traders at Amaranth, understand how the petro-business works and its arcane convolutions virtually assure that even the smarter ones won't be able to figure it out easily; e.g., http://tinyurl.com/hujsp
Parsing Fed minutes for their 'real' meaning is notoriously difficult even for specialists and FOMC could change their minds at the next meeting in any case. Frankly whether that information comes fast, slow or not at all probably doesn't make that much difference to an investor anyway; e.g., http://tinyurl.com/ehq2s
This is just my opinion of course but most investors would probably be better off identifying a specific approach to investing that makes sense to them (comprehensible logic), has operational demands that fit within their capacity for work (time constraints, etc.), and provides them a disciplined means to manage money (goodness of fit with overall risk and money management); the data set is then bounded by that approach or model and the rest can be excluded until or if the approach demands tweaking. FWIW
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