A short one this morning.If you believe the consensus is always wrong, or more like me they have a tough time being correct, then this article in Barron's (sub required) might be a little troubling.
It is a poll of sorts among the chief strategists (or similar titles) from eight different Wall Street firms.
Seven of the eight are calling for the market to end the year higher than it is now, the average of the eight works out to SPX 1568; take out the lone dissenter and the average ticks up to 1582.
Six of the eight list tech as a sector they favor.
We'll see how it plays out but given the potential seriousness of the subprime/liquidity/credit event I think we will still see volatility sticking around for a while. Some will want to trade it and some will not but putting yourself in the frame of mind to expect more big ups and downs will reduce the chance you succumb and end up doing something you regret.
That is a spider under our grill that is almost the size of a golf ball. There is some sort thing about how many spiders people eat in their sleep over their lifetime. I hope this is one no one eats; gives me the heebie jeebies just thinking about it.
20 comments:
The TECH Bandwagon IMHO is just about out of steam.
I of course do not know for sure which way we will head but I think we will slope down from here.
I think the first rate cute in this bull market occured in early 2001. From there the S&P slid over 40%....so bring on the first rate cut and maybe I'll go long on SDS.
Roger,
I love your blog and think you provide a lot of insight to people. I do not always agree with you and yes I have called you complacent lately.
I might add 7 out of 8 people in the Barron's article I would likely also label as too complacent.
People calling me a doom sayer or to negative I also think should look at the history of the markets since world war II. Bear markets are not a myth or a thing that happened in the olden days. We have had a nice 4+ year bull market. I am merely suggesting we are likely to see a stretch of a bear market.
The other point I make is I do not expect an economy with double the debt per household to have the growth rate that it did before.
I expect continued growth in the US long term. I have read the real doom sayers and they predict depressions and other catastrophes.
The fact that I am so easily disagreed with and no one is willing to accept that the market can have a bad year simply proves my point. Most people are way to complacent about this market.
Complacent...I don't think it means what you think it means. My name is inigo montoya, you killed my father, prepare to die.
With the negative bias and shock pop culture present in the mainstream media, it takes an individualist to generally ignore media bilge and the twenty-four hour drive-by pundit news cycle to visualize the state of investing realistically.
As a pseudo-hobby, I occasionally re-read financial media printed one, five and even ten years ago. Their can't miss predictions make for good comedy. And,it reminds me to stay on course with an investing program that ignores daily media exercises.
I took a cue from the last poster and re-read some of your blogs from last February's archive, hoping to dredge up some further insights for weathering this storm. Curiously, you opined then that you'd add some exposure if the market corrected the elusive 8-10%. Well, here we are and it seems you're not a buyer this time. Is it fair to conclude that you're more cautious because this "financial contagion" is different than last spring's China-inspired slide?
the fundamental threat now seems more tangible now even if it does not end up snowballing from here.
The portfolio is generally behaving the way I would like so for now no changes. I have a couple things in mind I would buy but am not sure when I will increase exposure.
I have to say I expect more end of cycle volatility, if that turns out to be correct being a shade light in stocks is where I'd rather be.
"...but am not sure when I will increase exposure."
Roger, that comment concerns me a bit. Just as you say we should all have a plan to reduce exposure, shouldn't the opposite be true?
fair question and I may not have a great answer.
I did two trade that reduced my net long exposure by about 4% from where it had been for several months. I would define this as a small tweak, enough of a tweak to have reduced the portfolio's volatility.
Quite candidly I do not think the volatility is over and I am having trouble constucting a fundamental case for high stock prices.
If I am totally wrong about the, the up days during this period lead me to believe my lag would be smaller than the one last summer so right here right now I am content-note I do not feel I have made a big bet of any sort.
May not be a great answer but that is what I got.
tomk...good to see you posting...per chance that you were doing so less frequently.
as usual,curious as to what data took you lower in equity exposure
personally been using a single sentiment indicator, puts to calls ratio, along with some breadth measures
http://tinyurl.com/2jzrhr
historically, I hear that at a top the bear-bull spread, another sentiment indicator, is usually more bullish than is now...the spread now is narrow.
And, your third strategy...is?
Good question to Roger. If I was using Roger's approach, sort of a hybrid couch potato port which i see as valid, I would be patiently looking for whatever solid companies of an asset class with multi years of being relatively weak and under represented in current portfolio. I'd buy now or later, but only if there is a hint of an uptrend.
Spiders make nice pets. They are quiet.
Roger,
speaking of how the consensus usually gets it wrong..
your position that volatility will stay high is parroted over and over and over again on CNBC every day....
don't you ever have a thought that didn't come from watching bob pisani?
inigo montoya,
I do not know how to answer you.
I guess I must concede defeat.
4:17, trend indicators forced me to reduce exposure. The 5 day ma of both the Value Line and Russell 3000 are below their 75 and 200 day moving averages.
I prefer using multiple sentiment indicators so I subscribe to sentimentrader.com
My 3rd strategy is pretty simple. I'll track 10 asset classes and allocate funds equally between those that are above their 200 day moving average. I'll do this on a weekly basis. (note, cash is always considered a position)
Here's the current status:
U.S. Large Cap - 16.7%
EAFE - 16.7%
Emerging Markets - 16.7%
Money Market - 16.7%
Industrial Materials - 16.7%
Agriculture - 16.7%
U.S. Small Cap - 0%
Precious Metals - 0%
U.S. Long Bonds - 0%
U.S. REITs - 0%
If I were the head of a Wall Street firm and my strategist said in Barrons that the market was going to go down - - I would fire his a**!
OG
tomk,
Thanks for your update. FWIW I use Monocle Systems Software originally suggested by M. Farber. I've gradually become more impressed by this system. One plus is that it helps set trailing stop losses. Most selected strategies,which takes a lot of up front work, have delivered about 20%ytd even with getting stopped out. But, only a small portion of the account has been allocated there, being a new system.
I think of you as much further ahead in your application of TAA..particuarly with use of sentiment indicators. TAA seems to be a common thread in all three of your strategies. Simplicity if "elegant" as they say in the world of theories is high on my list for assuring consistent application.
re your third strategy, most striking: heavy on commodities and allocation is equal weighting. As a compliment to relative strength TAA I like the idea of equal weighting and re-balancing no matter what...good way to capture undervalued assets. As far as I know there is only one broad index that equal weights:rsp for the s&p. And, for the nasd 100 there is QQEW. Good article on it by a top down writer:http://tinyurl.com/3yho6r
Your use of the 200dma reminds me a study posted by Farber. I sure wish that there was a blog dedicated to TAA. I no longer frequent Farber...too many different directions. I might suggest the moose index as a most impressive alternative web source, but the author does not have a community blog, nor does Monocle.
/wp
If Bush or Congress get a bill through that helps people with delinquent mortgage payments, Isn't that a clear signal to stop paying the mortgage and put all payments against credit card and car loans?
I do not hear any bills to help with credit cards or car loans and lets face it most people who will be delinquent will have lots of other debts as well. The mortgage is likely to be the lowest interest rate so for total debt reduction you would want to pay it last. Plus you probably will be eligible for more help the more deliquent you are.
Am I missing something here or are the politicians missing something? Or do the politicians just don't give a damn how they buy votes?
anon 9:09
Even if the firm was short the market?
anon 4:22
Ooh, I didn't think of that!
OG
I love Bobby Pisani for his insight into the market.
apparently roger spends a lot of time watching CNBC
what a great place to find new investing ideas
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