Things in the capital markets seem to be a tad askew.Taken as a microcosm Wednesday's decline seemed to be very text book when looked at sector by sector or theme by theme.
However serious this whole thing will will turn out to be, the financial sector gets a lot of the blame and it got hit much harder than the market.
Staples did better, foreign (as measured by EFA) did better, gold and forex did better, utilities and telecom did a little better (but not that great) and healthcare did better.
Materials did a little better depending on where you look, energy got crushed, emerging lagged noticeably.
That there is a textbook element here could be construed as comforting. I have been writing about certain stances I have taken in client accounts because I expected certain things to happen. All of the strategies I have written about are chapter one things and easily doable by anyone who goes narrower than SPY and EFA or growth/value.
For months we saw a parade of investment managers come on the tee-v favoring financials. All throughout that time I expressed concern about the slope of the yield curve as an obvious signal to lighten up. The arguments favoring financials were all plausible but wrong. Ideas like underweight financials, overweight staples and overweight health have worked. The benefit of less financial exposure is obvious and while health and staples have not really outperformed they have had a smoother ride which is where I want to be late in the cycle.
This post is not a brag about being smart it is a brag about owning the textbook, there is no original thought described here. The concept is more common sense than anything else, common sense can apply to the other sectors too and does not require too much keen insight. I made these types of moves ahead of time (and wrote about it) and will do the same thing as the next cycle ends.
Trust me, on the next yield curve inversion smart people will come on the tee-v favoring financials and will again be wrong.
How much time, effort and potential decline do you spare yourself realizing now is a bad time for such and such a sector? Then you can get to the tougher stuff like country analysis, stock selection and the like.
Maybe a Dilbert cartoon with a work smarter not harder caption would have been a more appropriate image for this post.
28 comments:
Great insight once again Roger...
thanks. IMO, there is no such
thing as common sense; it's called
learned experience!
Could someone translate this into plain english?
Thanks.
"don't be too into financials during an inverted yield curve"
Hey Rog, thanks for the work you put into blogging, it is really a pleasure to read. I've been using SKF to short financials, and I would appreciate it if you could explain the relationship between being underweight financials and the inverted yield curve. Why does a normalized curve help financials, or, why do they suffer when the curve is inverted. Thanks.
in very general terms borrowing short and lending long is what banks do. a normal slope makes this profitable. The flatter (or more inverted) the curve gets the less profitable this becomes. this can cause financial institutions to take more risk to get the same profit. this mushrooms exponentially until something short circuits.
For months we saw a parade of investment managers come on the tee-v favoring financials.
This sounds like the current state of oil and gold.
Yo Rog FYI.. your widely used 200 day MA indicator has triggered on the DJ and SP.
don't care about the Dow.
i still have some double short, more cash than normal and have had a lucky run versus this dip so i plan to hold off just now on doing more.
I feel as though I am already defensively positioned
FXP, new etf double short FXI/CHINA. Good addition for a long portfolio hedge.
Evan
Rog,
Remember you advice for the down market, "got to have a plan"....
I guess that plan just got thrown out the window.....
Yikes, you call this advice? I call it random investing....do whatever feels good at the moment..
nice plan, Rog...the emperor has no clothes....
hey skidmark,
you must not know how to read, he has been telling us his plan for months. based on what he writes it looks like it is working.
congrats, you are bigtime now:
"Press Release Source: WallStreet Direct, Inc.
Well-Known Portfolio Manager and Blogger Roger Nusbaum Discusses PTR, PGR and SYMC in This Week's Edition of 'Ahead of the Curve' Exclusively on Wall St. Radio (http://www.wallstradio.com)
Thursday November 8, 7:00 am ET
Exclusive interview with CEO of Data Domain, Inc. also available now at WallSt.net (http://www.wallst.net)
NEW YORK, Nov. 8 /PRNewswire/ -- "Ahead of the Curve" is a weekly podcast hosted by WallSt.net editor Bobby Ilich. The show features discussions with industry experts and financial professionals on stocks in the news.
ADVERTISEMENT
This week's edition featured Roger Nusbaum, a portfolio manager for the Phoenix-based Your Source Financial, and the author of Random Roger's Big Picture Blog (http://randomroger.blogspot.com/)."
I typed in CEO ticker and this popped right up.
Being a "Well-Known Portfolio Manager and Blogger" is like being a well known botanist. No one cares, lol.
hey skidmark...
roger's little plan was to buy a double short fund if the market crossed below 200 SMA...
sounds like he is abandoning that plan, otherwise he would have bought more...
and, to make matters worse, Rog has no plan for exiting from the purchase....
"For months we saw a parade of investment managers come on the tee-v favoring financials." This then 'might be 'a more appropriate image for this post':
http://tinyurl.com/2urb8x
Roger.
I have heard some gold bugs say that there is really a PPT (plunge protection team), sort of a secret quasi-official body that smoothes out financial markets. Kind of an Illuminati of Wall Street.
How true is this rumor? (Other than of course the Fed).
I'm still trying to figure out if this is a humor attempt or not. If it's true then I guess it's not.
I should also ask that if you expose them will they send a hit man to the mountains of Arizona seeking a certain fireman?
I'm not sure what is funnier, the nickname skidmark or that the heckler actually answered to it.
Hey heckler or skidmark, he answered you like 20 times this summer, you just don't like the answer.
His last quarter video he said he was ahead of the market. If he is underweight financials and long CVRD he probably still is ahead of the market.
It is insurance and you don't get it.
So naturally you have decided to troll this site everyday leaving more comments than anyone on a site you don't respect for a blogger you hate.
If we all agree that Roger is an idiot, has no plan, is a racist and cheats at cards, would that be the validation you crave to then move on to a normal obsession? Like maybe stalking a woman who will never go out with you.
TB
"The U.S. Financial Accounting Standards Board Rule 157, which is effective for fiscal years ending November 2007 and later, will make it harder for companies to avoid putting market prices on securities considered hardest to value, known as Level 3 assets, the wire service reported."
Things will get interesting real soon.
WRT plunge protection team, like everyone I have been hearing about this for years and I do not know if it exists. I go many months w/o even thinking about it.
I will say that back in his day Junius Pierpont Morgan bought during the throws of crisis but I do not know if the gov't ever asked him to do so. In that historical light perhaps there is something to it.
Re the FASB point. My initial reaction is that this is the same thing as options expensing and Sarbox sign-offs.
I think the market is probably pricing this in now so that it will have less impact later.
TB: I hear Roger fakes his numbers and flagellates his in-laws too (that's the real reason they wouldn't come to Hawaii while he was there); even worse I hear he could be a botanist and secretly maintains a stack of plant pressings under his cabin floor (lol, maybe that will satisfy skidmark for a day or two but probably not, to notice a troll is to feed it).
Anon 5:03, not sure what wire service is reporting that about FASB rule 157 but AFAIK it does not "make it harder" to avoid market pricing level 3 assets, it requires that an institution disclose what percentage of assets on its books are classified as level 3 (and level 2 and 1) but readily allows level 3 and, to a lesser extent level 2, assets to be marked to model rather than marked to market (level 1 assets are priced on a recognized exchange by definition). To the degree that disclosure of level 3 assets might negatively affect a company's publicity, its balance sheet or its stock price there might be some incentive to find a market price or at least a credible bid for as many problematic securities as possible to avoid declaring them as level 3 but there's nothing in the rule itself that governs that I don't believe.
And more on point, the market cycle and credit cycle are not the same thing (although one can obviously affect the other), but when it comes to financials the latter trumps the former and when they both agree it's time to check your level of dry powder; either you're going to be using it or you're going to be protecting it from the flood. I fully expect some significant names in the banking and brokerage industry to either be MIA or mere shadows of themselves in the next few years.
RW was that a Monty Python reference of sorts??
I'm a lumberjack and I'm ok?
There's the line about put on womens clothing and hang around in bars, something something something and like to press wild flowers.
Quest for the Grail was the best one IMO.
Just hooking up with the botanist dig in your previous comment Roger (and yes, Monty Python and the Holy Grail was the creme de la creme but I acknowledge there are those who would make the Black Knight proud in their defense of Life of Brian)
Lumberjack Song
Michael Palin w/ Girlfriend and Chorus
I didn't want to be a barber anyway.
I wanted to be a lumberjack!
Leaping from tree to tree as they float down the mighty rivers of British Columbia... The Fir! The Larch! The Redwood! The mighty Scots Pine! The plucky little Aspen! The great limping rude tree of Nigeria! With my best gal by my side, we'd sing, SING...
Oh, I'm a lumberjack, and I'm okay
I sleep all night and I work all day
Mounties: He's a lumberjack, and he's okay
He sleeps all night and he works all day
I cut down trees, I eat my lunch
I go to the lavatory
On Wednesdays I go shoppin'
And have buttered scones for tea
Mounties: He cuts down trees, he eats his lunch
He goes to the lavatory
On Wednesdays he goes shoppin'
And has buttered scones for tea
All: He's a lumberjack, and he's okay
He sleeps all night and he works all day
I cut down trees, I skip and jump
I like to press wild flowers
I put on women's clothing
And hang around in bars
Mounties: He cuts down trees, he skips and jumps
He likes to press wild flowers
He puts on women's clothing
And hangs around in bars?!
(A brief, confused pause)
All: ...He's a lumberjack, and he's okay
He sleeps all night and he works all day
I cut down trees, I wear high heels
Suspenders and a bra
I wish I'd been a girlie
Just like my dear papa
Mounties: He cuts down trees, he wears... high heels?
Suspenders... and a bra?!
Wants to be a girlie?!
Poofter! Bloody poofter!
Pinko commie fairy faggot...
HIS GIRL: Oh, Bevis! And I thought you were so RUGGED!!
(footsteps, door slams)
He's a lumberjack, and he's okay
He sleeps all night and he works all day
He's a lumberjack, and he's okaaaaaaaaaaaaaaaaaaaaaaaaay...
Sleeps all night and he works all day!
lol
Well then, all right...this to the both of you!
http://tinyurl.com/2ue6zj
For a better view:
http://www.pbs.org/montypython/clips.html
TY, OT, maybe...
Roger...I enjoy your blog, and want to thank for mentioning SDS a few months back. I opened a relatively small position..(after DD, of course) to serve as a partial hedge. Despite being down by as much as 15% when the SP was shooting up, I look at the position as something of an "ark" when the impending (IMHO) s#@*t storm hits...*s*
Jan
Was that bridge a real picture or a good photoshop job? If it's real, what was it?
that picture came in an email with dozens of picutres, several of which i saved for the blog. sorry i do not know if it is fake or not, but it is funny.
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