First there have been some great comments left in the last couple of days but unfortunately I probably can't reply to as many as I would like because of the travel and needing to still do my job while I am here. "Money never sleeps." GG circa 1987.
But a couple... one reader asked asked about trying to win the falling knife dance with the financials. Well, I don't know the answer of when the bottom will come. I do know that a normal yield curve (for now parts of it are kind of normal and other parts not so much) creates a fundamentally sound back drop for the financials to conduct business. Normalization could come before, at or after the bottom, I don't know.
One aspect of this entire saga that is a little bigger picture is the normal nature of cyclicality. In asking when on anything you need to first ask yourself whether you think this is a bear market, recession or worse. I am not in the worse camp but your answer here is crucial. If you think bear market or recession then you need to know that the process of bottoming takes close to a year and occasionally longer.
Long time reader SLMasker shared going through a period of second guess in the last few days. I don't think she was beating herself up, I took the comment as more of a cathartic lament but either way this is a period where mistakes are common; no one is immune. The best remedy is to avoid big bets. The double short fund has served as a great tool (for me anyway) but 25% of great is an enormous bet, conversely 100% moved in during the last couple of days guessing at a bottom is a different kind of enormous bet. Just be patient.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
12 comments:
Roger, do you pay much attention to the transports? I'm reading that their recent move up is signaling an upturn in our economic situation. They've never been much of a marker for me, but I'm curious if/how they square with your thinking and the yield curve.
Thanks very much.
the short answer is not so much.
in trying to articulate why, I can't say that I don't have this wrong but i feel there is a big element of "should" embedded in this that i have never been comfortable with.
it makes sense that trannies would be an early-ish indicator but i think copper and semiconductors would be a better indicator along these lines.
"If you think bear market or recession then you need to know that the process of bottoming takes close to a year and occasionally longer."
Agreed....but there was a talking head on CNBC this morning that
thought electronic trading will
make the length of this process
much shorter.
Comment please:-)
Enjoy paradise...hope the weather
is good for you. Can I apply for
your dog sitter;-)
so someone you've never heard of said this time will be different?
Roger, a while back you mentioned a 1/3 - 2/3 rule for bear markets: 2/3 of the price movement occurs in the first 1/3 of the duration. Am I getting this right? If so, if the January low marked the end of 1/3, then (according to my calculations) we can start looking for the bear market to end approximately August 22, 2008 at about Dow 10370 and S&P 1120.
Re: comparing Bear markets...
Does the combination of recession and decline in housing prices correspond to one or more previous and recent Bear markets?
It may be of some use to identify which Bears are simply not as comparable (and thereby help clarify/narrow the range of "normal" for this one).
R in NY
Mr. Monopoly,
I am not one to try to be that precise with these things but an October 07 to August 08 bear seems within the range of normal but caveats galore with that one...
Rick, not sure if the early 90's counts and before that maybe the depression? not sure.
Hello Roger,
I have been reading your blog for a while now and always find it very interesting. Your strategy of not making 'big bets' has helped me rebalance my 401K and other portfolios. Thanks !
About the question by Mr. Monopoly:~
>>>>> Does the combination of recession and decline in housing prices correspond to one or more previous and recent Bear markets?
The correct answer is that eight out of the past ten US recessions have been accompanied by some kind of a housing 'bust'. The other two were the DoD recession after the Korean war, and the 2001 recession after the dot com bust.
Ref:
http://www.federalreserve.gov/PUBS/FEDS/2004/200411/200411pap.pdf
My guess is that all of these recessions were also accompanied by some kind of a (grizzly/teddy) bear market.
oops, wrong ref :-D
http://blog.inman.com/LeamerHousingandBusinessCycle.pdf
http://www.nber.org/papers/w13428
I think the fact that we are still reading/hearing things like "XXX is signaling an upturn..." and "this time it's different because XXX", among various bullish calls on the "cheap financials" and "cheap tech stocks" simply means that we have a ways to go, yet. When everyone is throwing in the towel, and the talking heads are reporting that stocks are dead money - that is when it is time to look for a bottom.
It seems to me that we are really close to that time now! Also when everyone, with few exceptions, is calling for a recession the contrarian normally happens. No recession!! The bottom is already in at about 11,650 on or about 1-22-08.
BWJR
Sorry, to be exact it was 11,508 on 1-22-08.
BWJR
Post a Comment