There was a lot of chatter on Friday about oil being in a bear market because it is down 20% from its high.I think we might want to give that one a whoa-champ.
Bear markets tend to start a little quieter than the manner in which oil, and for that matter all commodities, have declined in the last month or so.
In a month, not even, oil is down 20%. It took equities about ten months to to get down to 1252 (a 20% decline for SPX) and even then it has not spent too much time below that level.
The vast majority of the time fast 20% declines turn out to snap back just as quickly if not faster.
Right here right now this looks like a run of the mill panic down, if it turns out differently fine but how many themes end with a bell ringing as metaphorically happened in mid-July. Themes like this occasionally have big fast declines. Emerging markets have had more than I can remember, other hot niches like uranium or currencies had their puke downs too.
Regardless of what this turns out to be it makes the case for moderation. Anyone who did not see this coming and had 25% in energy is probably pretty bummed out. I expressed concern a couple of times as energy made it up near 15% of the S&P 500. While not an obvious sell signal like 30% might be, any time a sector grow to a much larger weight in the index that is a good time to revisit a few things. This has been useful for many years.
The reason behind my continual harping on moderation is that too many people make bigger bets than they realize they have made and end up getting done in or setting themselves back by several years which is very unnecessary.
Congratulations to Martins Plavins and Aleksandrs Samoilovs from Latvia for upsetting (very big upset) Todd Rogers and Phil Dalhausser in the opening match of Olympic pool play in beach volleyball.When I was in college I played quite a bit of beach volleyball, quite a bit, but funny I don't remember the game being played that far above the net.
Want to watch a great Olympic sport? Check out team handball. Trust me.
9 comments:
Hi Roger: Thanks for your post about moderation in any theme. Two quick question:
1. You have spoken in the past about allocation across different sectors. What is a bench mark for the various sectors that we can use? Is it the weighting across the different sectors held in the S&P 500 index?
2. You also talk about 200 day moving average of the broad market. In this case do you refer to S&P 500 or some other broad index which has most of the stocks in the USA (like Wiltshire 5000 or some thing else).
Thanks for your time.
I was looking at some charts yesterday and it seems like all the sectors look the same--down since June or so. That's an over-generalization, but with a few exceptions, most of my bets are zigging and zagging in pretty close correlation lately. Even the defensive stuff hasn't proven to be a very good place to hide. Maybe that's just the nature of bear markets...
we use the S&P 500 as our benchmark so 200 dma is that of spx as are sector weight decisions (overweights, underweights or equalweights).
over the length of the entire bear, the defensive stuff has worked, lately my health names have been doing well as I thought most of them were doing well. no?
Roger,
For portfolio construction purposes I can understand your sector weight comparisons to the SP500 however why do you not benchmark your results versus the MSCI All world Index? In my opinion this would be a much better benchmark for your firm's results since you are structuring global based portfolios. Thoughts?
Obviously over the past few years one's alpha would shrink as compared to the SP500 benchmark.
this has come up dozens of times. part of the equation is customer service which usually means giveing clients a benchmark that can easily follow.
I can't recall ever being able to easily find sector and country weightings for MSCI World Index. From the client perspective MSCI World ias way off the radar.
This is not to defend SPX as being a great benchmark.
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Handball? Come on! The only worse "sport" I have seen is dressage (aka horse trotting).
well, to each his own on that sort of thing but i would ask, have you seen team handball? combo, basketball and soccer and they mug each other almost as rough as water polo.
even if you think it sucks i'm gonna have to say it is a legit sport with no need for quotation marks.
I think you are going to see oil snap back in the coming days. I don't believe that the uptrend is broken. As much as I would like to see oil break down more, I don't think it will.
Jim Rogers pointed out on our show that we global demand for oil is outpacing supply at never before seen levels. Yes, we will absolutely see SOME demand destruction at home, but it will take a long time-----and perhaps some change in the mindset of Congress before we can meaningfully increase supply.
You can hear our interview with Jim Rogers and many others at www.stockshotz.tv
I also think coal is going to snap back. There is huge demand for coal all over the globe that is not going to moderate anytime soon.
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