Hopefully a decline of some sort was not a huge shock after an 8.5% lift in two days. While I doubt something like this is unprecedented it does not happen too often. In the context of a bear market that so far is of very ordinary duration it was very unlikely that it was going to follow through yesterday. I would generally expect more downside (but with a little less velocity!). If we are lucky maybe only six more months before it turns up for real--of course we may not be so lucky.
Many interviews we see on CNBC include a question about how to make money now. I 've heard Hugh Johnson say this once or twice but most do not, for most people a bear market is better to protect what you have than trying to find a couple of things that might do well. As I have been saying this does not have to mean zero exposure but one way or another reducing exposure.
As I looked at how the things I use in portfolios did on Monday they were of course mostly down a lot. Obviously having some double short (despite it not capturing the full effect yesterday), having a fair bit of cash and having sold a little on Friday meant not feeling all 382 beeps the SPX went down which is fine but the point is that the stocks I own are dropping plenty but that is not what matters.
Obviously this is an argument for allocation, more specifically being willing to take defensive action in the face of bear and not getting greedy at the wrong time. Not that there won't be tactical mistakes, I've poorly timed a couple of things of late but that is the smaller picture. The big picture issue of this being a bear market has been quite important.
Speaking of the double short Pro Shares SDS that I own, in a session I sat in on at this conference I am attending there was someone from ProShares who took most of the questions. On Monday SDS was up less than you'd hope for a down 3.82% day. I asked if the deviation Monday was bigger than the other day because GE was added to the no short list and GE has such a big weight (2.5%) in the S&P 500; he didn't know. Great. Maybe he did know but didn't want to say? If Exxon Mobil or a couple of the other biggies somehow get added to the no short list it might be time to say sayonara until the short ban ends.
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:
http://tinyurl.com/3pq53b
It is different this time Roger...
bigger and badder...but we will
survive.
Whatever happened to bonds go up when stocks go down? Guess this means cash is THE only safe place!
Also, sacred cow GE gets a downgrade...wow!
anon #2, bill Griffeth talks about that all the time but it is a bad over-simplification that I should have mentioned earlier.
Not to be too flip but they go in opposite directions except for when they don't if you know what i mean.
roger,
fyi and fwiw, you mentioned in one of your posts (or maybe your video) over the weekend that you didn't know how the very recent volatility in the market compared to past periods. late yesterday bespoke posted a comment that indicated that the market moved up or down 3% or more over five of the past six days and also stated that that much daily vol occurred only during the depression in the 30s (no specific dates) and during the 1987 implosion.
the past week seems much more volatile than any others over the past 30 years except for the two weeks around the 1987 meltdown.
hope that helps give you some perspective and thanks for keeping a lot of us even-keeled.
--gjg49
ty for that info
“But also keep in mind, for all the bottom pickers out there, that the RTC was established in 1989, but it still took a year for the stock market to bottom, two years for the economy to bottom, and three years for the housing market to bottom.”
from Bill Cara blog
"I hope that you're always going to question everything around you,
that you will be skeptical and questioning. Because that's the only way you're going to figure out what's really going on. And
that's the only way you'll be successful. Because the conventional wisdom is never the way to the top." Jim Rogers (2004?)
Volume ia actually larger (10bn stocks per day traded) over the last few days than ever before. A lot of shorts being covered, I think. But that could be an understatement.
Roger, on that SDS--would it be kosher for you to share roughly how your portfolios are allocated at this point (e.g. how much long, short & flat)? Curious how much SDS you enlist to mute the "down-a-lot" phenomenon & how much long equity exposure you consider prudent at this point. Asking b/c I am ~40% long without any downside hedge, considering some SDS or other tool to reduce the pain of the next several months (I concur on the "more down" guess). No use begrudging that I didn't have any hedge until now, trying to come up with the best way forward. Thanks in general...
that's a big no can do but it has grown quite a bit (I have not bot any more). In a week and a half I will do the quarterly state of the portfolio video which is a format for more detail than what can go in print.
Roger,
Regarding your comment about the continued effectiveness of SDS as a hedge if the short ban continues, and/or is extended/expanded. Isn't a "somewhat effective" hedge better than none at all? I'd think that even with some additional "slippage", it would pay better than just parking the cash equivalent in a 2.5% MM, or am I missing something? (Like this would be the first time, LOL)
jan
Jan,
yesterday SDS fell short of double the inverse, today it overcompensated to make up for it (simplification). There a comes a point where it would not be predictable. Right now I feel comfortable that it will be pretty effective. At some point that comfort goes away. This is fuzzy stuff to be sure but that is the concern.
Post a Comment