For months I have been saying that the stock market was in a stumble along the bottom, we would not meaningfully breach the November low and somewhere in there as part of this backdrop would see a massive bear market rally with a run back down to 800 or so afterward.I still believe in this thesis but now that we are essentially at the low the chance of being wrong is now front and center. In the paragraph above I say not meaningfully breach, candidly I'm not exactly sure what that means but for example a 3-4% breach would not be meaningful to me nor would a one week decline that scared the hell out of everybody followed by a run right back up to 800 the following week.
There certainly seems to be no reason for the market to go up right now but of course that very fact has often been the exact time when the market does turn up, either for a bear market rally or the real thing. Another thing to realize is that when the market does turn up no one will expect it and no one will think it is justified which is exactly what is going on with the China market over the last couple of months and why I went back in in November.
There is nothing wrong with having opinions about short term goings on in the market. Some folks do in fact have a knack and I think anyone who pays any kind of attention to the market could be right about a short term move every so often at a minimum. This sentiment has nothing to do with trading or otherwise making yourself vulnerable to that sort of gut feeling.
The scenario I have been working with will either be right or wrong. You may have some sort of expectation about the stock market for the next year and that will either be right or wrong. A point I have tried to make over and over is to not be too vulnerable to whatever you think is going on in case you turn out to be wrong. I think we have a big bear market rally coming, so I added a couple of things along the way (a couple of months ago). I did not deploy all the cash raised, had I done that I'd be down a whole lot more.
I get a lot of emails in my TSCM account from readers there who just don't get or don't believe in avoiding big bets. The concept is not that difficult and the way I view the world this is when small bets pays off the most and when you need that benefit the most.
17 comments:
NO ONE KNOWS. Is Kim Jung Il going to bomb S. Korea today? Will Buffett go all in with Citi today? Will home sales suddenly take off? Seems like you are making a good case for buy and hold. Directing interest and dividends to the asset class that has decreased the most is sufficient for rebalancing. The only thing you have to have conviction in is the continued existence of free markets.
Is this blog called "Random Roger" for the random nature of the markets or the random thoughts running through your head?
If/when the massive bear market rally comes, I think a lot of folks will go all in, trying to recover the losses that they've suffered on the way down. Unless they're really nimble or incredibly lucky, it's probably the wrong thing to do, but a natural inclination nonetheless.
It seems pretty well documented that the 200 dma provides good cover on the downside, but lags on the upside. I sure would like to find the corollary to maximize upside gains at the turn. Does anyone study that with the same mathematical discipline that they address the 200 dma?
Roger,
You say tscm readers don't agree in avoiding the big bet; to diversify; to own small pieces a la dba.
I respect your writing. Have you, however, proven yourself via investing returns that merit the readers' trust?
I'm not saying that you don't merit trust from the readers. You appear to have noncorrelated asset groups; your goal is to do better than the market and not produce absolute returns.
A money manager should produce positive returns. If the market is down 10% and the money manager is down 7%, this is not a good year.
Respectfully, I believe being down less than the market in any given year does not give anybody a pass. With all of the inverse funds, asset classes, the creme of the crop are producing positive results.
TJ,
I'll bet you would be hard pressed to find any money manager who is either not all in cash or bonds and who also is constrained to operating in publicly traded markets.
If there are some, please advise. Even Jeremy Grantham the perma-bear is down.
I'm not defending Roger as I don't agree with all he does, but I can tell you from my in-laws experience that there are "professionals" who can do lots worse...I mean severe irrervsable damage.
In the spirit of your post, TJ, could you post your returns and the portfolio backing up those returns on your blog?
Nerves appear to be wearing thin. Last night a reader left two different comments calling me a racist. I think 6:28 anon is taking a shot but I'm not sure.
TJ i set an expectation for clients years before the bear that I thought I could deliver and so I set out to deliver that expectation, not another one. How could an RIA set an expectation of "you will be up in down market?"
Are you trying your best? I am, that is all anyone can do and all anyone can promise.
Article today by Jim Wiandt...
In a market sitting at 1997 levels, I'm asking myself inturn, "Which ETFs should I buy?" and "How are real estate prices looking in South Dakota?" (for my bunker/potato farm).
Are you scared yet? I suppose at this point it's probably more like beaten and whimpering. This is an ugly, UGLY market, and it feels like capitulation now, with maybe one last freefall in front of us. So hold onto your stomach and keep your wits, because if you happen to have anything to put into the market, anywhere around these depths is going to be looking great somewhere down the line (though maybe way WAY down the line).
Matt said in late-2008 that we'd see 15,000 before we saw 6,000 for the Dow, and I said don't be so sure. Now look at us, inching down towards 7,000 with an eye to go lower.
But I'm not excused from this either: Look at my bet on the Select Sector SPDRs Financials (NYSE Arca: XLF). Failing to heed my own advice to make sure the market found a hard bottom before plunging in, I bought XLF in the early winter, thinking it was a steal. I've seen that ill-advised investment shrink 50% since.
So, let's say you are a capitulation theorist, a reversion-to-the-mean partisan. What is the play from here? And if you're shaking in your boots and just looking to preserve a little of what's left, where should you be?
DIA or GLD? XLF or SHY? (Great ticker in this market, btw.) Honestly, I think it's prudent to try to find a bottom before jumping in. And that probably means a market that's 20% up from whatever low we hit. Otherwise, you're trying to catch a falling knife. Of course, just when people are beginning to feel extremely shy about coming back into the market is about where the bottom is usually ... the capitulation point. And I'm guessing we're not far.
All the funds I've liked in terms of scaling into, I still do. The S&P 500 SPDRS (NYSE Arca: SPY), iShares S&P 500 (NYSE Arca: IVV) or the Vanguard Total Market Index Fund (NYSE Arca: VTI) are all going to be good possible bets. You might be even smarter to tilt a bit away from the dollar (which is likely to collapse once we get through all of this) and make a bet on say the iShares FTSE/Xinhua 25 (NYSE Arca: FXI) or the WisdomTree Chinese Yuan ETF (NYSE Arca: CYB), or more broadly on the iShares MSCI Emerging Markets ETF (NYSE Arca: EAFE) or the Vanguard Emerging Markets ETF (NYSE Arca: VWO), say. For the ultimate contrarian play, there's the upcoming new PowerShares Mortgage Backed Securities toxicETF.
Look for more from us on that soon, because we do think maybe an ETF can save the world.
So once more - take a deep breath. This is no fun for any of us. But pragmatically looking at these markets, you've got to love the opportunities
Come on TJ get real. Roger is a steward of capital and by such he must do everything in his power to protect and make it grow - these are two different roles that often times oppose each other. Moving all of your assets to short only or being 100% UST prior to the panic is the only way you made money in '08 (was cash even safe? no.) and if he had done that I would stop reading this blog because he would no longer be a protector of assets. Stop wasting teachers precious time with your nonsense.
Roger, to clarify to everyone - my question wasn't mean-spirited or accusatory.
I read Roger's site on a regular basis - but wasn't aware of the annual expectations' discussion.
My returns, I am sure, have been below Roger's returns.
I think a distinction should be made on who readers should trust & who is noise. I think Cramer is noise. I respect Roger's views, but I don't know if they work as I'm not a client. It was really just a question.
I know everyone's nervers are on edge. My questions were out of curiosity.
Roger,
Everyone keeps mentioning that the market hasn't been this low in 12 years, but shouldn't inflation be counted in? Wouldn't that make the S&P in 1997 dollars substantially higher than the 750?
while that is technically correct that seems like a forest for the trees point to me. the market has puked down and scared the hell out of a lot of people. personally i'm not to worried about fine tuning it.
2 things....
1. it cracks me up that headlines refer to "fear of nationalization." Sure, I'm skeptical of having stuff run by gov't, but if that can solve the problem....
2. I got around to looking up the total amount of bailout money used in Sweden. A whopping $10 billion.
i think the size of the Sweden bailout being so small in terms of costs and number of banks is one of the things brought up about why the Sweden idea would not work here.
In the 1992 crisis Sweden spent approx four percent of its GDP to rescue the banks, about $11.7 billion ($18.3 billion in today’s dollars). Four percent of GDP is roughly where we are now with the bailout for the purposes of comparing apples to apples but given the opacity of the process thus far that's a guesstimate from published figures only.
Nearly a hundred Swedish banks were involved in the 1992 crisis but AFAIK the number of major banks completely taken over was fairly small. It sure wasn't namby-pamby IAC and some serious pounds of flesh were extracted: Banks were forced to write-down losses before being taken over, equity holders were mostly wiped out, bonds got a haircut, bank managements were pilloried and so forth.
After it was all over Sweden recovered nearly two percent of GDP during the re-privatization process so overall cost to taxpayers was reduced by about half (that's the $10 billion in today's dollars cited above I would guess).
Actually I think there's one remaining large bank that still has significant government ownership but it has become so successful it should produce a very nice profit when that share is sold.
We should be so lucky.
For some reason I just can't shake the feeling that a great deal of what we are seeing (or not seeing is probably more like it) is less an ongoing attempt at recovery and more a continuing attempt to stave off systemic collapse.
Check out Gross's latest commentary. He basically says nationalization would be a catastrophe. The current administration likely knows this and won't do it. If it happens, it will be another "look out below" event.........
I'm guessing he means "a catastropohe for wackjobs who don't look long term and just press the 'sell' button"?
This is kinda what I've been wondering. Nationalization might be the right, or *a* right answer, but many traders would just flip out.
Roger- for those that have been keeping some powder dry this market is ripe for a short to interm rebound.
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