In the above link from Roubini he talks about his having expected the recession to be 24 months which means it would end at the end of this year so nothing new there. Additionally he says there will be slow growth coming out with a high risk of a double dip in late 2010 and unemployment peaking at 11% in 2010.
So either the first impression of what Roubini said will turn out to be correct or his clarification will turn out to be the result. Maybe even a different scenario will be the real deal.My original thesis was the stock market bottoming in the second quarter (later on in the second quarter) but along the way I would have expect one more scare the hell out of them decline after the one in early March. At this point it is too early to say I'm wrong.
Regardless of right or wrong on this part of the bear market process there are some big picture concepts here that can be applied to all big declines. Quite a few times I said the chance of a huge decline is a lot less after a huge decline. That drew quite a few heckles over at Seeking Alpha especially in late December 2008 and early January. Back then fear was much higher than it is now, there was real fear about the end of days WRT to the US financial system and even the American way of life. That fear seems to have receded a bit.
Every time the market has one of these little (or big) feel good moves I typically say the same thing, that this is either the real deal or it isn't. But back to the line about the chances of going down a lot are less after it goes down a lot. At SPX 940 yesterday the market is 39% and 22 months away from its high. Once the market falls 35, 40, 45% the need for a lot of defense becomes less. Do not mistake that as a call to go all in at those points.
To that point in the last few months I rotated into a couple of more cyclical names, increased net long exposure a little with tech but also put on a little SDS. A comment I've made numerous times is that for now I am content to be less volatile than the market (down less, up less) but do not want to completely miss a big rally. Lagging a big rally is a different thing than completely missing one.
One last point is that the odds of going down a lot being low after the market goes down a lot would seem to be an emotionless observation. It will not be right every time of course but putting on a lot of defense after a 40% decline is generally a bad idea. I've echoed these same ideas before the bear started, at various points along the way and will probably do so after this event is over; the point there being consistency.
14 comments:
Echoing some of Roubini's points (and apologies for the alphabet soup) but the argument about whether this would be a "V"or "U"-shaped recession is over -- it's a "U" at best (one of the longest on record IIRC) and recovery, particularly in employment, is going to be sufficiently lackluster as to probably convince some it's more of an "L"-shaped curve.
Perhaps the real question, as Roubini also points out, is will the Beltway crowd decide that deficit reduction should be the new "in-thing" and pull back on stimulus too soon creating a second down-leg a la 1937: Basically a "W"-shaped recession. Since that could happen as much as a year from now it has little effect on my tactical moves -- a somewhat stronger use of stops is about all -- but it is affecting the strategic mix because I do not consider the deflationary danger nearly over (IMHO we are still in the 'fat tail' but, obviously, I could be wrong).
Roubini does look like he is enjoying his 15 minutes of fame and that's for sure.
At what point does another large drop become independent of the first large drop? The international men of whack jobs from Iran and North Koreo might instigate an incident that causes a large drop. If that happens, you can say, "see, I was right" but it really had nothing to do with the current recession or stock market declines. To me, your post almost sounds like you are trying to rationalize your position and methods and convince yourself that you are doing the right thing. For a conscientious portfolio manager such as yourself and as custodian of people's hard earned savings I am guessing that there is always the nagging question in your mind as to whether or not you have done the right thing. My hat is off to you, for it is a responsibility that I would not care for.
Since we all agree the future is unknowable, it seems to me we should strive to have a sensible allocation for our individual (or client's) circumstances and follow Benjamin Graham's advice for increasing/decreasing equity exposure near market extremes. All the hand wringing vanishes and the events of the past couple of weeks are just noise.
IMO it is times like this that buy/hold/rebalance seems to make sense.
this has been one large event that is still paying out. further, the important thing is not getting emotnally suckered by a decline should it come not being right.
your comment say now is a time for Graham but implies before wasn't? not sure how you make that connection and why you think everyone should go that route.
A lot of fear and questioning out there. These are difficult times, but this rally/bull market does not seem to be dead or dying.
I expect to see new lows also, but I do not see any reason this market will not continue higher for a while.
Let's see...buy and hold is dead. MPT theory is discredited and asset diversification along with it. And now the world is hanging on what one economist is saying or maybe not saying?
Sorry, I don't mean to be sarcastic, but buy some good stocks while they're cheap and go enjoy life.
Great picture
Nouriel:
Oh, behave!
Yeah, baby, yeah!
I understood how and when you got more bearish on the down side, but how and when do you get more bullish as the market ascends?
We are more than 5% above the 200 dma. Interest rate curve is no longer inverted so banks should make a fortune since they are only paying depositors around zero.
What data other than the 200 dma turning up will trigger more equity buying?
I do not mean this as a criticism, it is just that when to buy back in is the one thing the buy and hold strategy does not have to deal with. Lagging is not the worst thing provided it does not last to long and I am curious how you prevent staying bearish to long.
i say in the post that a while back i rotated in more cyclical stocks. that was not an increase in net exposure increased the volatility. further i said i recently added in some tech. if the market rockets higher from here the SDS position gets smaller and I am less hedged. I have also posted that I have the next trade ready to implement but for now all we have really been doing is churning around the same area.
I kind of like Roger's idea of not winning as big, but not losing as big either.
I really think most people are too focused on the end of the recession. We can hit the end of the recession, but still see anemic growth, which is what Roubini predicts.
Remember, half of the quarters during the Great Depression showed positive growth. Even Japan's GDP posted positive results in 80% of the quarters. The problem in both of those instances was the GDP growth was anemic and never reached the 3.5% trendline.
We could very well see the same thing now. This debt overhang will have a huge impact on our GDP. We experienced an inflated GDP due to debt from 2000-2007. Now, we should expect the opposite as debt is paid down.
I certainly don't think we can throw out MPT, correlations, etc. However, I think winning by not losing will play a big role going forward. At the very least, investors should be rebalancing more often to capture gains (like now) and buy more during declines.
This is anon 6:00.
You twisted my words. I am not a new convert to Graham. I am not sure if you are familiar with his writings, but if you are you know he basically advocates tactical allocation based on relative valuations.
Perhaps everyone shouldn't go that route. I didn't mean to come across as being preachy.
I should have been an economist. Those ho's look hot!
Hi Roger, an anonynous poster(s) quoted a few remarks from my blog from previous years. I have been busy at Schriever AFB in Colorado Springs the past few days (see my blog), and wanted to briefly respond, late, but I just saw them.
1. I retain some stocks in a Permanent Portfolio but have revised many due to the markets gyrations and political sea change.
The game has changed.
2. I have utilized the Permanent and Speculative Portfiolio tactic for many years. Harry Browne was a cataylst for this approach, at least for me. I have stated frequently that although his approach was valid, I did not suscribe to his allocation. Far from it.
3. I also have stated - and practice- a holistic investment portfolio with rental real estate, alternative income investments, government subsidized schemes, etc. that allow me to change course with securities without losing sleep. I love the cash.
I have become skeptical of the market. I am focusing on other investments while still holding securities (mainly income producing, preferably tax-advantaged securities and foreign entities).
Finally, I enjoy reading dated financial publications and prognostications and find humor in the gaffes made by so-called experts. I am certainly not an expert, but I laugh at my own mistakes, for sure.
I have never intentionally tried to anonymously embarrass anyone who expressed a financial opinion. I respect all those who give their honest shot at investments. Others take a different view.
T
please tell me that is a photoshoped picture.. This guy has the charisma of a rock and he is pulling that kind of tail....
Post a Comment