Thursday, October 11, 2007
At the close today we are headed up to the canyon for our annual pilgrimage. We will be back Saturday afternoon.
I thought I would just leave a couple of observations before we go.
Do you remember the fear a few months ago borne out of the credit crunch/liquidity/housing/mortgage event from earlier this summer.
The sky-is-falling folks thought this was it. A lot of moderate thinkers thought this was it. My take all along was that at worst it could cause a normal bear market or normal recession. There were many people calling for much worse.
While I am not surprised that the planet has not stopped rotating on it's axis it does seem odd that a recession in the housing market hasn't left more of a mark on the stock market. Either housing does not matter or stocks have it wrong. Can it be that simple? Probably not.
I don't have an answer, just the opinion that this still looms out there is a problem that has not gone away. I am positioned for either outcome.
A point that this serves to make is that you will not always understand why the market is going up, or down, but there does not need to be much consequence if you do not make big bets. A reader comment came in that implied the person got very defensive at the end of 2006. I do not know how big of a bet he made but it was big enough to share his experience in the comments.
A little hedge is not a big bet. There is nothing wrong with applying a little hedge at the wrong time and then lagging a monstrous move up. Missing monstrous becomes problematic because monstrous does not come along that often. I'll define monstrous as 25% or more, you can use your own number.
On Tuesday I added exposure to the euro via the Rydex Euro Trust (FXE) for some clients. The idea that the euro will either share the role of world reserve currency with the US or supplant the US makes a lot of sense to me. The position is small and the mind set is that of aggressive cash not an equity investment.
Have you seen the commercial Evander Holyfield is doing to promote his fight? He is reprising the the role of Apollo Creed in the pool from Rocky IV. Um, I seem to recall that not working out too well for Apollo.