There was a great riff in the Four at Four Marketbeat post yesterday. The money quote was from Kenny Landgraf of Kenjol Capital Management. “The nuttiness of this market makes your head spin.”
In case you have not surmised by now, the market action in the last few weeks has been abnormal. A lot of market leaders and popular segments have gotten crushed. Oil was down $60 yesterday (a slight exaggeration). Currencies have been whacked very hard in the last few weeks. Other commodities have been thoroughly pistol whipped.
The nature of these markets is such that the fundamentals do not change so quickly as to justify these sorts of price moves. Don't take that my saying the market is wrong or that these moves cannot happen because the last few weeks shows us it can happen...but it is abnormal.
This summer is not the first time you have encountered abnormal price action in certain markets and obviously will not be the last.
The important thing here, I think, is the ability to recognize when things do get cattywhompus as they are now and take a step back (if you are one to get too focused on the shorter term) and try to realize that things are disjointed and if you have a properly diversified portfolio you should be able to weather things just fine.
In all likelihood you will quickly forget this bit of turmoil quickly enough. On April 12, 2003 iShares MSCI Emerging Market Fund (EEM) closed at $20.20, adjusted for splits. On May 17 it closed at $15.88. That works out to 21% in 36 calendar days. Does anyone remember what happened? I do not but how much fear do you think there was then? How many segments on TV or written commentary proclaiming the end of emerging markets do you think there were?
On May 12, 2006 StreetTracks Gold (GLD), which is a client holding, closed at $71.12. On June 14 it closed at $55.62 which coincidentally was also a 21% decline. You might remember there was a decline during Q2 2006 but does anyone remember what the catalyst was? How many commodity corrections have there been in the last five years and how quickly are people ready to give up on diversification altogether when the drops do come?
Those were rapid dislocations that eventually stopped dislocating. The current dislocation will also stop dislocating.
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6 comments:
Yes, but I think a decline in both commodities and equities will continue. Almost confidant enough to buy sh and psq, but do not look forward to being whipsawed in the short term. I still like my cash though.
I guess the real point of your message as usual is DIVERSIFICATION is the one of the only free lunches out there. Even I will acknowledge the benefits of diversification, but I would prefer to see some more decline before I reinvest.
Wisdom once again. Panic is everyone's enemy - except those who reap the harvest therefrom.
Thanks, Roger.
Tom C.
http://tinyurl.com/6c96o5
excellent perspective in understanding what is going on in the economy imo
I too think that some of these moves are way overdone.Just like in a bull market, markets seem to go to extremes in this bear market.Plenty of bargains abound for investors looking to add to their portfolio.
I have no basis for saying this, but I think the hedgies bid up commodity prices and are now exiting the long commodities/short financials trade. It seems like every good fundamental story quickly gets overblown into a bubble these days, and it always ends badly, at least in the short term.
You're right to consel patience, moderation, and diversification, Roger. In the meantime, I'm enjoying lower gas prices.
It is called deflation. Look it up.
Diversification is a poor strategy long term, better to invest in CDs at 4% then diversified equities.
You perspective seems to be that of the last 20 years or so, so you are a very short term investor?
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