Quick post to start what will be a very busy day for me.
Yesterday the S&P 500 was down 2.1% and this morning the futures indicate a 14 point upside open about two hours before the open. If this lift sticks throughout the day then we will hear a lot of positive comments about progress with this or progress with that but to repeat a long standing theme here, this sort of thing must be viewed as noise.
The building block should be understanding normal market behavior and the things that drive normal market behavior. This type of volatility is not normal market behavior. The time being spend by various authorities trying to figure out the most effective ways to bail out ailing (ailing is not a strong enough word) countries for the problems of excess and bad policy are not normal market drivers.
The market can churn in either direction in this environment, this is what it has been doing, but it is not normal or healthy and we should expect this will still take a long time to work out. It took more than ten years for the great depression to resolve, it is only logical that the "worst financial crisis in 80 years" will need more than two or three years to resolve.
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10 comments:
The financial crisis has been going on for more like 4 years now (2008, 2009, 2010, 2011), not 2 or 3. So it's not like we're in the early innings anymore...
It seems like we continue to hear how long it will take to resolve. At some point many people just give up and go elsewhere.
IMHO This is a market that is not fair to the average person. It is hard to undestand how in the long run our society will continue to allow this to continue. take from savers give to spenders. One hugh casino or a rational business enterprise?
I think when the herd mentality shifts from ultra-safety of treasuries to something else, we will see an explosive move in equities to the upside. I would also venture to say that a great portion of those gains will be made in a very short period of time. When will that event happen...who knows? Might be next month, next year, or five years from now. But, like many big moves it will be important to be invested beforehand.
Ask yourself what conventional wisdom is today...then act accordingly.
volatility is the reason that most investors underperform the market.
Even my best returning long term stock positions (30+ years) have annual price swings of 20-30%. Altria (Philip Morris) has been my best investment and the volatility I had to deal with to get that return was huge, a few 60% declines along the way.
My beef with many financial advisors and "investors" is the lack of perspective regarding volatility, and the crazy goal of judging a portfolio on a quarter to quarter basis. I think by focusing on these ultra short term periods and trying to control natural volatility, an investor actually (whether they realize it or not) turns into a speculator, judging investments not on their business valuations and prospects, but instead on price movements of the share price.
"repeat a long standing theme here, this sort of thing must be viewed as noise."
When the Facts Change, I Change My Mind. What Do You Do, Sir?
"focusing on these ultra short term periods and trying to control natural volatility"
I don't disagree with that statement, however, what if this current period is REALLY a game changer for the future. The U.S has a tremendous debt problem and can't agree on a solution, our political climate is atrocious, the future is looking bleak for more and more individuals, many other countries are in worse condition (some are better), future interest rates can only go up (who knows how long that will take), our educational system is moving down from being the best, our health care system (it is a good one) but costs more than other major countries.
So, as Roger suggests, future returns will probably NOT be in this country.
The Wall Street Journal finally seems to be getting the message at http://tinyurl.com/6re953g
A couple years late but not bad. Politicians can't be more than a year behind now.
The lede:
"It's tempting to view the European debt crisis as a simple morality tale. Hard-working, fiscally responsible northern Europeans such as the Germans and the Dutch are being forced to pick up the tab for their profligate southern neighbors—the Greeks, the Italians and the Spanish.
Germans tend to see the problem this way and, increasingly, so do many U.S. commentators. Unfortunately, that attractively simple story doesn't always stack up — most notably in the case of Spain.
In 2007, before the crisis struck, Spain had a modest debt load representing just 36% of its economy, according to European Union figures."
Rest of the article requires a subscription but here's the real short version:
National economics is not a morality play, it is ledger book, and when the financial crisis of 2007 hit countries with low public debt as powerfully as it hit countries with high then it does not follow that level of public debt is the critical variable.
Growth in the US is unlikely to be robust but it will still be a lot better than Europe's if they continue to align their analysis and policy preferences with their prejudice over there (if Occupy hadn't changed the analytic focus over here we would probably be no better off).
2:50 has identified conventional wisdom. I bet time will prove his words wrong. Something completely different will happen instead. I just don't know what it is.
anon 2:50
I will take a portfolio today at
10x, in today's macro hatefest over a 25x new paradigm macro lovefest.
today is a wonderful time to be invested in cheap common stocks. Valuation matters.
The last two instances of huge market participation from the public ended badly. 2000 for momentum large cap index and dot.com stocks, and the 2004-2006 real estate greed leverage-fest.
I don't see the public lining up to buy discounted assets today, so I find that very bullish.
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