Wednesday Morning Reads–hedge funds are getting crushed


Some things I’m reading this morning:

  • Major hedge funds are getting crushed, including David Einhorn’s Greenlight Capital (DealBook)
  • The Emerging Market rout continues (WealthOfCommonSense)
  • Fool’s game to time this market (YahooFinance)
  • ADP: private employment number out this morning (CalculatedRisk)
  • 5 forces driving the global selloff (WSJ)
  • Maybe this global slowdown is different (Bloomberg)
  • Bernstein: the obfuscating start of the John Fox era(CBSlocal)

Tuesday Afternoon Reads–shares fall on bleak Chinese manufacturing data

links2Some things I’m reading this afternoon:

  • Shares fall on bleak Chinese manufacturing data (Dealbook)
  • Market pullback:  1997 or 1998?  Or 2011 or 2014 (FV)
  • The 1998 Playbook (PragCap)
  • Most volatile two weeks for crude oil since the financial crisis (Bespoke)
  • For 99 percent of investors, volatile markets with zero leadership mean do less, do it slower and keep it small (HowardLindzon)
  • Short-termism (AQR)
  • Market pundits weigh impact of recent volatility (Barrons)

Tuesday morning reads: a warning on China seems prescient

Some things I’m reading this morning:

  • Stock futures are decidedly up (Bloomberg)
  • A warning on China seems prescient (Dealbook)
  • Global stock markets rebound despite continued selloff in China (NYtimes)
  • What to do during market volatility? Perhaps nothing (Vanguard)
  • El-Erian: this is not 1998 or 2008 (Bloomberg)
  • Shoddy Chinese-made stock market collapses (TheOnion)

what happens next?

After a brutal day where the S&Ps dropped over 100 points at the open, came back to close to flat by lunch time only to finish down 77 points (-3.9%), the market is now down 10% during the month of August.  Morgan Housel writes:

…the market is where we are today [down 10%+] or lower from its previous all-time high about half the time. And again, that’s during a period when the market made millionaires out of modest savers.

Some more numbers for you: Historically, about one-third of 5% declines go on to become 10% declines. And about half of 10% declines go on to become 20%+ declines.

So, think about that. Stocks are down about 10% from their all-time high. Historically, half the time this happens they fall another 10% or more.

Now for the Good News…Everything about successful investing comes back to one thing: The long run.

After a 10% drop, stocks are higher five years later 86% of the time. The average return during that period is 51%, which is great. If the market were to fall 20% from its all-time high, historically it’s been higher five years later 89% of the time. There are no sure things in investing, but that is darn close.

You can read the full article here:  What Happens Next?


low until 8.24.2015

Less than two hours left in the today’s trade, but the day is far from over.  Regardless, this one chart will provide some perspective.  Yes, the recent drop in the stock market has been swift and aggressive (the line to the upper far right of the chart from 2,100).  Yet, the market has also risen drastically off of the March 2009 lows.

A time to panic?

What a week. The equity markets, both domestic and global, were decimated. The S&P 500 lost 5.8% over the past week (leaving it down 4.3% year-to-date).  Emerging markets were hit extra hard losing a whopping 7.8% over the week while developed overseas markets followed suit with a –6.3% one week performance.

Investors now want to know whether it’s time to panic. Unfortunately, I can’t definitively provide an answer on whether it is or isn’t.  In fact, no one can.  Sure, you’ll hear the typical financial pundits on CNBC declare with exact certainty the direct cause of the selloff and how equities will perform over the short term. Some of the explanations as to the cause of the selloff will be correct, but the prognostications won’t.  Just white noise in an overly uncertain world.

But what I can be certain of is this: the complexion of the market has changed. The price action of the equity markets has been as revealing as a slap in a face.  The past week has brought a substantial amount of technical damage that must be dealt with no matter the cause of the market drubbing.

Don’t get me wrong, the cause of the selloff is important.  It does matter, for example, whether the price decline resulted from just a healthy and normal correction (as equity markets don’t go straight up in a line, with the exception of the last, um, 6 years—part of the problem as it’s lulled investors into thinking this is the norm), or whether it’s fear of an increase in domestic interest rates, or major economic problems with China, or even worse, a beginning of a global recession. Each of these causes will bring a varied longer term set-up to the direction of the market. Time will reveal the direction, but for now we relied on the technical damage of the market as an indicator to pare back exposure to the equities.

Further technical damage to the market will beget further defensive posturing in an attempt to preserve as much capital as possible.  Remember, as we have always managed money in corrections, the intent is not to take all exposure off.  Overly timing the market is dangerous, but reducing risk on the margin is prudent. And if the correction proves to be short lived, we will be nimble enough to add equity exposure.

Here are links to some other articles about recent market developments:

  • Five Hundo (TRB)
  • Is the bull dead (BigPicture)
  • This week’s market selloff may not be such a bad thing (NYT)

And as always, feel free to call or write with any questions or concerns.

Have a nice weekend!


Tuesday Morning Reads: value investors hoarding cash


Some things I’m reading this morning:

  • Apple:  revenue up & profit margins at the top end of range (MarketWatch)
  • Paul Tudor Jones: U.S. stocks will outperform other equity markets for the remainder of this year (Bloomberg)
  • Value investors hoarding cash (Bloomberg)
  • Cautious optimism on the economy (WP)
  • Poster children for buybacks-trump anything investing (TRB)
  • W.H.O declares Nigeria free of Ebola (NYT)
  • Update on Europe’s Quantitative Easing initiative (Zerohedge)
  • Bill Murray’s words of wisdom (TheDailyBeast)

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