Seeking The Solution
After many years contributing to business network television, I appreciate the mindset of producers. Telling the story of the markets and pointing investors in the proper direction is important. Doing so in an entertaining fashion is equally as important. So, I no longer take offense when my market interpretation is challenged by one of my producers - I actually enjoy it. Their usual path is to bring on a guest on with a view completely opposite to mine.
If you watched the Tuesday May 25 episode of Fast Money, you know what I am getting at - David Rosenberg is back! Perfect timing. Armageddon here we go again? I think not.
Yes, I have commented about a baseball season of frustration, but as I posted last week, I do not believe this is the fall of 2008 revisited. So no, I will not adopt a "get short" strategy or hide out in cash.
I continue to encourage investors to drive three speeds: overweight, market weight and underweight. Last Friday I moved from an underweight personal position to market weight. As a point of reference, we highlighted the February S&P low @ 1044.50. It was looking ugly this morning, but as the chart below depicts, it looks much better now.
S&P 500 Index
My interpretation of the recent price action of the capital markets is that the market is "seeking a solution" to the headline headwinds rather than a market, as we experienced in the fall of 2008, that brushes off any possible solution and continually focuses on the problem.
Does it mean the happy days of April 2010 are here again and a V shaped Capital Markets recovery to a new high lays in the near term? Probably not. However, it does suggest that the much larger "get me into cash" sell off is less likely.
In my twenty plus years playing this ever challenging investment game, I have learned that markets that sell off through major long term support levels should NOT have a corresponding sharp recovery as we witnessed on Friday and again on Tuesday May 25.
The comparisons to the Fall of 2008 for me continue to fail.
Credit spreads domestically have not widened as dramatically as they did in 2008.
August 2008 to March 2009
In 2008, private sector credit needed to sharply contract . Today, one could argue, credit needs to moderately expand.
The price of Gold in the Fall of 2008 suggested liquidity was tight; today it suggests liquidity in the U.S. is flush.
Spot Gold September 2008 to March 2010
Sorry folks, I still believe a baseball season of frustration persists. From time to time I will drive market weight, sometimes underweight, probably not much overweight, but I am not getting off the track completely.
A binary "risk on, risk off " 2008 style market it is not. Rather, it will be a frustrating summer where adherence to the initial 2010 investment strategy is most important, and an understanding of what speed to drive remains the optimal play.