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Downsizing Continues

02/23/2011

Selling persists in the equities market as a direct result of rising oil prices.  Allocations to risky assets and high beta equity names continue to be downsized. As I stated in an earlier blog post this week, I agree with the "downsizing" theme; it is the prudent strategy.  Comparisons are being drawn to late last spring's initiation of a "Baseball Season of Frustration."  I disagree.  Stability exists in the currency and Treasury markets, opposite to last May's flight to the U.S. dollar.

Energy exposure remains my lone suggested overweight.  Global demand is rising and the risk of contagion in North Africa and the Middle East has put the spotlight on limited global spare capacity. The oil market is aggressively pricing-in supply disruptions in Libya and beyond.  In the past day, however, Saudi Arabia introduced $36 billion in domestic stimulus for its citizens. I view this as an extremely positive development to prevent unrest in the Kingdom.

What is most important currently is that the rate of advance in oil prices slows down. It is extremely problematic that the price of Brent Crude Oil jumps $6 from $113 to $119 as it did from 2:20am to 2:50am New York time on February 24. An easing in the rate of the advance in oil prices will be a leading indicator for the equities market that the "downsizing" selling pressure will abate.

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