"All that jelly..."
"All that jelly...and no toast."
Denzel Washington's character in Training Day was leering at a particularly hot woman when making that quip, but I can't help but think the same thing when I look at the current markets.
This past week, the markets collectively decided to have a 20% sale across the board. Everything must go! I updated my portfolio valuation as of yesterday's close, and I'm down 17% since inception two months ago. On the bright side, I'm outperforming the S&P 500 by 10%. I suppose that deserves a genuine Washington Mutual "Whoo-hoo"!
Perhaps more deserving of that accolade is that quite a few blue chip stocks are now on sale. Companies like GE, Microsoft, Johnson & Johnson are now approaching single-digit PEs and offer dividend yields far in excess of cash return rates. Even Berkshire Hathaway hasn't been immune to the repricing.
So let's consider the options here:
1. Stay the course and do nothing. Perhaps even add more to my existing positions. The question is whether these companies are the ones I want to hold.
2. Switch to higher quality holdings. I could sell off some of my weaker positions, reap a tax writeoff, and move to companies with businesses better suited to weather a prolonged recession, pay higher dividends, and have more dominant market positions.
3. Switch to riskier holdings with more upside potential. Sectors such as energy and commodities have dropped a lot more than the market and should hold long-term value.
4. Sell. Throw in the towel, but risk selling at the bottom.
5. Speculate. This is not actually a joke. Speculation becomes increasingly intriguing as the market continues to move wildly in both directions. This runs counter to what I typically do, but if the risk/reward proposition is favorable, I may well go ahead and do it. I'm currently considering buying some out-of-the-money November call options on some of the more liquid securities out there, such as SPY, FXI or GE. With 8%+ daily swings, a potential groundbreaking G7 meeting this weekend, and the increased likelihood of an Obama presidency, it looks like the upside may be considerable from current levels.
I'll be keeping a close eye and may make some moves later today.
Denzel Washington's character in Training Day was leering at a particularly hot woman when making that quip, but I can't help but think the same thing when I look at the current markets.
This past week, the markets collectively decided to have a 20% sale across the board. Everything must go! I updated my portfolio valuation as of yesterday's close, and I'm down 17% since inception two months ago. On the bright side, I'm outperforming the S&P 500 by 10%. I suppose that deserves a genuine Washington Mutual "Whoo-hoo"!
Perhaps more deserving of that accolade is that quite a few blue chip stocks are now on sale. Companies like GE, Microsoft, Johnson & Johnson are now approaching single-digit PEs and offer dividend yields far in excess of cash return rates. Even Berkshire Hathaway hasn't been immune to the repricing.
So let's consider the options here:
1. Stay the course and do nothing. Perhaps even add more to my existing positions. The question is whether these companies are the ones I want to hold.
2. Switch to higher quality holdings. I could sell off some of my weaker positions, reap a tax writeoff, and move to companies with businesses better suited to weather a prolonged recession, pay higher dividends, and have more dominant market positions.
3. Switch to riskier holdings with more upside potential. Sectors such as energy and commodities have dropped a lot more than the market and should hold long-term value.
4. Sell. Throw in the towel, but risk selling at the bottom.
5. Speculate. This is not actually a joke. Speculation becomes increasingly intriguing as the market continues to move wildly in both directions. This runs counter to what I typically do, but if the risk/reward proposition is favorable, I may well go ahead and do it. I'm currently considering buying some out-of-the-money November call options on some of the more liquid securities out there, such as SPY, FXI or GE. With 8%+ daily swings, a potential groundbreaking G7 meeting this weekend, and the increased likelihood of an Obama presidency, it looks like the upside may be considerable from current levels.
I'll be keeping a close eye and may make some moves later today.
posted by Henry at
10:03 AM
2 Comments:
Looks pretty likely that an upside will occur on a long term horizon, but I guess the question is when this will bottom out, whether in the upcoming weeks or the upcoming months/years.
Even after the markets settle, there were all the hard issues that were suppose to dominate this election that are not being mentioned (healthcare, social security, education, defense spending, global warming)
Yeah, that's always the money question. There's really no way to predict that. However, I think that the current problems we're facing are quite systemic and impact the broader global population when compared to previous downturns. It is likely that today's extreme rebound is just a sucker's rally, given all of the hard issues you mention. Here is a good article explaining the technical indicators that occur at a market bottom.
Ultimately, the years of easy/free credit have led to wildly overpriced assets (particularly residential real estate), and the key issue is how to allow the market to reprice those assets without wreaking too much havoc to an already strained system. The point of the bailout and other government initiatives is simply to slow this transition to a more manageable pace. Ron Paul came out with an article today basically decrying these moves and warning of the potential consequences.
Until these assets reprice, however, I don't see the markets recovering. Right now, it seems like the markets are paralyzed and clueless as to how to act.
In the meantime, if solid businesses are trading at attractive prices, I'm willing to jump in even though I expect the overall market to continue to decline.
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