Sunday Morning Coffee

 

Things have obviously been quite stormy in the market of late so what better time for Barron’s to interview Peter Schiff. I generally agree with him directionally but do not agree at all in terms of magnitude. The US has quite a few things to overcome, clearly, but I think the consequence of that is simply below average growth. It is too soon to know whether the idea of below normal is right or if Schiff’s idea is right. I say too early because decade long round trips to nowhere, which is all we have so far, is not unprecedented.

Does anyone get any benefit from his continual pounding of the same idea? I do not. However on the rare occasion that he actually talks about stock picks, it is always very interesting and useful. The Barron’s article was about 90% sparring match which could be summed up with the following;

Barrons: Wouldn’t such and such make a difference?

Schiff: No it wouldn’t.

Just the last little bit was about stocks and there was no depth to that part of the interview.

Taking a slightly less dramatic approach to this there is precedent for and current evidence of the big boy on the block becoming a little less important a destination and a less rewarding destination. This is something I have been writing about for a while and investing around longer than that. Anyone without decent foreign exposure during this bull market has had a much harder time making this decade work for them.

So we are somewhere in the middle of what I think is a normal bear market–that will either turn out to be right or wrong. While I am not a believer in decoupling in the way most people use the term there are countries that will go down less than the US or turn around sooner than the US and when the bear ends many of those countries will have much larger bull markets than the US has. This is exactly what happened in the last bear/bull cycle that ended last fall. You can check Hussman for the exact figures but the approximate doubling of the S&P 500 in the five years ending October, 2007 is pretty anemic for a bull market.

In that same time however Australia, as measured by iShares Australia (EWA), which I own, was up 250% and Brazil as measured by iShares Brazil (EWZ) was up 1400%. So you need foreign exposure.

Tech had a bubble that it has not recovered from, but it did do better than the S&P 500 in the post bubble bull. If the thing unwound with the banks is a bubble (for now I believe that is the wrong word) then it is possible or even likely that the recovery will deliver subpar returns. If tech and financials do in fact deliver below normal bull market results when the next bull starts then investors will have a problem.

This is where themes or “new” sectors can come into play. I have written about a few of these things like farm land, airports and hydro funds. The thing I always say is that no matter what is going on in the US market our financial plans call for some number and we all have to give ourselves the best shot of getting that number.

The picture is from about 90 minutes before game time at Fenway when a nasty storm blew through. It is taken from the third base line right next to the entrance of the Pavilion restaurant looking through the stairs to the seats. 

13 Comments

  1. Wicked cool pic Roger!

    Reply
  2. Hey Roger. Last evening there was an article in our paper about a local company that makes film for solar panels, and they’re expanding rapidly. I’d never even heard of them (duh), and it got me to thinking about a different strategic focus for my portfolio.

    In this environment, does it make sense to invest more locally, digging out what I think AAII may refer to as shadow campanies, than to invest in larger, more widely followed companies or etfs? The idea is to add another layer of insulation from market volatility as the hot money sloshes around the darlings of the analysts.

    To carry on your baseball theme, I’d direct more of my portfolio to Double A players hitting 450 instead of overweighting the Bosox bigs. Maybe that’s what you were aiming for with your farming names, but since stats on those from say, the Dominican Republic are harder to come by, my players would hail from backyard USA instead.

    Thanks!

    Reply
  3. Linda, thank you. Joellyn said she was astonished by some of the pictures including that one–too bad I don’t have a modern camera, only five mega pixels.

    anon, not to be a wise guy but it only makes sense if the companies around you are any good. it is not clear to me that living near a public company ensures any more knowledge. it might but it’s just not clear to me that that should be the case.

    Reply
  4. i think we are closer to the end of the bear than the beginning… when you (and I) were talking about a bear market in the Fall nobody listened.

    Now even Kudlow is giving up on stocks. Meanwhile, many retailers, financials (other than the investment banks), and even home builders are starting to hold up better than the market on down days.
    my guess is that the 25% from the high, which is 50% retracement of this bull market, would be just about right… give it few more months of side way actions after that to wear people down and then we will be ready for new uptrend around the time we usher in a new administration into the White House.

    Reply
  5. giving up half the bull seems to be a fairly normal move.

    i’ve been saying normal bear so close to 30% but your logic for 25% makes a lot of sense.

    Reply
  6. If Israel attacks Iran, and I think they have to, then I think the decline could be greater than 25 to 30%.

    BTW, it is not important if I think they have to attack or you think they should or shouldn’t attack. What will decide is if Israel thinks they should attack an Iran they believe will have nuclear capabilities soon

    Reply
  7. “when you (and I) were talking about a bear market in the Fall nobody listened.”

    Well, I listened, and I’d like to
    thank you very much! 🙂

    Reply
  8. I believe that the U.S. should launch an attck on Iran.
    1.“I believe we can win an overwhelming victory in a very short period of time.”
    2. “success would be fairly easy.”
    3. “we’ll be greeted as liberators”

    Reply
  9. I should be so lucky to have such clarity ever again.

    Reply
  10. I think the coming attack on Iran will be a disaster, but not as large a disaster as letting Iran finish developing nuclear weapons to put on their missiles.

    The important thing for this blog is if it will affect asset prices. I think it will have a major negative effect on an already weak world economy.

    Reply
  11. Does war bring an end to deep recessions?

    Just an inquiry.

    I believe it does.

    Reply
  12. Jumping back to your video, I’d like to hear a bit more detail on the utility of the 200dma.

    For example, while you use it for a “market” measure, do you also use it for a “sector” measure? (Is demand for equities within a particular sector similarly revealed through 200 dmas? How about for subsectors, or even individual equities?)

    While demand is demand, I think the utility of the indicator may shift somewhat depending on what is being averaged… the market (SPX or other broad index) may signal important macro sentiment with the 200dma, but as you get smaller in the underlying, isn’t there a risk that the sentiment overlay (from the “market’s” 200dma) is biasing what is seen on the “micro” level?

    I’m not a bottom fisher, but do you consider breaking the 200dma (to the upside) for the “micro” perspectives to be useful in finding leaders?

    Finally, do you have a fundamental view as to the likely performance post bear market? (Assuming 30% down is right, where do you see the “gas” coming from to fuel anything like a justification to re-equitize?)

    Thanks,
    Rick

    Reply
  13. I live in Israel. The general mood here is that the world is doing nothing while a second holocaust is in the making, driven by fanatics who are calling for our physical annihilation. So yes, any form of military attack is risky and may not achieve its purpose. It would be bad for all sides concerned as well as for the world stock markets & oil price etc, but from our perspective, a nuclear bomb over our heads is infinitely worse. What would you do if you were parents of young children here ?

    Reply

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Sunday Morning Coffee

 

Things have obviously been quite stormy in the market of late so what better time for Barron’s to interview Peter Schiff. I generally agree with him directionally but do not agree at all in terms of magnitude. The US has quite a few things to overcome, clearly, but I think the consequence of that is simply below average growth. It is too soon to know whether the idea of below normal is right or if Schiff’s idea is right. I say too early because decade long round trips to nowhere, which is all we have so far, is not unprecedented.

Does anyone get any benefit from his continual pounding of the same idea? I do not. However on the rare occasion that he actually talks about stock picks, it is always very interesting and useful. The Barron’s article was about 90% sparring match which could be summed up with the following;

Barrons: Wouldn’t such and such make a difference?

Schiff: No it wouldn’t.

Just the last little bit was about stocks and there was no depth to that part of the interview.

Taking a slightly less dramatic approach to this there is precedent for and current evidence of the big boy on the block becoming a little less important a destination and a less rewarding destination. This is something I have been writing about for a while and investing around longer than that. Anyone without decent foreign exposure during this bull market has had a much harder time making this decade work for them.

So we are somewhere in the middle of what I think is a normal bear market–that will either turn out to be right or wrong. While I am not a believer in decoupling in the way most people use the term there are countries that will go down less than the US or turn around sooner than the US and when the bear ends many of those countries will have much larger bull markets than the US has. This is exactly what happened in the last bear/bull cycle that ended last fall. You can check Hussman for the exact figures but the approximate doubling of the S&P 500 in the five years ending October, 2007 is pretty anemic for a bull market.

In that same time however Australia, as measured by iShares Australia (EWA), which I own, was up 250% and Brazil as measured by iShares Brazil (EWZ) was up 1400%. So you need foreign exposure.

Tech had a bubble that it has not recovered from, but it did do better than the S&P 500 in the post bubble bull. If the thing unwound with the banks is a bubble (for now I believe that is the wrong word) then it is possible or even likely that the recovery will deliver subpar returns. If tech and financials do in fact deliver below normal bull market results when the next bull starts then investors will have a problem.

This is where themes or “new” sectors can come into play. I have written about a few of these things like farm land, airports and hydro funds. The thing I always say is that no matter what is going on in the US market our financial plans call for some number and we all have to give ourselves the best shot of getting that number.

The picture is from about 90 minutes before game time at Fenway when a nasty storm blew through. It is taken from the third base line right next to the entrance of the Pavilion restaurant looking through the stairs to the seats. 

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