01 Feb The Defense is Still on the Field
Last October, I wrote a letter entitled ‘At Least you are Aware’ describing my concerns regarding the stock market and several defensive strategies that I believed were appropriate at the time. The market has since declined by roughly 10% and is currently experiencing what I believe to be an oversold rally. Just like bull markets do not go straight up, bear markets do not go straight down. I continue to believe we are in the process of establishing lower valuations from which we can get more aggressive on the buy side. Today’s concerns – negative European and Japanese interest rates, record debt, the global oversupply of goods, the Presidential election, tepid economic growth, a less friendly Federal Reserve, widening credit spreads, ISIS or an aging bull market may have something to do with it.
Whatever it is, when the pendulum begins to swing in the opposite direction, it normally doesn’t stop in the middle. So the plan is to continue lightening up on lower conviction ideas, add to the short hedge position, purchase the gold miners on dips and upgrade the portfolio opportunistically.
A group that is getting interesting are the publically traded private equity managers. Their stocks are down 30% – 50% from recent highs, just when they are raising billions of dollars to invest at lower prices. Apparently, the companies feel the same way as three of them recently announced they were buying back their own shares (KKR, Apollo & Carlyle). As for oil, I think the one thing we can be confident of is that it will not decline another $70 dollars/barrel! My best guess is that the price will bottom sometime this year as many companies go through bankruptcy and assets are transferred to stronger and more disciplined operators.
So to summarize, I believe we are still in wealth preservation mode until prices warrant a more bullish stance.
Thank you again for your business and I would greatly appreciate the opportunity to visit with you or someone you know who is looking for help managing their investments.
