10/30/2008 Equities Sliding Down a Hill of Hope...Lower Prices Ahead
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A Message for Clients of Absolute Return Portfolio Management: I am happy to report that our model portfolios had no equity exposure during the market collapse of the past month which have witnessed 20%+ losses in both the domestic S&P 500 of large capitalization stocks and the Dow Jones World Indexes and a nearly 30% in the Russell 2000 index of small capitalization stocks. Global Equity Markets And I believe that this accurately sums up why sentiment data is not showing a higher level of concern. Namely, because "hope" still exists. A prerequisite for a market bottom are a high level of fear and concern, if not outright panic. I expect that the markets will move to still lower lows over the coming weeks/month. One should also take note of the day-to-day behavior of the current bear market and contrast it with how the market behaves during an uptrend. During a bull market uptrend one sees slow advances in a stair-step dance with sudden reversals or corrections that last only a day or two. The leads to the "buy the dip" mantra of bull markets. During a bear market decline, however, the action is reversed. The market declines day after day and rallies are one or two day affairs that rapidly exhaust themselves before the the decline begins again in earnest. The action earlier this month and again of the past several days perfectly exemplifies this: huge one day "wonder rallies" of 10%+ that quickly lose momentum and lead to lower prices. The markets should be viewed as highly risky. The possibility of a further market collapse due to the domino effect of the present credit crisis still looms large and probable. International Equity Regions ASIA (ex-Japan) - EMERGING MARKETS - EURO - JAPAN - LATIN AMERICA (LatAm) - USA -
Equity Style & Sector Trends
Our Domestic Equity Model continue in a defensive position at this time and our allocation to domestic equities remains 100% in short-term government bonds.
Investment Grade Bonds High Yield Bonds We expect the default rate on high-yield paper to move to double-digits over the next 12-18 months. The credit crisis most severely affects issuers with poor credit histories and high risk. These are the "sub-prime borrowers" of the corporate bond market and will face the greatest hurdles with respect to acquiring financing or refinancing. However, in time, this area will provide some handsome yields when a "return of capital" becomes more probable... Inflation Hedge / Real Assets GOLD Bullion - (GLD) - On a SELL. Goldman Sachs Commodity Index (GSG) (largely energy ) and DB Commodity Index Tracking Fund (DBC) on a SELL . Real Estate - Our models rank REIT's as a SELL. If you have any questions about our research or Absolute Return Portfolios do not hesitate to call. We can be reached toll-free at 877-632-7491. Absolute Return Portfolio Management LLC provides absolute return oriented portfolio management and institutional research on global macro trends including equity style rotation, global regional equity trends, short-selling and market neutral strategies as well as fixed income strategies. Contact us for information on account minimums and institutional research offerings. These reports express our opinions and suggestions, provided only as a supplement to your own further research and decisions. We take care to assure accuracy of contents but accuracy is not guaranteed. Past performance does not imply future results. The publisher shall have no liability of whatever nature in respect of any claim, damages, loss or expense arising out of or in connection with the reliance by you on the contents of our website, any promotion, published material, alert or update. ALL RIGHTS RESERVED. |