Weekly Market Commentary
du Pasquier Asset Management
By Scotty George
November 29, 2011
Squeezing.
Like a slow-motion train wreck, the global markets have maintained a vicious shakeout whose collapse is frightening not only for the Europeans but for America and its synchronized trading partners. For the past several months we have been building a slow crescendo which, like a great symphony, has many codas yet to play.
Clearly, a correction to overborrowing, overspending, and over-expecting is in place. Turbulence and volatility, both in the markets and political discourse, is the order of the day. More significantly, the foundation of trust which underpins all capital exchange and political governance is nearly in default.
Am I overly bearish or phlegmatic? Not when one considers the duration and magnitude of the correction thus far, and the potential for further erosion.
Social upheaval and civil disobedience are unfolding as rapidly and precipitously around the world as are financial crises. In fact, the two are inextricably linked. They both share the attribute that as fairness is perceived to fail, or power held in too concentrated a location, vicious consequences ensue. We are not yet at a fail-safe survivability confluence, but darn near it.
Past.
Financial crises are nothing new to world economies. What has changed is the technological immediacy of their impact. One no longer has to wait for tomorrow’s newspaper to share in the insights and specifics of today’s events. Critical data is available instantaneously, and often intensified by the “in-your-face” immediacy of its magnitude.
We have had global devaluations before. Some have had significant impact upon currencies, treasuries, portfolios and individuals. We have never had a devaluation of global fairness, synchronized as this one, with such immediacy and consequence.
The nature of the response to the crisis is equally as intense. The markets, and their constituent participants, are unsettled and bailing out. Investors are confusing common market trends with panic events. There is a failure, or unwillingness, to cope, which raises the pressures throughout. Investors act like they are trapped, or unwilling to play at all, and recall only the bad effects of previous down cycles (e.g., 1999) not the recovery which follows.
Emotion plays upon these cycles, exacerbating their velocity, magnitude, and duration.
Future.
Fortunately, cycles are measurable and manageable. My clients have wisely been positioned to withstand significant magnitude failures by asset allocation rebalancing. Today, even our most aggressive clients are not more than 30% invested in equities.
One cannot avoid cycles altogether. Even minimal exposure to stocks results in capital declines, but not the kind typified by index benchmarks, poor asset allocation modeling, or bad stock-picking.
Right now the markets are unsure over how long and how deep the disruptions might be. My analyses indicate that the current short term downtrend might persist and “smooth into” the broader secular bear decline. There might be instances of low-risk opportunities for traders looking at value as occurred yesterday. But as with financials and other high-risk sectors, you only run the risk of buying-in and having your bet work against you.
My strategy is to keep risk at a minimum, emphasize yield and cash, and to trade when I see a sector-appropriate value unfold.
The eventual definitional conclusion to a downside cycle is an upcycle. We simply have to avoid guesswork, hypothesis and quick pressure.
The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.
(c) du Pasquier Asset Management
