last couple of weeks my point of view on the markets has changed. People who read the blog know what I was negative - since my first post in the spring of 2007 - on the prospects of the cycle Economic and stock exchanges and how much caution has requested to exercise the one I rode as described, well before the trial entered its acute phase, like a giant credit bubble about to become un'epocale financial crisis (see for such as post The first truly global bubble , banks markets and the credit bubble or Buffett, Gross and Ponzi schemes of banks ). What might seem
pessimism proved to be a realistic set of expectations.
In all these months, the management of my portfolio has been aligned to what I thought and I was writing. I reduced a shareholder my investments, since the first half of 2007, no more than 15% of my business (an exceptionally low level for me), almost exclusively in large cap very defensive and high dividend rate. I then bonds with maturities of not more than 5 years and a lot of liquidity. Finally, I started buying put options (with maturities of not less than 6 months at the beginning, a little 'shorter forwarded a bear market) on the S & P / Mib. Initially a few things, then the most significant positions, down from peak accumulated in bear market rally in mid-May and mid-August this year.
analysis and strategy were worked well. This bear market was one of the most profitable periods of the history of my small investor.
am usually a very active investor. I look good dall'ingrassare profits of my broker. But in recent weeks I have been busy. First I cleared all my Put. Then, riding last weekend, I started to buy and restore a more normal and well-diversified asset allocation . Given my situation (much cash and the rest more than anything government bonds), this has meant and will mean buying shares .
I've bought them for hours in a prudential measure, to raise the stake to 40% some of my portfolio of financial assets: for me is to stay still for the moment, somewhat underweight in relation to this asset class.
Why this change of perspective?
work I normally do is to read a great deal of economic analysis, financial and market, comparing them with the facts that are able to ascertain, and the consensus of opinions that seem to appear from time to time from financial news (try to understand the consent is not important, as I hope is obvious, in order to flatten on it but to take what the markets already served and what is possible, at least in part, neglect).
Then elaborate - a little 'can do as a doctor dealing with a difficult diagnosis or a busy Poirot solve a murder on the Orient Express - and evaluations of my conjecture, I try to keep open and subject to ongoing audits critical. In short, I analyze the facts, opinions and analysis, trying not to fall in love, nor of my favorite analysts, neither of my points of view.
In the 18 months following the birth of the blog, I found myself constantly having to do with castles in the air, swelling of illusions. As I gradually observed, it was wrong to think that the credit crisis was limited to the market for subprime mortgages was naive to think that contagion would be "content" (where "germs", that is toxic assets, had traveled all over the world, aided by a culture and risk management in financial institutions to radically re-found), it was naive to believe that the fallout on the real economy would be limited so as to enable to avoid a recession .
the facts show how he was assembling a financial tsunami of unprecedented proportions. Investors like Jeremy Grantham , economists such as Nouriel Roubini and financial analysts as Satyajit Das (which I have mentioned several times in my blog) they had been exposed and analyzed thoroughly, and their positions seemed the most realistic and justified.
By contrast, the markets saw another day of extravagant hopes continually resurface, like the one that the rescue of Bear Stearns and the package of tax incentives to Bush could be the turning point (between March and May) or the collapse of the price of crude (between July and August) was the panacea that would revitalize the economy.
In truth, the package Bush was like one of those dams that my children build sand on the beach to stop the tide, the Bear Stearns crisis was just a warning for what was about to erupt at the systemic level, the end of the commodity rally (as it should be easy to understand) reported the spread of economic crisis on a global scale.
While equity markets were peopled with illusions, was the result of believing that they would continue their march downward, gradually gave way to the dreams to reality.
Now it seems to me that all illusions are shattered. Instead, there is the panic investors, on the one hand, and the massive government intervention on the other. Media references abound to 1929, economists see and provide for a large global recession, central banks and governments finally recognize the systemic nature of the financial crisis by allocating in support of the banks amounts of various points of GDP.
Typically, when you get to the point where the collapse of illusions paves the way to panic, where you stop the frantic sell-off the bear market is, in essence, over.
The other week for three days out of five were reported on Wall Street, the so-called 9 / 10 days, that is, sessions in which over 90% of the shares closed downwards - a rare occurrence in itself , which perhaps has never been duplicated before (except in 1929 and its collapse) even three times in a week, which tends to concentrate near the turning points of the market.
I volumes were high Friday and 10 were even twice the average of the last month. L ' VIX market volatility, also called "index of fear" (because the high volatility is associated with panic attacks) has reached record levels.
The trend of the market, in short, was the one that usually is found at the bottom of a crisis and a bear market.
At the same time, the descent to minimum thresholds close to those of the bear market of 2000-2002 has shown the stock market valuations to attractive levels - the most interesting from fifteen to this (very more attractive and potentially lucrative, in particular, at levels from which it took the moves the bull market of 2003-2007).
is not - must be recognized - such as torn as multiples of the headway made in the great secular bull market of 1982-2000. But it is said that we must inevitably come down to values \u200b\u200bmuch depressed.
So the bear market is over? I have no certainties. Faced with the markets you can think only in terms of probabilities. What I think is that the risks of further declines, at this point, after the half-life suffered by the stock price over the past 12-18 months, are reduced enough to make reasonable - at least for someone like me, has so far been able to escape the clutches of this bear market - the choice to begin to accumulate exposure to equities. In a multi-year horizon, it is very likely that there is more to gain than to lose.
Accumulate gradually makes sense in itself, as a technique for risk diversification over time, and it makes sense in light of the characteristics of the stages of reversal of the stock market. A bear market does not end in an instant. Even assuming, as I do, that the minimum Friday, October 10 will mark an important moment in this market cycle, history tells us that over the next few months those levels probably will be retested.
In 2002-2003, the major U.S. indexes ridiscesero to the thresholds of July on two other occasions, in October and March, then move decisively upward only after forming a "base" in the course of eight months. In 1974, at the end of the other most powerful postwar bear market, the minimum in October to December were brought together in a process of reversal that was shorter but still committed more than three months.
In both cases, the bounces from the bottom, between a minimum and the other, were 25% -30%. And today is a hypothesis that I find attractive - more as speculation on the psychology market and the tendency to repeat certain patterns .
said in summary, and clearly, the idea that impresses me the most - at the moment and until proven guilty - is that the stock exchanges have established an important level of the other week Friday, near the lows of this cycle, which is likely to rebound as much as 30% (for the S & P / Mib this would mean back to share 26 000), but that is just as likely to be retested in the coming months.
Someone objected: But how will the market bounce back to a time when the news cycle not get worse? Every time the stock return a scendere (e anche nell’ultima settimana ci sono state discese a rotta di collo), i media non fanno che riportare i commenti di “esperti” i quali sottolineano come, passata forse la fase più acuta della crisi finanziaria, è l’economia reale ora a preoccupare.
Si può rispondere in due modi.
Il primo è che una seria recessione (la più grave dell’ultimo quarto di secolo) è, a questo punto, del tutto scontata nelle quotazioni di mercato. L’ultimo sondaggio mensile del Wall Street Journal tra gli economisti americani dimostra che una stragrande maggioranza prevede un dato del PIL negativo nel terzo e quarto trimestre di quest’anno and in the first quarter of 2009.
The recession in the U.S., as I have repeatedly argued in the blog, it probably started somewhere between 2007 and 2008, with a short break in the second quarter, thanks to temporary expansionary effects of the aid package tax administration Bush. In this recession, in other words, we are already half way or maybe even a little 'further.
The second observation is that it is not unusual for the stock market begins to climb the slope in the midst of an economic crisis. Indeed, it is normal. This is shown by a study published this week by Ticker Sense blog , which shows (see table below) in the last four decades, the bottom of a bear market was reached on average when the concomitant recession had made just 57% of his class.
At the end of the recession, stock indices were on average 27.3% above the minimum. How to say it is in the midst of an economic crisis, taking advantage of the pessimism that the economic downturn and the collapse of the market with both hands spread, an investor can seize the best opportunities.
E 'has always taught the lesson that Warren Buffett, and that yesterday's paper he returned to Omaha in a repeat article on New York Times: "Be Fearful When others are greedy, and greedy When others are fearful" ("You have to be afraid when others are greedy, but be greedy when others are afraid").
PS: I have some explaining to readers of the blog. It was never my intention to put it in the attic, as perhaps my silence the last couple of months left to think. Instead, there is another reason for my absence. The prudent investor is a small voluntary work carried out in free time. The generosity that characterizes him in recent weeks, I had to reserve spaces for people who are close to me. Now that I've started to take measures with changing circumstances, to take into account also the blog - perhaps, at least for now, in a more essential than ever before. I thank all who have written to me, or space for comments or directly to my email address. As usual, I will send you all a sign of response.
