Freaky Friday Potpourri
The market is a spectrum of potential outcomes and I'm trying to reflect that fact in my portfolio.
Good morning and welcome back to the Minyanville track. By the time you're reading this, I will be on a flight with my future bride for a short and mindful respite from reality. There was a time that I wouldn't miss a Breakfast with Beeks but if we don't learn from the past, we're destined to repeat it. As such, and with hopes that I can add some value from afar, I pulled together some random thoughts with hopes that they lend value at some level. Weather permitting, I will be back at my turret Wednesday morning with fresh batteries for the drive towards 2007.
Before we get started, A Buzz from yesterday that bears repeating... (2:24 pm)
I return from my lunch meld and, as I strapped myself into my turret, I heard my friend Bob Pisani offer that investors should "be careful of the low volatility because you may miss an opportunity." To me, and while we could see a rally, this logic is a bit backwards. Lemme explain.
Volatility is the "other side" of liquidity. We touched on this earlier this week when we offered the analogy that, in a thin market, initiating exposure will move a stock (index, market). Ergo, in an environment flush with liquidity, like we've had for the last few years, volatility has been drained from the system.
If we are, in fact, entering a stretch where liquidity is exiting the market, volatility will increase and that may catch alotta investors napping. That's one of the reasons I've been eyeing the CRB as I have. It offers a graphical representation that the rising tide of liquidity has lifted all boats. And if that's shifting (we're still below the five year trendline), the current snoozer may morph into a bruiser.
It's my humble opinion that the risk is increasing. That doesn't mean that we're gonna trade lower but the stage is certainly set.
And a little bit of Mailbag!
Pardon my denseness, but I'm lost in deciphering your position. This is not a criticism in any way, your work is fantastic. I've really just discovered Minyanville but am a long time admirer of your work from your Real Money days.
I think my confusion has to do with the difference between your trading positions and your investment positions, but I'm not sure. For weeks now, you've been sounding the alarm about the break in the long-term CRB chart. I thought you were saying "watch out" because this could very well signal a break in everything -- all equities and commodities as the economies of the world weaken and global demand drops. I applaud you for bringing this to our attention since conventional wisdom is expecting divergence in asset classes instead of continued convergence.
But at the end of this article, you are back to supporting the long term thesis for a commodity bull market a la Jim Rogers. What is the time horizon on your concern about the current break in the long term CRB index? And does that supersede your belief in the commodity super cycle for the multiyear time frame? Thanks, Minyan Brent in
Tremendous question and I'm glad that you've given me an opportunity to clarify. I try to rely on my process---the four primary metrics: fundamentals, technicals, structural and psychology--to craft an advantageous risk/reward profile. I've been plenty wrong at times (I'll point to my short bias in 2003) and I may indeed be too cautious now. But given the break in the CRB, in the context of a strapped consumer, the weakening real estate market (which is independent of a potential bounce in the housing stocks) and trillions of dollars in adjustable rate resets, I want to err on the side of caution. This chart, highlighted earlier this week by the savvy Soothsayin' Jeff Saut, sorta crystallized some ursine inclinations.
Whether or not this break unfolds remains to be seen. And while my assumption is that assets classes are in the same boat (vs. the dollar), the market has repeatedly proven that she's smarter than I am. I was asked this same question on CNBC Wednesday and offered that, on a relative basis, I think energy and metals have tech and financials licked. On an absolute price basis, I'm simply not sure how this puppy will play out. I continue to hold metal holdings in the longer-term side of my book for this exact reason. The market is a spectrum of potential outcomes and I'm trying to reflect that fact in my portfolio.
As we talked about in January, I think we see continued consolidation in the commodity space and my longer-term holdings (names like GoldenStar) are skewed that way.
Hope this helps, my friend, and thanks for the Minyanship.
And finally, Some Buzz Bits for Shnitz and Giggles...
Talk about smoking Quack! The Minyanville Duck Drive is in full effect as we lengthen our lead on our fellow squadrons. There are no losers in this race, Minyans, so please help us help the Special Olympics.
If you missed my CNBC spot, it's sorta summed up here.
We've received alotta questions about the upcoming MIM (Minyans in Manhattan). We're eyeing Friday, December 1st for this event but I'm not really allowed to announce it yet. It'll be an afternoon of content (think the Vail Macro Panel without time constraints) with the (long overdue) Critter's Choice Awards that night. 100% of the net proceeds will benefit The Ruby Peck Foundation for Children's Education so stay tuned for more details. You know how we roll--and this roll is gonna be particularly pleasant!
Fare ye well into the requisite three day respite, Minyans, and enjoy the down time. You've earned it!
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