I'm still underwater with year client work but I wanted to post some quick thoughts.
I discontinued my J. Murphy subscription as I was culling through some of my outflows. However, one of his points that still sticks in my head is that commodities peak after the stock market.
Given what we are seeing with commodities, I think that it is safe to say that commodities have peaked. I think that the reasoning is straightforward in that commodities will sell off when INVESTORS believe that the economy is slowing. Now, I'll remind that the treasury markets for the 75% of the year had the FED wrong. It's the same dynamic, just a different venue (bond markets v. commodity). Who's to know until the future is a little more clearly seen. What dissipates the fog is one thing: data.
I think that we are currently in a point of indecision. Money is just moving from commodities to stocks. But if the commodity drop is due not to money sloshing from one venue to another (sector rotation), but rather because there is a real feeling that the economy is going to buckle, then I suspect we'll see (1) greater movement into defense stocks--a continuing move that started late summer; and/or (2) a gradual (if not heated!) exit out of the stock market into bonds/cash.
If I remember correctly, there's never been a recession that has not seen a rather pointed (30%) drop in the market. I don't have any prediction, and if I did it would be worthless. My ERF is still down, KRY has recovered nicely and IVGN is breaking out. KB has recovered a bit, and I'm watching it closely. I still have MZZ, and it is down 2.27% from my purchase.
All in all, who can argue with a record high?
1 comment:
The excess amount of money sloshing around the finance world has been causing chaos within the normal parameters of what is counter-cyclical with what.
As was noted back during the LTF meltdown, the world is getting much more correlated from an investment point of view.
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