'Cause it doesn't make a difference
If we make it or not
We've got each other and that's a lot
For love - we'll give it a shot
We're half way there
Livin' on a prayer
Take my hand and we'll make it - I swear
Livin' on a prayer
We've got to hold on ready or not
You live for the fight when it's all that you've got
"Livin' On A Prayer" by Bon Jovi
The first time I found myself humming along to "Livin' On A Prayer" was back in 1987, when it was the number one song in the land. You remember 1987 don't you? Big hair bands and the largest one day loss in the S&P 500 on October 19 of 20.4%. Intraday today the S&P 500 was down 8.72%! That is the largest intraday decline since 1987! Now it finished down only 3.24%, but during that brief 30 minute period, I couldn't help thinking back to those dark days in 1987.
It's still to early to determine the exact causes of the rapid sell-off, and we may never really know, but it does appear that as in 1987, today was another case of "computers gone wild". We were down about 1.5% at 2:30 and by 2:45 we were down another 6.30%. By 2:49 we retraced 5% of that mysterious 6% plummet. Rumors ranged from the fat finger hitting the B key instead of the M key (B as in billions vs. M as in millions), to simply erroneous pricing. An example was big old Procter & Gamble trading at $61.50 at 2:47, and $39.37 one minute later at 2:48, then closing at $60.75. What was real was the fact that trading volume spiked to 19 billion shares, the most since October 7, 2008. It appears that electronic trades started cascading after each other on the downside before reason set in. The exchanges are working to find the cause, and will unwind many of those erroneous trades.
Outside of today's crazy computer trading, we really have seen a precipitous decline over the last three days, here are some numbers:
S&P 500 -6%
Europe,Australasia,FarEast (EAFE) -10.3%
Emerging Market Equities (VWO) -11.5%
Int'l REIT's (IFGL) -8.2%
Emerging Market Bonds (EMB) -6%
Int'l Sovereign Bonds (IGOV) -3%
On the plus side you have:
US Treasury Bonds (TLH) +3%
Gold (GLD) +3.7%
Clearly, beyond today's computer generated theatrics, we have seen a flight to safety and an unwinding of several risk trades. The troubles in Greece, and the fear that the debt default contagion may spread throughout Europe, are enough to make investors run for cover.
Investment Considerations: While most of our indicators have been firmly in the bullish range, after the last three days we are seeing some serious downward divergences in several market indicators. Over the next several days we will be watching and acting if need be. The beauty of Global Tactical Asset Allocation really shows itself during periods like this. Our broad diversification resulted in our model portfolio being down only 1.75% today, and if these bearish trends persist we will continue to raise cash and ride out the storm.
As Bon Jovi so elegantly put way back in 1987, "We've got to hold on to what we've got".
Be careful out there,
Chris Wiles
This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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