Last night, after the bombing of Libya and the bombing of Pitt, I needed a little escapism, something mindless. So after finishing off what was left of my bottle of wine I settled in to watch some shlocky action movie into the wee hours of the morning. The movie was the typical good guy, bad guy battle; like Rocky without the great acting. You know the storyline; the good guy is getting beaten mercilessly and incessantly by the bad guy, but then, just when the bad guy is feeling a little tired but triumphant, the good guy scrapes himself up from the floor, gives a bloody smirk, and says, "Is that all you've got?" (Think Muhammad Ali and the rope-a-dope). At that point the camera pans over to the face of the bad guy where we can see the surge of doubt and panic sweep over him. The bad guy realizes he has given all he's got and that now he is vulnerable, as the good guy has tapped into a reserve of hidden strength. At this point the tide has turned and the good guy rout begins, usually resulting in winning the heart of the fair maiden.
Of course, in my sad little universe, I thought of the bloody battle between Wall Street's Bull's and Bear's. The Bear's have thrown everything at this market, including the kitchen sink. In less than a month we've seen skyrocketing fuel and food prices, destabilizing political and social unrest in the Middle East, a new war with Libya, the fourth most powerful earthquake ever, a tsunami, nuclear fallout, and what appears to be another massive oil slick in the Gulf of Mexico. Our hero, the S&P 500, has been bloodied and is down 7% from it's recent high, but appears to be shaking off the Bear's attack and asking, "Is that all you've got?"
Just a 7% correction after all of that? Considering all that has been thrown at it, the market has been surprisingly resilient. Maybe it is the fact that the US economy is actually improving, slowly, but positively. The New York and Philadelphia Fed gauges registered the most strength since the 1970s, unemployment claims are falling, private employment is improving, and corporations are doing rather well. Those of you who know me know that I am always looking out for what could go wrong, and believe me there is plenty, but maybe just maybe some things are going right. Maybe the resilience of this market is totally illusory, built on the artificial support of the Fed. But maybe, Mr. Market has a reserve of hidden strength that will catch all the Bear's off guard. It should at least be a good fight.
As we stand today our equity market indicators are all relatively positive, but just like our fighter, they are battered and heading toward neutral territory. Only time, and market action, will determine if they get there. The flight to safety has caused some of my fixed income indicators to move a bit more towards positive territory, from their bearish weights. Gold and commodities stay at maximum weight.
Radiation Fears:
A great chart that will hopefully calm some nerves out there:
Be careful out there, and keep the lights on,
Chris Wiles, CFA
412-260-7917
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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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