I remember when
I remember, I remember when I lost my mind
There was something so pleasant about that place
Even your emotions had an echo in so much space, yeah
Does that make me crazy?
Months like May, and days like today, make me question my sanity. Tough markets are an understatement, the markets have been downright brutal. The only place to make money has been in Treasury bonds, we've been at our full allocation, and with 10 year yields now at 1.47%, it's hard to get excited about committing more capital there.
Here are some performance (if you want to call it performance) numbers for May:
US Treasuries +4.93%
TIPS +1.95%
S&P 500 -6.01%
Gold -6.34%
EAFE -11.14%
Commodities -11.16%
Fortunately our defensive positioning (currently 40% cash) has mitigated the pain somewhat, but losing less isn't anything to write home about. Today's a good example, with the S&P 500 currently down a whopping 2.25% on the day, our average account is down only 0.50%. Great, we're outperforming the market by 1.75% on the day, but we're still losing money.
Reasons for the selloff:
Where do we start? There are so many. I have a good friend that likes to remind me that markets love to climb a wall of worry, but I'm constantly reminded of the Pink Floyd lyrics, "Mother, did it need to be so high?"
Here goes the wall, in no particular order:
Europe; the unraveling of Greece, the contagion spreading to Spain & Italy, Bank walks (not yet runs, just walking fast), the fear of the collapse of the Euro.
China; growth slowing to a point where the world takes notice, again fear that their banks are significantly over-levered.
The United States; growth slowing again, few bullets in the Fed's bazooka, paralysis in DC, no long-term plan to address debt.
And one big overriding fear...fiat money backed by the full faith and credit of the issuing government looks crazier and crazier every day.
Reasons to be hopeful:
I'm not trying to be pollyanna here, I really have a bit of faith that we can work our way out of this mess. It won't be easy, and it won't be painless, but it is much better that the alternatives.
Citizens (individuals & corporations) need clarity. We need to know what our taxes will be. We need to see a concrete plan being implemented that works us towards a balanced budget. It doesn't matter if it's a ten or twenty year plan, the key is that we have a plan.
We need to get back to a currency backed by more than the full faith and credit of the government, it needs to be at least partially backed by something tangible (gold, silver, etc). The main reason for this is that it will help keep the printing presses in check, it offers a certain level of discipline to monetary policy. The forty year fiat currency experiment has failed, time to reboot.
We need to shrink the size of government, and increase the level of personal responsibility.
The reason I'm hopeful is that these fixes are not secret, we just need the right groups of citizens to implement them.
Come on now, who do you, who do you, who do you
Who do you think you are?
Ha ha ha, bless your soul
You really think you're in control
But maybe we're crazy
Does that make me crazy?
Does that make me crazy?
Probably
I'm not going to comment much on today's economic numbers, they were miserable and will remain miserable, until we start to see some reforms implemented. Here's a couple of charts that keep things in perspective:
That's enough for a Friday afternoon, enjoy your weekend.
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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