It Seems To Me The Vultures Have Stopped Circling

The third quarter may not have set a record for the worst quarter ever but it certainly wasn't pleasant. 

The S&P 500 was down -13.79% for the quarter, which was the worst quarter since the 4th qtr of 2008 and two standard deviations below its long-run mean. Surprisingly that was one of the better performances globally. EAFE was down -20.55%, and emerging markets were down -26.31%.

On the other hand Treasuries had their second best quarter ever with a gain of 16.3%, 3.5 standard deviations above their long-run mean. The PIMCO 25+ year Zero Coupon Treasury Fund was up a stunning 58% in the quarter.

Gold had a lousy month, down -11.06%, but still managed to be up 8.26% for the quarter. The CRB Commodity index was down -11.80% on the quarter.

Our Global Tactical Asset Allocation portfolios finished the quarter very defensively positioned with 41.5% in cash equivalents. Our model portfolio was down about -6% for the quarter.

"It seems to me the vultures have stopped circling."

- Geoffrey Becker

What Does It Mean When A Vulture Can't Find Anything To Eat?

Generally vultures only dine on the dead, though occasionally they will strike a wounded animal. So when we think about a vulture that can't find anything to eat, we generally think that the herd is healthy and there is nothing to fear. But what if it means that the prey is dying, and the vulture is simply waiting for inevitable death?

One of the most interesting (scary) things I've read in a while was an article in the WSJ about vulture investor Stephen Ross.  Fund Goes Down Blind Alley - WSJ.com 

Stephen Ross is Founder and CEO of the Related Companies, a long time vulture investor. Mr. Ross specializes in finding distressed companies or real estate, buying it cheap, and turning it around. Historically he's been pretty successful and ranks #114 on Forbes 400 with $3.1 billion. As the article states Mr. Ross and his partners raised $1.1 billion from investors to invest in distressed banks, and spent the last year digging into hundreds of them analyzing their loan portfolios. After 18 months he is returning the money to the investors. The reason is that there is simply more downside in the US banking industry ahead of us.

When the vultures are still waiting for their prey to weaken and die, then the rest of us should be pretty wary.

Be careful out there, and keep the lights on,

Chris Wiles, CFA

412-260-7917

www.rockhavencapital.com

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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.