Wednesday, December 17, 2008
This will be difficult to articulate but I'll do my best. The Fed news yesterday caused panicked reactions in just about every market; stocks up, yield down, commodities up and the greenback down. There is a path laid for some sort of something down the road with regard to inflation, interest rate shocks and higher input (think resource) prices. Unless of course the Fed does a good job being proactive in moving rates back up and shutting down of the various facilities put into place during the crisis, ahem.
That being said my plan is to increase exposure to a couple of things in the next couple of weeks including equities, corporates and one or two other things. Earlier this week I added another absolute return fund for many clients bringing most clients to two, totaling a mid-single digit weight. I'll stress that I'm talking about a slight increase and then when I am done I would still have a generally defensive position, just less so.
From the big picture standpoint we are 14 months and 40 or so percent from the peak. The way these things tend to work is that really big declines and time fixes a lot of problems and of course people tend not to believe a bottom can be in until long past the actual bottom. I still believe in the idea of a stumble along the bottom without going meaningfully lower than we have already been. If this turns out to be correct then there is much less risk in adding exposure here. That is not to say they have to rally and then stay up, just that there is less risk after a 40% drop.
I've been on this jag for a while, done a couple of things along the way and plan to add a little more. My concerns about inflation and higher rates will influence the actions taken as I do believe these will become bigger obstacles over the next year or two.
In the picture (taken yesterday) Tater is about to catch a snowball.