In the event your not on our e-mail list, below is our recent commentary sent out on 10.28.18.
There isn’t much to be said that I haven’t already written about or talked about on television. The market continued its malaise this week, as poor earnings reports added fuel to the already bearish fire. While most pundits will point to concerns surrounding China, the Fed, or general valuations, my view has shifted over the pond where I am watching European banks implode. This week alone saw Deutsche Bank (DB), Europe’s largest private financial institution, fall to new all-time lows. The stock action in many of these European financial institutions speaks of systemic problems similar to what we saw in 2008 and 2009 in the US. The poor action in our US financial institutions, against the backdrop of arguably the strongest US economy in decades, tells me they may have exposure to these European problems that may not yet be known by the general public.
Over my nearly 20 years in business, I have gone through several bear markets. I began managing client funds at the height of the dot-com bust and watched as asset prices eroded much farther than most anticipated. In 2007, the general market began flashing warning signs that allowed prudent investors to raise cash and protect against the next 15 months of bearish pain. In each downturn the sensible action was to raise cash and sit idle until it became very clear that worst was over.
While I’m not sure what the future will bring, what I know is that the recent market price action has forced us to raise even more cash than we already had. Last week we said goodbye to two outstanding positions in Cisco (CSCO) and Intel (INTC), stocks we’ve held for most clients for several years. Friday, our risk indicators moved from yellow (cautious) to red (bearish) which sparked a ½ sell of our market index fund, a position we’ve held in some variety for the last several years.
At present, we find ourselves with more than 40% in cash in our aggressive accounts. While not entirely immune from further downside, we feel the positioning is more than prudent considering the action we’re seeing in the market. Furthermore, we’re at levels which could spark an oversold bounce. Should this transpire, we’ll study this action closely and possibly move to even more cash if we’re not satisfied with the activity we see.
I realize it is never fun to see accounts give back gains but know we’re taking the steps we feel are judicious to protect against some of the potential for further downside. We will now adopt extreme patience and wait until we believe the bear has run its course.
Until next time
In the event you missed them here are recent segments from CNBC and Bloomberg discussing our market views: