Weekly Risk Report 09/29/2008
It appears that Wall Street and Main Street are unhappy with the congress right now. Lawmakers' hesitation caused significant deterioration in financial markets when they failed to act as of last Friday. The majority opinion is nicely reflected in the Divergence component this week as it fell from its Bearish zone all the way to its Bullish territory. This overpowered the slight rises in Relative Valuation, Speculation and Zeal to lower the overall market risk as we measure it to a historically very attractive level.
The current government financial package being discussed looks to be roughly valued at about $23,000 per tax payer in the U.S. While the total is a lot of money, when viewed this way, it seems more manageable. My guess is that many of those tax payers have seen a contraction in their net worth of more than this already with the markets down nearly 25% in the last 12 months. No wonder we're hearing people say their retirement plans are temporarily postponed.
While our various portfolios have been affected by all of this it has mainly served to turn up the wick in the purchasing department of our operation. In September, we have seen additions to these various sectors on the U.S. front:
Utilities
Industrials
Consumer Discretionary
Basic Materials
Energy Exploration and Production
Private Equities
Technology
Telecommunications
During a very brief mid-month rally we actually saw a small portion of our Financial sector shares get sold. All the more proof that having a plan in place and proper execution will prove far better than the average investor's guess about the future.
On the international front we've seen additions to our positions in Europe, Latin America and the Pacific Rim.
With such a broad sell off around the globe, it's no wonder that investors are wringing their hands. Our plan was to have the necessary liquidity to purchase shares if the discounts proved good enough for our models. This liquidity was there and has been used efficiently without disturbing anyone's sleep. While the volatility may not have ended, it is possible that it will start to diminish once Congress acts on a plan to put a floor in the domestic housing and financial markets.
There's much talk now about how all this has affected the consumer. The economy, being linked directly to the consumer's wallet will feel the effect as well. How much is still up as a big question.
A peculiar item showed up this week in the data for the IW. It shows an increase in the number of stocks that have gained over 100% in the last 13 weeks. So, it appears there is some money selectively moving around in the market place. A quote from the CNBC anchor, Erin Burnett, "It's hard to be a stock picker in this sort of market." seems to capture the essence of what is going on. While that quote could go down as the biggest understatement of the year, it does point out that there's not just selling going on out there. Underneath the broad indexes, there are individuals and institutions making adjustments to their portfolios and some of them are actually accumulating.
