Thursday, July 26, 2007

Markets are Down, Down, Down!

Mohican is doing a quiet little cheer this Thursday as markets around the world, overvalued by many measures for a while now, are coming back down to more prudent valuations this week. I don't take pleasure in losing money or my client's money but I have had money on the sidelines now for many clients and the satisfaction of protecting them from this market correction is fantastic. It will also provide us with some great buying opportunities once the dust settles.

The TSX is down over 6% on the week so far as the resource and financials heavy S&P TSX Composite Index is feeling the selling pressure. The US markets and overseas markets are declining even more. Emerging markets and especially Latin American markets are being hit the hardest. The Brazil and Mexico stock indices were down over 5% today alone.

All in all, the Canadian market is fairing better than other world markets although it never reached the same lofty valuations as many others - especially those emerging markets. In contrast, with the TSX Composite down nearly 6% on the week the Canadian Value Index is down less than 5% indicating that, even over short term corrections, value is the safest place to be.

11 comments:

rentah said...

[playful ribbing on]
mohican, your bias shows in your language:
In contrast, with the TSX Composite down nearly 6% on the week the Canadian Value Index is down less than 5%

Check out the graph:
The Value index is closer to 5% down than the TSX is to 6% down, but the first you describe as "less than 5%" and the second as "nearly 6%".
Subtle, yes, but it does reveal bias (very human).

ALL stocks are going to get hit hard in this general market pullback. The cash positions you've recommended will do well!

mohican said...

You are so right rentah - I am bias as it comes! Value investing all the way for me.

You are right that all stocks (value or not) will be and have been hit hard. The non-value stocks get hurt a lot worse overall though.

BTW - the data backs me up on my bias though - see my previous posts on value investing -

Here's a question - Is a bias that is backed up by fact still a bias?? I guess it is - it's just a rational bias versus a irrational one.

WoodenHorse said...

What about short ETFs like DXD, QID, SDS and my favorites: SRS (ultrashort real estate) and SKF (ultrashort financials). (All are on the AMEX)

Any thoughts on these?

Also, note that if you look at the index that SRS is shorting, consists mainly of REITs. Does anyone have any thoughts on when the bleeding in REITs will stop? Or do you think it'll go the lenght of the housing crash?

WoodenHorse said...

OT: I'm planning on updating the quarterly graphs soon.

Aleks said...

Darn, I thought about rebalancing my funds last week but didn't get around to it. I guess they've been rebalanced for me.

rentah said...

woodenhorse: I use QID, but I'm underwater on that at present.
Contrarians often get in too early.

rentah said...

mohican: This is likely at risk of getting into a semantic discussion.
Prefering investment strategy A over investment strategy B based on analysis of prior performance and other data isn't, strictly speaking, the same as being biased. You'd argue strategy A is, by all measures, better. That's not biased, it's sensible.
HOWEVER, if you then distort the interpretation of incoming data in such a way that attempts to shed better light on A than B than the data implies, that would be bias.
So, my teasing was about how you very, very subtly phrased your interpretation of the graph in favour of value investing.
--
FTR:
I admire and respect mohican's work.
I am also a value investor (contrarian model).
I also show my bias. Quite often actually. And I see the act of identifying my bias as an invaluable way of learning about how I shape data to suit my analysis (because i hope I can stop doing it and thus make even better investment decisions).

freako said...

OT

Rentah, I noticed your bantering with Geezer (whose style seems very familiar BTW) on RETalks. I am taking a break from there, but I read now and then. I noticed that nobody called him on the gaping hole in this quote:

"For instance: If housing is so accurately priced, why haven't rents gone up a similar percent?
YOU SHOULD RE-READ MY POST BUT IN CASE YOU DON'T HAVE TIME - WE HAVE ARTIFICIALLY LOW RENT CAUSED BY RENT CONTROL - JUST CHECK THE FUNDAMENTALS (LOL). WHEN SUITES ARE RE-RENTED SOME OF THEM HAVE BEEN SEEING INCREASES THAT CAN ONLY BE DESCRIBED AS EXTREME. "

Easily shot down. The ads you see on Craigslist are for new leases, and as such not subject to rent control. Hence the differential between a Craigslist rental and a similar sale is a true measure of price/rent multiple.

If Vancouver price is justified by demand resulting from being the the best city in the world, then rents should be accordingly high as well. They are not. And rent control is NOT the reason. I think don't think it really matters, as Geezer is just out to stir the pot, not to argue a valid case.

rentah said...

freako: thanks for the thoughts, I agree re 'rent control'.
Actually, I had decided, with my last comment there, to leave that thread alone, for reasons that are all to familiar to you. Why one even gets into those discussions, one has no idea.
Kinda like eating broth with a fork.
Thanks for the implied support.

By the way, do you notice bear exhaustion? I'm definitely noticing and feeling it.

Recall my ridiculous call about China stock market topping and somehow marking our RE top? (June 2007) Well, note that we now have topping in all stockmarkets globally, increased interest rates, commodity prices dropping, contraction in private equity deals etc.
Blackstone, the recent much-hyped hedge ipo is crashing.
Is this the beginning of a big contraction?

We'll see if this plays out here.
Perhaps Vancouver RE will be the very last asset to contract in the Universe.

mohican said...

rentah - I think you made an interesting observation about bear exhaustion - I'm a current bear on the housing market(obviously) and I'm exhausted! I think that has more to do with have a busy job and a 3 month old at home rather than being tired of the 'bear story.'

What are you observing to say 'bear exhaustion' though?

I know I am tired of thinking that 'now' is THE TOP of the market and really being quite wrong.

rentah said...

mohican:
No hard evidence, pretty much what you describe: I'm exhausted, too. When I read sites like rob.c's now, all I see is gleeful bulls pounding the lights out of any bearish comment (They're still using the same old tired bullish non-arguments, but we're all too exhausted to bother to respond). And very few bears producing proactive threads at RET etc.
Maybe it's just me, but it seems that bears have grown relatively silent. I thought that the Jan-Feb loss of bearish blogs was the peak of that, but it's actually gotten more extreme.

SO: from a contrarian perspective, this may be very bearish.