As the market has tried to recover from the brutal month that was August it keeps getting knocked down by Euro zone worries. And when the domestic data here at home comes in at recession like levels it is only compounding the bearishness. The jitters in Europe have caused the Euro to decline to 6 month lows while the dollar has broken out to a fresh 5 month high. We pointed out on Friday the implications a strengthening dollar could have and we saw that play out in full effect during the day’s trading. We’ll be watching to see if there is a continuation of this strength in the dollar and consequential weakness for the markets. If SPX breaks below 1,140, it should lead to further weakness.
Bottom line is we’re not optimistic here at stockhaven. We think anyone looking for extreme stimulus measures from the Fed will be disappointed. The current political landscape is not one where the Fed can enact another market lifted QE type policy. The other bullet point bulls have been hanging their hat on is that stock valuations are “fair.” The problem with this belief is that it is psychological. Value is ever changing and often times the mathematical equations that valuation models are based on give way to emotions like fear, as we’ve seen recently.
As a matter of fact, if you consider the stocks that have held up well it is those with what most would say is not fair value. Take the year to date performance in high multiple names like Under Armour (UA – up 20%), Baidu (BIDU – up 40%), Sina.com (SINA – up 40%), Green Mountain Coffe (GMCR – up 206%), Amazon (AMZN – up 16%), Lululemon (LULU-up 56%), those are great returns considering the market is down 8%+ over that same period. So is it unfair that such names outperform while stocks like MSFT, CSCO, GE, JPM, F continue to struggle along with the market even though analysts continue to boast how cheap they are? So try to avoid the value trap.
In this type of environment one must remember that EVERYTHING can get cheaper. Beware of perceived “safe havens” as well. A safe haven is defined as being a place of security, therefore this is only one way to evaluate if an investment is a safe haven or not. That is if it is being talked about, talk about on the television, by friends at cocktail parties, by strangers on a train, and written about in newspapers. A safe haven is a place of security, and how can you possibly be secure if everyone knows where you are? If you do find a safe haven though, be sure to let us know so we can include it in our commentary. Then maybe CNBC will bring us powerlunch and we can sell the newly discovered safe haven investment at that exact moment.
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