Yesterday, August 17, 2009, China’s Shanghai Index posted the single biggest one-day loss so far for 2009 (and in fact since November 2008), dropping about 6% on concerns about the resiliency of China’s GDP numbers and consumer activity going forward.
Global Markets Sell-Off
This was the catalyst that sent oil down below $66 from a stable two-week period testing its highs at $70-$71, and then sent the rest of world markets off and into the beginning of what many expect is the widely awaited seasonal correction. Unsurprisingly, then the VIX (volatility index) is the highest it has been since April.
Leading up to this sharp pullback, analysts were concerned about the possibility of a Chinese bubble owing to massive state stimulus and the calculation methods of Chinese GDP numbers. It turns out that the Chinese market might be just as good of a leading indicator for U.S. stocks on the way down as it was on the way up last November.
What To Do With Your Money Now That Earnings Season Is Over
While few analysts are debating whether or not this is a significant market correction – it was going to happen anytime now – they disagree, of course, in where you should put your money going into the next few months to a year ahead.
I spent a few hours (!) digesting the day’s commentary on BNN to bring you the soundbytes and top picks of the various market commentators and money managers interviewed. The following should be taken as news commentary only; as always, do your own homework and consult your own financial advisors before taking any market actions.
Larry Berman (CIO, etfcm.com) – U.S. stocks are still overpriced. China can still fall another 10%. Sees a re-test of oil prices at $63, but personally thinks it will go to the upper 50’s before stabilizing. He’d buy into oil in this upper $57-59 range. Natural gas doesn’t look good going ahead – we’ll be headed into the winter with the largest supply we’ve had in a decade. If you want to play the global shipping story, look at SEA (an ETF). The Baltic Dry Index is a good leading indicator of the economy in general. As for the TSX, Berman sees it retesting lows around 9500, where it has some good support. Stay away from Canadian financials now – they are the most overbought in the world at this point.
Steven Conville (VP, Blackmont Capital) – Mid- to late- August is the toughest time to pick investments. The last two weeks in August always show significantly lighter trading volume. As for buy-and-hold strategies, buying and holding the index is dead, yes – but buying and holding individual “gem” stocks that you’ve done your homework on will still reward you. Stay away from Bombardier – it’s a weird stock, unpredictable calculations of earnings, he hasn’t found a good way to play it. Past picks that have done well: Canada’s Stantec, a great infrastructure play with global customers. And CML Healthcare – a great defensive play that he’s going to hold onto until we know what the market is doing in next 2-3 years. He’s wary of the U.S. money printing and sees gold remaining a good hedge.
Michael Smedley (Chief Portfolio Manager, Morgan Meighen & Associates) – Good time to take profits in the mining sector. Seeing actual “green shoots” in the forestry sector (good prices, good forecasts). There is no fear of a “double-dip” recession. “Nothing really to dip to,” he says. The worst is past, and has been discounted into all the prices. Recommends having only 5-10% cash right now. Likes weightings of 20% mines and 20% oil and gas. Notes that “sell in May and go away” didn’t work this year, so who knows what we’ll see in September and October. But he sees no real threats on the horizon. “There’s always something to buy,” he notes optimistically.
Paul Thornton (Investment Advisor, Global Maxfin Capital) – We’re in the 6th month of the advance and there’s sector rotation going on. Mutual fund companies are in process of shifting their weightings to less favored sectors right now, which (in Canada) are in real estate and railroads. These two areas haven’t seen much growth yet in the rally. Railroads are very economically sensitive plays; Buffett once remarked that they’re a window into the whole economy. The fact that the S&P has been overpowering the NASDAQ recently is a good sign of some more broad-based growth throughout the economy.
Greg Smith (Managing Director, Fat Prophets) – There are headwinds still ahead: unemployment numbers and the huge levels of government and consumer debt. But we’re not going back to the March lows. We will actually see a late-year rally once the correction and stabilization is in place. Advises to accumulate on weakness coming up: resource and energy stocks will be good bets that are highly leveraged to the growing economy. Gold will still outperform. Don’t get into financials yet. The earnings are ok, but the balance sheets still aren’t fixed. The main risk going forward is that China’s lead in the recovery turns out to be a false one and the GDP numbers and growth doesn’t hold.
So there you have it – that’s the “consensus” on the (Canadian) street. So if you’re a contrarian, who knows – maybe you’ll want to take this as a contrarian indicator – there seems to be widespread agreement that (1) the correction will be short and (2) won’t go near the old lows and (3) the real recovery is right around the corner. Of all these analysts, I paid the most attention to Berman and Conville. I’ve listened to Berman several times and he’s always got great insights. This was my first time seeing Conville on the show, but I liked his approach and it’s obvious he loves his work and that he’s good at it.
What about you – what did you think of the market drop yesterday? Big deal? Expected? Still waiting for cheaper prices? As always, I’d love to hear what you think below.Related Posts
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