Cometh the Ugly Stick
Whoa doggie. Guess that’s what risk feels like. Had almost forgotten. Remember the Ugly Stick? Yeah, the stick was out and about today, and he was laying down the hurt. The banks as a group gave up almost 4% on the day. The Small Caps surrendered 2.6%. The NASDAQ Composite? Ouch. In fact among the eleven sectors of the S&P 500, Financials, Industrials, Materials, Tech,, and Discretionary names all backed up more than one percent. Within the Industrial space, it was an especially bloody day for Aerospace & Defense (-1.7%), the Airlines (-3%), the Rails (-2%).The list goes on, and on.
The Return of Headline Risk
The point is that health care reform is seen as not likely to pass on Thursday. No health care reform, no budget. No budget, and the pillars of expected economic growth start to unravel. Tax reform, fiscal spending, repatriation… the whole ball of wax starts to crumble. When the whole ball of wax starts to crumble, so will confidence. Consumer, Small Business, Homebuilder… gone, gone, gone. Do you panic? No, I don’t think you do. Do you react? Probably. I went shopping, but not with cash. I bought into the airlines and energy today, but I took more profits in the banking space earlier in the day to create the capital. I’m now skinny on banking, a little skinnier than I want to be if the agenda gets back on track, but if I need to get back into that space, the market will be open on the day I want to do so. It would have been a mistake in that case, but a mistake made for the right reason, and it preserved capital. Capital preservation was the name of this game.
Run to the Hills
Flight to safety is what they call the behavior seen across markets today… or you can call this the “deflation trade”. Kind of like that one. Banks, Industrials, Small Caps. Sold, sold, sold. Treasuries, Gold, and Utilities… Take ’em, take ’em, take ’em.
Right Side of the Dirt
If you got hurt today, take it in stride. Remember gang, if you are still on this side of the dirt, and you still have your health, and your mind… well, then you are not really having all that bad of a day, now are you? Capital risk is part of the game we play, and generally speaking, it’s kind of fun. You’ll live.