Your editor has been absent from these digital pages for just 11 days, but a lot can happen in 11 days.
Consider the table below, which summarizes the performance of the major asset classes of late. In particular, note the prevalence of red under the 4-weeks column. Risk has been showing its other face to investors, many of whom formerly thought that there was but one outcome to embracing the four-letter word.
The fact that markets have retreated in earnest should come as no surprise. After a multi-year run of dispensing mostly gains, the major asset classes have reintroduced the notion of humility to the masses. As readers of this site will recall, we’ve been expecting no less for some time. Granted, even a broken clock is right twice a day, and so we’re vulnerable to criticism that our warnings were early. True, although we’ve advised all along that our preferred strategy has been one of raising cash methodically as markets continued moving higher.
As a result, our own personal allocation to cash is well above levels we’re comfortable with as a long-term proposition. The idea of continuing to elevate the cash weighting was always with an eye toward redeploying it when prospects looked more attractive elsewhere. Now that red ink has arrived, is it time to redeploy? Yes, sort of. But in addition to diversifying across asset classes, we’re of a mind to diversify across time as well, for both buying and selling. The reason: we can’t see the future. Yes, we can make some educated guesses, in part driven by quantitative clues handed down by the markets. Those clues, however, aren’t foolproof.
Meantime, let’s be clear: the correction so far, painful as it seems, hardly amounts to an earth-shattering buy signal across the board. Blood is starting to trickle, but it’s still not running in the streets.