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Dogs, Pigs & Hogs

Posted by kdadmin on August 16th, 2013.

The ancient Romans thought the dog star, Sirius, was responsible for the hot weather, and sacrificed a dog every year in order appease it. Others believed that August was a particularly evil time when “the Sea boiled, the Wine turned sour, Dogs grew mad, and all other creatures became languid; causing to man, among other diseases, burning fevers, hysterics, and phrensies.” – Clavis Calendaria, 1813. (source: Wikipedia)

Apparently, the market agrees. As of yesterday, the DOW is down, the S&P is down, everybody is worried about the Fed curtailing their bond buying program in September. (By curtailing, the consensus is that the Fed would ONLY be buying $750,000,000 in bonds instead of $1,000,000,000. Oh the horror …)

I prefer a different path. Proactivity instead of scapegoating.

In mid July, I read an interesting statistic. After $12 billion left the ETF market in June, a whopping $24 billion came rushing back in just in the first 12 trading days of July – 4x the rate of the first half of 2013. Nearly half of that went into SPY – that’s $1 billion per day! SPY is an ETF that most of us owned in mid July and had purchased in early November as part of our overweight. Between these two periods, SPY was up roughly 21%.

I thought, hmmm … Investors are running out of bonds and into ETF’s. Half of that money is going into SPY, and 40% of the money buying into SPY for 2013 happened in the last 12 trading days? Sell. As of today (8/19/13), SPY is down 2.58% from July 23rd.

A few days later, I lightened up our position in PHYTX (our intermediate term high yield bond fund). But, before jumping back into the market, to buy either stocks or bonds, I noticed the bond market going through its own gyrations. So, I watched, and I waited.

If you look at the chart below, (which covers the period from July 23 – August 19, 2013) you’ll see that neither stocks nor bonds have performed very well since the end of July. The shaded area is the SPY, and the various colored lines correspond to several different bond funds from intermediate to short term, from high yield to government. (All data courtesy of Yahoo.com)

Dogs Pigs

Luckily for you, I have been holding a significantly higher level of cash in your accounts since the middle end of July. As such, you’ve had a very nice buffer for the unfortunate market activity.

The lesson, here, is an old adage, “Pigs get fed, and hogs get slaughtered.”

Our run up in the SPY was a nice feeding. Holding on to the position “to the moon” was a recipe for getting slaughtered. Eventually, when things settle down a bit, we’ll get back in the market.

Until then, enjoy the summer!

Zurich

p.s. While many of your friends may not have been fortunate enough to avoid much of the recent slaughter, perhaps they could benefit from another perspective. Mine. If you feel like we would be a good fit, please connect us.

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