Easterly Government Properties (DEA) holds a portfolio that is around 97% backed by the U.S. governm...
Just What the Doctor Ordered
03/05/2007 12:00 am EST
Dan Wiener, editor of The Independent Adviser for Vanguard Investors, thinks a 10% correction would be the chicken soup that helps cure this market of what ails it.
Lately there’s been lots of talk about the Goldilocks economy. Well, expect to hear more about it, with a twist, now that some bears are running loose here and abroad.
Whether it was the unwinding of yen-dollar carry trades, the Shanghai’d Chinese investor, the now erroneous report that the Taliban was after Vice-President Cheney (it turns out they had no idea he was in town), or a lousy durable goods report, the fact is that the markets have suddenly turned tumultuous.
Not to put too fine a gloss on it, but I’m perfectly happy that markets here and abroad are retrenching a bit. Consider that the Standard & Poor’s 500 hasn’t had a down month since last May, and that markets had handed us better than 13% gains for the 12 months through January, and you can see why a pause and retrenchment may actually refresh.
I have to say that if there was a movie made [about investors’ recent behavior], it would be called “Investors Acting Badly.” There’s way too much dumb trading being done in the market by people who have gotten giddy with the low volatility and constant upward trend of stocks. It’s time for them to get a dose of reality—and a dose of diversification.
On the day that the US markets were down 3.4%, and the international market average was down 3.8%, our Model [Portfolios] all dropped less—some considerably less. That’s true diversification. Hire some good managers, spread your money around and make a small bet on cash or bonds for their shock-absorbing characteristics and watch your money multiply.
As I’ve said for a few months now, I believe a 10% decline in the major market averages would be perfectly fine (and healthy). So, why not now, when the economy is finally doing what I’ve said it was doing for months—namely, slowing down—and corporate profits are doing the same?
Fed Chairman [Ben] Bernanke says the economy could pick up some steam later this year, and [his predecessor] Alan Greenspan is already pulling back from his mention of the word “recession”—he never actually said we would have one—and you have the slowing but growing scenario that could take the markets higher by year-end. But not if everyone is pushing money into highly-leveraged hedge funds.
I should note that [last week’s] ISM Manufacturing report showed that sector of the economy back in expansion mode, which should mollify those who think the US is grinding to a halt because fourth-quarter GDP [growth] came in at 2.2%.
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