It appears the bears are still having a picnic

Mark Twain coined the phrase Lies, dammed lies and statistics when describing the persuasive power of numbers to bolster an argument. CNBC quoted the statistic today that equity markets rally 80% of the time in September after a positive August. To the contrary, The Wall Street Journal points to the fact that investors enter September in a cautious mood as this is the only month that has shown average declines over the past 20, 50 and 100 years. We are not sure how much more cautious investors can appear to get. The Wall Street Journal article does go on to point out that with so much caution around, a correction if it happens is likely to be short lived. The article goes on to report that some hedge funds have reduced their exposure on geopolitical, valuation and US interest rate concerns. 

We reported yesterday that so far hedge fund returns have been poor, in fact the FT recently reported that hedge fund managers expect to deliver some of their worst returns since the financial crisis this year. The idea that performance has been poor with a third of the year left and after equity markets corrected between 5 and 10% in the past few weeks that hedge funds will take the risk of betting with the cautious crowd seems surprising. 

Assuming we avoid any major market hiccups in September the bears are likely be out in force again for October as they point out many of the most well known market collapses have happened in that month. They will tie this fact in with the Federal Reserve ending of its bond purchase program. 

In contrast as investors enter November, they will probably throw caution to the wind anticipating the Christmas rally. Over the past 4 years equity markets have wobbled into the first couple of weeks of November, probably for this very reason. It seems too much time and effort is spent trying to time short-term moves without looking at the trend, which as we were taught, is your friend. Perhaps hedge fund performance would be improved if they stopped focusing on the short term or is that too passé.

Posted on September 3, 2014 .