If you’re going through Hell, keep going…
Winston
Churchill said these words, presumably during
a crisis much greater
than the one we are in currently.
At the moment our team takes solace in
these words,
and we are constantly on the search for ways to recover
some of our drawdowns. Any aberration in normalcy presents
opportunities, lurking in a far corner. As we had our flashlights on
full beam over the last few days looking for the seemingly elusive
opportunities, we stumbled upon some interesting facts:
- The
US equity markets look to be at their cheapest trading below 13x
earnings. That translates into a healthy earnings yield, which, while
compared to US treasuries this looks expensive, we know that the Greek
Drama and Operation Twist have these yields at artificial lows.
- Cross
sectional volatility of monthly returns in the US markets is the
highest since the beginning of the year. The number of stocks in the
S&P 500 with positive monthly returns has dwindled from 317 in
January to 61 in September. Even August – when the United States of
America (not Greece) was flirting with bankruptcy – saw more stocks with
positive returns. 60% more, to be specific.
Yes,
growth prospects look dimmer than at the beginning of the year but
corporate America is not ailing by any reasonable measure. The spectacle
of fear is guiding the markets. Good news is dismissed instantaneously,
and bad news is sacrosanct. How long will this last? Another 7 weeks?
Perhaps, but the probability may be lower than what the broader market
thinks.
