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Warren Buffet once commented “You should not be in the stock market unless you can watch your stock holding decline by 50% without becoming panic stricken.” Mr. Buffet also commented his average holding period for a stock is “forever.” Ok, in reality it is 19 years.
Buffet has commented many times “that markets behave in ways, sometimes for a very long stretch, that are not linked to value. Sooner or later, though value counts.”
For the exception of municipal bonds, all assets classes have been crushed anywhere between 10% and 80% in the last 6 months.
As noted earlier and according to CNBC the average stock in 2015 was down 25%. Bloomberg writes S & P 500 Momentum, which basically consists of 10 stocks, was up 32% while S & P 500 Value was down 23% in 2015, the widest gap in history.
This data does not include this week’s carnage or yesterday’s advance, both which I attribute to the incredible influence of high frequency trading. As noted earlier and as per the SEC 81% of October’s volume was the result of HFT. HFT comprised 70% of September’s volume.
In my view the typical stock offers value. If Mr. Buffet’s truism materializes, monies will gravitate into these issues. The question is not if but rather when.
Fear is more powerful than greed where some are grasping onto Buffet’s infamous statement of not becoming panic stricken if one’s holdings decline by 50%, especially if one is concentrated in the energy sector or the non-investment grade corporate bond arena.
Was yesterday the legitimate turn in oil as this sector led the markets higher? It was reported yesterday that outside of OPEC, a record $380 billion worth of investment has been delayed to at least 2020.
Wood Mackenzie, the industry firm that deserves attribution for this data, further stated because of these cuts, approximately 27 billion barrels of oil or approximately 2.9 million barrels per day has been deferred until early next decade.
This deferment, coupled with the widely accepted rule of thumb that approximately 5% to 7% of production is exhausted each year, the supply demand imbalance should be corrected in the proceeding 3-6 months.
Yesterday I wrote no one knows when a bottom occurs until six months later. Did oil and the oil sector bottom Wednesday? I will tell you on July 14.
I have also opined always expect the unexpected. On this note a hurricane has formed in the Atlantic, the first January hurricane since 1938 and only the fourth on record since 1851. It is not expected to impact the US.
Against this backdrop, maybe oil has bottomed, several days before the Iranian sanctions are lifted.
Talk about the ultimate sell on rumor and buy on fact as trillions have been evaporated in crude’s plunge.
Speaking of Iran, did Saudi Arabia offer to sell a part of its state run oil facility to front run or crowd out any type of investment into the Iranian oil industry? Wow! Talk about the ultimate check mate.
Simply speaking, what country offers lower geopolitical risk and potentially higher returns—Iran or Saudi Arabia? I think Saudi Arabia.
Last night the foreign markets were down. London was down 1.60%, Paris down 1.67% and Frankfurt down 1.71%. China was down 3.40%, Japan down 0.54%and Hang Sang down 1.50%
The Dow should open sharply lower on concerns over global growth, a decline led by China. The 10-year is up 13/32 to yield 2.04%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.