Knives Still Falling ?? @vkt Regarding the apparent demise of HC/biotech, it might be helpful to refer back to an October post by
@Puddnhead in which he reported exiting his heavily-weighted positions and his reasons for doing so. He didn't propose it as advice, but his instincts have proven prescient.
http://www.mutualfundobserver.com/discuss/discussion/comment/69856/#Comment_69856In a comment to that thread, I threw in some data from Josh Brown and Eddy Elfenbein, showing just how historically wild the 4-
5 yr returns had been, and added a quote from Josh Brown about what he thought would likely transpire:
"Non-committal traders crowd in and then flee at the first sign that the easy money isn’t rolling in like it had been. Margined players get blown our as true investors clutch the fundamental story to their chest like a rosary. They repeat a mantra of sorts under their breath as the selling intensifies, “it’s cheap on next year’s numbers, it’s cheap on next year’s numbers.”And so, here we are. For those who received over 2
5 yrs of return in less than
5, did you follow Puddnhead out the door, shouting "Is this a great country, or what?"; or, are you still clutching those beads to your chest, sipping your whiskey in the dark, wondering what oh what went wrong with the "fundamental story"?
5 Things To Consider In Emerging Markets Brazil: A politically corrupt country with an economy heavily reliant upon natural resources.
Russia: Vladimir Putin and an economy heavily reliant upon natural resources.
China: An economy managed by a clueless Communist dictatorship in the midst of imploding as the enormous bubble in the Shanghai stock market continues to correct, similar to the US dot.com implosion of 2000 to 2002:
Shanghai stock market: July 2014 - 2036
June 2015 - 5023
"5 Things To Consider In Emerging Markets" ??
Sold to you.
Knives Still Falling ?? Energy sector is more than a falling knife. It seems to be in a price reset and so can wallow for a long time in price discovery. I believe something fundamental has changed in the trading instruments that resulted overstated demand or understated supply not just a physical demand-supply situation.
Biotech/Pharma may get to that stage once it no longer keeps producing high returns because a lot of the returns were from just money piling on to a hot sector. That creates volatility which is fine but I don't think most of the investment money coming via broad etfs and funds understand the risks in this space. Investing in clinical stage biotechs is like playing VC with startups where most of the exit upside has already been realized by the real VCs. They can simply cease to exist if clinical trials fail or FDA approval does not happen because of side effects. Bigger company pipelines are threatened because smaller startups would rather do an IPO or the acquisition costs are very high.
It doesn't mean the whole space is in trouble. Some companies will do very well but picking them is beyond the capabilities of retail investors and even some smart investors and they might not even care if too much money is pouring in. Problem with this rising/falling tide space via broad ETFs and funds is that it is subject to shocks from bad news from any company as happened with Celgene today. A very large number of companies in this space will eventually fail so there will be a sequence of bad news and the broad ETFs and funds do not provide enough diversification. Might be good if you are a momentum trader. There might not be enough gains over a longer period to show for all of the volatility.
The only thing I would trust in this kind of a market if one were to buy on dips is the S&P 500 and is likely the best one to pay off with such a move. It avoids most but not all of the sector-specific problems, currency problems, interest-rate problems, developing market problems and almost every other problem. US Economy is far from recession and all the investment money will have to go somewhere. Programmed money simply moves into such "safe" instruments to park the money other than cash.
Energy, pharma/biotechs, financials (who seem to have run out of lucrative proprietary trading ideas under increased scrutiny and don't make much in traditional banking) will be value traps for a while in my opinion even of there might be frequent violent swings up.
Obviously, I could be completely wrong about this. :)
