Wounded Animals

We have been seeing a huge move out of defensive stocks and into more cyclical and higher beta stocks. This is likely because people are trying to play catch up with the market, as many missed this move. I believe this is a huge mistake.

The economy is still likely to slow even if the stock market holds up. Spreads in peripheral Europe have not improved and they are about to undergo severe austerity measures. With Europe in recession and government spending about to decline in the US, we will be lucky to get muddle through growth.

I expect  defensive value names to outperform. It is entirely possible that these wounded animals, fighting for their professional careers will continue to pile in to high beta stocks for a while, but I believe it will end in tears.

3 comments:

Onlooker from Troy said...

It's unreal to me how so much of hedge fund money is dumb money.

Tsachy Mishal said...

Its more unreal that people are willing to pay for the subpar managers.

Onlooker from Troy said...

Ha!  No doubt.