Legg Mason market commentary by Dr. David Nelson: June was a painful month for equity investors. In fact, you have to go all the way back to the Depression year of 1930 to find a worse June for the Dow Industrials1 than the one they just posted. At month-end, the Dow closed -19.87% below its October 2007 high.
Why have the financials so far been unable to find a bottom? In our view, the most likely answer is $140 a barrel oil.
The case for a China slowdown begins with the unprecedented degree of monetary policy tightening implemented by the People’s Bank of China (PBoC) in the last two years.
According to data from Birinyi Associates, there have been 13 bear markets in the post-World War II era, averaging declines of -28% and durations of 380 days. Though past performance is not indicative of future results, if this turns out to be an average bear market, history says it should be over by the end of 2008, with investors facing an additional -8% to -10% of downside risk.
Legendary investor John Templeton, who died this week at 95, was famous for urging that investors “buy at the point of maximum pessimism.” We believe this is great advice, but advice, unfortunately, that most investors regularly choose to ignore. Their response when faced with the recommendation to buy when the outlook seems bleak is, “How do you know this is the point of maximum pessimism? How do you know things won’t get much worse?” The truthful answer is that you don’t.
Read the complete commentary
Why have the financials so far been unable to find a bottom? In our view, the most likely answer is $140 a barrel oil.
The case for a China slowdown begins with the unprecedented degree of monetary policy tightening implemented by the People’s Bank of China (PBoC) in the last two years.
According to data from Birinyi Associates, there have been 13 bear markets in the post-World War II era, averaging declines of -28% and durations of 380 days. Though past performance is not indicative of future results, if this turns out to be an average bear market, history says it should be over by the end of 2008, with investors facing an additional -8% to -10% of downside risk.
Legendary investor John Templeton, who died this week at 95, was famous for urging that investors “buy at the point of maximum pessimism.” We believe this is great advice, but advice, unfortunately, that most investors regularly choose to ignore. Their response when faced with the recommendation to buy when the outlook seems bleak is, “How do you know this is the point of maximum pessimism? How do you know things won’t get much worse?” The truthful answer is that you don’t.
Read the complete commentary
