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Leuthold: When Bombs Fly, Don’t Play Hero

David_Snowball
in Fund Discussions
The good folks at Leuthold studied market performance in the 1 - 12 month periods following the onset of 13 major conflicts since 1928. The descriptive version: your results may vary. Markets tend to get bouncy and a lot depends on what time slice (1 month, 3 month, 6 month, one year ...) you choose to sample.
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On average, the one-year returns came to 2% when you'd expect 7.8% in a "normal" period. Their advice to investors, which presumably will be manifested in their own fund and ETF portfolios:
The risk today is certainly not “too much panic,” rather complacency and hubris conditioned upon decades of military supremacy and market resilience. Markets are behaving as if the distribution of outcomes is narrow and benign. When bombs fly, the reward for bravery is rarely paid on schedule. We do not think this is the time to heroically outguess geopolitics or to confuse short-term fortitude with long-term clarity. The lesson from past conflicts is quite clear: Respect the initial shock, acknowledge the widening cone of uncertainty, and remember that survival, not bravado, is what allows investors to participate when genuine opportunities ultimately emerge.
For what interest that holds, David

Comments

  • DrVenture
    Yes, spiraling consequences. A problem that many of us may have is selling after a sharp decline. It may make sense to consider the prior returns (3-yrs?) and consider taking a 3-5% hit as the price of doing business. Maybe even avoid another 3-5% (10-20% ?) downside, and buy back at a lower price point.

    It is hard to see anything but headwinds in the next 6-9 months, right now. War is weighing heavily. But jobs, inflation and trade wars are still hanging in the background.

    Is there any good economic news? I may have missed it.
  • JD_co
    DrVenture said:



    Is there any good economic news? I may have missed it.

    Well now that depends on which provider you choose for your daily finance news. Certain "reputable" news outlets will tell you that all is just swell and dandy in the U.S.

  • larryB
    @DrVenture. strongly agree. Not much upside in the next 6-9 months. And lots of potential for many historically bad days and weeks and months. A perfect storm of a war that could spin out of control and as you mentioned jobs, inflation and trade wars. And EVERY DECISION is being made by a mentally ill criminal acting alone. . What could possibly go wrong? Many things.
  • MarkMark
    I'm not saying this out loud but I'd almost be willing to take a 20-30% correction if it came with a giant flushing of the GOP party come the mid-terms.
  • CrashCrash
    +1.
  • WABACWABAC
    Humans sure do like looking for patterns.

    That works out fine for predicting eclipses.

  • kings53man
    My 2 cents - Iran is very weak at this time, no intelligence cover (Khomeini, their most important asset was taken down in a day or two), no air support - lots of which was bombed during last attack. Most of the major Gulf countries ( Kuwait, Saudi Arabia, UAE are actively participating), directly/indirectly European countries are supporting the war.
    Iranian navy - sitting ducks - can be bombed from the sky or submarine (they lost one in Sri Lanka - submarine attack) , we have very powerful bombs etc. Iran is alone - no China+Russia support. All their IT systems can be hacked by us since we control those technologies (K death - hacking of street cameras).

    Gas prices going up - a temporary phenomena.

    So this war is a bit bit different - David vs Goliath.
    Statistics/historical patterns are not valid as the policies change by a tweet, very unpredictable (not one but many).

    Most of the countries have trade deficit with US so they are afraid of tariff (even though we pay it), it reduces the demand. Companies can go to the courts but GOP controls that branch too.

    I give max 4 weeks for war to end.

    Regime change is the plan - we will gain 90M consumers.
    US Companies will be major beneficiaries.

    We control now - Venezuela, Next Iran, followed by Cuba, beat goes on.

    Democrats - it's not a party any more. They are leaderless. All their so called leaders are talking different languages (CA & NY - are levying extra taxes - companies & people are moving out as fast as possible). Those stupids don't see a simple logic - billionaire tax - how will it give them revenue if the billionaire moves to Texas and/or Florida. On the other hand, Trump has full support of GOP even if his orders are illegal. Democratic leaders are not challenging them. They go to court and loose there.

    So my suggestion - BUY the DIP (I am buying XLI - Industrial, needed for all the reconstructions, mining etc.) . This is what I am doing.
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