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Daily Market Update – March 18, 2014 (9:15 AM) Yesterday was a great day in the market and a perfect example of why not to listen to Wall Street adages. In this case, “buy the rumor and sell the news,” would have led you astray as events in Crimea had come to their initial conclusion and the entire chain of events and speculation started with selling and ended with some kind of jubilation yesterday. While events were in their nascency there was lots of uncertainty and that’s precisely what the markets were reacting toward. Upon casting the final votes in the referendum at least the first phase of that uncertainty was completed. This morning’s pre-open showed that the market values words more than actions. The pre-open had been headed lower until Russia’s President Putin addressed his Parliament and seemed to give an indication that Crimea was an endpoint for Russian expansion interests and that there was no interest in dividing Ukraine. He specifically said that no one should believe those who said that Crimea was just the beginning of Russian actions. At that point the futures turned around and headed higher, despite the fact that this was the same man who a month earlier had denied that Russia had any interests or intended actions in Crimea. World history is filled with those kinds of statements of denial of intent. But words have value as they point toward the future, while actions are so yesterday. With actions still to come in response to any steps taken by Russia in the aftermath of the referendum in Crimea, there may still be some short term risk as sanctions, whether meaningful or not are going to be met by a “tit for tat” kind of response so reminiscent of the Cold War. While the market’s early reaction seems to be one of confidence it just seems hard to put too much faith into the words. It also points out that the market is susceptible to disappointment, having already experienced that kind of disappointment as events began to initially unfold. Most people don’t like to see the markets being swayed back and forth by external events upon which we have no control. Deciding what side to take is purely one of guesswork, made palatable by the knowledge that every event driven series of events comes to an end sooner or later. Waiting for a conclusion isn’t necessarily a strategy as a multitude of events in waiting can easily become a streaming source of uncertainty. A few years ago it was Greece, then Spain, then the debt ceiling and on and on. As always that shouldn’t preclude at the very least consideration of taking new market positions even in the face of an actively developing situation. While the market, as a whole, may have downside risk related to specific events, it’s often very difficult to extend that risk to specific individual stocks, other than what they may experience through some contagion. Not that Best Buy is a great stock, but what does Best Buy or an investor in Best care about what is occurring in Crimea? T-Mobile? Where is the added risk with an expansion of the Russian Federation? Increasingly, as the market is working its way higher against common sense both the laggards and the losers have greater appeal for me, particularly after an acute loss. With a small number of new positions to start the week there’s still some room for more this week even as we wait for international events and Janet Yellen’s first press conference as Chairman of the Federal Reserve. However, following yesterday’s run higher many positions just aren’t as appealing as they had been as the market closed on Friday. While the pre-open turnaround and move higher hasn’t re-created what seemed to be relative bargains just a few days ago, sometimes the market comes to its senses. Waiting a little while to see whether this morning’s early optimism really has any legs will make some sense, although I wouldn’t mind a repeat of yesterday and the opportunity to just watch exisiing shares go higher.
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