Stocks fell sharply following more downgrades by S&P. The list includes Berkshire Hathaway (BRK.A) and Freddie/Fannie Mac (FNMA and FMCC).
Selling had been fairly orderly earlier Monday. The only panic I saw was in the precious metals, where gold was now trading on par with platinum. This is an extremely rare occurrence, brought about by the view that decreased industrial demand for the latter will cause weaker prices, while speculators continue bidding up the former.
Commodities are also getting hit, namely the grains and energy complex. We expect this to continue, but at some point one must be a buyer due to demand considerations.
Our view is to develop a shopping list to implement when volatility declines. The business development space is getting pummeled; a potential trading vehicle may be BDCL, a leveraged ETF that owns BDC stocks. It has a yield of over 14% and should bounce when the market regains its footing.
We are also intrigued by emerging market debt that is denominated in its home currency. The dollar will eventually resume falling after the VIX decline, and the 6+% yields from this asset class comes without all the balance sheet risk we are currently experiencing in the U.S.
This is a great time to rebalance portfolios. I don’t see much more upside for Treasury debt, but equities may recover quite nicely after the bottom is put in.
Most managed futures investments have done well the last week or so. I expect this type of investment will be a great diversifier in the months to come.
See Ben Warwick's previous blog, Prepping for Market Selloff: Five Indicators to Watch.
