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Volatility Creates Buying Opportunities

Feb. 06, 2019 1:44 PM ETAGN, BKNG, CZR, JEF, LH, MTUM, TRIP1 Comment
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Grey Owl Capital


Fata morgana: a complex form of superior mirage that is seen in a narrow band right above the horizon.

The fourth quarter of 2018 proved to be one of the most negative quarters for financial risk assets since the current bull market began in March of 2009. The S&P 500 finished down 13.5% and commodities were down an even worse 22.6%. As one might expect, safe haven assets performed well. Long-dated United States Treasury bonds returned 4.6% and gold rallied to close the quarter up 7.5%.1 In fact, the quarter-long move understates the violence of the sell-off: from its all-time high on September 20 through the low on December 24, the S&P 500 lost 19.3%.

For the full year, there was no place to hide: the S&P 500 lost 4.6%, commodities were down 13.9%, and while less dramatic, long-dated Treasury bonds and gold were both down for the year, 1.6% and 1.9% respectively. Global equities performed even worse than domestic equities with the MSCI All Country World Index down 9.1%.2 As we write, Christmas Eve appears to mark the (at least, short-term) low. From the close on December 24, 2018, through the recovery-high on January 18, 2019, the S&P 500 rallied 13.7%.

What caused the sell-off? Was it the Federal Reserve rate hikes on September 26 and December 19 despite a flattening yield curve? Could it be the downgrade of General Electric debt in October by both Moody's and Standard & Poor's to one notch above "junk," signaling that the increase in overall corporate debt and covenant-lite underwriting has reached a point of danger? Perhaps it was the ongoing "trade war" with China and/or the (partial) government "shutdown?" It is impossible to know for sure.

Rather than trying to divine the proximate cause of this or any sell-off, we aim to

This article was written by

Grey Owl Capital profile picture
Grey Owl Capital Management, LLC is a Virginia registered investment advisor whose mission is to provide superior absolute investment returns for clients. Founded in May of 2009 and located in Falls Church, VA, the firm provides a go-anywhere, opportunistic investment process that seeks out the best alternatives for capital appreciation across multiple assets classes. The firm’s principals both hold the Chartered Financial Analysts (CFA) designation. You can find out more about Grey Owl Capital Management, LLC at www.greyowlcapital.com or by calling 888-GREY-OWL (888-473-9695).

Analyst’s Disclosure: I am/we are long AGN, BKNG, CZR, JEF, LH, MTUM, TRIP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Value-Pick profile picture
Added CZR yesterday
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