That Whipsaw We Noted Last Week Was Really a "Savage Reversal"

We spoke of a "whipsaw" last week. Turns out our idea of whipsaw was a lot milder than what really occurred. It seems a more apt description would be "savage reversal":
...as SocGen notes, this "savage reversal" - as the biggest losers rebounded - was the worst price momentum whiplash since 2009. Bear market rallies are typically characterised by sharp reversals and elevated levels of volatility, and as SocGen warns there are several things which point to this being a technical bounce (rather than longer-term supportive value-seeking.
Call it what you will, the basic phenomenon remains one of a bounce or rally in a bear market - at least that's how it looks to us. The "savage" nature makes it a lot harder to bear when you're on the short side of the market, of course. But why would you be totally short the stock market - with all your money? With some balance - other asset classes besides stocks - you can bear the savage reversal.

And so we find ourselves back to the basic idea of asset allocation, perhaps better called "asset balance." Unless you're willing to live and die by one asset class - stocks, bonds, commodities, precious metals, cash (yes, it's an asset class), currencies...whatever - you've likely spread out your money over at least two, if not three or four asset classes. Right? And so positioned, you'll likely suffer from time to time, just as you'll likely rejoice when your favorites are embraced by the markets and head upwards.

Although, there's one factor we might note here: historic correlations between asset classes haven't really held up well lately. That kind of throws a monkey wrench in our previous common sense commentary. Why these haven't held up isn't known at the moment. A sneaky suspicion: disordered central bank policy. But let's save that for another discussion. For now, we simply take our positions and watch the world go by.

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