We previously outlined a 2% allocation to oil stocks: $CVX , XOM, APC (see post below). We are now adding another 2%, although we are now 4% allocated to the sector it is still half our normal exposure. As noted below, we have had no exposure to this sector all year.
As we approach the September FOMC meeting it is worth watching the movement of the 10 year note over the next few weeks. The reaction function of the yield level has been much lower to the volatile global equity & currency market movements this summer and this month. Having made successive higher lows over the last year, I think its very important to watch if it retests the highs of the year and whether it is in the process of an adjusting to a slightly higher range than we have seen for the year. Market expectations have been for a flatter yield curve as the Fed normalizes, however this may not be the case. It is on my radar screen.
It often makes me laugh how the media makes these sensationalist headlines or dramatic cover stories,o ften lacking in true facts or correct fundamental analysis. I’m not going into a counter point analysis here, i will just say we think Barron’s is dead wrong about Alibaba. We think the cover story will actually mark close to a low in the stock and we are buying longer term Jan 2017 60 calls. – A final point, – if these journalists were so good at analysis they wouldn’t be journalists they would be a analyst or investment professional on Wall Street making 10x as much money.
Although still cautious about the overall market, I decided to allocate 2% of overall capital to oil related stocks: $xom $cvx $apc. A typical allocation to the sector is in the 8% range and we still think there is more downside, however, given the dividend yields and having no allocation to the sector so far this year, we put a little money to work.
0n July 27th I posted (scroll down)that I believed we were finally in the beginning of the long awaited correction and as such, held the highest cash position in years. Although we nibbled ( now in 90% cash down from 100) in what we considered panic selling last week,we continue to believe risk aversion is warranted. With the historically worst month of the year in front of us, our red flag remains.