Buyside Optimistic About Sell-off08.10.2011
The Volatility Index (VIX) reached a recent high of 40 points on August 8, undoubtedly a sign of wavering markets. A downgrade in U.S. debt by Standard & Poor, along with an instant equities sell-off can spell disaster for many market participants. But those who buck the trend may be rewarded.
“What’s interesting is that the downgrade, and recent sell-off, performed more important things than quantitative easing,” said Leon LaBrecque, managing partner and founder of LJPR, LLC, an asset manager based in Michigan, with over $400 million in assets. “The events have given rise to cheap oil, low interest rates, and cheap stocks—I foresee a rally.”
The sell-off will be short-lived for LaBrecque.
The ongoing effects of the sell-off, which are indeed lower interest rates, a flight to treasuries, and a lowering of oil prices from its $110 high this past April, is precisely what the Federal Reserve tried to achieve by artificially stimulating the economy with money supply, according to LeBrecque.
“We’re in the negative feedback loop,” LeBrecque said, who cited that much of the market downturn should be attributed to the shortcomings of policy makers, not the markets themselves. Moreover, companies at large are able to still beat earnings estimates.
“Politics have certainly exacerbated the sell-off because there is no cohesion to get things done,” LeBrecque told Markets Media. “S&P didn’t downgrade our credit worthiness; they downgraded the valor of the political system. Neither side (political party) could act.”
S&P’s recent downgrade of U.S debt from a credit rating of AAA to AA+ is “just an excuse” for the market to sell-off, according to LeBrecque, who attributed underlying economic issues such as Europe’s fiscal struggle, particularly Italy and Spain. LeBrecque noted such fundamental shake-ups in the marketplace were fundamental factors that instigated the “panic sell-off.”