Sasquatch, Decoupling and Other Myths

By Roger Nusbaum | December 12, 2008 | 1:17 PM | 0 CommentsTweet This

Over the last couple of years there has been a lot of chatter about whether or not emerging markets would decouple from the US market thus providing a place to invest if/when the US turned down (remember this concept goes back a while). Then when all markets turned down it was said there was no decoupling.

I believe the conversation has been framed incorrectly from the start which in turn created unrealistic expectations. The way to view it, in my opinion (and how I’ve been writing about it in my little corner of the internet) is that countries with different economic attributes could be at different points in their respective economic cycles and by extension at different points in their respective stock market cycles.

Many of the commodity investment destinations did in fact peak seven to eight months after the US market which peaked in October 2007. Charted below is the OBX Index from Norway which peaked in late May, about the same time as Brazil. When Norway and Brazil were peaking in May the S&P 500 was already down 10.9%. I would also add that from the October 9 US peak Norway was up about 10% and Brazil was up about 13%.

click chart to enlarge

Those are the numbers. These markets turning up or down at different times than the US markets has happened before and I believe will happen again. You can decide for yourself whether that is worth investing in or not, for me it is. After peaking, both markets fell precipitously and just because their bull phases lasted much longer that did not mean never take action. I wrote about lightening up in these areas on my blog back in May.

If you owned these areas and took nothing off the table then the smoother ride from the first half of the year was given back. A passive investor, I guess, would be OK with that but I would not. These are important markets but the amount of exposure needs to be managed over time.

Maybe I'll get to Sasquatch another day.

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