Diary of a Hedgehog: Biggs' Final Words on the Markets

Staying Close to the Shore

The sad truth is you may be right where the market is going, but you can’t possibly predict where it will go after that. I was uncertain in July 2010 so I was staying close to shore and treading water. Don’t forget you can be 200% wrong when you switch; sometimes twiddling your thumbs is the least malignant activity.

July 19, 2010

In the last two weeks the global economic outlook has deteriorated, and equity markets after an initial rally in early July faltered at the end of last week. I remain uninspired. It is too soon to tell whether the world economy is transitioning into a “soft patch” or a more serious “double dip.” For the time being, what happens in the global economy in the next three to six months will rule financial markets. I will need more high-frequency data before changing my basic position, which is now to be around 40–50% net long equities in a hedge fund account and to be holding 15–20% cash in a long-only, benchmark-judged equity account. Being long Treasuries, bonds, and high-grade corporates is the same as being short equities. High-yield, distressed, and emerging market debt are directly correlated with equities, as are the industrial commodities. I have no strong convictions on currencies. Remember what Keynes said when he was questioned about his uncertainty. “When the facts change, I change my mind. What would you do, sir?”

The ...