RESPECT THE TRADE
Markets always overshoot both to the upside and the downside. This is especially true when the catalysts behind large moves in asset values are driven by nebulous concerns that are not easily addressed by a single event or action. While we are not particularly thrilled with volatility driven by a specific event, such binary events lend themselves to a potential beginning and end. Instead, as we have commented on since the beginning of the year, the four horsemen of investor angst have been the efficacy of monetary policies, slowing Chinese growth, diverging monetary policies and stresses to commodity/emerging market complexes. We therefore have remained vigilant as none of the above issues appear any clearer to us now versus the beginning of the year. The interrelated nature of asset classes where everything appears correlated results in a ripple effects across different financial assets whenever one of these issues gains greater mindshare. We also know that markets cannot go down forever, and buyers will emerge once the risk/reward equation becomes more balanced. Armed with this knowledge, we have nonetheless been impressed by the risk rally that has ensued over the past few weeks, even if we cannot fully understand the ferocity of the bounce but must respect the trade.