The Indians lost their star pitcher, 2007 Cy Young winner CC Sabathia, trading him for four minor league ball players. While this move was widely anticipated over much of the past year, the drama has finally drawn to a close. The Indians knew his contract was coming due and that keeping him on the team would be a difficult endeavor given the free market salary level he would likely command. To make matters more interesting, CC is also a great hitter, having belted a monster home run a week or two ago. This factor may have raised his value to the National League, where he will be joining the Milwaukee Brewers, a contention team. We will be sorry to see CC go in Cleveland, but wish him the best as we rebuild the team with our four younger prospects.
What does this have to do with the markets? Perhaps more than what it seems. As we discussed in prior blog entry, managing a an investment portfolio is similar to managing a baseball team. (At least that’s what I try to convince my twelve year old.) Trades must be considered at all stages of the game and no one can ever sit tight on the winners from one’s past. One must anticipate the future, appreciate the present, and learn from the past, all within the confines of a given economic environment and budget.
The markets were brutal while I was on vacation last week. The S&P 500 and several other indices fell into bear market territory, officially defined as a 20% correction from their highs. Geopolitical tensions between Israel and Iran likely forced a last hurrah in the price of oil, casting the stock market into a black cauldron of goo.
Oil is the fulcrum in this market, a factor we’ve discussed in recent economic updates and blog entries. We expect this latest bubble to eventually pop, spurred on by slowing overseas economies plagued by 70’s era inflation rates. The European Central Bank and several other central banks all raised rates last week to fight their inflation problems (core and non core, unlike here). These moves will only add to the pressure braking these economies and ultimately, curb the price of oil.
Like the drama between CC and the Indians, now is the time for investors to anticipate the future, appreciate the present, and learn from the past, all within the confines of the given economic environment and their personal budgets. For a detailed discussion of where we would be looking, please see our Second Quarter 2008 Commentary & Performance, available on our website.
On a final personal note, my family was in New York last week where Pete’s 12 and under team participated in one of Cooperstown Dreams Park’s summer baseball tournaments. The level of play by the 95 or so teams from around the country were as varied as the sizes and heights of these young and maturing boys. The New York team that won it all had a pitcher who could deliver in the 80’s, an astonishing feat for such a young age.
The Hudson Hurricanes had a solid showing and a great time. Our star hitter, Justin Gamble, was crowned King of Swat in the home run hitting contest, besting the 95 other players nominated by their teams and contending for the title. My son Pete’s final game was a great performance as well, but with a bittersweet ending. He pitched and hit exceedingly well, but ultimately couldn’t rescue the team from earlier errors. Unfortunately, he also aggravated a foot injury. Last summer’s broken foot, we found out yesterday, has officially become this summer’s broken foot; same bone, different place.
Broken foots heal.
So do markets.
Give it some time.