24 Jan ARE THE HEADLINES SUGGESTING AN END OF ERA IS AT HAND?
Reading yesterday’s headlines one can make a conclusion that an end of an era could be at hand.
One major headline read “We Missed the Exit: Banks step up Call to End Negative Interest Rates.” A group of money center European banks are asking the ECB to reverse half a decade of negative interest rates stating such “is not a good place to be socially or economically.” Euro banks are charged to deposit money at the ECB and such charges can not be made up via spreads. Moreover, many savers—society—is being punished for rates below zero.
Another headline read “Index Fund Giants Draw Antitrust Scrutiny in the US.” Scrutiny lies behind the growing power of BlackRock, Vanguard and State Street which collectively own about 22% of the typical S & P 500 company. The concerns are anything from proxies to merger influence to squashing competition.
Another read “Is Tesla the Bubble’s Last Innings?” The article was about the dominance of five companies in the capitalization of the S & P 500-over 18% versus the previous apex of 16.8% in 1999. The 135% three month gain in Tesla—vaulting it to the second most valuable car company in the world—is being viewed possibility as nothing other than a climatic Fourth of July fireworks display.
And then perhaps the most incredible headline, one that goes against the common mantra of the last 12 years, a headline from Davos read “President Trump’s economic team is overheating the economy.” The far-reaching article further stated “An overheated economy cannot be kept boiling for too long.” The author is/was George Soros.
Wow! Is the New Normal over?
In many regards the four headlines are interlinked for passive investing has assisted in creating a perceived bubble given the inherent structure where the big get bigger and the small get smaller, valuations stretched because of a low cost of capital the result of the New Normal.
It is often written the most obvious conclusions are those which are ignored. It is not whether change will occur but rather when that change does occur and what is/was the catalyst.
Commenting about yesterday’s market activity, equities overcame early respiratory virus induced weakness to close essentially unchanged. If history is of any guide, typically illness scares are short term events that are regarded as nothing other than noise.
What will happen today?
Last night the foreign markets were up. London was up 1.65%, Paris up 1.14% and Frankfurt up 1.50%. China was closed for a holiday, Japan up 0.13% and Hang Sang up 0.15%.
The Dow should open flat as the markets are digesting the latest corporate news and impact about the respiratory virus. The 10-year is off 1/32 to yield 1.74%.