29 Feb IS A MAJOR TRANISTION AT HAND?
In my view, I think today it is paramount to have a macroeconomic/geopolitical thesis to make investment decisions as I believe the markets/economy are at a major crossroads. Either the market has it correct and the environment is miserable or the Federal Reserve/PIMOC/Goldman has it correct and the economy is positive.
What I believe is different this time around is the total market domination of HFTs and ETFs. Eighty five percent of total volume is done via HFTs. Approximately 96% of all orders placed are never executed thus creating “an environment conducive to manipulation” according to the SEC. Today there are more ETFs than listed stocks, ETFs that few know how they are constructed and are essentially momentum followers.
This environment has created the most unbalanced market since at least 1980 according to JP Morgan.
Warren Buffet once commented portfolios could decline as much as 50% for no basis except market inefficiencies that will be corrected over time.
I think—which are perhaps two of the most dangerous words—the markets/economy are at an inflection point where growth will exceed expectations, inflation will accelerate and there will be a massive transition from momentum growth to value.
I can present a strong case for such views, a case that is similar to that of the Fed, et.al. Unfortunately only history will dictate if such is true.
I could write volumes about the upward revision in fourth quarter GDP but will only state wow! Growth was supposed to be revised down to 0.4% from 0.7% but instead rose by 1.0%.
I rhetorically ask is this why the utilities were hammered Friday, down 3%, the greatest drop since 2009 according to Bloomberg? Conversely oil rose last week by the greatest amount since 2009.
This is a major data week that could confirm or deny an accelerating Economy. There are a host of manufacturing and employment statistics. If the data is consistent with statistics recently released, the odds increase the economy has avoided a downturn and the apocalyptic narrative was only that—apocalyptic narrative.
Last night the foreign markets were down. London was down 0.22%, Paris up 0.04% and Frankfurt down 0.96%. China was down 5.37% Japan down 1.0% and Hang Sang down 1.30%.
The Dow should open flat. Oil is also flat. The 10-year is up 3/32 to yield 1.76%.