02 Jul IS IT THE WILD WEST?
Nervousness amongst many iconic market luminaries is rising with one calling the current environment the “Wild West.” In my view a major reason for this nervousness is the massive influence of the absolute dollar amount of assets in passive or momentum driven vehicles.
According to JP Morgan 80% of all equity assets are now in products devoid of any macro economic, geopolitical or individual security analysis creating a lemming like environment where knowledge and experience is meaningless and worthless.
The Bank writes “60% of all equity assets are now in passive/ETF products and 20% in trend following quantitative vehicles.” The Bank further writes such an environment could be perhaps systemic given that there is “no other side of the trade,” an environment that is greatly exacerbated by the lack of liquidity, a topic that has been discussed at length.
JP Morgan further writes this is the first time an investing strategy has evolved to into the only investing strategy. In the Bank’s view because of today’s environment, there are sectors that are greatly over valued and other sectors that are greatly undervalued which could have an unprecedented market “melt up.”
Wow! In my view this is further confirmation between the record difference between value and growth.
Change is the only constant but the pivotal question at hand is when will this change occur?
What will happen today? Activity may begin to wane by midafternoon ahead of the 4th of July weekend.
Last night the foreign markets were up. London was up 0.56%, Paris up 0.04% and Frankfurt down 0.06%. China was down 0.96%, Japan up 0.11% and Hang Sang up 1.17%.
The Dow should open mixed as enthusiasm over trade deal waned. The 10-year is up 2/32 to yield 2.02%.