Market Commentary

Daily reports from our Chief Economic Strategist.

THE FED IS STILL PROVIDING THE NECESSARY LIQUIDITY
A major question at hand is year-end interbank liquidity. Historically (pre 2007) demand spikes during the final two weeks of the year as banks close out their books.
THE UNIQUENESS CONTINUES
We are in unique times. Bloomberg writes a rare event happened last week, occurring only 18 times in the last 23 years. That works out to 0.08% of the time. The advance minus decline line exceeded negative 800 meaning there were more than 800 declining companies versus advancing.
A QUIET DAY…MMT WAS A TOPIC OF CONVERSATION BEHIND THE SCENES
As widely noted the fiscal deficit is over $1 trillion for the first time since the financial crisis. The total debt is in excess of $22 trillion and the markets are suggesting that such amounts are not of any significance.
2019 IS NOT AS EXPECTED
2019 has not unfolded as anyone had expected. One year ago consensus predicted at least two more interest rate increases, a 10-year yielding around 3.50%, and markets generally flat to down.
PROPOSED SECURITY TRANSACTION TAX IS GREATER THAN MANY ETF FEES
Bloomberg writes over 1000 ETFs have been closed with 97 closing thus far in 2019. The reason...small size and the lack of fees. It is generally accepted an ETF has to broach $50 million to become solvent. According to Bloomberg, the average ETF charges
A QUIET DAY DESPITE MASSIVE GEOPOLITICAL EVENTS
Markets were relatively quiet yesterday. Little or no attention was focused on the weekend events in Hong Kong, Iran, Iraq, China (“reeducation camp” unrest), North Korea, and Israel. In years past all individually would have generated considerable market reaction.
IS LIQUIDITY THE GREATEST CONCERN OF THE FED?S TODAY ONE OF THE STARKEST EXAMPLES OF TOMORROW’S VIEW OF REALITY?
Equities were encouraged by headlines suggesting the US and China are “coming down to the final stages” of a trade deal. Trade sensitive tech shares again led the advance. Treasuries traded nominally lower. Oil ended about 2% higher.
IS TODAY ONE OF THE STARKEST EXAMPLES OF TOMORROW’S VIEW OF REALITY?
Is a tectonic change about occur on Wall Street? The only consistent profitable trade is long mega sized technology companies. As noted yesterday, Bloomberg writes mega sized growth is priced for 25% annual profit growth for the next decade, twice the rate of the last five years.
MEGA SIZED GROWTH IS PRICED FOR 25% ANNUAL PROFIT GROWTH FOR THE NEXT DECADE
Bloomberg writes at the start of this quarter the top flying US stocks—aka mega sized technology—was priced for profit growth of a staggering 25% every year for the next decade. The actual rate over the past five years was more like 12%.
A DAUNTING STATISTIC
Where to? Bank America writes 30% of the S & P 500 earnings growth over the past five years is the result of share repurchases funded by debt. Many times I have commented about the proliferation of debt for non-economic purposes. BofA writes non-financial debt has grown by

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