08 Jul “TO INFINITY AND BEYOND” (Buzz Lightyear)
The technology heavyweights continued their relentless advance, shattering any remaining illusions about the significance of security research. It is obvious the pathway to massive over performance is buying the most widely owned and greatest capitalized companies. So much for discovering the “undiscovered” and undervalued company, waiting for others to recognize the inherent value.
Ownership is now crowded in a few names, a trend that many believe will continue, partially the result of the massive influence of indexing. Indexing was part of the market. Today it is the market.
Many believe the trend will last to infinity. However as with all investing styles, this too shall end. For example, the largest market neutral fund—a fund that was viewed as impervious to market swings and was viewed as essentially “riskless” is down over 25% for the year.
Many are now writing the “market neutral funds” had become to crowded and declines were inevitable, the inverse as to what was being written 18 months ago.
Additionally, the popular long-short fund, a cousin to market neutral funds, have also been battered. Bloomberg writes this asset group controls 28% of all hedge fund assets, a strategy that was also once viewed as impervious.
It is common market axiom that when everyone is doing the same thing, a massive change is at hand.
What will happen today? Yesterday gold climbed to the highest level since 2011. Oil also advanced. Treasury yields fell even as the President is endorsing another $1 trillion stimulus package.
Last night the foreign markets were mixed. London was down 0.08%, Paris down 0.74% and Frankfurt down 0.34%. China was up 1.74%, Japan down 0.78% and Hang Sang up 0.59%.
The Dow should open flat amid more tensions between Washington and Beijing and worries that consumer spending will lag. The 10-year is down 2/32 to yield 0.65%.