Tech Tumbles As Markets See Changing Currents-

 

 

“There was a magic about the sea. People were drawn to it. People wanted to love by it, swim in it, play in it, look at it. It was a living thing that was as unpredictable as a great stage actor: it could be calm and welcoming, opening its arms to embrace it’s audience one moment, but then could explode with its stormy tempers, flinging people around, wanting them out, attacking coastlines, breaking down islands.” Cecelia Ahern 

 

 

As someone who grew up in Las Vegas, I did not get a chance to experience the ocean (beach) as often as people from Southern California, who might took that advantage for granted.  So, when I went off to college, let’s just say I was an active participant in exploring those possibilities.  When you study history, as a child you become acquainted with the importance of the sea with the colonial pursuits of Christopher Columbus, and progress to the defensive naval strategy England used by the famous sailor Sir Francis Drake.  World War II had a critical sea component, commencing with the aggressiveness of German submarines in the Atlantic and then the formal entry of the United States in the conflict because of Pearl Harbor.  Even today, sea superiority is a key strategic consideration, just look at the decades long involvement of the United States in the Straits of Hormuz, and more recently, the issue of China’s aggressiveness in the South China Sea.  Hollywood added to the glamorization of ocean battles with the popularity of the movie the Pirates of the Caribbean, led by the financial wizardry of Johnny Depp, who reportedly squandered the small sum of $600 million of royalties.  Anyway, if ever there was an apt comparison to current financial markets, it is the always changing tides of the oceans.  Why might that be the case?

 

 

Increasingly, as capital markets of different asset classes have gone higher, there is concern about too much concentration of those returns residing in a smaller number of entities.  What hasn’t gone up, and in some cases, astronomically so?  Bitcoin sits at a cool $2872.13, what a bargain huh?  Most fixed income securities trade above par with yields scarcely above risk less treasuries, so not much value there, right?  In our beloved equity markets, as ETF’s are all the rage, a greater and greater percentage of the returns from the passive products are coming from a few companies, those famously known as FAANG (Facebook, Apple, Amazon, Netflix, Google, and you can probably add M for Microsoft and T for Tesla).  So, when a big entity like Goldman Sachs comes out and says, you know, maybe this has gone a bit too far, investors take notice.  Yesterday, they did not just pay attention, they sold technology heavily, and rotated capital into unloved sectors like, ta da, banks, and you won’t believe it, yup, energy.  Energy, and banks, can’t be you say, they have been dead forever.  Like a calm sea which experiences a storm coming from nowhere, many investors are not well positioned for this potential shift.  Looking ahead, the key question is have we seen a huge turning point or will the conventional wisdom of staying in market leaders take hold?  Next week, we continue to digest the financial impact of the the conservatives in the UK not strengthening their governing majority (pound loses a bit of value) and what the impact will be of a much telegraphed .25 basis point increase in interest rates by the Federal Reserve?  Should be quite interesting, indeed.

 

 

Elsewhere, on the earnings front, pretty much a light docket as Dave and Buster put up a nice number while trinket seller Francesa’s Holdings disappointed, as did arts and crafts connoisseur Michael’s.  David’s Tea, a small tea retailer, sipped quite nicely while JM Smuckers, known for Folgers's coffee, showed it’s lasting popularity.  In the oil market, inventories went up and prices went down as the concern about the sustainability of US shale production remains a long term issue.  As an aside, if you haven’t been paying attention to Venezuela, the country is in the midst of a massive human rights problem for its citizens because of the horrific leadership of the communist regime led by Mr. Modero, the replacement for Hugo Chavez (Bernie Sanders and the Rachel Maddows won’t ever mention it, I know).  Oil markets keep ignoring this issue as supply from that area keeps drying up, which is also the case in Nigeria, undergoing more militant hijacking of pipelines.  Finally, the he said, she said between famous scribe Jim Comey and the always entertaining Donald seems to be ignored by the financial community as but a pothole in the quest for the bigger prize, that being tax reform.  Of course, like any calm ocean, the tides might shift on that issue as well.  

 

Thanks for reading the blog this week and if you have any questions or comments, please email me at [email protected]

 

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.