As the markets turn…
A marked turn has gotten under way in markets over the past couple of weeks. The teracap tech trade has been giving way to dividends, quality and value. We’ve been prepared and are enjoying the fruits.
This is an extension of the bursting bubble theme visited a couple weeks ago. Investors are increasingly questioning the valuations of the artificial intelligence darlings that have run up so far. Not only that, but the vast sums the so-called hyperscalers have been throwing into AI infrastructure, once sourced from corporate cash flows, have begun to be financed with debt. This is remarkable enough that even CNBC has been giving it considerable airtime.
As with any market trend, this won’t proceed in a straight line. Expect days or even weeks where the bubble attempts to reflate. But most of the time I expect the Dow and Russell to outperform the Nasdaq, XS to outperform US, and gold to outperform bitcoin as fantasy yields to reality. Real assets and assets founded in reality – commodities, stocks with tangible value and visible profitability – will outperform those based on hypothesis and hype.
Expect this to extend to energy. Oil, which has been in the dog house for many moons, is forming an extended bottom and will perk up, joining metals and agriculture in a commodity supercycle.
Debt and hype are passé, assets and reality are the new thing.
I sense things are coming to a head.
The “Machine” is starting the break down……cant have much further to go. I know its all been said before but something has changed, mood or animal sprints ……..i sense the invisible hand of the free market pushing down on them all………….
You felt that too? A subtle tectonic shift. October 29. A tilt in the zeitgeist.
Ahhh, maybe it was just a passing truck. But unless the rules of economics and the lessons of history have changed, it has to happen some time.
CNBC is funny. Interviewers regularly lay out a convincing case for a bubble. Then the interviewee denies it. It’s different than the dotcom bubble, it isn’t quite a bubble yet, yadda yadda. It’s as if it were an editorial policy. I have yet to hear a guest say something like, yeah, Mr Anchor, you bet. It’s a bubble, it’s a big one, and it’s every man for himself. Maybe I just missed the John Hussman appearance.
Well here at Financology we aren’t sponsored by Wall Street or Silicon Valley, we carry no advertising, not even any cookies. It doesn’t make us right, but we call it like we see it.
Bloodbath in the markets today … another whiff of deflation. Valuation suddenly matters.
Again the Dow outperformed the Nasdaq, the rotation continuing. XS outperformed US. Gold outperformed bitcoin. Cash outperformed them all.
Now that the lights are back on in Washington, Republicans have a problem. They have to renew the Obamacare tax credits or face a massacre in next year’s mid-terms. They don’t want to do either but that’s their choice. They are floating alternatives but time is running out and any half baked plan is going to cost them anyway.
Meanwhile they’re not even taking about the most economically damaging ACA feature … the employer mandates. It’s time to get out of the 1900s and untangle the messy three-way state-sanctioned relationship between employee, employer and insurance company. It’s an expensive game of hot potato and has turned millions of good full time jobs into part time jobs. Let everybody have direct access to insurance even if it requires the tax credits. Fold Medicaid into it too. Then get to work on the Medicare mess.
Yikes!
The Government just pulled a bootleggers turn on tax rises as they been told they stall the economy stone dead. Everything is crashing as people are rushing to cash.
Mike
There’s definitely a deflationary squall going on out there. The upside for cash could persist a while but it’s unlikely to develop into anything like a 2008. The Fed is on hair trigger alert and will put the pedal through the metal long before that happens. Its job is inflation and it knows how to do that.