AdvisorShares Weekly Market Review – Week Ending 10/13/2017
Highlights of the Prior Week
It was a big week for news but a very quiet for markets. The Dow Jones Industrial Average gained 0.47%, the S&P 500 was up 0.17%, the NASDAQ moved ahead by 0.24% but the Russell 2000 fell 0.51%.
Bloomberg believes that the public spat between President Trump and Tennessee Senator Bob Corker jeopardizes the much discussed and eagerly awaited tax reform. Unlike repeal and replace (a reference of course to the ACA), both parties agree there needs to be tax reform which is a fine starting point for negotiations. We are surprised there wasn’t more of a market reaction if tax reform is in fact DOA. Either the market didn’t believe there would be tax reform, doesn’t think it is actually dead or it hasn’t yet expressed its disappointment. An ongoing theme to these updates this year has been the extent to which political volatility has exceeded equity market volatility and that theme is for now alive and well.
The FOMC meeting minutes came out during the week and show a slight divergence of opinion with some members seeing the need for the priced in December hike and others who believe the data should show more evidence that the economy can sustain the targeted 2% inflation rate. The ink was barely dry on the minutes before PPI printed on Thursday at 0.4% which was ahead of expectations and was higher than last month, followed then by a 0.5% read for CPI on Friday.
Strangely, the yield on the Ten Year US Treasury Note didn’t react to the minutes or the PPI report. The lower (interest rates) for longer crowd continues to grow and get louder and the market seems to agree. Hoisington Investment Management (via Seeking Alpha) just released its Q3 review and opened with “the worst economic recovery of the post-war period will continue to be restrained by a consumer burdened by paltry income growth, a low and falling savings rate and an increasingly restrictive Federal Reserve policy.” They cite other factors including debt that they believe will keep rates low. We have said here often that the worst crisis since the Great Depression is likely to have lingering effects for many years, maybe decades just like the Great Depression. Layer on top of that an idea that is also gaining traction that there is no playbook for how to come back from nominal ZIRP or real NIRP.
The cryptocurrency sphere was buzzing last week as Bitcoin took the $5000. Bespoke Investment Group posted a table showing 12 different cryptocurrencies with more than $1 billion totalling $145 billion with Bitcoin far and away the leader with $89 billion. It is certainly a mania but probably doesn’t rise to the level of true bubble from the standpoint that is something catastrophic happened tomorrow it wouldn’t have much of an impact on the economy. If you scan social media you will find divergent opinions ranging from telling you this is just the beginning, all the way to run screaming from the room with your arms waving frantically. We certainly don’t know what will happen but a small investment (speculation) with the realization that it could just as easily go down 100% as go up 1000% won’t permanently impair a portfolio. Did we say small? Very small.
ETF.com interviewed Jon Maier who moved from being an ETF strategist at Merrill Lynch to be the CIO at fund provider Global X. Part of the reasoning for his move has to do with where the ETF model space might go. Models started quite a few years ago with plain vanilla ETFs but the funds available now offer more nuanced exposures in terms of broad based factor ETFs, narrow based or as the interview called them, thematic ETFs and other exposures that go beyond the broadest of indexed products. Models, when built correctly making full use of the scope of funds available can obviously help investors achieve a better risk adjusted outcome but there are no shortcuts in terms of analysis.
Anyone who was in the Greek System in college might be interested in The Fraternity Paradox: Lower GPA, Higher Incomes:
They conclude: “This estimate implies that the formation of social capital that takes place in fraternities is much more than sufficient to overcome the loss of human capital from reduced studying, as reflected in poorer grades.”
How bad was the loss to Trinidad & Tobago? Fivethirtyeight says it was The Worst Loss In The History of US Men’s Soccer:
Going back to 1885, the American men had never lost a match at that level when they had such a high probability of winning. And it came with all the chips on the table. You cannot blame U.S. soccer fans for being a little woozy this morning.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, fivethirtyeight