AdvisorShares Weekly Market Review – Week Ending 12/29/2017
Highlights of the Prior Week
New Year, Same As The Old Year?
We’re not sure if the US equity markets had a great year because of anything President Trump did or in spite of anything he did, the answer depends on who you ask. Really though, it doesn’t matter, success in 2017 was really about the decision to be in the market or out of the market which of course is the cornerstone to top down portfolio management. This one (not so) simple decision accounts for 70% of an investor’s ultimate return and 2017 was a poster child for this theory.
On a price basis, the Dow Jones Industrial Average gained 25.07%, the S&P 500 was up 19.42%, the NASDAQ put on 28.23% and the Russell 2000 brought up the rear with 13.14%. Despite the gains there, of course, continues to be plenty of things to be concerned about but as we have maintained for a while nothing yet gives a hint as to the timing for when the party will end. Add to the list of concerns that the S&P 500 had a so-called perfect year meaning it was positive for all 12 calendar months which has never happened. If this is troublesome it is so because of the element of it doesn’t get any better than this which are dangerous words. Additionally, @northmantrader tweeted that per the Rydex Bull/Bear ratio, investors have never been more long. The implication is that everyone is in with very few shorts to capitulate and very little cash left to buy stocks higher. Where this refers to assets in Rydex mutual funds, we’re not sure how much relevance the indicator has anymore but it is interesting.
The US dollar had a rough year, its worst in ten, falling against most of the major currencies. Bespoke Investment Group put out a table of the dollar’s net changes against several currencies as of mid-week. It showed the euro up 14% in 2017, even the British pound with its Brexit dysfunction gained more than 8% against the US. The three major commodity currencies, loonie, Aussie and the kiwi had single digit gains and despite the Bank of Japan’s best efforts, even the yen gained modestly. As we have noted in past updates, the dollar’s lagging or outperformance has the tendency to last for many years and 2017 could turn out to be year one in such a run and while we don’t know whether it is, the best way for the typical advisory client to benefit from this would be to maintain an allocation to foreign equities.
One of the more talked about market phenomenons was the persistently low CBOE Volatility Index (VIX) which Adam Warner reports traded at an average 10.85 for the year, much lower than the old record of 12.00 in 2006. It did, of course, spend some time below nine this year. It is widely accepted that volatility will increase in 2018 which strikes us as exactly the type of reading that could do the unexpected and head a little lower, especially if the market can be lucky enough to put off the next bear market out past 2018.
We’ve touched on the strange comings and goings at Uber over the year which included several layers of controversial behavior of founder and former CEO Travis Kalanick, a security breach, questions about how economically viable it is to be a driver for Uber and now the latest that some investors in Uber were willing to sell to Softbank at a 30% discount to the perceived market value. This would value Uber just under $50 billion or as Joe Weisenthal quipped, less than the value of Ripple. What is Ripple? It is a payment transfer system with an accompanying cryptocurrency by the same name that has a market cap of $63 billion as of last Friday and was up 9700% last year according to Yahoo Finance.
We’d be remiss in a year end piece to not mention Bitcoin and its stratospheric rise in 2017, although the gains paled compared to other cryptos like Ripple and Litecoin. Where cryptocurrencies are about more secure and efficient financial transactions, well of course that is going to happen but the “industry” is not there yet. And while we don’t know when we will get “there,” we would repeat something we have said several times in a few different places which is the Internet is alive and well without Netscape or AOL, so too can cryptocurrencies be the real deal without Bitcoin. That is not a prediction of the fate of Bitcoin but a reminder that truly transformative technologies come with big winners and big losers.
Global Macro Monitor posted a useful table of the dispersion in sector returns ranging from a gain of 33.76% for tech to a decline of 1.57% for energy. The manner in which crude oil lifted toward the end of 2017 makes us wonder if the sector can have a resurgence in 2017. While we don’t know what will happen it might not be a good idea to ignore energy in a diversified portfolio.
1970s Baseball remembers Roberto Clemente on the anniversary of his death while on a humanitarian mission:
A father of three boys, and a United States Marine Corp reserve veteran, Clemente was proud of his Puerto Rican heritage and spent much of his time off the field involved in charitable causes. In the fall of 1972 Roberto was the leader of Puerto Rican efforts to aid victims of an earthquake in Nicaragua. His organization had raised more than $150,000 in cash, food, and clothing, and had already made three deliveries to Nicaragua. Hearing rumors that not all the proceeds had reached the victims in the previous trips, Clemente insisted he make the next plane trip to personally see to it that the supplies got into the hands of those that needed them. On December 31, Clemente drove to San Juan International Airport with his wife Vera, his friend Cristobal Colon, and teammate Tom Walker, who helped him load the plane. Walker wanted to accompany Clemente on the plane trip, but Clemente convinced the single Walker to stay back and enjoy a New Year’s Eve party instead. Vera was worried that the plane seemed old and overloaded, but Roberto assured her he was fine as he said goodbye to her and his friends.
The NBA revealed a series of alternate uniforms called “city uniforms.” We are suckers for alternate/thematic uniforms and there are some neat ones including the Knicks’ tribute to the FDNY and the Utah Jazz highlighting red rock country in the southern part of the state.
The league’s uniform supplier is referring to these alternate uniforms as “city editions,” so many them have a local theme. Most of them are completely new designs, though a few are basically retreads of what the NBA used to refer to as “pride uniforms.” Several are excellent and several are awful, with most falling somewhere in between.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, 1970sbaseball.mlblogs.com, ESPN.com