AdvisorShares Weekly Market Review – Week Ending 8/11/2017
Highlights of the Prior Week
Dalio Likes Gold
The shouting match between President Trump and Kim Jong Un dominated the headlines and may have contributed to pushing markets lower last week despite revelations that the US and North Korea have been in back channel negotiations for months. Week-long declines haven’t happened too many times in 2017 but did happen last week as the Dow Jones Industrial Average fell 1.05%, the S&P 500 dropped 1.42%, the NASDAQ gave up 1.49% and the Russell 2000 slid 2.62%. Foreign equities also felt the heat with the FTSE 100 falling 2.75%, the CAC 40 going down 2.84% and the DAX falling 2.31%. The larger Asian markets were also lower last week including the Kospi which dropped 3.16% for the week.
If you’ve been sanguine on domestic equities, here’s Peter Boockvar quoted in Barron’s at Camp Kotok:
And don’t hang your hat on an earnings recovery. “Markets are up because earnings are good?” Boockvar asks. “Two things: Half the earnings growth was from energy, and most of the other half was big multinationals,” he says. “And we’ve priced this in two times over. Earnings growth was zero in 2016, but the market rallied 10%—and again this year on the improvement.”
Inflation remains difficult to find. The PPI reported at -0.1% while the CPI printed at 0.1%. In last week’s AdvisorShares AlphaCall, portfolio manager John Del Vecchio from Ranger Alternative Management talked about their being no real playbook for emerging out of a negative interest rate environment. A true deflationary debt spiral has been off the table for years, if it ever was a reasonable probability but there are deflationary pressures as evidenced by PPI and CPI (yes there is inflation not captured in that data), the lack of wage growth and the rise in consumer credit delinquencies that Stephanie Pomboy cited after the jobs data came out on August 4th.
The yield on the Ten Year US Treasury Note came in quite a bit as the flattening trend kicked up a notch last week dropping down to 2.18%. The inflation data could have contributed to the drop along with North Korea noise. To the extent the yield could have dropped on a haven bid, the Swiss franc rallied against the dollar and the euro. Even the yen rallied on a safety play. In the aftermath of the financial crisis the yen was often looked at a place to hide and while it is a little early to conclude the yen can be a sanctuary now, it does bear watching. In a similar vein, the VIX Index skyrocketed up to 15.51 and while in years past there has been very little attention paid to the 15 level, this year it has only flirted with this level for two brief periods.
Gold rallied a little better than 2% last week and is up a sneaky 11% year to date. Part of the lift last week may have been attributable to the sabre rattling with North Korea but perhaps also from Ray Dalio at Bridgewater who believes investors should allocate 5-10% to gold in the wake of the latest with Pyongyang as well as the possibility that Congress won’t be able to agree on raising the debt ceiling and the fallout that could come from that. While we are believers in having a small allocation to gold it is important to set the right expectation for clients if it is being used, as Dalio suggests, as a hedge. This year notwithstanding, gold has the historical tendency to have a low or negative correlation to US equities. If US equities go up the vast majority of the time, which they do, then gold and it’s role in a portfolio potentially becomes a source of impatience for uniformed clients.
West Texas Intermediate Crude fell slightly on the week but is still near $49.00. More interestingly the VIX of crude oil which is tracked with symbol OVX has been working lower over the last month, now at 28.41 it is below both its 50 and 200 day moving averages.
At first glance the headlines announcing the new pro sports ETF might seem very intriguing; a way to own a slice of your favorite team? There are, afterall, private equity firms that invest in minor league baseball teams. What the fund actually does is own companies that sponsor professional sports ranging from concessions to athletic apparel to stadium naming rights to other forms of cross marketing. The fund will start out with a tilt to consumer discretionary and staples. From ETF.com:
We decided to look at the broader sports industry and see who else was making money from these. We went through a whole big process of sponsors: Do we look at eyeballs, do we look at game attendance? How are we going to capture this growth?
Vanity Fair tells us Why Generation X Might Be Our Last, Best Hope:
But it’s become clear to me that if this nation has any chance of survival, of carrying its traditions deep into the 21st century, it will in no small part depend on members of my generation, Generation X, the last Americans schooled in the old manner, the last Americans that know how to fold a newspaper, take a joke, and listen to a dirty story without losing their minds.
It looks like the New England Patriots are getting an upgrade for away games:
Sources tell ESPN that the reigning Super Bowl champions bought two 767 Boeing wide-body jets in the offseason and retrofitted them with all first-class seats, some of which recline completely. On the outside of at least one of the planes is the team logo and five Lombardi trophies on the tail.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, ESPN