AdvisorShares Weekly Market Review – Week Ending 9/22/2017
Highlights of the Prior Week
Balance Sheet Reduction By Paper Cut
The FOMC announced what the investment world already knew; it will start to reduce its greater than $4 trillion balance sheet, starting with $10 billion at a time. Doing the math, it will take years before balance sheet is anywhere close to pre-crisis levels, which probably means it will never happen. Chair Yellen made it abundantly clear that the FOMC will step up in the face of an economic downturn and while the current expansion could last five or six more years, history is not on the side of that hope. Surprisingly, the committee also kept alive and well the expectation of another rate hike this year and the CME’s Fedwatch Tool responded accordingly moving up to about a 70% chance of that December hike.
The Fed news caused a few markets to move. The yield on the Ten Year US Treasury Note spiked about five basis points but then backed off slightly to close the week at 2.26%. Zooming out, the move higher in yields last week looked consistent with the trend of the last couple of weeks. The US dollar moved up approximately half of a yen and the Euro had a volatile ride to a small decline against the greenback. Gold in US dollars fell dramatically on Wednesday, giving up $30 but managed to make some of that back and close above $1300. If the FOMC was being hawkish then that would be good for the dollar and not so good for gold.
If there was anything to worry about from the Fed you wouldn’t know it from the equity markets which traded flat on the week. The Dow Jones Industrial Average gained 0.34%, the S&P 500 added five basis points, the NASDAQ declined 0.36% and the Russell 2000 moved ahead by 1.33%. Perhaps even more surprising, the VIX continued to trade lower, closing at 9.59. Not even very loud rhetoric at the UN or discord and disharmony over repeal and replace could move markets in a meaningful way.
Domestic markets long ago stopped reacting in a meaningful way to things that it used to react to meaningfully, which raises concerns about complacency and whether another Minsky moment is in the offing. We think not but not for the reason that might first come to mind. The complacency that arose in the mid-2000’s was the last crisis, the next crisis or bear market will be different. Just as there wasn’t another tech wreck there won’t be another Minsky moment in real estate and financials, the next one, whenever it comes will be caused by something that no one sees coming, or very few people anyway.
The Government Pension Fund of Norway, the country’s sovereign wealth fund, recently surpassed $1 trillion in AUM. The fund was established in the 1990’s as an investment pool for revenue accrued from oil. The fund owns an average of 1.3% of every publicly traded company on the planet. The country’s GDP is only $370 billion. If they paid out every citizen, all 5.2 million of them, everyone would get $192,000. While WTI just took back the $50 level for the first time in a while, fracking has created a strong argument for lower prices making Norway’s decision to create and fund the SWF very shrewd.
Rob Ivanoff reports that Morningstar will no longer have its ETF Conference and instead will merge it into its mutual fund conference:
Unofficially – there were 3 problems with this event. First, it took place in early September. Not a good time for advisors busy with kids. The beaches are still open. Second, the ETF team is young but tired, creatively speaking. They were just pressing repeat. Third, Morningstar new CEO wants to profit by selling indexes, managed portfolios, and robo-advise to institutions, not by giving lavish parties. Morningstar is moving more and more to imitate Moody’s and more.
Farnam Street with The Ultimate Guide To Making Smart Decisions:
There are lots of reasons we make poor decisions. Let’s take a look at three of the biggest ones. 1. We’re not as rational as we think. I like to think that I’m rational and capable of interpreting information in a non-biased way. Only I’m not. At least not always. We’re all irrational to some extent. Sometimes we fool ourselves.
The NCAA hasn’t quite figured out how to let a student athlete in a non-revenue sport also be an entrepreneur in a business that is unrelated to his sport:
Trahan, a 17-year-old freshman, is seeking a ruling that will allow him to stay eligible while continuing to promote his ecologically friendly bottle company via a YouTube account that has grown to more than 14,000 subscribers.
Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, ESPN, ETF Business Review, Farnam Street