It wasn’t too long ago that the favored acronym of many investors was BRICs. BRICs refers to Brazil, China, Russia, and India. The BRIC countries were supposed to offer profound promise to investors. They had resources, mostly young populations, and rapid growth. With such rapid growth ahead, the BRICs were a sure thing. Of course, things haven’t turned out as rosy as the bullish consensus believe at the peak of BRICs mania. The chart below shows the performance of the MSCI BRIC index. The BRICs have had a lost decade. The MSCI index peaked in 2007, and remains more than 30% below its high … [Read more...]

If there’s one thing investors do to waste a lot of their time, it is comparing the performance of their portfolios to the S&P 500 or the Dow Jones Industrial Average. These indexes have little in common with any well balanced and well diversified portfolio. They simply aren’t good proxies for conservative, retired or soon to be retired investors to use for their investments. In December 2004 I called the practice a big waste of time. I maintain that view today. I wrote then: A Big Waste of Time One of the most inane exercises carried out by professional and amateur investors alike is … [Read more...]

After years of an unabated bull market in tech stocks, investors may be finally beginning to take note of the shortcomings in tech shares. Bloomberg's Lu Wang reports that after the tech-focused Nasdaq index fell more than 1% on Monday, some analysts are calling out the sector's risk. Wang writes: Mike Wilson at Morgan Stanley on Monday reiterated his bearish call on tech high-flyers, urging investors to seek safety in shares with cheaper valuations as the market is likely to be headed for the biggest correction since February. While the magnitude of losses is no worse, the pain for active … [Read more...]

This year's most crowded trade on Wall Street is Big Tech. The FAANG stocks, as measured by the NYSE's Fang+ index have climbed by 32% year to date. According to Bank of America, the trade is the most overextended since 2015. Robin Wigglesworth writes in the FT: The New York Stock Exchange’s Fang+ index, which includes a mix of US and Chinese tech companies, has climbed more than 32 per cent this year. However, some investors think the rally in “Big Tech” shares is overdone. Betting on the Faangs in the US and China’s Bats has been identified as the most crowded trade for sixth months … [Read more...]

Six stocks, four of which don’t pay a dividend, account for 99% of the YTD gain in the S&P 500. The top ten holdings in the S&P 500 account for 23% of the market capitalization of the index. Netflix, a company projected to burn $3 billion in cash this year and Amazon, a company that trades at 83X estimated earnings, have a market value that is almost as large as the entire S&P 500 Utilities and Telecom sectors. What’s more valuable to you, Prime delivery and bingeing Netflix, or electricity and phone service? The S&P 500 has become a top heavy index dominated by stocks … [Read more...]

Could this be the end of the road for the long upward trend in rising profit margins? Rising wages are cutting into profits at major corporations, and it could be the end of an era in which it has seemed as though profit margins would rise forever. Danielle Chemtob reports at The Wall Street Journal: Rising wages are beginning to eat into the profits of some U.S. companies. Firms from dollar stores to hotel operators to fast-food chains have warned in recent months that higher labor costs have been a drag on their profits—a potential headwind for the nine-year stock-market rally as it … [Read more...]

Amazon announced yesterday that it is buying Pillpack. Pillpack is an innovative little company that pre-packages medicines for consumers who take multiple drugs regularly. The big pharmacy stocks predictably sold-off on the news that big-bad Amazon is entering their business, but there is much less to be concerned about than meets the eye. Selling prescription drugs is much different than selling Amazon Kindles. A quick review of the Pillpack website shows that. It takes 10-15 minutes to even signup. There is insurance that needs to be dealt with, regulation, pharmacy benefits managers, … [Read more...]

Sad! Once America’s most venerable industrial company, GE has announced plans to shrink itself to a fraction of its former self. GE is going to spin off its health-care business and exit the oil services business that former CEO Jeff Immelt entered near the top of the market. The new GE will be focused on power, aviation, and renewable energy. A leaner and more focused company will result. The breakup of GE could have been done years ago from a position of strength, but former leadership dithered, and doubled down on a conglomerate strategy that is now unraveling. GE is now splitting up … [Read more...]

In an interview with the Financial Times, Agustin Carstens of the BIS, said that investors have become a disciplining force that will leave markets, specifically those with debt-laden government with little room to grow. Claire Jones writes: The “disciplining force” of financial markets will leave debt-laden governments with limited room to boost growth as central banks ditch their crisis-era stimulus, the head of the Bank for International Settlements has warned. Agustín Carstens, general manager of the central bankers’ bank, told the Financial Times: “Some markets are overstretched and … [Read more...]

The FT reports here that bearish investors may have finally capitulated. Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. John Templeton said that. A lack of bears is a necessary precondition for a bull market, but it should not be viewed as a catalyst for a bear. Media commentary, which invariably reflects the opinions of influential market participants, appears to be becoming steadily less bearish the further we move away from the last crisis. My colleagues on FT Alphaville have pointed out that the number of articles mentioning the term … [Read more...]