There was little reaction to the Brussel bombings. Have all become inured, believing that such events are insignificant and now part of everyday life?
Speaking of which, has everyone become complacent believing that indexing is the pathway to riches? According to the Financial Times, 98.9% of active US stock managers underperformed the indices during the past 10 years. Wow! I guess blindly investing in the indices is the potential pathways to riches and to heck with any macroeconomic thought or investment rationale.
I ask is this underperformance the result of the massive proliferation of ETFs and HFT which has skewed returns to only the mega capitalized growth issues, the issues that have the highest capitalization? As inferred, ETF and HFT strategies are linked to capitalization where the big become bigger and the small become smaller. There are now more ETFs than listed securities.
Yesterday Goldman wrote that the valuation difference between the small cap issues and the large cap issues is the widest since at least 1980 where the small capitalized issues are trading around a 50% discount to their large brethren. Historically it is the inverse.
I ask is this environment a function of ETFs and HFT which largely ignores the smaller concerns, a major reason why virtually all active managers have underperformed the indices? I think yes.
Four years ago I was writing the US is politically on undergoing a tectonic change. Wow! I did not realize how prophetic my comments have become.
Today I believe the markets are potentially on the verge of a tectonic change where the averages move sideways for a prolonged period of time and the typical issue vastly outperforms, the result of massive ownership of the former and no ownership of the latter.
The evolving environment may be amplified by the collapse of global order as the US has publically abdicated its 70 year role of the unspoken global policeman.
The violence/unrest/distortions occurring since this abdication cannot be forced back into the proverbial bottle. As noted many times approximately 48% of the S & P 500 revenues and 55% of its profits are generated by trade, trade that may potentially slow given rising global unrest.
Radical thought that the individual issue will outperform the indices for a prolonged period of time for the reasons listed above? Perhaps but so was my view four years ago that politically the US was undergoing a tectonic change.
What will happen today? As noted there was little reaction to the Brussel’s bombing as value continued to shine.
Last night the foreign markets were mixed. London was up 0.07%, Paris up 0.29% and Frankfurt up 1.08%. China was up 1.16%, Japan down 0.28% and Hang Sang down 0.25%.
The Dow should open quiet as the first quarter of 2016 appears to be one for the record book in many dimensions. The 10-year is up 1/32 to yield 1.94%.
