Time magazine wrote yesterday that two thirds of society is financially illiterate, a statistic that FINRA commented as “disturbing” and requires more investor education. Gallup writes about 51% of society is involved in the markets, down from around 62% in 2000.
There has been a massive outflow from actively managed mutual funds into passive ETFs. Moreover Roboinvesting has been introduced, a nascent industry which some are projecting will forever change the investment professional industry.
The key words in the above paragraphs are passive and illiterate. In my view roboinvesting is synonymous to indexing which is synonymous to passive. I also believe that passive investing relies upon the simple premise of past performance is indicative of future performance the inverse as to what we are told given the belief that past trends will continue and the big will continually get bigger and small smaller.
If making monies in the markets was only this simple. If so we would all be gazillionaires. Yes the past five years the big have gotten bigger. An argument can be made that this has been the case since 2006 given the massive underperformance of almost everything expect large cap momentum growth.
As noted above, 66% of society is financial illiterate. Fifty one percent of society owns securities directly or indirectly. It is my firsthand experience Wall Street firms will create the products that can be marketed and sold to the public as The Street is the best marketer in the world.
It has often been stated the cheapest execution is the most expensive idea. Can we be there today given that a majority of the society does not have a clue about the markets and the all markets are around or at their highs?
I reiterate my long held belief the Treasury market is priced beyond one’s most wildest expectations and the averages will mark time—albeit in a range—for the foreseeable future.
I do believe however the maligned and under owned small cap and value stocks should outperform as should the smaller fixed income issuances that have all but been forgotten given the ramifications and inefficiencies created by Dodd Frank.
Will these remarks become prophetic similar to my 2012 election comments that the results may be perhaps tectonic?
Commenting about yesterday’s market action, there was little response from the Beige Book which indicated the economy expanding at a “modest pace” and “slight” price pressure and some “softening” in consumer spending since mid-May. Employment continued to grow “modestly” and wage pressures remained “moderate.”
What will happen today as several large financial post results? Moreover the PPI and weekly jobless claims are released. The Dow is up about 1,300 points in a week, an advance I think most will state is overdone leaving equities prone to a sharp retreat.
Last night the foreign markets were up. London was up 0.50%, Paris up 0.45% and Frankfurt up 0.78%. China was up 0.16%, Japan up 0.95% and Hang Sang up 1.12%.
The Dow should open moderately higher on increased stimulus bets and an earnings upside surprise from a money center bank. The 10-year is off 9/32 to yield 1.51%.