Some days, it is hard to find a starting point; today is one of those days. Do I start with a reaffirmation of a point I have been pounding? …
- Over the past two years, any equity market corrections have been rare and limited in their magnitude. Notably, they were followed closely by a rebound, which often pushed up indices to new highs. As a result, investors that followed a disciplined strategy of buying on the dips were well rewarded.
Or do I reaffirm another recent point about the reality of the Fed withdrawing its stimulus? …
- Even as the Fed withdraws monetary stimulus, global aggregate liquidity remains above average levels. CrossBorder Capital’s monthly Global Liquidity Index ticked up to 52.4 at the end of February from 47.9 in the previous month.
Then again, should I reaffirm that Putin and the Ukraine mess, as well as the announcement that interest rates will rise sooner rather than later, are no reason for the market to stumble badly? …
- The remarkable calm in global financial markets in the face of tensions over Crimea and the prospect of an early U.S. rate hike may reflect investors’ lack of appetite for deploying their cash, rather than their complacency.
Actually, none of the above is where I want to start. Actually, the notion that investors are holding onto their cash is important, so I will start there – as high as the market has risen recently, it is just the beginning, assuming geopolitical shocks and natural disasters don’t upset the applecart. If all remains normal, 2014 looks to be a big year for the market. Why, you might ask?
- Fund managers polled by Bank of America Merrill Lynch had 4.8 percent of their holdings in cash in March, the highest since July 2012.
- Some 31 percent of hedge funds have a leverage ratio of less than 1 in March, compared with 19 percent of funds in January.
Now, that the political clowns are on holiday, you know, trying to seem unfunny for their constituents in this election cycle coming in November, the market has no worries from that realm. And now that the “cat is out of the bag” on QE and interest rates, the market has no reason to freak out about that for another year or so.
No, the issue for the market now is earnings and earnings are dependent on the global economic picture. The fact is fund managers are waiting for more data to come in about the global economic picture and as of now, today, that picture is brightening quickly, despite the constant hand wringing about China’s slowing economy. We might see some fits and starts, but, overall 2014 looks economically good for Europe, the US, and, yes, Asia.
- The Federal Reserve (FDTR)’s annual stress tests found 29 of the 30 largest U.S. banks could withstand a deep recession and still pay dividends, fueling speculation about which firms will win approval next week to raise payouts.
The above is another reason 2014 should be a strong year economically and for the market. The big banks, and the lesser big banks, and even the small banks are much healthier, which means they can be less risk averse, which means they will lend more money for economic expansion. The recent data I mentioned about commercial loans increasing points to this and this latest report on bank health only means more lending.
- A new report from business analysis firm, SNL Kagan said that by the end of 2013 cable companies had more than a quarter million (251,000) fewer subscribers on the rolls than at the beginning of the year. Senior SNL Kagan analyst, Ian Olgeirson, told The Washington Post it was too soon to tell whether the new numbers pointed to the rise of a young demographic choosing streaming services like Netflix over cable providers like Comcast or Time Warner.
I don’t know about the young demographic, but this old demographic (me) switched to streaming quite some time ago and I have no plans to go back to the stale business model of cable TV. From a market perspective, if this data does point to a wholesale switch to streaming, the question arises: how do market players make money form the switch? Probably not with Netflix, but, again, let’s look to the verticals, you know, the companies that provide logistics, support, hardware and the like.
Trade in the day; Invest in your life …
