Market Volatility

As I have mentioned in previous communications, 2017 was not a “normal” year when it came to volatility.  In fact, it was one of the lowest volatility years on record.  More normal volatility was bound to return – and it has.  To some, this newly found volatility feels unusual, but spikes in volatility like this are very common over time.  The chart below shows the Volatility Index over the last twenty years.  As you can see, episodes like this have occurred at least every two years on average.  MORE:  Dueling Tariff Announcements Blamed for Stock Market Volatility

E-Commerce Growth

We all know that technology and the rise of the Millennials are changing consumer behavior like never before. One result is that e-commerce continues to grow. I thought it would be interesting to share (below) a chart of e-commerce sales, which are still a fraction of total retail sales. As you can see, this has been a logarithmically growing trend, and is in the accelerating part of the disruption “S-curve” – I certainly would not want to fight this trend. Read More: U.S. e-commerce sales grow 16% in 2017

What Happened 301

By now, anyone interested in the market has been exposed to the media explanations of what caused the recent market volatility (these quick and deep drops are the “new normal”, which I will cover in a future blog).  One of the widely covered topics in the recent downdraft was the decimation of the inverse VIX funds.  It occurs to me that most people might not understand what these are, or why they would blow up so easily.  So, I will attempt to “laymanize” this matter.   Watch Related Video: XIV is Terminated

SUPERHEROES SWOOP TO IN SAVE HEALTH CARE

On Tuesday, Jamie Dimon, Warren Buffett and Jeff Bezos announced that they are forming a new company, “free from profit making incentives and constraints”, to address the healthcare costs of their employees and “potentially all Americans”.  This news pushed most healthcare stocks downward and sparked a lot of buzz on what exactly this could mean.  The reactions varied from dismissive to “wow”, but in my opinion, this is another example of the biggest disruptive forces identifying a weakness and using their skills and means to try to solve a problem.  I certainly would not want to bet against a trio of Jamie Dimon, Jeff Bezos and Warren Buffett – it is like entering Lebron James, Michael Jordan and Wilt Chamberlain in a three-on-three basketball tournament.  They referred to healthcare costs as being a “growing tapeworm” feeding on the U.S. economy.  Many are excited about this trio attacking the tapeworm versus a group of bureaucrats.   MORE:  CEO Perspective On Healthcare Announcement 

2018 Stock Market Contest

The time has come again for the ever-popular stock market contest.  This is always a fun experiment and the winner will receive an awesome prize, along with their name in print if they so choose.  CLICK HERE to submit your S&P 500 guess for 2018.  As a reference point, the S&P 500 closed 2017 at 2673.61. 

Looking back at 2017, the S&P 500 experienced a very strong year.  The winning guess was received from Jeff Karp who will be receiving a wonderful prize package in the next few days.  Most interestingly, 98.4% of my respondents underestimated last year’s strength, including myself.  Below is a histogram of the 2017 guesses:


In typical fashion, most of the respondents were bullish with a few bearish people mixed in.  As usual, there was a cluster of guesses in the plus eight to eleven percent range.  People have been trained to believe that this is the average return of the market.  While this may be true, it is NOT the most common result.  In reality, the market tends to string a bunch of good years together above that range followed by a year or two of really bad years which brings the average back down.  It is a bit like lake effect snow on the east side of Cleveland.  We average about 110 inches per year of snow.  Although this is roughly an inch per day on average during the winter, guessing an inch will fall on a given day is almost never correct – we either get no snow at all or slammed by snow.  

Cryptocurrencies

 Two weeks ago, I talked about bitcoin in my blog.  Here is what I said:

BITCOIN

The bitcoin craze continues.  As of today, bitcoin is valued at almost $10,000.   This is up from about $800 at the beginning of the year and $20 in 2013.  There are many of people who believe this is a great investment, others who think it is a massive speculative bubble, and more who have no idea what the deal is with Bitcoin or blockchain.  Last month a publicly traded biotech company decided to change its name to include the word “blockchain” change their focus to “buying cryptocurrency and blockchain businesses”.  That change alone caused the stock price to quintuple in a short time.  While Bitcoin itself may or may not be in a speculative bubble, the technology it is built on, blockchain, is quite promising.  Blockchain technology has wide implications and may turn out to be an integral piece of the technology revolution we have entered.  Here is an interesting and non-technical TED Talk explaining How The Blockchain Will Radically Transform The Economy  

Big Tech Boom

Microsoft, Amazon.com and Google all reported earnings last night and all beat expectations.  Many, including myself, believe that we are in the early innings of a new technological revolution.  Unlike past revolutions where new companies displace the complacent incumbents, it may be that this time around the incumbents (Amazon, Facebook, Google, Microsoft, Apple, etc.) actually lead the way into the new paradigm.  These companies have scale, massive R&D budgets and are so far leading the way in artificial intelligence, cloud computing and big data.  Here are some factoids related to today’s big moves in these stocks: 

Synchronized Global Growth

You may have noticed that stock market indices around the world have all been moving higher over the past year or two.  It was not very long ago that investors were panicking over “Brexit” and the European economy in general.  As you can see below, and as the stock markets imply, we are seeing synchronized global growth like we have not seen since before the Great Recession.  Many believe that this reflects the fact that world is finally past the destruction caused during that period.   In the last blog, I discussed the fact that 2017 has been one of the least volatile years on record and that periods like this can encourage complacence.  The charts below remind me of the same phenomenon – it is important to remain diligent when everyone else is comfortable and complacent.  MORE:  R.I.P. Bears

Where has the blog been?