Discontent is a Necessity for Progress
Monthly Market Commentary: April 1, 2018
Discussing “Progress.” is not easy because as Bertrand Russell opined, “A process which led from the amoebae to man appeared to the philosophers to be obviously a progress - though whether the amoebae would agree with this opinion is not known.”
The historian Will Durant wrote that, “Our progress in science and technique has involved some tincture of evil with good.”
I am bringing this up because I find the sudden moral exasperation about the covert data harvesting, which has been routine for years, to be almost comic since just about any company around the world and especially the various government agencies have been practicing it for years. But I understand that traditional retailers and mainstream media companies would love to eliminate these new online and social media competitors who are eating their lunch away. After all, George Bernhard Shaw was right when he opined, “All progress is initiated by challenging current conceptions, and executed by supplanting existing institutions.”
In earlier reports I mentioned two conditions that were needed for the formation of a major stock market top: Excessive speculation and heavy participation by the public, and the revelation of a major fraud. The speculation in Crypto-currencies over the last six months fulfills the condition of heavy speculative activity by the public. The potential disclosure of massive irregularities in the online space, and accounting and other fraud at quite a few other companies, crypto currencies, and government agencies are likely to shortly fulfill the condition of fraud disclosure, which usually shakes investors’ confidence badly. [Kindleberger calls the moment where investors realize that the time to withdraw from the market has arrived “revulsion.”]
According to Thomson Reuters, “The overall tech sector now has a 27% weight in the S&P 500, making it by far the largest component.” Therefore, considering all the fundamental and technical factors which could potentially become very negative, I reiterate my recommendation to reduce equity positions. Furthermore, I strongly recommend to underweight FAANG and related stocks, which account for a high percentage of equity index funds’ assets.
Last month, I explained that higher interest rates were far from certain and that Treasuries could rally. I opined that it was possible that higher interest rates already had a negative impact on the over-leveraged and asset-price driven US and global economy.
In the precious metals market a very unusual situation has arisen indeed. The COT data shows that there is a new all-time low net short position for the commercial silver futures traders (as a percentage of total open interest).
Joseph A. Schumpeter (one of the 20th century’s great economists) thought that,
“Economic Progress, in capitalistic society, means turmoil.”
It is likely that 2018 will bring about plenty of turmoil in asset markets and that volatility will remain very high.
I wish all my readers a rich and fulfilling Easter Break.