It Is Not If Change Will Occur But Rather When…I Think

Continuing with the mania theme, according to Reuters, it took 18 years for Amazon to match the capitalization of Walmart. Today and two years later, Amazon is twice the size of Walmart. Walmart’s revenue however is still three times greater than Amazon and Walmart’s profitability is five times greater.

Wall Street has fully embraced Amazon’s philosophy of future profits in exchange for revenue growth. I ask however, will Amazon’s revenues grow at the rate Wall Street may be suggesting? In many regards, the similarity between Cisco in 1999-2000 and Amazon today is uncanny.

And then there are stock indices. According to Bloomberg, there are now more stock indices than listed stocks. There are now over 5,000 indices. The number of stocks reached an apex in 1995 at 7,487. This number is now 40% lower. Wow!

The primary driver of this phenomenon is the massive proliferation of ETFs. About two years ago, the number of ETFs surpassed the number of stocks. I guess this is the next iteration of the trend.

I can draw numerous conclusions from the above data, but I would like to focus on two. First, the primary tenant of today’s investment strategy is passivity, a strategy based on capitalization.

Second is the collapse of the capital markets for most companies where funding if available is very expensive. Capital is the life blood of capitalization and without such by definition growth will be anemic.

Many times I commented that the last ten years is the longest period on record where the economy has not grown by 3% for at least one year, eclipsing the previous record of 4 years from 1930-34.

Change is the only constant. At some juncture, the environment will change, where capital will again be available for Main Street America and security research based upon geopolitical and macroeconomic will be the primary drivers for such security recommendations.

I believe if there is regulatory and tax reform, the odds of the economy growing at 3% per annum increases exponentially. Such would perhaps permit renewed interest in the individual equity, equities which I think represent considerable value.

At the risk of sounding flippant, a stock rises in value if there are more buyers than sellers and decreases in value when there are more sellers than buyers. It is evident the ownership of the largest capitalized technology issues is near manic levels, levels that require great energy to trade considerably higher.

Conversely, it is evident that ownership of the smaller issues is at considerably depressed levels, levels that should take little energy to trade higher.

For most, they do not want a change from the status quo, but as stated change is the only constant. It is the timing of this change that is unquantified.

Commenting upon yesterday’s market action, markets were lifted on oil. Oil advanced another 3% on the headlines that both Russia and Saudi Arabia will extend production cuts until March 2018.

According to Bloomberg, today is a good day to be long given that hedge funds have completely undone all their wagers for higher prices. The CFTC stated “long positions” are at the same level before OPEC announced its first production cuts last December.

Wow! Talk about the volatility of change.

What will happen today?

Last night the foreign markets were up. London was up 0.65%, Paris was down 0.21% and Frankfurt up 0.05%. China was up 0.74%, Japan was up 0.25% and Hang Sang was down 0.14%.