01/25/18

George Jetson And Today’s Markets

By: Kent Engelke | Capitol Securities

Several years ago, I attended a lecture given by the last man who walked on the moon. Eugene Cernan’s comments centered upon the dangers of extrapolating the past into the future. The example he used was air travel, commenting jet travel has changed very little since 1950; however the changes in air travel from 1940 to 1950 were exponential. Yes, safety has improved since 1950, but the basic mechanics defined as speed and altitude have not.

I vividly recall him talking about the 1960’s cartoon The Jetsons with many believing this is how society would travel in 50 years. He also mentioned Disney World’s Carousal of Progress where that iconic attraction extrapolated current travel advances into the future that has yet to materialize.

What does the above have to do with the markets? Everything. Many believe the current advances in technology will continue ‘To Infinity and Beyond’ quoting Buzz Lightyear. Have the limits been reached and the valuations of the must owned technology names far exceeded the most exuberant expectations?

Yesterday at the Davos Conference, Saudi Arabia echoed Continental Resources, Exxon, BP, Conoco Phillips, etc. opinions’ that fracking has reached its technological limits. The exponential gains have been achieved and the technology advances, hence production increases, are slowing considerably.

Returning back to Cernan’s lecture, Cernan commented this extrapolation of the current is typical with any new technology.

I think this perspective is pivotal especially in today’s environment of passive/index investing where the current is believed to last indefinitely. As noted many times, today’s geopolitical changes are tectonic. Moreover, a thirty-five-year bull market in bonds is over. I adamantly believe that this is not reflected in the markets.

Fortunes will be made and lost in the next 10 years and perhaps the only definitive statement to make is that change will occur quickly, the catalyst being the one that no one has yet discussed.

Speaking of possible change, equities yesterday experienced a bout of volatility not experienced in many months. At one time, averages were posting considerable gain then considerable losses. Averages eventually ended mixed as the NASDAQ was down about 0.61% and the S & P 500 was flat.

What will happen today?

Last night the foreign markets were mixed. London was up 0.16%, Paris was up 0.49% and Frankfurt was up 0.15%. China was down 0.31%, Japan was down 1.14% and Hang Sang was down 0.92%.

The Dow should open nominally higher as the markets await the outcome of the ECB monetary policy discussions. Oil is again higher following a record number of weeks of inventory drawdown and the acknowledgement of global unrest that may impact production. The 10-year is unchanged at 2.64%.