It’s not a bubble…it’s ‘true business’

  • The only market crash possible in Australia is a housing crash
  • The Dow marks 24th new high this year
  • S&P 500: The longest winning streak since 1995
  • They call it a ‘true business’…sounds more like a charity to me

Tonight, Kris will reveal the ‘magic number’ he’s been teasing over the past two weeks.

He’ll reveal it in the LIVE and FREE online special event, ‘The Day the Bull Market Ends’. If you haven’t registered for the webinar yet, you can still do so here.

Speaking of which, Kris passed the ‘magic number’ to me (Shae) earlier today.

Are you ready for it? Here it is. It’s 0.12.

If you’ve kept track, it’s the smallest ‘magic number’ yet. What could it possibly mean? And why does it matter? Find out tonight.

Register here.

Markets 

Overnight, the Dow Jones Industrial Average was up 66.02 points, or 0.31%. 

The S&P 500 climbed 13.22 points, or 0.54%. 

In Europe, the Euro Stoxx 50 was up by 21.60 points, or 0.62%. Meanwhile, the FTSE 100 added 0.55%, and Germany’s DAX index was up 0.17%. 

In Asian markets, Japan’s Nikkei 225 is up 71.28 points, or 0.36%. China’s CSI 300 is up 0.12%. 

In Australia, the S&P/ASX 200 is up 34.87 points, or 0.61%. 

On the commodities markets, West Texas Intermediate crude oil is US$47.09 per barrel. Brent crude is US$49.66 per barrel.

Gold is trading for US$1,238.36 (AU$1,560.32) per troy ounce. Silver is US$16.22 (AU$20.44) per troy ounce.

The Aussie dollar is worth 79.35 cents. 

The only market crash possible in Australia is a housing crash

Type in ‘Australian market crash’ into Google when you’re finished reading today’s Port Phillip Insider. You might be surprised at the results.

Because, if the Google search is accurate, all Aussies care about is a property market crash.

That pretty much sums up the Aussie economy, doesn’t it? Our economy is now hinged on digging up rocks, selling houses, and consuming fancy coffee brought to you by a barista with a degree that’s no good in today’s jobs market.

But back to the Google results. In spite of frequently writing about looming disasters across global markets, I have never actually bothered to see if Google had anything to say on the matter.

As it turns out, the first page of results from an ‘Australian market crash’ search only has to do with the property market falling, collapsing, or crashing.

It’s only when you go the second page of results that you’ll find the 16th and 18th article talk about something other than a ‘property market crash’.

Given that the financial crisis began around 10 years ago, you’d think a market crash would be fresh in investors’ minds. After all, it rattled the global economy, unearthed relentless derivatives practices, and put the fragile state of the credit system into perspective.

The problem for Australia is that we got off easy. But many investors have simply forgotten that, from peak to trough, the S&P/ASX 200 crashed 59%.

That can happen again.

The thing is, investors simply assume that our market won’t be hit that hard again. Not so soon.

However, there’s a real danger of the Aussie stock market tanking, and it’s being widely ignored. The ASX is ‘only’ up 1.74% year-to-date, trading at 5763. That’s still one thousand points below the 2007 high of 6748.90.

The lacklustre rally in the ASX has meant the index never charged past the crisis highs, creating a false sense of safety among investors. Don’t get caught up thinking that just because it doesn’t have as far to fall this time that it won’t fall at all.

The Dow Jones marks 24th new high this year

In stark contrast to our market, the Dow Jones Industrial Index has increased an incredible 9.5% this year.

5 January 2017 marks the day the Dow did the unthinkable, crossing above 20,000 points for the first time in history.

Seven month later, the Dow had recorded new all-time highs 24 times this year. However, if we step back a little further to the day of Trump’s election, the Dow Jones has set a total of 42 new record highs.

The raging bull market in the US has been unstoppable. Each little titbit of news has fuelled one rally after another.

Trumps elected…he’s good for the little guy and US dominated business…it must be good for the economy! Markets rally.

Janet Yellen, chairwoman of the Federal Reserve Bank, will raise rates a few times this year…it must be good news for the economy! Markets rally.

Oh wait, inflation in the US is slowing…this must be good for the economy! Markets rally.

Hang on, the US earnings season is fast approaching…business has been good…it must be good news for the economy! Markets rally.

The market exuberance for each little market tattle, political spin and global event would in the past have shocked and cautioned investors. Instead, more and more people pile in.

The Dow might be high, but the S&P 500 is about to break a very important historical correlation…

S&P 500: The longest winning streak since 1995

MarketWatch pointed out earlier in the week that US stocks have gone over a year without some sort of pullback, drawdown or correction. 

This is a very unusual set of circumstances. You see, there have only been six years since 1950 in which the S&P 500 didn’t experience a stock price correction of 5% or more.

Since 27 June 2016, the worst correction to date was a 2.8% fall. Whereas the S&P 500 has set 42 new record highs, just like the Dow Jones.

Ryan Detrick, a senior market strategist at LPL Financial, points out just how unique this is:

This is only the sixth time since 1950 that the S&P 500 has made it at least a year without so much as a 5% correction, and marks the longest streak since 1995.

To put things in perspective, going back to 1950, the average intra-year correction for the S&P 500 has been 13.6%, and 91% of all years have had at least a 5% correction, while nearly 54% of all years pulled back at least 10%. In other words, history suggests we’ll likely see that 5% correction before the year is over.

Will the S&P 500 break this correlation, and take the Dow with it?

They call it a ‘true business’…sounds more like a charity to me

It has taken 17 years. But it finally happened.

The S&P 500 Information Technology index has finally moved past the all-time highs achieved during the dotcom bubble.

On Wednesday, 60 of the largest US tech firms moved 0.6% higher, closing at a new record high of 992.29. A smidge above the previous peak of 988.49 set on 27 March 2000.

We can thank Apple, Facebook, Microsoft and NVIDIA for the rise.

But don’t go drawing similarities to this price rise and the previous dotcom bubble. This time is different. For starters, the S&P 500 Information Technology index is only trading at 19-times earnings, and not the 48-times earnings it was in the days before that tech bubble popped.

Furthermore, making this rise different is that today’s companies are ‘true businesses’, unlike the carpet-bagging schemes that were sold in the early 2000s. Or so says Jake Dollarhide, chief executive of Longbow Asset Management:

‘What a difference 17 years makes. In this day and age, companies can still not show a profit, but they have a true business. They have hundreds of millions of customers, and that’s the big difference between the tech boom of 2017 and the tech boom in 2000.

I’m not often speechless. But this one got me. The companies inside this tech-fuelled rise can’t make profits, but they are ‘true businesses’?

Mr Dollarhide, here’s a very simple concept: If you have a firm that is not making a profit, and yet continues to service a community, it is not a business, but a charity.

I was only 19 when the dotcom bubble popped. However, I remember being ‘lost in the internet’ and all the opportunities it offered. Thousands of companies wanted to be part of what seemed like the opportunity of a lifetime.

There was this mantra of ‘getting big and fast’.

A key driving force of many listed tech companies was to forgo turning a profit, because what mattered was exposure. The key to grow the business was ‘mind share’. Create a brand that sticks with people, and the people would come. There was this mentality that once the company was big enough, it could start charging people for its service. And then the tech firm could worry about turning a profit.

Using that as a base, today’s tech companies may be more focused on growing ‘mind share’ now, and chasing profits later.

I wonder if Dollarhide would apply his ‘true business’ analysis to the tech companies gone bust 17 years ago?

History may repeat after all.

Kind regards,
Shae Russell