There Is No Plan. Big-Cap Tech Is A Bubble. And Nomura’s McElligott On Black Swan ‘Size’ Factor Rout
I suppose it's occurred to most Americans by now that when it comes to reopening the country and lifting virus containment protocols, Donald Trump's "Opening Up America Again" (and yes, that is the actual name of the guidelines) plan isn't really much of a plan.
That's not to say there's anything "wrong" with the guidance the administration issued on Thursday evening. Rather, it's simply to say that what Trump unveiled was essentially a Powerpoint presentation consisting almost entirely of comm
Comparing megacap tech balance sheets vs small caps and cyclicals, the outperformance is understandable and they deserve a significant premium. The only major knock against megacap premium valuations is regulatory risk and the more they can do to help during these times (ie. Apple/Google partnership), the lower future regulatory risk will be. Any factor rotation into cyclicals/high beta will be temporary IMO.
https://www.theatlantic.com/technology/archive/2020/04/us-coronavirus-outbreak-out-control-test-positivity-rate/610132/ Not looking good that we are anywhere near ready to open up shop.
Great article.
Here in my area a small city was successful in getting tests and out tested the regional medical hub city by a wide margin.
Results: well tested rural small city positives .05%, regional medical hub city with three major hospitals and 18 times larger pop than the small rural city, positives .007%.
Initiative on the one hand providing better data, and self crediting for low numbers on the other hand where the local narrative and the local perception are in line with the weak data. Order of magnitude as mentioned in linked article is observed in this example.
This will drag on longer than most people believe.
The massive outperformance of megacap tech indicate, in my view, money being shoved into the market without real conviction in the economic fundamentals.
I struggle to understand why one would direct the bulk of one’s equity allocation into the FAANG or other megacap acronyms here. What is the realistic one-year return potential in already over-loved and over-owned stocks? If the economy recovers, maybe +20%? But if the economy indeed recovers, what is the return potential for all those beaten-down-and-left-for-dead stocks and sectors? I see doubles and triples all over the place, and you can be wrong on some (like, they go to zero) and still get almost a decade of gains in a year. If the economy doesn’t recover, which implies a very deep and lasting recession/depression, are the FAANGs going to outperform cash?
Logically, you buy FAANGs here because you feel like you must have exposure to equities but you don’t actually think there will be an economic recovery. That’s a very odd investment thesis, though it may make sense as a short term trade.