Summer Fridays offer a slowdown in market volume and a good opportunity to catch up on broad market developments.
It's impossible not to be aware of the performance of the Nasdaq as FAANG-mania dominates the financial press, but there are other markets. Please do not make the mistake of thinking they are not all interlinked. That line of thought got us into trouble at this time of year 10 years ago. The underexplored corners of the market may offer outsize returns, and my new Real Money Best Idea, Navios Maritime Acquisition (NNA) , is one such name. Please read my piece from Thursday on the shipper of dry bulk commodities if you have not done so already.
While I can't find any markets that have been hit as hard thus far in 2018 as the market for very large crude carriers, there are some notable losers outside the FAANG thunderdome. Courtesy of The Wall Street Journal's excellent Markets Data Center, here are a few asset classes in the red thus far in 2018 and my thoughts on whether their lagging performance indicators represent buying opportunity.
First up are the Argentine peso (down 38.9% versus the U.S. dollar in 2018 through Aug. 23) and Turkish lira (down 37.9% versus the dollar over the same period). Currencies of emerging markets have been sold off this year, and these two stand out in particular. The only way to play this is to game political macroeconomics, which is difficult.
That said, Greece's emergence this week from eight years of European Central Bank (ECB) support shows that, whatever your political view, bailouts do work. So, if you can predict the next one you will make tremendous profits. This requires hours of research and thus far I haven't done that for my clients' accounts, but I plan to in the near future. The Brazilian real (down 19.5% year to date), Russian ruble (down 15.9%) and South African rand (down 14.1%) are three other currencies that are badly in need of central bank support.
Emerging markets bonds (down 7.7% YTD) also have performed poorly this year, and the calculus is similar to the currency plays. It's all about government intervention, because without intervention the era of "king dollar" - - as formerly espoused almost every day on CNBC by Larry Kudlow, now senior economic adviser to the president -- will continue unabated.
The Shanghai Composite (down 17.5%), South Korea Kospi (down 7.5%,) and Japanese Nikkei (down 1.6%) have been major laggards in 2018. Anyone who has traveled Asia, as I just did again this summer, knows that China is not an emerging market, but its stocks have taken on the guise of a submerging market. I think it's overblown, but I am waiting for a full-on panic to ensue as can be expected in market with elevated leverage and imperfect information.
From a broader point of view, there is not anything that Facebook Inc. (FB) , Apple Inc. (AAPL) , Amazon.com Inc. (AMZN) , Netflix Inc. (NFLX) and Alphabet Inc. (GOOGL) are doing here in the U.S that is not being done by Asian players. Corporate titans in Japan and South Korea are underappreciated, while Chinese Internet stocks get the bulk of the attention. I see value in names such as Samsung, Toyota, LINE and LG, and I'll have more on that in future columns.
Then there are 7-10 year U.S. Treasurys (down 2.6%) and +20-year U.S. Treasurys (3.8%). These assets should be performing more poorly at a time when the U.S. economy is absolutely exploding. Walmart Inc. (WMT) and Target Corp. (TGT) results were certainly confirmation of that. Long rates need to start increasing because the Federal Open Market Committee (FOMC) must keep lifting the fed funds rate to calm inflation in the face of a red-hot consumer, which makes a flat yield curve contradictory.
I make it a point never to argue with JPMorgan Chase (JPM) CEO Jamie Dimon, but his call of a move to 4% on the 10-year Treasury in the next year is showing zero signs of materializing. If the yield curve inverts, that's it. That will be the end of the longest bull market run in U.S. history.
As of Wednesday the New York Fed held $2.171 trillion (yes, trillion with a t) of U.S. Treasury notes and bonds. That overhang has suppressed long rates for the past eight years, but pressure from the short end of the curve is finally showing how much of an artificial market stimulant the Fed's bond holdings provide to the market. Don't ignore that.