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Saga of Financial Markets

Fri12152017

Last updateSat, 29 Jul 2017 12am

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Is there Bubble in US Equities?

Janet Yellen, the Chairman-nominee of the US Federal Reserve, told senators on Thursday (2013-11-14) that shares have “risen pretty robustly” but these are not “bubble-like conditions”.  So there is no bubble?

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Will the Small Cap continue its rally?

Over the very long term, smaller companies tend to outperform.  Academically, it have been demonstrated exhaustively.  According to the Russell Indices, widely used as the benchmark for smaller companies in the US, the Russell 2000 index of small-cap stocks has outperformed the “Top 50” of mega-cap stocks by 163% since the beginning of 2000.  The 2000 has gained 118% since then, in price terms: the Top 50 is down, remarkably by 18% since then.  So far this year, Russell 2000 is up 31.1% whereas the Top 50 generated 22.9%.  In developed Europe, small-caps gained 28.5% in US$ terms against 17.8% for large-caps.  Will the small cap continue to outperform the large cap?

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10th Man Rule

Israeli’s leaders deploy 10th Man Rule to counter the negative effects of “group think” and help government officials prepare for a worst-case scenario.  10th Man Rule’s states that any major decision should be put before a panel of 10 people; when 9 panelists agree on a particular outcome, it’s the 10th person’s obligation to dissent – and to plan for what will happen if that unlikely outcome is realised.  This rule is also a great strategy to apply to investing as it could help to offset a herd mentality an plan for a “black swan” event.

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US Small-Caps Double Dow–a positive sign

Small Cap stock index – Russell 2000 Index has advanced 32% in 2013, whereas Dow Jones Industrial Average has grown only 19%.  This is probably the widest spread between the indices since 2003. 3 of the last four times small-caps outperformed by this much, the economy grew faster the next year and stocks stayed in a bull market for another year or more, based on data from the past 34 years.

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It may be the time for European Equities

According to research compiled by Goldman Sachs’s European strategy team from US Treasury data, US investors such as Pension Funds and other big US groups invested $65bn in European stocks in the first 6 months of 2013, the highest in 36 years (since 1977) over that time period, a big vote of confidence for the region and its ability to recover from the sovereign debt crisis.

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