A Th-Th-Th-That’s All, Folks!
Mohamed El-Erian’s portfolio is mostly concentrated in cash right now: “Central banks look at growth, employment, at wages. They are too low. They don’t have the instruments they need, but they feel obliged to do something…They hope that they will trigger what’s called the wealth effect…There is a massive gap right now between asset prices and fundamentals.” “Why is this the most mistrusted bull market in recorded history? Because no one thinks it’s real. Everyone believes that it’s a by-product of outrageously extraordinary monetary policy actions rather than the result of fundamental economic growth and productivity — and what the Fed giveth, the Fed can taketh away.” Meanwhile, “there are two common delusions about the Fed:  They know something we don’t  They are stupid.” Meanwhile, “there seems to be a conflict between low liquidity in markets requiring more and more predictability and the Fed wanting to have more flexibility…If economic conditions demand that [the Fed] raise rates this year it will simply have to contend with the existing, broken model.” Meanwhile, “the easy part of the dollar rally is definitely behind us” (alt) …”On Friday, the dollar took its biggest tumble in almost two weeks following slower-than-expected U.S. job growth for March. The Labor Department reported nonfarm payrolls grew by 126,000. Economists…had forecast an increase of 248,000…the expected likelihood of a Fed rate increase in September dropped to 28% from 33%, according to the fed-funds futures market.” Meanwhile, Josh Brown says “the preconditions for active management outperformance are present!” He argues that the current outperformance of small caps over large, as well as international stocks over domestic, provide plenty of “alpha” potential. Furthermore, “dispersion has shot up — dispersion representing the degree of standard deviation between stocks from one another.” Also, “cash is also not as big of a drag this year as it was last year.” “The question is, will these conditions remain present long enough for the active funds to post a (sorely needed) banner year for the industry? It would make things a lot more interesting and could cause quite a stir here in the Index Utopia.” Meanwhile, The Tide In Europe Is Turning Towards Active Management. Also, Would Benjamin Graham Have Hated Index Funds?