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Random Thoughts on Trends!

Hope all of you had great Thanksgiving weekend. Visiting one of the Bay Area Mall on Black Friday gave a sense that economy is doing well since malls were packed with people doing bargain hunting. We are almost at end of 2018 and given recent churn in markets, I keep on going back to the year which was very much like 2018. The year of 1998! I could almost cut-n-paste my previous blog on this topic 1998, 2008 and now 2018: History Repeats!
Let's look at current state of various markets:

  • "Crude" reality is setting in oil markets with supply increasing due to waivers granted by US for Iran oil imports, OPEC pumping like there is no tomorrow and US shale producers going with mantra of "drill baby drill". At same time, demand is slowing down due to Chinese economy slowing and US GDP growth coming down from 3+ to natural rate of 2%. All of this resulting in crude crashing from $75 to $50 and more pain to come.
  • Cryptos are crashing - This was expected since various governments closed the doors of channeling unaccounted money thru cryptos and bubble bursting. 
  • Interest rates going up - US Fed is the king of interest rates. Right now it is on path to increase the rates by few times. But given market conditions, it would be wise for Powell to take a pause after increasing it one last time in December
  • Trade squabbles - Everyone is looking for President Trump and Xi's meeting on Nov 30 on trade between two biggest economies. While there have been some positive comments made from both sides leading to this summit, markets are expecting some concrete steps to avoid tariffs going to 25% in Jan and long-term resolution to bring the trade to normalcy. This would be biggest market mover in either direction. Given that finally US markets have cratered, President Trump would be more amenable to some kind of deal.
  • Landing of high-flying tech stocks - FAANG have collectively lost $1.1 Trillion in market cap. That's bound to have some impact on Bay Area and Seattle housing prices (which may be good in long term to make these areas little bit more affordable). However we had seen this movie before in 2015, 2011, 2008 and of course in 1998 during dot-com era. Stock valuations of tech companies are about growth driven by new technology trends. Mobile, cloud and social were major trends which powered last decade, There are many new trends emerging - AI, ML, Auto-tech, 5G, AR/VR, healthcare tech which would power next decade. However the pace of change will depend on how quickly these trends become mainstream. Cell phone was novelty in 1990s. It took nearly a decade for it to become necessity after smartphone changed the game. Same is going to be repeated in each of these trends, Tesla is novelty right now. Decade or two from now, autonomous cars would be like smartphones to mobile phones!
So if you are in for long-haul, stay put in markets and do average cost investing (invest some amount every month no matter how markets are doing). And stop worrying about daily ups and downs of markets and enjoy your holidays!
/Shyam

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