I think the deteriorating quality of the R2K universe is really just the root causal feature here to what you're seeing. It's not that small caps are lagging, its that junk is lagging and they are one and the same now, not separate themes.
Over the last 10-20 years, cash flow producing, stable, higher quality small and mid-cap companies have stayed private via Private Equity with excellent access to capital, while the IPO market, fueled by VCs eagerly exiting clownishly valued positions has consistently delivered "greater fool" garbage to public investors via small float listings & SPACs or via other mechanisms.
The # of unprofitable small caps is near an all time high at the PEAK of the economic cycle. What do you suppose will happen if the economy slows or ever is allowed to have a recession?
The R2K is not what it sued to be and so historical measures are tough to use and public markets are increasingly dominated by larger companies, because that's the only real investable part of the public market.
Very true. In 2021 I started referring to the Russell 2000 as the meme stonk index because it became so overweight GME, AMC, and a flood of others from SDC to BBBY.
You and Mike Taylor were guest on Hedgeye in December and partly spoke about the increase in liquidity that started at the end of Oct - contributing to the reversal and rally in both equities and bonds (US Govt). With now the benefit of hindsight and appreciating your hedgefund comments today, can you look back over these last 2 1/2 months and point to specific changes by the Treasury and/or the Fed as to what happened that caused the shift in liquidity? You also spoke about how the banks are picking up 50 risk free bbs (+/-) on the spread between T-Bills and Reverse Repo. While this eased pressure on the banks, did it also contribute to the ease in liquidity that seemed to find its way, in part, to the equity markets?
Thanks Mike. Huge fan of you, Harley and Mike Taylor!
Anecdotal evidence from flyover country in OK. Me and some of the other electrical contractors / engineers that I talk to are busy, but seeing more projects put off or people caring about budgets more than they have the last couple years. The change happened just in the last few months, fairly suddenly from what I can tell.
This is likely what's also happening to small and mid sized businesses, who also aren't able to benefit as much from ETF flows or stock pickers. Then they may be having a hard time accessing capital on top of it. I wouldn't be surprised if earnings calls and outlooks start changing at a lot of those companies in the coming quarters.
Isn't the 2024 YTD all about semis? I have to admit, it's a bit boring to see a rerun of 2023 so far. "AI!" They all scream. "Mag 7!", ok but really Mag 6 at best (there's a signal in Tesla, the favorite retail hopium languishing, but idk what it is).
All I know about markets is they have to be clubbed over the head before they "get" something. If the delusion of 12% to 15% YoY EPS growth through 2025, while the Fed cuts 6 times survives the next 2 weeks of earnings and J Powell again at the mic....well I won't be shocked but the required level of cognitive dissonance is rising quickly.
I think the deteriorating quality of the R2K universe is really just the root causal feature here to what you're seeing. It's not that small caps are lagging, its that junk is lagging and they are one and the same now, not separate themes.
Over the last 10-20 years, cash flow producing, stable, higher quality small and mid-cap companies have stayed private via Private Equity with excellent access to capital, while the IPO market, fueled by VCs eagerly exiting clownishly valued positions has consistently delivered "greater fool" garbage to public investors via small float listings & SPACs or via other mechanisms.
The # of unprofitable small caps is near an all time high at the PEAK of the economic cycle. What do you suppose will happen if the economy slows or ever is allowed to have a recession?
The R2K is not what it sued to be and so historical measures are tough to use and public markets are increasingly dominated by larger companies, because that's the only real investable part of the public market.
Very true. In 2021 I started referring to the Russell 2000 as the meme stonk index because it became so overweight GME, AMC, and a flood of others from SDC to BBBY.
Nothing like trying to feed Mids. Congrats in Navy swimming for their win over Army this year! Go Navy! Beat Army! Bayly Taff '84
You and Mike Taylor were guest on Hedgeye in December and partly spoke about the increase in liquidity that started at the end of Oct - contributing to the reversal and rally in both equities and bonds (US Govt). With now the benefit of hindsight and appreciating your hedgefund comments today, can you look back over these last 2 1/2 months and point to specific changes by the Treasury and/or the Fed as to what happened that caused the shift in liquidity? You also spoke about how the banks are picking up 50 risk free bbs (+/-) on the spread between T-Bills and Reverse Repo. While this eased pressure on the banks, did it also contribute to the ease in liquidity that seemed to find its way, in part, to the equity markets?
Thanks Mike. Huge fan of you, Harley and Mike Taylor!
Anecdotal evidence from flyover country in OK. Me and some of the other electrical contractors / engineers that I talk to are busy, but seeing more projects put off or people caring about budgets more than they have the last couple years. The change happened just in the last few months, fairly suddenly from what I can tell.
This is likely what's also happening to small and mid sized businesses, who also aren't able to benefit as much from ETF flows or stock pickers. Then they may be having a hard time accessing capital on top of it. I wouldn't be surprised if earnings calls and outlooks start changing at a lot of those companies in the coming quarters.
Isn't the 2024 YTD all about semis? I have to admit, it's a bit boring to see a rerun of 2023 so far. "AI!" They all scream. "Mag 7!", ok but really Mag 6 at best (there's a signal in Tesla, the favorite retail hopium languishing, but idk what it is).
All I know about markets is they have to be clubbed over the head before they "get" something. If the delusion of 12% to 15% YoY EPS growth through 2025, while the Fed cuts 6 times survives the next 2 weeks of earnings and J Powell again at the mic....well I won't be shocked but the required level of cognitive dissonance is rising quickly.