An End to the Tech Rally?
We'll rising rates kill the tech rally. Guy what do you say yes back to. You melt absolutely so much of this has been predicated on on this low interest rate zero straight environment when you have tenure yields go from fifty three basis points in august two one point four percent today i understand rates are still low but the velocity and the speed of the move has been well. It hasn't been historic. But it's been noteworthy. And i think we're headed to one and a half. We've said it for a while and that's your line in the sand you start getting significantly north of one and a half percent and the entire thesis in my opinion behind a lot of these high flying tech names starts unravel and you're starting to see it now in the big hans christian andersen fan. I know euros well. Mel and a lot of people mistakenly call the that little vignette that he wrote. The emperor has no clothes. It's the emperor's new clothes. But i got to tell you the close at the fed is wearing right now are not fitting and i think they're going to be revealed for what they are in the coming weeks. They think they can control this out of their control at this point. Yeah karen i. I'll go to you on this. Well i mean obviously we have been in this environment of close zero percent insurance for so long and so when we move out of that. Something's gotta give now. Yes i think. So but i think a few things are happening at the same time. So there's the higher rates that guy talked about. We always talk about the risk premium. What should the equity risk premium beaten as rates go up. The risk premium should be higher therefore valuations lower. But the other side of. It is a rates going up because the economy is improving. And i believe that. Yes that's the case. But i also think that the earnings of a lot of these high flyers and let's talk about something like google for example. I think those earnings are going to be actually much better so on long those. It's a painful day. One thing that. I have on as a hedge which is not nearly enough to hedge how much i would lose him. A day like today is the gb which is the it's tech software and its high fliers. The biggest position is microsoft. But it's really expensive. Names salesforce service now zoom video. Docu sign crowd strike. Those are all going to get hit. Against what i think of as my more value tech today wasn't value at all on sale again and again but i think that if the rates move up slowly because the economy improves. I'm okay with that. I know we'll have a rotation into more cyclicals. But i'm sticking with what i've got. Yeah and obviously it's highest wires on. They'll probably take the hardest hits at this point carfax. North cornerstone macro makes a very good point in that is their alliance the s. and hunt five hundred on information technology. More broadly and in terms of down days and information technology eighty percent of the time the s. and p. five hundred trades lower as well. This is since nineteen eighty nine. Dan and i know you like carter's work. So i mean his point basically is you can't hire overall without technology that being said though if you look at the mag accomplish the microsoft apple google amazon. They've gone sideways for the last four months. Or so as we've seen that rotation into more cyclical names so we did move higher without their real participation and now it's interesting on a day like today that you see the nasdaq down two and a half percent or so to me. I think what karen laid out is really smart. I mean you look at the mega caps and you see their value tech yes. They benefited from low. Interest rates. For a whole host of reasons most notably. They raised a ton of money and they put on their balance sheet and they really not paying a whole heck of a lot and i think as it relates to interest rates. You have to ask yourself who really wants. Interest rates to go higher at this point and guy makes a good point that yeah they're going to they're going because the economy is getting a little better. Look at the ten year chart of the us treasury. You'll we thought we had generational lows at about one and a half percent back in two thousand twelve then again in two thousand sixteen then again in two thousand and thousand nine hundred then you consider yourself or you consider how much negative yielding sovereign debt. There is in the world about fifteen trillion and you think about the corporate been john debt and even consumers you yourself who wants rates to go higher then you look at it over a thirty year period and i think we have that chart and it's just upper left to bottom right so maybe you get through that one and a half on the ten year treasury. Maybe you get to that long-term downtrend which would be about two and a quarter. If that is the case then yes equities. You're going to have a very hard time in this environment. Given the state of deficits right