Fresh new highs in US stocks, the start of summer, World Cup Soccer and the US Open (golf, by the way) — what could be better? In most aspects of your life, unrelenting optimism and a positive outlook are hard qualities to argue with — heck, on Wall Street, Abby Joseph Cohen at Goldman Sachs and Ed Hyman at ISI Group have made careers out of being bullish (after all, the market tends to go up). But when it comes to your personal investment portfolio, it often pays to have a more critical eye, and maintain a certain degree of skepticism. Always better to be pleasantly surprised by unexpected gains than ruined because you didn’t anticipate a fall.
This week’s modest retrenchment aside, the US market has pushed to impressive all-time highs this year — the S&P 500, for instance, has already reached 18 new closing highs in 2014. While the NASDAQ is still 15% below its all-time peak, it’s up almost 30% in the last 12 months and currently sits at a number not seen since the first quarter of 2000, when it spent a brief two months — less than 45 trading days — above the current 4300 mark. And the current gains have been much more steady, broad-based, and built upon real companies with real profits.
The Other Shoe
Where there is good news, there are also warnings. There may be too much optimism in the market, and quite possibly a mispricing of risk. There are many ways of calculating risk-seeking behavior in the marketplace, and unfortunately they are all pointing to heightened complacency among investors. CNN Money charts a Fear & Greed Index, looking at things like risk yield spreads, market volatility, and safe haven demand. The indicator currently registers extreme greed among investors — at a level close to 90 out of 100 in recent weeks. A drop may well be coming — not necessarily a sharp one, but likely a more significant retrenchment than what we saw this week. How to protect yourself? Diversification, pragmatism, and trying not to get carried away and change your strategy just because the market seems unstoppable.
Bullish Environment for Advertising Technology
AdTech continues to be a hot area of investment. Established brands are attempting to decipher the rapidly evolving Internet advertising landscape, just as the biggest web players are trying to more effectively monetize their traffic. Of the largest players in social media, only Facebook and Twitter appear to be providing sophisticated and effective web advertising exchanges for their customers. As for the rest of the field — it’s a bit of a guessing game.
New York-based advertising technology company Yieldbot has raised $18 million ($28 million to date) this week in a Series B round led by SJF Ventures. Yieldbot lets advertisers buy display ads via search-style keywords, matching advertising to content and consumer relevance. Outside the US, Bangalore-based Vizury raised $16 million ($27 million to date) in a Series C round led by Inventus Capital Partners. The company provides tools to optimize display ads across devices.
Few social media sites have grown more rapidly than Pinterest, which has raised over $760 million from investors including Andreessen Horowitz and Fidelity. The social bookmarking site generates four times more revenue per click than Twitter and 27% more per click than Facebook, yet offers companies no brand advertising within the site.
Brent Crude oil surged this week to a four-month high, and West Texas Intermediate hit an eight-month high, as violence escalated in Iraq (the second-largest OPEC producer). An optimist might view higher oil prices as evidence of global economic strength, but the pessimistic (and perhaps more grounded) view is of a deteriorating situation in Iraq, leading to further constraints for an already tepid global consumer, as well as increased pressure on key transportation industries such as airlines (the large carriers fell as much as 5% on Thursday alone). Not necessarily good news for investors.
The World Cup
It is not easy to find a downside to the World Cup. At least not without looking beyond the great matches, crowded pubs, national pride and shortened work days for those lucky enough to watch their country compete. But to the thousands of Brazilian workers who have relocated to shanty-towns just a few miles from the Sao Paolo stadium, things look a little different. There are millions of dollars being spent on football, but little on extra food and shelter for the disenfranchised. The World Cup may bring a short-term boost to Brazil’s economy, but may also end up being a negative turning point for the country’s political stability. Memories of the Sarejevo Olympics perhaps: the Mount Igman luge track (later an artillery battery for Bosnian Serbs) doesn’t look so appealing any more…
A reminder that equity pays…
Finally, a look at LeBron James — 29-year-old NBA star — who reportedly realized a profit of more than $30 million in the Beats sale to Apple, having struck a promotional deal to get a small stake in the company back in 2008. A nice supplement to his $19 million salary as he moves toward free agency and vies for another NBA championship (is that still going on?) It’s a good reminder, that no matter who you are, if you have the opportunity — ASK FOR EQUITY!