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Good morning.
U.S. futures are flat as stocks in Asia and Europe are mixed. Tech is once again the weak spot as the yield on the 10-year-Treasury note nudges higher.
Crypto is popping again this morning. But it’s not bitcoin. Ethereum has hit a new all-time. As has, gulp, Dogecoin. The latter is up 25% in the past day.
Let’s check in on the rest of the markets action.
Markets update
Asia
- The major Asia indexes are mixed in afternoon trading with the Hang Seng, yesterday’s laggard, the best of the bunch, up 0.7%.
- Shares in Saudi Aramco are down 0.1% after the world’s largest oil producer posted a big bottom-line beat this morning, and kept its monster quarterly $18.8 billion dividend intact.
Europe
- All the European bourses are back in business today with the Stoxx Europe 600 up 0.3% at the open, before sliding.
- Europe’s economic recovery is highly dependent upon its giant tourism sector bouncing back—a return to weekend jaunts to Paris or vacations on the Greek islands. Yesterday, the EU said it hopes to welcome tourists back as soon as next month—but there are plenty of catches.
- Hours later, officials in Munich canceled Oktoberfest for a second straight year.
- Shares in Pandora popped 5.5% this morning after the Danish jewelry giant delivered rosy results, but also declared it will phase out mined diamonds in favor of lab-produced gems, part of a larger push by the sector to clean up its supply chain.
U.S.
- U.S. futures are flat this morning. That’s after tech stocks finished in the red on Monday.
- Verizon closed up 0.2% on Monday after the telecoms giant dumped nearly all of its stake in—as my colleague Aaron Pressman calls them—”faded Internet superstars Yahoo and AOL,” in a deal valued at $5 billion. Not quite four years ago, Verizon paid $9 billion for these 1990s kings of the Internet.
- Round one of the Epic-Apple antitrust clash kicked off in California yesterday with a revealing look inside the tech giant’s massive App Store business. Investors were unfazed. Shares ticked up 0.8%, outperforming the Nasdaq.
Elsewhere
- Gold is down, trading below $1,790/ounce.
- The dollar is up.
- Crude is up with Brent trading around $68/barrel.
- Bitcoin is down, trading around $56,000.
***
The C-word
Complacency.
It’s been called the enemy of progress, the root cause of mediocrity, the foil to your success.
The slacker teen in me thinks complacency gets a bad rap. The parent in me has no patience for it in this house.
Markets watchers are even less tolerant of the evils of complacency. The Wall Street Journal‘s Jason Zweig had a great piece a week ago about how investors, in this “stocks only go up” era, have grown increasingly blasé about markets risk, and that, in turn, creates a whole new level of risk for the markets.
“Sure, stocks only go up,” Rob Arnott, founder of investment firm Research Affiliates, told Zweig. “They only go up—until they go down!”
In investing, as in those old Road Runner cartoons, the laws of gravity still apply—even during a decade-long bull run when the Fed is buying trillions in assets.
I don’t have any new research that says a correction—that other C-word—is imminent, but I do find the latest research note from Morgan Stanley Wealth Management CIO Lisa Shalett of interest. In it, she warns, “complacency has begun to set in as most sentiment measures near their highs, risk premiums shrink and implied stock market volatility falls to the prepandemic level.”
One indicator that’s beginning to flash red in her book is the level of margin debt sloshing around the markets. Margin debt is a measure for how much investors are borrowing to buy stocks.
According to Morgan Stanley, the level “is up to 72% year over year. Historically, breaching that number has presaged market pullbacks. We doubt this time will be different, especially as the list of factors that could drive disappointments is getting longer.”
As the Morgan Stanley chart below shows, the last time margin-debt data hit these levels was the late ’90s during the dot-com bubble, when AOL and Yahoo were high-flying stocks.
This elevated margin debt is a sign that risk-taking is running red-hot amid the “best-in-decade”—as she calls it—combination of knockout corporate earnings and economic data.
“On top of already stretched valuations, this is a fragile combination that will be sensitive to disappointment,” she writes in advising investors to, “slow deployment of cash to US equities as we believe there will be better entry points this summer.”
Sensitive to disappointment—you’d never see such words scrawled alongside one of those Acme rocket-flying contraptions carrying Wile E. Coyote.
I really loved those cartoons.
***
Postscript
I have a somewhat embarrassing correction to make. In yesterday’s postscript, “authored” by Scilla, my dog, she incorrectly identified the make of my comfy desk chair, the one she invariably climbs onto midway through the writing of this newsletter to catch a few zzz’s—the same one she’s on right now.
As a sharp-eyed reader pointed out, the chair in the photo is not a Herman Miller Aeron chair, but rather a Herman Miller Setu chair.
When I confronted Scilla about her mistake, she wagged her tail excitedly, propped herself up on her hind legs, and scratched her paws at my mid-section, as if expecting a much-deserved treat.
She does not regret the error, but I do.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
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Retirement at 65? Six months of living expenses in an emergency fund? A 60/40 portfolio? For decades, Americans have lived by some of these financial 'rules.' But the coronavirus pandemic has upended many of them.
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