Global Money Trends Magazine March 30, 2018

Volatility is back with a Vengeance; Bloomberg News points out that there have already been
23 trading days in which the S&P 500 index <SPX> moved more than +1% in either direction, in
the first three months of the year, or more than triple the total of 7-trading days for all of 2017.
Nasdaq futures were up over +3% on Mach 26th and down -3% the next day - that hasn’t
happened since the summer of 2011. After becoming brainwashed by an incredibly low-volatility
environment, traders had forgotten that highly priced stocks markets are supposed to go sharply
up and down. However, relative to how markets have behaved for most of the past four decades,
the most recent -10% correction is not a major event. At this point the selloff relative to history
is just a blip on the longer term charts.

Still, the shift back-to-normal was a bit tough for investors in the FANGMAN index (Facebook,
Apple, Netflix, Google, Microsoft, Amazon, and Nividia) which lost $180-billion in
market cap on March 27th alone. The Top-4 FANG names were down over $260 billion
in just 10 days). “So much of the money was directed toward tech stocks, that traders became
more agitated than they were during February’s meltdown to a -10% correction, because
everyone believed the coast was clear as of March 6th. Buy and Hold investors are optimistic by
nature, so when corrections hit, they are largely unexpected and emotionally jarring.”

Sometimes, market conditions always seem worse in the present. In reality, they’re not. In this
Great Bull market alone there’s been five other corrections like this one, and it’s taken around
seven months on average for equities to climb out of their hole. Based on that path, the current
jitters won’t be fully eradicated until August. Just because bouts of losses are normal doesn’t
mean they’re painless, especially when momentum stocks are leading the way lower. But the
statistic is a reminder that it’s unrealistic to expect a market recovery to involve a straight line
back up. Since 2009, the average of the 5 corrections in the SPX has lasted 200 days
and slumped -14% from its 52-week high. That means if this one ended last Friday, March
23rd it would be the second shortest and second shallowest of them all.

It seems even worse because of how calm and sedated the stock markets have been since the
last correction in January 2016. While individual stocks are regularly rising and falling 5%
nowadays, consider that in 2017 the SPX went through 99 trading days without suffering a -1%
pullback on any given day, and went for 18-months without a -3%, a record high, by far. That
hasn’t been the case lately. There have already been 23 days in which the SPX has moved more
than 1% in the first three months of the year, more than triple the total for all of 2017. Stock
turbulence as measured by the benchmark anxiety gauge, the Cboe Volatility Index, is much
higher. At 22.5 earlier this week, the VIX is nearly twice its level for the previous two years.

Three weeks ago, on March 9th - the Wall Street celebrate the Bull market’s ninth
birthday It began March 9, 2009, the day the SPX finally stopped falling after the worst market
rout since the Great Depression. It's now the second-longest bull in history, having survived all
sorts of fears and shocks. It has a shot at overtaking the longest Bull market run ever, the
famed 1990’s rally that finally died when the tech bubble burst in March of 2000, or eighteen
years ago. For the current Bull Run to become #1, -it must avoid a -20% drop from its all-time
high on January 26th, through the middle of August.

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 Global Money Trends Magazine March 30, 2018

The key reason for the Bear Raid on Wall Street - the surging “Fear Index;” The Dow
Industrials and the SPX halted a record-setting streak of quarterly wins at nine, and one of the
least talked about reasons why -might be explained by the Volatility index, <VIX> widely known
as Wall Street’s “fear gauge.” The gauge uses bullish and bearish option bets on the SPX
to reflect the cost of insuring against a downturn in the index over the coming 30 days.
Because stocks tend to fall faster during crashes than they rise, the index is viewed as a gauge
of investor fears of a market tumble. It typically moves in the opposite direction of stocks.

For much of the second half of 2017, the volatility index <VIX> was running at less than half its
historical average of around 20 and it posted the largest number of prints below 10 in its entire
history in just 2017. The barometer of expected near-term stock market volatility, slumped to as
low as 9.04, its lowest since December 1993. A low VIX reading typically indicates a bullish
outlook for stocks, and a surging stock market had chilled demand for options that provide
protection against price declines, driving down the index itself. With the long dormant VIX index
hovering below the 10-level, it is no wonder why Wall Street investors were pointing at signs of a
so-called melt-up in stocks, and heralding the uncanny rise of assets in every sector.

The SPX continued to melt up daily, in a parabolic surge, and even Morgan Stanley conceded;
"We Have Entered the Late Cycle Euphoria Stage,” what made it different that on previous such
occasions, there was always institutions taking advantage of the euphoria to sell to retail
investors. Not this time. According to the latest Investors Intelligence survey, both pros and
retail just couldn’t get enough of this move as stock market optimism among professional
investors just keeps on surging to the highest level in 31 years, since before the crash of 1987.
In fact, according to the widely followed survey, bullishness reached 67%: - the highest level
since April 1986. While traditionally, this would be a warning sign that the rush into equities was
getting overdone - after all, a year after the Bulls had reached this level came the infamous
Black Monday crash that sent the Dow Industrials plunging -22% in a single day as CNBC noted -
this time, central banks, pension and sovereign wealth funds were all buying stocks -with
leverage - it might indeed be different this time. The Investors Intelligence survey also showed
that bearishness fell to 13% on January 17th, also the lowest reading since April 1986.

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 Global Money Trends Magazine March 30, 2018

“Sentiment readings have roughly followed their 1986/87 pattern. Then the Bulls peaked with
initial market highs early that year and they returned to above 60% levels months later after
more index records," wrote John Gray, editor of the Investors Intelligence weekly report, on
January 17th. “In 1987, stocks crashed a few months after that. A repeat of that scenario
suggests potential danger, especially as the market moves become parabolic,” he warned.
“Those recently holding cash appear to be chasing a rallying market, adding fuel to the fire.” The
II survey was not alone: other gauges also showed stock market bullishness was reaching a
feverish pitch. According to the Bank of America Merrill Lynch Fund Managers Survey, fund cash
levels are at a five-year low, and allocations to stocks were at a two-year high. The overweight
ratio of stocks to government bonds was at its highest since August 2014.

With the VIX index hovering near record lows below 11 - a place they have been only
1.6% of the time since 1990 – traders were asking – does the VIX have any predictive value
as a contrarian indicators for stocks? According to Citibank analyst Brent Donnelly, the answer is
mixed. “Note that the VIX is now on a 10 handle which is a fairly rare occurrence. Out of 6,813
trading days since 1990, only 110 have been below 11 in VIX (1.6%). I looked to see if there is
any forecasting value (i.e., does low VIX forecast future performance?) and the answer seems to
be no. Sometimes, like 2006, VIX stays low for ages and stocks keep rocketing. Other times, like
2005, the low VIX precedes a stock market correction.”

However, since traders are still operating in a world with more than $14 trillion of excess in
liquidity floating around the money markets, courtesy of the G-20 central bankers, which means
the current market is neither comparable to 2005 or 2007. With central banks acting in lock
step, volatility dried up. Measures like Wall Street’s “fear gauge,” stayed extremely low by
historical standards, and in turn, made for “incredible complacency” among investors. What’s
changed? For one thing, central banks are no longer operating in lock step. The Fed is hiking
short-term interest rates and the ECB is winding down its QE-scheme. Even the Bank of Japan
<BoJ> is stealthily scaling down its purchases of JGB’s. This diverging in monetary policies is
helping to feed volatility into the stock markets again.

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 Global Money Trends Magazine March 30, 2018

For most of the past nine years, the Federal Reserve and its cohorts in Europe and Japan,
artificially inflated stock prices, through the purchases of $15-trillion worth of government bonds,
known as Quantitative Easing <QE>. A small group of global central bank chiefs can meet
in private and wield unprecedented power over global markets, economies and wealth
distribution more generally. They are said to somehow be held accountable by politicians that
have proven even less respectful of sound money and credit. In the US, Europe, the UK, Japan
and elsewhere, central bankers have become intricately linked to monetizing government debts.
As such, disciplined and independent central banking, a cornerstone to any hope for sound
money and credit, has been relegated to the dustbin of history.

The only solution the Big-4 central banks could offer up to engineer today’s synchronized global
economic recovery was to yet again misprice the cost of capital, in the hope that, yet again,
through increased leverage /debt, hallucinogenic traders would be greedy enough to misallocate
capital, and fuel yet another round of asset bubbles. Such asset bubbles are meant to delude
everyone into believing that the local economies are doing better. When – as they do by
definition – these bubbles burst, those who have been suckered in will realize that their “wealth”
in the stock market is instead an illusion, which in turn, will be replaced by default risk.

Secondly, many underestimated the ‘market’s’ willingness, nay desperation, to go along with this
ultimately ruinous policy path. Traders know they have to play the game and hope they will get
out before it turns, - a familiar old tale. As such, traders were operating in a hall of mirrors until
some shock therapy, - the explosive surge in the Volatility indexes in February and now trading
sustainably at double their all-time lows, has re-introduced the notion of risk. With the
intensification of trade-war fears, after President Trump imposed duties on steel and aluminum
imports and leveled more targeted tariffs at China, the SPX futures have begun to trade in sync
with the China-300 index futures. The logic for this unusual correlation is the fortunes of the
world’s #1 and #2 economies, would rise and fall together – thus today’s tight correlation
between the SPX and the China-300 index, -both trade 24-hours per day.

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 Global Money Trends Magazine March 30, 2018

In February there was a scare over rising inflation and interest rates, and worries of a US trade
skirmish with China. The SPX experienced its first correction of -10% in two years, when it
tumbled to the 2,590-level, on Feb 6th in overnight electronic futures trading and on the morning
of Feb 9th during regular NYSE and Nasdaq trading hours. However, if you blinked an eye, you
probably missed it. February's brutally volatile market saw investors flee U.S. stocks in near-
record numbers. US-based investors withdrew $41-billion from US-equity funds during the
month, according to data from TrimTabs, which said it was the third-most in the market data
firm's records. However, corporate treasurers stepped in to snap up their own shares. Buybacks
amounted to $151-billion for the month of February, a new record, pushing the quarterly total to
$212-billion, well on the way to another record, according to TrimTabs.

However, by March 23rd, the SPX and the China-300 index futures were revisiting their Feb 9th
lows, as the fear of a trade war between China and the US sent world stock markets broadly
lower. President Trump signed a presidential memorandum that could impose tariffs on up to
$60 billion of imports from China, after a 30-day consultation period before they take effect. The
MSCI's gauge of stocks across the globe lost -3.4% for the week. The Dow and SPX dropped -
5.7% and -5.9%, respectively, and the Nasdaq plunged -6.5%, their biggest weekly losses since
January 2016, with Bear Raiders fanning fears of a trade war breaking out. The Dow Transports
index <ticker IYT> closed in correction territory, -11% below its 52-week high.

However, the bearish sentiment began to instantly evaporate on the evening of Sunday, March
25th after Treasury Secretary Steven Mnuchin said he’s optimistic of reaching an agreement with
China that will avert the need to impose tariffs on at least $50 billion of goods from the country.
“We’re having very productive conversations with them,” Mnuchin said on “Fox News Sunday,”
when discussing talks with China. “I’m cautiously hopeful we reach an agreement.” In an
interview with Chinese media published Monday, China’s premier Li Keqiang emphasized
there is no point in a trade war between the US and China, saying that the two sides
would come to a reasonable solution.

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 Global Money Trends Magazine March 30, 2018

Li added that China would cease its practice of forcing foreign firms to turn over
valuable intellectual property by partnering with China firms in "joint ventures." Vice
Premier Liu He, effectively China's economy czar and President Xi Jinping' "real second-in-
command" has been negotiating behind the scenes, with Treasury chief Mnuchin and would cave
on several US demands, including allowing foreign investment in Chinese securities firms and
offering to buy more semiconductors from US semiconductor firms. There's also been talks that
China could loosen restrictions on foreign investment in manufacturing, telecom, medical and
education, according to the Financial Times and Wall Street Journal.

In turn, on Monday, March 26th, US-stock market indexes soared, and reversed big losses the
week before, as trade tensions between China and the US appeared to ease. The Dow Jones
industrial index surged +670-points to close at 24,202, with Dow blue-chip Microsoft <MSFT>
soaring +7.6%. The SPX gained +2.7% to close at 2,658, as buyers rushed in after the
successful defense of the key horizontal support area at 2,590. The Nasdaq index surged +3.3%
higher with Apple gaining +4.6%. The S&P Financial sector Fund (XLF) jumped +3.3%, its
biggest one-day gain since November 2016. However, the powerful rally was short lived. The
next day, the Nasdaq surrender all of its gains.

In the view of Morgan Stanley, investors’ love for popular stocks such as chipmakers <ticker
SOXX> is a risk that highlights a lingering danger for stocks: the risk that after everyone has
already piled into the same big winners, and they’ll all try to jump out at the same time, when
negative news hits the wires. Tech <XLK> and consumer discretionary <XLY> companies now
equal 2/3’s of the $25-trllion, SPX index, and the momentum trade is “grossly" out of proportion
with their share of the market, (37%). For instance, while XLK equals 25% of the weighting of
the SPX, it occupies 42% of the portfolios of the top money managers. Likewise, while XLY
equals 13% of the SPX’s weighting, it makes up 23% of money managers’ portfolios. When a
trade becomes too crowded, its already discounted many years’ worth of good news into the
future, with elevated P/E ratios, it begins to lose its explosiveness to the upside. Worse yet, the
sector can become subject to violent shakeouts whenever negative news hits the marketplace,
such as that which rocked Facebook and NVidia <NVDA> this past week.

The technology sector XLK ended the month of February -4% lower following a slew of negative
news for some of the key companies in the space. The losses were led by Facebook, Google,
Tesla, Nvidia, and even the Nasdaq-100’s powerhouse Amazon <AMZN> which briefly
tumbled as much as -$230 /share. AMZN briefly fell into correction (-10%) territory. From
Election Day 2016 through the SPX’s all-time high on Jan 26th, the index added $6.3-
trillion in market cap to $25.5-trillion. Since the high on 1/26, the index has now lost
$2.34-trillion in market cap, bringing the total down to $23.1-trillion. This means that 37% of
the post-Trump gains in market cap have been erased during the current market pullback.
While the S&P 500 as a whole has lost $2.34-trillion in market cap since January 26th,
the 25 largest stocks have lost nearly -$1- trillion. This means the 25 largest stocks have
accounted for roughly 40% of the SPX’s losses.

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 Global Money Trends Magazine March 30, 2018

“Don’t Fight the Fed,” when its Tightening Liquidity, That’s a message that is still not
respected by the majority of traders in the equity markets, who have been brainwashed after
none years of spectacular gains, to buy the SPX and Nasdaq-100 index on all dips. However, on
January 16th, Martin Feldstein, one of President Reagan’s top economic advisers, warned in an
article that he penned in The Wall Street Journal; “Stock prices will decline as the Fed
raises interest rates and cuts its bond and mortgage holdings.” “An excessively easy
monetary policy has led to overvalued equities and a precarious financial situation. The
Fed now faces the difficult challenge of trying simultaneously to contain inflation and reduce the
excess asset prices, without pushing the economy into recession,” he warned.

“Stock prices rose much faster than profits did,” Feldstein warned. “The 12-month Trailing
price/earnings <P/E> ratio for the SPX is now 26.8, higher than at any time in the 100
years before 1998 and +70% above its historical average.” He said P/E ratios are high
even as investors expect the tax reform approved in December by President Trump to boost
company profits. However, the Fed’s policy of raising interest rates and shrinking its $4.45-
trillion portfolio of bonds, or “Quantitative Tightening <QT>, will pressure bond and stock prices,
while the federal government borrows $1-trillion this year to operate.

The way Feldstein sees it, eventually, the Fed’s efforts to normalize monetary policy could trigger
a much deeper correction in the stock markets, and in turn, would lure more investors into the
Treasury and high grade bond markets. That will start to reverse the wealth effect. “If the P/E
ratio declines to its historical average, the implied fall in the market would reduce the
value of household equities held directly and through mutual funds by $10-trillion,”
Feldstein said. “If every dollar of decline in household wealth reduces annual consumer
spending by 4 cents, as experience suggests, spending would fall by $400-billion, or more than
2% of gross domestic product. The drop in equity prices would also raise the cost of equity
capital, reducing business investment and further depressing GDP,” he concluded.

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 Global Money Trends Magazine March 30, 2018

During an interview on CNBC on March 1st, former Fed chief Alan Greenspan was expecting a
very unhappy ending for the decades-long bond-market rally, which in turn, would remove the
last remaining support under equities. “Yeah, I would say we are in a bond market bubble.
That means that prices are too high and when they move down, long-term interest rates move
up. And if you take a look at the structure of earnings price ratios in the stock market, you find
that the critical issue of what engendered some of the strength in the recent period is essentially
the decline in real long-term interest rates, as is factored into the market. That is in the process
of changing. The bond market bubble is now beginning to unwind. Of course, the fallout from
rising inflation and yields will have far-reaching reverberations across markets,
particularly the equity market,” Greenspan warned. That's because, as real long-term
interest rates rise, equity markets will inevitably decline. It's inevitable that the effect on stock
prices is negative. In fact, that’s one of the really major factors determining equity price ratios,
and therefore, as real long-term interest rates rise, stock prices fall.

Treasuries Finally Cave into Tech Turmoil; Bond Bulls send a friend request to
Facebook; When Mr Greenspan made his bearish comments on the T-bond market, the yield on
the 10-year T-note was trading at 2.80%. It subsequently rose to 2.90% the following week and
fell to 2.74% yesterday. Confounding simple logic, longer-term interest rates fell last week, even
while the US Treasury sold $294-billion of bills and notes, its largest slate of supply
ever. The Treasury is ramping up sales of shorter-term debt, while longer-dated obligations are
growing at a slower pace. It sold $30-billion 2-year notes, $35-billion of 5-year notes and $29-
billion of 7-year debt. This adds to the US’s federal debt which rose to $21-trillion on March 16th,
having grown by $1-trillion in just the previous six months. In the futures market, traders are
pricing in two additional rate hikes to 2.125% by year’s end, and only see one rate hike in the
first half of 2019 to 2.375%. The rise in short term rates is starting to rattle the stock markets
through the compression of P/E ratios, as Greenspan and Feldstein predicted.

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 Global Money Trends Magazine March 30, 2018

However, the turmoil around Facebook <FB> -- and technology stocks in general – might have
been the catalyst that finally pushed the US’s 10-year Treasury yield out of a tight 15--basis-
point trading range that held it captive since early February. The US’s 10-year T-note yield
dropped to 2.74% today, following a breakout below the 2.80% level. For those caught off-guard
by the T-note rally, in the face of massive new supply, it’s a bit of déjà vu from previous years,
when expectations for higher yields were dashed. This time, it was the wreck in tech stocks. The
market’s FANGMAN darlings just lost a combined -$400-billion in market value.

Thanks to fresh blows to companies from Nvidia <NVDA> to Facebook <FB>, the biggest sector
in the SPX plunged -3.5% on Tuesday. The Nasdaq 100 Index sank for a ninth decline in 11
days. Facebook gave up gains to slump -5%, with Mark Zuckerberg expected to appear before a
House committee in the latest development in the company’s escalating privacy scandal. Most
pronounced was the selloff in the FANG block of tech shares and its mega-cap
brethren. The NYSE FANG+ index plunged -5.6%, its biggest drop on record. Nvidia, the
graphics-chip maker that has been seeking to expand in the automotive market, fell -7.8% after
temporarily suspending its self-driving vehicle testing. Twitter tumbled -12% as the company is
vulnerable to “privacy regulation” along with its social media peers. Netflix, <NFLX> still up
+57% since the start of the year, fell -6% in a rare pullback.

FANGMAN = 30% of Nasdaq-index, and Some are getting Worried; While many parts of
the market have experienced a rise in price volatility in recent months, it has largely been a one-
way street for the tech darlings of Wall Street: Apple, Facebook, Amazon, Netflix,
Novidia, Microsoft, and Google, also known as FANGMAN, grew their collective market
value +36% in the past year to $4.1-trillion, and now equal a staggering 30% of the
entire Nasdaq Composite with Apple ($900-bln in mkt cap) and Amazon ($760-bln) racing to
see which company hits the historic $1 trillion in market cap first. However, what has until
recently seen by most investors as the least risky market sector, has experienced some
unexpected "heaviness" in the past two weeks, with some strategists warning that investors
reliance on just this handful of momentum stocks exacerbates the risk of a steep downturn.

For one thing, there's valuation, which on a forward basis remains mostly in the nosebleed
levels. Bloomberg’s consensus forward estimates for these five companies are, Amazon; fwd
P/E = 190x; Netflix; fwd P/E =116x-- Google, fwd P/E = 27x-- Facebook; fwd = P/E 26x
Apple; fwd P/E = 15.5x, for a blended forward P/E of 30x, - hardly cheap. Just as
concerning, Goldman recently showed, technology stocks are the most “crowded trade” on Wall
Street - with Amazon, Facebook and Google 3 of the top 4 most widely held hedge fund stocks -
which is great when times are good and prices keep rising, and problematic to say the least in
case of a downturn with a significant potential for a volatile selloff if sentiment changes and the
"hedge fund hotel" begins evacuation. “It’s a big momentum trade, investors don’t care if they’re
paying 15 or 20 or even 50 times earnings. The problem is, once those names start giving up
those gains, the market starts to have problems. Then there’s the ETFs factor: Investors’
increased reliance on passively managed index funds has also contributed to the rally in
technology shares because the companies’ inclusion in the SPX and other indexes means money
will be poured into them even if they have expensive earnings multiples.

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 Global Money Trends Magazine March 30, 2018

On a 12-month trailing basis, GOOGL is trading at 34.4x, and AMZN at a nosebleed 327x.
Momentum traders bet on what works, and if tech was working before the shakeout in February,
then they stayed with it. Mindful of former chief of Citibank Chuck Prince’s legendary words from
the summer of 2007; “When the music stops, in terms of liquidity, things will be complicated.
But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Over
the two week period ending March 28th, GOOGL plunged a stunning -16%, and knocked its
trailing P/E ratio from 39.4 to 34.4, so much of the decline was simply due to P/E compression,
as traders worry that GOOGL might get caught up in the clutches of Washington’s regulators.

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 Global Money Trends Magazine March 30, 2018

However, Amazon isn’t priced based on its profitability, - it has very little profit to show
investors. Instead, it is priced based on its explosive rate of sales growth. Amazon, which is
pushing beyond online retail and cloud computing into supermarkets and even healthcare, has
seen its forward P/E skyrocket to a mind blowing 190x, nearly double the 100x a year ago.
Meanwhile, the broader tech sector's forward P/E is now trading just shy of 20x. By comparison,
the SPX is trading at about 17 times expected earnings. Amazon’s Q’4 sales reached a total of
$60.5-billion according to the massive e-commerce giant, - an increase of +38% compared to
the sales it had reported for Q’4 of 2016, which were $43.7-billion. If you are a trader, you
believe Amazon is going up forever. Overall, it creates more volatility for the market because
everyone owns Amazon, and if AMZN goes down you’ll see that reflected in the Nasdaq.

In other words, AMZN is priced base on its Price to Sales Ratio, <P/S> ratio, which
rose to as high as 4.27x last week, when the stock nearly hit $1,600. Amazon states that
over 5 billion items were shipped to Prime members globally last year. Amazon is not valued
based on its operating cash flow - it increased from $17.3 billion in Q’4 of 2016 to $18.4-billion
in Q’4- of 2017, a scant +7% increase. Its operating income increased to a razor thin
$2.1-billion in Q’4 – 2017, from $1.3-billion the year before. To say the very least,
Amazon’s profits are miniscule for a company of its size. The company essentially runs its
core retail machine at break-even, pumping as much cash as possible into big new initiatives
that may not produce meaningful financial results until years down the line. Meanwhile,
Amazon's cloud unit, AWS, continued to be the fastest-growing and most profitable business of
the company. For the quarter, AWS sales jumped +45% year-over-year, while generating $1.3
billion in operating income, a whopping 62% share of Amazon's total operating income.
AWS accounted for 73% of the net income Amazon posted for the period.

On March 20th, AMZN became the second most valuable publicly listed US-company, surpassing
Google parent Alphabet for the first time. Amazon shares were worth $768 billion, after surging
+81% over the past year, bolstered by its explosive revenue growth (+38%) as more shopping
moves online and businesses shift their computing operations to the cloud, where Amazon Web
Services leads the market.

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 Global Money Trends Magazine March 30, 2018

The Bloomberg Billionaires Index put Bezos’ net worth at $118 billion on Wednesday, having
benefitted from a $2.2 billion gain during the day and a $19.3 billion increase year to date. Gates
would have a net worth of more than $150 billion if he’d held onto assets that he’s given away,
largely to the Bill & Melinda Gates Foundation. He has given away almost 700 million Microsoft
shares and $2.9 billion of cash and other assets since 1996, according to an analysis of his
publicly disclosed giving, Bloomberg has reported.

In the technology sector, the Oligarchs keep getting a lot bigger; The 10 largest US- tech
firms by revenue are expected to post aggregate sales of more than $1 trillion this year, possibly
for the first time, an analysis of Wall Street estimates shows. The combined revenue of these
giant companies is seen rising +16%, or $146 billion, to $1.078-trillion in 2018, based on the
average estimates of stock analysts compiled by Thomson Reuters. The figures show that the
leaders of the tech industry are, on average, still growing at a robust pace.

The sector growth expectations also help explain why the 2017 performance of the Nasdaq 100
Index, representing the largest tech firms by market capitalization, outpaced the returns of both
the broader Nasdaq Composite Index and S&P 500 Index. The NDX rose 30 percent last year,
while the Nasdaq Composite climbed 28.2 percent and the S&P 500, 19.4 percent. Apple is seen
posting revenue of $273.3 billion for its fiscal year ending this September, as analysts bet that
the new iPhone X will help it generate $44 billion in new sales. Wall Street is expecting
Amazon to hit $228.7 billion in sales this year, or $51.5 billion more than in 2017,
helped by growth in its cloud computing business.

However, “Never has so much power been concentrated in the hands of so few people, and
Silicon Valley elite have, thus far, been able to operate with virtually zero transparency. The
Masters of the Universe are unfathomably influential, secretive, and they are surveilling all of us
right now, stockpiling our data for their own purposes. It’s time we broaden the discussion,” says
Free Our Internet founder and Executive Director Christie-Lee McNallym “Big Silicon Valley
monopolies like Google and Facebook are tracking consumers’ every move; they are abusing and
selling our personal information without our express consent, and they are controlling what we
can see online by deciding what is and what isn’t ‘fake news.’ These companies are out of control
and accountable to no one.

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 Global Money Trends Magazine March 30, 2018

Technology Stocks Tumble Again in Sudden Afternoon Selloff; Nvidia, Facebook lead
retreat as bad news keeps coming Tech’s decline triples S&P 500’s next worst performing group
Thanks to fresh blows to companies from Nvidia <NVDA> to Facebook <FB>, the biggest sector
in the SPX dropped -3.5% on March 27th. The Nasdaq-100 Index sank for a ninth decline in 11
days. Facebook gave up gains to slump -4.9%, with Mark Zuckerberg expected to appear before
a House committee in the latest development in the company’s escalating privacy scandal. While
the loss pales in comparison to last week’s worst tumble since 2015, the renewed weakness
underscores the vulnerability in an industry whose growth prospects have lured investors,
spurring stock gains that have doubled the market in the past three years. That leadership is
threatened by the European and US governments’ stepped up threat to enact new
regulations and strategists warn over the risk of momentum unwinding.

FANG Stocks Tumble -6% in Unprecedented Selloff; The major stock indexes appeared
headed for more gains early Tuesday after their strong finish on Monday, but the rally didn’t last.
Stocks wavered through much of the morning, recovered somewhat by early afternoon, but then
veered sharply lower as investors sold shares in Nvidia, Twitter, Facebook and other technology
companies. The FANG index’s advance from early 2016 through this month’s peak reached an
annualized rate of +67%, outpacing even the Nasdaq’s return in the final two years of the dot-
com bubble. There is also a valuation case to be made for the intensified selling. While the FANG
companies’ dominance in areas from social media to e-commerce will foster faster growth, their
multiples are eye-watering. At 65x earnings in mid-March, the FANG group was valued
almost three times as richly as the SPX. That’s comparable with tech stocks in March
2000. Since peaking on March 12, the FANG index had fallen in all but three days, sliding -12%
along the way. Tuesday’s drop wiped off about $180 billion in market value. The tech-heavy
Nasdaq slid 211-points, or -2.9%, to 7,008. The PowerShares QQQ Trust (QQQ), which
tracks the Nasdaq 100 index, fell -3.2% on heavy volume. The fund traded more than 75 million
shares Tuesday, well above its 30-day volume average of 46.6 million.

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Nvidia tumbled more than any other stock in the SPX on news it has temporarily stopped testing
its technology for self-driving cars in the wake of a deadly collision last week in Tempe, Arizona,
involving an Uber autonomous vehicle and a pedestrian. The chipmaker’s shares lost $18.96,
or -7.8%, to $225. Microsoft sank -4.6% to $89.47. Tesla <TSLA> sank -8.2% on news
that the National Transportation Safety Board has sent two investigators to look into a fatal
crash and fire Friday in California that involved a Tesla electric SUV. Twitter slumped -12% given
its reliance on licensing its users’ data. Facebook, whose shares have been hard hit recently amid
heightened government scrutiny into the social media giant’s collection of private user data,
plunged -4.9%. Facebook had lost more than -20% since hitting a record high February 1st.
Since the end of January, FB’s 12-month Trailing P/E ratio has compressed from 36x to as low as
24.7x, today, as traders worry that new government regulations in Europe and the US on its
business will slow down revenues and profits. FB earns about 25% of its revenue from the
European Union. It will not be a pleasant experience for FB chief Zuckerberg and his team
going in front of Congress, and it has the potential to be a real public relations black eye. With
the public growing more concerned about personal information being shared, Google may also
start getting caught up in the regulators nets that are wrapping around Facebook.

Google could owe Oracle $8.8-Billion in Android Fight; shares of GOOGL briefly plunged
below $1,000 on March 27th on the heels of news that Google could owe Oracle <ORCL> billions
of dollars for using Oracle-owned Java programming code in its Android operating system on
mobile devices, an appeals court said, as the years-long feud between the two software giants
draws near a close. Google’s use of Java shortcuts to develop Android went too far and
was a violation of Oracle’s copyrights, the US Court of Appeals for the Federal Circuit
ruled Tuesday. The case -- first filed in 2010 -- was remanded to a federal court in California to
determine how much GOOGL should pay. Oracle had been seeking $8.8 billion, though that
number could grow. Google expressed disappointment and said it’s considering its next steps
in the case. “The Federal Circuit’s opinion upholds fundamental principles of copyright law and
makes clear that Google violated the law,” Oracle General Counsel Dorian Daley said.

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Oracle claims Google was in such a rush in the mid-2000’s to create an operating system for
mobile devices that the company used key parts of copyrighted Java technology without paying
royalties. Google, which gets the bulk of its profit from selling advertisements connected to
search results, faced an “existential threat” because its search wasn’t optimized for mobile
devices, according to Oracle. Google countered that Oracle was just jealous because it did what
Oracle could not -- develop an operating system for mobile devices that was free and wildly
popular. Google said it used a minuscule percentage of Oracle’s code, only enough to enable
programmers to write applications for Android in the Java language.

A federal jury in California agreed with Google in 2016, saying Google’s actions were a “fair use”
that was exempt from copyright law. Tuesday’s Federal Circuit opinion reverses that verdict.
“There is nothing fair about taking a copyrighted work verbatim and using it for the same
purpose and function as the original in a competing platform,” the appeals court ruled. Java was
created by Sun Microsystems Inc. in the 1990s, and some have accused Oracle of violating Sun’s
pledge to ensure that Java is widely available. Oracle bought Sun in January 2010 for $7.4 billion
and sued Google fewer than eight months later.

The news on March 27th that Facebook’s Android app has been collecting call and text histories is
yet another black eye for the social media giant. But just why was Facebook able to siphon off
records of who its users were contacting — and when — in the first place? The short answer:
Because Google let it. FB acknowledged this week that it began uploading call and text
logs from phones running Google’s Android system in 2015 — first via its Messenger
app and later through an option in Facebook Lite, a stripped-down version of its main app.
There’s a reason Facebook’s actions were restricted to Android phones. Apple locks down app
permissions tightly, which offers more privacy protection to iPhone users. Apple’s fundamental
approach is to collect the minimum amount of information to keep the service running, and keep
customers in control of the information. But Android has long been more indulgent. Until
recently, in fact, Google let app developers gain access to a phone’s call and text logs.
All they needed was an app that required access to user contacts.

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In a lot of ways, Facebook is the tip of the iceberg, in gaining access to call logs so far or how
many users’ call logs had been sent to app developers. A Google spokesperson declined to
comment. One major Android phone maker expressed uncertainty over its role in protecting user
privacy. The US Senate Judiciary Committee invited Zuckerberg, as well as the CEOs of
Alphabet and Twitter to testify at an April 10th hearing on data privacy. Still, bargain
hunters found the beaten down prices of FB at around $150 and GOOGL near $1,000 to inviting
to ignore, and bid-up the share prices on Thursday, March 29th,

Shares of high flyer Nvidia plunged on Tuesday, after the chipmaker announced it
would suspend self-driving tests across the globe. The suspension followed a fatal Uber
accident last week in which a self-driving vehicle killed a pedestrian in Arizona. The chipmaker is
testing self-driving technology globally including in New Jersey, Santa Clara, Japan and
Germany. On March 26th, the governor of Arizona suspended Uber's ability to test self-driving
cars on public roads in the state following a fatal crash. NVDA reversed course in afternoon
trading after the news and closed -8% lower at $225, wiping out $11 billion in market value.
NVDA is very volatile however, after sliding to as low as $217, it rebounded to close at $231.

Analyst slashes AMD, Nvidia price targets on new cryptocurrency mining chip from
China; On March 26th Susquehanna reduced its rating to negative from neutral and lowered its
price target for AMD shares, citing impending competition from cryptocurrency mining company
Bitmain. AMD and Nvidia will suffer as specialized digital currency mining chips hit the
market this year, according to a Wall Street firm. Susquehanna reduced its rating to
negative from neutral and lowered its price target for AMD shares, citing impending competition
from cryptocurrency mining company Bitmain. “During our travels through Asia last week, we
confirmed that Bitmain has already developed an ASIC [application-specific integrated circuit] for
mining Ethereum, and is readying the supply chain for shipments in 2Q18. While Bitmain is likely
to be the largest ASIC vendor (currently 70-80% of Bitcoin mining ASICs) and the first to market
with this product, we have learned of at least three other companies working on Ethereum
ASICs, all at various stages of development.”

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Cryptocurrency miners use graphics cards based on AMD’s and Nvidia’s chips to "mine"
new coins, which can then be sold or held for future appreciation. Digital currency
ethereum is up more than +800% over the past 12 months, according to Coinbase data. Bitmain
dominates the "bitcoin" industry with its specialized ASIC chips that are more efficient at mining
than graphic chips from AMD and Nvidia. Bernstein has said Bitmain likely made as much as
Nvidia did last year. Analysts estimate that most of Bitmain’s revenue is generated by selling
mining rigs powered by the company's chips. Susquehanna believes Bitmain’s specialized chip
offering for ethereum will hurt demand for PC graphics cards. He estimated ethereum
mining-related sales accounted for about 20% of AMD's sales and 10% of Nvidia’s revenue. As a
result the analyst lowered his price target for AMD shares to $7.50 from $13, or -29%
lower from Friday’s close. He also reduced his forecast for Nvidia shares to $200 from
$215, but did not downgrade the company.

Tesla’s ‘day of reckoning’ is near; Morgan Stanley warns Tesla shareholders the stock's fall
could be a "self-fulfilling" prophecy for further declines. Tesla "faces liquidity pressures due to its
large negative free cash flow and the pending maturities of convertible bonds," a Moody's release
said Tuesday. Tesla's big stock drop this month will have negative implications for its
ability to raise critically-needed funds, according to Wall Street analysts. The company's
shares plunged -22% in March on concerns over a fatal car crash in California last week and
worries over its Model 3 production rate. Tesla's 5.30% bond, issued last August and maturing in
2025, also fell -4% to 87.25 cents Wednesday with a yield of 7.60%. The bond's price declined -
8% this month. Morgan Stanley warns Tesla shareholders the stock's fall could be a "self-
fulfilling" prophecy for further declines. "A lower share price begets a lower share price. For a
company widely expected to continue to fund its strategy through external capital raises.
Moody’s downgraded Tesla’s credit ratings to B3 after the close Tuesday and changed
the outlook to negative from stable, citing the "significant shortfall" in the Model 3 production
rate and its tight financial situation.

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Tesla had $3.4 billion in cash or cash equivalents at year end 2017. The company lost nearly
$2 billion last year and burned about $3.4 billion in cash after capital investments.
Given the company's cash burn rate and how it has $230 million of debt due in Nov. 2018 and
another $920 million in Mar. 2019, Moody's believes the company has to raise new capital soon.
TSLA rebounded Thursday but still notched their biggest monthly decline in more than seven
years, dogged by growing concern on Wall Street about the Silicon Valley car maker’s ability to
meet its production goals for the Model 3 and by a string of bad news that included a downgrade
for its debt. Tesla TSLA, reversed course as the Thursday session progressed and ended 3.2%
higher for the day, snapping a two-day losing streak. Tesla stock also felt the pressure from
news that Nvidia will temporarily suspend self-driving tests, following Uber’s fatal crash. A
slowdown in driverless-car testing and driverless-car development would affect Tesla
as the multiples that the stock has traded “reflects future volume and market share
assumptions predicated on a view that Tesla will be a leader in both electric vehicles and
autonomous features,” analysts at Evercore ISI warned.

One hedge fund manager believes Tesla's business model is permanently broken. "Tesla
represents a financially non-viable business. It has an upside-down balance sheet. The multi-
billion cash burn is massive with no end in sight," Accipiter Capital's Gabe Hoffman wrote in an
email Wednesday. "The financial need for Tesla to issue massive amounts of new equity has
been glaringly obvious for quite some time."

The wreckage in the high tech and FANG sectors might have ignited the surprising decline in US
T-note yields this past week. Hedge funds and other large speculators had a net short
position in 10-year Treasury futures that was the most extreme in a year. The drop in
the 10-year yield below 2.80%, led them to cover their bets to protect from further losses. Bank
of Montreal Capital Markets strategists, who earlier this month said they’re comfortable wagering
that the 10-Year T-note yield had already peaked for 2018, see 2.67% -- an intraday yield high
from late January -- as the next level in sight for the 10-year.

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But there is another explanation for the perplexing behavior of the Bullish US T-note market. For
whatever reason, the yield on Germany’s 10-year Bund has mysteriously dropped by a third in
recent weeks, closing at +49-basis today, and down significantly from as high as +76-bps the
day the US-stock markets topped out on January 26th. The Germany government has posted a
budget surplus for four years in a row, including of €5.3-billion in 2017, highlighting its solid
fiscal position. The finance ministry said the strong economy, higher tax revenues and less
transfers to the European Union helped achieve the fourth budget surplus in a row. As of August
2017, there were only €180-billion of German notes left for the ECB to buy.

Thus, the ECB has caused a massive short squeeze in the benchmark German Bund market, and
in turn, the gravitational pull from Frankfurt helped to put a ceiling over the US T-note yields and
even led to lower US T-note yields, through short covering. The ECB decided to slash in half the
amount of corporate and government bonds it buys each month, from €60-billion last year to
€30-billion ($35-billion) starting on January 1st through the end of Sept ‘18. At the same time, it
has pledged to peg short-term German interest rates below zero percent for longer in order to
help financial markets adjust. When the ECB mothballs its QE-scheme at the end of September,
as widely expected, it will have bought €2.5-trillion of bonds. Meanwhile, it has vowed not to
raise interest rates until "well after" the end of bond-buying.

On Feb 23rd, ECB executive Benoit Coeure said once the bank’s purchases hit a critical
threshold, it won’t need additional buys to contain yields at the longer end of the
curve. This is clearly evident in the case of German Bunds, where there has been a four year
drought of new supply. “The ECB has bought enough German Bunds so that it could retreat from
further purchases without risking an unwarranted rise in longer-dated bond yields,” and with that
comment, Coeure cemented expectations for the ECB to finally mothball its radical QE
scheme by the end of September. “With the current share of the Bund free float constituting
only a small fraction of the total outstanding, we can be confident that we have passed this
threshold in the Euro area,” said Coeure, who oversees the ECB's market operations. “In the
future, the Euro-system can safely retreat as buyer in the market without risking major
disruptions, while providing effective guidance on the future path of short-term interest rates.”

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ECB’s Knot Urges quick End to QE; Thus, the ECB has cornered the German Bund market, the
same way the BoJ has cornered the $10.5-trillion JGB market in Tokyo and has managed to lock
Japan’s 10-year yield near zero percent. On March 29th, Dutch central-bank chief, Klaas Knot
said the unwinding of the ECB’s bond portfolio could take a decade. “The world no longer
needs “extraordinary” monetary stimulus and the ECB should play its part by ending
its own bond-buying program after September. The top priority is to normalize monetary
policy and strengthen the economic and monetary union,” said Knot, of the ECB’s Governing
Council. “This is now a widely-shared realization, certainly also in the financial markets.”

ECB officials have signaled that they’re comfortable with investor expectations for bond
purchases to be phased out by around the end of this year. Still, Knot acknowledged the need for
the ECB’s balance sheet to stay inflated for years given the intention to reinvest the proceeds of
debt holdings as they mature. “It’s not unreasonable to look at the Fed, which is in terms of the
monetary-policy cycle, about three to four years ahead of the ECB, and there, the period of
reinvesting has lasted for about three to four years. All in all, undoing these unorthodox,
unconventional instruments could easily last for most of a decade.”

With the Fed hiking short-term interest rates and the BoJ and the ECB indirectly holding down
longer-term bond yields, some stock market investors are nervously watching the Treasury
market for a recession warning signal. But even if it comes, history suggests they might not
want to be too hasty in ditching stocks. The yield curve, as measured by the spread between 30-
year and 2-year Treasury yields, has been flattening since November 2016, when it peaked
around +200-basis points, <bps>. On Friday, the spread was at +70-bps. A flattening of the
curve is the result of a +100-bps rise in 2-year yields compared with a year ago, and no change
on the 30-year end of the yield spectrum. The 30-year Treasury yield fell -15-bps compared with
a month ago to close at 2.97% today. However, the yield on the 2-year Treasury note rose +2-
bps over the same period to 2.27%, its highest level since 2008. At the late stages of an
economic cycle, when the economy is improving rapidly, the Fed often raises interest rates
aggressively to control inflation.

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But that can choke an economy that is overly burdened with tens of trillions in debts, causing a
recession, something the Fed would like to avoid. It’s a widely held belief among traders that
banks benefit from a steeper yield curve by taking advantage of the spread between short- and
long-term interest rates. That’s why stock analysts say banks’ shares <ticker KBE>, can live or
die by the curve’s fluctuations. The slope of the yield curve dictates a bank’s net interest
margins, a key driver of their profitability. The net interest margin is the difference between the
interest banks earn on the loans they make and the interest they pay to savers.

Like the rest of the market, the major money center banks saw their share prices tumble -10%,
on average, as the price of KBE suddenly fell from around $52 /share to slightly below $47 in the
two weeks ending March 23rd. However, KBE has been ignoring the shrinking yield curve for a
long time, and its -10% decline seems to be more a matter of contagion sales along with the
broader SPX. Congress has recently voted to eliminate many burdensome regulations on the
banking industry, and the deregulation story has trumped the massive shrinking of the yield.
KBE rebounded this past week, even though the yield curve continued to sink to 10-year lows.

Fed mistakes could spark ‘unusually fast’ Bear market, While the trade friction between
China and the US might be the excuse at the moment, to be bearish on the stock market, the
real risk facing equities could be coming from the Fed, with the potential downside a lot more
pronounced than investors are currently anticipating. On March 21st, the Fed’s “Dots Plot” was
evenly split between two and three rate hikes in 2018, and raising the risk of the Fed making a
policy error – or tightening too much. What matters for investors is the compression of the P/E
ratios in the stock market, resulting from policy errors and not a weaker economy. Under the
new Fed, Jay Powell, officials has tried to nix the idea that the Fed would step in to prop up
falling equity prices. The cost might be a sharp drop in the SPX’s P/E ratio.

For those hoping that the "Powell Put" is struck at least as high as Yellen's, The New York Fed's
Bill Dudley may have just dashed those hopes a little...

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As a reminder, on her way out, former Fed chief Janet Yellen told CBS that the market's
valuations were high but said she wasn't sure if markets were currently in a bubble. "Well, I
don't want to say too high. But I do want to say high. Price/earnings ratios are near the high end
of their historical ranges," Yellen said. "Now, is that a bubble or is too high? And there it's very
hard to tell. But it is a source of some concern that asset valuations are so high." But it's going
to take more than the recent -10% plunge in the US-stock indexes to stir Jay Powell's Plunge
Protection Team into action. Corrections are never fun, but they also aren’t new territory for
investors. Prior to the most recent example, we have experienced 36 corrections since
1980, and the SPX fell by -16%, on average, from peak to trough during these periods.
The Fed can compress the SPX’s richly valued - Price to Earnings <P/E> ratios, by raising short-
term interest rates, which is used to discount future cash flows.

A standard characteristic of the investment markets is the inverse relationship between price-to-
earnings (P/E) ratios and the yield on bonds. In the early 1980s, for example, interest rates were
high -- between 10% and 20%. During that period, the average price-earnings ratio for the SPX
was approximately 10, but as interest rates declined to 8% and below, the SPX averaged higher
than a 17.6 P/E ratio. Since 1980, the growth in the average P/E ratio for the SPX has been
nearly exactly inverse to the level of the 10-year T-note yield. In other words, the lower the
interest rate, the higher the P/E ratio, and vice versa.

Investing is the process of seeking out the best returns on money invested, given a certain risk
tolerance. If an investor is faced with buying a 10-year Treasury bond that yields less than 3%
annually, the potentially higher returns available in the stock market look attractive. As investors
opt for potentially higher returns from stocks, the stock market rallies, and P/E ratios expand. As
interest rates rise, however, stock prices begin to decline. As stock prices decline, P/E ratios
contract. Again, as bond rates rise, P/E ratios decline because investors leave the stock market
for the relatively low-risk returns available in bonds.

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P/E's Flip Side, Earnings Yield One useful variant of P/E is earnings yield, or earnings per
share divided by stock price, usually expressed as a percentage. The Earnings yield is just the
inverse of P/E (which is equal to stock price divided by earnings per share), so it moves in the
opposite direction of P/E. Expressing the relationship as a percentage, as earnings yield does, is
in some ways more illuminating than the traditional P/E. As the spread between the SPX’s
Earnings yields compared with the yield on the US’s 10-year T-note begin to narrow, the stock
market becomes less attractive, and its P/E ratio begins to contract.

Market Outlook; While we can expect to see spectacular price rallies for the SPX and Nasdaq
indexes in the months ahead, the rallies could quickly fizzle out, if the Fed continues to tighten
liquidity through increasing interest rates and reducing the size of its bond portfolio. That could
drain $720-billion of excess liquidity in the US-money markets this year, making it difficult for
the Nasdaq-100 and SPX kingpins to sport exceptionally high P/E ratios.

Financial history is marked with times when populations took collective leave of their senses and
succumbed to delusions of ever-expanding wealth. Times of self-defeating speculation have
followed periods of the introduction of new technology. The supposed new wealth more often
than not was a mirage, with generations being scarred by the speculative experience, returning
them to more traditional financial values. Stock markets are by their very nature volatile. They
reflect the collective hopes and fears of traders and investors, with all known factors supposedly
being discounted and reflected in the market price. This volatility is normally a healthy and self-
correcting mechanism. But occasionally, excessive liquidity coupled with visions of a new era
causes risks to be ignored by traders, thereby engendering a massive, largely uncorrected
rise in valuations that discounts not just the present and the near future, but a
distance far over the horizon as well. In particular, with central banks ignoring booming
asset markets has meant that liquidity conditions have been too easy for too long.

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Reality, as history indicates, is that the market obeys no fundamental rules other than herd
instincts of greed and panic. “All economic movements," said the legendary Wall Street titan
Bernard Baruch, "by their very nature are motivated by crowd psychology." Writing shortly after
the Great Crash of 1929, Baruch added, “The stock market is clearly driven by irrational
herd mentality and mass psychology. Speculative binges cause stocks to surge to price
levels way beyond their economic value in terms of future earnings potential. Panics cause the
equally irrational effect in the opposite direction. The stock market is a psychological soup of
fear, greed, hope, superstition and a host of other emotions and motives.”

Disclaimer: SirChartsAlot.com’s analysis and insights are based upon data gathered by it from various
sources believed to be reliable, complete and accurate. However, no guarantee is made by SirChartsAlot.com
as to the reliability, completeness and accuracy of the data so analyzed. SirChartsAlot.com is in the business
of gathering information, analyzing it and disseminating the analysis for informational and educational
purposes only. SirChartsAlot.com attempts to analyze trends, not make recommendations. All statements
and expressions are the opinion of SirChartsAlot.com and are not meant to be investment advice or
solicitation or recommendation to establish market positions. Our opinions are subject to change without
notice. SirChartsAlot.com strongly advises readers to conduct thorough research relevant to decisions and
verify facts from various independent sources. Copyright © 2005-2015 SirChartsAlot, Inc. All rights reserved

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