Global equities push on particularly those companies who 25 years ago could have never existed. The likes of Facebook, Amazon and Netflix, this is where investors see the real growth and have a limited number of alternatives to get exposure to this growth. The FTSE 100, has not got one company that compares with any of the above mentioned. The FTSE 100 comprises of companies whose services we do need to keep the world economy rotating, however, nothing to capitalise on the innovation that has taken place over the past few years. Facebook's market capitalisation went to $500bn after their earnings. This makes Facebook's market capitalisation almost 25% of that of all the FTSE 100. Add in Amazon and those two companies alone equate to almost 50% of the FTSE 100 market capitalisation. What is more remarkable is the world does not really need Amazon or Facebook to continue to function, but it does need copper, oil, health care products, nutrition, food to name but a few companies that provide these services in the FTSE 100. It feels a bit like comparing the price of gold with water. Water a commodity we need to survive yet costs almost nothing to buy, gold just looks at you and costs $1200 an ounce. Mining companies trade on a p/e of 10-12, with a dividend yield, Amazon on a forecast p/e of 111x. Which is the better value for the next 5 years?
To another anomaly, Greece returned to the bond market yesterday and raised 6bn euros paying 4.75% ,maturing in 5 years’ time. A bargain, a sovereign paying 5% in the current zero interest rate environment, in euros, whilst German 5-year bonds in the same currency offer no yield at all. In theory, the Bundesbank should have issued 6bn of 5-year German paper and buy the whole issue. Over the 5 years circa 30pct total return. If there is anything to continue to prove the flaws still exist in the euro this must be it. This move by the Greek government is probably designed to go to show the recovery the economy is supposed to be on, all it does do is highlight the flaws still exist within Europe. Six billion euros as a percentage of Greeks total debt is negligible. How a country whose economy relies mainly on tourism and whose infrastructure is many years behind that of an economy whose economy is based on manufacturing can be in the same currency union remains a conundrum.
The Federal Reserve left interest rates where they were yesterday, the US dollar slid further as the comments from Janet Yellen continues to take a more dovish tone than it did a few months ago. The Federal Reserve did continue to suggest it plans to start shrinking its balance sheet in the coming months. The prospect of a third intertest rate hike this year is becoming more remote.