3 minute read
Welcome to Longhorn Investment Team’s Weekly Insight, a place for you to catch up key market news and trends. For this edition, we’ll dive into some of the business news that everyone missed out on during their spring break mission trips.
S&P 500: 2800.71 (-.77%)
DOW: 25502.32 (-1.34%)
NASDAQ: 7642.67 (-.60%)
market performance from 3/18 to 3/22
ThE YiELD CuRvE InVeRtED
The market’s spring break rager came to a crash on Friday when the bond market showed some uncanny signs of recession (oh no!). That’s right, the 3month/10y year US Treasury yield curve went flat early Friday. Every time this has happened in modern history, a recession followed within the next two years.
So, what’s a yield curve?
A yield curve shows the difference in bond yields as time increases. Typically, a longer-term (10 year) bond has a higher yield than a short-term (3 month) bond. Why? Because bonds become more prone to fluctuations in interest rates the longer they are held, so higher yields compensate for that risk.
However, long term bonds yields have been pushed lower due to higher demand from investors, which pushed up the price of these long-term bonds.
Because bond yields and prices move inversely, the difference between short-term bonds and long-term bonds essentially vanished.
Why is this bad?
Well, why are more investors wanting to buy long-term bonds all of a sudden? People are losing faith in the global economy and assets tied to economic growth (ie. stocks) and shifting their money to safer investments: long-term treasury bonds.
Not all hope is lost. Some believe that the low bond yields are simply tied to the FED’s decision to keep interest rates low for the foreseeable future, which could indicate slow and steady growth over the next few years.
Our conclusion: things don’t look good.
One could argue that the FED is accounting for weaker economic growth by keeping rates low, but the federal budget certainty does not, as it assumes 3.1% GDP growth. An unproductive spending boom is typical cause of recessions in the inflationary boom-bust cycle, and we seem to have a recipe for just that.
Google’s Virtual Game Console
Meet Stadia, Google’s cloud-based gaming service that will stream games directly onto your laptop, phone, or TV. While Nvidia, Sony, Microsoft, and even Amazon are pushing similar products, Google is trying to differentiate Stadia in three key ways:
- Leveraging existing products and technologies: Google has both the back-end servers to facilitate cloud-based services and the user-facing platforms to deliver content. The vision is for you to be able to see a game clip on YouTube, click the “Play Now” button, and be stomping noobs in a matter of seconds.
- Teraflops on teraflops: AMD is providing a custom GPU (graphics processing unit) with 10.7 teraflops of power (teraflop = floating operations per second). That’s roughly twice the processing power of a PS4 or Xbox One.
- Catering to developers: Google is investing in features such as machine-learning tech that allows developers to apply their easily apply their own graphics styles. Google is also creating its own studio for exclusive Stadia content.
Why is Google doing this? The video game market is valued at $180 Billion.
Netflix is rolling out a $3.25 per month, mobile-only streaming plan for customers in India. It’s no surprise that companies are targeting India’s less mature smartphone market, and it’s not uncommon for these firms to compete on price here. However, mobile Netflix plans can only grow as fast as the handset market, which faces its own challenges. A lack of affordability, education, and gender equality are all impediments to further smartphone diffusion in India.
Six Flags (SIX) charts look like the Texas Giant.