(MENAFN- Khaleej Times) The brutal shift from growth to value on Wall Street was inevitable once the "momentum premium" on FANG to Cinderella value sectors like banks and energy even exceeded the Silicon Valley dot-com mania of 1999, a year I spent more time in San Francisco/Palo Alto than in my home in Dubai. Hawkish central bank statements from the Fed, ECB, Bank of England and Bank of Canada meant a rise in G-7 government bond yields. This was the kiss of death for tech shares trading at nosebleed valuations such as Amazon, Netflix, Tesla or the Philly Semiconductor Index. The Federal Reserve's stress tests were a $100 billion windfall in dividend returns and share buybacks for America's largest banks. Note that Citigroup is now 67 and Goldman Sachs is 225. Brent crude upticked to $46 and led to a dead-cat bounce in energy shares, the worst-performing sector of the S & P 500 index. As the Volatility Index rose to 14 on Thursday, the Dow suffered a mini-meltdown, down 257 points mid-afternoon.
It would have been down 500 points were not for the strong rotation from tech/property to banks and energy. Amazon is now trading at its 50-day moving average as I write. This is serious, deadly serious. Are we on the eve of another March 2000, the month the Internet bubble burst? I say yes. Silicon Valley deal-hunting taught me some fabulous yet bitter lessons. When greed swings to fear, leverage kills. Lord Keynes was so right. In the long run, we are all dead - but in the short run we get skewered in margin calls. Bond markets can and do go ballistic. Contagion in the debt market spreads at the speed of light. I remember the words of Nietzsche as I stare at the green (more read today) phosphorescent flicker of my Bloomberg screen: "Gaze not into the abyss, boyo, lest the abyss gazes back." The evolutionary algorithms in my human brain spell danger. So I adapt. Adios le sayonara, FANG. Hello, big bad banks! But my readers and history will attest I never left you while your shares prices doubled since 2014.
Morgan Stanley shares have soared from 24 in early March 2016 to 44.60 as I write amid the carnage of Thursday, June 30. This global investment bank, a spinoff from the original House of Morgan after the Glass Steagall Act was passed in FDR's reign in 1935, is a firm I have known and worked with since the 1990s, though its private wealth group has sadly exited Dubai. Morgan Stanley was one of Wall Street's biggest winners from the Fed CCAR stress test results. The Fed has now given chairman/CEO Jamie Gorman, a former McKinsey and Merrill Lynch GPC alum, the green light to hike the dividend by 20 per cent and repurchase $5 billion in shares.
Jamie Gorman has transformed Morgan Stanley from the wham-bam high-risk Habibi Mafia days in the court of John Mack that bought the fabled bank to the brink of failure in late-2008. I actually made serious money shorting the shares until Mack screamed to Congress to bank short-selling and begged for money at the Fed discount window.
Gorman slashed Mack's institutional bond trading and merchant banking empire. He did a brilliant deal with Citigroup to acquire Smith Barney, making Morgan Stanley the biggest retail broker in America, with 18,000 brokers and $2.2 trillion in assets under management. He rebuilt the firm's capital, liquidity, leverage ratio and slashed its value at risk metrics. He axed hundreds of millionaire managing directors, including some of my closest Wharton and Chase London/NY buddies from the 1990s.
I have no worries about Morgan Stanley's rankings on the supplementary liquidity ratio (SLR), which Treasury (our man in DC Stevie Mnuchin!) will relax in any case. With a $5 billion share buyback, the SLR could well be 3.5 per cent, thus at least a 70-basis-point balance sheet cushion. The rollback of Dodd Frank, the rise in return on equity, the sale of a dozen low-profit/low-growth businesses, a steeper yield curve, higher volatility and securities trading/flow revenues, the reconfigured FICC revenue mix, the blowout global merger advisory franchise told me that Morgan Stanley was a no-brainer buy after its 10 per cent "Trump reflation" angst sell off in March 2017. Not guts, no glory, no bonus hunky-dory! This is my motto at Asas Capital in my daily dialogue with Mr Market. Wicked!
The writer is a global equities strategist and fund manager. He can be contacted at .
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