3.5%. like rock's -- blackrock's chief investment strategist is with us.
What are investors thinking?
There are a couple of things going on.
Many of these sectors got very aggressive valuations.
You look at biotech for example.
Nearly eight times book value as recently as the end of march, so clearly, you know, stretch valuations have played a part.
I think what is exacerbating this anchor to reading -- and contributed to the seat is we're seeing a lot of liquidation by hedge funds.
They have done really well with a, but at that moment them has broken down, we are seeing some aggressive liquidation by many of those players.
What are those players doing now and what are they buying into?
Clearly there have been a lot of movement into cash, but you are also seeing something below the surface.
Take a look at technology.
We have all spun this as technology selling off.
If you look at effects on monday, at the same time as many of the highfliers, some of these use the term now old technology companies, intel, cisco are actually up.
What you are seeing is a rotation out of the very aggressive growth names and into parts of the markets that are perceived as offering value.
Russ, what you are saying is the selloff began for fundamental reasons, people began to have concerns over valuations, and once it began, technicals took over and momentum players started to dump the same names.
Am i getting that straight?
That is exactly it.
There were fundamental reasons to line up on these names.
It continued us that momentum trade, which really drove a lot of volume in 2013 was broken, not surprisingly you have seen some players sell very aggressively.
What do you think is the right way to look at this?
Do you believe that those valuations were getting close to nosebleed levels and those stocks did need to sell?
I think overall the market looks reasonably valued, but certainly there are parts of the market, and the ones we are talking about, biotechnology, those were very stretched.
What we're seeing is a modest correction, and that correction is accompanied by a rotation out of some of those parts of the market into more value-oriented.
That is probably healthy.
One example -- emerging markets.
One of the markets everyone hated last year, the one advantage they had is that they are relatively cheap.
As biotech has sold off, we have seen somewhat of a rebound in many parts of emerging markets.
For you, get out of social media come out of biotech into emergency markets.
I think the key is value.
Where do you see value in the market?
U.s. large and mega cap are one area.
U.s. cyclical companies are another.
European stocks are fairly cheap , and on the relative basis, i think we do see some opportunity in emerging markets, particularly in asia.
How vulnerable right now is investor psychology and sentiment?
I think sentiment is vulnerable, but i am not overly worried.
So far what you have not seen him a which i think is encouraging, if you have not seen any cracked in the credit markets.
Portable, look at the vix index.
It is only at 15 or 16 with the selloff.
The reason volatility has not risen is high yield spreads remain fairly cheap.
What that tells me as we are not seeing any fundamental shift in monetary conditions, at least not yet.
What makes you say high-yield appears cheap?
When i look at it, spreads seem so tight.
When you look at the corporate bonds, they do not see cheap.
I did not say high heels are cheap, i said the spreads ever made in there.
To your point, the spreads are at a great value, but it does represent a chance to generate some income, but the point i was trying to races when you are looking at those spreads, you're not seeing reaction from bond market investors.
People are not worried yet about a rise in default, so what that tells me is this is mostly sentiment driven, less about a change in the fundamentals.
How long before people start pointing fingers at the fed, and instead about fell ua since and start talking about taper at the reason for the selloff and wondering when janet yellen is going to figure out when the economy is not going as fast as some i think?
That is a thesis, but it seems that will eventually happen.
It is hard to blame the fed.
We are not in 2012 or 2013. every time there is a softening, we expect the fed to come to the rescue.
Janet yellen has been very clear -- there is a big onus on the fed reversing the taper.
That said, we got fairly dovish news from the fed minutes.
The fed is going to take their time, deflation is still low, the fed is worried about inflation, so if you define the monetary environment by low
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