HAMISH MCRAE: A triumph of tech shares over Trump economics

If you failed to be wowed by the three new iPhones launched last week or indeed the Apple watch – though they seem a clutch of stunners – be wowed by the Apple share price. It is within a whisker of its all-time high, reached earlier this month, valuing the company at $1.09 trillion. If you had bought its shares ten years ago, you would be up some ten times in dollar terms.
Indeed, be wowed by the value the markets put on high-tech America, with Amazon nudging above $1 trillion a few days ago before falling back. And, of course, there are the other giants, Alphabet (parent company of Google) worth $820 billion, and venerable Microsoft, now worth $869 billion. The bulls on Wall Street are talking of there being five separate trillion dollar companies by the end of the year.
Who knows? What we do know is that it is the high-tech companies that have led to the divergence of US share prices from those of the rest of the world, including the UK. The S&P 500 index hit an all-time high at the end of August and is a few points off it now. By contrast, the FTSE 100 is about 8 per cent off its high in May, the German DAX down by the same amount from its high, also in May, and the French CAC index about 5 per cent off its high too.
Were it not for the tech giants, US shares would have languished too; they would have performed much the same as the UK and European indices.
So, to oversimplify, the US financial community is not saying that the American economy is dominating the rest of the world in a burst of Trumpian triumphalism. Rather, it is saying that the US has something special in its high-tech sector, a dominance that will run for some time yet. The big question is how long will this incredible run last – and does it end with a whimper or a bang?
You have to distinguish between the commercial dominance of these companies and the market's assessment of that dominance, but for guidance perhaps the best person to go to is Robert Shiller.
He is an economics professor at Yale, a Nobel prizewinner, and best-selling author, notably of Irrational Exuberance, published in 2000, which warned of the excesses of the dotcom boom.
He has also given his name to the Case-Shiller index of US house prices and the CAPE-Shiller index of share prices, regarded by investors as a key way of putting a value on stocks.
In an interview with Bloomberg, Shiller has just acknowledged that shares are pricy, but could become pricier still. He says that while the soaring market has something to do with President Trump's business-orientated mantra of deregulation and lower taxes, 'it goes beyond the rational, logical effect, and it has something to do with our animal spirits'. 
'Animal spirits' was the phrase coined by John Maynard Keynes in his famed 1936 work, The General Theory Of Interest, Employment And Money, to explain why people sometimes acted with 'spontaneous optimism rather than mathematical expectations' – in other words, taking risks that were not justified by the information available.
So maybe it is the Trump effect after all.
There are two hints at the direction of US share prices in the short term – each, rather unhelpfully, pointing in a different direction.
One is that his CAPE-Shiller index (CAPE stands for cyclically-adjusted price-earnings) is now in the low 30s, but hit 45 in 2000. That suggests share prices are not as overvalued as they were in the dotcom crash, so could feasibly rise further. The other is that Shiller says he is not adding to his own US share portfolio right now.
You know Harry Truman's joke about needing a one-handed economist: 'All my economists say, 'On the one hand...' but then 'On the other...'.'
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The ultimate exercise in animal spirits over the past 12 months has been the crypto-currency boom, and what looks pretty much like a bust. 
They are on average down some 80 per cent from their peak. 
Question now is whether they are actually useful or whether as Agustin Carstens, head of the Bank for International Settlements in Basel pithily describes them: 'A combination of a bubble, a Ponzi scheme and an environmental disaster.'
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