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Tech stock carnage may just be the beginning

NEW YORK – The so-called FANG index of top tech companies – Facebook, Amazon, Netflix, Google and others – has fallen by nearly 10% from its early November peak, after so-called real interest rates rose to their highest level in two years.

Wednesday’s release of Federal Reserve minutes showed that the US central bank was slightly more inclined to raise interest rates than investors had thought, prompting the heaviest selling of tech stocks in volume terms in a decade.

As I warned on December 28 (“Can Tech Stocks Survive Fed Tapering?”), tech stocks trade in tandem with the so-called “real” interest rate, the yield of inflation-indexed Treasury notes. They are the new utilities: long-term monopoly cash flows that investors buy in lieu of the negative real rates offered by all Western governments.