If we know one thing about investing, it’s that time and the power of compounding make stocks an essential holding for savers, right?
Well, maybe not, at least when the choice is to hold bonds with a reasonable yield instead and the excess returns from stocks have been on a long term downward trend, something suggested by this presentation from Claude Erb, the West Coast based manager of TR.
Which is going to take us on a mostly chart based and, we hope, relatively painless tour of a wonky concept — the equity risk premium. But it’s also a way to come at those arguments about long term measures of stock market valuation, the Cape ratio and Shiller PE, from another direction. Read more
Some experimental video. This Alphaville blogger joined Lex’s Joseph Cotterill
on the set of mastermind in the FT studio to debate exactly what is up with Tesco.
Here is the Tesco share price, which you might notice is getting into lost decade territory.
Here meanwhile are Wednesday’s results: Read more
Ukraine tensions rise || Tesco profits drop, but shares bounce after long decline || Starbucks moves offices to London in reputation rebuilding exercise || Burberry sales jump, but currency to hit profits || European stocks rise Read more
Actually, the way Creditsights frames the question about credit issuance is “can it continue?” which points to their answer: probably, even if not at peak levels.
Speaking of which, if you have an investment grade credit rating, you must have been enjoying the party.
USD fixed-rate investment grade corporate issuance totaled $265 bn in the first quarter, which was a $75 bn increase over 4Q13 numbers and $30 bn greater than the amount seen in the first quarter of 2013. The 1Q14 tally only trails two prior periods: the $285 bn in 1Q09, when issuance was boosted by the TLGP program, and the $278 bn seen in 1Q12.
There’s an old Russian proverb, popularised by Ronald Reagan, which comes up among due diligence types: trust, but verify.
It seems appropriate to keep it in mind when thinking about Berkshire Hathaway, which is a sprawling insurance company and conglomerate indulged by the market largely on the understanding that its charismatic, cunning and greedy-in-a-good-way leader will do the right thing.
Hence our interest in a series of very large derivative contracts written by Warren Buffett between 2004 and 2008, which reveal a willingness to at least work creatively within the confines of fair accounting disclosure. Read more
Ukraine government may be open to referendum || Peugeot sets out recovery plan || Temasek targets middle class growth || London house prices go a bit more mental || Relativity Media takes on Disney for Maker Studios || Stocks down Read more
Tech is down, Treasuries are up, stocks are flattish: whatever happened to asset rotation, great or otherwise?
For an answer, we turn to the flows as interpreted by Nikolaos Panigirtzoglou and team at JP Morgan, who have found that the bond selling of late last year has reversed:
non-bank investors appear to be responsible for most of this year’s bond rally of which retail investors were one. Neither speculative investors, who appeared to have increased their US rate shorts by $110bn duration-weighted YTD, nor banks who, driven by FX managers, sold USTs this year, appear to have caused this year’s bond rally.
Yes, the Nasdaq has fallen out of bed and is rolling towards the window, off 7 per cent from its March high. Crash or correction, watch this space.
But, in a bid to remember why everyone is so excited about tech, a reminder of the potential for the internet of things. First, some Cisco numbers delivered via Citi:
Soon there will be more than 6 devices
leaking information connected for every man, woman and child on the planet.
Bloomberg Businessweek has the latest big interview with the king of Pimco. Click for the low down on special-K served Mercedes-style, the big man’s seven screens, and expansion as a dairy-based process:
Greek bond sale a success || Hong Kong and Shanghai unveil cross trading plan || China trade data weak || US banks attempt to preempt GAO report on TBTF funding advantage || Bankia sells Iberdrola stake || Markets mixed Read more
So, dear sceptic, you think that interest rates will go higher. Prices for debt will fall, meaning a wonderful opportunity to bet on what must occur. Easy.
Except it turns out that trading a bear market in bonds is hard. By way of example, BofA Merrill Lynch offer up the last rate tightening cycle that began on June 30, 2004. Imagine you decided to go short exactly a year beforehand.
During that period, 10y Treasury yields rose 117 basis points. However, once adjusted for negative carry and roll-down, an investor would have made only about 70bp, assuming a short position in 10y Treasuries was established on June 30, 2003 and held it for the next year.
Tech stocks have become a little bit more modestly priced.
Returning to that theme of sticky risk, the search for yield and returns and what happens when the Federal Reserve et al point towards the exit, here are some charts of the divergence between fundamentals and markets courtesy of Matt King at Citi.
The point, as ever, is that while the Fed is handing out donuts then you want to grab your share. But everyone has been eating free food for a long time now, and there are a lot of fat and happy credit investors to fit through the door when the donuts run out… Read more
Turkey plans euro bond sale || UK industry expands || Sri Lankan borrowing cost at record low || Takeda $6bn fine || Spain considers strategic oil investment || Discounters take UK share || European court strikes down snooping law || Markets: stocks little changed Read more
First quarter performance results for surviving hedge funds are out. A volatile performance, says index compiler HFR.
For the first quarter, the HFRI [Fund Weighted Composite] gained +1.1 percent, with a strong February gain offsetting declines in both January and March.
Holcim and Lafarge outline cement merger deal || BlackRock positions potential successors to Fink || Dropbox and Square raise new credit facilities || Nigeria almost doubles GDP in recalculation || Former adviser attacks European Commission over austerity || Markets Read more
Can it be a merger Monday if the big deal leaked on Friday?
Either way, the second quarter deal making was already off to a fast start before the cement makers got involved, according to Goldman Sachs, and Europe is finally starting to join in the fun.
A week into 2Q, M&A announcements continued at a brisk pace (+21%y/y) while completions also saw gradual improvement (+7% y/y). While the year to date strength in M&A has been primarily driven by the US (+21% y/y), we have seen notable improvement in selected pockets of EU deal flow. Specifically, EU buyers’ appetite have seen sizable growth (+38% y/y), though more in favor of cross-border purchases (2x vs. 2013TD) relative to domestic consolidation (+27% y/y).
Andrew Haldane has declared the age of asset management upon us, but we suspect champagne corks will not be popping at BlackRock et al.
The title for the speech by the executive director for Financial Stability at the Bank of England appended a crucial question mark, and it turns out that the central bankers are only just starting to get heads around an entirely different set of too-big-to-fail problems to those of the banks. (Click for the full speech).
Correlation, causation, or Rorschach test we’re not sure, but the latest from BoA ML strategist Michael Harnett leads with a quite remarkable chart.
About that European bull market. Enthusiasm is there, but the earnings not so much yet.
With little support from earnings, European equities continue to be re-rated in P/E and price/book terms. From 10x in late 2011 to 17x now, European equities trade above both post-1980 and post-1990 average P/Es.
Citi strategist Jonathan Stubbs finds that it’s not just the average, value stocks no longer offer great value either. So, look for places where corporate earnings are actually, y’know, growing. Read more
Credit Suisse restates again || Euro area services expanding || Ryanair traffic record || Google split shares to start trading || Just Eat prices at top of range || Kingfisher to buy Mr Bricolage || Weir CEO to vote against Scotish Independence || Markets calm ahead of ECB decison Read more
So, havens were what worked in the first quarter, led by a niche precious metal.
The pseudonymous Jesse Livermore returns to his mission of demolishing favourite bear arguments, hollow reasoning he thinks has served too long as an excuse to avoid investing.
The latest forray is on the subject of US margins, which for the last decade appear to have been much higher than during the half century that preceded it. Inevitable reversion to the mean, means corporate profitability must (one day) fall, say the pessimists. Read more
The UK’s National Audit Office has delivered its opinion on the privatisation of that other British institution, Royal Mail. (Click for the full doc)
The short version of which can be summed up in one share price chart: Read more
Wanted: mid-scale mining company with potential to renovate and extend. Desperate and/or motivated sellers preferred.
Mick Davis, who can reasonably claim to be one of the true operators in mining after he and the Xstrata team built a company that rode the Chinese demand commodity super-cycle all the way up to the final deal with Glencore, is back. Read more
Eurozone inflation at five year low || UK and Switzerland investigate benchmarks || X2 secures $2.5bn in funds || Greece approves structural reform package || Libya sues Soc Gen || ING to resume dividend in 2015 || North and South Korea exchange artillery over water || Markets: Positive sentiment at quarter end Read more
Some lawmakers are calling on the SEC to look at the disclosure rules for activist hedge funds, according to the Wall Street Journal, which has decided to stir the pot after it made the shock discovery that investors talk to each other.
That discovery was in this piece, which is strange for a couple of reasons we’ll explain below, but was notable also for this endearing image:
There also is a kind of buddy system among activist investors, some say. Many high-profile investors who know each other don’t want either to get blindsided by another’s investing—or to blindside others.
And seeing as there didn’t appear to be much space to include some of the more well worn arguments for the current system, we’ll throw those in as well. Read more
Fans of shareholder activism that we are, it is not true that activists have at all times covered themselves with glory. Case in point ADT, a popular short since Keith Meister of Corvex bowed out last last year.
That campaign is one to file under activists helping themselves, not all shareholders, which is a tricky label for an agitator to carry. Indeed, our attention is drawn to the proxy materials from the latest company to come under urgings for improvement by Corvex: Commonwealth Reit.
We missed the letter when it came out, but as nominations for the board closed this week, let’s revisit something that didn’t get much attention earlier this month: Read more