Being heard this week at the High Court of Justice:
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Mark Schofield and his team of macro strategists at Citi have a new watchword: diversification. The bank has a major new paper on the matter (one of its occasional Citi GPS series), arguing that we’ve all been wrong to sit about expecting, at some point, a sudden rush for the exit in bond markets and a consequent rebalancing of equity allocations. Read more
Securitisation has gotten a bad rap thanks to its association with dodgy underwriting during the bubble. Yet bundling loans originated by banks and selling them to investors in the capital markets could be just what is needed to boost the flagging euro area economy.
This helps explains the European Central Bank’s recent announcement that it will be shopping for asset-backed securities (including mortgage bonds) and covered bonds starting in October. Read more
Some board members are not the best judge of value when it comes to their own stock, but overall you might expect buying by insiders to be a good sign. That theory has prompted Citi to take a look at purchases by directors, as they try to work out whether stock markets are overvalued.
More on the details below but to cut to the conclusion, the data is inconclusive for the UK, while European boardrooms do not appear to be flush with confidence. Read more
A counterpoint to worries about the stuffy air of silence settling on markets arrives from Citi. Fear not the market calm, it is an unreliable sign of things to come.
There is little relationship between market volatility and future equity returns over any time horizon. Current low levels should not be seen as a clear sign of investor complacency and an imminent market correction.
Pickers of stocks cannot relax, however, because while market level volatility is low, it turns out that “style volatility” is up. Read more
It might be scary, but Mario Draghi is here to help. Yes, you’ve climbed a long way, European stocks are up 160 per cent from their 2009 lows, including 7 per cent or so this year. Now is not the time for faint hearts, however.
So says the still optimistic Jonathan Stubbs at Citi, at least. Halfway through the year and the strategy team budge not from their forecast: 20 per cent total return from European equities this year.
Shares are no longer cheap in absolute terms, but we stay bullish due to: 1) progressive global economic recovery in 2014-15, 2) return to double-digit earnings growth in 2014-16E, 3) super-cheap relative valuations, eg vs credit, 4) rising risk appetite, eg M&A, demand for equity. ECB QE later this year should also be supportive.
We detect a theme. It may be that with financial markets becalmed a new subject is needed. Perhaps it reflects the way Piketty has become an instant bookshop-to-shelf classic, but something has investment strategists reaching for insight from an eighth century theologian.
“And those people should not be listened to who keep saying the voice of the people is the voice of God, since the riotousness of the crowd is very close to madness.” — Alcuin to Charlemagne, 798 A.D. Read more
Welcome to boom time in the UK. There, we said it. Or rather we’ve spotted that the optimistic Jonathan Stubbs at Citi has said it. There is a buzz, and it is all about the Bs.
Bull Market — Boom, Bids, Base Rates, Builders & Big-Caps
Global recovery, UK boom — Our economists expect progressive recovery of global economy in 2014-15 with GDP growth of 3.1% this year rising to 3.5% in 2015, from 2.5%in 2013. Recovery led by US and Europe/UK. EM headwinds not strong enough to derail growth. UK survey data very strong, eg new orders, hiring and investing intention. Boom time.
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.
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
You’ve got to admire the audacity of Credit Suisse, Deutsche Bank, BofA Merrill Lynch and Citi: they’ve agreed to underwrite the £5.8bn Barclays rights issue, pitched at 185p on a 1-for-4 basis. Read more
Or, to go even further, are the stalwarts of Citi a symbol of board resurgence? That’s the question asked by Benjamin W. Heineman, Jr on Harvard Law’s blog on Monday. Is this simply a long campaign by Michael O’Neill to push Vikram Pandit out, or does this incident underscore a more basic truth:
Independent boards of directors are still the best mechanism— or the least worst one — for holding business leaders accountable, even if many boards have failed in their attempts to do this, often in spectacular fashion.
Ok, this is pretty excruciating, but it’s an important (albeit emotional) debate…
Is the Eurosystem’s Target2 payment system toxic for the people of Germany? Should they be worrying like hell about this (click to expand):
Citi are pushing that fateful day back:
We have held the view, since May 2012, that a Greek exit from the euro area (“Grexit”) in the next 12 to 18 months is a high-probability event (90%) which we assume, for the sake of argument, would happen on January 1 2013. We are now cutting the probability of Grexit over the next 12-18 months to 60% and judge that this event will probably happen later than we previously thought, most likely in 1H 2014.
A cynic might suggest they were getting the jitters as deadline approached but lets hear them out (our emphasis). Read more
The US government risks missing its deadline of divesting all its Citigroup shares by year-end after a fall in stock market volumes prompted authorities to slow down sales in July and August, reports the FT. The lull could prompt the US Treasury, which has a stake of about 17% in Citi, to consider a share offering instead of selling the stock in small quantities in the market, said bankers and analysts. Separately, the FT reports that Vikram Pandit, Citi’s CEO, will start drawing a pay cheque again next year, after two years of working for $1 while the bank recovered from massive losses in the financial crisis.