It’s time for our annual August report, “Charts for the Beach.” Each year we highlight five of our favorite charts we think consensus is currently overlooking. So, head for the beach, but be safe and heed the warnings about the critical lifeguard shortages. (Yet another sign the labor markets are historically tight!)
Are there really only 7 growth stories in the entire world?
We remain underweight the Magnificent 7 because we are not so bearish to believe that there are only 7 growth stories in the entire world. For example, Caterpillar’s earnings growth has been superior to Microsoft’s in nine of the last ten quarters. (Note: RBA may own both stocks in portfolios.)
Downgrades do matter
If debt ratings changes don’t matter, then why are there debt ratings? Of course, they matter. They matter for companies, for municipalities, and for governments.
The 2011 US debt downgrade had a meaningful effect on the relative interest costs of US Treasuries and, because debt in the economy prices off government debt, raised the cost of capital for the entire US economy. No one cared because the absolute level of interest rates was low, but such omissions missed the important point that interest costs were unnecessarily high because of Washington dysfunction.