Results 201–250 of 441 found.
The Dollar’s Run May Just Be Getting Started
As the dollar continues to move to multi-year highs, we are reminded that very few market moves matter as much as what happens to the reserve currency of the world. We have noted several times that a stronger dollar tends to be associated with lower profit margins (but higher US equity multiples), lower commodity prices, and lower emerging market equity prices.
This Chart is Too Ugly for Comfort
It’s quite easy to get carried away with the drawing of conclusions based on a few technical chart patterns (and we are not doing that here!), but this chart is just too ugly to at least go unmentioned. What we’re looking at is the percent of stocks in our own Gavekal Capital International DM Americas Index that are at least 10% off of their 200-day high.
Is Crude Oil Set to Go the way of Copper, Lumber and Gold on a Breakout of the USD?
WTI crude oil is at an interesting junction currently. As we write, the USD is on the precipice of a major breakout while WTI crude is just a few percent away from the its late-August lows. Meanwhile, the other most cyclically inclined commodities (copper, lumber) have already breached their earlier lows and the Baltic Dry Index is sitting right at its low.
The Dollar Is Peaking Out To A 146-Month High
It took about a year of consolidation but it looks like the dollar could be on the verge of another breakout higher. After trading in a fairly tight range since the beginning of this year, the nominal trade-weighted dollar (major currencies) has poked out to its highest level since 9/4/2003.
For Japan, When GDP is so Close to the Zero Line, Inventories are the Dominant Swing Factor
So Japan’s economy is back in technical recession…for the fourth time in five years (first chart). It’s likely that this unfortunate reality will be met with additional monetary ease, but that is a discussion for another day. Here we’d just like to make a very simple observation: when your GDP growth runs close to the zero bound, as it has in Japan, the inventory factor can be the make or break variable.
How to Invest in a Slowing China World
The obvious question is then how one positions their portfolio in a world where China is on a structurally slowing growth trajectory. In an effort to not over-complicate things, let’s look at China from the 30,000 foot view. From this perspective we observe two things that will unfold over the next decade.
Do You Believe that China is “Fixed” as Copper Plunges to New Lows?
The last two days have been met with the usual monthly slue of Chinese economic statistics including retail sales (+10.4% YoY), auto sales (+11.8% YoY), industrial production (+5.6 YoY), fixed asset (infrastructure) investment (+10.1% YoY), and bank loans (+15.6% YoY), among others.
On Why Emerging Market Funds Are Ill Equipped to Capitalize on a Rebalancing China
We’ve hashed out the arguments for a persistently slowing China in this blog many times, so we won’t go there again today. Instead, we want to focus on a different aspect of the slowing China reality: the fact that most investment products that focus on emerging markets are overweight exactly the wrong economic sectors. In the scenario of a slowing and rebalancing China, the areas of the economy that are likely to benefit the most are different from the areas that gained from the infrastructure build out since 2000.
U.S. Rates, ECB Asset Purchases Driving Euro Lower
The euro fell 3 cents last week– a significant decline, certainly, but not the most extreme weekly drop witnessed so far this year: Most of the fuss associated with the rapid retreat of the euro can be attributed to the level of the currency in relation to important levels of recent support.
The Marginal Productivity of Chinese Debt Has Gone From Bad to Much Worse – Not Good for the Rabal
Taking the Chinese GDP statistics at face value (an increasingly big assumption these days) we point out a rather ominous scenario which seems to be developing in the productivity dynamics of Chinese debt-financed growth. Basically the amount of growth that each new unit of credit produces is plunging to levels not seen since 2009-2010 when the Chinese unleashed the largest GDP adjusted stimulus program in the world.
Not At All Inventory Corrections Happen In Recessions
As we had suspected in our latest quarterly conference call, economic growth in the 3Q was feeling worse than it was due to a reduction in inventories. Final sales of domestic product remained pretty strong as it contributed 3% to real GDP. Change in private inventories pulled down real GDP by -1.4%. Inventories dragged down real GDP by the most since in any quarter since 4Q2012.
Q: Is the Chinese Rate Cut a Silver Bullet? A: No!
Today the Peoples Bank of China cut the benchmark interest rate by .25% and lowered banks’ reserve requirements by .5%. The measure is supposed to spur growth and make life a little easier on debt-ridden Chinese companies. In the immediate term it may give a slight boost to the economy, but there is no chance this measure, or others like it, will keep the Chinese economy from slowing much further in the years ahead. Let us explain.
How Knowledge Investments Translate Into Superior Profitability
Regular readers are by now well versed in our belief that companies that invest in more knowledge assets, or intangible assets, than their peers leads to a sustainable competitive advantage that manifests itself in superior margins and profitability. We call these knowledge intensive companies Knowledge Leaders. For those that are not as familiar, please check out our three part series for the academic foundation and the real-time application of the Knowledge Effect.
Foreigners Are Once Again Accumulating US Corporate Bonds
An under appreciated consequence of the financial crisis is the fact that foreigners became net sellers of US corporate bonds for an unprecedented 7 years. It is unprecedented because from 1984 to 2008, the one-year moving average of net purchases of US corporate bonds by private foreigners never even dipped into negative territory.
The Slowdown In Global Trade In 6 Charts
The last two US recessions have severely damaged the growth rate in global trade. In each case, the trend growth rate of trade since 1991 (which is when the CPB World Trade Monitor data begins) was effectively cut by at least a percent. Emerging markets have helped to keep global trade afloat especially relative to developed markets, however, even in emerging markets we have seen a step down in the growth rate of trade.
Smart Beta 2.0: A Disruptive Innovation
At the beginning of every major disruptive innovation, fear, uncertainty and doubt reign supreme. Consumers are fearful of the unknown, uncertain of the benefits and doubt the durability of the innovation. But, in the end, fear, uncertainty and doubt give way to confidence, understanding and acceptance. The fund management industry is on the cusp of a major disruptive innovation.
Unemployment Claims Pointing To Further Economic Expansion
We have been on the hunt for economic data that indicates that the US may be on the cusp of a recession. So far in our journey, outside of the manufacturing sector which accounts for only about 12% of the US economy, the data seems to indicate that there is further expansion ahead. While it is just one data point, initial unemployment claims seems to be one of the strongest indications that a recession is not imminent.
US Corporate Bond Spreads Continue To Widen
Spreads are on the move in the bond market, especially for lower credit bonds. The spread between the Bank Of America/Merrill Lynch US High Yield index and 10-year treasuries has widened out to 623 basis points which is the largest spread since June 2012. It’s not just junk bonds that are making multi-year highs in spreads, however. The spread between BAA and 10-year treasuries is the widest since July 2012 and the spread between BAA and junk is the widest since September 2012.
World CPI Proxy Breaks Below 1%
There’s been a lot of of deflationary data recently (see here, here and here). The plunge in our simple World CPI proxy to the lowest level since October 2009 doesn’t really catch us off guard. The fact that one third of the 33 countries in our proxy are currently are seeing year-over-year declines in consumer prices is a bit eye-opening, however. Switzerland is leading the deflationary wave as Swiss consumer prices are down -1.4% year-over-year, more than they were at any point during the financial crisis. The year-over-year decline is the largest on record since 1959 for Switzerland.
Small, but Noticeable Divergence Opening Up Between EM and DM
We certainly haven’t been shy about identifying the rout in EM stocks and the very emotional selloff that took place in August. At the time we showed that the emotion at the August low was commensurate with the 2011 and 2008-2009 panics, both of which happened to be good buy spots for EM stocks.
Boston Is The 3rd City To Pass Previous Home Price High-Water Market
The S&P/Case-Shiller Home Price Index for July was released this morning and showed that we have a new city that is making all-time house price highs. Boston home prices, which had a 1.1% month-over-month gain and is now 4.29% higher year-over-year, are now 80 bps higher than the peak price in 2005. Boston joins Denver (+22.1% over the peak) and Dallas (+21.3% over the peak) as the only cities out of the 20 cities that S&P/Case-Shiller HPI tracks that have surpassed housing bubble price highs.
Is China “Fixed”? Short Answer: Financial Markets Say No
The rally in stocks off of the August low has in some respects alleviated worst case fears about the fate of the Chinese economy. After all, in hindsight it is pretty clear that the selloff was driven by a simultaneous rerating of Chinese growth expectations by market participants combined with the possibility of higher short rates in the US to boot. These fears resulted in vast under performance of growth sensitive asset prices throughout the correction and then a sharp rally in those assets in the days following its terminus.
NYSE Margin Debt Declines Again In August
Margin debt declined by nearly $14 billion in August bringing the two-month decline to $31.5 billion. This is the largest two-month decline since, you guessed it, September 2011. Margin debt is now approximately $34 billion off the high made in April.
Deja Vu All Over Again for the Stock Market Correction?
In remembering the late, great Yogi Berra, we can’t help but associate one of our all time favorite Berraisms with the current stock market environment as compared with that of late 2011. From our perspective it looks and feels like deja vu all over again. Most of our readers probably vividly remember the panic that ensued over the 2011 government shut down and the then large negative revision to US GDP that sent US stocks down nearly 20% in a waterfall type decline.
Are we About to see a Big Time Rally in the Long Bond?
During this cycle the positioning of commercial traders (the smart money) has been a crystal ball for players in the treasury market. Every peak in long bond rates since 2010 has been associated with commercial traders net long options and futures contracts on said instrument. At a net long positioning of about 34,000 contracts, the commercials are the most long the long bond since the end of 2013 before the 30-year treasury bond yield fell from 4% to about 2.2% over the course of 13 months.
Looking At A Decade Of US Equity Valuations
Expensive stocks can always get more expensive and cheap stocks can always be cheaper. Consequently, making short-term market calls based on valuations is a fool’s errand. However, valuations end up always mattering in the long-run even if they are usually usurped in the short-run by investor sentiment. Therefore, we thought it would be a worthy exercise to take a look at how US equity valuations by industry group look today relative to the past decade.
Correlations Have Spiked In The US, Less So Around The World
The correlation between US stocks and the MSCI World Index has once again spiked as volatility has increased. In the chart below, we show 20-day, 65-day, and 200-day rolling correlation between US stocks and the MSCI World Index. The 20-day correlation has increased to 0.82 which is the highest level since 9/7/2011 and it surpasses any level hit during the financial crisis.
Deflationary Tailwinds In US Import/Export Prices
A strong dollar is very prevalent in today’s import and export price release. Import prices have declined by -11.4% year-over-year which is the largest decline since 9/2009. If we go back as far as the data exists (1983),the current decline is the largest on record outside of the financial crisis. Excluding fuels, import prices have declined by just over 3% which again is the largest decline since 10/2009. The decline in import prices looks like it has a ways to run as well. The dollar has gained over 16% over the past year.
Analysts Haven’t Been this Negative on Emerging Markets Since...
In simple terms, everyone has moved to the same side of the boat when it comes to expectations about the prospects of emerging market stocks. Not since the financial crisis nadir in stock prices have analysts of EM stocks been so bearish and quick to rerate expectations. Yet, amid all this negativity, there arises a fantastic opportunity for investors of EM stocks. As the famous Warren Buffet axiom states, “Be fearful when others are greedy and greedy when others are fearful”. To say that analysts are fearful would be an understatement.
Largest Driver of Performance Over the Last Month? Beta
As part of our treasure trove of data and tables, we rely on our factor scoring model to tell us the most important elements that have affected performance over various time periods and in different regions. For developed markets (DM), the most influential factor over the last week and month (coming in 2nd over the last year and 5th over the last three months) has been beta.
Investors Should Cheer A Higher Federal Funds Rate
With rocky equity markets and concerns about economic growth in China, there seems to be a growing chorus in the market calling for the Fed to hold off on raising rates in September. In fact, many are now saying (hoping?) that the Fed holds off raising rates until 2016. Bill Dudley, president of the New York Fed, came out today saying that the case to raise rates is “less compelling” than it was just a few weeks ago.
US Stock Market Internals Update – New Lows Are Spiking
With another a significant down day in the works, its worth remembering that these stats are as of the close on Friday. The main takeaway is while there has been some deterioration in the US stock market, we are nowhere near what happened in 2011. Let’s take a look at some stats, like what Bryce did with EM stocks on Friday, and compare current levels to 2011.
Don’t Expect A Turnaround In Your Favorite Energy ETF Anytime Soon
By far the largest energy ETF is the Energy Select Sector SPDR (XLE). It’s a market cap weighted energy ETF that tracks the energy sector in the S&P 500. Since its a market cap weighted ETF, it is very top heavy as it is dominated by Exxon Mobil and Chevron. As of yesterday, Exxon Mobil account for 16.15% and Chevron accounts for 11.68% of XLE. Overall, the top five holdings account account for 44.2% of the entire ETF.
Testing Today’s Analyst Ratings
Regular readers are familiar with the extensive fundamental screening process that we employ in our hunt for the world’s most knowledge-intensive companies, as well as the relative strength point-and-figure technical charting element of our process. Now and then, it is interesting to ‘test’ changes in analyst ratings of various stocks that we can see in our universe in order to see how viable those assessments are from a purely technical standpoint.
Is the Chinese Yuan Undervalued or Overvalued?
Almost all of the recent analysis surrounding China’s recent currency fluctuation takes for granted that China just joined the global currency war by engaging in competitive devaluation in an effort to spur exports and thus growth. We offer a different take, that the recent move that in effect loosens up control over the peg (slightly) is more a measure of ongoing reform than of competitive devaluation. Indeed, one of the hallmarks of a liberalized financial system is that prices are determined by market forces rather than a central bank or other government entity.
On the Winners and Losers of the Great Chinese Rebalance
Change can be hard, but change can also be good. At this very moment we are living through one of the largest and potentially destabilizing periods of economic change in the last century. It is the mirror image and reversal of the last great economic paradigm shift. It is China’s shift from an investment driven growth model to a consumption driven growth model. For some it is painful. For others who are correctly positioned it is extremely lucrative. It is affecting all of us whether we know it or not. But most of all, it is inevitable.
The Dollar Is Marching Higher Again And This Has Consequences
The real trade-weighted USD exchange rate (using a narrow and a broad definition) moved to 12.5-year highs in July after the exchange rate moved above March’s level. The more timely nominal trade-weighted USD exchange is basically at March’s high level as of 8/7 and given the currency moves of the last couple of days should be breaking out to a new multi-year high over the next several days.
Down Gaps Have Doubled In the Last Month
One of many market internal indicators that we use– the number of stocks that are gapping lower at the open of trading– is signaling an increase in emotional selling behavior over the last month or so, quickly jumping from 1,000 to 2,000 (blue line, axis inverted) for the MSCI World Index. While this move is not without precedent, the historic correlation between an increase in down gaps and a decline in the market warrants attention– especially in light of how quickly the number of down gaps can accelerate as market prices decline.
Why Isn’t The American Consumer More Optimistic?
The financial crisis has had a lasting effect on the psyche of the American consumer. Personal consumption expenditures (SAAR) are an impressive $2.1 TRILLION higher than the peak in 2008. And on a longer view, the dip in PCE during the financial crisis can be seen but it hasn’t fundamentally altered the slope of the series.
Clear Evidence that Demand for ETFs is High and that Appetite is Being Met
We all read about it in the news, but ETFs really are becoming the preferred investment vehicle for the investing public. The evidence is clear; both in terms of number of funds and net assets ETF growth is outpacing mutual fund growth by a wide margin.
Is This A Defensive-Led Market? Or A Knowledge-Led Market?
Much has been made of the fact that defensive sectors, or counter-cyclicals as we prefer to call them, have been leading the market higher. This is very much out of the norm for a bull market, even for a cyclical bull market within a structural bear market, as cyclicals tend to lead equity markets higher while counter-cyclicals help investors play defense when the market breaks lower.
A Look at Reported Results, and Subsequent Price Performance
With slightly more than half of the constituents in the MSCI World Index having reported 2Q results, we thought it would be useful to take a look at the trend in sales and earnings so far. In the developed world, about 54% of those companies that have reported sales results have surprised positively, led by the Health Care and Financials sectors. The most negative sales surprises have been concentrated in the Consumer Staples, Materials, and Industrials sectors.
More Evidence of China Slowing Permeating Asia – 7/31/2015
In today’s edition we highlight just a few data points: the South Korea Business Survey Index making a new low, Japan consumption expenditure having a very weak month, and Japan CPI headed back toward zero. The slowing of the biggest economy in Asia is really having a noticeable impact on the region.
Results 201–250 of 441 found.