Category: Equities

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Something strange is happening in the global economy right now

Everyone seems to be focussing on the equity markets recently, but equity markets haven’t really moved much over the past one month. Over the past month, major equity markets have lost between 1.5% to 4%.

The real action is in bonds and commodities. And trade seems to be flourishing too.

10-year government bond yields of major economies are lower by 5% to 40% (in relative terms not absolute terms) in just the past month. 10-year German bonds are down 12 bps over the past month. That wouldn’t sound much but they are down 28% from 42 bps to 30 bps. U.K. yields are down 8%, U.S. yields down 5%, Japanese yields down 40%. Even Greek yields are down 20% over just the past month. Does the market anticipate a pause in interest rate rises? It would appear so.

Continue reading “Something strange is happening in the global economy right now”

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The U.S. and mainland Europe have moved in different directions over the past year on interest rates, equity returns, bond yields and government borrowing

Interest Rates

What a difference a year makes. The Federal Reserve has hiked interest rates thrice (in December, March and June) with a target rate range of 1.75% to 2% now. The Eurozone meanwhile maintains its zero-interest rate policy.

Continue reading “The U.S. and mainland Europe have moved in different directions over the past year on interest rates, equity returns, bond yields and government borrowing”

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Do economic fundamentals matter anymore? Part 1 of 3

Do economic fundamentals matter today? We look at the strange market conditions today. We are living in truly interesting times …

Stock Market Valuations

Equities globally have never been more valuable with market capitalization hitting $90 trillion.

Amazon trades at what a Price to Earnings ratio of some 200. Apple is worth some $900 billion. Even Tesla which makes no profit and is unlikely to make any profit any time soon is worth some $55 billion, more than Ford or General Motors.

Netflix is valued at $159 billion (13.6 times revenues of $11.7 billion) with 110 million paid (and 117 million total) subscribers. Netflix trades at a price to earnings ratio of 220. The company expects free cash flow of -$3 to -$4 billion in 2018 (yes, that is negative cash flow). Yet Netflix’s market cap is now greater than Disney’s and Comcast’s.

Don’t mention fundamentals …

Continue reading “Do economic fundamentals matter anymore? Part 1 of 3”

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The Athens Stock Exchange General Index has returned 19% over the last year (but lost 85% since 2007); Australian interest rates are lower than that of the US for the first time in 18 years

The Greek stock market has been one of the best performing markets in the world over the past year. The Athens Stock Exchange General Index has returned 19% over the last year. But it has lost 85% (5334.5 to today’s close at 781.14) in value since October 2007. Continue reading “The Athens Stock Exchange General Index has returned 19% over the last year (but lost 85% since 2007); Australian interest rates are lower than that of the US for the first time in 18 years”

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On Equities – Do as they say, not as they do? On Bond Yields – some things from the FOMC minutes

Goldman Sachs computer model warns a bear market is near, but the firm’s analysts don’t believe it (read here). So, if a bear market arrives – they were right (well their computer model was), no bear market – they were still right.

JP Morgan has said investors are ‘overreacting’ and investors should buy the market dip for a big rally ahead (read here). How big? 13%. Which would just about take us back to the highs the market hit at the end of January. Will they do as they say? Who knows.

Meanwhile, 10-year US bond yields have fallen 12 bps (to 2.78%) in the past week since the 0.25% Federal Funds rate target increase. As the Federal Reserve pares back its bond holdings, the US government is bringing more to market, yet yields have been falling.

Here are some interesting things from the FOMC releases (text in italics are our comments), Continue reading “On Equities – Do as they say, not as they do? On Bond Yields – some things from the FOMC minutes”

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Markets should ignore cyclical factors and focus at the structural factors instead

How often do analysts get the markets wrong? How often to fund managers get stock picks wrong? They get things wrong far more often then they get it right.

2017 was probably the worst year for hedge funds. And the start of 2018 isn’t turning out to be any better.

The problem probably lies with everyone focussing on the business cycle rather than the structural factors driving the markets. Continue reading “Markets should ignore cyclical factors and focus at the structural factors instead”