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”

Unemployment in Europe is lowest since 2008 but is still twice that of the United States

The Euro Area unemployment rate was 8.5% in April 2018, down from 8.6% in March 2018 and from 9.2% in April 2017. This is the lowest since December 2008 but still more than double of the US unemployment rate of 3.9% reported in April (the US unemployment rate further fell to 3.8% in May). The EU28 unemployment rate was 7.1% in April 2018, stable compared with March 2018 and down from 7.8% in April 2017. This remains the lowest rate recorded in the EU28 since September 2008.

Data Source: Eurostat (for the European Union and Iceland), State Secretariat for Economic Affairs (for Switzerland), Office for National Statistics (for the United Kingdom)
Data Source: Eurostat (for the European Union and Iceland), State Secretariat for Economic Affairs (for Switzerland), Office for National Statistics (for the United Kingdom)

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Manufacturing is growing in the United States, but it isn’t generating too many jobs

Manufacturing has been in focus recently in the United States with trade tariffs being discussed and the talk of bringing back some manufacturing to the United States.

U.S. manufacturing has been growing but it isn’t generating too many new jobs.

The reasons are simple:

  • Increase in productivity
  • Increase in automation
  • Shift towards higher value goods (like aircrafts or high-end electronics)

Here are some graphs,

Indexed Number of manufacturing jobs vs Indexed manufacturing output (Both indexed to January 2012 = 100)


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Weekly Overview: Deutsche Bank; Italy; US Unemployment

Deutsche Bank

Apparently, the new CEO of Deutsche Bank is “sick and tired of bad news”. Here are some recent events,

April 8: Christian Sewing is appointed new CEO of Deutsche Bank.
April 15: The European Central Bank (ECB) asks Deutsche Bank to estimate the cost of winding down its investment bank.
Thursday, May 31: The Financial Times reported that Deutsche Bank’s US subsidiary was added to the Federal Deposit Insurance Corporation’s list of “problem banks,” or those with weaknesses that threaten their financial survival.
Thursday, May 31: Deutsche Bank shares hit an all-time low.
Friday, June 1: Standard & Poor’s cut Deutsche Bank’s credit rating from A- to BBB+. The ratings agency also questioned whether Deutsche Bank’s new CEO Christian Sewing would be able to return the bank to profit.
Friday, June 1: Deutsche Bank is going to face new cartel and criminal charges in Australia.
Friday, June 1: Deutsche Bank shares hit new all-time low.

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Healthcare could soon be the largest expenditure of households in the U.S.

Healthcare could be the largest personal consumption expenditure of households in the U.S. within months exceeding spend on Housing and utilities.

Households in the U.S. are likely to spend some $2.45 trillion this year on healthcare. The spending on healthcare is quickly catching up with the largest expenditure item – Housing and utilities. Here are charts,

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Weekly Overview: The Baltic Dry Index is up 48% over the past month; Argentina seeks IMF bailout; UK House Prices; Brazil 10-year bond tops 10%; Coal prices soaring

Baltic Dry Index

The Baltic Dry Index is a trade indicator that measures shipping prices of major raw materials and is often seen as a global growth indicator.

Over the past month, it has zoomed 48%. It is up 45% over the past year and is up 8% since the start of the year. This despite weaker US, UK and France Q1 2018 GDP growth. The Baltic Dry index generally falls in the first quarter on back of lower trading activity due to the Chinese New Year but this time it hadn’t recovered until very recently.

Here is a chart of the index over the past month,

Continue reading “Weekly Overview: The Baltic Dry Index is up 48% over the past month; Argentina seeks IMF bailout; UK House Prices; Brazil 10-year bond tops 10%; Coal prices soaring”