Monday, 1 September 2014

Financial Orbit wrap 01-09-14

Five sentences or graphics which sum up the Financial Orbit output over the last 24 hours across the website, twitter account and anything else thought about...

An early 'wrap' given the lack of US markets today...

1. Asian manufacturing PMIs were not particularly insightful.  South Korea and China were dull whilst Japan was better...

...but there are still some pretty big fundamental problems:


2. Interesting comment by the CEO of one of Germany's most important industrial companies BASF...


3.  ...and you can see why there is unhappiness: Germany's malaise within a weakening Eurozone continues.  Maybe Ireland and Greece can bail the region out with their economic momentum...


4. Staying with the PMI theme a good global summary was in the Australian data with four regional 'downs' and two 'ups':


5. Finally, in terms of on-going share reviews, I noted that the share price movement differential between Novartis and Roche has moved to its widest in the last five years (approximately) following positive news for the former on a new pipeline drug (link here).  Seems a bit wide to me even taking account of the above news...

Performance statistics for August 2014

Performance statistics for August 2014 

(For historic performance information and descriptions of what I am trying to achieve with each portfolio please see the 'performance' tab.  As with everything on this site, these are my views only.  Please read the disclaimer to your right and always do your own research. A final disclosure, these portfolio are real and are reported to the best of my accounting ability how they actually performed) 

Hedge fund portfolio +1.0%
Net position 5.4% long, gross book c. 61% utilised (at month end)

What a funny month!  The portfolio ended up but had a volatile last few days of the month and as recent as the morning of Friday 29 August I thought I would have to post a negative month...

The big winner during the month was the short position in the euro (against the US dollar).  I have long argued on the pages of Financial Orbit that Mr Draghi needs to undertake something closer to formal QE due to the economic challenges in the euro zone...and finally this is spilling over into the FX markets.

Elsewhere other good winners were Voya, Coach (recovering!), Sony, New Gold and Pernod Ricard.  Unfortunately there were a number of losers too beyond index shorts.  Financials were strong and although the aforementioned Voya and Citigroup proved some cover, other exposures hurt such as short CME Group or short Bank of America.  And then there were the UK supermarkets.  I don't have huge positions in Tesco and Morrison's but the former's last working day of the month (4th!) profit warning did negatively impact.

Lafarge, Carlsberg and Smith & Wesson were added during the month (the latter a particularly good old friend) whilst the positions in APR Energy, John Deere, Lufthansa, the yen short and the VIX were augmented to (after the latter was reduced near the end of July).  Profits were taken fully in Vivendi and Interpublic and partially in Aggreko, RBS and BSkyB whilst the FTSE-100 short was added to near the end of the month.

Looking ahead I continue to anticipate a pick-up in volatility and stock specific opportunities.  This is why the net positioning of the portfolio remains low and the gross exposure has significant room to grow.  Looking through the portfolio I still see a lot of optionality.

Top 5 longs at the end of August -
Voya, Lufthansa, Apache, Agco, Symantec

Top 5 shorts at the end of July -
FTSE100, Euro (vs US Dollar), Yen (vs US Dollar), DAXDow Jones Industrials

The first full year (to the end of July 2014) had a cumulative return of 38.6% - for full details see the performance tab.  Adding on August's 2014 performance pushed this up to 40% (chain-weighted basis).  My target remains 20%+ per annum with not too much month-to-month volatility.


Pension fund portfolio +1.6%
Cash position c. 11% (13% a month ago)

Much of the above 'hedge fund' commentary is applicable to the 'pension fund' book too.  Stocks like Voya, Coach and Sony were helpful whilst the UK supermarkets lagged.  As the pension fund book is long-only there were no short euro gains but one benefit from the falling pound was some translation relief for the US holdings.

During the month the pension fund added to John Deere, APR Energy and (on the last day of the month post warning) Tesco.  Smith & Wesson was (re)introduced as a holding whilst Interpublic was exited in full.

Top 10 positions (33% of the portfolio)
Syngenta, Tesco, Agco, Vodafone, Standard Chartered, Royal & Sun Alliance, Randgold, SABMiller, Royal Mail, Polymetal

For the period since I started the pension fund portfolio, performance has been:

November 2013 -0.2% (cash holding just under 43%)
December 2013 +1.0% (cash holding c. 33%)
January 2014 -1.6% (cash holding c. 25%)
February 2014 +3.3% (cash holding c. 20%)
March 2014 +1.0% (cash holding c. 18%)
April 2014 +2.3% (cash holding c. 16%)
May 2014 +2.3% (cash holding c. 15%)
June 2014 +0.3% (cash holding c. 15%)
July 2014 -0.9% (cash holding c. 13%)
August 2014 +1.6% (cash holding c. 11%)
Cumulative 9.6%

This portfolio - in a not particularly easy market since November (the FTSE100 index even with reinvested dividends is only up around two-thirds of this number - and I have had a cash drag too) - continues to increase in a solid fashion.

Charts today - fading global growth and corporate profits (?), manufacturers in Germany/UK call for change and a cartoon about economics...

Charts and graphics that caught my eye this morning:

Zero Hedge's updated 2014 global growth expectations has consistently been a striking chart this year...




Something to do with corporate profit progression stalling?  This chart was in today's Financial Times:


Also in The FT I was struck by the quite aggressive tone of the rhetoric from the CEO of one of Germany's largest companies.  'Overconfidence' sounds like a plea for a more business friendly approach?  Overt QE?


Meanwhile in the UK manufacturers probably want a weaker pound (which must be hurting especially versus the sharp recent decline in the euro).  Of course 'everyone' wants a weaker currency at the moment...


By definition not all currencies can fall simultaneously...this and other economic 'fails' are amusingly parodied here in a cartoon highlighted by :




Asia today - manufacturing PMI signals from China, South Korea and Japan plus the Shanghai free trade zone

Asia today has to start off with the manufacturing PMI numbers out earlier on.  Of course the China data captured much of the attention and it was not the greatest with a small downgrade versus the preliminary estimate.


I note that the formal HSBC view on the report was (with my emphasis added): 'We think the economy still faces considerable downside risks to growth in the second half of the year, which warrant further policy easing to ensure a steady growth recovery'

This theme of some element of 'summer dullness' is also apparent by the latest data from South Korea whose manufacturing PMI data used to be regarded as some form of general industrial insight.  A technical analyst would have a field day with this...more short-term dullness and then a big break one way or another!


Japan was the most surprising (as is often the case) with a slightly better-than-hoped number above 50 and this subsequent comment from HSBC (with again my emphasis added):

'Japan’s manufacturing output and new orders growth rose at the fastest pace since before the sales tax increase was implemented in April. The latest data, therefore, shows some confidence that the negative effects of the higher sales tax seem to be disappearing'.  

That is a bit...surprising. This chart from @ JacekWierzbicki puts the data however into some context versus the Nikkei.  I think via a weaker yen it is quite plausible that both the Nikkei and the manufacturing sector in Japan do quite well.  My instinct though is that it remains a stock picking market...


...especially given this backdrop for domestic consumers:


Finally, another quick word on China.  It is one year since the launch of the Shanghai Free Trade Zone or, as the South China Morning Press puts it, a 'year of little progress'.  It appears that more microeconomic reform is required including some tricky parts including a liberalised capital account and cutting red tape.


Sunday, 31 August 2014

Stories we should be thinking about

A few finance and related stories we need to be thinking about before Monday morning:


Macro matters:
 
My MUST READ (or more correctly the 'must view') is this posting from Bespoke Invest who provide a phenomenal service with their August/QTD/YTD performance table:
 
 
 
Impossible not to learn something from the above table...
 
The Sunday Times gives a clear steer on the ECB and QE (with a monthly meeting due this Thursday): 'Economists think the ECB could use the monetary policy meeting on Thursday to confirm plans to buy between €50bn (£39.5bn) and €200bn of bank loans to kick-start lending and boost the economy. The move would fall short of a full-scale quantitative easing (QE) programme, like the bond-buying schemes launched by the Bank of England and the US Federal Reserve, but would be seen as a first step towards QE later this year or in 2015'
 
What a great story/headline: 'North Korea Owes Sweden €300m for 1,000 Volvos It Stole 40 Years Ago'. Link here

A couple of interesting charts from the Robert Main weekly.  First, natural gas (which I really should do some work on with the natural building seasonal support) and...


...USD/JPY where I am short the latter against the former.  I like Robert's observation that 'Above the target is in the highs 160'.  I could not agree more given the shabby general economic fundamentals in Japan at the moment...


...as nicely discussed here with this great chart (and observation):

 


Thanks to the Hebba weekly gold newsletter for this quote from the retired US Senator Alan Simpson of Wyoming:

'"Gold is the money of kings.  Silver is the money of gentlemen.  Barter is the money of peasants. And debt is the money of slaves."

Company-related observations:
 
'Reality check' for UK supermarkets piece here with the observation that 'the major supermarkets are now facing up to a brutal reality. The years of comfortably operating in an ever-growing market are over. For shareholders, the consequences are likely to be costly'.  My observation is what is priced in...

Glaxo shareholders as per The Sunday Times are calling for a 'board shake-up' which may lead to the potential exit of the chairman. 
Lovely 10 year plus write-up on Google here which included this table.  (Oh to keep on finding the 28% 10 year CAGR's...)

As per Bloomberg, 'CaixaBank SA Spain’s third-biggest bank, agreed to buy banking operations in the country from Barclays Plc for about 800 million euros ($1.1 billion) in cash to expand its business'.  Probably a good deal for both sides.


Seeking Alpha notes that 'Alibaba (Pending:BABA) is aiming to launch its IPO early in the week of Sept. 8, with shares possibly trading as soon as Sept. 18 or 19, sources tell the WSJ'
 
And finally...
An amusing cartoon...



 Have a good week

Saturday, 30 August 2014

The latest edition of Financial Orbit Highlights is out

If you would like a receive a copy but are not on the distribution list please contact me using the details below.


‘Thinking globally, but worrying globally too’

When I was trying to think of a name, in the weeks before the launch of my business in July last year, I thought about my own journey from a Europe-only focus to a global one.  This – and the name of a Miles Davis track – led me to Financial Orbit and the use of a globe as the fledgling company’s symbol.  Thinking globally can seem to be a huge informational challenge…but it is the only way to really get a feel for what is going on. 

So what have been my highlights of the last week?

·         Sentiment remains awesome but…

·         The US: modest real wages and continued deficits;

·         Europe: Germany rolls over;

·         Japan: shabby, shabby consumption progress;

·         China: property and iron ore signals;

·         Roll on September…maybe not;

·         Be thankful for the growth of the internet

Feel free to contact me on any aspect of the above…or anything else in fact.


Chris Bailey                                                                                  

Founder, Financial Orbit

 


Twitter: @financial_orbit

The most popular postings over the last week

Here are the five most popular posts on Financial Orbit over the last week...and a special bonus posting for of one of my favourite articles which does not appear in the list.

1. A guest post musing whether GlaxoSmithKline is a potential value opportunity was the most viewed post during the last week.  Link here.

2. Another guest posting - this time on the Chinese internet giant Tencent - was the second most popular post during the last week.  Link here.

3. A posting reviewing the investment case for the gun manufacturer Smith & Wesson was the third most popular posting.  Link here.

4. The regular 'Stories we should be thinking about' was the fourth most popular post during the last week.  Link here.

5. Some thoughts on the WPP results including all the best slides from their 118 page presentation which includes some fascinating insights on not just themselves but their peers too.  Link here.

And a final post which did not make the top five was this one titled "Asia today - Japan bad numbers special"

Finally - if you like summaries of Financial Orbit output please do not forget the weekday (Monday-Friday) 'wraps' which appear in the hour or so after the US stock market close (9pm BST).  Please find a list containing 'wrap' summaries here.