Sunday, 25 January 2015

Stories we should be thinking about

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

Macro matters:

The big news of Monday morning is going to be the Greek elections.  This will develop in the next twelve hours but the current most striking headlines are:


Independent Greeks to cross the 3% threshold, Papandreou close but just under. If he makes it, SYRIZA full majority gets much more unlikely.

It is going to be an interesting next few hours before Asian trading...

Here's a good point about the challenges of just believing reintroducing the drachma solves everything in Greece: 

In trying to de-euroize, Greece would find itself in the exact same shoes as Latin American countries trying to de-dollarize. Greeks have been using the euro for 15 years now to price goods; how likely are they to rapidly switch to drachmas, especially in light of the terrible performance of the drachma relative to other currencies through most of its history?

Away from Greece...

The old simple '60/40' (equity/bond split) has mapped up pretty well over the last decade:

Thoughts from Davos?  Arguably the most interesting insight is the US$43 hot dog...

...and the headline in this article may be all about Mark Carney worrying about QE/risk-taking but I would say the more interesting quote came from Kuroda of the BoJ:

Kuroda made a similar call on his own government to make “necessary structural reforms as quickly as possible.”

Talking about QE this write-up contains an excellent table showing the respective sizes of QE stimuli. 

A survey by insurer Standard Life shows 76% of people (in the UK) are prepared to moderate their spending now to prioritise long-term saving.  Not a normal recovery... (link here).

Some different news from Russia (link here):

According to the World Health Organization’s most recent survey, conducted in 2010, 32.2 percent of Russians had not consumed any alcohol at all in the past 12 months — up from 20.8 percent in 2003, and precisely double that of my home country of Australia, for example.

I also see they are cutting back their US Treasury holdings in favour of gold:

A really nice Fortune write-up on seven interesting markets with positive population demographics

Company-related observations:

So according to this report profit warnings amongst UK larger cap companies are at a 6 year high.  That doesn't sound like a normal economic recovery to me...

Despite Britain’s economic revival, 27 companies in the FTSE 100 had to alert investors that they were likely to miss earnings targets. Between them, the 27 issued 38 profit warnings — far more than the 26 seen in 2008 at the height of the financial crisis.

Are financials in Europe a good place to invest?  GaveKal Capital suggest that at more than x1.2 price: book much is priced in...

Interesting China and Apple sales statistic via The Financial Times:

Analysts at UBS estimate that China accounted for 36 per cent of iPhone shipments in the most recent quarter, compared with 24 per cent for the US. During the same period last year, 29 per cent of units were sold in the US and 22 per cent were in China, UBS said.

And finally...

This made me laugh - because it is so close to the truth:

What Management SayWhat They Mean
There were some timing issues around the quarter endWe weren’t able to rush the sale through before the quarter end
We take a long term viewI’m already wondering if we’ll make next quarter’s numbers

The full list is here.  

And finally...hard to pick a favourite of these ten Churchill quotes as they are all so good. 

Have a good week

Saturday, 24 January 2015

At what price do you buy McDonald's stock?

Back in early December when I last wrote about McDonald's I concluded that:

'So there is yield (the dividend yield is c. 3.5%) and the aforementioned franchise / brand value.  That is what you are buying McDonald's for at the moment...and/or some belief that the brand refresh/new menus will resonate more with the 2015 consumer.

For myself I am not buying the stock...although I cannot say the same about their products...'

The numbers released yesterday (Friday) showed no real improvement:

Global comparable-store sales fell 0.9% in Q4 on soft traffic trends (second worst in recent history)

U.S. comp was down 1.7%;
APMEA comp fell 4.8% on a steep traffic decline;
SG&A expenses +5.5% to $662.5M due in part to spending on "positioning" for the future

And the shares?  Well as the one chart below shows initially it looked as if too much pessimism was already priced into the share but by the end of the session normal service had been resumed and the share was down... 

...contributing further to the last three plus years of sideways share price movement (reflecting a sharp underperformance of the broader market)

Leafing through the company's statement and conference call transcript, I like the sound of menu simplification (McDonald's plans to cut the number of extra value meals on the menu from 16 to 11), refranchising 1500 restaurants and most of all the plan to return US$6-7bn to shareholders in full fiscal 2015 in the form of dividends and share repurchases. That latter statistic captures the attention for a US$87bn market cap / US$99bn EV company.  Debt remains a non-problem at c. x1.4 ebitda. 

So what's the price to buy?  Well at that US$85 level last seen in late 2012 it might trade near x10 EV/ebit with a 4% yield and starting to face some much easier comparisons.  That's one level to note down.  Yield hunters may already be in the stock but for those - like me - with a more balanced investment objective the mid US$80s is more that level. 

In the meantime, I'll stick with a cheeseburger (or three). 

Thoughts on yet another interesting week on the world's financial markets

Another...interesting week on the world's financial markets.  I gave my initial thoughts on the introduction of QE in the Eurozone (see here). Looking more generally over the last week apparently in equities it was difficult to lose money: 

Of course it was a lot more complex than that many major bond markets are ultra-strong too as shown by this fabulous chart via @MktOutperform...

...and the rise of the negative yield:

So everything is wonderful then?  Well, spot the difference between the DJIA...

...and the German DAX (over the same period):

Kind of interesting...  Of course the wise amongst you will have noted the obvious flaw in the above analysis which mentions nothing about currencies.  The DXY (US dollar trade weighted) is at a decade plus high and the euro...isn't.  

Now if you re-run the German index in US dollar terms it looks rather different.  Kind of interesting

Now what should this remind you of?  The only time the Japanese market goes up recently is when the yen falls.

A final thought.  I have observed in recent weeks the slowing earnings momentum in the US market as the dollar's rise starts to bite.  Did you see the US manufacturing PMI on Friday?

It is becoming clearer and clearer to me that volatility induced by imbalance and distortions in international capital markets is the reality of 2015.  Keep on watching the VIX for your overlay trading opportunities:

The most popular posts of the last week

A busy and unusual not as many posts on Financial Orbit as I would have liked. Still I am not short of content, ideas and concepts in my head which is great news for future content.  Financial markets and multi-asset class variables are so fascinating at the moment!

So what were the most popular posts on Financial Orbit over the last week?

1. The most popular post of the week was unsurprisingly this one based on my observations from day one of the Asian Financial Forum. I have another posting in production to wrap up some further thoughts from the conference.

2. I strongly believe that 2015 is going to be all about theme selection and individual stock picking for success in financial markets. This posting talked about some of these realities.

3. The third most popular post of the last week was this one with some interesting observations on (amongst other matters) the Swiss franc and silver.

4. Often the most popular posting of each week is Sunday's Stories we should be thinking about.  This week it was the fourth most popular.  Link here.  

5. Thursday's wrap following the ECB's QE announcement was the fifth most popular post.  Link here.

And a bonus posting?  A direct link to my post ECB announcement as a Yahoo Finance Contributor.

Friday, 23 January 2015

Financial Orbit wrap 23/01/15 #2

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...

And so onto wrap #2 of the day...this time more companies centred: 

1. GE still does well on simplification...but other trends are not so good.  

2, Honeywell gives out possibly the corporate chart of the day by kindly highlighting different risks...its 1.20 Euro/US dollar FX rate may also prove too optimistic...

3. ,,,Kimberly-Clark also showed the negative impact of FX in its numbers (and sharp share price fall): 

4. Another sharp faller was UPS who noted that the pricing on delivering all those e-commerce orders induced quite a few problems...

5. And finally...some views on the McDonald's stock (amongst others) to follow over the weekend but before then have a good weekend

Financial Orbit wrap 23/01/15 #1

Five sentences or graphics which sum up the Financial Orbit output ov

er the last 24 hours across the website, twitter account and anything else thought about...

Today was a really busy a treat (relatively speaking!) of not one but two wraps...

1. Central banks of the world have nothing to lose but potentially your gold in Libya (see here) and...your gold again in Belarus.  

Well central banks start panic selling gold you know the end is near...

(So stay long gold). 

2. S&P futures have moved >1% every single trading day in 2015 apparently. Got to keep an eye on volatility...

<15 interesting, >20 take profits?

3. Greece goes to the polls this weekend.  So what are the key points we need to know?  I really liked this quote...

“Nobody doubts that Syriza will win..question whether Syriza will be able to govern alone”- Thomas Geraskis head Athens-based Marc Pollsters

...and this graphic:

4. Another interesting day for Euro-US dollar...all over the place but generally and consistently weaker.  And so the parity talk starts...

All of this ultimately unbalances the world (unless Europe does supply side reform). 

5.  And to finish with a few macro related quotes: 




Thursday, 22 January 2015

Financial Orbit wrap 22/01/15

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...

1.  Before the main event of the day - the update from the ECB - I thought that it would need to be a very big stimulus number to get the market excited...

2. reality the announced ECB QE stimulus was very large...but that was just the start of the problems as I wrote in my latest Yahoo Finance Contributors column 

3. amazing app chart...

4. ...a very unusual contraction in China's luxury goods market over a full year...

5. ...and the rise and rise of (India's) mobile internet users caught my eye: