Sunday, 24 July 2016

Stories we should be thinking about

Ahead of the new working week here are a few finance and related stories to be thinking about.

Macro matters:

So what did the G20 in China tell us?

Well the inevitable: "The global economic recovery continues but remains weaker than desirable" was mentioned. Yes, I would agree on that sentiment.  The chart below might suggest current global growth rates are about the average for the last 35 years or so...but given the amount of recent stimulus action / low interest rates etc. let's face it this is a bit disappointing.  



And the communique was rather interesting as noted at this Bloomberg article: 

"Underscoring the essential role of structural reforms, we emphasize that our fiscal strategies are equally important to support our common growth objectives," the group said, in slightly modified language from its last communique, issued in April. Three months ago, the group didn’t use the term "essential" for reform, nor the word "emphasize" for its fiscal policy. The April document also didn’t refer to fiscal strategies being "equally" important.

So basically now even more emphasis on stimulus.  Kind of interesting that (as highlighted by @Callum_Thomas) that blogger sentiment is at a multi-year high. 


Final point on the G20.  Here is how Christine Lagarde saw the meeting: 


UK data on Friday was pretty shabby with the composite PMI at its lowest level since the depths of the Lehman crisis...

...which is reflected too in other economic insights like clothing sales:  

Still, at least real wages are growing finally again for a sustained period in the UK: 


So much of course depends on any future trade deals for the UK.  The trouble is historically (let's use the US as an example) it takes time: 

And given - as made in the point below by the new UK Chancellor Hammond - how important the reaction by other partners in the EU (and of course elsewhere) could be: 


Meanwhile fund management house outflows have been material: 

Brexit blues: fund houses with largest outflows
June redemptions from open-ended funds and ETFs in Europe (€bn)
Franklin Templeton
-1.88
Fidelity
-1.29
M&G
-1.29
Invesco
-1.22
Schroders
-1.16
Source: Morningstar

So all of this means the UK is the cheapest equity market by valuation?  Well not exactly: 


Emerging markets  are among many of the cheaper markets above.  I came across the below chart on the pick up yield potential in emerging market debt in the Financial Times...

...and big inflows too:

I like emerging market equities more than debt personally and I think stock picking opportunities are clear.  I could say the same about European equities...where the big difference is that for this zone it is all about outflows:

Of course we need to have a think about the capability for policy-makers to progress the Italian non-performing loans financial sector challenge.  

As per the Financial Times: 'Pier Carlo Padoan, the Italian finance minister, has denied that Italy’s banks are suffering from systemic problems and rejected a “bail-in” of private investors as he sought to reassure global markets over the state of Italy’s financial institutions'

I think progress will be apparent here - akin to the flexibility shown by influential policy-makers like the Germans on matters like lower interest rates, QE and the Greek bail-out.  Of course what Europe also needs is more flexibility.  Funny how that lack of labour market flexibility means fewer job losses when a recession hits...but fewer job gains in any recovery...which is why change needs to occur:
 Of course this does not mean that the more flexible American economy has all the answers.  I was shocked by this pension fund today:

Sector and companies: 

Remember that big ARM/Softbank deal? A lot of rationale is centred on the Internet of Things which I thought was nicely summarised by this:


On Apple I saw this on Seeking Alpha:

'According to prominent mobile phone leaker Evan Blass (a.k.a @evleaks), the world may be just under two months away from the iPhone 7..."iPhone 2016 release: week of September 12th," he wrote on Twitter. "Just to clarify, this refers to the retail release, not the launch event. To be even more specific, it should happen on Friday, Sept. 16th." Rumors are also swirling about whether Apple (NASDAQ:AAPL) will offer a three model line-up for the first time, including a so-called iPhone 7 Pro'

Wow Twitter have spent a lot on stock based compensation as a proportion of revenues: 


A few stories from today's Sunday Times:

'SAB Miller takeover on knife edge' - trouble with the Pound going down and hence the bid value...

'Currency turmoil and tough trading conditions have dragged Rolls Royce to its first loss in six years' - the Pound has not helped here too

'Lloyds Bank is poised to dash investor hopes of a bit increase in its dividend payouts' - why?  Because of the UK economy new fears...

'Thomas Cook is set to unveil a new profits warning this week'.  Brexit...

'One of London's best -known developers is to slash the value of a luxury homes scheme in Earls Court in the wake of the EU referendum...Capital & Counties is expected to mark down the southwest London project by as much as 15%'.  Brexit #2

'Casino operator Rank Group and online gambling operator 888 Holdings are in talks to create a £2bn gambling giant' .  More consolidation in that space...


Have a good week 

Sunday, 17 July 2016

Stories we should be thinking about

Ahead of the new working week here are a few finance and related stories to be thinking about.

Macro matters:

A (failed) Turkish coup on Friday evening.  For an excellent summary read this:

Few winners, many losers but "a broad social and political alignment emerged against the attempted coup" (link here).

Of course it has implications in terms of domestic Turkish politics...


...and investment into Turkey: 


Interesting to see how coups have been less successful recently: 
(h/t @JFiva)

Staying with politics such a contrast between support for the new UK Prime Minister and the leader of the opposition across all age groups: 


Back now to economics and the bond-equity debate.  Yes, bonds have done rather well...


..but check out how bonds have struggled to continue to break-out: 


(h/t @JLyonsFundMgmt)

And it is not just US Treasuries.  This via Fast FT on the German bund market: 


Of course certain central banks still retain the right to continue to buy back bonds...


...and event if there is a bit of a push back in bond values maybe losses will not be that high: 


But for me however the attraction of equities versus bonds remains key...and finally the inflows are starting: 

Of course you have to be careful with your stock picking as implied below: 

(h/t @AlastairWinter)

A big week awaits and the focus will be in Europe but "the ECB is unlikely to take further action before seeing updated inflation forecasts at its Sept. 8 meeting" (link here).  Judging by what the Bank of England did not do I would agree with this. 

Turning to China and I thought this was an interesting report: "Disposable household income adj for inflation rose 6.5% H116". This is good but as we saw with the big economic data dump on Friday, unless credit or investment firm there will be <5% GDP (link here). 

Indicative though of the consumption growth in China is shown by this growth in car consumption: 


I still think the rise and rise of the Chinese/emerging market consumer remains the most compelling structural investment theme in the world currently.

Kind of surprised that grains - including wheat prices below - have been so weak..
(h/t @Ole_S_Hansen) 

...but then again warm temperatures can have this impact.  Of course not the greatest news for energy markets...

And talking about heat a useful story on how hot temperatures are impacting Chinese-based businesses and government exhortations (link here): 

'the government appears to be trying to raise consciousness of the heat subsidies, not least among foreign employers who may need to pay them to their workers'

(h/t @Jiabaochina) 


Sector and companies: 

Financials were much in focus at the end of the week with lots of corporate results in the sector being published...


...for me though I prefer the franchise value in areas like wealth management with names like UBS in a strong position: 


Lots of other companies including financials due to report this week: 



And what should you listen out for? Well interest rates, currency, Brazil and oil/gas commentary have been very popular: 



A couple of stories from today's Sunday Times:

'The activist hedge fund run by Sir Chris Hohn has built a secret stake in SABMiller cranking up pressure on the brewer to revise the terms of its £77bn sale' 

Discount Investment Corp. saw the biggest gain in almost four years after entering into an accord to sell its remaining stake in Adama Agricultural Solutions Ltd., the world’s largest maker of generic agro-chemicals, to China National Chemical Corp who are looking to buy Syngenta of course. 

And finally...

Good advice - even from a more typewritten era - on stock picking and related never goes out of fashion: 
(h/t @ivan_brussels)

Perception matters of course on all investment matters:


(h/t @punsandquotes)


Have a good week 

Monday, 11 July 2016

Enjoy 15 pages of macro today...

Due to travel no 'Stories we should be thinking about this week' instead I have opened for free my daily FO Macro - just click this link:

If you would like to receive this every weekday then please get in contact with me via email (chris.bailey@financialorbit.com) or on Twitter (@financial_orbit).

Chris Bailey
Founder, Financial Orbit Limited 


Friday, 8 July 2016

The latest Financial Orbit Macro webinar

For those of you who did not get a chance to listen live I held the latest Financial Orbit Macro webinar yesterday.  You can watch/listen in full here.

What did I discuss?  Well to give you a flavour...
I talked about challenges out there...
...why it is important to be active and not passive currently: 

And, of course, i made a few predictions: 

Again to access the full presentation click on the link above.  


Tuesday, 5 July 2016

Financial Orbit Stocks - Q2 performance and Q3 hopes

For those of you who did not get a chance to listen live I held the latest Financial Orbit Stocks webinar earlier today.  You can watch/listen in full here.

In essence I noted the continuing outperformance of both of the preferred list portfolios...

...I discussed reasons for winners...


...opportunities in new ideas...

...and why an active stock-picking approach made sense currently: 

Don't forget to listen to the Financial Orbit Macro webinar this Thursday at 3pm London / 10am ET (all details here). 


Monday, 4 July 2016

The week ahead on Financial Orbit

No time this Sunday for the usual Stories we should be thinking about as I am working on two webinars for later this week - well it is an important time of the year.

The first webinar is on Tuesday (5th July) at 3pm London time (10am ET) and is titled:

Financial Orbit Stocks: Q2 performance & changes to preferred stock list

On Tuesday you can access this webinar here.  

Meanwhile on Thursday (7th July) at 3pm London time (10am ET) my second webinar of the week will take place.  This is titled: 

The outlook for H2 2016 - a Financial Orbit Macro webinar

On Thursday you can access this webinar here.  

Free and open to all plus with interactive Q&A capability.  Get your Q3 off to an insightful start this week.  

If you would like a reminder email just ahead of either or both of these webinars then please just send me an email. 

Chris Bailey
Founder, Financial Orbit Limited

Email: chris.bailey@financialorbit.com
Twitter: @financial_orbit 

Saturday, 2 July 2016

Ten things I learnt at the FT Festival of Finance

Only one place to be yesterday...


...so what did I learn?  Here are my top ten insights from the conference...where of course it is impossible to see and hear everything. 

1. Peter Praet of the ECB observe that despite central bank action having a 'very satisfactory impact on financial conditions...banks (are) under pressure with margins...something we are looking at'.  My money is on more ECB stimulus...

2. In the Brexit discussion Richard Woolnough of M&G noted that the J-curve would be applicable for the UK trade deficit ('like being back at school').  Toby Nangle of Threadneedle reported that his Bank of England contacts had been 'astonished' by how well things had gone over the last week. 

3. Mikhail Khodorkovsky said that Putin had 'underestimated how efficient I could be' and predicted that 'Russia will have serious changes...maybe not by 2018 but over the next 10 years'

4. Rich Walker of Shadow Robot bemoaned the 'waste of human potential' in the world today and that 'we should use the machines to free up people'.  Robert Shrimsley observed that his interaction with an advanced robot had been like 'dealing with a 3 year old' 

5. George Magnus in a Demographics and Destiny discussion commented that older people had a rising 'proclivity (to) own assets' contrary to theory.  Meanwhile Charles Goodhart of the LSE noted that the big challenge of future decades was still 'what you do with young men'. 

6. Robert Bayliss of Roskill noted 'real fundamental demand' for lithium and a 'struggle to substitute lithium for something else' a view shared by Simon Moores of Benchmark Mineral Intelligence who said he 'can't see it (coming down in price) for 3-4 years'.  Jon Hykawy of Stormcrow Capital observed cobalt batteries did not have the battery power and also said battery recycling will become a more important source of metal in the future. 

7. On India's future Suhel Seth of Counselage India said that 'you have a corruption free Indian cabinet (for the first time since independence)' but Mihir Sharma of the Observer Research Foundation was more cautious saying this was how a previous government had been perceived...ultimately incorrectly.  He also noted that on the central bank governor selection 'Modi be pillared if it is perceived get someone pliable' 

8. On the cyber security panel Jonathon Luff of Cyber London observed that 'there is no silver bullet'  and bemoaned bank security, William Dixon of Barclays said that they were 'reaching out into the fintech industries with hackathons' and James Chappell of Digital Shadows said that the problem lay with 'individual human behaviour' noting training had to be more innovative

9. In the China panel Michael Pettis of Peking University commented on supply side policy that 'I am not really sure it will make a difference' and observed that the Chinese name for bankruptcy could well be supply side reform.  Meanwhile the next test for anti-corruption is the next President. 

10. Thoughts from the Japan: Don't call it a comeback session included 'use companies to finance pension fund' and 'as long as people believe it is fine, it will be fine, if not, bubble burst'.  


An epic day - and highly recommended in the future if you did not go.  Congratulations to all involved who put on such an excellent event.