Saturday, 20 December 2014

The most popular post of the last week

Here are the five most popular posts on over the last week plus a bonus posting of one that does not appear on the list.

1. The always popular early Sunday evening Stories we should be thinking about was this week's most popular posting.  Link here.

2. Tuesday's wrap which included thoughts on Russia, Coca-Cola, Agco and volatility was the second most popular post.  Link here.

3. A Few thoughts this morning was the third most popular post of the week and covered US interest rates post the Federal Reserve decision plus Greece's Parliamentary vote, China, Japan & junk bonds.  Link here.

4. Wednesday's wrap selection which touched on Russia, ultra-low energy sector exposures, latest thoughts from GE and FedEx plus some flash Fed views was the fourth most popular post. Link here.  
5. A look at the quality of my 2014 macro calls a year ago was the fifth most popular post (despite only coming out on Friday afternoon!) Link here.

And a bonus posting that did not appear in the top five is this one titled "Agco - my favourite investor day slides from the agricultural machinery name".  

Trades I have undertaken this week

When I posted this image in last week's 'trades I have undertaken this week' posting I did not realise how prescient it would be:

A hugely volatile week for markets which started with a Russian crisis and ended with the much-maligned S&P 500 Energy sector being up 11.7% from Tuesday's low and a feeling of a leveraged Santa Claus rally move.  Despite the second Greek Presidential Parliamentary vote due next week I expect a relatively quiet pre-Christmas market. Why though do I have this niggling thought in my mind that there is going to be something 'excitable' to report from newsflow on the 25th/26th?

Anyhow it was a heavy trading week reflecting some positioning for 2015 and the general need for me to switch my trading book from a net short positioning to a net long one (which has worked out well - so far). So what trading decisions have I made this week?:

Positions initiated or added to, shorts bought back partially or in full:

Apache - added further to position on oil/Russia volatility near the start of the week...unsurprisingly performed well after this. 

Aviva - proposed merger with Friends Life provides strong cost-cutting scope looking into 2015.  On generalised weakness added to my position. 

BP - a fall clearly below 400p in the early part of the week offered an opportunity to buy more stock in the integrated oil producer with Russian exposure

Google - a share price below US$500 strikes me as a fundamentally a good price to add to my position

Imperial Tobacco - after almost touched the 3000p level the share had fallen back around 10% on the generalised market volatility.  I see an attractive blend of growth, dividend and cost cutting so purchased more. 

Lafarge - the company's merger with Holcim was given EU approval this week (subject to certain divestment conditions).  As with Aviva the 'self-help' aspect is very attractive. 

Old Mutual - the opportunity to double my stake in the diversified financial at about the same price as my initial position initiation struck me as attractive.  

RBS - position added to after the company passed the Bank of England stress test 

Positions sold partially or in full, shorts initiated or added to:

Caterpillar - covered short to take profits as under a US$90 share price support often kicks in

EMC - sold long position to take profits and allow funds to be raised for new investments

Time Warner - as with EMC above

Toyota - as with EMC and Time Warner above

Yen - added to my short in the mid 116s against the US dollar as fundamentally none of issues impacting the Japanese economy have gone away.  The Santa Claus rally in the second half of the week induced a reversal in the temporary yen strength that had created this opportunity (pleasingly). 

Friday, 19 December 2014

Financial Orbit wrap 19/12/14

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...

1. With the Santa Claus rally kicking in (and some more) over the last couple of days thoughts are turning to what comes after the holiday season.  The Financial Times ran an interesting graphic showing that the historically much vaunted 'January effect' may not be as excitable as it once was perceived: 

2. I grade myself on my 2014 macro calls...the scorecard looks ok I think! (Link here). 

3. Having taken a look at the Carnival corporate numbers I conclude that the share has lots of theme positives...but the shares are a bit richly valued for me currently. 

4. What else happened in the world today?  Ukraine got downgraded again, Belarus bumped up its interest rates way beyond the level in Russia and what a great chart comparing Venezuela to historic Greece: 

 5. And finally...have a great weekend.

Carnival - a growth theme but fair sailing factored in

Buoyed by a falling energy price Carnival shares have been rampant recently.

Looking back - and it is always easier in hindsight - the mid-October sharp fall was a real opportunity.  Given I had previously identified the sub US$36 level as an interesting one this is a bit frustrating - but then there was plenty of other things to buying (as I did) in mid-October.  

Looking through today's 'significantly higher full year earnings' numbers all the main aspects which induced me to conclude at the above link that...

Carnival remains relatively highly valued using earnings measures...but observe given some of the positive medium-term themes (Asia, ageing population benefits etc) and ultimately solid general corporate progression the US$36 level has moved in my mind from resistance to support and I will trade accordingly.

...are still very relevant.  For example some excerpts from the release included:

higher ticket prices and onboard spending; 

significant increase in revenue yields despite a highly competitive environment in the Caribbean; 

Costa’s Asia operations achieved double-digit revenue yield improvement on a capacity increase in that region;

The current base of business for 2015 builds confidence in our expectation of continuing yield growth with acceleration in yield improvement starting in the second quarter;

Lots of theme positives but at around x20 prospective EV/ebit and an ok only yield (c. 2.3%) I will put a flag (at a raised level of) US$38 but not one for me to buy today despite the headline strength of the numbers.

Did I get my 2014 macro calls right or wrong? The scorecard...

As 2014 enters its last couple of weeks it is the right time to review some calls I made around a year ago before I unveil my own lists of '15 for 2015' macro and stock calls.

On this link here is a posting issued on 27 December 2013 titled '14 for '14 (part 1): 14 macro trends for 2014'. Given here on Financial Orbit all you get is straight up honesty about how investment calls have worked out (mainly because it reflects what I am seeing/feeling in my own positions) how did these predictions pan out?  Here's the scorecard...

Macro trend 1: contrarians will rock commodities, energy, emerging markets and bonds were the underowned assets as per the chart I put up on the original posting.  I think this one was a MISS.  The momentum players have enjoyed 2014 far more than I thought.

Macro trend 2:  High sentiment doesn't stay high...and the return of volatility

Up until a few months ago this was not looking the greatest call...but recent events have made it look prescient because it reflected a need for a flexible/sceptical nature which has really kicked in during H214.  Given an updated form of that 5 year VIX chart I posted originally does now look a bit different I am going to rate this call a HIT.

Macro trend 3: equities - time for active stockpicking again

Derived from some of the above, my own active stock selection strategies have worked out well...but I know this is not a market norm.  So I am torn...given I also talked about the DJIA not posting a 5% gain (again) and so far this is 2-3% below the reality I think I am going to have to call this one a MISS.

Macro trend 4: global QE is still is just you need to be paying attention to Japan and Europe, not obsessing about what Janet Yellen is going to be up to

Yes, yes, yes.  This one nailed the 2014 reality.  Rampant QE application in Japan and (continuing) debate in Europe.  Most certainly a HIT.

Macro trend 5: don't expect real consumer incomes in 'the West' to roar away...and hence don't expect GDP to be sustainably significantly above trend

Outside of the US and maybe the UK economic growth in 'the West' has been disappointing and real consumer income growth (or more precisely median income growth) has been downright poor everywhere.  I am rating this one a HIT after weighing up the evidence.

Macro trend 6: emerging markets have value, but no-one cares, which is why you should
Wow...this is a tough one given India and China have been rampant on a FY14 basis whilst Brazil and Russia...have not.  I also have benefited from stocks that had/have undervalued emerging market exposure in them.  Hmmm...I am going to rate this one NEUTRAL.  

Macro trend 7: companies spend more on capex...but investors will retain the right to change their mind whether it is good or not

I am going to rate this one a HIT as my broad thesis that any capex uplifts would not be loved up by investors was correct whilst buybacks and dividends have driven share prices more.

Macro trend 8: China continues to accumulate gold...and this (and low sentiment) pushes the gold price up

China has certainly continued to accumulate gold...but the headline gold price in US dollars is a little down in 2014...but in euros, yen, roubles, pounds it is up.  So on balance I am going to rate this a HIT.

Macro trend 9: property is not going be so strong in 2014

I believe this one is a HIT as the trend is fading across most geographies even if there have not been perhaps as many absolute price falls as I would have thought.

Macro trend 10: Berlin are going to have to accept a lower Euro...which means generally a stronger US Dollar

No debate on this with the QE prediction above this one worked out very well.  HIT.  

Macro trend 11: your best source of returns in bonds during 2014 will be from yields

There has not been a MISS for a few themes but this one did not work out so well.  Yield compression has been material in most bond markets around the world.

Macro trend 12: the continued growth of the online world

One word suffices to explain why this prediction was a HIT: Alibaba.

Macro trend 13: agriculture grades are due a run

They are currently running...but to be fully fair I was too early with this call.  The better news is that I doubled up into the volatility around the middle part of the year and that's working out quite nicely now.  So as a prediction unfortunately a MISS.

Macro trend 14: stay flexible...

As I noted on macro trend 2 above this has gained currency as a theme as the year has progressed and certainly as a mindset has helped me make money in 2014.  So I am going to rate it a HIT.

So...the scorecard:

9 HITS, 4 MISSES and 1 NEUTRAL.  Ok I know this included a couple of close calls but I am kind of happy with this batting average.  On the misses I made money as a stock picker and the way my personal funds are set up I tend to be more of an equity than a bond investor in any case.  Agricultural exposures are also kicking in nicely for me during the last few months.

The review of the 2014 calls will continue before will the introduction of some macro themes to be thinking about for 2015...

"In the market bloodbath…filtering the larger caps (part 2)"

I wrote a piece titled "In the market bloodbath…filtering the larger caps (part 2)" which was uploaded just now to the ShareProphets website.  You can find a link to the piece (free sign-up) here.

A few thoughts this morning (GMT)

Did you enjoy that bounce in the markets?  Finally the Santa rally is here...

A few statistics from Bespoke Invest put the US move into context for me:

was the first day all month that no S&P 500 stocks hit a 52-week low; not even in the Energy sector! 

Last two times S&P was up 175 bps or more for two straight days were March 2009 and October 2011.

First 400 point up day in the Dow since November 30th, 2011.

But what about that poor US services ISM number out yesterday (and which I briefly mentioned in Thursday's wrap?):

I also note that the Financial Times today is running an interesting 'January effect' (or lack of January effect) graphic.  Volatility is not over, I think we can safely say that...

Asia news was relatively modest with the Bank of Japan holding and China having a well-flagged statistical uplift of the economy...

Other charts that stood out for me:

Going to be much more debate about the US dollar in 2015...a nice chart that captures one potential scenario (although personally I don't think it is going to happen):

UK home watchers think across all regions that UK house prices are going up in 2015 (neutral view would be '50').  
 Obesity - a clear global growth theme - is proportionately least in economists!  The dismal science indeed...

 Interesting US gun control graphic.  Not a great conclusion but supportive for my Smith & Wesson position at the margin: