Sunday, 1 March 2015

Stories we should be thinking about

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


Macro matters:

Thought-provoking on why alpha may be more difficult to generate (link here):

Academic research is turning what once was alpha into beta, or exposure to common factors, which can be accessed with low-cost, passively managed funds such as index funds, ETFs and funds from providers like DFA, Bridgeway and AQR Capital
The supply of victims that can be exploited is shrinking (there are fewer “suckers” at the poker table) as past losers abandon the game of active management.
As the losers drop out, the remaining competition is getting persistently tougher to beat.

The supply of dollars chasing the limited and shrinking sources of alpha have dramatically increased.

'Based on Fridson’s econometric model, junk bonds have re-surged to an “extreme valuation,” after the scare of last September faded away'.  Interesting link here.  


Talking about the US economy...judging by the Q4 split it really is all about the consumer...


 ...who have been deleveraging as shown below.  Spending and deleveraging only works if you get really big real wage increases:


A potentially big week in Europe with chat that 'ECB President Mario Draghi is...expected to provide further details on the bank's 1 trillion euro ($1.1 trillion) government bond buying program, which begins in March' (link here).

Interesting to see the slippage in the Greek budgetary position over the last couple of months...
 ...much still to play for in Europe.  Look at the size of the 'alternative' sector for a start!

 

So the early part of the weekend has been dominated by the surprise(ish...) Chinese interest rate cut. The more I think about China however the more I think that the key is reform...which makes this article most fascinating. 'By 2020, two years before his tenure ends, Xi’s aims to have finished 360 multi-sectoral reform programs that will lay the institutional foundation for the next 30 years of party rule to 2049. This grand design reveals Xi as more of a far-sighted reformer than a politician satisfied with the temporary ease and support of his position'.  

The Peterson Institute highlight here that it is all about corruption definitions too: 


Good observation on the Nasdaq's recent big run: 'What is interesting is the context in which these 10 day streaks have occurred. Most often, it has been out of low, and the index has continued higher. The current situation is in the minority, as NDX is reaching a new 52-week high at the same time as it has risen 10 days straight. In the chart below, those instances are shown in red'


'Boris Nemtsov, a leading critic of Russian President Vladimir Putin, was apparently murdered because he planned to reveal evidence of Russia’s role in the Ukraine conflict, Ukrainian President Petro Poroshenko said Saturday. Poroshenko said Nemtsov had told him weeks ago he had proof of Russia’s involvement and would disclose it...'  More here.  

Nice chart on the size of pension fund and related assets.  Thought-provoking re some longer-term risks/exposures: 


(h/t @adnanchian)

Stat of the week? 'The LBS calculates that a (very old) investor who had tracked the market since 1900 would have ended up with a fund 170 times bigger simply by re-investing the income from their holdings'.  That's what I call the power of compounding...


Company-related observations:

Interesting Barrons headline over the weekend: 'Google: Time to Return Cash to Shareholders...Google could boost its shares 5% to 10% overnight by announcing a dividend and share-buyback program'.  Another reason in my view why Google is a must-own. 

I guess it is interesting to see where hedge funds and mutual funds disagree:


An interesting article on why the search for developed market dividends may push investors towards France:

U.S. TickerNameWeight (%)Dividend Yield
SNYSANOFI SA9.2%3.9%
TOTTOTAL SA8.7%5.1%
OTCQX:BNPQYBNP PARIBAS SA4.8%2.9%
OTCPK:LVMUYLVMH MOET HENNESSY LOUIS VUITTON4.0%2.0%
OTCPK:AIQUYAIR LIQUIDE SA3.5%2.2%
OTCPK:LRLCYLOREAL SA3.5%1.7%
AXAHYAXA SA3.4%3.8%
OTCPK:SBGSYSCHNEIDER ELECTRIC SE3.3%2.7%
OTCQX:DANOYDANONE SA3.1%2.5%
OTCPK:EADSYAIRBUS GROUP NV2.7%1.4%

A really good list of important observations from this weekend's Berkshire Hathaway annual report.

This article is really insightful too and which includes the magical observation: 'Since acquiring See’s Candies in 1972, Berkshire Headquarters got sent $1.9 billion while See’s only needed to keep $40 million of profits to reinvest into the company'

And finally...

What a great list: Hours reading per week per person

1. India — 10 hours, 42 minutes
2. Thailand — 9:24
3. China — 8:00
4. Philippines — 7:36
5. Egypt — 7:30

The UK and US are down in the 20s...hmm!

Have a good week

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