A few charts today: real returns, IPOs, emerging markets and winter storms

A few charts that caught my eye today...

Real returns of bonds and equities via the Barclays Equity-Gilt study 2014 shows that equities have done rather well over the last 10 years.  The 1993-2003 10 year period, on the below, looks rather anomalous now...of course 2003 a great time to start such a 10 year reporting period:

IPO excitements are all over the front pages of the financial press at the moment, best start to a year since 2007 and all that.  Looks as if King Digital is timing their push well given that revenue momentum.  Zynga shows though that such momentum is not always sustained.

Ownership of the US equity market is still much more (US) household/mutual fund centred than international investors/hedge fund.  Of course the latter create more noise and certainly - for a marginal Dollar invested - turnover more:

 

 Who would have thoughts that the Egyptian stock market is back to mid-2008 levels...

...meanwhile emerging markets remains a contrarian buy given high outflows

 

The UK is at the greatest risk of negative economic exposure from winter storms around the world due to global position and population concentration.  Certainly feels like that for certain parts of the country in winter 2013-14...

...meanwhile an updated graphic showing that the UK is still lagging Japan and France in terms of cumulative growth over the last 6 years.  Only Italy has done worse...

 

 Finally, this is what the developed market banking system has to be careful of...going Japanese on its banking sector.  Very safe...but very undynamic

Charts etc - equities, bonds, quarterly earnings, sentiment...and Cyprus

So...it has been very wise to hold equities rather than bonds over the last year, especially in the US...well we all know the lack of value in the latter:

Here's the issue though...take the (almost completed) S&P500 Q3 results season.  Earnings beat hopes at a proportion above the longer-term average...but look at those preannouncements:

'9.2x is the largest negative guidance on record'. 

 

 

The quarterly earnings management shuffle was in full swing in Q3. 

 

Still, earnings beats and a strong stock market is boosting sentiment measures as per this CNN poll:

 

 

The reality on-the-ground though is that many consumers are not optimistic about the future.  This poll is from the UK.  Note the sharp differentiation in confidence levels if you are an owner-occupier or not.  People are putting faith in the property bubble...

 

 

Meanwhile, back in the real world, Cypriot bad loan proportions look ugly...

 



 

So, what can we discern from the above?

Equities have performed well, but it has been driven - to some extent - by the poor value in bonds, earnings season management and high sentiment...due to the fact that equities have performed well.  In the real world, many consumers are cautious and weak economies in the world, remain weak. 

Much to be thinking about as the world moves from 2013 into 2014. 

Charts to make you think - energy, bond/equity rotation, scotch and student loans

A few interesting charts I have come across over the last few hours...

Never, never underestimate the power of Asia's demand for energy.  I noticed more Asian buying of longer-term energy assets yesterday (a stake in an Ophir Energy LNG block in Africa)

 

 



 Market rotation...some consistent outflows from bonds, equities still being bought - always helps when some markets are kicking around all-time highs. 

 

 

 

Talking about strong markets, this was a useful link about various strong-performing financial areas in the world.  Amongst technology shares and Bitcoin, this surprised me.  Scotch investors can no doubt raise a glass to that price trend...

Finally, to bring things back to earth, consumers are paying down most forms of debt in the US...apart from student loans which structurally are going up.  A new burden, especially for younger consumers.

2 worrying charts, 1 each for bond and equity investors

You are a bond investor. 

You can accept lower bond yields as bond prices are going up.  Life is predictable and good (we won't confuse the debate by introducing real and not just nominal return analysis).

And then 2013 happens:

That's a lot of 2-4% annualised coupons...

Reduced stability and a high likelihood of negative real income growth = investors should not prefer bonds. 

Turning to equities...

You are an equity investor.  You appreciate that fluctuations occur in the equity market but (as above) you struggle to see any value in bonds.  So you are bullish

Survey Results
Sentiment Survey Results Week ending 9/11/2013    Data represents what direction members feel the stock market will be in the next 6    months.
Bullish	45.5% up 10
Neutral	29.9% down 3.3
Bearish	24.6% down 6.7
Note: Numbers may not add up to 100% because of rounding.

But here's the problem, above 45% bulls is a level to start worrying about 'over bullishness'.

Now this would be ok if economies were growing fast...but with consumers under pressure (link here) they are not.  Of course, companies can always squeeze their costs (like wages) but ultimately is that going to make the economy sing?

So both asset classes face challenges.  That doesn't mean there is nothing to do - stock picking in equities and tactical selections in bonds is as good as it gets. 

Adopt a more trading-centred approach.  It is a time to be active and aware...and not to buy passive products.