- The volatility of government bond returns has risen over time so that it now matches that of stocks.
- Part of a series discussing the future of the 60/40 portfolio.
Macroeconomics
Snippets on the big picture.
PMIs and Containment
- Interesting chart plotting global PMI (green line) against an index of containment (orange line, degree to which economies are locked up).
- This index eased from a peak of 64 in April to 32 in September, helping PMIs rise.
- In October it has started to rise to 35, and throughout has remained higher than what was expected a few months ago (dashes) – it should have been 18 by now.
- Suggests PMIs could start to weaken again?
China
- Pew research suggests negative views on China have grown across many advanced economies.
Covid and Retail Footfall
Misleading Chart – Intangible Asset Edition
- First Snippet Blog article points the finger at the pictured chart.
- The chart depicts the rise of intangible assets in firm value described as a “second industrial revolution”, burying with it traditional analysis, accounting, value investing and lending support to ESG.
- By digging into the definition and associated formula, the article argues this chart is in fact just showing the rise in valuation across firms as measured by Price to Tangible Book.
- By framing the problem in the first way one assumes a single explanation for the rise – intangible assets, itself an ambiguous word, when the intellectually honest way should be to frame it in the second way, which leaves the question open.
PMIs
- Chart plotting Philly Fed against US Purchasing Manager Index.
- Latest entry suggests path for PMIs is upwards.
Remote Work and Time
- Survey shows that Americans have devoted 35% of time savings from not commuting to their primary job and 60% to work activities of all sorts (incl chores and child care).
- Source, h/t 361 Capital.
Recessions
- The World Bank is forecasting that more than 90% of the world’s economies were in a recession – the most broad based contraction of the past 150 years.
- Remarkable chart. Sourced from a nice presentation on China.
Gold to Oil Ratio
- Between 1860 and today, one ounce of gold has purchase 20 barrels of crude.
- 80% of all observations are within 10:1 (gold is cheap relative to oil) and 30:1 (oil is cheap relative to gold).
- Source.
Long Term Valuation Cycles
- Interesting chart from Deutsche’s latest Long Term Asset Return Study.
- It plots the combined equity and bond valuations of 15 developed market countries.
- 1980 marked the cheapest point on that series, and the era that followed marked the best combined asset price growth of any era in history.
UK Fiscal Picture
- UK’s fiscal situation isn’t looking good.
Forecasting Inflation is Hard
- Central banks rarely get it right.
China
- In stark contrast to this chart China’s weight in the MSCI All Country World Index is just 5%.
- Source.
Downgrades and Defaults
- Nice chart from Moody’s Analytics.
- It shows net downgrades (downgrades minus upgrades) of US high yield issuers (green line) against default rate (yellow line).
- It appears the bond downgrade cycle has peaked and is heading down, and this leads default rates.
Tenure of Home Owners
- On average, UK home owners are staying living in their homes longer and longer – currently more than 18 years.
Tax cuts and US vs. EU
- Tax cuts instituted by Trump boosted US EPS vs. EU EPS.
- This partly helped the outperformance of US stocks (along with EU stocks higher exposure to exports and EUR strength in that period).
- As themarketear points out, worth remembering should Biden win and the tax cuts are reversed.
EPS Revisions
- Classic chart showing what happens to EPS forecasts during each year.
- They start optimistic and almost always get revised down.
Optimism
- Mentions of optimism on S&P earnings calls hit a record.
Truck Orders
- The very economically sensitive orders of heavy (Class 8) trucks in the US continue to be robust.
- “This is an odd situation. We are in a highly uncertain, yet very stable, environment. You have a pandemic, a presidential campaign, and social unrest all occurring at the same time. However, the economy is briskly recovering and generating ample freight. Fleets are ordering only what they need, and thus, orders are aligning very closely to production rates.“
US Government R&D spending
- Over the past six decades, US government spending on R&D has steadily declined as a percentage of total federal spending (outlays) and GDP.
- This has occurred while other countries sped ahead.
- Because of this the government’s role has diminished – from funding 66.8% of all R&D spending in 1964 to just 21.9% in 2018.
