- Interesting post from FT Alphaville about construction.
- It discusses a recent IMF note which shows that the construction sector is often a great canary in the coal mine of economic activity.
- “An additional percentage point of value-added or employment growth in the construction sector during a boom raises the probability of the boom being bad—followed by subpar economic performance or a systemic financial crisis—by 2 and 5 percentage points, respectively.“
- “Strikingly, in our sample, long-lasting booms that featured rapid construction growth never ended well.”
- Interesting point that because inflation doesn’t account for housing costs properly the central banks will always be behind the curve.
Macroeconomics
Snippets on the big picture.
2019 Top Manufacturing Growth
- A ranking of all PMIs by country in 2019.
- Greece comes top. Explains the rally in Greek assets in 2019.
- Germany at the bottom.
Competition
- The two interesting charts from Bridgewater’s Research.
- They show a gradual relaxation of policies targeting competition among firms.
- This allows larger or dominant firms to form.
UK
- Fund flows look to have bottomed.
- Not everyone is positive.
- “The U.K. remains – the cork is still in the bottle. It didn’t go off last Friday [Election day]. Money is still sitting on the sidelines. I think it may start to come, but I don’t think we’d be calling that as like the last Friday doesn’t – is only the beginning, not the end. And there are other challenges in the U.K. market, so the U.K. is probably the area across the industry which is the most difficult at the moment.” JanusHenderson CFO
London House Prices
- Rightmove report out for February on UK and London house prices.
- “London’s recovery continues with new-year momentum pushing up prices and sales numbers, and finally encouraging more sellers to come to market … Better market encourages new sellers, with the 1.6% increase in the number of newly marketed properties being the first rise compared to the prior year for 16 months.”
US Gallup Survey
- Interesting chart from the latest Gallup Poll.
- Americans’ optimism about their personal finances has climbed to levels not seen in more than 16 years, with 69% now saying they expect to be financially better off “at this time next year.”
Bond ETF
- We have previously written about the risks building form the rising popularity of bond ETFs.
- This article argues the opposite – more ETFs = more trading in bonds = liquidity.
- We take issue with these arguments. An inspection of two bond etf prices shows you that they have mostly marched upwards (e.g. LQD, VCIT).
- As ETFs go up they create more units and are willing buyers in bond markets. This of course creates liquidity.
- The main issue will be on the downside – if something goes wrong, ETFs, en masse as they follow pre-set rules, will sell and there won’t be anyone on the other side.
PMIs Improving
- This chart shows that some 60% of economies are seeing improving manufacturing PMIs vs. December – a bullish sign.
Buybacks
- Buyback activity by US companies has fallen.
Outperformance is hard
- This chart from Soc Gen shows that over the past two years out of a total of 16,000 public companies world wide only 20% have outperformed the S&P 500.
- The peak was 70% a decade ago.
Germany
- This is a really good article on Germany. h/t The Browser.
- It really gets to the crux of the country’s success.
- In 1993 they ran a $20bn deficit and now that is a surplus of over $200bn (inflation adjusted).
- Worth a read for any economist and puts into perspective the trade-war going on right now.
- “The takeaway — from this whole 6,000 word essay — is that Germany has done insanely well for itself since the creation and adoption of the Euro and the European Single Market by pursuing a strategy of Export-driven Industrial production that is considered impossible in any other developed, high-GDP, high-population, high-wage-paying nation.“
UK Electricity Mix
- Amazing how quickly it changed.
Artificial Intelligence (cont)
- Even central banks are getting in on the game.
US Election
- Worth keeping an eye on betting markets.
- Sanders has recently overtaken Biden for the Democratic nomination.
Bond ETFs
Business Cycle Indicators
- Interestingly freight data in the US continues to be weak.
- “Both the shipments and expenditures components of the Cass Freight Index marked their lowest reading of 2019 and took another step backwards in terms of y/y growth. There is lots of hope in the stock market and the freight market for a better 2020, but the trends have yet to turn.”
- Source.
Market Sentiment Indicators
- Great chart showing where all the sentiment indicators are.
- It suggests that things are exuberant but not at excessive levels.
Leading Indicator
- South Korea, an export focussed high tech economy, tends to be very economically sensitive.
- This means it is a good leading indicator in terms of companies around the world.
- This chart shows just that – it correlates exports from Korea and Global earnings per share (EPS).
- The trend has turned more positive.
S&P Returns post highs
- Great table showing that 82% of the time the S&P makes further gains 6 months after hitting an all time high.
- 21% of the time these gains can be rather large.
- Stay bullish?
Research Spending
- Science and Research are a very long term game.
- This is a striking chart from Nature using data assembled by the National Science Foundation.
- It shows that China is rapidly closing the gap on the US in terms of science spending.
- “Preliminary data from 2019 suggest that China has already surpassed the United States in R&D spending“
