- 1,100 companies in the MSCI World Index yield more than +300bps above global government bonds (source BofA Merrill Lynch).
Macroeconomics
Snippets on the big picture.
PMI Heat Map
- Interesting to see how related the cyclicality of the world is.
Central Bank Balance Sheets
- Central bank Balance sheets are back to growth according to Merrill Lynch.
- This is after 2 years of being flat.
- This is seen as a bullish sign.
- h/t Isabelnet
Yield Curves
- Typically the S&P 500 peaks 10 months after the yield curve inverts.
- h/t Isabelnet
Oaktree Latest
- Latest memo from Howard Marks of Oaktree who we mentioned here.
- It explores the implications of negative interest rates and is an informative and very intuitive read, as always.
Central Bank as Debt Holders
- Great chart showing the current level of sovereign debt held by central banks across different countries (as % of GDP).
- From 2008 (dark blue) until 2018 (orange diamond) and …
- … how we got there (lighter blue lines show changes).
- h/t ScopeRatings
Consumer vs. Industrial
- Consumer confidence relative to business confidence (ISM) is at extreme levels (almost 2 std. deviations).
- h/t 361 Capital, BAML.
Wage Growth
- Wage growth for low-income workers is growing a lot stronger than the rest of the wage distribution.
- This trend has really accelerated in 2019.
Central Banks buying Gold
Yield Curve and Recessions
- Yield curves are excellent predictors of recessions.
- You can also have recessions without inversion.
S&P Valuations
- Valuation measures of the S&P index don’t look excessive.
- This seems to be the case no matter how you cut it.
- A good set up for a potential monetary policy driven rally into strong seasonality – especially with the ISM on its back already.
- h/t The Brooklyn Investor.
Industrial Recession
- Fedex is an early cyclical while TPG have their fingers in a lot of pies.
- “The industrial sector remains sluggish due to an inventory build-up and increased geopolitical trade tensions…US manufacturing PMI has been very weak this year. Given that our industrial production outlook is down 70 basis points from June currently at 0.9%.” Fedex CEO.
- “Certainly growth has slowed globally not going negative in terms of recessionary worries but we’re not seeing the sort of optimism and forward leaning behavior that we saw in our CEOs just a few years ago” – TPG Capital Co-CEO James Coulter, 23rd Sep, CNBC
- h/t The Transcript
Immigration Economics
- Ever find yourself in an argument about immigration.
- This great article lays out, in considerable detail and with supporting evidence, the economic effects of immigration.
Help to Buy
- It took the government 30 pages to come to the conclusion that was obvious from the start of the program.
- “Help to Buy was originally intended as a short-lived scheme but will now last for 10 years and consume over 8 times its original budget, yet the value achieved from its extension is uncertain.”
- “Around three-fifths of buyers who took part in the scheme did not need its support to buy a property, and the large sums of money tied up could have been spent in different ways to address a wider set of housing priorities and focus more on those most in need.”
Iran vs. Saudi
- Sabres are once again rattling in the Middle East.
- We are reminded of an excellent piece comparing the current situation to that of the 30 years war in Europe.
- Historical analogies have limitations but can be useful.
- After all, “History doesn’t repeat but it often rhymes” Mark Twain.
Boris
- YouGov latest paradoxically finds that despite the difficulties faced by the prime minister since taking office his popularity has grown.
Oil
- A long but fascinating read about the interplay of technology and oil.
- Exemplified by the Kern River oil field story – how technology renders even the best estimates wildly wrong.
- “From the beginning, it was evident that the Kern River field was rich with oil, millions upon millions of barrels. Wildcatters poured into the area, throwing up derricks, boring wells, and pulling out what they could. In 1949, after 50 years of drilling, analysts estimated that just 47 million barrels remained in reserves—a rounding error in the oil business. Kern River, it seemed, was nearly played out. Instead, oil companies removed 945 million barrels in the next 40 years. In 1989, analysts again estimated Kern reserves: 697 million barrels. By 2009, Kern had produced more than 1.3 billion additional barrels, and reserves were estimated to be almost 600 million barrels.“
Yield Curve Predictive Power
- With yield curves falling to new cycle lows earlier in the summer it is interesting to think about their predictive power.
- This piece from the Bank of England blog is worth reading.
- As the chart below shows – the predictive power of yields has indeed fallen over time but interestingly has started to increase recently.
- There is more in the article for those interested, explaining why this might have happened.
US Consumer
- Bank of America Merrill Lynch uses their credit/debit card data to check the pulse of the US consumer. Their latest report had this to say:
- “The consumer is beginning to worry. Since our last update in mid-August, the BofAML US consumer confidence indicator (USCCI) decline by 3.8 points to 50.1 based on data through September 9. It briefly dipped below the 50 breakeven level during the survey period indcating that the consumer is growing increasingly pessimistic“
- h/t Calculated Risk
Ruffer
- Another fund manager worth following is Ruffer.
- They take a very long term capital preservation approach to investing their client’s wealth.
- They also tend to take contrarian positions.
- The investment reviews published monthly can be found here.