- EU bank relative valuation is still below crisis levels.
- The banks are taking action by cutting costs.
- Banks are cutting 77,780 jobs this year the most since 2015.
- 82% of these cuts are originating from European banks with Deutsche bank topping the list with 18,000 through 2022.
Stocks
Interesting, and often contrarian, Snippets on individual companies and the stock market.
Amazon
- Big read on Amazon from the New Yorker.
- Worth a read, as Amazon, now the second largest employer in the US, touches more and more companies.
- This chart shows the growing number of companies mentioning Amazon as a competitive threat in their annual report.
Fedex and ISM
- Fedex stock slightly leads/is coincident with the ISM composite.
- If you think ISM is heading up you should probably be buying Fedex.
- NB there are non-macroeconomic issues that one needs to consider.
Newspapers
- Media is a tough business.
- This article paints a clear picture of what is going on behind the scenes.
- All told, according to The Columbia Journalism Review, 3,385 journalists lost their jobs in the past 12 months. With some estimates double this figure.
- Considering there are only 37,000 people classed as reporters in the US these are huge numbers.
S&P vs Treasury Yield
- This chart suggests that relative to US Bonds equities are fairly priced.
- It correlates the S&P 500 P/E ratio vs. 10 Year Treasure Yield.
- Not a perfect correlation but a good guide.
Customer Value
- Really interesting model to calculate customer value.
- This essential tool is used to understand which bit of revenue comes from what customer cohort and combines four models of behaviour.
- Important reading for anyone analysing stocks but does require further disclosure (the customer cohort chart) from companies.
Financials
- S&P 500 Financials hit all-time high just once in the last 10 years.
- For reference the S&P 500 index has done so 236 times.
Invert, Always Invert
- Inversion is often a powerful thinking tool.
- One interesting idea from The Market Ear is to invert stock charts.
- This chart is Apple’s stock price inverted.
- The question to ask is – would you short more?
Amazon Logistics
- Amazon’s logistics investments are coming into their own.
- They employ 90,000 people and delivered 46% of amazon’s own packages in the latest datapoint.
- In 2019 they are on track to deliver 3.5bn packages – more than FedEx.
- Likely a big issue for parcel companies if they open up the network to non-AMZN volume.
Bank of Fintechs
- Interesting article about the bank fuelling lending focussed fintechs.
- They have been writing $1bn of new loans per month all sourced from 15 or so VC backed fintech start-ups.
- They effectively provide the regulatory infrastructure. Most loans are then sold off with a portion retained.
- Some choice quotes – “Our strategy is to be the only financial services provider to the fintech ecosystem globally,” Gade says excitedly. “Changing people’s lives is why we do this, before anything else.”… “The talk about a recession or a credit cycle that’s going to start going the other way is much ado about nothing.”
Direct Lending Revolution
- There is a big new trend in the world of finance – direct lending.
- Private equity firms are grabbing a slice of the leveraged lending market from the big wall street banks.
- It is leading to lots of competition – leveraged loan syndication fees are down 29%.
- Apollo think that private could gain as much as 10% share in the $2.5 trillion high yield loan and bond market in the next 5 years.
- This could be a function of higher bank risk weights eroding balance sheet advantage and huge fund raising capacity of private equity.
- Returns as well could be an explanation.
- The risks are clear as more and more lending is slipping into less regulated corners of the financial markets.
Internal Correlation of S&P
- The correlation between the components of the S&P 500 index is back to the high correlation zone.
- This suggests that stocks are moving in unison and is a difficult environment for active management.
HSBC
- Moody’s downgrades HSBC rating to negative outlook.
- Credit rating is the key cost of goods sold variable for banks so this should be monitored carefully for any investors.
- “The negative outlook on HSBC Holdings’ ratings is driven by the execution risk attached to the planned repositioning of HSBC Bank and of the group’s US business“. These businesses are 34% of risk weighted assets. HSBC has been restructuring for nearly a decade.
- “and our expectation of subdued profitability in 2020 and 2021. It also reflects pressures on asset quality and profitability in Asia due to a more difficult operating environment in Hong Kong and the rest of the region“
Industry Concentration
- This table shows what % of the total sales of an industry come from the top four companies.
- This is the list of the most concentrated industries in the US.
- A few usual and some unusual suspects.
Cloud Computing
- “What is happening with cloud computing at large is to think about what the total spend in technology today is, it’s around 5% of GDP. On a secular basis, I think it’s going to be 10% which is going to double in the next 10 years. And that’s because every industry, whether it’s in retail, whether it’s in healthcare, whether it’s in manufacturing, they’re all being transformed by digital technology and this technology stack we have and the platform approach Microsoft has, means we will be able to participate in that 10% on the doubling of tech spend, but more importantly, really helping the global economy grow because of digital technology. And that’s what I think is the way to think about our opportunity.” Microsoft CEO
- Sometimes it is about thinking about the big picture runway. Microsoft (MSFT) have a long one in front of them.
10 Laws of the Cloud
- In 2008 Bessemer Venture Partners published the famous 10 laws of cloud computing.
- They have now come up with an updated version after having invested in over 200 such companies.
- Worth keeping an eye on these if you are invested in cloud stocks.
Distribution of S&P P/E
- Interesting chart showing distribution of S&P 500 P/E since 1935.
- The distribution is % of days S&P P/E spends in a particular range.
- Around 90% of the time the S&P has been cheaper.
VC Investing by Sector
- Interesting chart showing year on year change in Venture Capital investing by sector in Europe 2019 vs. 2018.
- This is useful to track for equity market investors – it shows you where capital is being added.
- Fintech, Enterprise Software and Energy are top additions, while Fashion, Home living and Transport seeing less money going in.
ISM and CEO Confidence
- CEO confidence has about a 12 month lead on ISM.
- The correlation is not perfect but suggests PMIs won’t recover just yet.
eCommerce
- There is a lot of press about eCommerce in the US.
- Yet staggeringly only 14% of US retail sales are online.
- The number is growing but the runway is clearly long.
