- Fintech is getting more recognition in the new GICS changes.
- As of March 17th, 11 S&P stocks will be reclassed out of IT and eight of them will land in Financials, into a new sub-industry focussed on payments.
- This will raise the Financials weight to 14% from 11% – though clearly reducing the weight of banks within that, at an interesting point in time.
- Source.
Stocks
Interesting, and often contrarian, Snippets on individual companies and the stock market.
China Car Exports
- Hockey stick move in Chinese car exports since the pandemic – quietly becoming an “auto export powerhouse”.
Rate Cuts and Bear Markets
- Equities typically bottom some time after the first rate cut, based on historic bear markets since 1984.
- h/t themarketear.com
H2 Expectations
- Most of the earnings cuts have been to Q1/Q2 2023E.
- The typical pattern of an H2 recovery is still assumed.
- h/t themarketear.com
Semiconductors
- “The most intriguing aspect of Wall Street’s behavior is that if we examine every period of industry decline over the past several decades, we see that stock prices reach their lowest point when the industry only starts to experience a fall in earnings, well before the trough of earnings. The stocks were already recovering and surging by the time layoffs and consolidation occurred.“
- Semiconductor index (SOX) is up strongly since October lows and earnings cuts have only just started i.e. a typical pattern with the expected bottom of the cycle is Q2 2023.
- Yet, as argued here, this cycle appears different – (1) days of inventory at record high which will take, despite a desire for supply chain resilience, more than two quarters to clear (2) there is an oversupply of certain process tech (3) channel stuffing has been a big feature.
Intel
- A harsh, almost damning, write-up of Intel, pre-dating the dividend cut.
- “In reality, Intel is not the giant of the industry. Intel’s total share of industry capacity is around 10%, they are not a giant who has stumbled, they are a niche player and have been for years.“
- Worth a read.
Car Paint
- “Each coat of paint on the Model Ts had to be brushed or dipped on and allowed to dry before the next layer went on. While the duration of assembly was initially measured in hours, the duration of painting was measured in days or even weeks.“
- So starts this sojourn into the world of car paint and how the “single biggest hindrance to mass production” for Ford was solved.
- Spoiler chart, but there is so much more.
Supermarket SKUs
- The number of products on supermarket shelves looks to be breaking a decade-long downtrend.
- Source.
No Recession Path
- Equities are following a no-recession path currently.
- If one does happen, things could look very different.
- Source: TS Lombard via themarketear.
The Widening Gaap
- The quality of reported earnings in the US has been deteriorating.
- Source: Bernstein.
Ben Evans 2023 Deck
- The annual deck from Benedict Evans is out, teeming with thought-provoking charts.
- Here, for example, is the share of retail spending going to department stores.
- This decline of traditional retail is supported by chart 31 – showing capital spending on warehouses overtaking sums spent on retail space.
Glide Approach
- More and more airports in the US are adopting a “glide” landing.
- “Everybody’s at idle for the entire descent, burning the minimum fuel, making the minimum noise and creating the minimum emission”
Cardboard Demand Plummets
- “Demand and output for cardboard boxes and other packaging material fell sharply in the fourth quarter of 2022“.
- “the most severe quarterly decline since the Great Financial Crisis (2Q09).”
- Operating rates have fallen as a result leaving 20% of capacity idle. Excess inventory (which has fallen) remains high.
- “To Josephson, the end of 2022 in the packaging world had “echoes of the Great Financial Crisis everywhere one looks,” he wrote in the Sunday note“.
- Source (h/t).
RISC-V
- RISC-V, the royalty-free open-source instruction set architecture, is worth keeping an eye on especially as Arm convulses its way back to the stock market.
- The December 2022 summit (and this great write-up) offered a deep feel of the status of RISC-V.
- Bold statements abounded – “It’s really important that you get this. RISC-V is inevitable. RISC-V is going to have the best processors. And RISC-V is going to have the best ecosystem.”
Valuing Stressed Equity
- How should one think about the value of equity in a distressed company?
- The obvious answer is – “option value” – but what does that actually mean.
- This post makes a useful attempt and a good tool to keep in your arsenal.
Short Covering
- According to GS PB team – last week saw the highest HF short covering since January 2021.
- This ranks in the 99.9th percentile since 2012.
- Source.
REITs
- In Europe look very cheap.
- h/t: Daily Shot.
Did California make a good BREIT investment?
- Analysis on why, despite looking good on paper, California, might have made a poor investment in BREIT.
- The one-line summary is = valuation marks.
- Especially relative to other investment opportunities available, namely public listed REITs.
Margin Debt
- The recent rally in equities has taken place despite margin debt falling.
- Source: The Market Ear.
Bottom Fishing
- Nice chart from JPM
- “As shown below, in the history of US recessions (with the exception of the dot-com collapse of 2001), equity markets bottomed well before the bottom in GDP, payrolls, S&P 500 earnings and housing starts and the peak in household/corporate delinquencies. The ISM survey has been the most reliable coincident indicator of a bottom in equities“.
