Monthly Archives: October 2013

James Mackintosh


Bear

Source: www.geekphilosopher.com

Where are all the bears? Even some of the usual suspects have stopped growling, with David Rosenberg of Gluskin Sheff going so far as to dispute the idea that he’s a permabear. There are a few still carrying the flame – Russell Napier, the stock market historian, thinks the S&P 500 will fall to 500 – but with the S&P now at 1,772 there are few willing to listen to the growls. 

James Mackintosh

Money has been piling into European shares as fears of the euro imploding recede, the economy shows signs of life and investors look for the next trade after Japan.

But the “eurozone shares are cheap” theme might have run its course. This chart shows the discount of eurozone forward price-to-earnings compared to the US, as a percentage (using MSCI indices). 

James Mackintosh

FT Alphaville today has a nice chart suggesting London house prices are down by more than a quarter in real terms.

Here’s an alternative thought: the quality of measurement of London house prices has collapsed. This chart shows London house prices after inflation as measured by LSL/Acadametrics, the Office for National Statistics, Nationwide, and the Halifax index Alphaville used. I used CPI, rather than the discredited RPI, for most of them, but showed the effects of both RPI and CPI for the Acadametrics series.

London housing indices

Halifax down at the bottom there is clearly out of line with the rest, although Nationwide’s index still shows a hefty real terms loss, of 9 per cent. 

John Authers

At first, the idea that the Nobel economics prize should be shared between Eugene Fama and Robert Shiller sounds absurd – akin to making Keynes and Friedman share the award.

Gene Fama, of the University of Chicago, is famous as the father of the Efficient Markets Hypothesis, after all, while Yale’s Bob Shiller is famous primarily for being the principal critic of that hypothesis. 

James Mackintosh

Investors have used all sorts of valuation models in the past 20 years. Which to use for Twitter, now that it is preparing to float?

Here’s another handy measure: price per worker. Twitter is more than its staff, of course. But it’s a useful sanity check on any valuation. The higher the value, the more investors have to assume there’s something really special about their assets – factories (a carmaker), intellectual property (think cure for cancer), innovative culture (Apple?), near-monopoly position (once Microsoft, now Google). 

John Authers

Russell Napier’s Anatomy of the Bear seems to be quite a cult classic among investors.Anatomy of the Bear I regularly see it on portfolio managers’ desks. Meanwhile, his video interviews with the FT in the years since the crisis also seem to have created quite a cult following. This week he completed his fourth interview with us since 1999, and he is sticking to his claim, based on historical experience, that the S&P 500 will need to slide down below 500 once more before this bear market is over (he did say 400 in the book).

How much has his story changed, and how seriously should we take him? This obviously divides opinion. So here are his previous interviews with us, in chronological order. 

James Mackintosh

With the US government missing in action, the statisticians who usually draw up Friday’s non-farm payrolls numbers are kicking their heels at home. In their absence, the market is likely to turn to today’s estimates from payrolls processor ADP – which has direct access to data on about a fifth of total pay packets.

This should make ADP’s numbers more reliable than those from the government. But because investors focus on the government survey, rather than ADP, what really matters is how close the ADP estimates are to the official figures. At first glance they look pretty good:

ADP v non-farm payrolls 

John Authers

Just what depths of political stupidity are markets discounting? The partial shutdown of the US government passed with little or no impact on the markets that stood to be most affected, even though there was uncertainty about it to the end.

Almost all European stock markets opened higher, despite the news from the US. The dollar index dropped 0.35 per cent in the minutes following the realisation that the shutdown would happen, and then recovered somewhat. The yield on the benchmark 10-year Treasury bond gained 5 basis points to 2.66 per cent – still far below the 3 per cent it briefly touched a few weeks ago. So what has happened so far – the failure to agree on a budget and an initial shutdown of the US government – has evidently been priced in. 

James Mackintosh

Here’s the market reaction to the shutdown of (some of) the US government:

  • Benchmark US 10-year Treasury yields rose 0.05 percentage points immediately
  • The dollar index fell 0.4 per cent immediately
  • US equities dropped 0.6 per cent in the build-up yesterday, but the fall was still less than the 0.73 per cent fall in developed world equities.
  • The e-mini S&P 500 futures contract is up 0.4 per cent since the shutdown took effect at midnight in Washington

All of which suggests that investors really aren’t that bothered. Here is conventional wisdom on why: