As the market rally falters (perhaps), John Authers and I have a new home on FT Alphaville.
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AO had revenue in the year to March 2013 of £275.5m, on which it made net income of £6.8m: a 2.5 per cent net profit margin.
With a shiny new market cap of £1.68bn it is worth almost as much as Carphone Warehouse or Dixons, two major high street retailers. It is big enough to make the FTSE 250 (subject to other criteria).
Basic valuations look fanciful: It is priced at 247 times trailing earnings, or six times sales.
But no one cares about traditional valuation tools any more. AO is an online retailer, and they’re where it’s at. Its shares are not about earnings or dividends this year, next year or the year after; they are about first-mover advantage, an option on AO becoming the Amazon of the fridges-to-cookers world. Read more
Some interesting charts from Credit Suisse this morning are testing the idea that eurozone unemployment looks particularly awful.
Adjust for the rising number of people participating in the workforce in the eurozone, and the falling number willing to work in the US, and unemployment is just about the same in both. Read more
More bargain-hunters are starting to appear. Today Barclays equity strategists Dennis Jose, Ian Scott and Joao Toniato went so far as to recommend buying Russia’s Gazprom and Sberbank (along with China Shipping Development Co) to gain EM exposure.
Could emerging markets be the most-disliked region currently? They have been punished by investors, underperforming developed market equities by nearly 35% since Nov 2010, considerably worse than what would be suggested by their earnings (Figure 2). Amongst sellside analysts, a Bloomberg poll seems to indicate that few research houses recommend an
overweight on EM equities. From our meetings as well, we find most investors have little sympathy for our recent call to overweight EM equities
A few rather nice Barclays valuation charts after the break, plus some caution.
Falling prices are great if you’re a consumer. They’re no good if you’re an indebted government.
One measure of this is the interest rate the government pays, adjusted for inflation. If tax revenues rise roughly in line with inflation – and they should move br0adly with the GDP deflator as a measure of total economy prices – then higher prices equal higher tax revenues and so more ability to service debt.
Higher inflation means higher nominal GDP growth, no matter what is happening to real GDP. The result is smaller debt relative to the size of the economy – even if price rises have not left voters any better off (as measured by real GDP growth). Because bond coupons are fixed, inflation is good for borrowers and bad for lenders.
Here’s the good news on Spain: nominal 10-year bond yields and the extra interest it has to pay relative to Germany are both sharply down.
Here’s something less positive: Spanish bond yields adjusted for the GDP deflator – in other words, how much help the Spanish debt is getting from nominal GDP growth.
It’s easy to get the impression from the media that a new emerging market crisis is upon us. I wouldn’t rule it out, but so far what we’ve seen barely counts as a crisis even in countries such as Turkey, hit the hardest.
Turkey is having some serious political problems and this week hiked overnight interest rates from 7.75 to 12 per cent at a midnight emergency meeting. It looks bad, but in the context of Turkey’s history, this is mere noise. Turkey’s last coup was in 1997 – the “postmodern coup” – and there had been one each decade since 1960. The unusual thing is that the military went throughout the 2000s without taking charge.
Here’s the long view on Turkish interest rates (note this is the overnight borrowing rate, the longest-running of the multiple Turkish rates; it is no longer the main rate, but was more than doubled from 3.5 to 8 per cent this week):
Old stock market wisdom has it that as goes January, so goes the year. As with “sell in May”, “run your winners” and so many others, there is some truth in the saying: in 62 of the last 85 years the US market has moved the same direction in January as in the full year ahead.
On the other hand, the first day of trade is irrelevant, as Howard Silverblatt at S&P Dow Jones Indices points out. Read more
When the European Central Bank governing council meets on Thursday in Frankfurt, sushi is unlikely to be on the menu. But officials should have a concern: is the eurozone turning Japanese?
This chart shows headline inflation (in Japan the measure excludes fresh food) for Japan since its bubble turned to bust in 1990, heralding a slide into deflation. Radical action by its central bank is just beginning to return price rises, as the far right hand side shows. Read more
As the festive season approaches investors will be preparing for the boring but essential job of selling some of their wonderfully-performing US shares to rebalance their portfolios back into underperforming bonds, protecting some of those gains.
The question investors face is whether such diversification will help protect their portfolios in the future. Read more
How much is a £20 coin worth? The Royal Mint seems to have created a risk-free arbitrage, thanks to its decision to sell the first silver £20 coin for £20, with free postage (hat tip to Elroy Dimson). It is legal tender, so there’s no risk of it being worth less than £20 (and it could always be paid into a bank account or swapped at the Bank of England if you feared it might be).
Yet, on ebay demand is such that the coins are selling for £30 or more – and some chancers are listing the coins for as much as £65, plus postage. Presumably these prices are being paid by collectors attracted by scarcity value. It certainly has nothing to do with the intrinsic value, as the silver content of the coins is worth only about £6.33. Read more
Everyone from the US Treasury to the European Commission to our very own Martin Wolf is upset about Germany’s export-driven growth model – as I said on Saturday, it’s acting as a parasite on the rest of the world.
The blame can be laid on Germany’s savers – they just refuse to go on the sort of debt-fuelled spending binges Brits and Americans love so much – as well as on the German government for not encouraging them to spend more, or stepping in to spend in their stead.
But the blame should also be put on the euro. If Germany still had the Deutschmark, the country’s current account surplus would have led to some natural rebalancing, with the currency strengthening to make BMWs and other German exports more expensive, and so less competitive. The euro has risen a bit, but not nearly enough.
This chart shows exactly how competitive Germany has become, thanks to the Hartz reforms of the labour market of 2003-2005, and self-imposed austerity.
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. Read more
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). Read more
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.
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. Read more
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:
Here’s the market reaction to the shutdown of (some of) the US government:
All of which suggests that investors really aren’t that bothered. Here is conventional wisdom on why: Read more
A rally of 150 per cent – the rise in the S&P 500 since its intraday low of 666 in March 2009 – looks like the very essence of a bull market.
Adjust for inflation and it is possible to see as merely a bear market rally – perhaps the biggest dead cat bounce of all time. The real capital value of an investment in the S&P 500 is still below where it was in 2007 or 2000. After both of those peaks and subsequent crashes, shares were pumped up by central banks keeping interest rates much too low. Read more
The Bank of England has finally snapped. It is fed up with being constantly criticised for messing up its forward guidance on interest rates, and this week began what looks like a co-ordinated campaign to hit back.
Three of its policymakers have made speeches so far defending the policy, and their key points are simple. Here’s what they said, then some charts. Read more
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