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
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