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Results 101–150
of 173 found.
Commercial Traders Are Very Short Gold & Silver
by Eric Bush of GaveKal Capital,
The latest (5/6) commitment of traders report showed some extreme net commercial positions for both gold and silver. Commercial traders are net short nearly 300k contracts of gold. This is the largest net short position since October 2010. Even as gold is off about 2% today, the net short position in gold should be viewed bullishly for gold. Since the commitment of traders report started tracking gold position, the net commercial potion in gold has had a -69% correlation to the price of gold and a -64% correlation to the one-year change in gold price.
XLE is at an Inflection Point
by Eric Bush of GaveKal Capital,
XLE, the SPDR Energy ETF, is the most popular energy ETF as it has nearly $14 billion dollars in net assets. After falling by 50% from mid-2014 to early 2016, XLE has rallied by 30% since January 22nd. XLE is made up of of 39 stocks but is dominated by the the largest energy companies in the US. The top 10 holdings make up 67% of the portfolio and the top 3 holdings make up over 42%. It is the top three holdings that we want to focus on today.
5 Charts From April’s Consumer Confidence Report
by Eric Bush of GaveKal Capital,
Headline consumer confidence was a bit softer in April. The Consumer Confidence Index fell to 94.2 from 96.2 in March. This was below expectations of 95.8. The weakness in the report came from the expectations component as it fell by 4.3. The present situation component actually rose by 1.6.
The Structural Shift In The US Commercial Paper Market
by Eric Bush of GaveKal Capital,
The 2008 financial crisis may have forever changed the US commercial paper market. Not only is the total amount of commercial paper outstanding still 50% less than its peak it 2007, the internal composition of the commercial paper market has changed dramatically as well.
The Metal Ratios Are An Ominous Sign For US Inflation Trends
by Eric Bush of GaveKal Capital,
The gold/silver ratio recently took out 2009 highs and the gold/copper ratio is at its highest level since 2009. This is a negative signal that US inflation, using CPI, could be headed for another leg lower. Since 2008, the gold/silver ratio has had a -73% correlation to the year-over-year change in US CPI (with a 2-quarter forward lag for the gold/silver ratio) . So as the gold/silver ratio increases, the year-over-year change in the CPI tends to fall.
Visualizing The Sales Growth Slowdown Since 2008
by Eric Bush of GaveKal Capital,
One way that we like to visualize growth rates is by drawing trend growth trend lines. By this we mean we extrapolate various compound annual growth rates (2%, 4%, 6%, etc.) and plot it them against level statistics (in this case total sales). We index everything to 1oo at the beginning of the chart and by doing this, we can see what the CAGR is for the entire period plotted in the chart as well as when growth rates either accelerated or decelerated during certain years.
Invest In Asia, Health Care To Reduce Your Correlation To Oil
by Eric Bush of GaveKal Capital,
We have written about the historically high current correlation between oil prices and stock prices several times recently (see here and here). Correlation between oil prices and stock prices continues to increase as the 65-day correlation and 200-day correlation are once again making new highs going back to 1980.
The Market Has Been Favoring High P/E Stocks
by Eric Bush of GaveKal Capital,
Over the past one and three months, the factor with the highest correlation to developed world stocks (out of 24 total factors) has been price to earnings. It has had an 93% correlation over the past month, an 85% correlation over the past three months and and a 90% correlation over the past year (good for 4th highest factor correlation).
Knowledge Leader Spotlight: Microchip Technology
by Eric Bush of GaveKal Capital,
One of the most innovative group of companies in the stock market are semiconductor companies. On average, semiconductor companies invest 16.9% of its sales on research and development as well as another 3.5% of its sales on firm specific resources. From an R&D perspective, semiconductors invests the third most if its sales on innovation behind just biotechnology and application software.
Only 1 Industry Group Is Trading Below 1x Book Value
by Eric Bush of GaveKal Capital,
Financials have been pretty beaten up in 2016. The worst performing developed world industry group YTD have been the banks. Banks have fallen by over 16% (in USD) YTD. Of the five worst performing industry groups, three are from the financial sector. Surprisingly, the best performing industry group is also from the financial sector: real estate. As is usually the case, the only upside to poor performance is current valuations are becoming cheap, at least on a relative basis.
A Stronger Yen Is Positive For Gold, US Inflation Expectations
by Eric Bush of GaveKal Capital,
Since the financial crisis, a stronger yen has generally been associated with rising inflation and inflation expectations in the United States. The US is a very important export market for Japan as 18% of all Japanese exports are sent to the US. Over approximately the past four years, a weaker yen has kept US import prices about 2-3% lower than they otherwise would have been. However, this dynamic looks like it is shifting again. Our models project that the recent strengthening of the yen will increase US import prices from Japan by about 2% over the next six months.
Another Macro Reason To Expect More Cyclical Underperformance
by Eric Bush of GaveKal Capital,
Yesterday, Bryce correctly pointed out the tight relationship between interest rates and stock market leadership that has persisted for the past decade. As interest rates fall, cyclical stocks have tended to underperform while counter-cyclical stocks have tended to outperform. We would like to add another macro data point that has had a very close correlation to stock market leadership over the past decade: changes in China’s Forex reserves.
There Just Isn’t A Clear Sign Which Way The Dollar Is Headed Right Now
by Eric Bush of GaveKal Capital,
We usually like to blog about trends that seem pretty clear when one dives into the data. However, a big issue in the market that we are grappling with right now doesn’t seem to have a clear trend. That issue is the US dollar. The dollar’s rise since 2011, but especially in 2014, brought the reserve currency of the world to the forefront of most investors minds. A rising dollar is usually bad news for EM stocks, US corporate profits, and commodity prices. Therefore, if the dollar’s bull run has ended there are major ramifications for securities around the world.
Mideast Exports Have Completely Collapsed Over The Past 18 Months
by Eric Bush of GaveKal Capital,
The value of exports out of Africa and the Mideast, according to CPB World Trade Monitor, have absolutely collapsed over the past 18 months. In USD terms, the value of exports (volume * price) have fallen by over 59% since July 2014. This is greater than the the peak to trough fall during the Asian Financial Crisis (43%), the 2000 Tech Bust (29%) or during the Global Financial Crisis (51%).
NTM Sales Estimates Are On The Rise, Longer Outlook Not As Positive
by Eric Bush of GaveKal Capital,
Analysts have become more optimistic regarding sales growth over the next year while tampering their excitement for sales growth in the period 12-24 months from now. Median next 12 month (NTM) sales growth estimates have nearly doubled since the beginning of the year.
The Market Is At An Inflection Point…Is Leadership Changing?
by Eric Bush of GaveKal Capital,
2016 has been a rough year for health care as we have noted in several recent blog posts (see here and here). On an equal-weighted basis, the US health care sector is off over 8% this year while no other sector is down more than 4%. Given that health care has been the undeniable equity leader over the past four years, is this a sign that equity leadership is finally changing? Maybe.
Stocks Have Swung From Short-Term Oversold In January To Overbought Today
by Eric Bush of GaveKal Capital,
Stocks have swung from being very oversold in January to overbought today. 82% of developed market stocks are trading above its 50-day moving average. Back on January 20th, only 6% of stocks were trading above its 50-day moving average. DM stocks are as overbought today as they have been at any point in over two years (since October 2013).
Evidence From Bank Stocks That This Is Still A Counter-Trend Rally
by Eric Bush of GaveKal Capital,
The S&P 500 is within spitting distance (about 4%) of the all-time high set back in May. The rally over the past five weeks has been impressive. The S&P 500 has gained nearly 11% since February 10th. So is this the start of a new bull market or a counter trend rally within a correction or bear market?
Pharma's Cousin, Biotech, Is Showing Some Major Topping Signs
by Eric Bush of GaveKal Capital,
Yesterday, Jennifer asked is Valeant Pharmaceuticals the proverbial canary in the coal mine for the pharma industry? She came to the conclusion that the outlook for pharmaceutical stocks is certainly not as optimistic as it was six months ago. If the pharma’s outlook is less optimistic than biotech’s outlook is downright pessimistic.
Only One Industry Group Has Positive Performance YTD In Both EM & DM
by Eric Bush of GaveKal Capital,
There hasn’t been very many places to hide in the equity market in 2016. The median developed market (DM) stock is down 2.98% YTD and the median emerging market (EM) stock is down 2.05% YTD, in USD, respectively. In fact, only the energy industry group has had positive performance in both the EM (5.78%) and DM (0.42%). Overall, out of 48 combined DM and EM industry groups, only 11 have had positive performance so far this year.
There’s Been An “Anti-Dollar” Movement In The Market Recently
by Eric Bush of GaveKal Capital,
Part of our investment work is understanding what has or hasn’t been driving the market recently. We quantify this by regressing various valuation, fundamental, estimate, and correlation factors against the market over 1-day, 1-week, 1-month, 3-month and 1-year time periods. Over the past year, North American stocks that have had the lowest correlation to the USD have had terrible performance. The decile of stocks with the lowest correlation to the dollar are down nearly 22% over the past year. What’s interesting is we have seen this relationship completely reverse over the past month.
Why Do So Many Companies Trade At Many Multiples Of Book Value?
by Eric Bush of GaveKal Capital,
In the United States, nearly half of all companies (48.15%) trade over 3x book value. And if you break out valuations and look at just the more consumer oriented sectors (consumer discretionary, consumer staples, health care, and information technology) then the percentage of stocks that trade at a book value multiple of over three times increases to 66.77%. For those hardcore value investors that look for company’s trading below 1x book value, its very slim picking out there.
4 Scary Stock Tops To Avoid
by Eric Bush of GaveKal Capital,
Company: Regeneron Pharmaceuticals Sector: Health Care Sub-Industry: Biotechnology Key Valuation Metrics: Price to Cash Flow (P/CF): 30.2x Price to Earnings (P/E): 63.2x Price to Book Value (P/BV): 11x Normalized P/CF (5-year trailing): 78.2x Normalized P/E: 98.5x Normalized P/B: 19.3x ...
Looking For, But Failing To Find, An Expansion In New Highs
by Eric Bush of GaveKal Capital,
We have had a nice little bounce in the equity market over the past two and half weeks. Since making a multi-year low on 2/11, our GKCI United States Index has rallied by nearly 7%. From the May 2015 peak to the February trough, the index fell by almost 16%. So has the latest rally kicked the equity market correction to curb and have equity markets entered into a new bull phase? Unfortunately, one of the more reliable market internal data points is indicating to us that there is probably further downside ahead in the short-term for investors.
EM Stocks Are Just Plain Cheap
by Eric Bush of GaveKal Capital,
Regardless of the valuation metric one chooses to look at it, the story is the same: EM stocks are cheap. EM stocks have fallen so far that 2009 valuation lows are starting to be challenged. Case in point, on a price to cash flow basis EM stocks are trading at lower multiple today than they were in 2009 (granted just a hair lower). This is important because EM stocks are doing a better job than ever in creating free cash flow. The GKCI EM Index is currently trading at a juicy 11.82% free cash flow yield.
EM Stocks Are Just Plain Cheap
by Eric Bush of GaveKal Capital,
Regardless of the valuation metric one chooses to look at it, the story is the same: EM stocks are cheap. EM stocks have fallen so far that 2009 valuation lows are starting to be challenged. Case in point, on a price to cash flow basis EM stocks are trading at lower multiple today than they were in 2009 (granted just a hair lower). This is important because EM stocks are doing a better job than ever in creating free cash flow. The GKCI EM Index is currently trading at a juicy 11.82% free cash flow yield.
US Industrial Production Starts 2016 On The Right Foot
by Eric Bush of GaveKal Capital,
Industrial production in January increased by a very unexpected 0.9% in January. This was well above expectations as analysts were expecting a 0.4% MoM increase according to Bloomberg. Industrial production was helped by a 2.8% increase in vehicle production. So while the overall year-over-year change in industrial production is still negative at -0.7%, the manufacturing portion of industrial production is increasing again and is 1.23% higher than a year ago.
Be A Proactive Investor
by Eric Bush of GaveKal Capital,
During volatile times in the market, like what we have been experiencing since May, it’s difficult to see through the disparaging news headlines (Oil is Collapsing! Bear Market in Stocks! US Is In A Recession!) and not to lose sight of the forest for the trees.
Banks Approaching Relative Performance Lows
by Eric Bush of GaveKal Capital,
The KBW Bank Index, which consists of 24 banks, is approaching 2008 and 2011 lows relative to the S&P 500. In the chart below, we plot the KBW Index against the S&P 500 going back to September 1992 which is when the KBW Bank Index began. We have indexed the chart at 100 starting in September 1992. Banks have underperformed the S&P 500 by nearly 37% since 1992 and only twice, in 2008 and 2011, have banks underperformed more. In 2008, banks had underperformed by nearly 48% and in 2011 banks had underperformed by about 43%.
The Long View Of US Income and Consumption Patterns
by Eric Bush of GaveKal Capital,
In the summer of 2008 and the fall of 2012, US consumers were spending over $400 billion on gasoline (and other motor fuels) on a seasonally adjusted annualized rate (SAAR) according to Bureau of Economic Analysis (BEA). As of the end of last year spending on gasoline is down to $251 billion, which outside of January 2015, is the lowest amount of spending since the summer of 2009, and since the average gasoline price (average between Los Angeles, NY Harbor, and the Golf Coast) has now fallen to its lowest level since December 2008, we can expect future spending on gasoline to continue to fall
Can The Yen Buck The Stronger Dollar Trend?
by Eric Bush of GaveKal Capital,
The dollar keeps on chugging along to higher and higher values. According to the nominal trade-weighted USD index (major currencies), the dollar has gained 1.4% since the Fed raised rates on 12/16/2015. While not a major move, it’s large enough to increase the nominal trade-weighted USD index to a level it hasn’t reached since 2003. The real trade-weighted USD index moved slightly higher in December as well and is now its highest level since November 2002.
Are US Stocks Consolidating Or About To Have A Waterfall Decline?
by Eric Bush of GaveKal Capital,
Considering the historically bad start to the year, it is worth asking whether US stocks are in a consolidation mode or are about to break down significantly? To help get us closer to an answer we wanted to run through a variety of our market internal charts.
Still Plenty Of Dry Powder For More Health Care Acquisitions in 2016
by Eric Bush of GaveKal Capital,
As this Bloomberg article states, 2015 was a gangbusters year for M&A activity in the health care sector. The record setting year ended with “$605 billion” total in health care takeovers, with the majority coming from the pharma and biotech industry. While it is difficult to project whether the health care sector can break 2015’s record in the coming year, one thing that is for certain is there is still ample room on company balance sheets for more M&A activity.
Where Are Valuations At Heading Into 2016? EM Edition
by Eric Bush of GaveKal Capital,
Yesterday we looked at where developed world valuations stand so today we are going to move over to the emerging markets. The equity pain experienced in the EM in 2015 has been well documented. While the median stock in the developed world has managed to squeak out a slight gain, the median stock in the emerging markets is down a disastrous 15% YTD. It shouldn’t be any surprise then that the average and median valuations in the emerging markets are both well below levels seen in the developed world.
Where Are Valuations At Heading Into 2016?
by Eric Bush of GaveKal Capital,
The average price to cash flow value for a company in the developed world currently sits at 13.67x while the median value is lower at 10.18x. Europe has some of the most expensive and cheapest valuations out there based on price to cash flow.
Breaking Down US Energy Valuations
by Eric Bush of GaveKal Capital,
It’s not breaking news to say its been a bad year for energy stocks but it might be breaking news that not all energy stocks are trading at cheap valuations. In the United States, the median energy stock is down nearly 29% (the average energy stock is down about 23%). As this first chart shows, energy has clearly been the worst sector by a wide margin.
2015: Growth Counter-Cyclical Kind Of Year
by Eric Bush of GaveKal Capital,
When we look at the broader stock market, we like to break out the 10 economic sectors into five smaller groups: growth counter-cyclicals (health care, consumer staples), defensive counter-cyclicals (telecom, utilities), early cyclicals (consumer discretionary), late cyclicals (energy, materials, industrials) and hyper cyclicals (financials, information technology).
The Dollar Is Peaking Out To A 146-Month High
by Eric Bush of GaveKal Capital,
It took about a year of consolidation but it looks like the dollar could be on the verge of another breakout higher. After trading in a fairly tight range since the beginning of this year, the nominal trade-weighted dollar (major currencies) has poked out to its highest level since 9/4/2003.
Not At All Inventory Corrections Happen In Recessions
by Eric Bush of GaveKal Capital,
As we had suspected in our latest quarterly conference call, economic growth in the 3Q was feeling worse than it was due to a reduction in inventories. Final sales of domestic product remained pretty strong as it contributed 3% to real GDP. Change in private inventories pulled down real GDP by -1.4%. Inventories dragged down real GDP by the most since in any quarter since 4Q2012.
How Knowledge Investments Translate Into Superior Profitability
by Eric Bush of GaveKal Capital,
Regular readers are by now well versed in our belief that companies that invest in more knowledge assets, or intangible assets, than their peers leads to a sustainable competitive advantage that manifests itself in superior margins and profitability. We call these knowledge intensive companies Knowledge Leaders. For those that are not as familiar, please check out our three part series for the academic foundation and the real-time application of the Knowledge Effect.
Foreigners Are Once Again Accumulating US Corporate Bonds
by Eric Bush of GaveKal Capital,
An under appreciated consequence of the financial crisis is the fact that foreigners became net sellers of US corporate bonds for an unprecedented 7 years. It is unprecedented because from 1984 to 2008, the one-year moving average of net purchases of US corporate bonds by private foreigners never even dipped into negative territory.
The Slowdown In Global Trade In 6 Charts
by Eric Bush of GaveKal Capital,
The last two US recessions have severely damaged the growth rate in global trade. In each case, the trend growth rate of trade since 1991 (which is when the CPB World Trade Monitor data begins) was effectively cut by at least a percent. Emerging markets have helped to keep global trade afloat especially relative to developed markets, however, even in emerging markets we have seen a step down in the growth rate of trade.
Unemployment Claims Pointing To Further Economic Expansion
by Eric Bush of GaveKal Capital,
We have been on the hunt for economic data that indicates that the US may be on the cusp of a recession. So far in our journey, outside of the manufacturing sector which accounts for only about 12% of the US economy, the data seems to indicate that there is further expansion ahead. While it is just one data point, initial unemployment claims seems to be one of the strongest indications that a recession is not imminent.
World CPI Proxy Breaks Below 1%
by Eric Bush of GaveKal Capital,
There’s been a lot of of deflationary data recently (see here, here and here). The plunge in our simple World CPI proxy to the lowest level since October 2009 doesn’t really catch us off guard. The fact that one third of the 33 countries in our proxy are currently are seeing year-over-year declines in consumer prices is a bit eye-opening, however. Switzerland is leading the deflationary wave as Swiss consumer prices are down -1.4% year-over-year, more than they were at any point during the financial crisis. The year-over-year decline is the largest on record since 1959 for Switzerland.
Boston Is The 3rd City To Pass Previous Home Price High-Water Market
by Eric Bush of GaveKal Capital,
The S&P/Case-Shiller Home Price Index for July was released this morning and showed that we have a new city that is making all-time house price highs. Boston home prices, which had a 1.1% month-over-month gain and is now 4.29% higher year-over-year, are now 80 bps higher than the peak price in 2005. Boston joins Denver (+22.1% over the peak) and Dallas (+21.3% over the peak) as the only cities out of the 20 cities that S&P/Case-Shiller HPI tracks that have surpassed housing bubble price highs.
NYSE Margin Debt Declines Again In August
by Eric Bush of GaveKal Capital,
Margin debt declined by nearly $14 billion in August bringing the two-month decline to $31.5 billion. This is the largest two-month decline since, you guessed it, September 2011. Margin debt is now approximately $34 billion off the high made in April.
Looking At A Decade Of US Equity Valuations
by Eric Bush of GaveKal Capital,
Expensive stocks can always get more expensive and cheap stocks can always be cheaper. Consequently, making short-term market calls based on valuations is a fool’s errand. However, valuations end up always mattering in the long-run even if they are usually usurped in the short-run by investor sentiment. Therefore, we thought it would be a worthy exercise to take a look at how US equity valuations by industry group look today relative to the past decade.
Correlations Have Spiked In The US, Less So Around The World
by Eric Bush of GaveKal Capital,
The correlation between US stocks and the MSCI World Index has once again spiked as volatility has increased. In the chart below, we show 20-day, 65-day, and 200-day rolling correlation between US stocks and the MSCI World Index. The 20-day correlation has increased to 0.82 which is the highest level since 9/7/2011 and it surpasses any level hit during the financial crisis.
Results 101–150
of 173 found.
