Liquidity disruptions, passive influence, momentum will cause the next crisis – JPMorgan

In its massive publication around the 10th anniversary of GFC, JPM has tried to answer the basic question: “What will the next crisis look like?”

Short answers from Marko Kolanovic:

Continuer la lecture de « Liquidity disruptions, passive influence, momentum will cause the next crisis – JPMorgan »

Todd Combs on How Failure Is Useful (Preferrably Early in Life)

A good quote from Todd Combs in the FSU Alumni Association Magazine:

« you really just have to find your passion in life. Warren says to find the the job you would do if you didn’t need a job. The earlier you find that, the better – because it won’t seem like a chore to follow your dream, and you’ll outwork everyone in the process. Don’t be afraid to fail. In fact, you kind of want to fail early and often because it doesn’t cost you much when you’re young – and you learn a lot more from failure than success. »

I found it reading this good BBG article on how Combs was a key in setting up the partnership between Berkshire Hathaway, Amazon and JPMorgan.

Mohnish Pabrai Lecture at Peking University

h/t Value Investing

If you haven’t read Mosaic or The Dhandho Investor, I encourage you to do so. Pabrai has a unique way of describing his philosophy as a value investor. Of course, there’s a lot in common with Buffett, Munger and many other investors, but his books are really a good read.

Technology Outperformance No Longer Supported By Fundamentals

Source: Morgan Stanley

A word of caution from Morgan Stanley’s equity strategists:

« The latest burst of Tech outperformance has not been accompanied by superior EPS trends. Just now Tech shows few signs of stopping (or even slowing); for example: i) post its largest 1m outperformance versus the S&P since 2012, the NASDAQ is now 2.7SD above its 12M relative average; ii) 80% of constituents of MSCI ACWI’s IT index outperformed the market over the last month, the highest breadth reading since 2003. Amid all this euphoria we’d encourage investors to keep a close eye on EPS trends as the latest burst of price outperformance has not been accompanied by EPS outperformance. »

It seems investors have started noticing.

Continuer la lecture de « Technology Outperformance No Longer Supported By Fundamentals »

Where There Is Music There Is Melody – Leonard Bernstein

I like finance AND music. Music is very important to me and I think it helps a lot in life. I’m a big fan of rock music, but I also like jazz and classical. So from time to time I’ll post musical stuff. Hope you like it. Best.

I’ve never seen a great composer/director be so kind and easy at explaining music. I wish we had more like him.

Being a « Biography Nut »

« I am a biography nut [myself]. And I think when you’re trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economies better if you make Adam Smith your friend. That sounds funny, making friends among ‘the eminent dead,’ but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better for you in life and work better in education. It’s way better than just giving the basic concepts. »

Charlie Munger

Sauce: Poor Charlie’s Almanack, Expanded Third Edition, 2005

Paul Tudor Jones Bearish on Bonds; Prefers Cash, Commodities and Real Assets

Goldman Sachs latest Top of Mind publication is about the bond bear market, and there are a number of opposing views on whether yields are going to continue climbing, or if inflation is going to accelerate or stay under control.

One of the most bearish views on bonds came from Paul Tudor Jones, the founder, CIO and principal of Tudor Investment Corporation, which has c$11 bn of assets under management according to Pitchbook.

Here are some of the most interesting quotes in the interview.

Continuer la lecture de « Paul Tudor Jones Bearish on Bonds; Prefers Cash, Commodities and Real Assets »

Understanding P/E

Source: Pixabay

P/E remains one of the most used metrics to value stocks. It is very easy to compute. But it’s not always easy to interpret. « Most investors fail to have a clear sense of what a particular multiple implies about a company’s future financial performance and don’t understand how multiples change over time », according to Michael Mauboussin and Dan Callahan in a report published in 2014 by Credit Suisse (this article is mainly based on their note which you can read here).

Continuer la lecture de « Understanding P/E »

What Options for Buffett Who Has $90 Billion To Invest?

Short answer:  Not Many.

Facts: Cash & cash equivalents at Berkshire Hathaway (BRK) reached $116 billion at the end of 2017, compared with $86.4 billion at the start of the year. Per Morningstar’s Gregg Warren estimates, Buffett finds himself with « around $90 billion in dry powder that could be committed to investments, acquisitions, share repurchases and dividends. » Continuer la lecture de « What Options for Buffett Who Has $90 Billion To Invest? »

Berkshire Hathaway : Lollapalooza Earnings & The Bet

Numbers are staggering. Berkshire Hathaway, the holding chaired by Warren Buffett and Charlie Munger, earned $44.94 billion last year vs $24.07 billion in 2016, in large part thanks to tax cuts decided by the Trump administration. Operating earnings actually declined to $14.46 billion from 17.58 billion a year ago, mainly because the insurance business lost money. Tax cut contributed $29.11 billion to results, which « derives from a reduction of net deferred income tax liabilities that arose as a result of the reduction in the U.S. corporate income tax rate from 35% to 21%. »

A more meaningful number for understanding the valuation of BRK is the evolution of the net asset per share or book value per share. Last year, the number grew 23% to $211,750, outperforming S&P 500 by 1.2%. CAGR return for book value per share over 1965-2017 is 19.1% vs 9.9% for S&P 500. Patience, discipline, opportunistic approach, great deal of focus on price and knowing his circle of competence explain such an amazing performance.

The most important part of BRK release of its annual report is Buffett’s letter to shareholder. This year, Buffett covers the following topics :

Continuer la lecture de « Berkshire Hathaway : Lollapalooza Earnings & The Bet »

Valeo Has a Cash Conversion Problem

Source: Pixabay

Valeo share price reaction to 2017 results and 2018 forecast seems to rely on an apparent decoupling : orders intake are booming but return on capital and cash conversion don’t keep up.

Continuer la lecture de « Valeo Has a Cash Conversion Problem »

Ingenico : From Conquest to Caution

Source: Pixabay

Ingenico hast lost its mojo. A 7% miss on market expectations on EBITDA for both 2018e and 2020e has been severely sanctioned by investors. Shares of the payment terminal manufacturer lost 16% of their value on Feb 22, leaving the market cap of the company at €4.8 billion. At first glance, the fall looks excessive. But it’s probably deserved.

Continuer la lecture de « Ingenico : From Conquest to Caution »

Quick View on What’s on Investors Mind and in their Portfolios

Source: Pixabay

Merrill issued its latest Fund Manager Survey last week, right after the sell-off in equity markets. The message to take out is: don’t buy on dips (well my view is that you always have to think long term, understand the fundamentals of any asset class and have a view on valuation, otherwise, don’t invest at all – but that’s not the point here, I think this survey is useful to gauge market sentiment).

Continuer la lecture de « Quick View on What’s on Investors Mind and in their Portfolios »

Making Sense of Recent Spike in Volatility

Useful charts and data points gathered together by Morgan Stanley’s strategists in a report dated Feb 11. Their understanding is that the rise in real yields has been the real trigger of the spike in market volatility.

Continuer la lecture de « Making Sense of Recent Spike in Volatility »

The Psychology of Happiness – James Montier

Source: Pixabay

This is a classic read although rather unusual. I had the chance to attend a presentation by James Montier (now at GMO) at a Morningstar conference in Amsterdam a couple of years ago. In his intro, Daniel Needham unearthed his note on happiness. Although it probably has little to do with value investing, it is interesting to see that as an equity strategist at DkW, Montier had the liberty to write on such an important topic in life…

Continuer la lecture de « The Psychology of Happiness – James Montier »

Review the Basics: Thoughts on Valuation (1997) – Mauboussin

Michael Mauboussin is a highly respected investor, teacher, speaker and book writer. I came across a number of his notes in the past (including this one which I liked a lot). Thanks to the Internet and the many people who share good thinking, most of his notes are there to grasp and read.

While re-populating my blog, I came into his 1997 reflections on valuation. As Graham/Buffett nicely put it: price is what you paid, value is what you get. So to earn decent return when investing, you need to know the value so you can pay a price that gives you a good margin of safety.

The full note is available to read here. I just wrote down a couple of remarks that make sense to me and hopefully give you a quick overview of why it might be useful and what you will find inside.

Key purpose of the note is to defend the value-based approach of investing,  to keep in mind what really matters in valuation and not to fall into « market myths ».

Continuer la lecture de « Review the Basics: Thoughts on Valuation (1997) – Mauboussin »

No Sign Yet of Central Banks Balance Sheets Declining

sea, wave

Total assets held by major central banks are above $20tn. While Fed’s balance sheet has stabilized, the balance sheets of ECB, Bank of Japan and Bank of China have been increasing steadily.

Of course, the reduction in Fed’s balance sheet, expected to effectively start in 2018, will have a material impact on financial markets – the recent spike in volatility might be seen as a sort of recognition of that fact.

But global monetary base is still growing, which will in the end limit the potential for higher rates going forward and sustain high valuations in financial markets.

Continuer la lecture de « No Sign Yet of Central Banks Balance Sheets Declining »

Has The USD Bear Market Started?

Source: Pixabay
 The USD has moved from « bump » to « dump » according to William R. Cline at the Peterson Institute. While the USD jumped right after the election of Donald Trump as US president, the currency has been declining since Dec 2016.

Continuer la lecture de « Has The USD Bear Market Started? »

Rising Real Yields Are the Real Threat
Source: Pixabay

Deutsche Bank’s strategist team published a report to figure out what’s currently priced in by financial markets after the bout of volatility. Rising real yields are a clear threat to the rebound in equity market. But having recently talked to fund managers in other asset classes, real yields are a threat to many asset classes where lots of money have flown other the last years (EM debt for instance).

Here’s DB’s take on European equities:

Continuer la lecture de « Rising Real Yields Are the Real Threat »

Slowdown In Global Liquidity Is Worrying

Source: Schroders

I attended a quite interesting presentation yesterday organized by Schroder on emerging markets. Two fund managers presented on equities and debt. The head of EM debt absolute return strategies had a very interesting analysis of the current environment.

Continuer la lecture de « Slowdown In Global Liquidity Is Worrying »

Equities: Where Do European Sectors Stand (Valuation/Fundamentals)?

Source: Pixabay
Source: Bank of America Merrill Lynch

Recent market sell-off has given a bit more breathing room to European equity markets. On average, the 12 month forward P/E for the Stoxx Europe 600 index currently stands at 14.4x, which looks reasonable when you consider that the market expects 10.1% EPS growth this year + 3.6% Dividend Yield.

But but but…

Continuer la lecture de « Equities: Where Do European Sectors Stand (Valuation/Fundamentals)? »

Earnings Season in Europe: So Far So Good… But Don’t Miss
Source: Pixabay

3 out of 10 companies had reported 4Q earnings at the end of last week. On average, 51% beat EPS expectations and 47% did better on sales expectations.

Continuer la lecture de « Earnings Season in Europe: So Far So Good… But Don’t Miss »

Market Correction: Is 1987 A Good Guide?

The macro (rising rates and inflation) and market (rising equity prices) backdrop has people compare the current situation with 1987… right before the equity market plummeted. Are we in the same situation and does it mean the worst has yet to happen. Maybe not.

Continuer la lecture de « Market Correction: Is 1987 A Good Guide? »

Is VIX a Good Measure of Fear? Maybe Not

Per SocGen’s real good quant team led by Andrew Lapthorne, « the use of the ‘Fear Index’ (VIX) as a predictor of future market performance has been rather mixed, with moves in VIX appearing more contemporaneous than forward looking. »

Well if VIX is not a great predictor of market returns what is ?

Continuer la lecture de « Is VIX a Good Measure of Fear? Maybe Not »

Putting Recent Market Sell-off in Perspective

Source: Pixabay

Markets have been unnerved by rising interest rates in the US, with ripple effects around the world. The most staggering event has happened on the VIX market with a number of funds/ETNs making the headlines after having lost tons of money. What should investors take from these events ? A couple of reflections and interesting comments seen here and there. Continuer la lecture de « Putting Recent Market Sell-off in Perspective »

Worrying Records

Source: Pixabay

« The S&P 500 has entered the longest period since 1929 without a correction of more than 5%. » While this might entail a sigh of admiration to many investors, this kind of observation (per Goldman Sach’s report published today by their equity strategy team, entitled « Correction Detection; the risks of a drawdown within a bull market ») is a source of worry to us.

Continuer la lecture de « Worrying Records »

Things That Could Help European Stocks Break Out… Or Not – JPMorgan

JPMorgan’s equity strategist team has published a report today trying to figure out if European stocks will finally break out the glassdoor of 400 points (for Stoxx Europe 600) that they have been hitting 3 times already (2000, 2007, 2015).

They argue that this time might be the time, IF a number of conditions are successfully met. Among them, earnings recovery, operating leverage, decent (!) valuations and direction of bond yields are important factors to consider. Big swing factor are FX.

Continuer la lecture de « Things That Could Help European Stocks Break Out… Or Not – JPMorgan »

Howard Marks: Price And Value Are Still The Name Of The Game

Howard Marks published a new memo dated Jan 23 and there are some interesting remarks regarding the current environment.  Continuer la lecture de « Howard Marks: Price And Value Are Still The Name Of The Game »

Future For Malaysia Equities Is Bright, Says Nomura

Nomura expects Malaysia equities to return 4% in 2018 and says stock picking will be of the utmost importance to outperform.

The positive view from the broker stems from a number of factors, listed in a report dated Jan 22: « 1) solid macro and consumption growth, 2) continuing foreign inflows amidst positive revisions, 3) better corporate balance sheets with dividend upside, 4) possible election rally, 5) likely net buying by local institutions, 6) Malaysia’s laggard performance vs peers, 7) key concerns on banks getting addressed, 8) an appreciation MYR. »

The brokers set a 2018 year end target of 1,900 points for KLCI index.

Continuer la lecture de « Future For Malaysia Equities Is Bright, Says Nomura »

Inflation Newsflow Increasing, TIPS Are In Demand

Source: Pixabay

Per SocGen’s research, here are some facts on their tracking on inflation/deflation newsflow.

Inflation will probably be one of the key stories in 2018 and the source of market volatility so this is something you want to track closely.

Continuer la lecture de « Inflation Newsflow Increasing, TIPS Are In Demand »

Greenlight Capital 4Q Letter is Out

And luckily, the brave people at Value Walk have had a hand on it. So you can follow this link and go and read it.

If you don’t know Greenlight Capital and its founder David Einhorn, you can watch the following video where he presents his investment style. He really his a brilliant mind in investing, someone you should listen to. A younger Warren Buffett of some sort 🙂

h/t to Value Investing World for spotting it.

Markets Keep Going Up. Where Are the Risks ?

Rule of thumb: the more expensive a financial asset is, the lower its prospective return. That’s simple. But sentiment and markets can become and stay irrational longer than investors can stay solvant, they say. So if you cannot predict when the markets will turn, it’s probably better to check where the risks are and monitor them the best you can. And invest with a margin of safety. Always…

Continuer la lecture de « Markets Keep Going Up. Where Are the Risks ? »

Focus/Stock: Jeronimo Martins

Company Name : Jeronimo Martins (JMT)

Nb of shares : 629.293m

Last close : EUR17.305 (as of Jan 12, 2017)

Market Cap : EUR10.9 bn

Sector : Food retail Continuer la lecture de « Focus/Stock: Jeronimo Martins »

Carrefour, Bompard and the Reputation of Management vs Business

Alexandre Bompard, the young and alert new CEO of troubled French retailer Carrefour, will soon have a chance to show if he can thwart this priceless but nonetheless true observation from Warren Buffett:

« When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. » Continuer la lecture de « Carrefour, Bompard and the Reputation of Management vs Business »

Are We on The Verge of Final Melt-Up Before the Next Krach ? Jeremy Grantham Thinks So

According to Investopedia a « melt-up » is a « A dramatic and unexpected improvement in the investment performance of an asset class driven partly by a stampede of investors who don’t want to miss out on its rise rather than by fundamental improvements in the economy. »

This is exactly what could happen to financial markets, according to veteran value investor Jeremy Grantham. Continuer la lecture de « Are We on The Verge of Final Melt-Up Before the Next Krach ? Jeremy Grantham Thinks So »

This is Pure Gold: An Interview with Charlie Munger

Ok. Now stop everything you’re doing and take 50 min of your time listening to Charlie Munger. Mr Munger is the most amazing person to listen to about life, human values and of course investing. If you want to know/feel the guy, read a great biography by Janet Low.


Continuer la lecture de « This is Pure Gold: An Interview with Charlie Munger »

Unibail Rodamco-Westfield: 2 Views from the same Broker

Unibail Rodamco (UL) announced a friendly takeover offer for Australia-based Westfield (WFD) in a deal that values the Australian mall operator at c$25 bn (on EV basis).

Interestingly, Bank of America Merrill Lynch has analysts covering both companies. Following the transaction, the team covering UL has maintained its Buy rating while the one covering Westfield has moved to « Not Rated », arguing that « WFD is no longer trading on the basis of fundamentals. » Continuer la lecture de « Unibail Rodamco-Westfield: 2 Views from the same Broker »

Exane Issues Undeperform Note on Intu Properties But Says Hammerson Could Buy It… The Day the Deal is Announced

Hammerson announced a recommended offer for Intu Properties, the exact same day Exane BNP Paribas’s Michael Burt says « Hammerson is the most obvious acquirer for Intu » in a report date Dec 6 (at 6:18am), yet adding M&A is not an option. Continuer la lecture de « Exane Issues Undeperform Note on Intu Properties But Says Hammerson Could Buy It… The Day the Deal is Announced »

What Irrational Exuberance Might Look Like…

Here are 3 slides from the latest « Where to Invest Now » published by Goldman Sachs’s David J Kostin and team. There sum up his views on US equity market going into 2018 and the most interesting one is the following, because it helps understand what an « exuberant » market would look like, if history was to repeat itself.

Continuer la lecture de « What Irrational Exuberance Might Look Like… »

Merrill Lynch’s X Asset Views 2018: Higher, but Harder

Supportive macro backdrop so far makes the case for investing in risky assets, but valuation-wise, harvesting decent returns on a risk-adjusted basis is harder. At least, that’s BofAML’s strategists views.

Continuer la lecture de « Merrill Lynch’s X Asset Views 2018: Higher, but Harder »

JPMorgan Stays Overweight Equities into 2018

Despite tight or reasonable valuation, equities still make sense for JPMorgan.

Continuer la lecture de « JPMorgan Stays Overweight Equities into 2018 »

Remain Pro-Risk – Goldman Sachs

Goldman recommends investors to « remain pro-risk » going into 2018, meaning overweight equities, be neutral on credit and underweight bonds. Continuer la lecture de « Remain Pro-Risk – Goldman Sachs »

Altran: American Dream
Source: Moneypit

Altran Technologies has decided to be bold, both in strategic and financial terms. The engineering services company has agreed to pay $2 bn for Aricent (a US-based rival owned by private equity firms KKRSequoia Capital and a former unit of Flextronics), valuing the company twice as much in terms on EV/Sales ratio based on LTM numbers. Continuer la lecture de « Altran: American Dream »

Seth Klarman on Value Investing

For those unfamiliar with Seth Klarman, he is the founder of the Baupost Group, and one of the most respected and admired value investors. I think it’s both because of his track record, his core values as an investor (patience and discipline among others) but also his humanitarian values that put him on par with Warren Buffett and Charlie Munger.

His words/remarks/interviews are very rare, so any opportunity to hear/read him is a fantastic one for investors willing to improve their process/thinking about investing/life in general.

Oil & Gas: A Primer (Sort of)

(Most of the data points/comments are extracted from a Primer published in Oct 2016 by Bank of America Merrill Lynch. Comments and financial data at the end are my own).

After a number of underperforming years, European oil & gas companies have been staging their comeback: they have cut into capex and opex to generate more cash flow or reduce debt and be able to maintain their payout/dividend payment.

The market has bearly started to notice, but oil & gas companies are leaner and in better shape to leave in a world where oil price would stand around 40-60$/barrel. Continuer la lecture de « Oil & Gas: A Primer (Sort of) »

In 2018, Stay Away from Cyclicals – Exane

In its « Risk Reversal » Europe 2018 outlook report, Exane BNP Paribas recommends to keep a value bias and prefer Oil & Gas, Travel & Leisure, Healthcare, Telecoms, Banks and Insurance sectors. Continuer la lecture de « In 2018, Stay Away from Cyclicals – Exane »

Societe Generale: Market Not Impressed By Strategic Plan

Societe Generale‘s CEO Frederic Oudea did not impress the markets with his 2020 strategic plan. Shares only gained 0.3% on Nov 28. Continuer la lecture de « Societe Generale: Market Not Impressed By Strategic Plan »

JPMorgan Expects Double Digit Earnings Growth in 2018 Globally

« Global earnings look set to deliver double digit growth this year, at 12%, the best since 2010. The strength was broad based, with all the key regions contributing, and largely driven by Cyclicals and commodities. As base effects are turning less favorable, the question is whether earnings will remain a support for equities into 2018. »

This is the opening statement and a rather bullish intro to a report published today by JPMorgan’s strategists Mislav Matejka, Emmanuel Cau, Prabhav Bhadani and Aditi Balachandar. Continuer la lecture de « JPMorgan Expects Double Digit Earnings Growth in 2018 Globally »

Morgan Stanley Sees 6% Upside for European Equities

MSCI Europe has 6% left to rise next year, according to Morgan Stanley’s equity strategists for Europe. That forecast is based on a 9% EPS growth, thanks to better GDP numbers and oil price forecasts, according to a report date Nov 26.

Continuer la lecture de « Morgan Stanley Sees 6% Upside for European Equities »

Expect More Volatility in the US Equity Market – Morgan Stanley

So far, 2017 returns have been good for US equity investors. 2018 won’t repeat that, according to Morgan Stanley’s strategists in a report published today. Continuer la lecture de « Expect More Volatility in the US Equity Market – Morgan Stanley »

Morgan Stanley Favors Equities in 2018, Ups Bonds

Morgan Stanley keeps a bullish call on equities in cross asset 2018 outlook published today, but ups government bonds to « Equal-Weight » and lowers credit to « Underweight ». Timing will be tricky. The bank also prefers EM debt. Continuer la lecture de « Morgan Stanley Favors Equities in 2018, Ups Bonds »

Vital Stats on the French Equity Market – Goldman

This is a bit « old » (Sept 19, 2017), but Goldman published a series of research papers on 5 European countries (France, UK, Germany, Italy, Spain) where they have a broad look at the economy and have a couple of CEOs and their own analysts/economists comment on the trends in macro/business.  Continuer la lecture de « Vital Stats on the French Equity Market – Goldman »

In The Mood for TIPS – BofAML

Investors are getting nervous about inflation. Per BofAML « Flow Show » weekly report released today, TIPS recorded their 3rd highest weekly inflows (chart) while getting out of High Yield ($9.8 bn outflows over past 4 weeks). With $1.2bn, it’s one of the highest level of inflows since Nov 2016.

Source: Bank of America Merrill Lynch

Global/European Equities: Where is The Consensus?

2 useful tables from Deutsche Bank that give a view on fundamental trends and valuation ratios for several market places + a deep dive into European markets (geographies/sectors/size).


Source: Deutsche Bank
Source: Deutsche Bank


SocGen Bearish On European Equities Going Into 2019…

The bank expects the Stoxx Europe 600 to be about flat over 2018, before contracting by 19.5% in 2019, in part due to the anticipation of a US slowdown by 2020. By 2 years time, the European market should endure a krach. Continuer la lecture de « SocGen Bearish On European Equities Going Into 2019… »

Altice: Credit Suisse Stays Neutral, ABN Amro Buys

Altice seems to be in a precarious financial conditions and has lost the faith of investors. Shares have lost 48%, mainly due to the deteriorating KPIs and financial indicators at SFR.

At a recent conference, Patrick Drahi took the helm to try to calm investors but so far, little results. And brokers seem to have conflicting views.

To comfort Altice, ABN Amro’s analysts have issued a « Buy » recommendation on the shares, but not all are convinced. The same day, Credit Suisse also published a report with a Neutral rating, which comes a couple of days after BofAML downgraded the stock.

Here are their arguments.

(DISCLAIMER: This information is not an investment recommendation. It is just given as an information, not an advice. You need to do your own due diligence to see if an investment fits in your Investment Policy Statement, provided you have one).

Continuer la lecture de « Altice: Credit Suisse Stays Neutral, ABN Amro Buys »

UBS Sees MSCI Asia ex-Japan and TOPIX at 790 and 2,100 Respectively End-2018

From Neal McLeod and team at UBS:

« Our base case: a benign growth and policy backdrop…
We’re forecasting global growth to stabilise at 3.8% (China to slow from 6.8% to 6.4%), the export rebound to slow somewhat, inflation to pick up modestly, the Fed to hike rates three times by end 2018 (from now), US Treasury yields to grind higher to 2.7%, Asia ex Japan currencies to be flat (in equity market cap terms) versus the USD and the Yen to weaken to 122.
Continuer la lecture de « UBS Sees MSCI Asia ex-Japan and TOPIX at 790 and 2,100 Respectively End-2018 »

UBS Sees Stoxx Europe 600 at 440 Points End-2018

Per Nick Nelson’s report date Nov 13:

« We recalibrate our top-down earnings model as it had been persistently underestimating the turn in operational leverage. We now see 10% EPS growth in 2018. Consensus estimates are 8.9%, but adjusting for the average upward bias, underlying « true » consensus may be as low as c.2%. We see modest P/E re-rating to 15.7x from 15.0x currently. For the FTSE 100, we are more conservative and target 7,900 end-2018 (c.6% upside). »

« Upside risks: Equities re-rate to previous cycle peak valuations. This would point to c.33% upside from the current levels. European corporates re-gear to US levels. US investors return (net buying peaked in May). European M&A picks up, currently running c.30% below the US. Effective French labour market reform. »

« Downside Risks: Rates and bond yields rise too sharply. But a gradual move would likely be manageable – Europe has very little Tech (6% of index) and a large amount of positively rate sensitive Financials (c.25% of index). Significant Euro strength, on our forecasts (EUR/USD 1.25 end 2018) this is manageable. Higher volatility / political risks in Spain and Italy. »

Interesting Lessons from Jan Loeys

Jan Loeys has been working as the head of asset allocation for JPMorgan, where he has spent 31 years. He was famously known for the « JPMorgan View » report, published every Friday.

I couldn’t retrieve the apparent last note published but Zerohedge did, so here are some quotes from the full text that you can find there. Continuer la lecture de « Interesting Lessons from Jan Loeys »

Merrill Lynch Sees S&P 500 at 2,800 end 2018… With Some Risks

US equity market could continue its run next year with the risk that investors fall into euphoria. Continuer la lecture de « Merrill Lynch Sees S&P 500 at 2,800 end 2018… With Some Risks »

Credit : Merrill Lynch cautiously optimistic for 2018

2017 has been a pretty good year for credit investors so far, and this might continue providing inflation doesn’t accelerate too much, according to Bank of America Merrill Lynch credit strategists. Continuer la lecture de « Credit : Merrill Lynch cautiously optimistic for 2018 »

Altice: Prefer the Credit to the Equity, says BofAML

Per Bank of America Merrill Lynch report published Nov 21:

« Altice shares have lost 50% of their value post results, while the CDS on the holding have increased by 300bps. Management took action with: 1/ the resignation of the CEO and the return of Patrick Drahi to full control of operations, 2/ admission of poor execution in France, now the #1 focus, and 3/ a priority on debt reduction, involving non­core assets and towers disposals. However, ATC also significantly rebased its mid­term expectations on France. Although the steps taken should comfort credit holders, we think the case for the equity is balanced, with long­ term upside on execution, content monetization and domestic consolidation, but unclear valuation support on our reduced forecasts, and a recovery that remains largely dependent on external competitive forces. Unlike Glencore in 2015, we don’t see material value­enhancing options to drive mid­ term outperformance and downgrade to Neutral with a PO of €11. Our credit analyst Nick MacDonald is positive on the credit »

Leverage Sets the Stage for the Next Crisis

And leverage has been building up since the global financial crisis, contrary to most belief. So if you think the streak of bad luck Altice has been facing recently is just a one-off, think again. Continuer la lecture de « Leverage Sets the Stage for the Next Crisis »

US Equities: The Cycle Is Still Well Oriented – Barclays

2017 has been good for US equities, but most of the performance is related to the technology sector… Valuation are stretched but could continue to be so for a while, as long as macro/monetary backdrop is supportive.

From Barclays US Equity Strat team: Continuer la lecture de « US Equities: The Cycle Is Still Well Oriented – Barclays »

Where is the Cycle? What Should My Asset Allocation Look Like?

Over the last 8-9 years, financial assets have had a good run, but now valuations look stretch and expected real returns are low. Continuer la lecture de « Where is the Cycle? What Should My Asset Allocation Look Like? »

Sell When You Can – Kepler Cheuvreux

For a Monday morning, Kepler Cheuvreux’s strategist Christopher Potts had a nice wake-up call for investors, recommending them to Underweight Europe and EM and go Overweight US and Japan… Continuer la lecture de « Sell When You Can – Kepler Cheuvreux »

Long Term Expected Returns Have Just Gone Lower – Morgan Stanley

Getting a decent return from a diversified portfolio is getting more difficult by the year. According to Morgan Stanley’s calculations, « a traditional 60/40 equity/bond USD portfolio will see 4.2% per annum over the next decade, while the same in EUR fares only slightly better at 4.7%, and GBP at 4.9%; only the JPY 60/40 portfolio sees above-average expected returns, driven by elevated equity risk premiums. »

Continuer la lecture de « Long Term Expected Returns Have Just Gone Lower – Morgan Stanley »

Anatomy of Bull Markets Since 2009 – GS

Source: Pixabay

The anatomy of bull markets since 2009 differs greatly among regions. GS did a good job deciphering the drivers of rising equity markets in different countries, which show the contribution of both valuation (P/E i.e. investor psychology) and fundamentals (i.e. real corporate profits).

Continuer la lecture de « Anatomy of Bull Markets Since 2009 – GS »

What Signals A Bear Market ?

Bear markets (BM) are painful. Since the 50s, US bear markets have resulted in an  average loss of 31% (most painful were Oct-07 at 57%, Mar-00 at 49% and Jan-73 at 48%).

Of course, timing the market is futile and doesn’t help the investor over the long run. It’s more important to have a clear view on the value of any financial asset and seize it when it trades with a margin of safety.

But understanding the market dynamics and the financial environment might be helpful, especially if you want to be able to take advantage of the next downturn.

Goldman Sachs published an in-depth report on the characteristics of bear markets and what signals investors should track to try and anticipate them.

Continuer la lecture de « What Signals A Bear Market ? »

US Equity Market PullBack Long Overdue

The S&P 500 has gone 10 months without a 3%+ selloff. It’s the third longest since world war II. But the conditions for such a pullback are getting in place.

According to Deutsche Bank’s strategists, a number of facts should have investors worried about potential market correction in the coming weeks/months.

Continuer la lecture de « US Equity Market PullBack Long Overdue »

Follow the Money

Risk assets keep attracting money and it’s getting even better when compared to last year. HSBC published a report on fund flows to asset classes. Equities are getting inflows so far this year compared with outflows last year.

European equities are taking advantage of this positive trend, which is a good news and bring another supportive factor to rising equity markets.

Source: HSBC

Where Are we in the Cycle? Near The End of Bull Market?

Is it almost over or does the bull market have the ability to last a bit longer? What indicators should investors look at the get a sense of where we are in the cycle? Nomura’s Kevin Gaynor published a very interesting checklist and shared his views on how to assess the end of the current cycle.

Continuer la lecture de « Where Are we in the Cycle? Near The End of Bull Market? »

Low Vol Regime In Perspective

Volatility is the most disturbing factor in financial markets and it’s something people should always keep an eye on. Measured by popular metrics like VIX or VSTOXX, it’s assimilated to the « fear indicator » of investors.

Looking at the long past of the US equity market (S&P 500 in chart below), you can see that volatility goes in regimes that can change widely but rely mainly on macro environment (expansion/recession) and it’s impact on the psychology of investor (P/E or valuation).

Volatility in equity market in perspective

Source: Goldman Sachs

Continuer la lecture de « Low Vol Regime In Perspective »

Upside Potential For Malaysia Is Not A Given, Says HSBC

Source: Pixabay

The laggard argument to reposition part of asset allocation to Malaysia might be a mistake, according to HSBC’s strategists. Investors should actually be looking at more fundamental drivers to reconsider their exposure to the Asian economy, such a rising commodity prices, increased China investments in the region and political upside risk.

Continuer la lecture de « Upside Potential For Malaysia Is Not A Given, Says HSBC »


Better growth, low inflation. It’s the perfect backdrop for risky assets. But in a late cycle environment, one of the driver of financial markets people should always be fearful about is the « fear of missing out », especially when the rise in stock market accelerates and relies more on multiple expansion than fundamental improvement.

Continuer la lecture de « FOMO »

Market Relief After Macron Wins French Presidential Election

« En Marche! », that’s an easy catch for brokers and a good way to have investors be more pro-risk in their asset allocation now that the political landscape has cleared for the best, thanks to Macron’s win at the French presidential election…

Continuer la lecture de « Market Relief After Macron Wins French Presidential Election »