Author: shyam

Flash PMI Roundup: March 2014

Flash numbers came out yesterday, here’s a roundup.

US manufacturing output growth continues

Markit Flash U.S. Manufacturing Purchasing Managers’ Index registered 55.5 in March, the second-highest since January 2013.

US Manufacturing PMI

The Eurozone continued to grow

The flash estimate of the Markit Eurozone PMI Composite Output Index came in at 53.2, only slightly lower than February’s 32-month high of 53.3 and registering expansion for the ninth consecutive month. The periphery is staging a robust-looking recovery.

Eurozone PMI

Germany grew at a robust pace

New export work placed at manufacturers rose for an eighth month running, with China, Spain and the US mentioned as sources of growth.

France returned to growth

The Markit Flash France Composite Output Index posted 51.6, up from 47.9 in February. That was the first reading above the 50.0 no-change threshold since last October.

In the manufacturing sector, growth of new work picked up to a solid pace that was the sharpest in 34 months (partly boosted by a faster rise in new export orders).

Commentary

Eurozone unemployment remains stuck at a record high of 12%. Price measures continue to warn of deflation risk. Input prices – or the prices manufacturers pay for goods – have been dropping while output prices – or the prices they charge for what they sell – are contracting, as they have done for the past two years. (WSJ)

Investors are walking farther along the risk curve, reaching for yield. Debt investors are abandoning normal creditor protections on European leveraged buyout loans. Growing volumes of euro-denominated “covenant light” loans have now aroused the interest of European regulators, who are increasing their monitoring of lenders’ behaviour. (FT)

Germany is seeing its version of a real-estate boom, dubbed betongold or “concrete gold.” “People here don’t want to own property. But they now feel they must because there’s no interest on savings. All you can do is buy real or concrete gold.” (FT)

 

Source: Markit

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Investing and Wealth Creation

 

@awealthofcs has an interesting article on saving for retirement in which he says:

Wealth is created by saving and investing more than you spend from your income stream. A house, boat or car are not considered an investment in terms of wealth creation because they are things that you consume today. You must pay interest, fees, maintenance costs, taxes and insurance on these personal balance sheet items.
 
Investing rests on the assumption that you delay current expenditures so that you have money for future expenditures. Cars and boats are depreciating assets that cost you money now. On average, housing barely keeps up with inflation over the long haul and also costs you money today.

Most people fail to understand the difference between consumption and investment. And therein lies the problem.

Source: 99 Retirement Problems

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Weekly Recap: 10 Things for a better Life

world equity markets 2014-03-14.2014-03-21

The Nifty ended the week -0.17% (+0.60% in USD terms.)

Here’s how the rest of the world markets faired:

Major
DAX(DEU) +3.16%
CAC(FRA) +2.82%
UKX(GBR) +0.45%
NKY(JPN) -0.72%
SPX(USA) +1.14%
MINTs
JCI(IDN) -3.66%
INMEX(MEX) +6.06%
NGSEINDX(NGA) -1.00%
XU030(TUR) +2.46%
BRICS
IBOV(BRA) +5.10%
SHCOMP(CHN) +2.16%
NIFTY(IND) -0.17%
INDEXCF(RUS) +5.65%
TOP40(ZAF) +0.30%

Nifty Heatmap

NIFTY heatmap 2014-03-14.2014-03-21

Index Performance

index performance 2014-03-14.2014-03-21

Top Winners and Losers

MCDOWELL-N +7.36%
MARUTI +7.48%
GODREJCP +8.73%
M&M -5.51%
GAIL -5.17%
ONGC -5.07%
Maruti staged an impressive comeback despite the ongoing debate about its corporate governance.

ETFs

PSUBNKBEES +4.08%
BANKBEES +1.88%
JUNIORBEES +1.36%
NIFTYBEES -0.10%
GOLDBEES -2.61%
Banks drove the market. Gold sank on a stronger rupee and Fed-speak.

Investment Theme Performance

Balance-sheet Strength +4.94%
Financial Strength Value +3.66%
Quality to Price +2.65%
Magic Formula Investing +2.35%
Growth with Moat +1.78%
Consistent10* +1.73%
Market Elephants +1.59%
Efficient Growth +0.99%
Velocity* +0.78%
Enterprise Yield +0.47%
Market Fliers +0.23%
Momentum 200 +0.16%
IT 3rd Benchers -0.14%
Long Term Equity* -0.19%
ADAG Mania -23.97%
IT-heavy themes continued to under-perform.

Sector Performance

sector performance 2014-03-14.2014-03-21

Yield Curve

yield Curve 2014-03-14.2014-03-21

Thought for the weekend

Kushwant Singh passed away this week. His 10 things to live a life is a stuff of legends:

  1. If you do not enjoy good health, you can never be happy.
  2. A healthy bank balance.
  3. Your own home.
  4. An understanding companion.
  5. Stop envying those who have done better than you in life.
  6. Do not allow people to descend on you for gup-shup.
  7. Cultivate a hobby or two that will fulfil you.
  8. Every morning and evening devote 15 minutes to introspection
  9. Don’t lose your temper.
  10. When the time comes to go, one should go like a man without any regret or grievance against anyone.

Source: How To Live & Die

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What does the chart say?

A new piece of academic literature argues that if you are an individual investor trading options on the basis of technical analysis, you have made some very poor decisions. The researchers studied Dutch discount brokerage clients for the period 2000-2006. The key take-away:

Technical analysis costs investors on average approximately 50 basis points per month in raw returns from poor portfolio selection decisions, and 20 basis points from additional transaction costs. Notably, the impact of technical analysis is concentrated among high derivative rollers, where the costs are much higher: 140 basis points in raw returns, and 29 basis points from additional transaction costs.

That translates to a cost of about 8.5% a year for normal traders, and about 20% a year for high rollers.

We had also linked to studies in the past that looked at specific signals. For example, Adam Grimes ran Fibonacci ratios through the grinder. His conclusion: mathematically it does not make sense for traders to use Fibonacci retracements when trading.

When you put these two studies together, it leaves us with an interesting question: why bother with technical analysis when a) it doesn’t work in the aggregate, and b) one of the most popular charts, Fibonacci ratios, have no statistical basis in fact?

In a recent interview with Josh Brown, technician Greg Harmon had this to say:

Most traders or investors that criticize technical analysis do so because they assume that the result of the analysis is a roadmap, a direction with certainty. It is nothing of the sort. Technical analysis is about the possibility. Technical analysts and traders will draw all sorts of lines and spout off support and resistance levels that appear to be full of certainty. Their analysis is not about identifying points of certainty but rather points of reflection, where price history has shown a price level important and so might make it important again. Might.

 
In my mind, looking at a chart is a bit like getting a “hall-ticket” pooja done at the Ganesha temple before the exams. You know you have studied hard and done your home-work, but if not-pissing off the Gods costs just Rs.100, you might as well get that done too.

Source:

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The deadliest buzzwords

dilbert

Aswath Damodaran has an awesome post on wading through the deadliest buzzwords that are most frequently used by investors to distract and delude themselves and others. I am going to give you the headlines here, header over the real deal after the fold.

Optionality

Question that you should ask yourself:

Does the company in question has the exclusive or close-to-exclusive right to expand into new markets? This exclusivity can come from owning a proprietary technology or possessing an exclusive license to operate in a market.

Growth Potential

Question that you should ask yourself:

To create value, you need to earn excess returns while growing, and to earn those excess returns, you need barriers to entry and competition. Does the company’s competitive advantages allow it to create value from that growth.

Strategic considerations

Question that you should ask yourself:

Can you convert the qualitative benefits into earnings and cash flows?

Disruptive

Question that you should ask yourself:

Is there dissatisfaction with the status quo, either on the consumer side or on the producer side?

 
Source: If it is a strategic growth investment in China, the numbers don’t matter! Or do they?
 
 
 

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