2015 To Date: Stocks Outpace Bonds
Blaine Rollins | Feb 24, 2015 12:30AM ET
And Stocks take the lead from Bonds for 2015…
If you wanted to see extreme mean reversion in action, U.S. Treasury Bonds are your best example for this year. The iShares Long Treasury Bond ETF (ARCA:TLT) shot out of the starting gates to post a greater than 9% return for January but now has given up nearly all of that early lead. Risk taking has returned to the markets with Russia settling down, Greece kicking the can 4 months down the road, and European economic data coming in better than expected. As a result, the global equity markets continue to lift with many of the major indexes setting new record highs.
Apple (NASDAQ:AAPL) & Biotech have led the Nasdaq 100 to a solid YTD lead…
You are off to a good start in 2015 if you own the assets in Green and are avoiding the ones in Red. And if any of your buddies own Apple in size, let them pick up the next check…
A spotlight on U.S. Equity styles shows Mid-Cap Growth is the place to be…
Back to King Apple, Morningstar shows us just how big the AAPL exposure is to the largest ETFs and Index Funds. If you have to compete against these assets and you don’t have an equal or greater weighting in the King, then it has been a tough start to 2015…
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While Apple is the top Hedge Fund stock, it has been held more widely in the past so even they are leaving returns on the table…
Apple reigns undisputed as the most popular hedge fund stock. Nearly one in five of the 688 fundamentally-driven hedge funds in our sample own Apple; 12% hold it as a top 10 position. AAPL is the top stock in our VIP list of most popular hedge fund long positions for the second straight quarter and has ranked among the top five VIPs for more than six years. Although interest in the stock is resurgent, at its peak popularity in 2012 nearly 33% of funds held Apple and 20% held it as a top position.
Its size and popularity means Apple will be a key driver of hedge fund returns as well as broad U.S. equity performance and earnings growth. Apple constitutes 4% of S&P 500 market cap and 5% of consensus 2015 EPS. Given its 17% YTD return, the stock has contributed 61 bp of the S&P 500 2.3% YTD return, or 27% of the total.
Will Apple and Biotech soon help the Nasdaq index clear a 15 year all-time high? Of course it will.
“What was propelling the Nasdaq in the year 2000 was a dream. What’s driving the Nasdaq today is reality,” says Gavin Baker, who runs the Nasdaq-focused Fidelity OTC Portfolio fund. “The current valuation is very well supported by earnings and cash flows and if those earnings and cash flows continue growing, the Nasdaq should continue going up.” Patience and fundamentals have been force-fed on Nasdaq investors. The nearly 3,900-point recovery has taken 12 years. In the 1990s, the Nasdaq had managed the same 350% gain in just three. The dot-com rally, of course, was powered by wildly inflated multiples. In March 2000, the Nasdaq traded at well over 100 times earnings. Today, the Nasdaq has a price/earnings multiple of 21, a few ticks above the Standard & Poor’s 500, at 17.5.
One of the simplest momentum-chasing strategies has been to own the Bridesmaid asset from the prior year. Leuthold has been running the stats ever since I have been in this business. It always seems too simple to employ… until you see that it continues to crush the S&P 500 return over the long term. (Note to self: Favor Large Cap Equities in 2015.)
Is the Swiss National Bank a Leuthold Group client or are they not excited by negative interest rates on European bonds?
The proportion of equities in the Swiss National Bank’s foreign-currency investments rose to a record in the first quarter, while the allocation among currencies was little changed. The share of stocks in the central bank’s portfolio climbed to 15 percent at the end of the first quarter, compared with 12 percent at the end of last year, according to data on the Zurich-based institution’s website today. Its holdings of government bonds fell to 78 percent from 82 percent. The SNB has amassed foreign-exchange reserves of 446 billion Swiss francs ($476 billion) — a sum equal to three quarters of the economy’s annual output — as a result of the interventions it has waged to defend the cap of 1.20 per euro, set in September 2011 to prevent a recession
One more look at U.S. Treasuries, this 3 week pullback has been extraordinary…
@MktOutperform: One of the worst 3-week periods in history for the long bond. Low rates = higher volatility in bond market.
And while the bottom falls out in Treasuries, the gains in Junk bonds have led to a breakout in their underperformance. This has not been ignored by Equities…
Last week it was storage in Cushing, OK which was filling up. Now we see that Europe and Asia are also filling up…
STAGE one of Saudi Arabia’s plan—or perhaps hope—to restructure the oil market is taking longer than expected. By refusing to rein in production while prices fell, the Saudis permitted a big surplus to grow and served notice on higher-cost rivals (Russia, Venezuela, American shale-oil producers) that they would not prop up other people’s profit margins at the expense of their own market share.
That signal has been weakened by the growing amount of oil in storage, which is absorbing most of the glut. World oil stocks rose by about 265m barrels last year and Société Générale (PARIS:SOGN), a French bank, reckons they will increase by a further 1.6m-1.8m barrels a day (b/d) in the first six months of this year, adding roughly 300m barrels to the total. Oil is being stored in the hope that demand and prices will pick up later…
The restocking cannot continue for long. Storage facilities in Europe and Asia are already 80-85% full. Much more and they will overflow. As it is, companies are renting tankers to keep oil in. If storage space runs out, prices could tumble again
Meanwhile, gasoline usage in the U.S. continues to surprise on the downside…
Americans are producing much more energy, even as they consume less of it. One big surprise of the past decade has been the drop in energy use. Total petroleum consumption is down 21% from its 2005 peak.
Sober Look had a good list of Energy charts to consider while you are allocating your investments. This is one of the more interesting ones…
Now, with these production fundamentals in place, rapidly growing amounts of crude in storage, and longer-term prices capped way below multi-year averages, why are energy firms’ shares still relatively expensive? For example, over the past couple of years spot crude oil is down 45%, while the energy component of the S&P 500 is up 2%. And forward P/E ratios are more than double the historical averages – these are some of the most expensive large cap shares in the market.
Warren Buffett and Sober Look are drinking from the same can of Cherry Coke…
Until last year, few investors doubted the benefits of holding one or more integrated oil stocks in a portfolio. But then the price of oil fell in half in just a few months, and even these normally stable performers began to fall sharply as well. Some value investors think that now is not the time to be selling Big Oil. They argue that these stocks, which sport among the best dividend yields in the large-cap space, look cheap and could perform nicely if oil continues a price turnaround that began in late January. But the No vote on Big Oil got a boost with the news in the past day that Berkshire Hathaway (NYSE:BRKa), the investment holding company controlled by Warren Buffett, sold off its sizable stakes in Exxon Mobil (NYSE:XOM) Corporation (NYSE:XOM) and ConocoPhillips (NYSE:COP) sometime in the fourth quarter
Cartoon of the Week about Denver’s sister city north of the border
So if you are looking for an Emerging Market to put on your radar screen, add Chile. (Oil peaked in June, Copper in July.)
Chile’s government is required to deposit an amount equivalent to between 0.2 and 0.5 percent of the previous year’s GDP into a pension reserve fund. It is also required to put a percentage of its fiscal surplus into its so-called Economic and Social Stabilization Fund. Of course, it’s one thing to have rules, and another to follow them. But Chile actually does, and does so methodically. The size of the latter fund has increased from $2.6 billion at its inception in 2007 to $14.7 billion in December 2014. There’s no time like the present to have that cushion. The price of Copper, which represents more than half of Chile’s total exports, has fallen 12 percent to $2.6 per pound since last June. That was a major reason the economy only grew 1.8 percent last year, the slowest pace since 2009. Despite the declines in revenue, the country has yet to draw on the fund or announce any spending cutbacks. It may tap the fund this year if copper keeps falling, but that wouldn’t have a negative impact on the economy.
As falling commodity prices hurt some, others are seeing flexibility in raising prices and wages…
• Walt Disney Company (NYSE:DIS) – the co will raise prices for its parks; the main Magic Kingdom in Orlando will see a 6% bump to $105/day while the other parks will rise 3%. – Bloomberg
• @GoogleFacts: In-N-Out store managers make at least 100 grand a year, including 401k and full benefits.
• And at Wal-Mart Stores Inc (NYSE:WMT)… the retailer has realized that staff turnover was hurting its business, and it is willing to spend $1 billion this year on higher pay and more career opportunities to keep store workers in their jobs. “You got to ensure that your associates are retained, you have to take into account turnover, and you have to take into account their engagement. It’s part of the puzzle,” U.S. CEO Greg Foran said on a conference call.
If you happen to use the internet at all in your daily life, there is an important vote at the FCC on Thursday…
@Mark_J_Perry: Net Neutrality Captured Beautifully in One Cartoo
Andy Kessler wants the internet faster and he wants it now…
The technology exists to deliver gigabit—a billion bits per second—speeds. There is gigabit Ethernet inside our homes. Offices are increasingly wired with 10-gigabit Ethernet. Even Wi-Fi is approaching 100-megabit speeds. Data communications are capable of extremely high speeds at extremely low costs.
What’s gone wrong? The answer is simple: Regulation has left U.S. infrastructure stuck in the past. It is almost as if we duct-taped the Internet onto infrastructure from the 1970s and 1980s. The regulatory scheme employed by the FCC was and is geared toward phone calls. Title II has 100 pages of arcane rules including one that requires operators to identify themselves “audibly and distinctly.” Remember operators? We jam data down phone lines meant for voice calls and down coaxial cable meant for TV signals.
This can change overnight. To get gigabit speeds, we need fiber running all over the place. Fortunately, fiber optics is glass, basically melted down sand. Plenty of that to go around. Instead of arguing about broadband speeds or invented problems like “net neutrality,” we ought to be focused on the regulations and cronyism that impede running fiber on our poles and under our roads and lawns
I also want a hyper-drive in my modem. Can I nominate Jimmy Carter to the FCC?…
“This act is the capstone of my efforts over the past 4 years to get the Federal Government off the backs of private industry by removing needless, burdensome regulation which benefits no one and harms us all. We have deregulated the airlines, a step that restored competitive forces to the airline industry and allowed new,
innovative services. We have freed the trucking industry from archaic and inflationary regulations, an action that will allow the startup of new companies, encourage price competition, and improve service. We have deregulated financial institutions, permitting banks to pay interest on checking accounts and higher interest to small savers and eliminating many restrictions on savings institutions loans.” – Jimmy Carter (h/t Daily Dirtnap)
Speaking of faster internet speeds, ‘House of Cards’ Season 3 starts this week…
@BoredElonMusk: On-Demand video service that requires two keys to be turned on the remote control by a couple before the movie is purchased.
Finally, I saw that Norwegian Cruise Lines stock (NASDAQ:NCLH) popped 5% last week after reporting an acceleration in bookings on their conference call. Who is not dreaming of warm sand and a beach right now? Sign me up for Spring Break.
If you like the ideas Blaine Rollins shares each week in the 361 Capital Research Briefing…
Then you should Contact 361 Capital or your advisor for additional information.
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