Business & Investment

Weekly Roundup, December 21, 2020

Today’s Weekly Roundup starts with …

High multiple

Following last week’s discussion of Schiller’s new “CAPE Yield,” John Ozers saw Gerald Minac’s work, Interest The rate should lead to higher PE.

  • Minac says no – low Interest Rates usually mean low growth, which is bad for stocks.

This bends the relationship between interest rates and stocks over time. When interest rates fall from very high levels, stock multiples tend to improve, but when interest rates fall from very low levels, it generally means that the economy is in turmoil, so stock multiples are It goes down. In a recession.

Cape vs 10 Years Treasury

The relationship between CAPE and nominal 10-year yield is weak (R)2 = 0.12).

  • Pink dots are dot-com bubbles and have a high general PE Interest Fee.

The current red dot also looks expensive, but there is less data here.

Cape vs 10 Years Treasury Real

Switching to real yields will make the current environment less extreme and improve the correlation a bit.

  • It also makes the pink and red dots look bad.

Cape vs bond yield

It should be noted that currently only the United States is an outlier. Developed and emerging markets are each much closer to the historical curve.

US Cape vs. Bond Yields Since 2014

The situation in the United States began to become extreme in 2014.

FAAANM revenue

FAAANM (Facebook, Amazon, Apple, Alphabet, Netflix, Microsoft) revenues have begun to grow.

And now, earnings quotes are rising [more generally] As expectations for the post-vaccination boom take hold. It leads to trading stocks in higher multiples.Is profit
Expectations rather than rates that raised the market last month, and that would be a disappointment for earnings
It will bring it down again (probably caused by some disappointment with the distribution of the vaccine).

Minac concludes:

If next year’s growth improves as expected and interest rates remain low, it’s a great combination for equities. This combination is more beneficial to the downgraded non-US market than to the revalued US market.


Joachim Klement

Joachim Klement followed up on the following claims in his book: Pension funds switch asset managers at the wrong time..

They choose Assets We will dismiss managers who have a good track record in the last 1-3 years and those who have a poor track record.However, three years after the switch Assets Hired managers perform poorly, and dismissed managers perform well.

The new treatise extends previous research to a global pension fund with $ 1.6 trillion in assets.

Recruitment manager by asset

Poor performance applies to both equities and fixed income. ((The problem with Joachim’s chart is that post-employment bond data isn’t showing up here).

Recruitment managers by region

Its impact is greatest in the United States, but it can also be seen in other parts of the world.

Recruitment manager by size

It will also be larger for smaller schemes, but will also be visible for larger plans (> $ 100 million).

Goyal and his colleagues can only identify two key drivers of hiring decisions. One is performance Assets Last 1-3 years and other managers – plan sponsors or consultants Assets manager.

Redwood Fund

John Redwood

In his regular review ETF John Redwood, a portfolio he runs for FT, said: Green and tech stocks are still good bets That’s because even if stock prices look high, investors will continue to buy them as long as interest rates are low.

Since the vaccine was announced, John has made some changes to his portfolio.

I quickly changed the focus of the fund and switched the US and NASDAQ technology indexes to the general global index to capture some of the profits left behind. Funds have increased by more than 10 percent this year.

John’s performance looks pretty good to me as it’s up 8.9% at the time I’m writing.

Like me and many others, John expects inflation to eventually recover as a result of money printing this year.

  • However, the Japanese example shows that the mechanism can be time consuming.

But while the United States and the United Kingdom can imitate Tokyo for some time, they can’t.
For as long as Japan. Because Tokyo is mainly in the balance of payments surplus
You don’t have to borrow or sell prime assets to buy imports in foreign currencies.

Also in Japan Aging population Have a habit of saving
The Japanese government sells the debt to Japanese buyers.So most of that huge debt
Completely domestic rates without exposure to fluctuations in the international forex market.

For now, central banks need to continue stimulating measures until recovery becomes apparent.



Economists also QE So far, the short-term link between the money supply and inflation has collapsed. Inflation may return..

With so much debt stock and a swelling central bank balance sheet, I’m a little worried that we might have to deal with the surge in inflation.

One possibility is a surge in inflation due to stagnant demand.

Once vaccinated and freed from Zoom’s tyranny, enthusiastic consumers could outpace companies’ ability to restore and expand their capabilities and raise prices.

Inflation expectations

The second option is to reverse the “structural disinflationary force”.

Many societies are aging and there is a shortage of workers. For years, globalization has reduced inflation by creating more efficient markets for commodities and labor. Globalization is currently receding.

The danger here is Interest Interest rates will need to be raised to prevent runaway inflation.

Markets will fall and debt companies will decline. The total cost of the state’s significantly expanded balance sheet will be surprisingly clear.

Central banks have failed to “fix” today’s low interest rates and issue primarily short-term debt.

  • The average maturity of US Treasuries has dropped from 70 months to 63 months.

Difference in output

Individual investor

Interactive Investor sends press release, 350,000 investors platform By the end of November, it had significantly exceeded the UK market.

  • That’s good news, but FTSE All-Share is lower than this, with a 13.2% decrease in YTD at that stage.

The UK market will be one of the worst performing in 2020, and almost any allocation away from it will lead to outperformance.

  • The average (median) ii investors fell by 1%, which is not significant.

SIPP increased 3.8%, ISA decreased 0.4%, and taxable accounts decreased 6.9%.

  • Women performed slightly poorer (-1.3% vs. -1.1%).

Young investors (18-24 years old) performed best with an increase of 4.5%, and investors over 65 performed the worst with -4.2%.

  • I presume that this is due to the high allocation of US tech stocks, but ii suggested that it was due to the high allocation of IT. Perhaps this is virtually the same.

Active investors, who trade more than once a month, also performed well at + 1.8%.

On the other hand, economists are retailers Investors often learn the wrong lesson From success.

  • Specifically, Indian investors randomly assigned shares in a successful IPO confuse luck with skill.

In India, 35% of IPO shares are reserved for small shareholders.

Where there are many Interest From individual investors, there may not be enough small lots to turn around. In such cases, the shares will be randomly allocated by the lottery.

The winner (called the treatment group) behaves differently than the loser (control group).

The treatment group is willing to trade shares other than those allocated during the next period. ipo It enjoys the “pop” of the first day at that price. Two months later, trading volumes are 7.4 points higher than in the Control Group.

The author of the treatise concludes:

Individual investors “misunderstand random profits and losses as signals of their abilities.” They misunderstand noise as information. They mistake luck for skill.

Over-trading, overconfidence, and attribution errors are well known to retail investors, but here losers (allocated stocks that fell on the first day) fall into a lack of confidence.

  • They traded less than the control group and took bad luck as evidence of lack of skill.
Quick link

There are six this week. The first five are economists.

  1. I saw the newspaper Disney and Warner small screen bets
  2. And in Ryanair
  3. And in Big Tech crackdown
  4. And in Diverse bets on big oil for the future of energy
  5. And in Possibility of supply chain reshoring wave..
  6. And the alpha architect tried to reach the bottom Whether size is a useful factor..

Until next time.

Weekly Roundup, December 21, 2020 Weekly Roundup, December 21, 2020

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