Industry News

Stock Market: nowadays is Apple, Microsoft and Alphabet against everyone else.
Monday 20th January, 2020

"The stock market travels on the currents of supply and demand. That’s uncontroversial.
Yet as the indexes have sped to new highs, plenty of observers have argued that a relative shortage of stocks combined with somewhat mechanical sources of demand explain everything from Dow 29,000 to the trio of trillion-dollar market-cap giants that tower above the rest of the market.
The idea of an equity shortage usually hinges on the decline in the total number of U.S. public companies in recent decades, the relative dearth of initial public offerings and the consistent flow of share buybacks meant to reduce companies’ equity base. These are all features of this bull market, for sure. But it’s an oversimplification to focus on the absolute number of stocks or the background hum of stock buybacks as key drivers of the market’s historic run. There are plenty of stocks to go around and buybacks aren’t wagging the indexes – it’s just that everyone wants the same kind of stocks. What’s truly scarce are big, reliable cash flows that investors believe will endure economic wobbles and constant technological disruption. And this perceived scarcity of safe sources of profit and income is animating voracious demand for corporate debt and propelling the elite class of dominant secular-growth stocks to ever-richer valuations. That’s not to deny there are literally fewer stocks on the market’s shelves than there used to be. The comprehensive Dow Jones Wilshire 5000 index now has about 3,500 domestic stocks, down from more than 7,000 in the late 1990s. But most of the stocks that went away were tiny, marginal companies. And the total number of issues has been about steady since 2012, and since then the Wilshire 5000 has more than doubled. If the reduced number of stocks were an issue, then why would one-sixth of the names in the S&P 500 be languishing at 12-times forecast earnings or less? And if public investors didn’t have enough names to choose from, why did the market fail to embrace the likes of Uber, Lyft and Pinterest last year? Share buybacks are now a constant of corporate finance, and at the current pace amount to perhaps 2% to 3% of total stock market value per year. But a good portion of that purchasing is simply soaking up the stealth equity issuance through employee stock compensation. So, as a swing factor in a $30 trillion stock market, its potency has diminished from a couple years ago. The true issue is a scarcity of stability and growth — or a perceived scarcity of them, at least. We live now in a world where triple-B-rated corporate bonds, the lowest-grade and largest segment of the investment-grade universe, yield 3%. Junk bonds — an asset class with a long-term annualized default rate of 3.5% — now yield 5%. Clearly, the Federal Reserve’s three rate cuts and promise to stay on hold for a while is part of this backdrop, as are the stirrings of a global economic pickup following an inflation scare. But the massive demand for cash flows by an aging global investor base and return-starved institutions are the proximate actors on these markets"
Elite tier of stocks "A winner-take-most dynamic in multiple industries transformed by technology has also created an elite tier of anointed stocks. The acclaimed winners appear entrenched, their platforms self-reinforcing, profit margins sturdy, growth rates near-automatic. This has created a vastly bifurcated market, and an unusually widespread between the valuation of the most expensive 20% of stocks and the cheapest 20%, as this breakdown by KKR & Co.’s head of global macro Henry McVey illustrates. In that upper tier, of course, are the Big Five of tech: Apple, Microsoft, Alphabet, Amazon and Facebook, together worth $5.2 trillion, or nearly 18% of the S&P 500. The first three, now sporting market values above $1 trillion, in aggregate are “worth” $3.7 trillion and will likely have net income exceeding $140 billion this year. So, in aggregate Apple-Microsoft-Alphabet trades at 26-times this year’s profits, with no debt and enormous capacity to invest, buy back stock or fund future dividends. The broad market is below 19-times earnings. The argument in the market right now is not why these stocks are working, but whether their premiums have grown too generous and investors too complacent about possible disturbances to this happy picture. McVey says, “Our analysis does not mean that the ‘winners’ can’t still do well as long-term holdings, but the point is that the consensus has largely caught up to our thinking on the era of low rates and technological change — and what it means for return on capital across business models.” It’s just that this group today is starting from rich enough valuations that returns will likely be less impressive in coming years. And yet, McVey says, “There are just too many broken business models in the value indexes.” So simply buying the cheapest is not a clear winning strategy. He favours scanning the middle of the valuation spectrum for companies combing earnings acceleration and dividend growth." Bet the field? "The exaggerated crowding into those winners has come at the expense of the “average stock,” at least on a relative basis. Here we see the equal-weighted S&P 500 sliding relative to the mega-cap dominated index. Over long stretches of time, equal-weighted indexing has outperformed. So is it time to “bet the field” against the favourites? The forces carrying this rally are rational and understandable. Yet along multiple fronts – technical, valuation, sentiment – the rally seems near a point where it ought to calm down if it’s not going to go fully into unstable blow-off mode. Still, it’s hard to figure what might soon short-circuit the cycle of money motivated by an apparent scarcity of cash-generating assets built to withstand a slower-growth, technologically transformed world"
Johnson hails ‘new dawn’ after historic victory
Tuesday 17th December, 2019

"Boris Johnson has promised to deliver Brexit and repay the trust of voters after he led the Conservatives to an ""historic"" general election win. The PM, who has met the Queen to ask to form a new government, has a majority of 80 in the House of Commons - the party's largest since 1987.
He said he would work ""flat out"" and lead a ""people's government"". Jeremy Corbyn said he would not fight another election as Labour leader, amid recriminations over the party's defeat.
He said he was ""very sad"" about the result, adding that he had received ""more personal abuse"" from the media during the campaign than any previous prime ministerial candidate. Labour was swept aside by the Conservatives in its traditional heartlands in the Midlands and north-eastern England and lost six seats in Wales. The Conservatives' victory in the 650th and final contest of the election - the seat of St Ives, in Cornwall - took their total number of MPs up to 365 MPs. Labour finished on 203, the SNP 48, Liberal Democrats 11 and the DUP eight.
Mr. Johnson in his victory speech earlier, he told activists the election result represented a ""new dawn"" for the country. He thanked Labour voters, many of whom, he said, had backed the Conservatives for the first time, vowing to fulfil the ""sacred trust"" placed in him. ""You may intend to return to Labour next time round, and if that is the case, I am humbled that you have put your trust in me, and I will never take your support for granted,"" he said"
Thursday 25th July, 2019

Boris Johnson was crowned leader of the Conservative party on Tuesday and is set to become prime minister, facing perhaps the most daunting challenge of any British politician in peacetime. Mr Johnson beat Jeremy Hunt in the race to succeed Theresa May as head of the Tory party, securing 92,153 votes to the foreign secretary’s 46,656.
Thursday 25th July, 2019

US Treasury secretary Steven Mnuchin on Thursday said there was “no change” to Washington’s stance on the dollar “as of now”, amid mounting speculation over whether the Trump administration will act to weaken the dollar. Mr Mnuchin said the US “could consider” a change to its dollar policy “in the future” but there was no change at present.
Thursday 25th July, 2019

Deutsche Bank has unveiled one of the most radical banking overhauls since the financial crisis, closing swaths of its trading unit and hiving off €74bn of assets as the struggling German lender calls time on its 20-year attempt to break into the top ranks of Wall Street.
Monday 27th June, 2019

Clearing houses pose new perils for the global financial system. Grimstad, norway, is an unlikely setting for financial-market shenanigans. But the fishing town is home to Einar Aas, a trader who took huge bets on Scandinavian energy markets. His 15 minutes of infamy came in September 2018, when his bets went spectacularly wrong. Unable to cover his losses, he blew a €114m ($133m) hole in the capital buffers of Nasdaq Clearing, which handled his trades......

Monday 27th June, 2019

It is trying to manage expectations. “Most of america thinks the Federal Reserve is a national forest.” That reminder that the general public has little idea what a central banker does was offered by an incumbent governor of the Federal Reserve to Alan Blinder when he joined in 1994. He passed it on 25 years later, on June 4th, to a star-studded group of economists and policymakers gathered at the Federal Reserve Bank of Chicago to discuss the Fed’s first public review of its framework...

Monday 27th June, 2019

What will happen when interest rates eventually start to rise again? At the end of 1989, an American in London received a call from a friend back home. The caller had watched the fall of the Berlin Wall and the toppling of Nicolae Ceausescu in Romania with growing dismay. He was at the end of a four-year course in Russian Studies at an elite university with hefty tuition fees. He had learned all the Kremlinology a would-be cold...

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