Friday, June 26, 2020

This week's interesting finds

Americans have really been embracing the can since the start of the quarantine 
And the 1 week Y/Y data is still strong indicating that this is not just a pantry loading phenomenon.

Vehicle miles driven (VMT) by destination
The pace of onshoring is picking up

A group of economists at Harvard have built a real-time, publicly available economic tracker. There are many good interactive charts here but below are a few interesting ones.

Consumer spending in the US is down 11.3% since January, but spending cuts by people in the top quartile account for more than half of the total aggregate decline in dollars. As of June 9th, spending by the top quartile was still down 16.8%, whereas spending by the bottom income quartile was only ~3% below where it was in January. 

Stimulus payments increased spending by low-income consumers, but didn’t undo the initial most revenue:

By industry, in-person services were obviously the hardest hit, but the idea of the ‘Roomba effect’ was interesting. In a normal recession, households typically respond by cutting purchases of durable goods like cars, washing machines etc, and the policy response tries to counteract that (cash-for-clunkers, VAT cuts). In this recession, it’s the opposite - people are substituting services for durable goods –buying a roomba instead of hiring a cleaning lady, which they think might have permanent implications for the economy because people are going for a capital solution instead of a labour solution.

Friday, June 19, 2020

This week's interesting finds

Who actually likes uncertainty? For most people, it’s pretty bothersome really, particularly when it concerns someone’s hard-earned savings and investments. It’s difficult for investors to understand how uncertainty could be a very good thing for their investments. Geoff MacDonald explains why investors need uncertainty in this excerpt from our 2020 Cymbria Investor Day Q&A session.

Nearly a third of investors ages 65 and up-sold all of their stocks at some point between February and May, compared with 18% of investors across all age groups.

U.S. stocks have managed a remarkable advance in the past several weeks as optimism outweighed concerns about the economic recovery and worsening COVID-19 cases. Has this been appropriate or irrational? Howard Marks thinks investors should ponder the following questions:
  • Are investors weighing both the positives and the negatives dispassionately?
  • What’s the probability the positive factors driving the market will prove valid (or that the negatives will gain in strength instead)?
  • Are the positives fundamental (value-based) or largely technical, relating to inflows of liquidity (i.e., cash-driven)? If the latter, is their salutary influence likely to prove temporary or permanent?
  • Is the market being lifted by rampant optimism?
  • Is that optimism causing investors to ignore valid counter-arguments?
  • How do valuations based on things like earnings, sales and asset values stack up against historical norms?

Latest Charts

Technology stock valuations
Investors have come to believe in the sustainability of free cash flow, bringing down yields.

Shares of companies popular with individual investors have outperformed.

While it's not clear how much of the recent rally was driven by retail investors/traders, their increased presence in the market has been signaling a spike in speculative behavior.

Grocers charged into delivery to meet a surge in demand sparked by the coronavirus crisis, though many haven’t figured out how to get food to customers’ homes profitably and some wonder if they ever will. Retailers have modified their operations to manage the jump in delivery demand, hiring thousands of additional workers and devoting some stores to fulfilling online orders. That work is pushing up costs that eat into the margins on delivery sales.

Friday, June 5, 2020

This week's interesting finds

Stats on re-opening
Only a handful of states have reopened bars and restaurants, and of those, most were in the past week. Montana was one of the earliest to reopen. The stay at home order in Montana was lifted on April 27th and bars and dine in restaurants reopened on May 4th at half capacity with social distancing measures. They move to 75% capacity tomorrow. Gyms reopened May 15th.

Buffett and Charlie Brown are due some relief
A resurgence of value implies an optimistic outlook for the economy. If growth returns, then cheap value stocks won’t look so risky (because even their boats have been raised). Value tends to do well at the beginning of recovery — although note that the last great period of value outperformance, in the early ’00s, came amid the onset of a recession and a bear market. As value stocks still include a lot of banks, a strong period for value also implies a steepening yield curve. This could be a dangerous bet to make when the Federal Reserve is discussing deliberately controlling the yield curve. And a second viral wave could change everything.

For now, the recovery of value would help to confirm that investor confidence, justified or otherwise, is really back.

There are many reasons to doubt that optimistic scenario. But the mere fact that advocating for value makes me feel like I might turn into Charlie Brown is perhaps the strongest reason for believing there is an opportunity here. One behavioral investor once told me that he adopted a “sharp intake of breath” test for potential investments. If a name provoked that reaction, the chances were that sentiment had moved too far and it was now too cheap. It is at this point that value investors can make a killing. Put differently, to quote Oaktree Capital Group’s Howard Marks from an interview with me earlier this month, “every great investment begins in discomfort.”

The week in charts 
Bubble behavior during a depression
The dot-com bubble made the stock market too tempting to pass up for aspiring day traders. This type of behavior makes sense during a mania. But what about during a depression?

This is one of the strangest economic crises in history. Stocks continue to surge higher in the face of the worst economic data of our lifetime. Housing demand has already surpassed pre-crisis levels. And even though the first quarter was the most volatile period since the Great Depression, people opened new brokerage accounts at a record pace. Major brokerages — Robinhood, Charles Schwab, TD Ameritrade, and Etrade — saw new accounts grow as much as 170% during the first quarter.