When looking at the growth rate of a country or company, you must also investigate how it is being generated to determine if the growth is sustainable. When analyzing China, some concerns surface.
Brandon Snow's blog
I am back in the office after a week on the road, so this is a good time for a quick portfolio update.
A common theme when talking to clients is: Where can we find returns going forward? With historically low interest rates working their way through bond markets, yields from governments to high yield are unattractive.
I wanted to share an interesting stat this week: JUNK BONDS NOW YIELD LESS THAN U.S. TREASURIES DID JUST SIX YEARS AGO. Over the same period equity multiples are down! So, while the market is up a lot from the lows, we have not seen the re-pricing of risk in equities that we have seen in other asset classes. Typically, the last move of a market cycle is driven by P/E expansion - this could deliver a final leg up for the markets this cycle.
As the first quarter reporting season for U.S. companies enters its later stages, it is clear that: a) it was a tough quarter, especially for any business affected by the weather, and b) things are not falling off a cliff. Expectations for economic activity have been reset, giving us the opportunity to act on some ideas we have developed.
We are often asked for an oil price forecast and while we don't have a specific number, we always respond that the appropriate price is "lower." Most commentary in recent years has been focused on the supply of crude and the thought that even if it is growing in North America, OPEC will keep global supplies tight. But what about distortions to demand for oil? The Wall Street Journal had some interesting insights into Venezuela that shines light on this issue.
While we have stayed away from the materials space and recently been more negative on oil, we did not expect the carnage in the commodity space we saw Monday. With our bottom-up approach, we tend to shy away from capital-intensive price-taking businesses and the market movements Monday put on display what can happen to a stock when the number one determining factor for its value is out of the company's control -- in this situation, the commodity price.
As we enter the first quarter earnings reporting season, I want to remind everyone of the amazingly warm weather we had across North America in January, February and March 2012. We have had average weather this year, which means there will be some very difficult comparables for first quarter performance this year vs. last year. The weather has a significant effect on a number of industries, including retail, transportation and energy.
Here is what Canadian National was dealing with during the first quarter of 2013: