Brandon Snow's blog

Amazing stat of the day

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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.

Portfolio update

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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.

Why $100 isn't the right price for oil

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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.

Historic Commodity Sell off

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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.

Weather matters

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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:

The U.S. has made progress on its debt

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I wanted to share the following charts from Deutsche Bank:

As you can see on the left, the U.S. has made quite a bit of progress overall deleveraging since the financial crisis. in fact, if you add up all debt (including households, businesses, financial institutions and government), total debt to GDP has fallen by 30 points (from 370% to 340%).

Update from Orlando

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Here are some quick comments while I'm out of the office:

Three members of our team have been in Orlando this week attending the Raymond James Institutional Investor Conference. Between the three of us, we have seen dozens of companies over the last two days, and there is more to come on Wednesday.

Overall, the tone of the conference is positive with noted bullishness from the transportation companies. While we have exposure to the rails, trucking companies are becoming interesting. (Watch for a blog on this in the future.)


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