February 2016

[admin]

You need some optimism, here is some optimism: First, the excellent Evans-Pritchard:

World growth has been drearily stable for years, shuffling along at 3.4pc in 2012, 3.3pc in 2013, and 3.4pc in 2014, and 3.1pc in 2015. The International Monetary Fund expects 3.4pc this year. The latest "GDPNow" tracker from the Atlanta Federal Reserve suggests that US growth is running at 2.5pc in the first quarter, smack in line with a typical late-cycle expansion in a mature economy. So, at the risk of sticking my neck out a long way, let me suggest that the equity bloodbath this year is little more than noise in the particular set of circumstances facing us. Students of the 1930s and the Keynesian liquidity trap might even argue that it is positively good for the world economy to the extent that it reflects an erosion of the global savings glut – the ultimate cause of our Long Slump – and entails a shift in spending power back to ordinary people.

This is a global stock market rout worth celebrating - Telegraph

This is a stock market rout we should celebrate. The money is rotating out of the markets and into our pockets. Americans have hardly begun to spend their bonanza. They have let it pile up in bank accounts, pushing up the US household savings rate from 4.5pc to 5.5pc in fifteen months, much to the surprise of the Fed. Sooner or later they will spend it, unless you think America has undergone a Puritan conversion.

This is a global stock market rout worth celebrating - Telegraph

Then there is Tom DeMark:

DeMark told Bloomberg that he expects we'll find a bottom at 1,792 for S&P 500 futures and 1,797 for the index. The S&P closed at 1,829 on Thursday. He is a legendary market technician known for making big and specific market-timing calls. First, however, DeMark thinks that stocks are going to head lower and that this final dive will probably happen "in the next two or three days." "For the S&P and the Dow, we are going to undercut, in our feeling, the low we made in January as well as the low we made," on Thursday, DeMark said. The S&P 500's intraday low was around 1,810.

Tom DeMark's stock market call, Feb. 11 - Business Insider

[admin]

Crisis, what crisis?? Despite the weather and the stock market plunge..

Sales at retailers got off to a solid start in 2016 despite a big snowstorm that slammed the eastern part of the U.S. late in the month. Retail sales rose 0.2% in January, as consumers boosted purchases of new cars as well as groceries and shopped more online.

Retail sales get off to solid start in 2016 - MarketWatch

[admin]

Good to hear, but isn't this what they always say in these circumstances?

China’s central bank governor downplayed concerns over China’s falling foreign reserves and said he saw no basis for continuing depreciation in the renminbi — comments that could calm mainland markets when they reopen on Monday after a week-long hiatus that saw upheaval in global markets... Local analysts welcomed Mr Zhou's decision to speak up, after several months of relative silence on currency policy. "Many have criticised China for a depreciating renminbi and a lack of transparency in communication," said Shao Yu, chief economist at Orient Securities in Shanghai.

PBoC governor downplays forex fears

Still useful he spoke out, and he does have some points though:

In the interview, Mr Zhou dismissed speculation that Beijing would tighten capital controls... Mr Zhou stressed that Beijing's strategy did not include further devaluations to boost exports. "The total trade surplus in 2015 was close to $600bn and net export's contribution to gdp was not low so there's no motive to depreciate the renminbi for the sake of net export expansion," he told Caixin. He condemned "speculators" for targeting the renminbi, adding that "China will not let market sentiment be dominated by these speculative forces". Mr Zhou reiterated that "the trend is to rely further on the market to decide the level of the currency and to achieve a more flexible foreign exchange rate". "The bank will use a basket of currencies as a reference and appropriately manage any daily volatility in the renminbi against the dollar as well as using a wider range of economic data," he said, adding that there "is no basis for devaluation".

PBoC governor downplays forex fears

And we think the latter is especially helpful. A big economy like China shouldn't have a fixed exchange rate (neither the US dollar, the euro, the yen are fixed, although some of them might receive some form of indirect managing from time to time).

As the eurozone learned the hard way, flexible exchange rates can be very useful shock absorbers..

[admin]

This, of course, is also helpful:

In spite of worries worldwide about the strength of the Chinese economy, local consumers appeared upbeat during the recent lunar new year holiday, one of the biggest shopping seasons of the year. During the week-long holiday, which ended on Saturday, retail sales rose 11.2 per cent compared with the same holiday period last year, with cinemas posting a sharp increases in box-office sales, according to Ministry of Commerce data.

PBoC governor downplays forex fears

[admin]

There are clearly other fans of Skechers

• Full year earnings were fantastic and the shares have started to rebound.
• Despite the shares rising almost 12% this week, they are still a long way from their 52-week high of $54.53.
• International growth has been phenomenal with China growing in the triple-digits.
• We expect earnings to grow at a CAGR of 22% for the next five years.

Skechers Has An Amazing 75% Upside - Skechers USA Inc. (NYSE:SKX) | Seeking Alpha

Not sure anyone can look five years into the future though. In these markets, five weeks, even five hours is hard enough..

There is a bit of a valuation difference though, which could underpin the shares:

Because of this we envisage earnings to grow at a compound annual growth rate of 22% for the next five years. Considering this growth rate is 10% per annum higher than what analysts are expecting for Nike (NYSE:NKE), we feel it would be highly likely for the shares to start trading at a higher price-to-earnings ratio in line with Nike's. Currently Nike trades at around 27x earnings, whereas Skechers trades at just 20x earnings. Another stock benefiting from the athleisure trend, Lululemon, trades at 31x earnings, so we feel 27x earnings is more than fair for Skechers.

Skechers Has An Amazing 75% Upside - Skechers USA Inc. (NYSE:SKX) | Seeking Alpha

Anyway, it was a pretty good week for two of our portfolio holdings, SKX and ELLI.

[admin]

Our new article Sunday morning:

• The world economy is plagued by excess savings and stretched balance sheets.
• Unfortunately, the only policy instrument that is being used is monetary policy.
• It's exactly the policy that was always going to be least effective under these circumstances, and more drawbacks are appearing.
• It's difficult to envision what other policy instruments can help to get us out of this decisively.

Central Banks Can't Fight This | Seeking Alpha

[admin]

China has released its trade figures for January and they’re not good. Exports down 6.6% (year-on-year in yuan terms) compared with forecasts of +3.6% Imports down 14.4% compared with 1.8% Trade surplus up to 406bn yuan against a forecast of 389bn... The China trade figures look even worse in dollar terms which put exports down 11.2% in January compared with the same month in 2015, while imports were down a thumping 16.6%, the General Customs Administration said today. However, officials said they expected the downward pressure on exports would begin to ease by the second quarter of this year.

Market turmoil: Asian stocks bounce despite steep fall in Chinese trade - live | Business | The Guardian

That's pretty bad..

[admin]

And this isn't good either:

Economy shrank at an annualised rate of 1.4% in the last quarter of 2015 – a contraction that was more severe than many had forecast

Japan's economy shrinks again as Abenomics is blown off course | World news | The Guardian

But at the moment the Nikkei is up 6%(!) on the idea of forex intervention and yen easing.

[admin]

Why we're still mostly in cash here:

Rule No. 1: There Are No Good Companies
Rule No. 2: Horrible Companies Become More Horrible
Rule No. 3: Emerging Markets Don't Exist

3 Rules for Surviving a Bear Market - TheStreet

Even if we think we've found at least two good companies (ELLI and SKX) and hold some positions in these.

[admin]

There are people who have different ideas though:

This is a correction, not a turning point for the stock market. Our models, with stocks driven by interest rates and corporate profits, not sentiment, suggest the market is still significantly undervalued. It's not often you get recession level prices when there is no recession. Put money to work, don't run away.

Weighing The Week Ahead: What Are The Biggest Market Worries? | Seeking Alpha