Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

LEADING ECON. INDIC.

THE DAILY EDGE (22 December 2017)

U.S. Leading Economic Indicators Continue to Increase

The Conference Board’s Composite Index of Leading Economic Indicators rose 0.4% during November following an unrevised 1.2% jump during October. (…) Three-month growth in the index held steady at 7.0% (AR). (…)

The Index of Coincident Economic Indicators increased 0.3% (2.1% y/y) following an unrevised 0.3% October rise. Each of the component series, including industrial production, personal income less transfer payments, business sales and payroll employment, contributed positively to the index. Three-month growth in the index strengthened to 2.8% (AR), its best since January 2015.

The Index of Lagging Economic Indicators ticked 0.1% higher (2.4% y/y) last month following a 0.3% October rise, revised from 0.2%. (…) Three-month growth of 1.3% in the lagging index was reduced from 5.1% during the spring of last year.

The ratio of coincident-to-lagging indicators is often considered to be a leading indicator of economic activity. As economic slack diminishes relative to current performance, the ratio will rise. It improved last month to the highest level in six months.

The two important charts from Doug Short:

Smoothed LEI

Canada Inflation Rate Crosses 2% Level in November

Canada’s consumer-price index rose 2.1% on a year-over-year basis in November, Statistics Canada said Thursday, following a 1.4% advance in October. On a month-over-month basis, prices rose 0.3%.

Excluding gasoline, Canada’s annual inflation rate climbed 1.5%, versus a comparable 1.3% in the previous month.

Underlying, or core, inflation also exhibited strength. Underlying prices rose in a range from 1.5% to 1.9%, based on the preferred gauges used by the Bank of Canada for an average of 1.7%, or the highest level in over a year. (…)

Retail sales surged in October by 1.5%, crushing expectations for a muted gain, on robust demand for vehicles and alcoholic beverages. (…)

imageimage

(RBC Capital)

Eurozone Inflation Picks Up, Boosting ECB as It Prepares to Reduce Stimulus

The European Union’s statistics agency Thursday said consumer prices were 1.5% higher than a year earlier, a pickup from the 1.4% rate of inflation recorded in October and closer to the ECB’s goal.

Excluding prices for energy, food and other volatile items, the core rate of inflation was unchanged at 0.9%.

image

Are There Any Stock Bears Left in America?

(…) A recent survey by the National Association of Active Investment Managers found that even the most pessimistic mutual fund overseers are fully invested in stocks. Equity exposure rose to the highest level in data going back to 2006. (…)

A Goldman index tracking the most-shorted shares has climbed 18 percent since January, burning anyone on the wrong side. (…)

According to Morgan Stanley, unspent money is disappearing from individual brokerage accounts as the rally lures buyers, driving cash levels to a record low. Leverage among hedge fund managers who speculate on rising and falling shares is approaching its 2007 high. (…)

Source: topdowncharts.com

Gift with a bow Happy Holidays !

THE DAILY EDGE (21 November 2017)

Leading Economic Indicators Index Rises An economic index that measures business trends increased in October as impacts from a string of catastrophic hurricanes dissipated.

The Conference Board Leading Economic Index rose 1.2% to 130.4. Economists polled by The Wall Street Journal were expecting the index to rise by 0.9%.

Metrics including average weekly manufacturing hours, building permits and stock prices rose. The only negative contributor was manufacturers’ new orders for nondefense capital goods excluding aircraft. (…)

The board’s coincident index—designed to reflect current economic conditions—rose 0.3% in October from September.

The lagging index increased by 0.2% in October, following no change in September and a 0.2% increase in August.

As usual, Doug Short provides the best charts on the LEI. Recession not in sight from these charts.

Conference Board's LEI

Smoothed LEI

Tech Boom Creates New Order for World Markets Shares in technology companies are outpacing other sectors this year by the widest margin since the height of the dot-com era, with a handful of key players dictating how markets are performing around the world.

Just eight companies—Facebook Inc., Apple Inc., Amazon.com Inc., Netflix Inc., Alphabet Inc., Baidu Inc., Alibaba Group Holding and Tencent Holdings Ltd.—have increased by $1.4 trillion in market cap in 2017, a sum roughly equivalent to the combined annual GDP of Spain and Portugal.

As the tech sector has become bigger and more influential within global stock indexes, its ascent has helped take U.S. and Asian emerging stock markets to record highs—but left behind the less tech-heavy bourses of Europe, Canada and Australia. (…)

Global tech stocks are up 41% this year, roughly double the gains of the broad-based MSCI AC World Index. So far in 2017, the tech sector is up 20.5 percentage points more than the next best sector, materials—leading by the widest margin of any sector since 1999, according to analysis by Morgan Stanley.

The U.S. tech sector alone now has a combined market capitalization of $5.4 trillion, bigger than the $5.2 trillion in the entire MSCI Emerging Markets index or the roughly $4.8 trillion of its eurozone counterpart, according to Bank of America Merrill Lynch. (…)

Just four companies—Samsung Electronics, Tencent Holdings, Alibaba Group Holding and Taiwan Semiconductor Manufacturing Co.—now make up a combined 17.4% of the MSCI Emerging Market Index, even more influential than Facebook, Apple, Netflix and Alphabet are within the S&P 500. (…)

Tech valuations in the U.S. are just a fraction of where they were during that era. In early 2000, the S&P 500 tech sector traded at a forward price-to-earnings ratio of 52.2, according to FactSet. Today, that PE is around 19.1, compared with 18 for the S&P 500 as a whole. (…)

“In 1999 [tech companies] were incredibly expensive and didn’t yet have a lot of earnings, “ said Mark Phelps, an equities chief at AllianceBernstein. But today, not only are their earnings keeping up, “they’ve got more data, more processing power, and they’re giving the consumer a really good product,” he said.

IT equities actually trade at 28x trailing EPS and 20x trailing cashflow. Their margins are very impressive and are showing no signs of slowing. (Charts from Morningstar/CPMS)

image

image

China Steps Up the Fight Against a Mountain of Debt
A Specter Is Haunting Europe’s Recovery: Zombie Companies Hundreds of these staggering firms, kept alive by banks, undercut healthy rivals, tie up capital and stunt the continent’s recovery

(…) The Bank for International Settlements, the Basel-based central bank for central banks, defines a zombie as any firm which is at least 10 years old, publicly traded and has interest expenses that exceed the company’s earnings before interest and taxes. Other organizations use different criteria.

About 10% of the companies in six eurozone countries, including France, Germany, Italy and Spain are zombies, according to the central bank’s latest data. The percentage is up sharply from 5.5% in 2007.

In Italy and Spain, the percentage of zombie companies has tripled since 2007, the Organization for Economic Cooperation and Development estimated in January. Italy’s zombies employed about 10% of all workers and gobbled up nearly 20% of all the capital invested in 2013, the latest year for which figures are available. (…)

Contact: edgeandodds [at] gmail.com