Archive | November 2014


EM Thoughts…Not There Yet


Successful investing is frequently about balancing valuation with growth prospects. We would all love to invest in cheap assets with strong prospective growth, but most of the time, we’re forced to choose: valuation usually reflects prospects. Emerging markets (EM) equities is one of those areas that offer seemingly cheap valuations with attractive growth. But upon closer inspection, the picture is a little more complicated. First, to valuation. The MSCI EM Index trades at a forward P/E multiple of 10.8 times, well below the MSCI World Index of nearly 15 times. But the EM Index is heavily skewed by the cheapness Read More




There’s no doubt that the headline unemployment rate (5.8%) does not tell the full picture of the job market. Specifically, there have been three areas of concern not reflected in the (low-ish) unemployment figure: the decline in the overall labor force (the labor participation rate), the elevated duration of unemployment, and the rise in the number of part-time workers. Each of these metrics suggests a weaker employment picture than by glancing at the 5.8% unemployment rate. Let’s tackle the last issue, the large number of part-time workers with the chart below by Julie Hotchkiss of the Atlanta Fed. I like Read More


Pressure Building


 Yes, we all know the European economy is not growing: stagnant, sclerotic, etc. But this fact is not a crisis. It’s a concern, a problem, a challenge, but not a crisis. It is hard to get politicians to act (a global observations, not just in Europe or the US), harder to get them to act in ways that actually benefit the economy, and nearly impossible to get them to favor the long-term if it involves pain in the short-term (I’m using short-term and long-term as defined by the election cycle: short-term is before the next election, long-term is afterward). Unless Read More




An interesting graphic from Ken Leech of Western Asset showing that spreads in Bondland this year are pretty much unchanged from the start of the year. This, despite the rally in US equities and solid economic growth. Thus, Ken concludes, spread products remain attractive. I agree. There are numerous risks in fixed income, but that’s often the case. An economy that suddenly slumps will likely cause spread widening (although likely offset by rising bond prices). An unexpected economic boom could push bond prices lower (but spreads should hold true, if not tighten). An environment of moderate growth and low inflation Read More


Money Matters


When the Fed embarked on Quantitative Easing (QE), many prominent economists warned this would lead to hyperinflation (or, at least, an wanted surge in inflation). Didn’t happen. With QE ended, many economists (mostly different, but some, amazingly, the same), warn that deflation will soon engulf us, leading to economic ruin. One lesson to take from these public debates is that it is usually best to ignore predictions (especially about the future, and maybe especially from economists). But really, especially predictions that are based on theory that then do not conform with the empirical facts. This first chart shows the growth Read More

Selected Fun Facts


Some fun facts about this year (courtesy Michael Hartnett of Merrill Lynch): US equities (+14%) are ahead of European equities (-6%) by the widest margin since 1976. US large cap is beating US small cap by 950 bps, the most since 1998. 50% of all government bonds globally yield less than 1%. Notable exception: Venezuela US$-denominated bonds yield 22%. Apple’s market cap ($662 billion) is one-third greater than all Eurozone banks combined, and nearly as large as every listed company in Latin America ($695 billion).



The following item caught my eye on Bloomberg: Los Angeles City Employees’ Retirement System is scheduled to discuss a staff report requested at a prior meeting on the pension’s specialized private equity and real estate investment programs…. The programs agenda targeted “emerging managers, funds focused on underserved markets, demographically targeted partnerships, and geographically targeted investments.” Since inception in 2004, the programs have committed $198 million to 23 funds that have earned an average annual return of 3 percent, according to the staff report. Within that, seven non-traditional real estate investments have returned negative 4 percent. An annualized loss of 4% Read More




Not enough attention is being paid to the work slowdown/stoppage going on at West Coast ports. The last time there was a disruption was in 2002, and it ended 10 days later only after a presidential order. The contracts expired 1 July of this year, and the unions (ILWU and PMA, who represent about 20,000 workers) have initiated a slowdown as part of their negotiating strategy, despite an agreement to keep operations flowing normally.  The port of Tacoma, for example, reports 10-18 container moves per hour, versus the normal 25-35. This past weekend, slowdowns were reported at Los Angeles/Long Beach, Read More


How The Mighty Fall


Between March 2000 and October 2002, the NASDAQ Index fell 75%, from over 5,000 to under 1,300. Of course, valuations were beyond silly at the peak, and I confess, following the collapse, I thought my children might one day see the index surpass its previous high. Well, 12 years later, the NASDAQ is within 10% of its 2000 high. It’s not there yet, and it’s been a long slog to recovery, but it’s getting there. The chart below, from Barron’s, shows the largest constituents then and now. The top 5 in 2000 still around, but 6-10 have all disappeared, either Read More

Happy Singles Day!


11 November is celebrated in the US as Veteran’s Day and throughout Europe as Armistice Day, marking the armistice ending the First World War in 1918. Government agencies and banks are closed for the holiday (but we’re working here at Angeles!). 11 November, as Armistice Day or Veteran’s Day, has recently been displaced by a new holiday, created just 5 years ago, by Jack Ma, honoring not our war dead or our military veterans, but a far more important and over-looked group, long-forgotten, scorned and abused: the single consumer. Seeing the unfair neglect of this group, who suffer in stoney Read More