The Swiss National Bank this week (abruptly) abandoned the currency cap on the Swiss franc (relative to the Euro). What's it all mean? The financial media is full of opinions, but I prefer to take a more 'forensic' approach.
(a) On Tuesday, the Swiss Market Index hit a 52-wk high. On Thursday, the same index hit a 52-wk low. I don't think Martha Stewart (a shrewd trader [well, of her company stock anyway] in her own right!) would refer to that as 'a good thing.'
(b) The spike in the value of the Swiss franc was reported to be a 22 sigma (ie, a 22 standard deviation move) event.
(c) Naturally, a 22 sigma event will have consequences. Several currency speculators were wiped out.
(d) In my opinion, here's the relevant article to read: http://www.marketwatch.com/story/broker-reassurances-about-swiss-exposure-may-be-the-smoke-that-leads-to-a-fire-sale-2015-01-16?mod=MW_story_latest_news. I agree completely. Swiss cheese has a distinctive appearance, its blocks riddled with holes. The same may apply to the 'no worries' approaches making the rounds this weekend.
A lot of people were/are actually short the euro I think, in preparation for QE What happens when/if it comes, wouldn't the event tend to validate the eurozone?
ReplyDeleteNot sure if you guys have noticed this before (maybe BB) but something I never realized with how share repurchases are accounted for is they essentially allocated to retained earnings and counted against shareholders equity, sometimes resulting in negative stockholders equity. I always wondered why some companies have negative equity when they're very sound financially and have had a history of positive earnings. A case in point is COH. They have repurchased $6.7 Billion worth of stock since 2005. They generated $7.5 Billion in Free Cash Flow over this period. Shareholders' equity has only risen from $1.0 Billion to $2.4 Billion over this time. Had they not repurchased those shares over that time they would have $9.1 Billion in equity (vs a current market cap of $9.9 Billion).
ReplyDeleteAnother good example of this is NILE. They only have $45 Million in equity but they have repurchased over $300 Million worth of stock the past 8 years or so which would imply an equity value of $345 Million had they kept the cash (vs $400 Million market cap).
Both of these companies have had near term dips in free cash flow but if I look back to just a year or two ago they are trading at like 8 to 10 times FCF. I wouldn't be surprised to see them trade up to 15 to 17 times. This is the same thing I looked at when I almost bought PIR. At the time it was trading at 10.9X FCF.
When I scan for companies trading near their book value, this is one thing I should definitely keep in mind and it makes me think that this metric is not as valuable as it used to be.
In the case of COH, debt/eq is near zero, no?
DeleteThat's right. They have no debt. Like Peter Lynch said, its kind of hard to go bankrupt when you have no debt. This one reminds me somewhat of the DECK trade from 2012, back about 200% ago when it was obvious that Uggs were a dying brand.
DeleteOne of the main reasons I liked it then was my wife told me Uggs were still very popular. She's a good source of info on these fashion trends. When it was at $8 and I was sniffing around the stock she told me she shops a lot at TLYS and told me that it's a popular store for kids. I missed that one too of course. I asked her about COH and she said its still a well regarded brand.
Deletep/b can often a better metric than pure shareholder equity. If the p/b is decreasing, it generally means the buybacks are accretive to shareholder value. Re COH, I haven't looked at it, but the p/b now is approaching 2009 lows, so likely the buybacks are helping shareholders. Their actual shares outstanding has dropped by almost half since 2005, so that has certainly helped the share price.
DeleteBook value, in general is tricky. But so are earnings and cash flow, so I guess you always read the financials. p/b or p/tangible book seems to be the most popular way to value financials and asset based stocks and I find a good way to judge the safety of a company.
Real estate stocks are another tricky one as the depreciation each quarter gets charged to book value, but the reality is most real estate goes up in value over time, not down, so the actual book value of the company is much higher than the shareholder equity. That is one of the reasons why you often see vast p/b ratios on real estate.
I'd say for stocks like COH, they don't tend to trade on their book values, unless it is a financial distress situation, and they tend to be more p/e or peg stocks. The stock buybacks help boost the eps over time. Actually, for these fashion stocks, it often seems like just identifying the right fashion trend will be a winner in the stock market. COH has a trailing p/e of 15 and fwd p/e of 17, so people are expecting earnings to drop. If your wife is right and COH can increase profits this year, the stock should be a big winner.
Right, another "dying brand" has been LULU, judging by the chart....
DeleteThis chart appears to have some upside potential, a bullish channel seems to have formed. So do the fundamentals, balance sheet, etc., support a bullish case?
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=BID&p=W&b=5&g=0&id=p87318676807
You can see on these two charts where the ema's rolled over and it's been downhill since. Also, note the upside that occurred when the 13ema rose above the 34:
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=FELE&p=W&b=5&g=0&id=p85916465945
http://stockcharts.com/h-sc/ui?s=BXE&p=W&b=5&g=0&id=p02990515787
FAZ - Who's long FAZ, nobody, right?
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=FAZ&p=W&b=5&g=0&id=p72201956583
Reminiscences guy liking the tankers. The leverage he talks about in tankers certainly looks appealing, but risky. Has some other stocks in his portfolio that look interesting. Also likes GIB, which continues to perform well.
ReplyDeletehttp://reminiscencesofastockblogger.com/2015/01/18/week-185-just-your-run-of-the-mill-portfolio-update/
I agree with this:
ReplyDeletehttp://www.valuewalk.com/2015/01/grexit-syriza-election/
Look at the valuation metrics for Greece:
http://charlessizemore.com/look-cheap-stocks-2015-cape-around-world/
Good to see their exchange is up 2.6% today since this is by far my largest holding at 25%. This week should be volatile though.
I've used these country CAPE charts to pick cheap countries, than gone through the ADR's that trade here, but the thing I've always found is the individual stocks aren't that cheap and pretty similar to what you'd see in North America. For example, I went through a bunch of the Austrian ones when I was looking more for places to invest in Europe, and couldn't find one to buy.
DeleteIt could be that the cheap stocks are the smaller ones and don't trade in ADR's and I'm not really interested in buying Euro-stocks, but I would bet most ETF's use a similar set of stocks.
The Jessie Livermore guy had an article showing the same thing. Cheapest CAPE country #11, Ireland, actually has a market of fairly expensive stocks:
http://www.philosophicaleconomics.com/2014/11/dilution-index-evolution-and-the-shiller-cape-anatomy-of-a-post-crisis-value-trap/
I guess my point is you have to be careful when looking at these broad country reports.
As far as Greece goes, there should be lots of good trading opportunities over the few weeks if you can time it right. I'm sure you will have much better success with that than I would.
I read that article before. I liked it and thought it makes a lot of sense. But look at the top holdings of GREK:
Deletehttp://portfolios.morningstar.com/fund/holdings?t=GREK
If you go through the 10 year financials of each company, revenues and / or profits on some of them are so far below prior peaks and could cause the p/e of the entire ETF to be elevated. Some of the companies are doing well, but the majority of them aren't...the banks in this ETF have negative earnings. This is similar to the S&P 500 in 09 when banks had negative earnings for a quarter. Should we base the p/e off of current earnings or potential near the peak when the economy is on sound footing and people are comfortable with buying these stocks?
Look at GRKZF - a sports bettting / lotto company. They did over $7 Billion in revenues at the peak and they now do $1.2 Billion.
Public Power, which is greece's largest electricity company, has seen earnings go from $693 Million in 2009 to -$225 Million last year. This is a 4.4% holding in GREK.
DeleteOut of the 21 holdings listed above, 9 of them have negative earnings.
I looked through a some of GREK holdings to see if I could find something to buy. I ignored the banks as they are the most in flux and risky. I didn't spend a whole lot of time on this, so take it for what its worth, but I didn't really find anything compelling to buy. I guess I'm expecting to get things at p/e's of 6 with yields over 5% and p/b's under 0.5, really cheap stuff because it is Greece, but really, their stuff seems pretty in line with other markets.
DeleteHere are the notes I made if you are interested:
Hellenic Telecommunication Organization SA - no yield which is bad for a telco, kind of expensive on a p/e basis, but not far off p/s compared to T which is much cheaper on p/e and has yield
Coca-Cola HBC AG - pretty standard valuation for a consumer staple stock and their revenues and earnings have been flat the last 3 years (not sure why 2010 profits were higher), so what you'd expect from a staple, but probably not a lot of leverage to economy upside
Greek Organisation of Football Prognostics SA - the revenue drop appears to be more an accounting thing than an actual revenue drop - http://www.opap.gr/documents/11503/3973751/PRESS+REPORT_UK.pdf - revenues are down, but not to that degree. PLus they were hit with a 30% tax on profits in 2013 which I assume is permanent. But their current valuation at 9 time fwd p/e seems pretty good for a pseudo-monopoly
Titan Cement Co SA - say 20% cheaper than Lafarge, but much smaller, less liquidity and worse track record, so probably fairly relatively valued
Jumbo SA - a retailer at a 15 p/e and 2.1 p/s, seems fairly valued, but not super cheap.
Public Power Corp SA - cheap on a p/e, p/b basis for a utility, but checkered earnings history, no yield, plus it sounds like they are moving away from a monopoly to a competitive energy market, so not sure what that means going forward
Not sure I agree man. The earnings per share excluding banks have all dropped precipitously, presumably due to the economy. See below...a comparison of 2009 to 2013 data (didn't include 2007 b/c i didn't have it for all of them but I'd have to imagine the drops would be far greater in that scenario) hope this comes out in decent formatting:
Delete2009 2013
EPS EPS
Hell Tele 1.59 0.64
Coca-Cola HBC 1.14 0.61
Greek Football 1.86 0.44
Titan Cement 1.50 (0.39)
Jumbo 0.58 0.74
Public Power 4.28 0.15
Mytilineos Holdings 0.18 0.59
Motor Oil (Hellas) Corinth 1.41 0.18
Hellenic Petroleum 0.57 (0.89)
Grivalia Properties 0.66 0.05
Ellaktor 1.19 0.44
Metka 1.06 1.33
Athens Water 0.19 0.52
All of these companies had the same or less shares in 2013 vs 2009
DeleteYou could well be right about earnings coming back with the economy. I was looking for some obviously super cheap stocks that I could buy now because the sentiment on Greece was so bad, but didn't find that unfortunately.
Delete"The earnings per share excluding banks have all dropped precipitously"
DeleteSo in other words, banks have been outperforming? Any reason to believe that won't continue to be the case? Not that say shareholders might benefit.
WM - Another one I could have been in as opposed to these losers sucking me dry daily.
ReplyDelete$1.86 here today for gasoline, and $2.46 inside Capitol Beltway area.
ReplyDeleteGood morning boyz. Hope everyone had a nice long weekend if one was lucky enough to have Monday off.
ReplyDeleteGood morning, sweetie! :) Hope everyone made it through okay.
DeleteENPH- Should have a weak seasonal quarter. Let's see if we can get a clean entry after that.
ReplyDeleteOkay so now red. Early buyers burned again, market can't pick a direction and go with it.
ReplyDeleteYELP - This is an important support level here, isn't it?
ReplyDeleteAside: Christopher Barry, son of former DC mayor Marion Barry recorded on security camera, says to bank teller: - "I'm going to have somebody waiting for you when you get off, you bitch." ... Barry, is one of the frontunners to replace father Marion Barry in the April election.
Lovely.
DeleteYeah, you can't imagine the level of hubris I've witnessed over the decades of exposure to beltway insider mentality, probably a thousand similar stories.
DeleteTSRA - Mistaken for TSLA?
ReplyDeleteJCP - On a tear, perverse consumerism is back!
ReplyDeleteI must be looking at all the wrongs charts b/c it looks like selling has been taking place for some period of time as the trend on these has been down.
ReplyDeleteIt makes it difficult to believe in the strong growth story I keep hearing about, how about you?
Markets and the economy often move in very different directions. Markets are forward looking and try to figure out the value of companies relative to their valuation. The economy is ongoing business. In fact, a strong economy can be bad for stocks, especially if the job market improves dramatically and increases wages faster than profits/revenues.
Delete"There is ample data to show that a negative relationship exists between economic growth and equity market returns."
http://abnormalreturns.com/2013/03/15/the-stock-market-and-economy-are-two-very-different-animals/
Yeah Etrade did a great study on the correlation of the economy and the markets a few years ago that I shared with you guys. Almost an inverse relationship. China is a perfect example of this relationship.
DeleteIt's been a brutal market nonetheless. Really the only thing that has worked in the past month or so is buying FCAU (which unfortunately I sold!)
I took another whack over the head today and have just rotated all of my money into what I consider to be cheap stocks. Luckily I sold BAC and FAS pre market for a nice 2% gain or so but I bailed on GREK at a substantial loss. I added to AFL in the $57.6 range and PCLN.
"a strong economy can be bad for stocks"
DeleteYes, another example of circular reasoning.
For some reason though, I had the impression a large part of your long-side thesis was based on a growing global economy and an improving economy in Europe which have as you point out, no positive correlation.
DeleteIt seems to me prices are based in large part on supply and demand, and continuing economic growth tends to create demand. Of course, if monetary polict is pulling forward demand then demand can become a temporary phenomenon correlated more closely with monetary policy.
Take Switzerland for example, for a financial institution that borrows on the short end and lends long. Either of these can win under adverse conditions but a tailwind for the business model certainly adds wind to the sails.
TD - 90 day breakdown, the economy is booming again.
ReplyDeleteTSN - Obviously this one has held up well while so many others have continued or joined the crowd. I guess this one eventually gets sucked out with the tide as well.
I like this Pope LOL, "Catholics breed like rabbits and it's irresponsible"
ReplyDeleteWonder what I was up to inside my house last time the government drove by and scanned me with their radar? Maybe I was sitting on the potty?
ReplyDeletenew post
ReplyDeleteLuckily, the $US is rallying due specifically to strong demand for American made products as global growth kicks into high gear. Unfortunately the associated strong commodity demand will cause commodities prices to continue falling precipitously and create a spiral in debt defaults among emerging market commodity producer economies such as Brazil, Russia and Argentina.
ReplyDeleteAs the US home construction boom continues unabated, companies that provide aggregates and other construction materials such as copper to the low unemployment and high wage earner home building industry will not be able to keep up with the demand, thus the price of those commodities will also continue trending down, leading to higher earnings and lower stock price.