Skip to main content

Rates, Yield and Returns

So this morning out of boredom I looked at the markets; 5 years ago the 30 year T-bond generated a yield of 4.5%, today its 2.6%, the S&P 500 on the other hand went from 1,332 to 2,064 -- so clearly being long the market over the past 5 years was a good idea!  Frankly, owning 30 year bonds too was a good idea.  If memory serves the GOP stated that Obama's second term would be terrible for investors -- so they go that really wrong since the market is up by nearly 55%...

But that's not the real issue, the issue going forward is that as interest get closer and closer to zero the upside diminishes; because the option of zero interest rates is to keep cash at hand.  Banks if they pay no interest provide limited services.  In terms of earning quality, its been poor for some time -- the magic of accounting trickery still ensures that companies generate greater profits -- from non core activities.

The banks will survive -- they've made sure by payoff the politicians -- it may not work because the risk that the banks have taken is even greater than it was, the risk of contagion is unquantifiable -- Europe is a mess and NOTHING has been fixed, Greece's Debt/GDP continues to rise -- Gernamy told Greece a few days ago to "take a hike" on new money, unemployment in most of Europe is also rising, and ethnic tensions are rising -- the massive increase in refugees is starting to put pressure on the system -- so far the problems have been anecdotal, but they could create a political force against the integration of refugees.  

In Quebec, a mayor (he should be praised) when asked by the new immigrant muslim community that the pool become single sex -- told the press and the community that new arrivals had to adopt the rules and customs of the country that was welcoming them, not the other way around.  They should strive to learn French and come part of the community, and not try to impose their customs on the Canadian citizens.


Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…