Saturday, April 20, 2013

Moving My Blog to Seeking Alpha

I am going to be moving my blog to Seeking Alpha, a place where there are many more articles you can find, more comments, etc.

You can find my articles at this URL:


Wednesday, April 17, 2013

"The Signal and the Noise" book & Jan Hatzius article

The book "The Signal and the Noise" by Nate Silver is a great read, especially for anybody interested in investing.  One of the people highlighted there, Goldman Sach's Jan Hatzius, talks about his predictions for 2013 in this article:

Monday, April 15, 2013

The Commodity Cycle Continues to Unwind

As I wrote in an earlier post, the S&P500 hit a record high... but it was brief!  After today's drop, the value is back under the level that would break the monthly close record high.  Of course if you want to be an investor, the key is to ignore short-term moves and focus on long term themes.

One thing I've been writing about for a while is that the emerging market and commodity cycle themes of the last decade are likely to unwind.  Today's moves continued a trend that has been happening for several years now where these areas of the market are hit more heavily than the S&P 500.

  Now 1 Year Ago 2 Years Ago 5 Years Ago
SPY 1.000 0.882 0.843 0.800
XLE 0.482 0.451 0.501 0.488
EWC 0.171 0.179 0.208 0.192
EEM 0.263 0.267 0.310 0.290

The table here shows the dividend-adjusted levels of various ETFs, all relative to the value of the S&P500 today.  You can see that the S&P has given a 25% return in the last 5 years (remember, including dividends).  In contrast, XLE (energy sector of the S&P 500) has been slightly down, EWC (Canadian index in US$) and EEM (Emerging Markets in US$) have both dropped significantly... again after dividends!  While single day numbers are pretty useless, today's drop was also consistent with this:  -4% for XLE and EWC versus -2.3% for the S&P500.

To me this is showing that these areas are significantly under-performing.  Is it a buying opportunity?  If you look at other posts I've made about longer term values for these ratios (link for Canadian equitieslink for energy sector), you'll see that there's still plenty of room for these ratios to "revert to the mean".

Wednesday, April 10, 2013

Real Record High for S&P 500, 12.7 years later!

I've been writing for some time on how to correctly compute the last record high in stock prices (see link).

Based on this analysis (which uses monthly closing stock prices), the last record high was in September 2000.  Today's closing S&P 500 price is the first time that high was crossed in the last 12.7 years.

That means that after almost 13 years, an investor buying the S&P 500 on September 1, 2000 in a tax-free account, then re-investing all dividends along the way, has finally broken even after inflation.

That is one awful 13 year period, only matched by a 12 year period from February 1973 to February 1985. The only thing left for me to actually record this new high is for the S&P to hold or exceed this level when the month ends.  Of course nobody knows whether that will happen, but for the moment, the general message of breaking even after 13 years is still the take-away.

This makes me intuitively bullish - it seems the next 13 years have got to be better than the past 13 just based on how unlikely it is for there to be generation-long (25-30 year) periods of zero real returns!

Thursday, April 04, 2013

Longer history of Canadian equities (TSX) vs US equities (S&P500)

In an older post I showed data for US vs Canadian equities back to 1999 (link).  I said it would be nice to have older data, which I realized I could get by not using the ETFs and instead directly dividing the TSX value by the S&P500 value on a monthly basis.  For that the data is available back to 1984 (from Yahoo at least).

The graph is below.  One downside to this comparison is it doesn't factor in currency - if it was stated in US$, the peak would be a lot higher as it was in the ETF comparison (EWC is in US$).

Regardless, the cyclicality of the Canadian economy becomes very evident in this graph!

Monday, April 01, 2013

The Relationship Between Wages and GDP

This graph shows the ratio of Wages & Salaries from the Federal Reserve data (link) to GDP (link) since 1947.

To me, this graph shows the power of labor in the economy.  For example, you can see the rise in the late 60s when low unemployment was held in place despite rising inflation, leading to a natural power shift towards labor.  There has been a steady drop since then, with an interesting exception in the dot-com bubble times, when labor (presumably programmers!) were in short supply and companies were paying increasing sums for warm bodies.

Since then, the overall trend of lower labor costs has continued downward.  Since this is a US data series, it may hide labor costs outside the US (outsourcing for example).  At the same time, I believe GDP ignores the growth in foreign sales for US companies, so I would assume the two cancel out at least somewhat.

If I'm right, this trend explains some of why corporate profits are so strong right now compared to any time in the past.  Separately, I've scatter-graphed this ratio against profit margins and there isn't a trend - perhaps this implies that the extreme dip in the past decade is behind it and this will unwind as and when unemployment improves?