A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Merrill Lynch strategist Michael Hartnett urged investors not to panic in a Tuesday research report, although one of the arguments, the equity market is “too big to fail, doesn’t carry much weight with me as a forward indicator.
Mr. Hartnett includes the “20 most important stats for investors” in the report.
Highlights among these include “$175tn: current value of global financial assets, 2X the size of global GDP,” “$11tn: current value of global negatively yielding bonds,” “2747bps: the staggering drop in US CCC High Yield bond spreads since 2009,” “536: the number of zombie companies in the world, 13% of total,” “$5.5tn: market cap of US tech sector, >entire market cap of Emerging Markets,” “1/3: financials as % market cap >1/3 in Canada, Spain, Italy, Australia, Brazi.”.
“@SBarlow_ROB ML: 20 must-know stats for investors” – (full list) Twitter
Bloomberg’s Businessweek magazine turned its attention to Canadian households struggling with high debt loads,
“Household debt in Canada, a nation generally known for moderation, has reached levels that could be qualified as excessive. Canadians owe C$2.16 trillion—which, as a share of gross domestic product, is the highest debt load in the Group of Seven economies… the extended run of low interest rates that followed sparked a boom in borrowing, with the ratio of debt to disposable income rising to a record 174 percent in the fourth quarter, from 148 percent a decade earlier… Federal and provincial governments have enacted a raft of rules in recent years to tame housing speculation. The policy changes are having an effect. Home values fell in 2018 for the first time in three decades, and the slide has extended into this year… Jodi Letkiewicz, an associate professor at York University, isn’t reassured. “The last thing to go is the mortgage,” she says, adding that before then, people stop making car payments or they begin making smaller credit card payments. “By then, they’re already in a lot of trouble.””
“Canadians Are Feeling the Debt Burn” – Bloomberg Businessweek
My two favourite market sectors remain health care because of demographics and cloud computing because I think the era of companies owning their own network equipment will come to an end.
The FT Alphaville blog (free with registration) published a comprehensive analysis of the cloud sector, noting extreme valuations in many cases,
“Take a look at the chart of First Trust’s Cloud Computing exchange-traded fund, ticker SKYY (of course), since it launched in mid-2011: A 179 cent return, compared to just 109 per cent for the S&P 500… n the last financial year for each of the 50 businesses, revenue growth averaged a whopping 35.2 per cent… but valuations are mad… Even the lowest multiple on offer, 3.4 times sales for $4bn LogMeIn — a remote-access provider (disclaimer: used by FT staff) — is a whole turn more than the S&P 500′s average of 2.4 times sales.”
The piece as a whole makes me more optimistic about the investing theme – the revenue growth chart is extraordinary - but the warning on valuations is well taken.
I immediately thought of the U.S. auto sector in the early 20th century when more than 200 car manufacturing companies became three during the period when the transportation revolution boomed.
“The cloud software kings are nuts, when's the crash?” – Powell, FT Alphaville
Tweet of the Day: “@LizAnnSonders Balance sheet quality proving to be key during rally this year” – (chart) Twitter
Diversion: “The Nerd’s Watch: The Best Sci-Fi and Fantasy Streaming in April” – i09
Newsletter: “I’m thinking about buying some NVIDIA – here’s my research so far” – Globe Investor