It seems fitting that data released in Ireland just before St. Patrick’s Day revealed a strong economy that is far outpacing the rest of Europe. In fact, as the graph below highlights, Ireland’s roughly 5 percent GDP growth in 2014 is almost five times that of the Eurozone average. It’s been a long road back for Ireland since the collapse of an overheated housing market in 2008 which forced the country to concurrently seek an $85 billion bailout package from the E.U.
After a big Sell-off day like we experienced this past Friday, there is always the inevitable parade of articles and media quotes suggesting that this is the beginning of “the big correction”. One can certainly make arguments for both the Bull and Bear case in U.S. Equities currently, but Bull markets don’t simply die because they have lasted for quite some time. Generally speaking, Bull markets are killed by elevated interest rates and investor over-enthusiasm. We currently have neither one.
Janet Yellen testified before the Senate Banking Committee earlier this morning, skillfully maneuvering the Fed away from the handcuffs of some of the language that market participants had looked to as signposts for future rate increases. She merely stated that the Fed will begin removing the term “patient” and move toward a phase in which rate hikes are “possible at any meeting”. This was a well executed pivot away from the strict interpretation of certain phrases, and successfully allows the Fed to have the flexibility of being truly data dependent. And perhaps to some surprise, the M
The headline January retail sales number released today, which showed a decline of -0.8 percent, seemed to be a bit of surprise to most given the enormous drop in fuel prices which was assumed to provide a boost to spending. However, there are some meaningful differences in consumer spending trends. For example gas stations got hit the hardest obviously, with sales tumbling over 23 percent from the prior year, but other areas, such as the awkwardly named "Food Service and Drinking Places" saw sales skyrocket by over 11 percent as the chart below from the Federal Reserve of St.
I recently saw two examples of long-term asset return forecasts from very credible firms that I have invested money with in the past. Forecasts are certainly nothing new, but what struck me was how divergent the two predictions actually were. What sort of assumptions do you have to use to not just get varying results, but to get returns that move in the opposite direction! We are not in the game of forecasting and I cannot tell you which of these views will ultimately prove to be correct, but I can tell you that neither one will represent exactly what is going to happen.
We are believers in a concept called Shareholder Yield. It is a number that tries to accurately capture how much cash is being returned to investors by a company. To do that, you simply combine the dividend yield with stock buybacks. Companies who are returning a lot of cash to investors are essentially providing them with a higher “yield”. As Birinyi Associates point out in the chart below, buybacks are at an all-time high. This is good for investors.
With the stand-off betwen Greece and the ECB over debt paymenst and austerity provisions, this chart from BofA Merrill Lynch via Business Insider provides some good perspective on the volatility of the Greek economy historically. From Business Insider:
"Anti-austerity party Syriza was voted into power in the latest parliamentary elections, and since then investors have been on edge as Greece and its creditors enter negotiations on debt repayment. But for Greece, dealing with financial problems is nothing new.
