Short-term horizon, research analyst, portfolio strategy, contrarian
Short-term horizon, research analyst, portfolio strategy, contrarian
Contributor since: 2011
Hi Fauve, excellent question, and it makes me feel like my initial analysis was somewhat incomplete. Yes, you could indeed buy for a longer period based on this signal - these are the results (days forward ; avg return ; win rate):
20 ; 5.8% ; 93%
40 ; 6.6% ; 80%
60 ; 8.6% ; 93%
90 ; 7.5% ; 87%
120 ; 12.4% ; 86%
So indeed, this indicator has often captured medium-term bottoms. From a trading perspective, I would focus on the shorter time frame as possibly that's where the reward is greatest (5.8% in 20 days). But yes, you are right, it could be used on 3-4 month horizon. At longer time frames other factors than this signal will start coming into play, while in the short-term volume exhaustion could dominate.
This is my bitcoin address 1wT6zeYgPLWUi1vdRqvD48... - thanks!
Hi, the data series I use starts in 1999, and as far as I know NYSE didn't publish the up/down volume series prior to that. But if anyone disagrees or knows better, I would be more than happy to run this on a longer period.
Thanks. The odds favor longs here - will be an interesting couple of days ahead!
Actually, this indicator did quite well in 2008, which may not be quite apparent from the chart as the short-term bounces are not visible.
I just checked the data: If you consider 6-day forward returns, out of 17 triggers, 12 were money-making (71% win rate) and on average you would have made 2.6% (ranging from -12% to +18% - yeah, it was a volatile year!)
Will have a look at your series - thanks!
Surely time to write another rebuttal of the bulls who offer "scientifically ungrounded arguments"
Great level to go long. Technicals (pretty much the chart you present) look good IMO. This is a disliked stock/sector at this point.
Also worth pointing out that this company is in transformation and in the coming quarters a lot of the mine construction CAPEX (DomRep and Argentine mines) will be phased out and FCF will pop.
I would really like this stock despite the declining business: mail will not go to zero anytime soon. The one worry however is the capital structure - on my numbers NetDebt/EBIT is 4.6x (EV/EBIT is 7.7x).
If we get another couple of quarters of 5% Revenue decline (sales have declined from over 6bn in '07 to under 5bn annualized recently), a dividend cut and/or capital raise may become necessary.
But we should be on the look-out for signs of stabilization, as there is potential for a big bounce from these levels with doom and gloom evident.
If you pushed me, I would rather be a buyer here. The valuation of the overall business looks undemanding even if there is some risk to the equity.
It's a great value play, but as Petrarch mentioned, the call was terrible, and one question that you should ask yourself is whether the competionion from Paypal+Xoom is not taking marketshare/putting too much pressure on pricing of WU, which would have an impact on margins for years to come (not just next year's guidance).
Having said all this (and it needs to be said, because it's not a no-brainer-long), I would buy WU here. It's super cash-generative and cheap on most measures. Some margin deterioration must be in the price by now. But I wouldn't believe in a quick bounce - rather a 1-2 year view.
I get the point that they are not a coal miner, but they do own coal assets, in which case their future is still tied to the future of coal. ANR - a proper coal miner - has lost ~90% since the peak in '11. Another coal miner (Patriot Coal) recently declared bankruptcy. These are not good times for the sector, and although this may be a low-beta coal play, these sector developments are clearly affecting the value of NRP.
I do not know this company well, but the market clearly thinks this dividend payout is not sustainable. Otherwise, I would agree with the author that 10% is better than 0.99% on 7-year treasuries.
Game changer is a big word. Only one solution would be a clear game changer, and that is a political and fiscal union - something that European democracies can not accept as they are unwilling to give up their sovereignty. A bank bail out in Spain (even if carried out properly, which is a big if), is not a game changer, because there is fires burning all around us, here on the old continent.
I would only invest in this company via the senior bonds (11.875 2015), which are offered at 63% (YTM~30%), but I am hesitant... You guys mentioned the management needing replacing - yes, it really seems so... but if the founder owns 15% of the company, it won't happen easily. The cash burn is impressive, and really it's hard to see where they will get more cash later this year as debt+funny super-senior arrangements to sell products forward are maxed-out.
A bit of a mixed bag without a specific theme I find, and many of these observations were as 'disturbing' 12 and 18 months ago as they are now, so really nothing new (yes, this recovery is sub-par - the question is if it's muddle-through or worse). In fact bank credit and Loans&Leases look like private sector credit growth is finally picking up, which would be a big positive, if confirmed. Fiscal deficit and outlays, really should be shown as a percentage of nominal GDP.
Great article Ron! Your accounting adjustments are very useful.
I wonder if this episode doesn't reflect poorly on the management and if the stock will not trade at a discount going forward given this string of negative surprises. Not a stock I would want to buy at "fair value" - only if it gets very cheap.
Hi Shaun,
The FT article is recent, but I don't think any of the other observations are. The Federal Reserve is deliberately pursuing a weak dollar policy. The US treasury is doing its part by running 10% budget deficits. So far so good.
But the USD is very widely used and most (if not all) commodities and many goods are traded and valued in USD. Part of the reason why foreign central banks are still buying US treasuries is that they are one of the few very deep and liquid markets. And we can also be relatively sure that the dollar will still be around in 20 years time (not so sure about the Euro...).
China holds less than 1% of its reserves in gold, and the very simple reason is that they would not be able to buy quantities large enough to make a difference.
So before we say goodbye to the USD - which frankly has been a recurrent story for a few years - let's find a replacement. And I don't think we have any credible candidates. Gold and the renminbi are not realistic possibilities. Iran and their bizarre actions are not proof to the contrary.
Dear Ploutos, I suggest you look at normalized PE's - ie. earnings adjusted for average economy-wide margins. Currently margins are at multi-decade highs, and if you agree that they will mean-revert (which they always have) then the E will roughly halve, and the PE will roughly double. It depends on your horizon, but on 2-3 years view, one should assume margins revert to the historical norm.
Hi FinancialLex, congrats on a good piece.
A lot has been said already in the discussion, let me just add 3 points:
1) higher economic volatility (inflation/growth volatility and as a result profit volatility), that you have pointed to in the article leads to lower multiples.
2) For 20 years the system debt levels have been pushed to the limits, and we're now in the deleveraging phase - this will not be good for top-line growth or margins.
3) Margins/GDP is a highly mean-reverting series and is currently at 100-year (or so) high. When it moves to the mean (and frankly nobody knows if it's this year, next year or in 2014), then our low P/E multiple of 14 will suddenly go up to over 20. So much for cheap stocks. (I'm sure this data is available in the excellent FRED database)
I would add the following points to this discussion:
1) the bond market is manipulated by the FED, so prices/yield levels should not be relied upon as a point of reference (especially for equity valuation).
2) Historically, bonds are more often right than equities when divergences emerge.
3) For 15 years central banks around the world (ie China) have been buying up most of the treasuries issued, and this is coming to an end (more balanced external accounts) just as debt reaches new highs. US private investors will have to step in to finance the US government, and I'm not sure they will be willing to do this at this level of interest rates, and I believe the medium-term implications for other assets are not positive. The US private sector will have to either save more or sell something to lend to the government.
Hey Elliott, thanks for this piece. I come a bit late with my question, but I don't fully understand this bit: "Teekay LNG Partners leases these vessels to customers for a daily fee, and virtually all the company’s ships–including those soon to be delivered–are booked under long-term charters that guarantee cash flows for the duration of the contract".
What is the pricing on these contracts? Is it the "spot" freight rates on a daily basis or is it a fixed price for the 16-year term or some combination of both? Are the distributions directly linked to movements in the spot charter rates for LNG tankers?
Hey Ron, thanks for a good piece of work. One has to go into the details and make adjustments to the reported numbers as you did. Time-consuming, but certainly a necessity to get a clear picture. I spotted NRGY on a dividend screen, and clearly there is good reasons why the price has fallen so far - the market expects a dividend cut or other fudge (equity/debt issuance).
My understanding is that the fund performance isn't actually that great - at least since '04:
Dear Author,
The points you raise, are valid for the price of risk in general (equities, credit, commodities), but not oil specific. It is clear that if we have a recession next year in the US (yes, we are having one in Europe and it could get worse), oil will go lower, but I'm not sure oil will be the best hedge.
There are some structural changes in the oil market: low spare capacity, OPEC determination to not let prices fall by limiting production (Saudi budget balances at ever higher crude price), ever costlier reserves and exploration etc. The risk of a conflict in Iran is just the icing on the cake.
I'm happy betting on structurally higher energy prices, and in some cases even willing to overlook cyclical/recession issues that may bring prices lower in the coming months. This will not be 2008 - at least not for commodities and oil as the structural supply/demand dynamics have shifted too far in favor of producers. Europe may be a significant importer of oil, but all new demand comes from non-OECD countries. Oil majors in particular are great value stocks - many trading in the 5-7x PE range, and I will be a very happy buyer 10% or 20% below current levels.
Hey there, nice title and a good list of key fundamental strengths.
However, for the most part, these characteristics of the US and the American people, have been applicable 10 years ago as much as they are today. What has changed in the meanwhile is the balance sheet of the consumer and of the economy. (much more debt and other liabilities)
The Japanese are also an impressive society, but that hasn't prevented them from having two lost decades and counting.
Sounds like a fair assessment Marc. This does put a clear end to the post-EU deal euphoria though. Things are not that great!
My understanding is that nuclear has a future (there is no alternatives for India and China in the next two decades if they want to continue to grow fast), but it feels like it's too early to buy based on that, given the Fukushima disaster impact and German phase-out.
Hi George, on the technical side it seems that we broke through some key levels, but I would be skeptical of this rally regardless. I like your choice of stocks, but believe that it is not worth chasing the rally here. Yes seasonals are on your side, but it feels like everything else is not. Growth downgrades are everywhere (UBS took EU growth to 0.2% for '12, EY took down the UK to 0.9%). This is an environment in which to be nimble - not chase rallies.
Yes Rock_nj, I think that's correct. The last published data for Q2 is still positive QoQ for the most part (Portugal and France are at ~0.0%), however judging from the most recent PMI's (at 47.3) Q3/Q4 are likely to be negative. Depending on how exactly you define a recession, why may already be in one.
I just ran one of my value screens, and it's worth mentioning, that the 4 stocks (XOM,MSFT,LLY,CSCO) satisfy other interesting criteria on my numbers:
- EV/EBIT (trailing 12M) of <8
- Price/Intrinsic Value of <0.8
- Altman Z-Score of > 2
- FCF (trail 12M) >5% of Market Cap
all 4 had positive FCF growth for the past 2 years
Other names that also came up are: HTC (2498 in Taiwan), COP, CVX, DELL and MRO
GOOG is more of a growth story with higher valuation, so was discarded by these filter rules.
I love Jeremy Grantham's style and reasoning. Where did you get the info about him adding these stocks? Is it the filing of one of his funds?
"if something unexpected were to happen..." - yes, then things will be different. But isn't that always the case? Are we talking about unknown unknowns?
My base case is that a struggling Europe and low growth in the US (ie 1.5%-2%) are actually enough to push indices higher into year end given bearish positioning.
Collapsing Europe is different story, but that should be avoided.
Having said all that, of course uncertainty is higher than average and tail risks fatter.
My tip would be to not even consider TIPS at current levels. January 2020 currently yields 0.02% above inflation. January 2015 yields inflation MINUS 0.86%. I guess these rates must be part of the debate, no?
Dear All, thanks a lot for all the comments.
I am playing the devil's advocate here, but my point remains a valid one: if the outlook is indeed so poor, dividend stocks will not perform well either.
mbkelly75, Walt17: if I come across statistical proof, I will post it. I would argue that there are not many historical parallels and it's thus not clear to me what would constitute statistical proof in this case. (long-term value beating growth doesn't count in my eyes)
birder, deeedubs: I agree that the investment environment will be most unfriendly. Ultimately somebody will have to pay for this mess and one way or another it will have to be the citizens (whether it's inflation, or deflation and high unemplyoment, taxes, confiscation, financial repression etc.)
David Crosetti: we could well revisit the inflationary environment of the 70's sometime this decade. The authorities are speeding down a narrow road in the mountains with debt deflation on the one side, which they will try to counter with new money, which will take them to the other precipice which is inflation. What are the chances that they miss a turn?
SpanglerDavis: thanks
gapwedge,saratogahawk: the practical choice is difficult here. I do own some dividend stocks (the usual suspects: ABT, WMT, Statoil, AstraZeneca and BP) and am quite big on Singapore REITs which yield 7-8% in my favorite currency (AREIT, CACHE, KGT) as welll as high yield and gold. I try to add value through market timing and tactical asset allocation.
La Marque: haha!
Jeff Paul: past 2 years have been good for many assets - you have to remember this was THE recovery.
poortorich: I like to be contrarian too. In my previous article I called for a market bottom around in early October, which actually turned out to be right. That was a contrarian call. But looking forward a few years the economic realities (inflation/deflation/debt dynamics) will dominate price action as they usually do on long-term hiorizons.
JustLikeYou: thank you, happy to find another fellow from Singapore here. I think we've met before :)
Hey Rich, thanks for the comment. Well, the author simply observes a contradiction in perceptions - the gloom crowd dominates in general, but there is a lot optimism regarding dividend stocks in particular.
Regarding the long-term performance I would be careful. As the late Paul Samuelson puts it saying that stocks always go up is based on a sample of one and on a limited time frame (US in the 20th century).
As to the level of uncertainty, I agree that things never are certain, but there are different degrees of uncertainty, and I would argue that now the economic uncertainty is greatest since the great depression - just look at the debt dynamics if nothing else.