Stock market performance over any time period can be broken down in terms of the change in the underlying earnings-per-share and the change in the P/E multiple. The best scenario is when earnings are growing and P/E multiples are expanding.If earnings are declining and P/E multiples are contracting then the market is facing dual headwinds.
The current path of government debt and central bank balance sheet expansion is clearly unsustainable.Everyone knows this and yet interest rates are at historically low levels. Will there ever be a tipping point which changes the direction of interest rates, and if so what will be the catalyst and when will it happen?
"A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world." – Seth Klarman
The topic of taxes is hugely divisive with the big question being who should be taxed and by how much. What many fail to realize is that the unconventional monetary policies currently being pursued by the US Federal Reserve are the ultimate form of a regressive tax.
With only two weeks to go before the election and only eight short weeks between the election and year-end, the fiscal cliff could be the most influential macro force on capital markets for the balance of the year.
Decision makers in Europe would be hard pressed to admit they believe Greece will grow its way out of debt, yet they continue to finance the problem that is Greece. How do these two things reconcile in the real world?
A wave of strategic patent acquisitions over the past 18 months bear witness to the “patent arms race” that is ensuing as technology companies scramble for ways to defend their intellectual property (IP). We became fascinated with this burgeoning trend a little over a year ago and have continually asked ourselves how we might be able to position our clients to profit from it.
The global slowdown and specific concerns over China’s economy have resulted in Chinese equities being one of the worst performing markets this year. This weakness largely reflects the market’s uncertainty surrounding the soft or hard landing debate. We believe the underperformance has left China’s market very attractive from a valuation standpoint.
QE3 will have no real impact on economic growth since it will not loosen any of the “binding constraints” preventing growth from accelerating. The pop in stocks and commodities following the Fed’s announcement has been referred to over and over again as the “sugar rally”, making it analogous to the surge of nervous energy one gets after indulging in too many sweets.
We decided to close out our position in the Yen because our thesis for the original investment has been significantly challenged. The tailwinds which have aided the Yen over the past two decades are weakening.