Financial Market Notes

Full Library of Financial Market Notes
Ingham Analytics is ceasing all publications.
Ingham Analytics is ceasing publication of its public research notes with immediate effect to focus on our asset and risk management and specialist financial markets consulting work.
The Macro View (bonds) – “Not at all curvaceous”
If a week is a long time in politics, then the same could be applied to bond markets. Our recent note “Plane crash on the Hudson Mk II?” was well timed. Now, with U.S. CPI at 7.5%, has anything changed? The answer is no. Interest rates are heading north but economic growth is heading south. There is no navigating through things without serious policy errors by central banks, whose track record is already abysmal.
The Macro View (bonds) – “Plane crash on the Hudson Mk II?”
Is a hard landing in bonds and high-yield debt in sight, a financial markets flight 1549 type plane crash in the Hudson River, New York? Or not? We examine factors behind recent moves in the bond markets in Europe and the United States and what lurks in the high-yield debt market.
The Macro View (hedging strategies) – “Any value in derivatives overlay trades?”
Following on from “The tail hasn’t been wagging the dog” and “Tail unhedged” this latest note in our hedging series takes the practical examples one stage further. In turbulent markets a carefully constructed hedging strategy beats not being hedged. Here we further examine our testbed portfolio to see how its doing and what there is to learn as time goes by.
The Macro View (monetary policy) – “Threading a camel through the eye of a needle?”
Today, raising key policy rates off the zero bound leaves as much room for error as threading a camel through the eye of a needle. As we have seen in January, U.S. equities have taken fright. We have little confidence in the Fed. Stay tuned though for our forthcoming note which against the backdrop of this latest context will update readers on our two inhouse hypothetical investment portfolios.
Mining Monitor (Rio Tinto) – “Lithium blush but copper lush”
Serbia is in the news again, this time it’s not directly Novak Djokovic. Rio Tinto has had its Jadar lithium-borates project permits annulled. This leaves the miner with the Rincon lithium project in Argentina. But there could be a twist to this tale. The good news is that the Mongolian Oyu Tolgoi copper mine will now move ahead. It’ll become the fourth largest copper mine in the world.
The Macro View (banking) – “Goodbye LIBOR”
A momentous change has occurred in the world’s capital markets, almost without mention. The setting of the sun on LIBOR was inevitable and will be replaced by SOFR which will become the key benchmark determining the cost of borrowing between global commercial banks. As we explain, this won’t be without potential snags but better to have rates coming from disinterested third parties.
U.S. Equity (Microsoft) – “Activision activism?”
Microsoft wants to acquire videogames developer Activision Blizzard. We unpack the ins and outs and the financials, which for Microsoft at least look favourable. But there is a catch and no certainty this will be completed as envisaged.
The Macro View (Chinese economy) – “A Vintage Year for Xi?”
Latest GDP numbers out of China give little clue as to how China will do in 2022 but in a year that the 20th National Party Congress is being held for President Xi Jinping failure isn’t an option, headwinds notwithstanding. In this latest analysis of the Chinese economy, we discuss the factors at play investors need to consider.
The Macro View (monetary policy) – “The Fed’s last stand, or not?”
The Fed has been politicised into a monetary policy U-turn, stepping on the brake to shift interest rates higher and turn around the super tanker. But the process of balance sheet reduction is tricky. We quantify the sheer scale and pose key questions that market participants may wish to ponder.
U.S. Equity (Alibaba Group) – “Ecommerce bargain”
Ecommerce behemoth Alibaba will report Q3 results early February. Whilst we expect a solid performance the run rate on earnings growth is slowing as the Group reinvests. The balance sheet is prodigious. We highlight our expectations for the quarter and the earnings outlook through F2024. An improvement in sentiment on the macro front would be a stimulant for a rerating.
The Macro View (bonds) – “Bond-doggle”
We expect the U.S. yield curve to get much flatter over the next six to nine months. Inflation is less of an issue than most think whilst nobody, not even China, is putting up a hand to be the global economic locomotive. On a theme we’ve addressed from time to time we explain further and bring in an ocean analogy.
U.S. Equity (Sea Limited) – “Tencent takes a dip in the Sea!”
Tencent is the largest shareholder in digital entertainment, e-commerce and digital financial services group Sea. It has sold down in a block trade to 18.7% arising from a corporate action applicable to Sea announced this week. The share price of Sea, indeed Tencent, has had a torrid time of late. Are there overhang implications for the remaining Tencent stake in Sea? Is Sea, operating in seven Southeast Asian countries, offering value?
The Macro View (foreign exchange) – “TRY this for a new wheeze!”
The Turkish lira is a fascinating case study of how not to manage your monetary affairs. Just as you may have thought things couldn’t get crazier, along comes a ‘hard currency’ equivalent scheme. We assess the technical intricacies, and pitfalls. If nothing else, our scenarios will be of practical importance to one’s knowledge of foreign exchange and related matters.
U.S. Securities Strategy – “This time, is it really different?”
As we head to the final trading day of the calendar year the twelve-month trailing and forward price earnings ratios on the S&P 500 index are at elevated levels with the Nasdaq ratios vertiginous. This begs a question, is it different this time? Are old-fashioned principles such as espoused by Benjamin Graham old hat? We discuss.
The Macro View (U.S. financial markets strategy) – “Storm in a teacup or a raging tempest?”
In “Deflated” and “Inflation brouhaha – a storm in a price teacup?” we said panic over inflation was overdone. As we approach the end of 2021, we revisit our take on inflation, looking again at lumber, oil, natural gas and U.S. Treasury yields. The panic on consumer price inflation is overdone. Economic growth expectations too need tempering. Our strategic position is unchanged.
Mining Monitor (Rio Tinto) – “Lithium rush”
Rio Tinto has faced some opposition to the Jadar lithium-borates project in Serbia but undeterred the company is now pressing on with a binding agreement to acquire the Rincon lithium project in Argentina. Being in the battery materials business is essential. The share price is now fairly pitched, having retreated from a 52-week high of over £67.
The Macro View (foreign exchange) – “Turkey – just how negligent?”
Turkey is now experiencing a lethal cocktail of misplaced economic and financial policies, exacerbated by authoritarian politics. To say that the President of that country is negligent is self-evident. But what is the degree of negligence and is there a case to go so far as to deem it to be criminal negligence? We examine the evidence to arrive at a balanced verdict.
The Macro View (U.S. fixed income) – “Putting the squeeze on?”
The fixed income market is a powerful indicator and is signalling to those hoping for a surge in economic growth in the U.S. to think again. The bond market is also sanguine on inflation. The data we present is compelling.
The Macro View (Asset management) – “A South African portfolio review for 2021”
We turn our attention to asset management in the South African context through the Johannesburg Stock Exchange (JSE). A hypothetical composite portfolio of 30 stocks is presented. The hard statistical analysis presents some surprising, and perhaps worrisome, conclusions. The analysis will be helpful in guiding construction of an optimum JSE portfolio for 2022 at lowest possible risk.
U.S. Securities Strategy – “Margin madness?”
In a week in which the real interest rate in the U.S. was the most negative since records began, we now reveal latest data that is even more frightening – record high levels of deposits in margin accounts at U.S. security brokers and dealers, underpinning highly leveraged trades by individuals and hedge funds.
Mining Monitor (BHP) – “Collapsing DLC”
The unification of the London listed PLC/Sydney listed Limited shareholding structure has been approved by the BHP Board. We unpack the intricacies of deal that is likely to get approval from shareholders. An historic price discount between the two has already closed.
The Macro View (risk management) – “A bumpy sleigh ride for December?”
Christmas time and New Year markets can either be calm or gut-wrenching. This year it is the latter across all market categories. The advice? Elevated volatility is the order of the day, exacerbated by extremely poor liquidity conditions, so sit tight and don’t be exposed.
China and Hong Kong Equity – “The Evergrande spillover”
We continue to advise caution on names such as China Evergrande in the property sector as this crisis is far from over. Yet there are listed names that are perfectly good companies, representing an opportunity for new money buyers.
The Macro View (foreign exchange) – “The South African rand, confirming our worst fears?”
We recently warned that a risk-off attitude to South African assets will lead to a sell-off in bonds and corresponding rand weakness. This has happened. We provide additional background analysis in this note.
US Securities Strategy – “Weakness under the surface?”
The US has had COVID-19 infected securities markets this past twenty-one months. We examine latest economic and financial markets data to derive a picture of speculative activity driven in part by cheap money and feverish options market speculation. Our conclusion is that only two outcomes are possible.
The Macro View (foreign exchange) – “The company we keep?”
Lousy autocratic politics makes for lousy poverty inducing economics which makes for a lousy currency, as Russia, Turkey, Argentina and to a certain extent South Africa shows us.
The Macro View (foreign exchange) – “A little late in the day for recognition?”
If you are exposed to the euro there has been relative weakness against both the US dollar and other currencies for some months. As we demonstrate, there are reasons to doubt that changing anytime soon.
Australian equities (Commonwealth Bank) – “Down under?”
There is an overdue correction in Australian bank share prices. Commonwealth Bank is priciest and needs to get a bit cheaper to make it a new money buy again. Earnings growth for the sector will be modest coming out of COVID-19. Dividends are being restored and yields will be even more attractive as share prices recede.
The Macro View (US high yield credit) – “A message from another universe?”
Following on from “Do bonds have an elevated risk antenna?” we continue the theme of divergence from equities, examining in “A message from another universe?” how high yield US credit, like fixed income, is also sharply divergent, explaining why and what the consequences are.
US Equity (inflation and interest rates) – “Get real?”
US annual inflation has just exceeded 6%. We assess the factors at play. The difference between the fed-funds rate and inflation is the largest ever at over minus 5%. Asset prices are also inflating excessively. This can’t end well.
The Macro View (Global Economic Strategy) – “Do you get their drift?”
Chinese military aggression was a spark for the AUKUS nuclear defence pact. Factors such as this have implications for investors too, hence our regular analysis on economic, military and geo-strategic developments. We now look at latest Chinese political and economic developments.
The Macro View (US fixed income) – “Do bonds have an elevated risk antenna?”
Historically, the fixed income market is a conservative yet powerful indicator and is signalling the opposite of an ebullient equity market in the US – we answer pressing questions that will guide your investing risk mitigation strategies.
US Equity (Movie Theatre Stocks) – “Popping more corn”
Those popcorn machines at movie theatres are popping again as attendances and box office takings rise in the US. This is a tricky sector to play. Avoid AMC, IMAX is interesting, but for us, Netflix is hard to beat in the theme.
The Macro View (foreign exchange) – “Is the South African rand vulnerable again?”
A risk-off attitude to South African assets, with chronic financial and governance problems centre stage, is leading to a sell-off in bonds and corresponding rand weakness, as we explain in this note.
ESG Monitor – “Cop out or right on with Australian net zero?”
ESG is one of our criteria in evaluation of stocks. This note assesses the Australian federal government’s net zero plan, ahead of COP26, with buy in by states and territories. A growing percentage of ASX listed companies have clear targets.
The Macro View (Equity and Debt) – “Merchants of financial death?”
Notorious in the 1980s, prosecuted for violating US securities laws, Mr Michael Milken is back to his old ways in outwardly respectable yet potentially dangerous garb – and the weapon is a SPAC.
US Equity (Netflix) – “Road to Roald”
Netflix earnings growth is accelerating sharply, our three-year CAGR is 43%. The stock accelerated sharply from August and is due for a breather but we’re new money buyers into any weakness.
Mining Monitor (South32) – “Big on copper”
At AUD3.85 on the ASX, S32 is on an attractive forward EV/EBITDA ratio of 3.7x. A price below AUD4.00 continues to offer value with the free cash flow yield over 20% at current spot prices.
The Macro View (Military Strategy) – “How would MacArthur have done it?”
For the strategist, despite a seventy-year interlude between two different yet strikingly similar men, Donald Trump, and General Douglas MacArthur, there is geostrategic relevance in these unsettled times.
The Macro View (hedging strategies) – “Tail unhedged”
Following on from “The tail hasn’t been wagging the dog” this update note on protecting your portfolio “Tail unhedged” takes three practical examples of performance for the first three quarters.
US Equity (Albemarle) – “Lightening Lithium”
In the commodity arena, rather than auto makers such as Tesla, Albemarle, SQM, Freeport-McMoRan, Century Aluminium and First Quantum Minerals are securities we’ve previously recommended to investment behind the supply chain in electric vehicles.
The Macro View (Equity and Bonds) – “Have The Byrds turned this season?”
Bond markets are selling off whilst equity markets have taken pause. What are the possible causes? And what are the implications for investors? The data we analyse is ominous.
Global Commodities Strategy – “What a blast”
Prices of commodities such as natural gas, coal, oil and even iron ore have been sending interesting signals of late, and the message isn’t entirely favourable.
The Macro View (foreign exchange) – “G’day, how ya’ goin’, Aussie?”
“Is the rand a dog?” dealt with the South African currency and in “G’day, how ya’ goin’, Aussie?” we switch our attention to another commodity-linked currency, the Australian dollar.
The Macro View (Military Strategy) – “Who is the fifth wheel now?”
AUKUS could be the biggest geo-strategic event since World War Two – it promises to shift the Western centre of gravity in defence from the North Atlantic to the Indo-Pacific.
China & Hong Kong Equity – “Bricks with mortar”
Evergrande’s financials haven’t made for pretty reading for some time. And yet the auditors signed off. Here is yet another lesson that as an investor you should do your own homework.
The Macro View – “Evergrande is Nevergrande”
We analyse the factors that have led to this unfolding property mess and postulate what can be done by Chinese authorities to mitigate the worst of the fallout
ESG Monitor (carbon credits market) – “Carrots and sticks”
Along with natural disasters greenhouse gas emissions are a threat to the planet and economic sustainability. How to incentivise behaviour without killing the goose that lays golden eggs?
ESG Monitor – “An unnatural disaster?”
ESG is one of our criteria in evaluation of stocks. This note highlights how a rising tide of natural disasters has raised risks for companies.
The Macro View (foreign exchange) – “Is the rand a dog?”
The South African rand is going to the dogs? Yes? No? Statistics show how psyche affects pricing in the currency options market, much as general perception does.
Central Banking (SARB) – “A return to normality…? Not yet”
Our analysis of the June 2021 South African Reserve Bank BA900 statistics isolate pertinent line items to derive an interpretation of what they contextually mean, for the economy and commercial banks.
South Africa Banking (Capitec) – “Capital rating”
Capitec is a well-run business, it’ll have a strong result for the year to February 2022. Is it a compelling proposition as a new money investment? Our three-year earnings estimates are adjusted.
The Macro View (Monetary Policy) – “Jaws2”
The TARGET2 jaws effect, which we have revisited, continues to widen and isn’t a vote of confidence in either the eurozone or the euro as a currency.
The Macro View (Sovereign Credit) – “Lagarde McFly?”
The sovereign credit markets in the eurozone are unnaturally compressed. The ECB QE program is creating distortions and artificially suppressing risk. We explain the technicalities.
US Equity (PayPal) – “Sights on Robinhood?”
PayPal could be eyeing a stock trading capability for its users – which means wanting a share of Robinhood Markets’ lunch.
The Macro View (Monetary Policy) – “The scenery in Jackson Hole from afar……”
The Jackson Hole, Wyoming symposium of central bankers was an exercise in avoidance and continues to store up problems for the future.
The Macro View (US Equity Market) – “Robber barons of the 21st Century”
We take forward our analysis of the S&P500, which has 505 constituents of which just 5 lord it over all others – the robber barons of the modern era.
ESG Monitor – “De-fossilising”
ESG is one of our criteria in evaluation of stocks. This note has a specific emphasis on the environmental part, not least for miners
The Macro View – “Deflated!”
In “Inflation brouhaha – a storm in a price teacup?” we said panic over inflation was overdone. This note reviews our calls on lumber, oil and US Treasury yields.
The Macro View (Military spending) – “When a buck is dear”
There are fiscal consequences to military spending that go beyond the annual military budget. If you think war is expensive try keeping the peace. The US is rapidly heading towards imperial overreach.
Mining Monitor (BHP) – “Mia Yellagonga”
Our note “Squaring ESG with petroleum” was prescient in that we postulated a trade sale or demerger from BHP of petroleum assets. This is now happening.
The Macro View (US Equity Market) – “What if the stats don’t lie?”
This note follows on from “Riding another high plateau” and extends that scrutiny to statistical analysis on weekly returns data for the S&P500 index over four decades.
The Macro View (Monetary Policy) – “Where has all the dosh gone?”
Oodles of central bank quantitative easing dosh has done little for the real economy in developed countries.
Mining Monitor (BHP) – “Squaring ESG with petroleum”
Mining company BHP is investing further in its Gulf of Mexico petroleum assets. BHP needs to keep its petroleum resources in tip top shape to command best value for shareholders if it exits petroleum.
The Macro View (US Equity Market) – “Riding another high plateau”
Several meaningful asset valuation indicators referenced to US economic and financial circumstances are elevated beyond precedent this past century.
The Macro View (Bonds) – “Those were the days, my friend”
In allocating capital, fixed income is the trickiest part of the capital market to be. Lower, or lower still for longer, is our best bet for the rest of 2021.
Mining Monitor (BHP) – “BHP’s Nickel for Mr Musk”
The 2021 Diggers & Dealers Mining Forum has just wrapped up its 30th conference in Kalgoorlie, Western Australia. For BHP, nickel was the featured topic at the forum.
The Macro View – “Robinhood – democratisation or shakedown?”
Robinhood Markets Inc has just listed on the Nasdaq Global Select Market under the symbol “HOOD.” The company professes democratisation of investing in the ‘hood.
The Macro View – “Gold isn’t half bad”
Gold, that barbarous relic, is faced with impossible demands or expectations that it can’t possibly fulfil all at once and yet there remains an enduring fascination, be that for jewellery or as an investment asset class.
Prosus/Naspers – “Delusions of grandeur?”
There’s been a school of thought, probably the dominant one, at least in South Africa, for some years, that Naspers was a “cheap” entry into Tencent.
The Macro View – “When pledge isn’t a polish”
Pledging high-quality assets as collateral when undertaking financial transactions is the bedrock of a modern financial system.
The Macro View – “Roll out the barrel”
Retail investors can take a leaf out of the books of some sovereign wealth funds, typically state-owned asset managers investing on behalf of nations.
US Equity (Netflix) – “Game on”
The stock is off after release of the Q2 results and probably because of the usual subscriber effect. But that is fine as we have had fair value of $500 or below for a while.
Global Commodities Strategy (Oil) – “Oily”
Investors exposed to oil-linked majors such as ExxonMobil and Chevron will be questioning what impact the latest OPEC+ moves on production will potentially have.
The Macro View – “Cryptic Crypto”
Cryptocurrencies are the in-thing, so topical they are edging out stalwarts like the US dollar or the Japanese yen. Even learned (we assume) financial journals are in on the gig.
US Securities Strategy (banks) – “Release me a provision”
Q2 results from Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup are strong and largely mirroring the stellar bounce back in the US economy.
Macro View – “The tail hasn’t been wagging the dog”
Real world example of how professional hedging protects your portfolio from potentially catastrophic collapse.
The Macro View – “Inflation brouhaha – a storm in a price teacup?”
Recent panic over inflation rearing its head in developed economies seems to be overdone but volatility does point to doubt in certain quarters.
US Securities Strategy – “Give us a rev”
Those who’ve come though the COVID-19 infected securities markets this past eighteen months with some semblance of sanity (us included) can’t book that sun lounger vacation just yet.
The Macro View – “Wild ride”
Whilst the share price of Barrick Gold has outperformed gold future over our chosen period the ride has been a volatile one.
“Shapely gold” reviewed the relative
US equity markets and US economy – “There’s a coach comin’ in, hear those wheels spin”
US company profits could rise by at least 27% in 2021 supported by a bigger than expected rise in real US GDP and the operating leverage that comes with higher capacity utilisation.
The Macro View – “NOPE, you can make money out of volatility”
The GameStop trader could own call options at the very level that the Net Option Pricing Effect is rising and short put options at the very level that the ‘NOPE’ is falling.
Alibaba – “Slap”
Our model references Alibaba to Tencent and on this basis we have fair value based on an exit PE of HK$265 with a twelve-month rolling forward value of HK$372 on a roiling exit PE ratio of 30x.
The Macro View – “Is there an attachment point for equities?”
The bond markets are sending a signal for equities – and down is the word. Stellar returns in equity, commodities and government bonds are a 2020 story.
The Macro View – “Archegos goes down, banks blow themselves up
The mechanics of the ViacomCBS trade isn’t particularly complex but greed over prudence is where the breakdown comes into a dangerous lose-lose situation.
The Macro View – “Is GameStop a bathtub drain?”
The GameStop saga continues and this latest example of options market activity underscores how speculative this trade can be.Our recent note “Stop the Game – I want to get off”
Equity and Credit Markets – “Rate accelerator”
Equity and debt markets are closely linked. The bond markets are signalling that rates are too low, and we’ve observed a large move in a short period.
Sasol – “A fifteen-year gulf”
Headline EPS was flattered in the first half by significant non-cash items, being unrealised gains caused by FX on translation and financial instruments and derivatives.
Mining Monitor – “Lithium’s Tesla disconnect”
Industrial commodity prices have been on a run but in the case of lithium, nickel and copper, prices aren’t keeping track with the share price of electric vehicle maker Tesla, which has gone crazy.
“Saxo’s outrageous predictions for 2021 and our take”
Date Published12 January 2021Article Posted byMark N InghamEquity and Credit Markets:Equity, Bond...