“A group of 24 [momentum stocks] compiled by Credit Suisse has lost $63 billion in market value, or almost 19 percent, so far in March…while it all stands as a warning to those who joined crowded trades in richly priced stocks, it is good news…for investors who spend their time searching for unrecognized gems trading at bargain-basement levels. It also indicates that the investing world may be returning to more normal rules, that includes sharper assessments of the risk in different sectors.” Josh Brown believes “the best way to gauge general risk appetite is to look at momentum sectors.” Meanwhile, “America’s profit-margin miracle (alt) has gone on for so long that rather than cheering it on, investors might want to ask what companies are actually doing to keep it going.” Profits as a share of GDP in Q4 “hit a new record of 11.1%.” Average corporate profits as a share of GDP in the 90s was 5.4%. The problem with the profit-margin expansion is what companies are doing to achieve it (e.g. slashing jobs, not raising wages, low capital spending, relying on low interest rates and low taxes). “Barring an unforeseen surge in economic growth, meeting Wall Street’s piqued expectations will tempt companies to continue underinvesting. Ultimately, though, that leads to deteriorating sales — making it even harder to preserve profits.” Here’s something to consider: “The S&P 500 cash mountain is more like the Matterhorn than Mount Rushmore; all of the growth in cash (for some companies) is overseas.” This may have something to do with the fact that cash deemed to be held indefinitely overseas for reinvestment will avoid deferred tax liabilities and, therefore, drive cash and book tax rates lower. Furthermore, some companies (including Amazon) appear to have higher retained foreign profits than their reported foreign income, which “might be due to a mix of profitable and unprofitable foreign subs throwing this ratio out of whack or it might signal some serious profit shifting.” Meanwhile, Facebook is building drones, lasers and satellites “to beam Internet to people from the sky.” Also, expect the surge in temp jobs to continue.
Total, a major French utility conglomerate, is saddling up with Lukoil, “the largest private energy company in Russia,” to “co-operate on the production of ‘difficult oil’ in Russia…the talks highlight the desire among some international companies to continue doing business in Russia despite the deteriorating political relations. On Wednesday, Joe Kaeser, the chief executive of Siemens, met president Vladimir Putin in Moscow and promised to continue the German company’s investments in Russia and its co-operation with Gazprom.” Furthermore, “Western oil companies have rushed to join forces with Russian groups to take advantage of tax breaks for so-called ‘difficult oil’ projects, which came into effect in September. Rosneft has joint ventures with ExxonMobil and Statoil, while Gazprom Neft, the oil subsidiary of Gazprom, has a tie-up with Royal Dutch Shell.”
The battle between Turkish Prime Minister Tayyip Erdogan and “his political enemies, particularly a Turkish Islamic cleric based in the United States,” has reached a new low (high?): someone anonymously leaked “a recording of top security officials discussing possible military action in Syria to the video-sharing site YouTube. Turkish authorities ordered the shutdown of the site.”
“The lawsuit cites emails from the bank’s employees expressing concern about the quality of the mortgages underling [sic] the securities, including one employee who wrote that some mortgages were ‘like a fat kid in dodge ball, these need to stay on the sidelines.’”
“I don’t know if it’s life imitating art or art imitating life [but] it offends my sensibilities.” said Senator Pinsky (D-MD), doing his best impersonation of Frank Underwood.