“There are two reasonable responses to news of the US economy’s dismal 0.1 per cent annualised growth in the first quarter of 2014: either panic, or else curse the vagaries of economic data, and wait for revisions to straighten out the rather jumbled numbers.” Here are 5 takeaways (alt): 1) “almost every area of weakness could be chalked up to weather” (but the Weather card is no longer a reasonable excuse going forward), 2) revisions to this GDP number and a Q2 rebound seem highly likely, 3) thanks to Obamacare, higher healthcare spending contributed about 1.1% to the GDP number, 4) this part of the GDP calculation (healthcare spending) may be susceptible to future revision, and 5) “this is more consistent with another year of mediocre 2 per cent growth, than the forecast acceleration towards 3 per cent.” Meanwhile, here is a closer look at the individual components of GDP and how they compare to other recessions. While “this type of exercise is tricky because all of these components are a function of the other ones…the mystery of weak GDP growth over the past 6 years is closely related to consumption, particularly consumption of services and non-durable goods.” Meanwhile, “one out of three Americans now live in a housing market where rent for a three-bedroom home eats up more than 30% of the monthly median income, the traditional threshold for affordability.” Renters in the Bronx spend “nearly 66% of their monthly income to rent a three-bedroom house — by far the highest percentage of any U.S. county…Renters in Philadelphia, Brooklyn, Baltimore and Miami are paying nearly 50% of their income toward rent.” Also, “the logistics industry has a recruiting problem. It’s huge, making up 8.5% of GDP, and growing fast. But to most job seekers, it’s misunderstood — or invisible…’I think the challenge we have is the same as for lots of manufacturing companies…How do you communicate to college kids that this stuff is cool?’”
Active Managers: Bloated Funds Require Nimble Feet
New research suggests that the growing size of the (actively) managed-fund industry has made it more difficult for individual managers to outperform their benchmark. “The effect of greater (management) skill is being offset by the fact that there is more money being managed.” Some reasons for this could be 1) “as the industry grows, more stocks receive heavy scrutiny, so there is less chance a fund manager can find mispriced gems,” 2) “big funds have to invest in stocks of big companies…therefore miss out on the small-stock gems that offer benchmark-beating performance,” and 3) “big buy orders enhance demand enough to raise the stock’s price, so that the same fund’s subsequent purchases of that stock aren’t such good bargains.” Meanwhile, as more companies pile into M&A deals to “boost their competitive position instead of waiting years for capital expenditure to yield rewards,” investors may want to shift their attention to “companies that have hard-to-replicate activities or unique geographical reach and which sit beside cash-rich peers in the same sector.” Furthermore, “a wave of value-creating mergers ought to buoy markets. But for stock-pickers seeking outperformance, it calls for nimble feet.” Speaking of which, even stock-pickers are realizing that their bread and butter strategy is not in vogue right now.
It’s officially been one month since the sales tax increase in Japan; the second (third?) arrow in Shinzo Abe’s Quiver Of
Fortune Inflation Destiny. Abenomics doesn’t appear to be having a great effect on consumer confidence, and April manufacturing activity saw a dramatic fall in output and deterioration in new orders. Expect to hear more about Abenomics and the sales tax in the coming weeks…
“Medium-sized European companies [are] keen to ramp up capital spending, and mergers and acquisitions are picking up. And they have to refinance trillions of euros in existing loans. But with bank lending tight, they’ll have to look hard for funds…Corporate lending remains low down on European banks’ lists of priorities [and] as a result, corporates will have to start to broadening [sic] their funding horizons…’Private placement markets for European issuers have grown in recent years…but these are not always the answer for midsize companies.’”