The Fruits Of Production
Izzy Kaminska has an interesting article on Michael Masters, who argued to the Senate back in 2008 as oil prices were spiking above $100 per barrel that “a new class of investor — one he dubbed the passive ‘index speculator’ — had bulldozed his way into the market and distorted the usual price discovery process.” Furthermore, “fiduciary agents never really understood what they were buying — from the cost of contango rolls and futures management fees to the feedback loops associated with buying fruits of production rather than means…’Historically, capital markets have been about the means of production not the fruits. But they look at [commodities] as a pseudo currency.’” Meanwhile, Ed Yardeni says he expects the dollar to stop soaring once oil bottoms out. But remember, we’re talking about correlation. “In the past, there was a close correlation between the price of oil and the Emerging Markets MSCI stock price index in local currencies. That hasn’t been the case over the past year. The relative strength of the EM MSCI suggests that the drop in oil prices reflects excess supply rather than significant weakness in demand attributable to slowing global economic growth.” Meanwhile, Brent oil has shot up 14% to $56 over the last couple of days…
Energy On One Side, Apple On The Other
Goldman Sachs is expecting “the first overall drop in capex spending for S&P 500 companies since 2009…’Energy accounts for 33% of S&P 500 capex and should fall by 25% in 2015’…It still expects dividend growth of 7%, and says sectors outside of energy are still increasing capex, which should help support the economy.” Meanwhile, all hail the United States of Apple: “Apple is now the biggest contributor to earnings growth for the S&P 500 at the company level for the fourth quarter. Ex-Apple, the blended earnings growth rate for the S&P 500 for fourth quarter 2014 would slump from 2.1% all the way to 0.3%.”
The Current Risk-Free Rate In Europe Is “Give Me Your Money”
German 10 year debt is now trading at a lower yield than Japanese 10 year debt. Also, “Draghi’s negative yield vortex” is setting its sights on corporate bonds (Nestle and Roche may go first). “If investors want to park some cash, the problem with putting it in a bank or money market fund is potential negative returns, because of the negative deposit rate policy of the ECB.” Meanwhile, European investors in the S&P 500 earned 7% more than US investors in the S&P 500 last month: “If the Euro continues to weaken relative to the dollar, European investors will be more attracted to U.S. investments than they would be otherwise, and similarly U.S. investors will have an incentive not to direct funds to Europe.”
“Greece’s radical new government revealed proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders.” Meanwhile, it looks like “Troika” won’t be a word we get to use for much longer.