We thought we had it all figured out before this week started.We were wrong.
The top minds in the investment business offered some novel analysis, broke conventional wisdom, and even opened our eyes to some misperceptions.
This particular week, we learned there may be a simple explanation why the Baltic Dry Index is getting crushed, 2013 may be the real year to be worried about, and that one fact refutes the idea of a Chinese real estate bubble.
What follows are excerpts from such stories this week. All of the important stuff you might have missed this week, right here.
'US Global Investors CEO Frank Holmes made the case that the huge beneficiaries of China's infrastructure boom would be the various retailers and restaurants that popped up alongside. As he noted, Dairy Queen was a creation of the US highway spending boom. So in China, countries like Yum, Starbucks, and McDonald's could be big winners.'
'...Basil Karatzas, the chief executive of Karatzas Marine Advisors, a ship brokerage and finance advisory firm in Manhattan, estimated that European banks hold about $500 billion in shipping loans on their books and face nearly $100 billion in losses to restructure them...'
'...With 34% of market cap reporting, we calculate a Q4 2011 bottom-up S&P 500 EPS estimate of
$24.09 vs. our $24.00. The final figure should be fairly close to our number. Even after Apple's large upside surprise added ~$0.37, the bottom-up estimate is lower than at the start of earnings season ($24.26 on Jan 9). The EPS surprise ratio is much weaker than Q3, with more companies missing than beating estimates...'
'...according to The Economist's chart of the day, the Year of the Dragon is historically a pretty great year for stocks. Since 1900, the Dow Jones Industrial Average has generated an average 7.7% real return during this particular period. And this isn't totally without some fundamental basis. Many people, particularly in China, are expected to marry, buy houses, and have children just so that they can say it all happened during the Year of the Dragon.'
'...Robin Farley of UBS says channel checks show one week past the accident ticket prices remain 40 basis points higher week-on-week. 'What is even more surprising is that average ticket prices increased since the start of the year for almost every brand that we survey, including Costa,' Farley says...'
'...The Fed has traded a policy of signaling commitment on rates through a formal vote for an arithmetic compilation of opinions about the path of policy. True, this will be an informed set of opinions coming from the highest Fed officials, but the Fed will now have a more flexible, but weaker, commitment device. To the extent that the new presentation draws attention to minority views, that commitment value will be weakened even more...'
'...Perhaps most importantly, the long-awaited recovery in the housing sector has finally started. Housing starts in the fourth quarter hit the highest level since late 2008 and were up at a 32% annual rate compared to Q2. This was not all apartment buildings; single-family housing was up at a 13% annual rate in the second half of 2011...'
'...While I'm not surprised that tonnage increased in December, I am surprised at the magnitude of the gain,
'Official Chinese estimates now show that just over 50 pct of the population is urbanized. Based on most people's estimates, including work I have been involved in, it is likely to move to 70 pct before one can assume China is urbanized. This involves around another 200 million people moving into cities. Quite how there is supposed to be a nationwide house price bubble with this prospect ahead I have no idea, but many don't seem to appreciate this.'
'...Let's think about this: if earnings are revised down at the same rate the stock price falls, then the PE ratio should stay unchanged. However, there is a positive correlation between earnings and PEs, not price. If you have a basic understanding of maths, then you will realise that this means prices must move at a faster rate than earnings in order for the PE to move...'
'According to its World Economic Outlook report, the IMF forecasts global GDP growth of 3.3% in 2012 and 3.9% in 2013. This compares to its previous forecast of 4% and 4.5%, respectively. The organisation now expects the euro area to contract 0.5%, versus a previous call for 1.1% expansion. ... The good news: U.S. growth estimates were unchanged at 1.8%.'
'With respect to the decline in exports to Asia, China appears to have switched to a more accommodative monetary policy stance (with a cut in the bank reserve requirement ratio), but we think it will be some time yet before real demand recovers. Meanwhile, exports to the US turned positive, +2.3% yoy after three months of decline, reflecting steady underlying demand in the US towards the year-end.'
'...According to the Chicago Booth/Kellogg School Financial Trust Index (h/t WSJ's Sudeep Reddy), only 23% of Americans trust the financial system. And 62% are either 'angry' or very 'angry' about the state of the economy...'
'...Joseph Granville, whose 'sell everything' call in 1981 sparked a decline in U.S. stocks, said the Dow Jones Industrial Average (INDU) will drop toward 8,000 this year because of waning momentum and volume. 'Volume precedes prices,' Granville, 88, a technical analyst who has been publishing the Granville Market Letter from Kansas City, Missouri for about 50 years, said in an interview on 'Street Smart' on Bloomberg Television. 'You are seeing much lower volume. That tells you that prices are going to go much lower, much lower than most people think possible and very few people have projected.' ...'
'...At a conference yesterday, Peter Orszag cited the combo of expiring tax cuts, mandatory spending cuts, and another debt ceiling fight early in 2013 as something of a perfect storm that could slam the US economy. Speaking at the World Economic Forum yesterday, WPP Chief Martin Sorrell also said he was worried about 2013, when US austerity kicks in...'
'..Back on the 19th, we pointed out that markets could be summarized in basically 3 words this year: Dash For Trash. We were reminded of this by an article in The Daily News Egypt which points out that the Egyptian stock market rose a whopping 7.2% following a peaceful anniversary of the January 25th uprising that saw Mubarak removed from power last year...'
'...As he sees it, the world faces one of the most dangerous periods of modern history--a period of 'evil.' Europe is confronting a descent into chaos and conflict. In America he predicts riots on the streets that will lead to a brutal clampdown that will dramatically curtail civil liberties. The global economic system could even collapse altogether...'