Stocktake

US earnings not looking good:US EARNINGS season begins this week and expectations aren't high with analysts forecasting the first year-on-year decline since the third quarter of 2009.

Last week, Hewlett Packard shares hit a nine-year low after it issued a profit warning. It’s not alone in doing so. On average, there are 2.4 negative pre-announcements for every firm that guides higher; this quarter, the figure is 4.3. That’s the highest pre-announcement rate in 11 years and that immediately preceded the “2000-01 tech-wreck recession”, notes research outfit Strategas.

Financial wisdom turned on its head

THE latest monthly letter from Niels Jensen of Absolute Return Partners is, as always, packed full of research gems, including:

GDP is irrelevant when investing – 99 per cent of the variability in equity returns is associated with factors other than GDP changes;

$50 billion of the $70 billion of net inflows to the hedge fund industry in 2011 went to funds with more than $5 billion under management – a “staggering” statistic considering smaller managers “consistently outperform their larger peers”;

The average holding period for US stocks is about 22 seconds;

Société Générale research shows that, since 1970, more than 80 per cent of European equity returns have been due to dividends and dividend growth.

“Buying the lowest P/E stocks is not necessarily a winning strategy whereas buying the overall market when it is cheap very much is.”

Look down under for a new bubble

GLOBAL Finance magazine last week ranked the world’s 50 safest banks. Bubble watchers might be surprised that Australia’s four main banks rank 12th, 13th, 14th and 21st respectively. Last May, Société Générale described Australia as a “credit bubble built upon a commodity boom dependent for its sustenance on an even greater credit bubble in China”. More recently, UK research firm Variant Perception warned that Australia’s banking system is “highly reliant on external funding and will likely become dependent on the RBA (Reserve Bank of Australia) for liquidity in the near future”, citing a slowdown in China and the Australian housing market.

The bank rankings indicate the bears are overstating things. Unless Global Finance’s criteria are imperfect. Note that in 2007 Citigroup, RBS and Dexia were supposedly the 11th, 12th and 13th safest banks in the world, with Bank of America, HBOS and Fortis also making the top 50 list.

‘Sell in May and go away’ still holds

ALL US stock market gains over the past 60 years have come during the November-April period. A new paper – The Halloween Effect: Everywhere and All the Time – shows it’s a global phenomenon.

November-April returns exceed May-October in 81 out of 108 countries. Only two countries had significantly higher returns in May-October. More than 55,000 monthly observations over 319 years show winter returns are 4.52 per cent higher than summer ones, the pattern is particularly strong in western European countries. In the UK, this trading strategy beat "buy and hold" over 80 per cent of five-year horizons and 90 per cent of 10-year horizons. The differential has strengthened to 6.25 per cent in the past 50 years. See iti.ms/T58XRR

Billionaires bitch about Obama

BILLIONAIRE financiers can be a strange bunch. Last week, a New Yorker piece asked why they feel “victimised” by President Obama. One hedge fund chief suggested the industry needed a “community organiser” to cope with White House “bullying”.

Since March 2009, US indices have more than doubled. In the past year, the six largest US banks earned $63 billion – the biggest total since 2006 – and are projected to earn $75 billion next year. One can only wonder what kind of rhetoric the billionaires would employ in tougher times.