Research
Strategic Equity Allocation Insights
8/19/2020
The ‘Buffett Indicator’ defined as [Total Stock Market Capitalization/Gross Domestic Product] in the U.S. is at record high; 2020 YTD average at levels just prior to bursting of the dot-com bubble. However, given the exogenous Covid-related GDP shock, it can be argued that the denominator will soon increase and bring the ratio back to a more normal level. What is more meaningful is to see trends in ‘U.S share of Global GDP’ and ‘U.S share of Global Stock Market Capitalization’ over time……my analysis below indicates a high probability of international equities out-performing U.S. equities in the coming decade; key implications for strategic asset allocation
#AssetAllocation, #Equities, #Markets
Signs Of Global Recovery
8/5/2020
Global manufacturing back in expansion, more than half the world in expansion now, along with high frequency indicators from the NY Fed indicate tailwinds to an U.S recovery.
#Economy, #Markets, #EconomicRecovery
ESG and Resilience in Corporate Performance
8/3/2020
ESG investing, stakeholder capitalism, economic intuition (that which makes a company operationally succeed, in turn makes it a potential for equity investment or credit lending) – I have always written that they are different names for the same thing. The results of the statistical model by Drucker Institute proves this point yet again. Companies that proved to be more “resilient” in the Covid 19 recession and needed to have fewer layoffs to stay efficient were those that scored better across the five dimensions of customer satisfaction, employee engagement & development, innovation, social responsibility and financial strength in their model. In the Drucker 100 best firms, 8% had layoffs versus 15.6% of S&P 500 companies.
Background to the Drucker model: The correlations between each of these five dimensions (financial strength, customer satisfaction, employee engagement & development, innovation, social responsibility) and the measure of overall effectiveness was remarkably high (range of 51% - 83%). Companies in Drucker 100 scored at least 7 points higher on average than in S&P 500, across all five categories.
#ESG, #StakeholderCapitalism
References: (a) Wall Street Journal, What Sets Some Companies Apart in the Current Crisis, August 3, 2020 (b) Drucker Institute, A Fresh Cut at the Numbers, Issue #2, January 2019
From Income Inequality to 10-Year U.S Treasury Yield
7/21/2020
The issue of inequality in the U.S. is increasingly being discussed, given the recent social unrest. However, inequality is an issue with tremendous impact on the macroeconomy and financial markets. Below is a simplified analysis I did of the transmission channel from Income Inequality to 10-year Treasury yield (the foundation of financial markets).