Mr Blonde, I think your work is some of the most valuable out there, and very actionable! I'm also big fan of gathering statistics to make decisions on risk reward and implementation. I was wondering do you generate the data in you tables automatically and if so what programs you are using for your statistics gathering as I'm not a programming specialist. thx a lot for all you do
there are certainly ways to aggregate in a programmatic way, but i aggregate/summarize data the old fashioned way and use excel. i prefer to “see” the data and getting my hands dirty.
Thanks a lot for your comment. Wow, that's quite a lot of work right. Not even rules for price data for calculating drawdown from a top( specified as max level in price in the past?)
Another great read and once again spot on and ahead of the next turning point of this market. Do you happen to know of an ETF that sort of tracks the high quality growth stocks? Something similar to Goldman's GSXUCOMP
thanks for the feedback Robert. unfortunately no, i have not found a good ETF that properly encompasses the view. its an excellent idea for an ETF provider out there though. i wrote a note last year on growth compounders that might give you some ideas and considerations for how to implement.
for me, i just buy 20-30 stocks that fall in the bucket and i'm mindful of my sizing and sector exposure amongst this group as we move through the cycle...so sometimes it has more tech/growth and other times more defensives and value tilt....but always made up of stable, high profitable companies across multiple sectors.
Thanks for the detailed response and the other report. Another great read and yes some ETF provider should really consider this. I think this strategy has a very solid foundation and is a great addition to most portfolios. There is obviously the QUAL etf that tracks the MSCI Qalutiy index you mention in that arricle and I came across this guy: QGRO (https://www.morningstar.com/etfs/arcx/qgro/quote) but the overlap seems too small and definitley better to implement it with 20-30 stocks as you suggested.
"wrong" might be too strong a word. just eyeballing here, but the order by group looks right. perhaps difference in sources, mine from factset estimates. just guessing....consumer services (i.e. hotels, restaurants, leisure) is the only big difference and likely results from 1Q22 difference...factset shows negative net income.
Great work, really enjoyed this piece. Question - you mentioned in your “growing but slowing” article you’d do a deep dive into the Macro Growth Composite and each of its components. Are you still planning to do so? Would be really interested to learn more.
Thank you for posting I always enjoy your approach Mr Blonde. One topic on my mind in addition the rate hikes and growth slowing is Quantitative Tightening and it’s impact on equity markets. Do you consider QT as additional rate hikes and/or what are your thoughts on the QT/Liquidity drain and impact for the remainder of 22....thanks as always.
QT is definitely form of tightening...you can see it in wu-xia shadow policy rate, but also within market returns...where risk adjusted returns substantially lower during periods of flat/falling balance sheet.
Excellent article as always. Tend to agree with most of what you have said, but feel inflation may stick around for even longer. Job market is tight so wages are high savings are being drained. Both mean consumers can chase inflation higher. Interested to see what happens if and when oil stocks turn in late 2022 early 2023. What is SPY ytd ex energy!
will give you an honest answer…i don’t know. part of it is i don’t spend as much time on secular views as i do cyclical time horizon. the quality of energy stocks has clearly improved given capex discipline resulting in big FCF production. but oil is still an asset that is sensitive to economic demand/activity and so the group still carries an amount of cyclical exposure that makes structural bull markets less likely…assuming structural bull means multi year uptrend without 20% pullback.
For us to keep rallying I believe we need something to rally off of, so far the one signal I see is CPI print coming in lower then expected. That said I agree that we have reached the end of this bear rally and more downside is to be expected. Once again great informative post, appreciate you sharing this information.
we had a nice bounce in risk...maybe it has a little more to go, but my growth leading indicators are so bad i don't see the case for chasing risk higher. and while i think y/y inflation has peaked...i also think the trajectory of that peak might not be that sharp at first and could take time to develop.
so i like walking away rather than running away from risk here and have an eye towards adding shorts and/or reducing risk on up moves from here
the fair value approach i use is clearly articulated in the table. NTM EPS / (bbb yield + 5y avg div yield). similar but sharper approach to earnings yield vs 10y yield valuation framework
What's the intuition behind adding the dividend yield to cost of capital? Just that current investors 'expect' that dividend coupon out of net income, so treating the dividend closer to a bond coupon?
These fair values of 3400-3600 are based on current Bloomberg estimates right? So to the extent those are revised down, these fair values are going to be moving along with them. Reality could be another 10-15% south of 227?
the table provides “fair value” at different eps and rate levels. but yes, if eps is lowered it acts as stiff headwind to price fairvalue unless rates or credit spreads much lower
Mr Blonde, I think your work is some of the most valuable out there, and very actionable! I'm also big fan of gathering statistics to make decisions on risk reward and implementation. I was wondering do you generate the data in you tables automatically and if so what programs you are using for your statistics gathering as I'm not a programming specialist. thx a lot for all you do
thanks arno, appreciate the feedback.
there are certainly ways to aggregate in a programmatic way, but i aggregate/summarize data the old fashioned way and use excel. i prefer to “see” the data and getting my hands dirty.
Thanks a lot for your comment. Wow, that's quite a lot of work right. Not even rules for price data for calculating drawdown from a top( specified as max level in price in the past?)
Thanks a lot again
calc that in excel too
Nailed it!
thanks for the feedback madoka!!
Cheers Mr B, always enjoy reading your thoughts. Great call on the mini market rally we've had. Bravo 🙌
Another great read and once again spot on and ahead of the next turning point of this market. Do you happen to know of an ETF that sort of tracks the high quality growth stocks? Something similar to Goldman's GSXUCOMP
thanks for the feedback Robert. unfortunately no, i have not found a good ETF that properly encompasses the view. its an excellent idea for an ETF provider out there though. i wrote a note last year on growth compounders that might give you some ideas and considerations for how to implement.
for me, i just buy 20-30 stocks that fall in the bucket and i'm mindful of my sizing and sector exposure amongst this group as we move through the cycle...so sometimes it has more tech/growth and other times more defensives and value tilt....but always made up of stable, high profitable companies across multiple sectors.
https://stuckinthemiddle.substack.com/p/compounding-quality?s=w
Thanks for the detailed response and the other report. Another great read and yes some ETF provider should really consider this. I think this strategy has a very solid foundation and is a great addition to most portfolios. There is obviously the QUAL etf that tracks the MSCI Qalutiy index you mention in that arricle and I came across this guy: QGRO (https://www.morningstar.com/etfs/arcx/qgro/quote) but the overlap seems too small and definitley better to implement it with 20-30 stocks as you suggested.
Thanks Mr. Blonde. I just replicated 2h'22 eps expectations by sector - I think there is something wrong in your calcs.
2H 2022 vs.
GICS 2 Industry Group 1H 2022
Consumer Services 289%
Transportation 46%
Consumer Durables & Apparel 42%
Household & Personal Products 30%
Technology Hardware & Equipment 24%
Capital Goods 20%
Media & Entertainment 17%
Semiconductors 13%
Automobiles & Components 13%
Software & Services 12%
Banks 9%
Retailing 9%
Commercial & Professional Services 6%
Real Estate 5%
Energy 5%
Diversified Financials 4%
Food & Staples Retailing 3%
Food Beverage & Tobacco 2%
Insurance 2%
Utilities 1%
Pharma Biotechnology & Life Sciences -2%
Materials -4%
Health Care Equipment & Services -5%
Telecommunication Services -5%
"wrong" might be too strong a word. just eyeballing here, but the order by group looks right. perhaps difference in sources, mine from factset estimates. just guessing....consumer services (i.e. hotels, restaurants, leisure) is the only big difference and likely results from 1Q22 difference...factset shows negative net income.
Sure, maybe too strong of a word. Most numbers look similar, retail was the big outlier. Consumer Services includes restaurants, hotels, etc.
i'd guess it's related to AMZN EPS and how whatever database you are using treats RIVN stake which has created alot of EPS volatility.
yes, consumer services and hotels/restaurants/leisure are the same groups....i just didn't change the name from the old GICS naming.
Got it, probably should strip out some of the outliers either way (you or me) - scary how much it can change the data
Great stuff as always! Thank you for sharing Bro!
Great work, really enjoyed this piece. Question - you mentioned in your “growing but slowing” article you’d do a deep dive into the Macro Growth Composite and each of its components. Are you still planning to do so? Would be really interested to learn more.
yes thanks for the reminder, i owe that to you guys
Thank you for posting I always enjoy your approach Mr Blonde. One topic on my mind in addition the rate hikes and growth slowing is Quantitative Tightening and it’s impact on equity markets. Do you consider QT as additional rate hikes and/or what are your thoughts on the QT/Liquidity drain and impact for the remainder of 22....thanks as always.
QT is definitely form of tightening...you can see it in wu-xia shadow policy rate, but also within market returns...where risk adjusted returns substantially lower during periods of flat/falling balance sheet.
https://twitter.com/MrBlonde_macro/status/1511804242767462402?s=20&t=9g8mPyBvDxqgA2quwEJ6GA
Great stuff as always! One typo “ which Mr. Blonde has favored since 3Q22” - would be amazing predicting since the future! Thanks for post!
one forecast too many, thx for flagging
Excellent article as always. Tend to agree with most of what you have said, but feel inflation may stick around for even longer. Job market is tight so wages are high savings are being drained. Both mean consumers can chase inflation higher. Interested to see what happens if and when oil stocks turn in late 2022 early 2023. What is SPY ytd ex energy!
SPY ex energy YTD is -15.3% vs. SPY -13.3%
Even if energy pulls back a bit due to demand destruction (price or recession) are you in the energy is in a structural bull market camp?
will give you an honest answer…i don’t know. part of it is i don’t spend as much time on secular views as i do cyclical time horizon. the quality of energy stocks has clearly improved given capex discipline resulting in big FCF production. but oil is still an asset that is sensitive to economic demand/activity and so the group still carries an amount of cyclical exposure that makes structural bull markets less likely…assuming structural bull means multi year uptrend without 20% pullback.
Thank you for taking the time to reply and giving me your point of view
For us to keep rallying I believe we need something to rally off of, so far the one signal I see is CPI print coming in lower then expected. That said I agree that we have reached the end of this bear rally and more downside is to be expected. Once again great informative post, appreciate you sharing this information.
we had a nice bounce in risk...maybe it has a little more to go, but my growth leading indicators are so bad i don't see the case for chasing risk higher. and while i think y/y inflation has peaked...i also think the trajectory of that peak might not be that sharp at first and could take time to develop.
so i like walking away rather than running away from risk here and have an eye towards adding shorts and/or reducing risk on up moves from here
Fascinating stuff, thank you for sharing
Hi - is the fair value model you talk about something proprietary? Thanks
the fair value approach i use is clearly articulated in the table. NTM EPS / (bbb yield + 5y avg div yield). similar but sharper approach to earnings yield vs 10y yield valuation framework
What's the intuition behind adding the dividend yield to cost of capital? Just that current investors 'expect' that dividend coupon out of net income, so treating the dividend closer to a bond coupon?
the rationale is that dividend yield equals cost of equity, add to that the cost of debt and you have the cost of capital.
this is exactly right. its better than using US 10yr yield which represents a rate that exactly 0 companies actually borrow at.
These fair values of 3400-3600 are based on current Bloomberg estimates right? So to the extent those are revised down, these fair values are going to be moving along with them. Reality could be another 10-15% south of 227?
the table provides “fair value” at different eps and rate levels. but yes, if eps is lowered it acts as stiff headwind to price fairvalue unless rates or credit spreads much lower