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Monday, May 15, 2023

2023-05-15

*** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic and Market Fare:





The UIG captures sustained movements in inflation from information contained in a broad set of price, real activity, and financial data.



.... Marks set up Oaktree in 1995 with chief investment officer Bruce Karsh and three others. Known for his popular investment memos, he is an unequivocal contrarian, bargain hunter and follower of market psychology who tries to live by Buffett’s investing maxim: be fearful when others are greedy and greedy when others are fearful.
Right now he sees a fertile environment for lenders such as Oaktree to step in and provide financing where banks are further retrenching following the collapse of Signature Bank and two other US regional lenders. The Fed said this month that banks were tightening lending standards for businesses and warned of a potential credit crunch.
“Now you have some meaningful interest rates and some scarcity of capital as banks are restrained,” Marks said. “This is a good climate . . . you can get equity returns from debt now, and when you invest in debt you have a much higher level of certainty of return relative to equity ownership.”


..... With the first-quarter earnings season drawing to a close, the profits of S&P 500 companies are estimated to have dropped 3.7% on average, compared to a year ago. While data compiled by Bloomberg Intelligence shows that 78% of firms surpassed forecasts, that’s less impressive than it sounds, given analysts had slashed their expectations before the season kicked off.
More crucially, it was the second straight quarter of earnings declines for corporate America. Bearish earnings forecasts now center around the April to June period, for which a 7.3% profit slump is penciled in, according to data compiled by Bloomberg Intelligence. And the pinch from higher interest rates and wilting consumer demand will extend into the third quarter of 2023, analysts reckon, backtracking on earlier predictions that earnings recovery would kick in around then.




..... Today, we get a new perspective on the market's performance when normalized for the record collapse in breadth. According to SocGen it's not so much a handful of stocks that has carried the entire market this year: it's just one specific trade, Artificial Intelligence (which will soon spark hundreds of millions in margin-boosting layoffs across western countries).


For much of 2023, some of the biggest Wall Street bears were betting - quite vocally in certain prominent cases- that Q1 earnings season would finally be the nail in the coffin of the bear market rally. However, with consensus expectations tumbling into the earnings print (as they always do), the bogey to beat ended up being quite easy and as a result, Q1 2023 earnings season has proven to be much better than feared.
With 90% of S&P companies reporting results, here is where we stand:
S&P 500 profits fell by 3% year/year, stronger than consensus estimates of a 7% decline at the start of reporting season.  In Europe, earnings actually rose by 3% y/y which is a positive surprise factor of 10% vs IBES estimates.
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Grannis: Today the bond market is convinced that there will be no more Fed rate hikes. Yet the Fed insists that inflation has not fallen by enough, so that warrants continued monetary restraint; some governors even argue that further rate hikes might be necessary, even as evidence of economic weakness builds. Chalk this up to one more example of how the bond market is usually smarter than the Fed. Fed mistakes like this have been the proximate cause of every recession in my lifetime




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(not just) for the ESG crowd:

Global ocean temperature sets record high for April; Earth had its fourth-warmest April



Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States.1 Risks are risks. There is no need for us to focus on one set of risks in a way that crowds out our focus on others. My job is to make sure that the financial system is resilient to a range of risks. And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment relative to others.2 Nevertheless, I think it's important to continue doing high-quality academic research regarding the role that climate plays in economic outcomes ......


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