material-evidence Oct 2011
Transcript of material-evidence Oct 2011
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4 Material Evidence by Sean Corrigan 7th October 2011 Please see accompanying risk & legal disclaimer
German Factory Orders8mma: 1990-to date
US NAPM New Orders3mma: 1948-td
HistogramofNAPMNewordersreadings 50,6monthsafterfirst3mmacontraction
0
1
2
3
4
15.0
13.5
12.0
10.5
9.0
7.5
6.0
4.5
3.0
1.5
0.0
1.5
3.0
4.5
6.0
More
NAPM50,next6months average
Frequency
17instanceswerenegativewithmedianvalue
3.3;8positiveswithmedian=3.0.Overall
median= 2.8
GermanRealM1vBusinessRevenuest+12,YOYof3mma
7.5
0.0
7.5
15.0
22.5
Jan91
Jan93
Jan95
Jan97
Jan99
Jan01
Jan03
Jan05
Jan07
Jan09
Jan11
25.0
15.0
5.0
5.0
15.0
25.0
GermanrM1(lhs)
GERBizRev(rhs)
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6 Material Evidence by Sean Corrigan 7th October 2011 Please see accompanying risk & legal disclaimer
Grossglobalsecurityissuance(blns)[source:ThomsonReuters]
$3,00
$5,50
$8,00
$10,5
$13,0
2002
2003
2004
2005
2006
2007
2008
2009
2010
QIann
QIIann
QIIIann
SyndLoans
Equity
EM
Junk
Allotherdebt
MarketpricedEarningsYieldless realisedROE (inverted)and capitalreturns:a2730yearcycle?
2.0
0.0
2.0
4.0
6.0
8.0
Dec52
Dec57
Dec62
Dec67
Dec72
Dec77
Dec82
Dec87
Dec92
Dec97
Dec02
Dec07
0.5
2.5
4.5
6.5
8.5
10.5
EYROE(lhs)
3yrCPI CAR%(rhs,invtd)
377%,10.8%CAR
5.6%, 0.5%CAR
1033%,14.4%CAR
39%, 4.5%CAR
FasterCPIassociatedwith
equitymultipleshrinkage
AltmanZScoreforAggregateUSNonfinancialCorporationsviaNIPA,FOF&MfgTradesales
1.50
2.50
3.50
4.50
Mar52
Mar60
Mar68
Mar76
Mar84
Mar92
Mar00
Mar08
ZScore
Danger
Safety
Duke U/CFOMag
Survey
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7 Material Evidence by Sean Corrigan 7th October 2011 Please see accompanying risk & legal disclaimer
recordlowmutualfundliquidassetholdingswhich
prevailedontheeveoftheselloff)begantodissipate.
Allwewillsayisthatrevenuegrowthappearstohavecometoahaltandthat,absentmuchtoplinegrowth,
thoseelevatedmarginlevelswillhavetosustainedsim
plyinordertostandstill.Wehaveseenthatthisispre
ciselywhatisworryingtheboardroom,leadingtothe
drasticdownwardrevisionofearningsprospectsseen
overthepage.
Secondly,balancesheetsarestillnonetoohealthyintheaggregate,withouroverallestimateoftheUSnon
financialZscorebarelymovedfromitssecularlows.
Worse,withcapitalmarketseffectivelyshutthesepast
fewmonths,thescopeforboostingpresentreturnson
equityattheexpenseofapotentialimpairmentoffuture
returnsoncapitalcanonlyhaveshrunk.
Thirdly,theplaintruthisthatprice/bookratios(andnet
worthingeneral)arebeingflatteredbytheinclusionof
someverypricyrealestateamongtheassetsasitua
tionwhichmaybeliesomeofthatpropertysproductive
utility,muchlessitsrealisableworth.
Fourthly,themispricingwhichhasbeenpartlydueto
thereckless
suppression
of
bond
yields
around
the
globehaspushedP/Estothepointwhererealizedre
turnsonequitylieanomalouslybelowtrailingearnings
yields.Thisissomethingwhichhashistoricallybeen
followedbyalongstretchofsubparreturns,andwhich
hastypicallyrequiredfallsintherateofpriceinflation
tosustainitaconditionwhosefulfilmentmustbe
mootindeed,givenwhatourfriendsatthecentral
banksandfinanceministriesseeasthesolutiontoallourwoes.
DCI/SPX(bl)vMSCI
EMvWorld(o)
USNonFinCorporatesPricetoBook
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
Mar52
Mar57
Mar62
Mar6
7
Mar7
2
Mar7
7
Mar82
Mar87
Mar92
Mar9
7
Mar0
2
Mar0
7
1.0
1.5
4.0
6.5
9.0
11.5
14.0
P/BwithRE@book
P/BwithRE@rep cost
CPI (rhs,invtd)
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9 Material Evidence by Sean Corrigan 7th October 2011 Please see accompanying risk & legal disclaimer
S&P500 x USD Nominal TWI: 1965-to date
Ever since the LTCM/Russia Crisis, the market has undergone
a series of similar-scale oscillations within the overall, post-
1994 Bubble Era range.
A third decline of c.50% (effectively another 40% from here)
would effect the classic 80-90% retracement of that Bubble
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