No one knows the future, so we like to prepare for a range of outcomes in times of uncertainty, says Talaria Capital co-Chief Investment Officer Hugh Selby-Smith.
Back in May 2021 the US Federal Reserve’s narrative on inflation was that it would be transitory, while only a year ago it estimated the funds rate would peak at 1.75%. Back then we put together a list of 8 stats that we thought were important for investors to consider when thinking about the possibility of the opposite: the chance of persistent and high levels of inflation.
Fast forward to today and there’s no doubt inflation and interest rates are still on the rise, with the Fed expecting the peak to be over 4.5%, and so the debate is now about how high and for how long.
No one knows the future, so we like to prepare for a range of outcomes in times of uncertainty rather than forecast the unknowable. As a result, we’ve put together another list – this time 10 stats that we think are useful when considering the next 12-18 months and how it might impact investors.
· 73%: Meta has seen revenues grow to $118bn since listing in 2012 but underperformed the S&P500 by 73% to November 30 for an investor who bought into the IPO. (Price matters)
· $11 trillion: The S&P has lost $11tn in market capitalization year to date. This is equivalent to the entire market cap of the S&P 500 in 2011. (What goes up often comes down)*
· Up 5%, down 6%: Since June until November 21 this year, earnings forecasts for the US market are down 6% despite the market going up 5% over that period. (There is a disconnect in the market)
· $500 billion: Tesla remains the 5th largest stock in the S&P index after losing $500bn in market capitalization in the last 12 months – for perspective the bottom 66 in the S&P could be bought with $500bn which have a combined revenue over $640bn. (The index is not diversified)
· 11.5%: As at the second quarter of this year, US Corporate net margins in 2022 reached 11.5% – the highest since the Second World War. (The downside risk to margins is high.)
· Third largest: Amazon is estimated to generate $40bn of advertising sales in 2022 – 27.5bn more than in 2019 leaving it as the third largest advertising company in the world with a 5% market share. (Alphabet and FB with 45% global advertising market share are set to move from offence to defence.)
· 5%: Over the last 2 years to 30 November 2022 – Japan’s largest telecom company has been a better share than Microsoft – 5% outperformance in USD.(There is value outside the US)
· Guaranteed: More than 100% of bank loans in Italy and 70% of loans in France are guaranteed by the government. (The role of central banks is diminishing)
· 86%: Investors are paying 86% more for every dollar of sales in the US than they are in Japan – but gross profitability is only 10% lower. (Diversify across regions)
· ¼: The global dependency ratio is increasing so that over the next 30 years there will only be 4 working-aged people for every single retiree over 65. This compares to 7 working aged people at the end of 2021. At the same time, world Debt to GDP has grown to 256% today from 145% after WW2 (Labour shortages are only going to get more acute)
These stats consider valuation, earnings, diversification and the investor experience. As it stands the established relationships between interest rates, leading economic indicators, and corporate earnings all point towards falling profitability into the second half of 2023, meaning numbers, not narrative really matters.
*YTD = as of Q3, which is end of September. The market value loss to end of November is 6.5tn (the market has captured back half the losses since end of September),
Hugh Selby-Smith is a co-Chief Investment Officer at Talaria Capital.
This article represents the views only of the interviewee and should not be regarded as the provision of advice of any nature from Forbes Australia. The article is intended to provide general information only and does not take into account your individual objectives, financial situation or needs. Past performance is not necessarily indicative of future performance. You should seek independent financial and tax advice before making any decision based on this information, the views or information expressed in this article.