Can Turtles Fly?

Cannabis (Marijuana) Stock Perfor mance Still not fully legal and market likely to be limited for a few years more but the Bloomberg Intelligence Global Cannabis Competitive Peers Index is worth around $55 billion. Not all stocks are 100% marijuana-related and most of the value is so far in the bio-pharma sector but still indicates market pricing for this emerging industry. source: " 54 Stocks Deep in the Weeds ," Laurie Meisler, Bloomberg, April 20, 2017

Emerging Market Valuations & Returns Most people already know this but emerging markets tend to have lower valuations and produce higher returns. The difficulty is that emerging markets have much higher valuations, with a few countries/regions experiencing catastrophic declines. If you can avoid those blow-ups then emerging market generally offer higher return potential. Having said all that, we had a massive global trade boom, with massive growth in developing countries--right from Brazil to China to Vietnam. It's not clear to me if we are entering a protectionist era where emerging markets, who tend to be exporters and hence will get hit asymmetrically during any trade war, will suffer for a long period, maybe a decade. (source: " Trump Puts U.S. Valuation Premium at Risk ," Nir Kaissar, Bloomberg, February 14, 2017)

I ran across an interesting article from Bloomberg describing the weakening of credit conditions in some key emerging markets. Although too early to say if this portends to any serious calamity, it does feel, at least to me, like the HSBC sub-prime earnings warning from 2007  (of course, when HSBC warned in early 2007, it was widely ignored by many, including me :( ). I hate to quote so much but this could be an important story. Bloomberg reports , Brazil’s financial shares have lost more this year than counterparts in crisis-stricken Europe as consumer defaults hit a 12-month high in June and borrowing costs climbed to 46 percent. Bank stocks in China are trading at lower valuations than global emerging-market indexes for the first time since 2006. The country faces a financial crisis with bad debt that may jump to 30 percent of total loans, Fitch Ratings said. In India, the cost of insuring banks against default has climbed to the highest level in a year. Loan-loss provisio...

Some articles I either read or am planning to read in the near future... (Highly Recommended) "A Dirty Business" (The New Yorker): In this excellent article, George Packer gives us a detailed look at the prosecution of the hedge fund manager, Raj Rajaratnam, who ran a large hedge fund called Galleon. If appeals aren't successful, this case will likely go down as the biggest insider trading conviction of a fund manager in American stock market history. Conversations with Charlie Munger - the final edition (Ben Claremon for GuruFocus): This is likely one of the very last detailed conversations with Charlie Munger. He is ending the annual Wesco conversations now that the company was taken private and is too old. Nothing earth-shattering in the material covered in during this meeting. (Recommended for contrarians) Howard Marks & distressed debt investing (Bloomberg Markets magazine): The article chronicles Howard Marks' journey in the distressed investing worl...

Jason Zweig writes the weekly Intelligent Investor column for The Wall Street Journal. I don't subscribe to the WSJ but this column seems to be freely accessible on the web every week. Sometimes the articles are good; sometimes they are not. For someone who is a fan of Benjamin Graham, he writes a lot of articles that are more suited for passive investors than stockpickers. Nevertheless, sometimes the articles are pretty good, like last week's. In Under the 'Emerging' Curtain , Jason Zweig tackles emerging markets. More specifically, he quotes some study by Elroy Dimson that shows that fast growing emerging markets produced less profits for investors than slower growing ones. This isn't really news to me—it's like growth stocks versus value stocks—but some may find it surprising (as usual, bolds are by me): Based on decades of data from 53 countries, Prof. Dimson has found that the economies with the highest growth produce the lowest stock returns -- by an imme...

We had a huge rally this week but my concern has always been whether any raly will be sustainable. Here are some articles you may find insightful... Using trough P/E and trough earnings to figure out the bottom is wrong (The Peridot Capitalist): Chad Brand of Peridot Capital Management points out a mistake made by many. When trying to figure out a rough bottom for the market, one should not use a trough P/E along with trough earnings. Using peak earnings multiplied by trough P/E seems like the appropriate method. (Recommended) A methodology for fundamental analysis (Old School Value): Jae Jun, who is a bottom-up value investor, goes through his methodology for analyzing potential investments. I always like reading everyone's methods because I pick up little bits from each person. I don't think there is one right method; everyone should develop a method that suits them. I think the details depend on the individual and the investing strategy utilized. I quickly notice some bi...

The bottom line is that consumer markets in Western developed countries have peaked, and will never again return to their former level. --Gwyn Morgan, The Globe & Mail Writing for The Globe & Mail , Gywn Morgan esentially nails home the point that is obvious to everyone. Namely, consumption in America, Canada, and Europe have likely peaked and will decline. Now let's be clear: in nominal terms, consumption will likely be higher in 10 years than now (unless population declines precipitously or we enter a massively deflationary period.) Instead, I am referring to consumption in real terms and consumption growth. We have just seen a peak of sorts in real terms or in terms of growth. Why is consumption important? Because if consumption shrinks, production will shrink. This generally results asset price declines, along with unemployment, loss of income, and so on. There is some thinking that China and other developing countries will make up for the loss of consumption from the d...

Some articles and information you may find useful... links at the top with comments further below... Summary of the current US government bond predicament (The Economist): Excellent article by The Economist's Buttonwood on the current situation in US government bonds. Summarizes the situation while presenting the bullish and bearish case for low bond yields. (Highly recommended reading) [further comment below] Will emerging markets make it through this crisis? (The Economist): A run-down, with admittedly some oversimplification, of various emerging markets and the likelihood of them performing well while the developed world slumps. Keep in mind that economists, and certainly the magazine, is often wrong. But the key benefit for macro investors is to get a sense of the situation and form their own opinion. [further comment below] Risk aversion is developed during younger days (The Economist): Sort of a fun article talking about some research which shows that investor risk aversi...