Tuesday, 9 July 2013

Top line good times . . . unless you're still in China

US reporting season is now upon us and as usual it was Alcoa leading things off by beating estimates by a cent (0.07 v. 0.06) and interestingly also delivering better than expected revenues ( X v Y). For those who have followed my blog over the years, the last few years have all been about CEOs etc. squeezing their assets for what they could get as revenue have been in decline. It makes sense now that with growth back on the table that we start to see better than expected revenues revenues. Mind you, the revenues in this case were less than they were last year, but prices are lower. This is the main trend that investors need to follow over the rest of the year. Better revenues will signal better times and just another reason to be in US earnings streams. The other piece I got from the result was that Alcoa is optimistic on China when the world (including myself) is worried. The company sees demand rising by 11% this year v. 9% last year. It's not a major data point, but one that I wish I could ask the CEO about directly.

Chinese inflation was up 2.7% in June (year on year), meaning that so far this year consumer price inflation averaged 2.4 per cent. Core inflation, (i.e. ex-food and energy) remains steady at 1.7 per cent year on year in June. The Government forecast was for a 3.5% rise, so things are not rosy. Recently there's been a lot of China hard landing scenarios doing the rounds of investment banks and some have a worse case 3% GDP growth now in their analysis. Goldmans reckons if that happens the copper price could fall 60% from current levels and I'll add to that that the AUD would probably also crash to below 60 cents. I think I'd prefer Alcoa to be right, but then again there's a lot of possibilities still on the short side for investors.

Blackstone Group LP (BX) is expanding it's property bets. They spent $5bn buying 30,000 distressed homes over the last few years and are now talking about lending directly to other like minded landlords.  It is interesting to me that large landlords are finding it hard to get finance at competitive rates given the amount of cash the Fed is pumping into the system. In Japan a similar thing has happened since their own property bubble burst, but they lack the entrepreneurship being demonstrated by Blackstone in going around the banks. The financing seems to be getting done in long dated tranches 20yrs +) which gives me some comfort when I know that rates are likely to rise next year.  House price according to Bloomberg are still on average 26% below their '06 peaks.

The following table represents US economists forecasts for the remainder of the year in respect to US 10 yr Treasury yields, a key point for financing along the curve. It's still finely balanced, but edging up; so maybe best to lock in while you can and not when you have to . . .

A rest day in the Tour de France and that also allows me some time to catch up with my own bike maintenance. I've got a couple of bikes needing a wash and lube today. I visited my local Cannondale dealer for a tune-up to the Evo after last weeks problems. I pretty much had the bike sorted, but felt spending a 100 bucks was worth it given the weather we had a couple of weeks back. Now all it needs is a chain wash and lube and it should be good to go. I'll also be washing my sister-in-law's Bianchi which has not seen soap and water for a couple of months. That's the thing with bikes, unless you have a good work stand and access to all the little brushes you never get around to doing the full job so you end up paying the LBS and you never learn about what makes your bike run best. Last week during the wet I changed over to a heavier lube as the rain was unrelenting. I used Rock n Roll's blue extreme lube and was happy with the results. I've mentioned before that the Gold version is my first choice for most riding conditions and as the Bianchi tends not to go out in the rain I'll use that.

Maybe I should start a bike cleaning service rather than continuing to look for work in the finance sector?


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