Brave New World: Markets rewarding capex, R&D more than buyback, dividend

Ritesh Jain, a Dalal Street veteran, trend watcher and Global Macro Investor, captures global macro investment opportunities and economic, business and financial trends with charts and commentaries in this space.

Europe’s push for renewable energy, which based on 2018 data from the European Union member countries, cost more than 5 times conventional energy, and almost certainly will have risen again last year, has already meant more central control either through subsidies, regulations, or monetary policy. (Canadian Finance Minister Bill Morneau said climate change will be a key element in Canada’s next federal budget).

As the shift to passive fund management exceeds a certain level, although the imbalances get bigger, active management doesn’t have the weight of money to close those value gaps. With the end investor unable to justify paying the higher active management fee, more money goes over to passive, making the economics even more compelling until everything is passive, governed only by the pace at which the central bank is expanding money supply.

The stock market has moved to reward those companies who are investing in Capex and R&D… In other words, the market is less rewarding to stock repurchasing and dividends.

Shipment volumes in the US by truck, rail, air and barge fell 7.9 per cent y/y in December, the 13th month in a row of y/y declines and the steepest since November 2009. Celadon Group, with 2700 tractors and 3000 drivers was a casualty, the largest truck loader ever to file for bankruptcy in the U.S. Intermodal rail volumes were down 9.6 per cent. Total freight expenditures across all modes of transport fell 6.2 per cent y/y. The weakness is in manufacturing and oil and gas drilling.

The complacency and faith in Central bankers reach “Permanent High Plateau”

How undervalued are the miners ($GDX) to gold? Last 3 times gold traded @ $1550/oz:

6/2011: GDX was $52
4/2013: GDX was $34
Today: GDX is $28.68