Two tales of post-modern investing: “Wily Wallstreetbets and the Sucker Factory” and “The Carbon premium dilemma that was not”.
Once upon a time (1942), creative destruction was considered “the essential fact of capitalism” by Joseph Schumpeter, organically and dynamically spurring innovation and productivity to the benefit of all. One can only but wonder how Schumpeter’s intellectual descendant of 2042 will look upon our current embrace of destructive creation, which centrally and haphazardly spurs intervention and magical thinking to the detriment of all but a few. This rising tide of interventionism and magical thinking in equity markets is thankfully of no concern to the Butterwire platform which keeps helping investors navigate whatever the conditions. We chose two recent tales to illustrate, one on the recent Gamestop mania orchestrated by the Reddit army, and one on the apparent dilemma faced by value funds who see investment opportunities in the energy space but fear the wrath of the Green army.
Ten Months On, The “Covid Recovery Trade” Keeps On Giving
Our index of North American recovery stocks is up 100% relative to the S&P 500 (see chart below) since markets troughed at the end of March, and that of European stocks is up 50% relative to the Eurostoxx 600. They also each outperformed our traditional “long research candidates” indices by 60% and 30% respectively.
What to make of growth expectations reaching new highs vs. equity return expectations heading for new lows?
After dramatically rising last April and keeping above 10% for the following months, our indicator of global equity return expectations (iEMR) has dropped back to sub-4% over November and sub-3% in December (see screenshot above). Conversely, our indicator of global growth expectations (iGDP) is on the up again in November after a pause in October, beating the 6.6% peak of Feb-2018 and equalling the heights reached in Apr-2011 (albeit still far behind the 10% achieved in Aug-2009).
Anyone for Alpha?
Despite unprecedented (and still rising) levels of financial asset price manipulation by central banks since our note on “mindless passive investing” two and half years ago (and its follow-up parable “of elephants and mice”), we feel comforted in our view that going after alpha remains the superior (ex-post and ex-ante) alternative, especially when Butterwire is added to one’s equity research workbench.