YWR: Killer Charts
Disclosure: These are personal views and market commentary only. Not investment recommendations. For that seek professional help!
Today’s agenda.
Sentiment
S&P Earnings
Crypto
UK Property
Growth Utilities
Sentiment
Positioning and sentiment look high, but not extreme.
Our favourite contrarian indicator, L/S Hedge Funds net exposure looks OK.
Hartnett is the same. High, but not extreme.
S&P Earnings
79% of companies have reported Q4 2023 earnings with 75% reporting positive surrprises. 2024 estimates are relatively stable (there is usually a bit of downward drift).
We would like to see some positive revisions in the months ahead. Because that’s what this move in stocks is implying.
The growth trend is supposed to resume post Q1 2024…
The three sectors where analysts see the most upside to their price targets: Energy, Consumer Discretionay and Utilities. Three sectors that are not high on anyone’s priority list. Good sign.
We will come back to Utilities shortly.
Crypto
Bitcoin ETF’s are setting ETF records for inflows. BlackRock’s IBIT had almost $4bn of inflows in 1 month. Crikey!
As we’ve been saying, now that they’ve found a way to make money on it Wall Street is onboard with Crypto.
But another Cryto area which might be more interesting near term is US stable coin yields.
You can make 8% lending USDT or USDC on Aave or Compound.
UK Property
If I had a pound for every time someone told me over a beer about the impending crash of London property... well..I’d be writing this from Monaco.
My view has been it would be a struggle and not a crash. We just didn’t have the lending boom of the pre-GFC era. My view was over time the market would have to adjust to the higher borrowing costs.
Landlords would ask for higher rents to pay for the higher interest cost, and workers would have to ask for higher wages. The whole market would go through an adjustment phase and then move higher again. It’s another reason the UK banks are too cheap.
This seems to be how it is playing out in the latest report from RightMove.
Prices are sluggish but not crashing.
Rents are moving up.
And with a lag incomes are moving up too.
Growth Utilities
Last week we discussed the under appreciated industrialisation of the US. It came up in the Eaton discussion that they are surprised by the strength in their Utility business, which was interesting because Utilities keep ranking well in the YWR Global Factor Model.
It makes sense though. Electrification of everything, EV’s, datacenters, new factories; it’s all electricity intensive and this should be showing up in future electricity growth.
Don’t utilities become growth companies? Growth companies with dividends?
In the 2023 year end review of US utility power forecasts it turns out utilities are dramatically revising up their long-term forecasts of peak energy demand, and the revisions have been quite sudden, mostly the last 2 years.
We had been in an era where the expected growth in electricity demand over the next 10 years was always 0.5%, but this has turned sharply upward.
Utilities have revised up their 2028 peak demand estimate by 2% in 1 year. That is quite a sudden change in expectations for 1 year.
What’s driving the sudden change in demand? It’s new manufacturing facilities and datacenters. Did you know Virgina is Data Center Alley. The power for Data Center alley comes from Dominion Energy.
It makes me want to do work on D, DUK and PNW.
Below is a link to the full presentation on the US grid outlook.