Paul Kennedy, in his 1987 book “The Rise and Fall of the Great Powers,” forecast that Japan would continue to outperform the U.S. and Europe economically through greater exploitation of technology, while freeriding on the U.S. defense budget. In February 1988, the New York Times reported that international investors had jumped back into the Tokyo stock market. Strategists were no doubt arguing for a great rotation out of U.S. and European stocks into Japan, based on this narrative. Fast forward to today. A more recent narrative from strategists is for a great rotation out of bonds into equities. This story

On the ground floor of the Richelieu wing of the Louvre Museum is an obelisk which depicts the recorded minutes of a government’s credit policy decision from over 4,000 years ago. The Manishtushu Obelisk, written in cuneiform, denotes that the interest rate for borrowing barley was 33% and for borrowing silver was 20% across the Akkadian Empire, which is in modern-day Iraq. The basic concept of current interest rate theory is that the money rate of interest will fall to equal the flow of income from an asset. According to the American economist Irving Fisher, if the return on capital

In recent years, passive investment through indices has been growing significantly, and investors’ interest in index mutual funds and exchange-traded funds (ETFs) has dramatically increased. According to the Investment Company Institute, “from 2007 through 2016, index domestic equity mutual funds and ETFs received $1.4 trillion in net new cash and reinvested dividends, while actively managed domestic equity mutual funds experienced a net outflow of $1.1 trillion.” 1 With the explosive growth in passive ETFs, constructing appropriate investing strategies using these ETFs is more important now than ever. StarMine has created a number of unique and highly effective quantitative equity alpha

Saudi Arabia’s Mohammed bin Salman is a crown prince in a hurry. Besides detaining members of his family in a corruption sweep and painting a high-tech vision of the kingdom’s future, the young ruler-in-waiting is also planning to sell a chunk of the national oil company, Saudi Aramco, to international investors. For that to proceed in 2018, he’ll need to choose a venue besides Riyadh for the listing early in the year. China looks like the best option. Setting aside questions about Aramco’s value, which the crown prince himself has pegged at an ambitious $2 trillion, there are hurdles to

Uber’s early backers are on a collision course with their own greed. Japan’s SoftBank and allied investors want to buy roughly one-sixth of the bumptious ride-hailing firm. Existing owners can sell at a $48 billion valuation, or about 30 percent below the last one. Even with a markdown, they could make many times their money. The promise of more, however risky, will cloud the thinking. Consider just one of the many rounds of funds raised under now-deposed co-founder Travis Kalanick. A so-called Series B investment in 2011 judged Uber to be worth $300 million before an injection of $37 million of

Honeywell has put Dan Loeb in his place. The $110 billion conglomerate on Tuesday said it has decided to spin off two small, low-margin risky businesses rather than the aerospace unit the activist investor had targeted. It’s a smarter way for new Chief Executive Darius Adamczyk to improve returns without much pain, especially on top of the better margins he’s already producing. Loeb argued that carving out aerospace, which produces almost 40 percent of Honeywell’s revenue and a greater chunk of its profit, could generate $20 billion of shareholder value. Yet his argument relied on that unit being valued in

Pirelli is back. The Italian maker of Formula 1 racing tyres, now controlled by Chinese state-owned firm ChemChina, is planning to relist its shares in Milan next month. Pirelli’s focus on the high-end consumer tracks may deserve a premium to some peers, but a mooted valuation of up to 12 billion euros looks overinflated. New investors will get a company much souped-up since ChemChina delisted it in 2015, alongside longtime manager and shareholder Marco Tronchetti Provera. Back then it derived nearly a quarter of its revenue from lower-margin sales to industrial clients, which have now been folded into the Chinese

Nestlé can turn a deaf ear to Dan Loeb’s ideas – except one. While most of the demands the Third Point activist put to the Swiss giant’s board last month wouldn’t obviously juice up the share price, Loeb’s call for old-fashioned margin improvement holds more promise. Loeb thinks Nestlé’s shares ought to be higher than the current level of around 84 Swiss francs. One option, he contends, would be for the company run by Ulf Mark Schneider to increase its net debt to two times EBITDA, adding 21 billion Swiss francs ($22 billion) for share buybacks. While shareholders might like

For quite some time, traditional value investing has not seemed to work. Even Goldman Sachs, the bluest of blue blood firms, recently wrote that “value investing is dead”. There are many theories explaining the demise, but the most popular one was recently voiced by legendary value investor Jeremy Grantham in his first quarter letter to investors for 2017. In it, he tells investors, “This Time Seems Very, Very Different,” and the famous perma-bear flips his long-time bearish script and argues that valuations may stay elevated for many years to come. Mr. Grantham succumbs, finally, to the idea that the old

Return on invested capital (ROIC) is not only the most intuitive measure of corporate performance, but it is also the best. It measures the amount of profit generated for every dollar invested by a company, and has clear links to valuation. No wonder the top buy-side investors increasingly want companies to tie executive compensation to ROIC. Unfortunately, many investors still rely on flawed calculations of ROIC. Most investors use third-party sites for ROIC data, and these sites do not collect the data in the footnotes necessary to reverse accounting distortions. Only by digging through the footnotes and management discussion and

1Q 2017 Thomson Reuters Retail and Restaurant Aggregate Estimates and Revisions First quarter earnings are expected to increase 5.9% from Q1 2016. 89% of companies in our Retail/Restaurant Index have reported 1Q 2017 EPS. Of the 199 companies in the Retail/Restaurant Index that have reported earnings to date for Q1 2017, 66% have reported earnings above analyst expectations, 9% matched, while 25% reported revenue below analyst expectations. The Q1 2017 blended revenue growth estimate is 4.2%. 57% have reported revenue above analyst expectations, and 43% reported revenue below analyst expectations. For Q2 2017, there have been 42 negative EPS preannouncements

The Japanese group behind 7-Eleven is stepping on the gas. Seven & i will pay $3.3 billion for most of Sunoco’s convenience stores and gas stations in Texas. The deal is a good geographic fit, cementing the buyer’s lead as America’s top corner-store chain. It also suggests the company has moved on from an extraordinary boardroom coup last year. For the $36 billion acquirer, this fulfils a recent promise. After veteran boss Toshifumi Suzuki quit following a board rebellion over his controversial succession plans, new President Ryuichi Isaka said he wanted to buy and build his way to 10,000 stateside stores