Biotech Richly Priced With One Exception

At 10.3x book value and 50.3x cash flow on average, the biotech industry is among the most expensive in the MSCI World index.



There have been some big winners in the biotech industry the last 4 years.  Every stock in the industry has outperformed the MSCI World index over this period.



Actelion has lagged somewhat--only outperforming the index by 2% over the last four years--and appears to offer the best relative value in the group.

EPS Estimates Falling Fast as Year-End Approaches

With just weeks to go before the year wraps up we are surprised by the significant decline we've seen in 2013 EPS estimates since October. It seems analysts are suddenly taking a more sober view on the year's earnings, and the phenomenon is global.

Real Estate Stocks Far And Away The Weakest Among North American Industries

Even though home prices continue to rise (see yesterday's post), existing home sales and mortgage applications for purchases have softened.



Mirroring this weakness in existing home sales and mortgage apps, real estate stocks remain the weakest among North American stocks and by a pretty far margin.

25% of real estate stocks are making new 200-day lows. The 2nd worse group is utilities, where only 8% of stocks are making new lows. Overall, 19 of the 24 industries have ZERO stocks making new 200-day lows.



Similarly only 28% of real estate stocks are above their 200-day moving average. Meanwhile, 4 industry groups have EVERY stock over their 200-day moving average

NYSE Margin Debt Continues Climbing

NYSE Margin Debt data was released for October and showed that it has, once again, reached all-time highs. This may mean there is still time left in this bull run as this series tends to peak 3-5 months before major market tops. 

France v. Germany: Consumer Confidence

Consumers in France see a diminished capacity to save, a deteriorating general economic situation, and rising unemployment over the next year-- all of which adds up to a decline in confidence:



Germans, on the other hand, were surprisingly more confident about the consumer climate in November, as evidenced by the unexpected increase in the Gfk survey:

What Do a Greek Gaming Company and a Greek Telecommunications Company Have In Common?

They are both up more than 75% year to date.
As MSCI prepares to demote Greece to its group of 'Emerging' countries at the end of this month, we thought we would take a look at the performance of the remaining constituents:



Meanwhile, Greece's ATHEX Composite (with 59 constituents currently) is up more than 30% to far this year as the majority of its members continue to post share price gains:



And, while Greece may be regressing in the estimation of MSCI, Korea and Taiwan are both up for a promotion to the 'Developed' countries index during the annual market classification review next June.

Speculators Desperately Trying to Push the Yen Lower to Keep the Carry Trade Alive

It seems a (risk on) yen funded carry trade has been one of the main drivers of stocks over the last few years, but is time running out or are we just getting started as the yen breaks to new lows against the euro? Speculator positioning, being the most short the yen since 2007, would have us believing in the former. We also note that public opinion on the yen is the most negative since early 2013, when the BOJ first switched its printers to turbo mode.

With Notable Exceptions, Biggest YTD Price Gainers are Hanging in There

Given the recent gyrations in Tesla we thought we'd take a look at this year's best performing stocks to see if they are all starting to struggle, or if Tesla is the exception. In the below table we isolate the top 100 performers on the year and find that generally this group of high flyers has held it's price gains, and on average each stock is only 4.5% off of YTD high. Aside from Tesla, the notable exceptions to this are Gungho Online, Tokyo Electric, Gamestop, Linkedin, Sony, Facebook, and Pioneer Natural Resources. For what it's worth, average stock in the MSCI World Index is 9% off it 1 year high.

Consumer Confidence Expectations May Indicate A Slowdown In Consumption

Consumer confidence for November came in below expectations at 70.4. The expectations series has declined for the past four months and may indicate that real personal consumption growth will slow.

Nuance Communications January 2014 Puts Spike Higher

Nuance Communications is the worst performing stock in the MSCI World index today.



StrreatAccount offers the following synopsis of last night's earnings release:

• Stock is trading down ~7.7% following last night's Q4 earnings release, with a $0.02 EPS beat driven by better than expected revenue and in-line margins, though the company saw y/y organic growth declines across all product markets. Analysts were slightly disappointed by Healthcare revenue missing consensus expectations, attributed in part to he transition from traditional transcription business to EHR solutions, though Mobile and Enterprise provided modest upside surprise.

• Despite the solid Q4 print, analysts generally attributed the after-hours sell-off to initial F14 guidance. Revenue guidance of $2.03-2.09B bracketed FactSet consensus $2.07B, though several notes suggested that the target could prove somewhat aggressive given the pace of implied quarterly sequential acceleration necessary hit the range. Management's EPS guidance was of greater focus, with a $1.05-1.15 range coming in well below FactSet $1.42, as the company noted it will require continued investment in R&D, sales and marketing to drive revenue growth during the ongoing transition to on-demand offerings.

• Management also offered constructive commentary around bookings trends across most segments, particularly highlighting Healthcare and Enterprise, with an initial F14 guidance range of $2.15-2.25B representing ~15% y/y growth. However, analysts noted that these trends were not apparent in F13 results and may not influence revenue realizations until the back half of the coming fiscal year.

• Looking ahead, analysts note they will be looking for indications of a re-acceleration of organic revenue growth during the company's difficult transition to a subscription model. Secular headwinds are expected to persist in F14, and analysts note shares may be fully valued given limited expectations for an improving growth trajectory in the near-term. A quick look at sell-side sentiment shows 42% of firms keeping Buy-equivalent ratings compared to a 49% average for the S&P 500; average price target of $22.33 represents a 51% premium to current levels

The January 2014 $12 puts are up 127% in active trading following the announcement.  

Case-Shiller Home Price Index Gains Again

Case-Shiller Home Price Index rose 0.7% in September. Denver is now the most above pre-crisis levels while Las Vegas continues to lag the furthest behind. Based on existing home supply, we may soon see a leveling out of the year-over-year price gains.

What Cash on the Sidelines?

We often hear in the mainstream media of all the available cash sitting on the sidelines and waiting to be invested as evidence that this bull market can go on for several more years. The bull market may well continue for some time, but if it does it will not be because of investors finally putting all their excess cash to work. Indeed, the charts below highlight the following points:

• Mutual fund cash is at all-time lows
• Equity and ETF assets relative to money market assets is at all-time highs
• Retail investor money market assets as a percent of market cap is at a generational low

France: Business Confidence

In contrast to a predicted deterioration, France's survey of confidence among manufacturers managed to remain unchanged in November:



And this is perhaps not surprising, given that Industrial companies in MSCI France have led all other sectors in performance over the last four years:




But is momentum in this group beginning to falter?



Looking at the details in the survey, the forward-looking components are worse than their respective long-term averages and paint a more troubled picture than the headline number might imply:

Global Indices Head Higher as Number of New Highs Contracts

At the risk of sounding like a broken record, we will once again note that new nominal highs in stock indices are not being confirmed by the number of stocks making new 52-week highs. The divergence is the strongest in North America, but can be seen in the Pacific region as well.







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The average stock was down about .2% last week while the MSCI World Index was about flat.

Yen the Most Significant Factor Last Week as Europe, Health Care Top Performance Rankings, Real Estate & Retail Lag

The yen was the most significant factor driving global stock prices last week while countries in Europe topped the list for performance on an equal weighted basis. Health Care was the sector standout as the only sector to finish in the green for the week. Utilities and Materials were the laggards, each finishing down at least 1% on average. From an industry standpoint, Diversified Financials and Insurance fared the best while Materials, Real Estate and Retailing finished at the bottom.

European Producer Prices

Today's release of October producer price data by Spain revealed a dip into negative territory:



Germany' producer price data has been fluctuating around zero for much of the year so far, making a more definitive move downward beginning in August:



Meanwhile, France and Italy are scheduled to report October data for their respective price indices on Friday.  Negative trends appear likely to persist:




Of the five largest economies in Europe, the only one with positive changes in producer prices is the U.K.: