David Ross

What I think I learned last week #56

The blog is back after taking a bit of a rest after a truly miserable December. All it took was for US stocks to post their best January in 30 years.

January saw Apple, Amazon and Microsoft trade the title of world’s largest company, with Google hiding in the bushes right behind them. Interesting fact: since 1926, there have only been 11 companies to rank as the largest US company by market capitalization. Some companies, such as IBM and AT&T, held the top spot for years. Others, such as Altria, DuPont and Walmart were the largest for less than a month. Walmart was the largest for only three days in late 2002. The full list is: Amazon, Microsoft, Apple, ExxonMobil, General Electric, Walmart, Altria, IBM, DuPont, General Motors and AT&T.

Today’s largest market capitalization, whether it happens to be Apple, Amazon or Microsoft, is less than 3% of the total of all US stocks. This is well below what has been seen in the past: AT&T was 13% in 1932, General Motors was 8% in 1928 and IBM was 7% in 1970.

According to Nicholas Colas of DataTrek, the average trailing 20-year compounded annual growth rate over the past century for the S&P 500 comes to 11%, but the latest 20-year period has delivered a return of only 5.6% (not surprising since it covers both the dot.com crash and the financial crisis), about half of the average, making this the poorest run since the late 1940s. If you believe in mean reversion, then the next twenty years should be really good for the US markets.


China dominated the news in January. China reported its fourth quarter GDP growth to be 6.4%. In other mythical announcements, they also announced sightings of unicorns, leprechauns and werewolves.

China manufacturing data disappointed to start the year. The Caixin/Markit manufacturing PMI fell to 49.7 in December from 50.2 in December, worse than the 50.1 consensus and posting its first contraction since May 2017.

More disappointment: the number of new births in China declined by 2 million last year, taking the country’s population growth rate to the slowest level since they had a disastrous famine in the early 1960s.


A simple mapping between German industrial production and GDP growth points to a recession, according to Jamie Murray, Bloomberg’s Chief Economist of Europe. Factory output unexpectedly slipped 1.9% in November, marking the third straight month of decline for the eurozone’s economic powerhouse.

German industrial robot maker Kuka became the latest German company to warn that China’s cooling economy is affecting the company, blaming a slowdown in the Chinese automation market as one reason for lower-than anticipated sales and slimmer profit margins. Additionally, Kuka abandoned its 2020 targets.

The European Commission again downgraded Europe’s growth forecasts, noting that “After its 2017 peak, the EU economy’s deceleration is set to continue in 2019, to growth of 1.5%.” This is down from the 1.9% forecasted just last November and well off the 2017 peak of 2.4%, the fastest growth in a decade.

Eurozone productivity has stopped growing for the first time in 10 years as four of the five largest Eurozone economies had negative annual labor productivity growth in the third quarter of 2018, the first time since 2009 that there has been such a widespread fall. I want to know why they are reporting third quarter 2018 productivity in the first quarter of 2019. They do not seem to be a very productive agency.

The European Central Bank’s regulatory arm has written to banks giving them strict targets for cleaning their balance sheets of bad loans. Each of the eurozone’s main lenders will be given a deadline to cover loans that are more than seven years in default. Excuse me, but loans that are more than seven years in default are no longer loans. Just call them gifts because you are never seeing that money again. Why it takes a regulator to force these banks to write these things off is exactly why Europe cannot get its economy moving forward.

French bank BNP Paribas reportedly lost $80 million in derivative trades linked to the S&P500-linked derivative trades late last year. According to the story, the head of US index trading, a Frenchman, put on positions on the S&P 500 in late December and then immediately went on vacation in the midst of the big selloff. When a Frenchman decides it’s time to go on vacation, it is time to go on vacation, no matter what.


Japan’s workforce will shrink by almost 13 million people in the next twenty years, from 65.3 million to 52.5 million, a drop of 22%.

Mexico’s central bank left interest rates unchanged as inflation slowed.

India’s central bank, in a surprise to economists but expected by government leaders ahead of the upcoming election, cut its key lending rate for the first time in a year-and-a-half. Central bank independence takes another step backwards.

And finally, Louis Vuitton has new competition: the Pooey Puitton, a slime-filled, poop-shaped toy purse for children. The California toy company has brought a lawsuit against the humorless French luxury giant to stop it from preventing sales of its toy.


And that is what I think I learned last week.