The VP Blog

A blog about financial markets and the VP investing framework

Profit Margins to Head Lower, Equities to Suffer

Profit margins in the US have hit modern-day record levels, and this has been used to help justify high equity valuations.  Consensus estimates are for profit margins to remain steady, or even increase from current levels.  We disagree for ironclad economic and...

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Beware of small caps in the US; underperformance ahead

One of the points we have been emphasizing to clients in recent months is that US small caps are looking increasingly less attractive compared to large caps. Small caps have benefited from excess liquidity and a belief that as the US economy recovers, smaller companies, with their greater domestic focus, are the place to be. Yet price and valuations are making it more and more difficult to justify the trade.

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Corn breaks higher; more upside ahead

About a month ago, we flagged a buy signal on spot corn for clients. Corn has rallied about 10% since then and more upside is ahead. Corn prices have been a strong downtrend since mid-2012 declining to the same levels seen in 2009-2010 before the rally in 2011. Looking at the technical picture this may now be about to change.

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Cyclical upside intact in the UK, structural challenges remain

We have seen strong coincident activity in the UK in recent months, helped in part by a government-engineered boost to the housing market, which has lifted consumer spirits and caused retail sales to surge. Our leading indicator anticipated this upturn in the economy, and it continues to see no blots on the horizon (ie over the next 6 to 9 months), although this month it has leveled off slightly rather than continuing to climb.

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