Posts tagged: Fedor Sannikov

Oil. US Import Revolution in Numbers

OPEC often touts its 81% share of global “proven” reserves of oil. However, today it seems like OPEC’s peak influence is in the rear-view mirror due to several external factors. To start with the obvious, oil is slowly waning in importance in the global energy mix. According to the EIA, oil made up 34% of total global energy demand in 2010. By the year 2040, the EIA expects this share will be closer to 30%, though things could happen faster if the technology behind renewables and batteries makes a bigger impact than expected.

Next, U.S. domestic production has almost doubled because of the shale and fracking revolution. In 2008, the U.S. produced 5.0 million bpd, and in 2015 the country averaged 9.4 million bpd. Lastly, as you can see on the chart, accelerated development of Canada Oil Sands has enabled the U.S. to buy any imports needed from Canada instead of the Middle East. In 2005, Canada only supplied 16.1% of U.S. oil imports, but Canada is now the major supplier of oil to the U.S. with a massive 43.0% share.

 

The Changing Anatomy of U.S. Oil Imports Over the Last Decade

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How the world’s top universities are distributed

Oxford has won the accolade of world’s best university, according to the latest Times Higher Education Rankings. It is the first time an institution from outside the United States has topped the list. The ranking looks at 980 universities, which represent only the top 5% of the world’s higher education institutions. Seventy-nine countries feature in this elite list; however, the distribution of universities is far from even.

The domination in the rankings of Northern American universities is clear. During the previous 12 years no other nation has made it to first place, and the top 10 has consistently featured a majority of US institutions. In 2016, 148 US universities made the rankings, and 63 made it into the top 200.

 

Europe

The United Kingdom, with 91 institutions on the list, is home to the largest number of top universities in Europe. It is the only country other than the US to feature more than one institution in this year’s top 10. The one other country to make it into the top 10 is Switzerland, whose university ETH Zurich appeared in ninth place. (Nine other Swiss universities make the overall ranking.) Germany, Italy, France and Spain all have more than 26 universities in the rankings. But as the Times Higher Education notes, many European nations are “losing ground as Asia continues its ascent”. Read more »

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The Problem With Forecasts

We can’t predict the future – if it was actually possible fortune tellers would all win the lottery.  They don’t, we can’t, and we aren’t going to try. However, this doesn’t stop the annual parade of Wall Street analysts from pegging 12-month price targets on the S&P 500 as if there was an actual science behind what is nothing more than a “WAG.” (Wild Ass Guess). In reality, all we can do is analyze what has happened in the past, weed through the noise of the present and try to discern the possible outcomes of the future.

The biggest single problem with Wall Street, both today and in the past, is the consistent disregard of the possibilities for unexpected, random events. In a 2010 study, by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year when in reality earnings grew at 6% which, as we have discussed in the past, is the growth rate of the economy.

Ed Yardeni published the two following charts which shows that analysts are always overly optimistic in their estimates.

 

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US economic indicators in one chart

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US 10-year Treasury yield and nominal GDP: what is the interrelation?

Yields on the 10-year Treasury are up 50 basis points (bps, or 0.50%) since the U.S. presidential election on Nov. 8, 2016 and nearly 100 bps from the July lows, as bonds sold off. This marks the fastest rise since the so-called “taper tantrum” in 2013, when expectations of an increase in interest rates by the Federal Reserve triggered a bond selloff.

Whether the new administration’s policies lead to faster economic real growth (after inflation) is an open question. But they are almost certain to lead to faster nominal growth, which includes inflation. This is important because over the long term it is nominal growth that drives rates. Going back to 1962, nominal growth has explained roughly 35% of the variation in U.S. 10-year Treasury yields (see the accompanying chart). Roughly speaking, 10-year yields increase 50 bps for every one percentage point increase in nominal growth.

 

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World top 20 largest asset managers as of the end of 2015

Assets under management by the world’s 500 biggest managers totaled $76.7 trillion at the end of 2015, down by 1.7% from a year earlier. North American firms’ assets decreased by 1.1% to $44 trillion, those managed by European firms, including managers in the U.K., fell by 3.3% to $25 trillion, and assets of Asian managers and rest of the world were down by 4% to $3.6 trillion. Only Japanese managers enjoyed an increase in assets last year, up 3.1% to $4 trillion.

Willis Towers Watson conducted the research in conjunction with Pensions & Investments. According to the study, the 78.3% of total assets that were actively managed declined by 2.8% in 2015, while passively managed assets fell by 5.5%. In 2014, passive assets grew by 28.1%. Traditional asset classes, which held the lion’s share of total assets last year, decreased by 7.1%. Equity accounted for 45.4% of the total 78.2%, and fixed income 32.8%.

 

Top 20 Managers

The study showed the top 20 managers’ share of total assets increased to 41.9% in 2015 from 41.6% even as their assets fell from $32.5 trillion to $32.1 trillion. Assets of the bottom 250 managers fell to 5.8% from 6% in 2014, and stood at $4.4 trillion. Twelve U.S. managers and eight based in Europe made up the top 20 list. The highest-ranking Japanese manager was Sumitomo Mitsui Trust Holdings, in the 33rd spot. Independent asset managers held nine of the top 20 spots, followed by banks with eight and insurers with three. Developing country managers’ share of total assets fell from 3.4% in 2014 to 3.2% last year, with assets under management amounting to some $2.5 trillion.

Following are the world top 20 largest asset managers as of the end of 2015, according to the report.

 

20. Northern Trust Asset Management, U.S.: $875 billion Read more »

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Global debt at all-time high of $152 trillion

The world is awash with $152 trillion dollars of debt, according to the IMF, an all-time high which sits at more than double the balance at the start of this century. This debt mountain, as of 2015, represents 225 percent of gross domestic product (GDP), up from 200 percent in 2002 and signifies the extent to which increases in borrowing have outpaced economic growth during the period. While the Washington D.C.-based organization emphasized that there is no exact science to knowing how much debt is too much, it has urged governments in certain countries to tackle excessive private debt levels.

 

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All of the World’s Money and Markets in One Visualization

How much money exists in the world? Strangely enough, there are multiple answers to this question, and the amount of money that exists changes depending on how we define it. The more abstract definition of money we use, the higher the number is. In this data visualization of the world’s total money supply, we wanted to not only compare the different definitions of money, but to also show powerful context for this information. That’s why we’ve also added in recognizable benchmarks such as the wealth of the richest people in the world, the market capitalizations of the largest publicly-traded companies, the value of all stock markets, and the total of all global debt.

The end result is a hierarchy of information that ranges from some of the smallest markets (Bitcoin = $5 billion, Silver above-ground stock = $14 billion) to the world’s largest markets (Derivatives on a notional contract basis = somewhere in the range of $630 trillion to $1.2 quadrillion). In between those benchmarks is the total of the world’s money, depending on how it is defined. This includes the global supply of all coinage and banknotes ($5 trillion), the above-ground gold supply ($7.8 trillion), the narrow money supply ($28.6 trillion), and the broad money supply ($80.9 trillion). All figures are in the equivalent of US dollars.

 

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Trading Is Hazardous to Your Wealth

“Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4 percent, while the market returns 17.9 percent. The average household earns an annual return of 16.4 percent, tilts its common stock investment toward high-beta, small, value stocks, and turns over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.

 

 

The white bar represents the net annualized geometric mean return for February 1991 through January 1997 for individual investor quintiles based on monthly turnover, the average individual investor, and the S&P 500. Read more »

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The Changes in SDR Weights After China’s Yuan Joined IMF Currency Basket

September 30, 2016

In the most recently concluded review (November 2015), the Executive Board decided that the Chinese renminbi (RMB) met the existing criteria for SDR basket inclusion and therefore, effective October 1, 2016, would join the SDR basket, along with the U.S. dollar, euro, Japanese yen, and pound sterling.

The weights of the five currencies in the new SDR basket based on the new formula are listed below:

  • U.S. dollar 41.73 percent (compared with 41.9 percent at the 2010 Review)
  • Euro 30.93 percent (compared with 37.4 percent at the 2010 Review)
  • Chinese renminbi 10.92 percent
  • Japanese yen 8.33 percent (compared with 9.4 percent at the 2010 Review)
  • Pound sterling 8.09 percent (compared with 11.3 percent at the 2010 Review)

The Chinese RMB met all conditions and operational requirements for being determined freely usable and to be added in the SDR basket at the time of the Executive Board’s decision on November 30, 2015. It was decided to make the new basket effective October 1, 2016 to allow the Fund and its member’s prepare for operations using the RMB.

The next review of the method of valuation of the SDR will take place by September 30, 2021, unless an earlier review is warranted by developments in the interim.

The Review of the Method of Valuation of the Special Drawing Right (SDR) basket is conducted every five years by the IMF’s Executive Board, or earlier if warranted by developments. The purpose of the review is to ensure that the SDR basket reflects the relative importance of major currencies in the world’s trading and financial systems, with a view to enhancing the SDR’s attractiveness as an international reserve asset. The latest review was completed on November 30, 2015.

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