Blue Marble Research
Research. Events. Asset Management.
The Macro Strategist
A Synthesis of Key Global Macro Economic, Thematic, and Financial Market Trends
Vinny Catalano, CFA
May 11, 2015
Upcoming Blue Marble Research Events
Markets at a Glance
!""#$"%&'%($)*+$,-$./01
!
D"+$E:4F*:$;GH'6+$)*3#"6?
IJ2$1//
/01.2!30425!61078!9,5:;
=>?=
=B:4CD,C!E.48:1F
=G40H:!*@&
=B:4CD,C!=G40H:
>FD.!I.7DJD7!:;<K.H.,
D"+$E:4F*:$)*3#"6?$O$54%$;GH'6+
L6!/4:.FG4M!"&!M:.4
N04H04.1:!ODCP!QG.2D1M
N04H04.1:!ODCP!RD:25
S022.4!9,5:;
T025
N0BB05D1M!9,5:;
NI$;74%4U'7$I"7643?
N0,FGB:4!SDF74:1D0,.4M
N0,FGB:4!61.H2:F
=,:4CM
?D,.,7D.2F
O:.21P7.4:
9,5GF14D.2F
U.FD7!E.1:4D.2F
9,J04B.1D0,!/:7P,020CM
/:2:70BBG,D7.1D0,F
L1D2D1D:F
NI$I'X"$J$I6+:"?
E:C.!N.H
ED5!N.H
6B.22!N.H
ED740!N.H
ODCP!U:1.
V0W!X02.1D2D1M
>4["3$PH*:'6+$\9'?#\$<3*&"
L6!6B.22!N.H
=B:4CD,C!=G40H:
NPD,.!6B.22!N.H
9,5D.!6B.22!N.H
2015 Market Forecast Series
August 6: New York Society of Security Analysts
2015 Topical and Educational
rd
Nov. 6: 3 Annual Global Infrastructure conference
Fall tbd: Private Equity seminar
Recent and Upcoming Media Appearances, Videos
and Audio Segments
see beyondthesoundbite.blogspot.com for additional
information
Y!Z:4FGF!6[I!@&&
;<=
23'43
!""#$
>*?6
5"6$
@A*%("
2768
@A*%("
9":8
2"3B8C
K<
;=L
;;)
M;K
EN9
;22
"##$%#&
$*%($
$)%$$
A"%')
A$%(A
*#%$(
A$%'A
"#&'%"(
$*%)(
$)%"@
A*%#A
A$%A@
*&%'(
A)%$&
)%'#
&%#)
&%A#
<&%")
&%A(
&%'&
<&%)$
&%*)+
&%")+
&%$#+
<&%$*+
#%&@+
"%@(+
<#%$&+
,-.
<&%#&+
&%"A+
<#%&&+
&%$'+
"%""+
<#%()+
<><
>PQ
RSE
NN2
E>Q
QT@
#""%@#
##(%&#
(#%&'
"A%(#
##*%()
#'%""
#"A%&&
##'%(@
(&%)(
"@%&*
##*%&'
#'%")
<#%A(
&%&$
&%"(
<&%#"
&%'(
<&%&@
<#%"&+
&%&@+
&%*"+
<&%A'+
&%)(+
<&%")+
<#%@)+
<&%*"+
<&%&@+
<&%'@+
&%A"+
<&%$A+
V>S
V>2
V>;
V>=
V>K
V>M
V>T
MS!
MSW
V>N
)$%$&
A(%#)
'#%)$
"A%)$
)*%A@
@$%@'
@#%@)
#&'%*(
"(%')
AA%&*
)$%*@
A'%'#
'"%')
"A%*A
)"%$'
@$%**
@#%"@
#&'%'A
*&%'#
AA%A)
&%"@
&%*$
<#%##
&%A"
&%))
&%"@
&%*"
<&%A@
<&%(A
<&%AA
&%**+
&%)A+
<#%*A+
#%)*+
#%&$+
&%AA+
&%$"+
<&%A#+
<*%&@+
<&%((+
<&%&A+
&%*)+
<#%)#+
#%*$+
&%$(+
&%&)+
&%"@+
<&%)'+
<*%A"+
<#%*$+
Y;=
)QS
MZ9
M!@
I2RT
I2>K
(*%"(
")$%*"
##$%@A
)'%##
*@%A'
*)%@'
MZ9
EN9
RLY
I@M=
$
##$%@A
*#%$(
**%*(
AA%A"
!
("%)*
")@%")
##$%&&
)'%##
*@%@'
*)%A#
##$%&&
*&%'(
*A%*(
AA%)*
!
!
&%@$
#%&@
&%@A
&%&&
<&%#&
&%#)
&%@A
&%'&
<#%&&
<&%*#
!
!
!
&%$&+
&%*'+
&%A)+
&%&&+
<&%"'+
&%A@+
&%"*+
&%&#+
&%#&+
<&%*)+
<&%$@+
&%&'+
!
&%A)+
"%@(+
<"%(#+
<&%$(+
&%#&+
"%""+
<*%"'+
<#%&$+
Note: See page 8 for a complete list of weekly winners and losers
In This Week’s Report
Observations on the Global Economy and Markets
Featured Market: United Kingdom (EWU) (4 years)
Valuation: Primary Models
US Economy: Key Economic Indicators
Market Metrics
Model Growth Portfolio
Market Performance Data:
Markets at a Glance
Global Performers – Best to Worst
Research. Events. Asset Management.
vinny@bluemarbleresearch.com
1
Blue Marble Research
Research. Events. Asset Management.
Observations On The Global Economy and Markets
Conventional Thinking In Unconventional Times
“BOTH financiers and economists still get the blame for the 2007-2009 financial crisis: the first group for
causing it and the second for not predicting it. As it turns out, the two issues are connected. The
economists failed to understand the importance of finance and financiers put too much faith in the models
produced by economists.
If this seems like an ancient debate, and thus irrelevant to today's concerns, it is not. The response of
central banks and regulators to the crisis has led to an economy unlike any we have seen before, with
short-term rates at zero, some bond yields at negative rates and central banks playing a dominant role in
the markets. It is far from clear that either economics or financial theory have adjusted to face this new
reality.”
http://www.economist.com/blogs/buttonwood/2015/05/finance-and-economics
So writes The Economist in a recent commentary articulating several key aspects of those concerns
expressed in prior Blue Marble Research reports. The points noted in the commentary, along with those
related to the changed market structure and the interconnected, interdependent conditions of the global
economic and financial markets, as well as other areas of exceptional circumstances, should not be
ignored and dismissed just because earnings and interest rates tilt the valuation models toward a bullish
reading.
Now, all of this would not be an issue were it not for the fact that the most bullish among us show little to
no signs of concerns related to the current extraordinary circumstances. In the events I have conducted
and participated in and in the numerous readings and commentaries I have read, the bullish story by
some can only be described as one living in the land of sanguinity.
“Climbing a wall of worry” is the justification for the rising tide of global equities. Yet, as The Economist
commentary goes on to note, “The use of quantitative easing (QE) to stabilise economies has made it a
lot easier to service debts and indeed has prompted many to argue that deficits are irrelevant in a country
that borrows in its own currency and has a compliant central bank. Very little of the pre-crisis debt has
been eliminated; it has just been redistributed onto government balance sheets.”
Shouldn’t this be a concern on multiple levels, one that trumps the standard valuation process so many
traditionally-oriented investors rely on? Shouldn’t this (and many other exceptional factors) be taken into
account and cause one reliant on traditional financial and valuation models to have pause? For some, the
answer is yes but they are far in the minority.
Investment Strategy Implications
Last Friday’s US employment data along with the conservative party’s win in the UK virtually guarantees
a further upward run into the target 2150 to 2250 for the S&P 500, mostly like this summer. At that point,
an assessment as to the quality and strength of that run will help determine the probabilities of a serious
market correction this fall.
Until then, investors are advised to participate to the fullest extent prudently possible in the expected run
up to all-time highs in equity prices ever mindful of the extraordinary circumstances the current
environment presents and how much more risk there is embedded in it.
***
Research. Events. Asset Management.
vinny@bluemarbleresearch.com
2
Blue Marble Research
Research. Events. Asset Management.
Primary Valuation Models
Market Models: Modified Fed Equity Valuation Model, Earnings Estimates
Modified Fed Model
Current Levels
Analysis
S&P 500
2116.10 Exp. Return 11% Zone Calculation
10 Yr. Tsy
2.15%
19.57 Ave. P/E Ratio
2349 Ave. S&P 500 price level
Data as of May 8, 2015
11.00% Ave. potential return
5.14% Ave. Earnings Yield
2.15% 10 yr US Tsy rate
Earnings yield minus 10 yr US Tsy rate
2.99%
5 wk trend
1-May
24-Apr
17-Apr
10-Apr
3-Apr
S&P 500
2108.29
2117.69
2081.18
2102.06
2066.96
EY
5.16%
5.14%
5.23%
5.18%
5.26%
Wkly change
Est. Ave. P/E
-0.05%
19.57
-0.18%
-0.16%
0.15%
-0.13%
0.03%
19.50
19.59
19.25
19.44
19.12
10 yr EY-10 yr
2.12%
3.04%
1.92%
3.22%
1.85%
3.38%
1.95%
3.23%
1.90%
3.36%
The model's math
: The earnings yield is found by taking the 10 year US Treasury rate then
increasing or decreasing it progressively to achieve an 11% average expected return
which coincides with the estimated consensus operating earnings for the next 12 months.
(The est. next 12 months consensus operating earnings for the S&P 500 is $120.)
This figure is then subtracted from the current 10 yr rate to achieve the spread result
e.g. the higher the spread, the more bullish the conclusion.
Comment and Analysis
The oscillation continues with price, earnings and
interest rates pushing valuation levels above and
below the upper end of the range for strong P/E
expectations and the upper end of the range for
normal times for the earnings yield to 10 year US
Treasury rate spread.
S&P 500 operating earnings: Actual and Forecast
Quarterly
Rolling
P/E at
Yr over yr
Time Period Quarterly
12 mos current px % change
1Q12A
$25.39
2Q12A
$25.69
3Q12A
$26.05
4Q12A
$26.36 $103.49
1Q13A
$26.62
$104.72
4.84%
2Q13A
$26.72
$105.75
4.01%
3Q13A
$27.91
$107.61
7.14%
4Q13A
$29.43 $110.68
11.65%
1Q14A
$27.60
$111.66
3.68%
2Q14A
$29.72
$114.66
11.23%
3Q14A
$30.04
$116.79
7.63%
4Q14A
$30.56 $117.92
17.95
3.84%
1Q15E
$26.73
$117.05
18.08
-3.15%
2Q15E
$28.99
$116.32
18.19
-2.46%
3Q15E
$30.39
$116.67
18.14
1.17%
4Q15E
$31.91 $118.02
17.93
4.42%
1Q16E
$28.33
$119.62
17.69
6.00%
2Q16E
$30.73
$121.36
17.44
6.00%
3Q16E
$32.21
$123.19
17.18
6.00%
4Q16E
$33.82 $125.10
16.92
6.00%
A = actual, E = estimated
Annual
2012
$103.49
2013
11.65%
$110.68
2014E
3.84%
$117.92
2015E
4.42%
$118.02
2016E
6.00%
$125.10
Yr end to
yr end
% change
6.95%
6.54%
0.08%
6.00%
Note: Earnings estimates for 2014 and 2015 are based on projections provided by
S&P Capital IQ. Estimates for 2016 are made assuming an 6% year over year growth rate.
Conclusion
Friday’s US employment data along with the UK election results helped push valuation levels back to the
higher end of their valuation ranges. And so it goes – provided earnings do deliver as the year
progresses, which the table below suggests is embedded in the thinking of many investors in the mid and
small cap areas.
***
Featured table: US Size Earnings Growth Expectations
Research. Events. Asset Management.
vinny@bluemarbleresearch.com
3
Blue Marble Research
Research. Events. Asset Management.
Macro Economic Analysis: Pulse of the US Economy
!"#$%&$'()*)+,($-*.,(/0)12
%&$'()*)+,($3""4$56"/.7$8/#$99$:$8/#$9;<$=>9;
B)*2"*2C2
B)*2"*2C2$D/*E"
F1,)1
#
#
#
8)*./#<$8/#$99<$=>9;
!"#$%&"'#()#*+","$-+#-,.-+%/"'0#%'*#*12*+/*.
G@<A#
#
GH<?##/"#G@<H#
#
GH<B#
#
A<B#>
A<H#>
A<;#>
A<=#>
6A<B#>#/"#A<P#>
A<;#>#/"#A<K#>
6A<B#>#/"#A<?#>
6A<?#>#/"#;<A#>
A<G#>
A<=#>
A<;#>
6A<?#>
K6C12./#<$8/#$9@<$=>9;
I'".F+*'#I'-+*#C,.*1#6#3-,%E#W*$%,.X#787#+9%,:*
I'".F+*'#I'-+*#C,.*1#6#3W#*1#M"".#%,.#*,*':4
IIC#6#3W#*1#M"".Y#*,*':4#Z#/'%.*#0*'J-+*0
A<B#>
A<;#>
A<B#>
6A<;#>#/"#A<=#>
A<A#>#/"#A<B#>
A<;#>#/"#A<B#>
A<B#>
A<B#>
A<B#>
R1,./#<$8/#$9;<$=>9;
C,.F0/'-%E#I'".F+/-",#6#787#+9%,:*
U%2%+-/4#(/-E-\%/-",#O%/*#6#[*J*E
7%,FM%+/F'-,:#6#787
U",0F$*'#)*,/-$*,/#LO*F/*'08(#"M#7-+9N
A<A#>
KP<=#>
A<B#>
GH<P#
6A<?#>#/"#A<=#>
KP<;#>#/"#KP<K#>
A<A#>#/"#A<=#>
G?<H##/"#GP<A#
6A<@#>
KP<=#>
A<;#>
GH<G#
1+.
/
B/
B/
B--
5(0C/G
B)*2"*2C2
B)*2"*2C2$D/*E"
F1,)1
F1,)1$D"H,2".
=I9$J
=I9$J
;<=#>#/"#?<@#>
A<B#>
6A<;#>
;LI@
;LIA
;LIL$
;MI;$
HK<H##/"#HG<;#
H=<A##/"#HK<H#
HG<B#
H@<H#
3".*"2./#<$8/#$M<$=>9;
!",M%'$#2'".F+/-J-/4#6#Q8Q#+9%,:*#6#)RRO
(,-/#E%T"'#+"0/0#6#Q8Q#+9%,:*#6#)RRO
:9IO$J
;I>$J
:9IO$J
@IM$J
6B<H#>#/"#6;<B#>
?<P#>#/"#H<@#>
6B<B#>
=<;#>
6B<;#>
=<B#>
K6C12./#<$8/#$L<$=>9;
U",0F$*'#U'*.-/#6#787#+9%,:*
P=>I;$Q
P9;IO$Q
V;=<A#D#/"#VBA<A#D
V;H<H#D
V;=<P#D
R1,./#<$8/#$A<$=>9;
!",M%'$#I%4'"EE0#6#787#+9%,:*
(,*$2E"4$*,/#O%/*#6#[*J*E
I'-J%/*#I%4'"EE0#6#787#+9%,:*
I%'/-+-2%/-",#O%/*#6#E*J*E
RJ*'%:*#]"F'E4#S%',-,:0#6#787#+9%,:*
RJ#^"'_`**_#6#REE#S$2E"4**0
==N<>>>$
;I@$J
=9N<>>>$
M=IA$J
>I9$J
N@I;$612
==><>>>$
;I@$J
==N<>>>$
M=IL$J
>I=$J
N@I;$612
;PAYAAA##/"#??HYAAA#
H<?#>#/"#H<H#>
;KAYAAA##/"#??AYAAA#
@B<K#>#/"#@B<K#>
A<;#>#/"#A<?#>
?=<H#9'0#/"#?=<@#9'0
;B@YAAA#
H<H#>
;BGYAAA#
@B<K#>
A<?#>
?=<H#9'0
PHYAAA#
H<H#>
G=YAAA#
@B<K#>
A<B#>
?=<H#9'0
:1);
>?@
6A
CA
DE8
(+=
DB6
6<8=
8)*./#<$8/#$@<$=>9;
3%+/"'4#5'.*'0#6#787#+9%,:*
KC"2./#<$8/#$9=<$=>9;
!3CD#)$%EE#DF0-,*00#52/-$-0$#C,.*1
#
3".*"2./#<$8/#$9N<$=>9;
O*/%-E#)%E*0#6#787#+9%,:*
O*/%-E#)%E*0#E*00#%F/"0#6#787#+9%,:*
S12"'/#I'-+*0#6#787#+9%,:*
C$2"'/#I'-+*0#6#787#+9%,:*
!"#$%&'#%(%)*#&+,-%$./&01$-$*/,&2(3*#".%$&4!'+025&6789
!"#$%&'"(&$()
*+,
*+-.
*+-/
*+0*
56%7"'8%(9"(9:9
0
,
5;'8%(9"(9:9'<%#'(+=>
3
0
4
.
?"@%A'8%(9"(9:9
B*
.
B1
B0
C""D@E'F";
B0
,
B*
B8:G:@=;$7"
B0
B,
B*
?/20$3""47$8/#$@$:$8/#$A<$=>9;
1+2
0
4
B*
B0
B-,
KC"2./#<$8/#$;<$=>9;
I7C#)*'J-+*0#C,.*1
C)7#)*'J-+*0#L,",#$%,FM%+/F'-,:N
1+-1
.
.
.
.
B-,
1+00
.
.
.
.
B-,
F%;"H'IJKLM'G"=9:#"9'#"!%#;"&'7"#9:9'"N!"O;"&'#"9:@;9P'
1+03
.
.
.
.
B-,
4+1
.
.
.
.
B-,
4+-0
.
.
.
.
B-,
4+-3
.
.
.
.
B-,
4+04
.
.
.
.
B-,
:1);
6789
A
B<
D66
(+=
D8B
8789
6<
9A
DBA
(+=
D8A
-0/
0-,
B-01
(+=
6
'
K"9:@;9'=#"'O%(9$&"#"&'=6%7"+!%9$;$7"'%#'6"@%A+(")=;$7"'6=9"&'%(';Q"$#'!%;"(;$=@'$G!=O;';%'O%#!%#=;"'"=#($()9'=(&+%#';Q"')"("#=@'"O%(%G$O'"(7$#%(G"(;P'
5@@'R%#"O=9;9'=#"';=D"('=9'%R';Q"'9;=#;'%R';Q"'A""D'=(&'(%;'=&S:9;"&'R%#'@=9;'G$(:;"'OQ=()"9P
US Economic Comment and Analysis
The second quarter erosion in the MERSI continues while the absolute level of growth remains well within
the range of slow and steady progress.
Conclusion
Slow and steady as she goes. Diffusion indices (PMI and ISM) along with the employment data show an
expanding US economy with little to no signs of meaningful deterioration.
Results may be below expectations but growth at a slower pace than expected is not a contraction.
***
Featured chart: US Personal Income (10 years)
Research. Events. Asset Management.
vinny@bluemarbleresearch.com
4
Blue Marble Research
Research. Events. Asset Management.
Market Metrics
A Weekly Scan of Key Trends and Momentum of Major Markets
Long term (4 years): EAFE (EFA) – Mega Trend positive, momentum both positive: MACD and DMI
Short term (6 months): EAFE (EFA) –Trend neutral, momentum mixed: MACD negative, DMI positive
Divergences: EAFE (EFA) versus various EU countries – Divergences minimal, Italy (EWI) and Spain
(EWP) the laggards
Research. Events. Asset Management.
vinny@bluemarbleresearch.com
5
Blue Marble Research
Research. Events. Asset Management.
Model Growth Portfolio (MGP)
Last Week’s Portfolio Performance
!""#$"%&'%($)*+$,-$./01
89%($:;7'3'"4
DE$E"C39@4$F$G%&743@'"4
"#$%&'()*+,%-)(.,#$/)0
***9(./,:
"#$%&'()*=./>:(%
***@:#A/:*"#$%&'()*=./>:(%
C$()D0
***F,:*CG&,>*H*=()I,-(%
K,$/$-,/:%
L(/:.M-/)(
***N,#.(-M
O$P&%.),/:%
***@:#A/:*O$Q)/%.)&-.&)(
***R/.()*9(%#&)-(%
N/%,-*S/.(),/:%
***@:#A/:*S/.(),/:%
O$Q#*T(-M
T(:(-#'
U.,:,.,(%
****@:#A/:*U.,:,.,(%
E7T$K93*5
=59T*5$)*@#"34
O$P,/
CVKC
C&)#>(*7J5
E'\"$F$E3+5"4
=HW*J55*X#Y*Z#:/.,:,.0
9&%%(::*2555
=&A*T#./:[*X#$D*CG&,.,(%
E29@3_G%?"@4"$:;7'3'"4
$#$(
\(.[*X#$D*CG&,.,(%
Z9%$:;7'3+$>94'3'9%4
^9BB9&'3'"4_Q*@&$[44"34
@#:P
N'd"&$G%C9B"_^7@@"%C'"4
$#$(
\(.[*\#$*CG&,.,(%
K93*5$G%?"43"&$>94'3'9%4
E+B<
I8J
I6K
I8>
LIG
I8:
G:M
I8N
I8O
GPP
I8G
G=N
>QR
I8P
)IG
GJ!
GJM
I8D
SIG
!"'(23'%(4
)#3<$
)=>
!(3<!
!(3<!
123456
43556
83556
;3?56
23556
B3556
B3556
?3556
23556
143256
;3556
183;56 153556
23556
153856
?3556
23556
23556
73256
53556
53556
1;3?56 1J3556
23756
23556
73556
13556
23556
0//<//U ,0<//U
!""#5+$6"47534
!#5+
)#3<
6"37@%
!(3<
53776 53586
53;;6
$</
53?86 535?6
13186
$</
E13786 E53116
E137J6
$</
13?76 532B6
13546 53146
237?6
$</
53886 535J6
E53426
$</
53726
$</
53426 53526
534B6
$</
E53816 E535B6
E735J6 E535?6
E53;;6 E53576
53416
$</
*
/<VVU
)=> 6"5*3'?"$>"@A9@B*%C"
!(3< )=>$H(3<$?4<$)#3$H(3<
53526
53526
53586
$</
53516
53576
535;6
$</
E535;6
E53516
E53576
$</
53146
E53126
53116
53556
535J6
$</
53576
E53526
E53516
$</
53516
$</
53556
E53526
53556
$</
E53546
53526
E53546
53516
E53516
53576
53516
$</
/<.WU
X/</YU
*
:KN$@"37@%$?4<$EF>$1//$
53526
53446
53556
53286
53556
534B6
>GZ
:N[
G:O
23556
53556
53556
13576
53416
135J6
E>8O
G!)
83556
23556
,]<//U
538J6 *
53JJ6 *
$
53556
,]<//U
=8`
23556
53?;6
53526
53826
$
53556
23556
]0<//U
53556
53556
E537?6
53526
53516
*
*
535B6
531B6
*
*
/</YU
>"@A9@B*%C"$^9Ba*@'49%4
EF>$1//$?4<$)9&"5$=@9H32$>9@3A95'9$
EF>$1//
/<VYU
6'4#$*&b743"&$@"37@%
)=>
6'4#
/<V.U
/<YY
!*N(D,$$,$D*V%%(.*S,]*/%*#Q*V>),:*17^*251J
[&b$6"3
/<c.U
EF>$1//
/<VYU
)=>
/<V.U
Z"3
X/</1U
Z"3
/</1U
Performance Data: Year to Date Returns – Absolute and Risk-adjusted
!"#$%&'()*('&+,)*(#&%'#
1234
567
7(+-$/)E,/> ?((.%@
3A34
"#$
%#&#'(
)*%+,
%#')#'(
'*/),
%#'0#'( 1)*+',
%#-%#'(
'*&/,
(#'#'( 1)*0&,
(#+#'(
)*&-,
ABC
2>I1J
)*%+,
-*)+,
'*-0,
-*/&,
'*.),
-*--,
DBC
2>I1J
'*&),
-*.),
-*).,
&*%(,
-*0-,
&*)%,
897)422
?((.%@
,K:
)*-.,
'*0),
1)*..,
'*0(,
1)*%%,
)*&0,
ABC
2>LMJ
)*-.,
'*..,
'*)),
-*0(,
-*&',
-*/+,
DBC
2>LMJ
)*/&,
-*&&,
'*&%,
&*).,
-*/(,
&*)-,
*(%:'-;()7(+<$+=>
?((.%@
ABC
"#$
2>MIJ
)*'.,
)*'.,
1)*'),
)*).,
)*'+,
)*-0,
1)*&., 1)*'-,
1)*-., 1)*%',
1)*)(, 1)*%/,
DBC
2>MIJ
)*/0,
)*(0,
)*0(,
)*&/,
)*)0,
)*)-,
Research. Events. Asset Management.
*-#.)!/0&#'(/)*('&+,)*(#&%'#
567
!
*-#.)!/0
?.%@)*(' "(':F ?.%@)*('
"#$
2>NLO
,K:
)*%+,
)*0&
)*//,
'*/),
)*0(
-*'&,
1)*+',
)*00 1'*)(,
'*&/,
)*00
'*00,
1)*0&,
)*00 1)*.(,
)*&-,
)*00
)*%-,
ABC
3>3PJ
)*//,
-*0.,
'*0%,
&*(',
-*(/,
-*.0,
897)422 ?((.%@ ABC
DBC ?.%@)*(' :%GH:
:%GH:
3>3PJ
"#$
"#$
2>I4J
'*+(,
)*-.,
)*&0, )*&0,
&*.+,
'*0),
)*%&, )*+),
-*.&, 1)*.., 1)*)/, )*0%,
%*0),
'*0(,
)*)-, )*0/,
&*0(, 1)*%%, 1)*(', )*-(,
%*'/,
)*&0,
)*)(, )*-.,
DBC
:%GH:
2>I4J
'*--,
'*/(,
'*(.,
'*/',
'*'),
'*'%,
vinny@bluemarbleresearch.com
6
Blue Marble Research
Research. Events. Asset Management.
MGP Comments
A trade off for the MGP with the absolute performance trailing the broad market by 5 basis points while
the risk-adjusted results beat the broad market by 5 basis points.
On an individual position the strong underweight in Financials had the biggest impact at -12 basis points.
All others were plus or minus a few basis points.
Model Growth Portfolio: Re-balancing
It’s hard to justify much change when performance results are satisfactory. Matching the market on an
absolute basis and beating it on a risk-adjusted one suggests the strategy in place is the appropriate one.
That being said, an increase in the overall equity exposure in anticipation of a further rise in the global
equity markets into this summer seems advisable.
Accordingly, an initial 2% position in IJR (S&P 500 small cap) is being recommended at this time.
(see item below)
***
Featured Portfolio Position: S&P 500 Small Cap (IJR)
Market Intel
From a Mega Trend perspecitve, IJR
is bullish, however, both momentum
indicators (MACD and DMI) are
neutral.
While
this
might
be
concerning, the expectation of a
further run up in equity prices should
erase the weak momentum trends.
Valuation
IJR has a slightly above market P/E of
21, which is not surprising given the
growth expectations (see page 3) and
risk profile of the sector.
Risk
IJR has an above market beta of 1.11, again consistent with the higher growth and risk profile for the
sector.
Dividend Yield
The modestly below market dividend yield at 1.31% versus the S&P 500’s 1.91% is a pleasant surprise.
Conclusion
IJR is a good summer run-up to all-time highs play with many US domestic traders comfortable with the
idea of being in a US centric sector with above expectations in growth and a strong US dollar
environment.
Research. Events. Asset Management.
vinny@bluemarbleresearch.com
7
Blue Marble Research
Research. Events. Asset Management.
Market Data: All Markets Weekly Performance – Best to Worst
Note: All indices listed should be assumed to be US related unless obviously otherwise. All results are price based only and in US dollars.
!
3
.
G
2
D
0
@
!1
!!
!!3
!.
!G
!2
!D
!0
!@
-1
-!
--3
-.
-G
-2
-D
-0
-@
31
3!
333
3.
3G
32
3D
30
3@
.1
.!
..3
..
.G
.2
.D
.0
.@
G1
G!
GG3
G.
GG
G2
GD
G0
G@
>?
2!
223
2.
2G
22
2D
20
2@
D1
D!
DD3
D.
DG
!"#$%"&'()*#)+(),
2(,/&/#&3#),/&
"#$%#&'()
56%7)689(#$8*#&:;<
?)AB:)685)'
>6A&:#)A(E&8*#&:;<
H&I(J%
K:)L(6
*N&:;(#;8*B:%O&
>B'A:()
QR(6&
K(%A&JR
K:)L(68TN)668Q)O
*N&:;(#;8U)A(#8>N&:(J)
C#(A&$8V(#;$%N
>;:(7B'(#&''
K:(A('R8W%B#$
U)A(#8>N&:(J)8.1
T(6E&:
PB''()
=(#)#J()6'
P&;(%#)68K)#Y'
S%N&7B(6$&:'
>;:(JB6AB:&8"#$&I
5:&&J&
T[&$('R8V:%#)
":&6)#$
K:%Y&:8+&)6&:'
*)'A&:#8*B:%O&
T%J()68H&$()
5&:N)#<
"#'B:)#J&
>B'A:)6()#8+%66):
56%7)68=(#)#J()6'
56%7)68Q%#'BN&:8TA)O6&'
S&)6ARJ):&8W:%E($&:'
U):;&8Q)O\8+%[8"#$B'A:()6'
Q6%B$8Q%NOBA(#;
"#E&:'&88CT8Z:&)'B:<
S&)6ARJ):&
*B:%O&83G1
"#$()
WR):N)J&BA(J)6'
P&A)(6(#;
^)O)#
P&)68*'A)A&
H&$(J)68+&E(J&'
"#A&:#&A
"A)6<
P&)68*'A)A&
5%6$
Q%#'BN&:8TA)O6&'
T[&$&#
ZB:Y&<
56%7)68H)A&:()6'
*>=*85:%[AR
?&A[%:Y(#;
TN)668Q)O85:%[AR
P&)68*'A)A&
K)'(J8H)A&:()6'
56%7)68CA(6(A(&'
4@64
T%`A[):&
P&)68*'A)A&
H&;)8Q)O
H($8Q)O85:%[AR
PB''&668-111
Q)#)$()#8+%66):
U):;&8Q)O8X)6B&
>&:%'O)J&8a8+&`&#'&
TN)668Q)O
T%6):8*#&:;<
TaW8G118U%[8X%6)A(6(A<
TaW8U%[8X%6)A(6(A<
"#$B'A:()6'
CT8b8TaW8G11
H&A)6'8)#$8H(#(#;
456
*"+,
=>?
C?5
5*F
*99
*9M
5CP
*9,
*QS
"KK
KP=
5HU
*9C
H,,
=FK
"U=
TUX
PTF
FU=
">Z
FSK
+K>
5P*V
=FT
*"PU
">"
*TP
T,QU
*95
">V
=F>
"F5
VF"
"S=
+">
TV]]
ZK=
FUX
"*X
W"?
"S*
FPZ
*9^
P9P
"S"
=+?
*9"
P*M
5U+
FUW
*9+
ZCP
HF"
*=5
=!.
"^Z
X?_
FUK
^F"
46@
=!G
"]P
,*=
"^V
"9H
=FQ
"X*
"Z>
"^P
V9Z
TWUX
TWUX
FU"
TW]
FH*
7%,/
25.70
12.07
14.13
63.50
59.97
37.19
31.69
17.45
43.65
352.14
18.30
53.30
19.65
57.04
151.66
32.91
15.76
20.24
24.76
35.43
35.80
22.36
12.65
119.80
40.16
43.24
20.36
20.18
30.38
50.16
79.33
59.72
94.44
130.62
181.85
30.99
25.39
73.45
46.94
21.52
172.45
99.17
13.14
90.62
118.90
67.10
15.63
60.08
113.97
49.17
34.42
47.15
60.71
73.50
38.87
128.11
80.48
51.57
47.83
67.66
100.88
76.36
93.29
169.95
122.64
82.22
95.16
121.75
116.54
86.85
37.58
37.58
56.58
211.62
28.64
')-#)
.(/&
'0/1
3((8& 9:%;<( 9:%;<(
-./0.
1/02
3/.24
!!/20
1/3@
3/3.4
!3/D!
1/.3/124
2!/D!/D0
-/004
G0/33
!/2.
-/0!4
32/-!
1/@0
-/D!4
31/0@
1/01
-/G@4
!D/1.
1/.!
-/.!4
.-/2.
!/1!
-/3D4
3../11
0/!.
-/3D4
!D/00
1/.-/3G4
G-/!1
!/-1
-/314
!@/-1/.3
-/-.4
GG/00
!/!2
-/104
!.0/G0
3/10
-/1D4
3-/-@
1/2!/@-4
!G/.D
1/-@
!/0D4
!@/0D
1/3D
!/024
-./3.
1/.!/D34
3./03
1/21
!/D-4
3G/-G
1/GG
!/G24
--/11/3.
!/G.4
!-/.D
1/!0
!/..4
!!0/!1
!/D1
!/..4
3@/2!
1/GG
!/3@4
.-/2D
1/GD
!/3.4
-1/1@
1/-D
!/3-4
!@/@1/-2
!/3!4
31/11
1/30
!/-D4
.@/G2
1/21
!/-!4
D0/.!
1/@!/!D4
G@/1.
1/20
!/!G4
@3/30
!/12
!/!.4
!-@/-!
!/.!
!/1@4
!D@/@1
!/@G
!/104
31/22
1/33
!/104
-G/!1/-D
!/1D4
D-/20
1/DD
!/124
.2/.G
1/.@
!/1G4
-!/31
1/-!/134
!D1/2@
!/D2
!/134
@0/-1
1/@D
1/@@4
!3/11/!1/@-4
0@/0!
1/0!
1/@14
!!D/0D
!/13
1/0D4
22/G.
1/G2
1/0.4
!G/G1
1/!3
1/0.4
G@/G@
1/.@
1/0-4
!!3/10
1/0@
1/D@4
.0/0!
1/32
1/D.4
3./!0
1/-.
1/D14
.2/03
1/31/204
21/31
1/.!
1/204
D3/1!
1/.@
1/2D4
30/21/-G
1/224
!-D/-@
1/01/2.4
D@/@0
1/G1
1/234
G!/-G
1/31/2-4
.D/G.
1/-@
1/2!4
>A1BC
?1DE
?1>EF
!11/-D
1/2!
1/2!4
DG/@1
1/.2
1/2!4
@-/D3
1/G2
1/214
!20/@G
!/11
1/G@4
!-!/@D
1/2D
1/GG4
0!/D0
1/..
1/G.4
@./22
1/G1
1/G34
!-!/!2
1/G@
1/.@4
!!2/11
1/G.
1/.D4
02/.G
1/.1
1/.24
3D/.!
1/!D
1/.G4
3D/.!
1/!D
1/.G4
G2/33
1/-G
1/..4
-!1/D1/@1
1/.34
-0/G1/!1/.-4
!"
!!
!@
!6
@7
!"
@K
@?
@8
@4
@"
@!
@@
@6
67
63
6K
6?
68
64
6"
6!
6@
66
377
373
37K
37?
378
374
37"
37!
37@
376
337
333
33K
33?
338
334
33"
33!
33@
336
3K7
")"
3KK
3K?
3K8
3K4
3K"
3K!
3K@
3K6
3?7
3?3
3?K
3??
3?8
3?4
3?"
3?!
3?@
3?6
387
383
38K
38?
388
384
38"
38!
38@
386
347
Research. Events. Asset Management.
#$%&'()$*(+%,-./
:;<='$%
A$*$B'C'(D'B
GHI()$*
L=$<M%,<M(N$CC'.(O&%CP
#$%&'((
J,-(R%$BC*,%.C
),BC;O'%(JHC<%'.H,B$%S
TH&/(DH'=I
2$.'%(>'C,;%<'C
R,.$=(2,%=I(W.,<M(0BI'X
TH&/(DH'=I
WO$==()$*(1$=;'
U%HY$.'(Z[;H.S
W*$HB
W-HCC(E%$B<
G'.$=C(R,.$=(>'.;%B
E%$B<'
VH=
GHI()$*(1$=;'
ZO'%&HB&(G$%M'.C(L,BI
+=,_$=(0B`,(R'</
W.''=
0BY'C.O'B.(+%$I'(),%*5
0B`,(R'</
+=,_$=(R'='<,O
GH<%,()$*
G$=$SCH$
Z;%,aJ,==$%
),$=
)/HB$(a(>'$=(ZC.$.'
0B`,(R'</(c(R'='<,O
),OO,IH.S(0BI'X
WcU(TH&/(L'.$
ZO'%&HB&(G$%M'.C(WO$==()$*
L>0)(0BI'X
0B`,%O$.H,B(R'</B,=,&S
),**'%
U%'`'%%'IC
J,==$%(0BI'X
G'IH$
0C%$'=
R0UC
0BY'%C'(>;CC'==(K777
+=,_$=(0B`%$C.%;<.;%'
6789:;<:&=>9?8@A
T,B&(Q,B&
0BIH$(WO$==()$*
U'%;
)$B$I$
^=.%$(W/,%.(L$CH<(G$.'%H$=C
W'OH<,BI;<.,%C
R$H-$B
)/HB$(a(T$=.'%(^WF(
WHB&$*,%'
W,=$%(ZB'%&S
^.H=H.H'C
ZO'%&HB&(GHI(Z$C.(c(b`%H<$
0BY'%C'(WO$==()$*
E%,B.H'%(G$%M'.C
ZO'%&HB&(bCH$(U$<H`H<
VH=(W'%YH<'
^W(R%'$C;%S(K7(S'$%
ZB'%&S
VH=(Z[;H*(c(W'%YH<'C
+,=I(GHB'%C
bCH$(U$<H`H<('XaA$*$B
Q,%'$
b;C.%$=H$
W,;./(b`%H<$
VH=(c(+$C(ZcU
)/HB$(a(WcU
)/HB$(a(ERWZdFHB/;$(K4
)/HB$(WO$==()$*
R'='<,OO;BH<$.H,BC
012
:#>
EFD
GJD
L#Q
116.43
50.26
81.16
276.32
370.04
2116.10
0DR
F#D
TD+
UTV
1R
A:Q
0AW
UWU
Z2U
EFE
>A\
Z2]
^WV
0AA
ZGL
012
W#F
#]J
345
0FU
02)
Z2G
EFZ
QV#
RbV
F#Q
JL)
WUTL
Z2F
LQE
0D2
AA)
U+F
^^U
ULW
0W#
R0U
>2G
0+E
66=
Z2T
W)0E
ZU^
Z2)
WG:
#=E
Z2R
U+A
Z2W
Rb:
F#^
+bE
WLL
E>:
+GE
V0T
R#R
F#Z
0Z\
+JF
ZUU
Z2D
Z2b
Z\b
0ZV
+F)
EF0
TbV
0D\
157.09
76.60
91.08
25.30
63.96
39.44
117.56
11.98
36.32
104.46
8.10
27.54
20.42
131.48
112.92
99.88
35.76
119.01
109.32
64.86
78.11
13.68
110.14
13.68
25.53
43.03
18.22
35.48
47.60
40.68
108.39
35.13
14.71
24.91
26.53
18.30
113.25
14.84
43.63
42.87
23.86
44.42
30.68
28.93
26.16
56.57
16.44
33.57
13.57
47.04
44.03
71.08
50.66
13.92
93.04
38.57
122.51
81.76
53.22
19.97
46.84
59.98
22.94
69.04
77.20
95.64
50.51
33.39
29.87
33456!
4757!
@75@4
K!45K!
?"@5"8
)*"(!+),
34"54K
!"5?4
675!6
K45KK
"?5!6
?65?8
33!5?3
3356"
?"5K!
3785?K
@576
K!543
K7587
3?35?!
33K5@?
665@K
?45!8
33@564
3765K!
"85@"
!@533
3?5"@
337534
3?5"6
K454!
8?537
3@5K!
?454@
8!5!4
875@8
37@5@8
?45K6
385!@
K457?
K"5"!
3@587
33?5@6
3856?
8?567
B.+"B
K857K
885!?
?7567
K6538
K"5?!
4!578
3"54@
??5@!
3?5"6
8!586
8858!
!35@3
435K7
3857@
6853K
?657K
3K8577
@K5@!
4?564
K75K!
8!5"7
"353"
K?584
!75"K
!657"
6@574
435@7
?85?6
?75@3
758"
7536
75?3
3574
3587
-+!"
754!
75K4
75K6
757@
753!
7537
75K4
757K
7574
7538
7573
757?
757K
7533
7576
757"
757K
757"
7574
7577
7577
7577
a7573
a7573
a7578
a757!
a7574
a7537
a7534
a753"
a7584
a753"
a757!
a753K
a7538
a7537
a75"8
a7576
a75K!
C(+)a753"
a75?3
a75KK
a75K3
a75K3
a758!
a7538
a75?7
a753K
a7584
a7588
a75!?
a7548
a753"
a357@
a7584
a3586
a3533
a75!?
a75?7
a75!"
a353@
a7543
a354@
a35@"
aK583
a35K6
a3577
a7568
75879
75?69
75?@9
75?@9
75?@9
(+.-/
75?"9
75??9
75?K9
75?K9
75K!9
75K49
75K39
753!9
75389
753?9
753K9
75339
75379
757@9
757@9
757"9
757"9
75749
75749
75779
75779
75779
a75739
a757!9
a753"9
a753"9
a75K!9
a75K@9
a75?39
a75?69
a75839
a75849
a758!9
a758@9
a754K9
a75489
a754"9
a75"79
a75"K9
C(+D./
a75"!9
a75"69
a75!39
a75!K9
a75@79
a75@K9
a75@89
a75@!9
a75@@9
a75649
a75669
a357K9
a35749
a35389
a35349
a35349
a35K79
a35?89
a35?49
a358@9
a35"79
a356?9
aK53!9
aK5K89
aK5?49
aK58"9
aK5869
aK5639
a?5749
vinny@bluemarbleresearch.com
8
Blue Marble Research
Research. Events. Asset Management.
Key Assumptions and Methodologies
As always: Investors are advised to take in to consideration the volatile nature of the markets. Accordingly, any portfolio adjustments
should be exercised with the greatest of care. This report is limited to a once per week publishing schedule. However, investors are
not so restricted enabling entry and exit points that, if properly implemented (e.g., sell into rallies during the first wave of a bear),
should result in better performance results.
Pick your spots to ease in and out of positions. Exploit the situation to the best of your ability. Be practical with your tactical.
Essential to all analytical tools are the key assumptions that underlie them and the methodologies employed. The
following describes the major key assumptions to the analytical tools and the methodologies employed in this report.
Macro Economic Analysis (MERSI – Macro Economic Reports Surprise Indicator)
Earnings (cash flows) are one of the key fundamental-analysis inputs upon which valuation (and therefore investment) decisions are
made. The fundamental premise of the MERSI is that, in the aggregate, current earnings expectations incorporate the consensus
view. Therefore, whenever macro economic reports come in above or below consensus expectations, economists might change
their outlook and/or earnings come in above or below expectations, which in turn will likely cause individual company analysts to
adjust that macro economic component of their industry and company forecasts thereby resulting in higher or lower earnings
forecasted and/or higher or lower expected growth rates. Since this process occurs with a meaningful lag, investors can gain a
competitive advantage by anticipating changes to earnings and/or growth rate forecasts as the above or below consensus
reports are filtered into the forecasts.
Valuation Models
The Market Derived models – DCF and Modified Fed – both use the market’s present price and attempt to derive what the
fundamentals would have to be in order to match the market’s current price level.
Note: Because the equity markets are a discounting mechanism and assuming that they are somewhat efficient, the Market Centric approach
employed by the following two valuation models starts with what the market says is fair value – which is its current price. From this investors then ask
the following questions, “Does the data and implied conclusions fit the overall analysis? What does the market say the fair value should be? Do I agree
with that conclusion?” By starting with the market, this process is, in effect, a form of reverse engineering the valuation process.
About the models: The Best Fit Market Model takes a direct and simple approach to determining valuation – take the current price level of the S&P
500 and match it against operating earnings and P/E levels (both current and future). The Modified Fed Model is a bit more complex in that it looks at
the interplay between price, earnings, and interest rates.
Modified Fed Model Key Assumptions:
1 - Equity Markets adhere to the weak form of the Efficient Market Hypothesis and are generally efficient. Therefore, on any given
day the market values itself based on its historical expected return of 11% (average of 10% and 12%).
2 - Risk is dynamic and changes according to credit spreads, volatility, and investor sentiment.
3 - Markets are dynamic and in a constant state of change. Valuation levels are, therefore, calculated daily to relfect this state of
constant change.
4 - Changes in interest rates effect valuation levels, which are reflected above in the form of the average P/E ratio.
5 - Light Blue shaded areas signify zones approximating a 12% expected/required return for large cap stocks.
Market Intelligence: Key Assumptions and Rules
Long Term Indicator: Mega Trend
Near Term Indicators
* Price relative to the 50 and 200 day moving averages
Momentum & MACD
* 50 day moving average relative to the 200 day moving average
* Momentum confirmaton/non-confirmation
* Slope of the 50 moving average and 200 day moving average
* MACD mvoing averages crossover
* Direction Guide: Deteriorating = 50 day downwardly sloped, 200 day flat to downwardly sloped; Intact = 50 and 200 day upwardly sloped or flat to upwardly sloped.
* Direction Guide: Improving = 50 day upwardly sloped, 200 day flat to upwardly sloped.
Mega Trend Moving Averages Principle
* Price relative to its 50 and 200 day exponential moving averages.
* 50 day moving average relative to its 200 day exponential moving average.
* Slope of the 50 moving average and 200 day exponential moving average.
Short Term Indicator: Slow Stochastic
* Overbought >80, Oversold <20
*Data source: Yahoo Finance. Note: Percent from moving averages may differ from that sourced from BigCharts.com, which is the primary source used
in the analysis portion above.
Usefulness of indicators
Mega Trend helps identify the longer term direction. Both near and short term indicators help with timing
***
Methodologies
Combining both fundamental and technical analysis, the report seeks to capitalize on the benefits each discipline provides.
Using its GEM (government, economy, and the markets) and Global Thematic analysis, the report is a weekly examination of the
key macro trends and themes impacting the investment markets. The research methodology provides a comprehensive approach
to investment strategy by incorporating the critical variables within each area of analysis.
The purpose of the report is to provide insights to investors and other interest parties. The investment goals of the insights are: Earn
a positive return, Minimize risk, Outperform the market.
The Macro Strategist Report predominantly employs ETFs (Exchange Traded Funds) in its Model Growth Portfolio (MGP), as they
provide the sectors and styles exposure needed to build a cost-effective diversified portfolio.
Research. Events. Asset Management.
vinny@bluemarbleresearch.com
9
Blue Marble Research
Research. Events. Asset Management.
About “The Effective Investor Report”
The Effective Investor Report is a weekly investment strategy perspective produced by Blue Marble Research and
part of the Blue Marble Research Advisory Service.
The Effective Investor Report is designed to provide investors with a guide toward sound investment strategies.
Published 48 times a year, The Effective Investor Report is available on an annual subscription basis of $250 per
year.
***
The information found within this report was prepared from data we believe to be reliable but is not guaranteed by us as being
accurate and does not purport to be a complete statement or summary of available data. Such information and any views or
opinions expressed herein are not to be considered as an offer to sell or a solicitation of an offer to buy securities of the sectors or
styles covered by this report. Opinions expressed are subject to change without notice. Past results are no indication of future
results. The portfolio recommendations contained in this report are meant as an investment guide. All investors are advised to
consult their financial advisors when making investment decisions. Some of the sectors and styles mentioned in this report are the
recipients of trends and themes that might vary from those noted in this report.
Vincent Catalano certifies that all of the views expressed in this research report accurately reflect his personal views regarding any
and all of the subject securities or issuers. Neither Vincent Catalano nor any member of his family hold positions listed in the Model
Growth Portfolio. Accounts managed by Blue Marble Research Advisory typically do hold most to all of the positions listed in the
Model Growth Portfolio. Information regarding the portfolio management services of Blue Marble Research Advisory is available
upon request. Some of the data used in this report come from various sources including but not limited to the Wall Street Journal
On-line, Big Charts, Standard and Poors, and Finance.Yahoo.com.
Note: The Model Growth Portfolio (MGP) and the S&P 500 performance data are reflected on a price change
basis only. Dividends and their reinvestment are not factored into the returns. Asset allocation decisions and
their effects are not factored into the returns. Returns are calculated on weekly chain-linked basis and may
differ from the returns calculated using other methods. Market weightings are adjusted when portfolio
changes are made. Transaction expenses and other fees are not included in the return results.
Special Note re alpha: Throughout its existence, the MGP has always maintained a below average risk level.
The alpha listed is not a risk adjusted number but the absolute return difference between the MGP and the
S&P 500. If the MGP reflected its true risk, the MGP alpha would be considerably higher than noted.
***
Copyright © 2015 Blue Marble Research Advisory. All rights reserved.
Research. Events. Asset Management.
vinny@bluemarbleresearch.com
10