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Authored by Michael Lebowitz and Jack Scott via RealInvestmentAdvice.com,

Many investors, especially those with limited investment experience, are declaring that value investing is dead.

If one’s investment experience runs over the last ten years, who can blame them? Since 2010, growth stocks have outperformed value stocks, on average, by 6.11% a year.

If one’s experience runs deeper, and/or they appreciate history, they may have a different perspective. Over the last 100 years, including the last ten, value has outperformed growth by 3.19% a year.

So, is value dead or does value offer incredible opportunities versus growth?

All value and growth data in this article comes from Kenneth French and Dartmouth University. In particular, we use the HML factor from the Data tab. 

What are Value and Growth?

Value stocks can be defined in many different ways. The basic premise, however, is the inclusion of stocks trading at a low price relative to their fundamentals; low price-to-earnings, low price-to-book, low price-to-sales, etc. The benefit of buying value stocks is the expectation that prices return to fair value. Quite often, the return benefits from above-market dividends. Equally important, buying a discounted asset reduces your risk.

Like value, there is no simple formula defining growth stocks. Growth stocks are companies whose earnings are expected to grow at a faster rate than the market. Because of the promise of future earnings, these stocks tend to trade at valuation premiums. Fewer of these stocks have meaningful dividends to bolster returns. Assets trading at a premium have a more daunting risk profile.

There is an appeal to owning value stocks and growth stocks. Mr. Market, however, makes deciding between the two difficult. At times, the premium for growth stocks can far exceed their potential growth. Frequently in such times, value is neglected and offers enormous relative performance potential. Other times growth stocks may be beaten down and offer a cheap entry point versus value stocks that have traded up to, or through, their fair value.

Historical Perspective

We firmly believe in mean reversion. The extreme highs for one asset class will eventually normalize closer to the long-term average. Often this occurs after dropping well below the long-term average. There is no example in the history of markets where mean reversion did not exert influence.

As mentioned, value has underperformed growth annually by 6.11% over the past decade. Over the last 100 years, value beats growth by 3.19% annually.

The graph below shows the rolling five year total returns for value versus growth.

As shown, there are very few five year periods where growth beats value. 82 percent of the time value outperforms growth. If we exclude the last ten years and the 1930’s the percentage climbs to 96%.

It is also notable that periods of value underperformance are followed by periods of strong outperformance. As we will highlight, this was last on display in the technology bubble of the late 1990s. From July of 2001 to July of 2006, value outperformed growth by nearly 150%.

As the chart above illustrates, the current period of value underperformance is the most extreme both in terms of duration and magnitude. Mean reversion argues that this trend will soon shift back to favor value.

Tech Boom and Bust

The graph below details the value-growth under- and outperformance of the late 1990s and early 2000s.

The chart tracks the cumulative net performance of value stocks versus growth stocks between 1998 and 2002. Like today, investors caught up in the tech boom only cared about growth. They bought into every story about the promise of technology. At the same time, companies trading with low valuations and steadily rising earnings are being thrown by the wayside.

In just two years, as markets rose to record-breaking valuations, growth beat value by 37.64%. However, when the markets came to their senses in early 2000, value rose from the dead. From low to high, just two years later, value beat growth by over 70%.

Value investors that held to their beliefs, stuck with their discipline, and shunned growth stocks may have lost the day in the late 1990s but won the battle. Not only did value stocks provide a great return but they provided a nice cushion. Owning value stocks in the early 2000s not only limited losses but actually produced gains in a down market.

20 Years Later

The experiences of the tech boom and bust have been long forgotten by most investors. There are a few value investors remaining today who are aware of what happened then. Like then, they are waiting for a second showing, but the wait is tedious.

The graph below shows that over the last two years growth has beaten value by 45%, 7% more than the two years leading into the tech bust.

Like the 1990s, every investor is chasing the same set of growth stocks. Today, they go by the name of FANGS. In the late 90s, they were called the Big Five.

The magnitude growth outperformance is amplified today due to the overwhelming popularity of passive investing. Those companies with the largest market caps receive a disproportionate percentage of investable dollars. Companies with the largest market caps today are predominantly growth companies.

2000 vs 2020

While the two periods may appear similar in their speculative nature and the value – growth divide, their fundamental backdrops are worlds apart.

In 2000, share prices of growth stocks, and in particular specific tech high flyers, got ahead of themselves. Their future earnings, however, had strong economic and fundamental underpinnings. Today they do not.

GDP was growing annually at 3.2% in the 1990s. That compares to 2% over the last ten years and most likely below 1.5% in the future. In the 1990s, debt as a percentage of GDP was a fraction of what it is today. Productivity growth was much stronger twenty years ago than today as well. In the 1990s, companies invested in their future development. Today they prefer to buy back stock and neglect their future earnings capabilities.

Today’s economy is not backed by organic growth and strong productivity, but rather debt and fiscal and monetary schemes. Given the environment, the argument for speculation over reliable earnings growth is befuddling.

Summary

If you appreciate history and understand that hangovers follow periods of excess, this article should be compelling. Growth’s recent outperformance over value goes beyond any historical precedence. Accordingly, any future underperformance, like its outperformance, might be one for the record books.

Exact timing on trend changes are difficult to predict.  Growth may have already peaked versus value, or it may still have months or years to go. Regardless, the current period provides us precious time. Time to research stocks and slowly add value stocks to our portfolios. Adding value may seem futile like the late 1990s, but we know how that ended.

Tesla’s global network has inexplicably crashed, according to Elektrek, which cited users around the world being unable to access their cars via their mobile apps.

Developing…

Two days before Powell unveiled Flexible Average Inflation Targeting (FAIT) as the Fed’s new monetary doctrine on August 27, some analysts were already pricing it in and analyzing how long it would take for the Fed to hit its “target” using conservative assumptions, with BofA concluding that “it would take 42 years to reach the price level target if core PCE remained at 2.1% yoy” but just 2 years if core PCE rocketed to 4.0% (good luck hitting 4% inflation).

And while analysts had no choice but to make sweeping assumptions before AIT was unveiled, they have to do the same now as well after AIT became official, simply because the Fed refused to provide key details about the program it is now operating under, and as Bank of America writes in a post-mortem on FAIT, “The Fed will seek to average 2% inflation over time but specifics around the time frame for averaging and the extent of inflation overshoot were light.“

Still, one can model some scenarios using simple assumptions.

These clearly show just how difficult the Fed’s new inflation objective could be to achieve as the following analysis from BofA’s Claudio Irigoyen shows, using a few scenarios for average 2% headline PCE assuming a non-flexible average inflation target.

To wit: if the Fed began its averaging period at the start of 2017 and monthly headline PCE is equal to 2.1% y/y going forward it would take 11 years to achieve the inflation target. Alternatively, if one uses 2008, or even 2000, as the starting year for the “average period” and the monthly PCE inflation print is 2.1% y/y, then it would take either three generations – 59 years – or two generations of trades, (37 years) to average 2% headline PCE.

Sadly, it’s not starting off well: as the strategist notes, the BofA’s house view is for headline PCE of 1.6% y/y for 2021, “which would mean an even longer time until the target is achieved.”

Of course, the time period would be truncated if the Fed somehow managed to hit monthly headline PCE of 3.0% y/y (or higher): in that case, achieving the target would take about one year. Unfortunately, such inflation – which would only materialize if these was a burst in wages – appears impossible to none other than the Fed: as the FOMC’s latest economic projections show, the max inflation overshoot in the Fed’s 2023 inflation forecasts is 2.1%.

In other words, even the Fed admits that we are looking at decades before the Fed will hike rates, unless of course the Fed is given a greenlight to wire digital money into US households directly… something which the Fed itself admitted is the last-ditch attempt to spark inflation at any cost.

One week ago, New York City Mayor Bill de Blasio announced that he will furlough himself and his City Hall staff for one week as the city weathers a budget (and everything else too) crisis.

“We’ve already had to make some tough cuts,” de Blasio announced last Wednesday.

“We’re doing everything we can to stop those cuts from becoming worse.”

Blasio, his wife first lady Chirlane McCray, and nearly 500 other staff members will take a week of unpaid furlough sometime between October and March 2021. The largely symbolic move is projected to save the city $860,000. And since “symbolic” was the key word here, moments ago the socialist mayor announced that New York City would expand its week long furloughs to another 9,000 employees to save $21 million, they mayor said this morning.

All managerial and non-represented employees must take five furlough days from Oct. 1 through March, the mayor revealed.

Alas, this latest round of furloughs will not be nearly enough as the city faces a $9 billion shortfall in revenue through June 2021. The mayor has warned of as many as 22,000 layoffs in the absence of federal financial aid or approval from the state for long-term borrowing.

“I know this is difficult news for the dedicated public servants of our city,” de Blasio said. “But we are forced to make these difficult decisions as we face a massive budget shortfall with no help in sight.”

The furloughs come as New York State is contemplating following New Jersey in slapping millionaires with higher taxes. A tax hike appears virtually inevitable should Gov Andrew Cuomo’s hope that Congress will appropriate additional aid fails.

 

 

Authored by Paul Joseph Watson via Summit News,

The Eiffel Tower in Paris has been evacuated after a bomb threat from a man shouting “Allahu Akbar”.

A security perimeter was established around the famous landmark after authorities received a bomb threat via an anonymous phone call.

This was followed by reports of a man near the tower threatening to “blow up everything” while shouting “Allahu Akbar,” a common refrain of Islamic terrorists, a police source told Sputnik.

Social media users posted image of armed forces on the scene.

Les vérifications sont en cours. Selon nos informations la @LaTourEiffel est évacuée pic.twitter.com/FiIK8TfxEM

— Barthelemy Bolo (@B2Bolo) September 23, 2020

pic.twitter.com/E5j8UXsvqE

— Amaury Bucco (@AmauryBucco) September 23, 2020

The area around the tower is currently closed to traffic as authorities investigate the incident.

Back in 2017, Paris announced that it would be spending 20 million euros on a protective barrier around the Eiffel Tower to restrict access after a series of attempted terror attacks.

This put an end to the landmark’s spacious surrounding area which had provided a pleasant experience for both tourists and locals for decades.

Then diversity arrived.

*  *  *

In the age of mass Silicon Valley censorship It is crucial that we stay in touch. I need you to sign up for my free newsletter here. Also, I urgently need your financial support here.

Via AlMasdarNews.com,

The U.S. Army has deployed the first batch of its newly established military branch, the “Space Force”, outside the United States, specifically in the Arabian Peninsula.

The Chargé d’Affairs at the United States Embassy in Qatar, Greta C. Holtz, said on her Twitter account on Tuesday, that “Washington has deployed the first group of the space force at Al-Udeid Air Force Base in Qatar.”

She added: “The deployment of the first group of members of the U.S. Space Force to Al-Udeid Air Force Base in Qatar represents the commitment of the United States and Qatar to continue building their strategic partnership in the future and in the space field.”

The Space Force was established by a decision of U.S. President Donald Trump on December 21, 2019, and is the first to be established in the country in more than 70 years, and represents the sixth branch of the U.S. military.

The Associated Press provides the following details:

In a swearing-in ceremony earlier this month at Al-Udeid, 20 Air Force troops, flanked by American flags and massive satellites, entered Space Force. Soon several more will join the unit of “core space operators” who will run satellites, track enemy maneuvers and try to avert conflicts in space.

“The missions are not new and the people are not necessarily new,” Benson said.

That troubles some American lawmakers who view the branch, with its projected force of 16,000 troops and 2021 budget of $15.4 billion, as a vanity project for Trump ahead of the November presidential election.

The deployment of the first members of the U.S. Space Force to Qatar’s #AlUdeid Air Base symbolizes the United States’ and #Qatar’s commitment to further building our strategic partnership into the future – and into space! @SpaceForceDoD https://t.co/smdDw0rqHF

— CdA Ambassador Greta C. Holtz (@USAmbQatar) September 22, 2020

The U.S.-Qatari relations in the military field are deepening, as about 13,000 American soldiers, most of them from the Air Force, are stationed at Al-Udeid base, 30 km southwest of the capital, Doha.

* * * 

Meanwhile…

This is kind of like a coming-of-age ceremony for Space Force. You’re not a full branch of the American military until you’ve deployed to the Middle East on some vaguely-defined and never-ending mission. https://t.co/JGYDBj7JGu

— Gregg Carlstrom (@glcarlstrom) September 21, 2020

Oil prices have chopped around overnight, rallying hard as Europe opened after weakness following last night’s surprise crude build reported by API.

“The API was positive I’d say, with draws in gasoline and distillates” and crude little changed, said Bjarne Schieldrop, chief commodities analyst at SEB AB. “A large drawdown in the fourth quarter or not is the big question.”

Additionally, as Bloomberg reports, in the near term, the demand outlook looks troubled. In Europe, the profit from turning crude into diesel slipped toward $2 a barrel earlier, a record low in data going back to 2011. That curbs demand for crude from refineries. The head of Russia’s Gazprom Neft PJSC said that the recovery in global oil consumption has indeed slowed down.

API

• Crude +691k (-4.0mm exp)

• Cushing +298k

• Gasoline -7.735mm (-1.9mm exp) – biggest draw since Sept 2017

• Distillates -2.104mm (+1.2mm exp)

DOE

• Crude -1.64mm (-4.0mm exp)

• Cushing +4k

• Gasoline -4.03mm (-1.9mm exp)

• Distillates -3.364mm (+1.2mm exp) – biggest draw since March 2020

Dramatic draws in crude, gasoline, and distillates… This is the 7th weekly draw in gasoline in a row and biggest distillates draw since March

Source: Bloomberg

Between Hurricanes and Tropical Depressions, there is still some lingering noise in the production data, which showed a small drop in the last week…

Source: Bloomberg

WTI hovered around $40 ahead of the official inventory data and extended gains on the draws…

Bloomberg Intelligence Senior Energy Analyst Vince Piazza notes that resurgent coronavirus infections in Europe could depress crude demand sooner than we had expected. With the U.S. past peak summer travel season, we’re braced for near-term oversupply. Interestingly, domestic production has reawakened with a WTI rally through $43, pressuring sentiment and balances.

Summary:

• US nears 7 million cases
• Post-LBW spike continues
• Trump moves more money to ‘Operation Warp Speed’
• NYC warns of new hotspots that require “urgent action”
• Mayor de BLasio furloughs 9k workers
• France to announce new COVID restrictions
• Japan on track to approve new COVID drug
• Indonesia reports another daily record
• China, Japan to ease travel restrictions on foreigners

* * *

The number of new COVID-19 cases reported in the US on Tuesday accelerated to 39,345 (compared with +37,417 the prior day), as the post-Labor Day Weekend surge (something that BofA analysts insist is being driven almost entirely by increases in testing) continues. Mirroring the increase in cases, deaths increased by 438, compared with just 270 the day before. California saw cases climb 2,630 yesterday (compared with +3,294 for the prior day), while deaths increased by 53, vs. 31 a day ago.

Meanwhile, the US death toll topped 200,000, a level that was once “unfathomable”, according to the AP.

“It’s completely unfathomable that we reached this point,” said Jennifer Nuzzo, a JHU researcher. The AP also noted that 200,000 deaths from the virus is roughly equivalent to one “9/11” per day for 67 days.

The newswire also noted that the milestone comes “six weeks before an election that is certain to be a referendum in part on President Donald Trump’s handling of the crisis.”

Speaking on CNN, Dr. Fauci said “the idea of 200,000 deaths is really very sobering, in some respects stunning.”  President Trump, meanwhile, said last night that “if we didn’t do it properly and do it right, you’d have 2.5 million deaths”, while Democratic candidate Joe Biden took to twitter to proclaim “it didn’t have to be this bad” (then again, Biden also apparently believes the death toll is 200 million, several orders of magnitude higher than reality). Brazil, which essentially did let its outbreak run wild, is in second place with 137,000 deaths, though some critics believe that number underestimates the true death toll.

Looking ahead, the US is roughly 2 days away from becoming the first country to top 7 million confirmed cases: As of Wednesday morning, the US had 6,897,756 cases, and 200,818 confirmed deaths.

In terms of the big US news on Wednesday, NYC’s health department identified a new cluster of cases yesterday in Brooklyn which it warned could be cause for “significant concern”. the hot spots have been traced to four areas in Queens and Brooklyn.

Speaking Wednesday morning, Mayor de Blasio warned these new ‘hot spots’ require “urgent action” and that NYC will increase enforcement of social distancing rules and also bolster its testing efforts to try and stave off the new outbreak. The mayor also annonced a five-day furlough impacting 9,000 employees – a measure that will reportedly save the city $21 million.

And as we noted earlier, JNJ announced its vaccine candidate would be starting Phase 3 trials, making it the fourth candidate to cross that threshold. Yesterday, UK PM Boris Johnson unveiled new measures to slow a resurgence in the UK’s outbreak. The PM also warned that if the measures aren’t effective, that the UK may return to lockdown, even as a team of BofA analysts warned that tighter COVID restrictions will “scar the UK economy further”.

Wisconsin Gov Tony Evers announced new measures late Tuesday declared a public health emergency and extended an order to wear face masks into November.

Finally, the Trump Administration according to Bloomberg is shifting billions of dollars to ‘Operation Warp Speed’, its vaccine effort which relies on throwing money at vaccine projects, and away from testing and masks. The shift shows the administration’s “increasing focus on a medical solution to ease the pandemic,” Bloomberg said. The new money will swell the program to $18 billion from $10 billion.

“Escalating lockdown measures, fading stimulus measures and Brexit uncertainty will push the economy into contraction over the next two quarters,” said BofA’s Robert Wood, chief UK economist.

Here’s a roundup of other important COVID news from Wednesday:

Global cases have hit 31,615,836, while deaths have reached 971,116 (Source: JHU).

Indonesia sets new daily record: The country reported 4,465 new cases, and another 140 deaths. This is only the fourth time Indonesia has topped 4k daily cases, and each instance has come during the last week (Source: Nikkei).

Tokyo reports 59 cases, marking the lowest daily figure in nearly three months. The number was down from 88 on Tuesday and 98 on Monday, and the lowest since June 30, when 54 cases were reported (Source: Nikkei).

Fujifilm announced that its Avigan drug reduced viral loads and symptoms of COVID-19 patients, clearing the last hurdle to emergency approval in Japan, following months of delays. The Phase 3 clinical study of 156 patients showed that those treated with Avigan improved after 11.9 days, versus 14.7 days for a placebo group (Source: Nikkei).

Japan is finally planning to ease access for foreigners in October, though its restrictions will remain pretty stringent: Only 1,000 visitors will be allowed into Japan per day, and initially only those staying for more than 3 months will be allowed in (and they must quarantine for 2 weeks upon arrival) (Source: Nikkei).

India reported 83,347 cases Wednesday, up from 75,083 on Tuesday, bringing its total to nearly 5.65 million. The death toll has jumped by 1,085 to 90,020. The country’s testing capacity now exceeds 1.2 million per day, by far the highest in the world, and more than 66 million tests have been conducted in total (Source: Nikkei).

China reported 10 cases for Sept. 22, up from just six a day earlier. China is also planning to ease entry rules for foreigners starting Sept. 28 (Source: Nikkei).

Australia sees just 15 new cases in its COVID-19 “hot spot” of Victoria, the country’s second-largest state, and home to its second city, Melbourne. Reporting just 15 cases and five deaths, compared with 28 cases and 3 deaths yesterday (Source: Nikkei).

Goldman Sachs, HSBC and others have paused plans to return workers in London after PM Johnson appealed to Britons to work from home (Source: Bloomberg).

Argentina reported a record 470 COVID-19 daily deaths, pushing its total to 13,952, according to the government’s evening report. It’s the second day in a row Argentina has reported a record rise in fatalities. Officials also confirmed 12,027 new cases, bringing the total to 652,174 (Source: Bloomberg).

Finally, Goldman Sachs analysts have come up with the following chart to measure the level of COVID-19 restrictions in place in the US. Right now, it’s swinging back toward more restrictions as states move to curb an expected “fall surge” as college students return home.