Oxcap Analytics

Good Morning. What started out as a balanced analysis of US and European valuations ended up as an existential rant on the nature of bubbles. We read so much drivel nowadays and sometimes you just have to let it all out. The second part of this video is a personal view of what it felt like to be working in markets the late 1990's in the run up to the Dotcom Bust, and parallels with today. In 1999, who knew that NOKIA, Vodafone and Cisco might not show secular double-digit growth into perpetuity? Come on. Wake up. https://lnkd.in/eWdcM5sd

The Cycle #9. We address the Elephant in the Room, ie. inflation dynamics and the effect this has had on margins. As the ISM potentially breaks back into expansion territory, what does that mean for margins? We explore some of the data in the note. The idea that Electrification is not subject to negative price-cost is not correct, in our view. History shows that so-called 'Electrification' is really an amalgam of late-cycle engineering products which are related to Construction, Utilities, Industrial demand, not just Datacenters. Price lags, overshoots to the uspide, then comes back down. The October data in Figure 1 is important. Have a good week.

Good Morning. As we published in The Cycle on Friday, we are optimistic that the November Manufacturing ISM report this afternoon at 10am EST is going to be a positive for the European and Global Industrials sector. Based on the regional Fed surveys, aswell as one-off factors such as the Boeing strike and the Hurricanes, we would be surprised not to see the headline advance from 46.5 in October into a ~48-49 band, the strongest outcomes in nine months. Moreover, via our growing Connection Hub, we have spoken to systems integrators who have seen the release of pent-up demand since the US election. Within the ISM data, we are focused mainly on the new orders side. We think it could test and sustain expansionary levels, for the first time in two years. In terms of positioning, this is a classic situation where we would rotate into early-cycle and / or value plays. As discussed in our note and the accompanying video, we see tactical positives at: Siemens, SKF and KION in Europe, in the US we believe investors could re-visit the few remaining laggards including Timken and Rockwell. On the capex plays, we see the US electrification names (Eaton and Vertiv) as extended and would pair against Schneider. We received a lot of incoming calls last week regarding our views into 2025 and will update on this shortly. https://lnkd.in/eK4KjHVv

For those of you that still actually read research, please find attached The Cycle #8. We already posted the video below. Stimulus announced so far is >60% focused on one problem, ie. local government (LGVF) debt. The irony is that debt burden spread across Government, Local Government, Corporates and Households is largely a function of previous stimulus measures, ie. the Big Bazooka post-GFC building Roads to Nowhere, mini-bazookas since have just led to massive capacity overbuild in Battery and Solar (>80% excess). Countries are a bit like people, they go bankrupt gradually, then quickly. Of course, you'll read a lot of macro theories about current account surplus and why China is fundamentally different from what has happened in Japan (90's), Mexico (1994), Thailand (1997) or indeed the US (2008). Of course it is, but all of these financial crises had their roots in leverage and property excess to some degree. The Xi Pivot in September tells you something about the severity of the hidden situation and the need for immediate action. We really do hope that this is not the Minsky Moment for China, but are prepared for all possible outcomes.

Number 8 is a lucky number in China and signifies wealth, prosperity and success. The is our eighth edition of The Cycle and we focus on what is happening in the world's largest manufacturing economy. On latest stimulus announced in November, we argue that swapping local government (LGVF) debt-for-debt is helpful in terms of transparency and refinancing, but will not put a dent in the overall burden at >300% debt-to-GDP. China is barely servicing a third of its notional interest costs, we calculate. Oxcap believes that stimulus measures need to increase to ~11%-16% of GDP vs. the current ~4% and move more toward domestic consumption. From macro to micro, we examine recent updates from Alibaba, JD.Com, Tencent, Retail Sales, FAI, PMIs, electricity consumption, Burberry, Merck and some industrials and conclude a tentative improvement began in October. We are not out of the woods but are "lukewarm bullish" on China pending important end-of-month data releases. https://lnkd.in/euJeWrgg

Has The Great Unwind unwound? Watch the video to find out. https://lnkd.in/eMjHbPxY

We examine details of the October ISM report, in particular the evolution of new orders and inventory. Within the next few months, we expect to see a classic capex / opex transition playing out. Portfolios we know may not yet reflect that.

https://lnkd.in/ebjMgYbB We discuss the super-normal growth rates seen in some industrial companies since the 2020 pandemic, and ask 'What Is Normal?'