Verdmont Capital

Tuesday, October 14, 2014

Verdmont Capital- Fixed Income Offerings- October 2014

To view Verdmont Capital’s monthly fixed income offerings please click here .

Verdmont has extensive reach in the fixed income space. With yields at basement levels, it is tough to get overly excited about fixed income opportunities. That said, we can still put up a good fight by offering various currencies, credit and industry exposure. 

If you have any questions about the various fixed income offerings available through Verdmont, please do not hesitate to contact your Verdmont representative. 

Thursday, October 9, 2014

Verdmont Capital - Recommended Mutual Funds - October 2014

Our recommended mutual fund list for October 2014 is now out and can be viewed here.

Remember that we don’t have an affiliation with any one mutual fund family and the funds we recommend are only chosen because we believe they offer the best opportunity to produce above market returns with a reasonable amount of risk.

Please note that we are able to provide recommendations in various segments of the market. We would also welcome the opportunity to provide a free consultation regarding existing mutual fund portfolios that you may have, to determine if they are structured in line with your objectives.

If you have any questions about the extensive list of global mutual funds available through Verdmont Capital, please do not hesitate to contact your Verdmont representative.

Friday, September 26, 2014

Tech Stocks and The CAPEX Cycle / Tech Sector Valuations Relative to the Materials Sector

Interesting report today from the Bank Credit Analyst, or, “BCA.” We subscribe to BCA to help generate investment ideas and assist us in following various macro and sector related themes.

Their report was interesting because BCA recommended going long tech stocks and short material companies. Given that we follow both rather intimately, we thought this was a bold call.

Our thought process being, that tech stocks have been rocking and getting a lot of positive news flow, whereas material stocks have been in the gutter. We would have thought that the long tech, short materials trade would be fraught with risk based on the perception that this trade would be played out. Looks like we could be  wrong with that view, and if we were wrong, there is a good chance there is misconception in the overall market. This is because we are brilliant of course.

The crux of BCA’s argument is that global CAPEX, or the aggregate investment companies make in physical assets such as property, buildings or equipment, has been tame relative to past cycles and due to move higher. Their call is predicated on the belief that diminishing policy related uncertainty and increasing business confidence will drive management teams to invest in their businesses to boost growth. Furthermore, financial engineering, via debt issuance and buybacks, can only prop up growth for so long. These arguments certainly fall squarely in the bullish camp, but not completely whacky in our opinion.

Here is a chart that shows their CAPEX indicator vs. Tech Business Investment, which has had a very tight relationship.

What was most surprising about the BCA piece however, was the relative valuation between Tech and Materials companies. Tech companies are still very cheap, which caught caught us by surprise. This is important from Verdmont’s standpoint, as we invest in both sectors rather heavily, and it dispels the view we had, rather naively in hindsight, that tech was expensive and material stocks were bombed out.

From a momentum standpoint, it is hard to argue that technology stocks are not leading the charge. Lots of high profile IPOs and a barrage of good news associated with the sector. The opposite can be said for material stocks. Price performance of the sectors illustrates this point.

Global Tech (White) vs. Global Materials (Green) – 3 Years

What we draw from the above comments is that those trading tech stocks should not be as worried about an over speculative crash as perhaps they are. On the flipside, those playing material stocks as a deep value play, or for some sort of defensive, anti-trend call, my find themselves in a value trap.

Please call your Verdmont Representatives with any questions you may have regarding our view on the sectors.

Thursday, September 25, 2014

Commodities Comment : The Grains are Cheap, US Dollar Strength and Chinese Growth Concerns Pinching the Sector, Too Early to Buy

Interesting article in Bloomberg on corn, highlighting how it is trading at a significant discount in relation to gold. 

We recently got stopped out of a wheat trade, trying to be cute and play a bounce off of what we thought could be an interim low. Our rationale at the time ties into the sentiment expressed in the aforementioned Bloomberg article. News in the agriculture space is as bad as it gets, as record inventories dominate the headlines in the US. We started to see grain prices rally off of negative news, which we took as a cue that sentiment was turning. We were wrong as wheat broke down anew, failing to hold its trend of higher lows.

Wheat – 1 Year

We would agree with the overall conclusion embedded in the article, that now is not the time to go short the grains. On the other hand, we would argue that we are setting up for a tradable bounce in the near future. The risk of course, is that we get sucked into another false bottom, or in other words, timing remains everything.

That said, relative value between the commodities has always been a good indicator on finding the big swings in certain commodities. With the grains, their relative value vs. gold is a good indication of how grain prices are valued relative to liquidity in the system. The thought process being that the gold price reflects some key macro variables, like the prospects for the US dollar, interest rates, inflation and overall liquidity in the system. Relative to gold, as illustrated in the article, corn is super cheap.

Corn (top panel), Corn vs. Gold (bottom panel) – 30 Years

It is worth noting that corn is also at historical lows relative to oil prices. There are a couple of things to infer from this. Firstly, oil is a good growth barometer for the global economy. When grain prices are cheap relative to oil, one can make the assumption they are trading at a discount to global growth prospects. Secondly, oil prices are a key input in grain cultivation. When the grains are trading at a steep discount to oil, it suggests that they are beginning to trade close to their underlying cost curve. When a commodity begins to encroach upon its marginal cost of production, it is characteristic of a bottoming process.

Corn (top panel), Corn vs. Oil (bottom panel) – 30 Years

With grain prices, particularly wheat and corn, offering excellent relative value in the commodity complex, complemented by depressed sentiment and oversold technicals, we would be inclined to jump in here and buy. We are hesitant to do so however, because we are currently witnessing a sizable shakeout in the overall commodity sector.

The US dollar is breaking to new multi-year highs, which has caught the market largely by surprise. Dollar strength has been driven by a jump in relative yields in the US, in concert with US economic growth outpacing that of other economies.

Trade Weighted USD – 5 Years

Commodity currencies have also been taking it on the chin, trading at levels that most commodity bulls would have thought unimaginable a couple of years ago.

Canadian Dollar (top panel) and the Australian Dollar (bottom panel) – 5 Years

In terms of the underlying commodity prices themselves, gold has failed to gain traction and we believe there are many stale longs under the “gold as an asset class” view. Bullion prices are hovering dangerously close to the lows established last year, and there is a risk that there will be a renewed wave of selling if a portion of these legacy holders choose to throw in the towel on a break through $1,200/oz.

Gold Bullion – 5 Years

Oil prices have also taken a sizable hit over the last month, on US dollar strength and Chinese economic growth concerns. Chinese industrial production recently surprised on the downside and growth in the generation of electricity was negative for the first time since 2009. Both WTI and Brent are off 15% from recent highs and are testing multi-year trends on the downside. Should the sell-off in oil continue, it would be a bad signal for the overall commodity complex, as oil has been a key supporting factor underpinning the commodity trade.

West Texas Intermediate (top panel) and Brent Oil (bottom panel) – 3 Years

Dollar strength and Chinese growth concerns are setting up the commodity complex for a nice trade. When we see signs that the US dollar rally is losing momentum, or that Chinese growth concerns are abating, we will look to play a bounce. The agricultural commodities are especially beat up and represent excellent value relative to other commodities. This despite the fact that the grains have amongst the best long term fundamentals in the commodity complex, given steady demand and relatively depressed supply side dynamics.

Given the technical breakdown as of late, we would wait for key commodities like gold and oil to begin making higher lows and sentiment to begin to move positive before becoming more aggressive. Corn and wheat would represent a great trade at that time, along with various agribusiness focused equities. We continue to own agribusiness companies in our managed accounts and have exposure to select juniors in the space, which include Aguia Resources (AGR.AX:$0.04), which is an attractive fertilizer company based in Brazil.

Please call your Verdmont Representative for our view on the commodity market and various asset classes in general.

Wednesday, September 17, 2014

Verdmont Capital in Bloomberg News : Follow-up Thoughts on Gold and Gold Stocks

We were recently quoted in Bloomberg news regarding our outlook for gold. Please click here to view the story.

These quotes offer little value as they are often taken out of context and are very brief. We have to admit though, rather shamelessly, that it is always good for our company to be quoted in Bloomberg. Given that marketing is a key component in growing an investment company, we forward these on when we get the chance!

Those who follow our dealings know that gold and related investments are only a small component of what we do. As a firm, we try to steer our clients, and allocate our own funds, to areas and companies that have a good shot of making money - imagine that! Gold and related equities are a segment of the market that we have been largely staying clear of. We have traded in and out of some names to play the large swings, but we still don’t see the foundation of a prolonged rally.

We recently indicated that we were “warming” to gold stocks. The thought process behind that statement was predicated on the belief that equities have discounted much of the bad news that is out there, and even if gold bullion remains range bound, gold stocks should fare reasonably well. Our “warming” view also incorporated a relative call to the overall market. With growing concerns about a broad equity market correction, the attractiveness of gold stocks, and all beaten up sectors for that matter, become increasingly attractive from a relative value standpoint (sell high, buy low).

We are still not at the point where one can become overly excited about the gold complex. The conditions that were prevalent in 2012, when bullion began its selloff after a 10 year run, are arguably still in place. The broad equity market continues to move higher, sluggish global growth is standing on the neck of inflation, questions remain about the Chinese economic miracle, yields in the US are due to normalize to the upside, the US dollar is relatively strong, and real rates are poised to move higher. These variables will all continue to cap any upside movement for gold, until, they don’t. Hopefully we can be there with our clients at the turn.

In terms of our “warming view” on gold stocks,  it remains relevant. Gold bullion has held its range bound pattern for the time being, which will support beaten up gold companies. It is worth noting however, that bullion is trading dangerously close to the low end of this range, and if broken, it will be a long time before a new floor is established - in our opinion.

Summing things up, it is still difficult to envision a turn in the gold sector. Although we are warming to gold stocks, you don’t allocate funds to an incredibly volatile sector when you are only lukewarm. So, we remain on the sidelines and continue to see better value elsewhere. If gold breaks $1,200, and subsequently has a steep selloff, we would feel more confident on gold stocks for a trade. 

Thursday, September 11, 2014

Martello Technologies in the News - Sales Due to Double this Year

Verdmont Capital and select clients invested in the C$3Mil placement mentioned in the following article. The piece provides a brief overview of the company and outlines a recent acquisition of Aastra:

It is good to see that Martello management is wasting no time putting our money to work with the aforementioned acquisition of Aastra. 

The article also mentions that revenues are meant to double this year, increasing to C$2Mil. Given that the financing was valued at C$5.5Mil pre-money, we continue to see a solid value proposition. To find a company like Martello, with a well-known anchor client, great management and reoccurring revenues, valued at ~2.5X forward revenue estimates, is a rarity.

Thank you to those Verdmont clients who supported the transaction. We will keep you abreast with company developments as they come due.

Wednesday, September 3, 2014

Verdmont Capital- Fixed Income Offerings- September 2014

Our recommended fixed income offerings list for September 2014 is now out and can be viewed here.

Verdmont has extensive reach in the fixed income space. With yields at basement levels, it is tough to get overly excited about fixed income opportunities. That said, we can still put up a good fight by offering various currencies, credit and industry exposure. 

If you have any questions about the various fixed income offerings available through Verdmont, please do not hesitate to contact your Verdmont representative.