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A Ripe Environment for Value Valuations

As investors who employ a bottom-up process when seeking quality companies, we’re intrigued with the growing valuation discount between our portfolios…

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As investors who employ a bottom-up process when seeking quality companies, we’re intrigued with the growing valuation discount between our portfolios and their respective indices. We find it compelling that today we can purchase a higher-quality portfolio for a discounted price relative to the index, creating an attractive entry point for our actively managed small- to mid-cap value strategies. But before we get to that, let’s take a step back and look at how we got here.

What Drives Equity Prices: Monetary Policy, Earnings Trends, and Valuation

The first nine months of the year marked the fourth-worst start of any calendar year on record for small- and midcap indices. While softer-than-feared inflation data and the possibility for moderating interest-rate hikes drove the market to stage an impressive rally in October and November, we believe near-term market prices will continue to be driven by the outlook for monetary policy. There may be more pain ahead if the U.S. Federal Reserve (Fed) is forced to raise rates higher than the predicted terminal rate or hold rates higher for longer than the market is anticipating to combat inflation.

We believe we are closer to the end of this tightening cycle than the beginning.

As bottom-up stock pickers, it’s not our job to be short-term economic or market prognosticators; rather, we seek to identify mispriced securities that offer an attractive risk-to-reward profile. Therefore, during uncertain times like those we are in today, it’s useful to remember what we believe drives equity prices over the longer term: monetary policy, earnings trends, and valuation.

Monetary Policy

We believe the stock market should ultimately stabilize when it becomes clear that the Fed is near the end of its current rate-hiking regime, and our best guess is that we are closer to the end of this cycle than the beginning.

The Fed ramped up its pace of rate hikes quickly in an effort to make up ground for its previous policy mistake (believing that inflation was transitory). We believe that the massive surge witnessed in M2 money growth during the pandemic is more akin to the post World War II era—in which money growth also surged, then cratered to help keep inflation from becoming ingrained—rather than the stagflation experienced in the 1970s.

For this reason, and as growth slows due to higher rates, we believe the Fed will ultimately achieve its stated mission of bringing inflation down, allowing policymakers to take their foot off the gas sometime in 2023. Whether rate cuts come thereafter is much less certain and will depend on how much damage a higher-interest-rate environment has caused to demand.

Perhaps the largest impact of monetary policy on our value indices isn’t the Fed’s current rate-hiking regime but rather its response to the Global Financial Crisis. Unfortunately, policymakers’ decision to hold interest rates near zero for more than a decade has led to a proliferation of non-earning, zombie companies supported by free money.

Policymakers’ decision to hold interest rates near zero for more than a decade has led to a proliferation of non-earning, zombie companies supported by free money.

We’ve always maintained that calculating a price-to-earnings (P/E) ratio for the small- to midcap indices is more art than science given the substantial weight of these non-earning constituents in the indices. However, the excess and speculation created by central bankers has driven the percentage of companies in the indices that lose money to grow over time, and the number of these companies remains elevated, particularly in the small- and small-mid-cap indices, representing 35% to 40% of index constituents.

If we continue to be in a higher-rate environment—in which central banks are not pumping liquidity into the system but rather removing it—quality-focused investors like us should benefit from a tailwind. Said another way, as value investors focused on earnings and cash flows, we welcome a more normalized period of monetary policy that no longer supports sky-high valuations and cheap debt, particularly for money-losing operations that have come to represent a sizable percentage of our investable universe.

Earnings Trends

Most, if not all, of the market’s drawdown in 2022 has been a result of multiple compression, with very little coming from earnings revisions. In fact, equity multiple compression already exceeds that of an average recession, while earnings per share (EPS) revisions for 2022 and 2023 have held up better than feared.

Unfortunately, the aforementioned collapse of M2 money growth will likely translate into slowing or even contracting gross domestic product (GDP). This, in turn, could slow corporate revenues and hurt margins. While earnings thus far have been more resilient than many thought, it’s important to remember the lagging effects of monetary policy. We may not feel the full EPS impact until mid- to late 2023.

It’s clear to us that within our small- to mid-cap universe the market does not believe the earnings forecasts of these companies, and has already priced in a 30% to 40% decline in EPS. In our opinion, this equates to a very draconian outlook.

We’ve used the market’s weakness to upgrade the quality of our portfolios’ holdings, whose future earnings either may be more resilient than the market expects or are already pricing in a severe recession.

Given how fast the market has moved to punish these companies based on future predicted downward earnings revisions, we believe we may witness multiple expansion from here. Yes, earnings expectations are going to be reset lower, but in many cases the stocks are already reflecting this. When we are valuing companies today, we are valuing them on much more modest earnings estimates in the future. And because we are starting out at a very low level, as earnings estimates come down, the multiples themselves may expand.

We think the market is more than discounting a mild recession, which is our base case. Investors today seemingly have a recency bias—and for good reason, given that the last two recessions were the Global Financial Crisis and a pandemic—but if we experience a more traditional, garden-variety recession, the market low may have already been experienced.

Regardless, we’ve used the market’s weakness to upgrade the quality of our portfolios’ holdings, whose future earnings either may be more resilient than the market expects or are already pricing in a severe recession.

Valuation

During this period of economic uncertainty, we are comforted by the historically low valuation of our value strategies’ holdings, which trade at just high-single-digit estimated earnings for the next 12 months. This represents a significant discount relative to long-term historical averages. Said another way, at current valuations, we believe much of the bad news is already reflected in share prices, at least in the small- to mid-cap value universe.

At current valuations, we believe much of the bad news is already reflected in share prices, at least in the small to mid-cap value universe.

What’s more interesting to us as investors who employ a bottom-up process that seeks quality companies is the growing valuation gap between our portfolios and their respective indices. Typically, our portfolio’s forward earnings multiples are in line with their respective indices but also possess higher returns on equity, superior margins, greater free-cash-flow generation, and less leverage (which we consider the characteristics of higher quality franchises). Today, one can purchase a higher-quality portfolio for a discounted price relative to the index. To us, this creates an attractive entry point for our actively managed small- to mid-cap value strategies.

Greg Czarnecki is a portfolio specialist for William Blair’s small- to mid-cap value equity strategies. 

The post A Ripe Environment for Value Valuations appeared first on William Blair.

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Bitcoin on Wheels: The Story of Bitcoinetas

Meet the Bitcoinetas, a fleet of transformative vehicles on a mission to spread the bitcoin message everywhere they go. From Argentina to South Africa,…

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You may have seen that picture of Michael Saylor in a bitcoin-branded van, with a cheerful guy right next to the car door. This one:

Ariel Aguilar and La Bitcoineta European Edition at BTC Prague.

That car is the Bitcoineta European Edition, and the cheerful guy is Ariel Aguilar. Ariel is part of the European Bitcoineta team, and has previously driven another similar car in Argentina. In fact, there are currently five cars around the world that carry the name Bitcoineta (in some cases preceded with the Spanish definite article “La”).

Argentina: the original La Bitcoineta

The story of Bitcoinetas begins with the birth of 'La Bitcoineta' in Argentina, back in 2017. Inspired by the vibrancy of the South American Bitcoin community, the original Bitcoineta was conceived after an annual Latin American Conference (Labitconf), where the visionaries behind it recognized a unique opportunity to promote Bitcoin education in remote areas. Armed with a bright orange Bitcoin-themed exterior and a mission to bridge the gap in financial literacy, La Bitcoineta embarked on a journey to bring awareness of Bitcoin's potential benefits to villages and towns that often remained untouched by mainstream financial education initiatives. Operated by a team of dedicated volunteers, it was more than just a car; it was a symbol of hope and empowerment for those living on the fringes of financial inclusion.

The concept drawing for La Bitcoineta from December 2017.

Ariel was part of that initial Argentinian Bitcoineta team, and spent weeks on the road when the car became a reality. The original dream to bring bitcoin education even to remote areas within Argentina and other South American countries came true, and the La Bitcoineta team took part in dozens of local bitcoin meetups in the subsequent years.

The original La Bitcoineta from Argentina.

One major hiccup came in late 2018, when the car was crashed into while parked in Puerto Madryn. The car was pretty much destroyed, but since the team was possessed by a honey badger spirit, nothing could stop them from keeping true to their mission. It is a testament to the determination and resilience of the Argentinian team that the car was quickly restored and returned on its orange-pilling quest soon after.

Argentinian Bitcoineta after a major accident (no-one got hurt); the car was restored shortly after.

Over the more than 5 years that the Argentinian Bitcoineta has been running, it has traveled more than 80,000 kilometers - and as we’ll see further, it inspired multiple similar initiatives around the world.

Follow La Bitcoineta’s journey:

Twitter: https://twitter.com/labitcoineta

Instagram: https://www.instagram.com/bitcoineta/

El Salvador: Bitcoin Beach

In early 2021, the president of El Salvador passed the Bitcoin Law, making bitcoin legal tender in the country. The Labitconf team decided to celebrate this major step forward in bitcoin adoption by hosting the annual conference in San Salvador, the capital city of El Salvador. And correspondingly, the Argentinian Bitcoineta team made plans for a bold 7000-kilometer road trip to visit the Bitcoin country with the iconic Bitcoin car.

However, it proved to be impossible to cross so many borders separating Argentina and Salvador, since many governments were still imposing travel restrictions due to a Covid pandemic. So two weeks before the November event, the Labitconf team decided to fund a second Bitcoineta directly in El Salvador, as part of the Bitcoin Beach circular economy. Thus the second Bitcoineta was born.

Salvadoran’s Bitcoineta operates in the El Zonte region, where the Bitcoin Beach circular economy is located.

The eye-catching Volkswagen minibus has been donated to the Bitcoin Beach team, which uses the car for the needs of its circular economy based in El Zonte.

Follow Bitcoin Beach:

Twitter: https://twitter.com/Bitcoinbeach

South Africa: Bitcoin Ekasi

Late 2021 saw one other major development in terms of grassroots bitcoin adoption. On the other side of the planet, in South Africa, Hermann Vivier initiated the Bitcoin Ekasi project. “Ekasi” is a colloquial term for a township, and a township in the South African context is an underdeveloped urban area with a predominantly black population, a remnant of the segregationist apartheid regime. Bitcoin Ekasi emerged as an attempt to introduce bitcoin into the economy of the JCC Camp township located in Mossel Bay, and has gained a lot of success on that front.

Bitcoin Ekasi was in large part inspired by the success of the Bitcoin Beach circular economy back in El Salvador, and the respect was mutual. The Bitcoin Beach team thus decided to pass on the favor they received from the Argentinian Bitcoineta team, and provided funds to Bitcoin Ekasi for them to build a Bitcoineta of their own.

Bitcoin Ekasi’s Bitcoineta as seen at the Adopting Bitcoin Cape Town conference.
Bitcoin Ekasi’s Bitcoineta as seen at the Adopting Bitcoin Cape Town conference. Hermann Vivier is seen in the background.
South African Bitcoineta serves the needs of Bitcoin Ekasi, a local bitcoin circular economy in the JCC Camp township.

Bitcoin Ekasi emerged as a sister organization of Surfer Kids, a non-profit organization with a mission to empower marginalized youths through surfing. The Ekasi Bitcoineta thus partially serves as a means to get the kids to visit various surfer competitions in South Africa. A major highlight in this regard was when the kids got to meet Jordy Smith, one of the most successful South African surfers worldwide.

Coincidentally, South African surfers present an intriguing demographic for understanding Bitcoin due to their unique circumstances and needs. To make it as a professional surfer, the athletes need to attend competitions abroad; but since South Africa has tight currency controls in place, it is often a headache to send money abroad for travel and competition expenses. The borderless nature of Bitcoin offers a solution to these constraints, providing surfers with an alternative means of moving funds across borders without any obstacles.

Photo taken at the South African Junior Surfing Championships 2023. Back row, left to right:

Mbasa, Chuma, Jordy Smith, Sandiso. Front, left to right: Owethu, Sibulele.

To find out more about Bitcoineta South Africa and the non-profit endeavors it serves, watch Lekker Feeling, a documentary by Aubrey Strobel:

Follow Bitcoin Ekasi:

Twitter: https://twitter.com/BitcoinEkasi

Fundraiser: https://support.bitcoinekasi.com/

Europe: Bitcoineta Europa

The European Bitcoineta started its journey in early 2023, with Ariel Aguilar being one of the main catalysts behind the idea. Unlike its predecessors in El Salvador and South Africa, the European Bitcoineta was not funded by a previous team but instead secured support from individual donors, reflecting a grassroots approach to spreading financial literacy.

European Bitcoineta sports a hard-to-overlook bitcoin logo along with the message “Bitcoin is Work. Bitcoin is Time. Bitcoin is Hope.”

The European Bitcoineta is a Mercedes box van adorned with a prominent Bitcoin logo and inspiring messages, and serves as a mobile hub for education and discussion at numerous European Bitcoin conferences and local meetups. Inside its spacious interior, both notable bitcoiners and bitcoin plebs share their insights on the walls, fostering a sense of camaraderie and collaboration.

Inside the European Bitcoineta, one can find the wall of fame, where visitors can read messages from prominent bitcoiners such as Michael Saylor, Uncle Rockstar, Javier Bastardo, Hodlonaut, and many others.
On the “pleb wall”, any bitcoiner can share their message (as long as space permits).

Follow Bitcoineta Europa’s journey:

Twitter: https://twitter.com/BitcoinetaEU

Instagram: https://www.instagram.com/bitcoinetaeu/

Ghana: Bitcoineta West Africa

Embed: https://youtu.be/8oWgIU17aIY?si=hrsKmMIA7lI6jX4k

Introduced in December 2023 at the Africa Bitcoin Conference in Ghana, the fifth Bitcoineta was donated to the Ghanaian Bitcoin Cowries educational initiative as part of the Trezor Academy program.

Bitcoineta West Africa was launched in December 2023 at the Africa Bitcoin Conference. Among its elements, it bears the motto of the Trezor Academy initiative: Bitcoin. Education. Freedom.

Bitcoineta West Africa was funded by the proceeds from the bitcoin-only limited edition Trezor device, which was sold out within one day of its launch at the Bitcoin Amsterdam conference.

With plans for an extensive tour spanning Ghana, Togo, Benin, Nigeria, and potentially other countries within the ECOWAS political and economic union, Bitcoineta West Africa embodies the spirit of collaboration and solidarity in driving Bitcoin adoption and financial inclusion throughout the Global South.

Bitcoineta West Africa surrounded by a group of enthusiastic bitcoiners at the Black Star Square, Accra, Ghana.

Follow Bitcoineta West Africa’s journey:

Twitter: https://twitter.com/BitcoinetaWA

Instagram: https://www.instagram.com/bitcoinetawa/

All the Bitcoineta cars around the world share one overarching mission: to empower their local communities through bitcoin education, and thus improve the lives of common people that might have a strong need for bitcoin without being currently aware of such need. As they continue to traverse borders and break down barriers, Bitcoinetas serve as a reminder of the power of grassroots initiatives and the importance of financial education in shaping a more inclusive future. The tradition of Bitcoinetas will continue to flourish, and in the years to come we will hopefully encounter a brazenly decorated bitcoin car everywhere we go.

If the inspiring stories of Bitcoinetas have ignited a passion within you to make a difference in your community, we encourage you to take action! Reach out to one of the existing Bitcoineta teams for guidance, support, and inspiration on how to start your own initiative. Whether you're interested in spreading Bitcoin education, promoting financial literacy, or fostering empowerment in underserved areas, the Bitcoineta community is here to help you every step of the way. Together, we will orange pill the world!

This is a guest post by Josef Tetek. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Digital Currency And Gold As Speculative Warnings

Over the last few years, digital currencies and gold have become decent barometers of speculative investor appetite. Such isn’t surprising given the evolution…

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Over the last few years, digital currencies and gold have become decent barometers of speculative investor appetite. Such isn’t surprising given the evolution of the market into a “casino” following the pandemic, where retail traders have increased their speculative appetites.

“Such is unsurprising, given that retail investors often fall victim to the psychological behavior of the “fear of missing out.” The chart below shows the “dumb money index” versus the S&P 500. Once again, retail investors are very long equities relative to the institutional players ascribed to being the “smart money.””

“The difference between “smart” and “dumb money” investors shows that, more often than not, the “dumb money” invests near market tops and sells near market bottoms.”

Net Smart Dumb Money vs Market

That enthusiasm has increased sharply since last November as stocks surged in hopes that the Federal Reserve would cut interest rates. As noted by Sentiment Trader:

“Over the past 18 weeks, the straight-up rally has moved us to an interesting juncture in the Sentiment Cycle. For the past few weeks, the S&P 500 has demonstrated a high positive correlation to the ‘Enthusiasm’ part of the cycle and a highly negative correlation to the ‘Panic’ phase.”

Investor Enthusiasm

That frenzy to chase the markets, driven by the psychological bias of the “fear of missing out,” has permeated the entirety of the market. As noted in This Is Nuts:”

“Since then, the entire market has surged higher following last week’s earnings report from Nvidia (NVDA). The reason I say “this is nuts” is the assumption that all companies were going to grow earnings and revenue at Nvidia’s rate. There is little doubt about Nvidia’s earnings and revenue growth rates. However, to maintain that growth pace indefinitely, particularly at 32x price-to-sales, means others like AMD and Intel must lose market share.”

Nvidia Price To Sales

Of course, it is not just a speculative frenzy in the markets for stocks, specifically anything related to “artificial intelligence,” but that exuberance has spilled over into gold and cryptocurrencies.

Birds Of A Feather

There are a couple of ways to measure exuberance in the assets. While sentiment measures examine the broad market, technical indicators can reflect exuberance on individual asset levels. However, before we get to our charts, we need a brief explanation of statistics, specifically, standard deviation.

As I discussed in “Revisiting Bob Farrell’s 10 Investing Rules”:

“Like a rubber band that has been stretched too far – it must be relaxed in order to be stretched again. This is exactly the same for stock prices that are anchored to their moving averages. Trends that get overextended in one direction, or another, always return to their long-term average. Even during a strong uptrend or strong downtrend, prices often move back (revert) to a long-term moving average.”

The idea of “stretching the rubber band” can be measured in several ways, but I will limit our discussion this week to Standard Deviation and measuring deviation with “Bollinger Bands.”

“Standard Deviation” is defined as:

“A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of the variance.”

In plain English, this means that the further away from the average that an event occurs, the more unlikely it becomes. As shown below, out of 1000 occurrences, only three will fall outside the area of 3 standard deviations. 95.4% of the time, events will occur within two standard deviations.

Standard Deviation Chart

A second measure of “exuberance” is “relative strength.”

“In technical analysis, the relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can read from 0 to 100.

Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.” – Investopedia

With those two measures, let’s look at Nvidia (NVDA), the poster child of speculative momentum trading in the markets. Nvidia trades more than 3 standard deviations above its moving average, and its RSI is 81. The last time this occurred was in July of 2023 when Nvidia consolidated and corrected prices through November.

NVDA chart vs Bollinger Bands

Interestingly, gold also trades well into 3 standard deviation territory with an RSI reading of 75. Given that gold is supposed to be a “safe haven” or “risk off” asset, it is instead getting swept up in the current market exuberance.

Gold vs Bollinger Bands

The same is seen with digital currencies. Given the recent approval of spot, Bitcoin exchange-traded funds (ETFs), the panic bid to buy Bitcoin has pushed the price well into 3 standard deviation territory with an RSI of 73.

Bitcoin vs Bollinger Bands

In other words, the stock market frenzy to “buy anything that is going up” has spread from just a handful of stocks related to artificial intelligence to gold and digital currencies.

It’s All Relative

We can see the correlation between stock market exuberance and gold and digital currency, which has risen since 2015 but accelerated following the post-pandemic, stimulus-fueled market frenzy. Since the market, gold and cryptocurrencies, or Bitcoin for our purposes, have disparate prices, we have rebased the performance to 100 in 2015.

Gold was supposed to be an inflation hedge. Yet, in 2022, gold prices fell as the market declined and inflation surged to 9%. However, as inflation has fallen and the stock market surged, so has gold. Notably, since 2015, gold and the market have moved in a more correlated pattern, which has reduced the hedging effect of gold in portfolios. In other words, during the subsequent market decline, gold will likely track stocks lower, failing to provide its “wealth preservation” status for investors.

SP500 vs Gold

The same goes for cryptocurrencies. Bitcoin is substantially more volatile than gold and tends to ebb and flow with the overall market. As sentiment surges in the S&P 500, Bitcoin and other cryptocurrencies follow suit as speculative appetites increase. Unfortunately, for individuals once again piling into Bitcoin to chase rising prices, if, or when, the market corrects, the decline in cryptocurrencies will likely substantially outpace the decline in market-based equities. This is particularly the case as Wall Street can now short the spot-Bitcoin ETFs, creating additional selling pressure on Bitcoin.

SP500 vs Bitcoin

Just for added measure, here is Bitcoin versus gold.

Gold vs Bitcoin

Not A Recommendation

There are many narratives surrounding the markets, digital currency, and gold. However, in today’s market, more than in previous years, all assets are getting swept up into the investor-feeding frenzy.

Sure, this time could be different. I am only making an observation and not an investment recommendation.

However, from a portfolio management perspective, it will likely pay to remain attentive to the correlated risk between asset classes. If some event causes a reversal in bullish exuberance, cash and bonds may be the only place to hide.

The post Digital Currency And Gold As Speculative Warnings appeared first on RIA.

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Aging at AACR Annual Meeting 2024

BUFFALO, NY- March 11, 2024 – Impact Journals publishes scholarly journals in the biomedical sciences with a focus on all areas of cancer and aging…

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BUFFALO, NY- March 11, 2024 – Impact Journals publishes scholarly journals in the biomedical sciences with a focus on all areas of cancer and aging research. Aging is one of the most prominent journals published by Impact Journals

Credit: Impact Journals

BUFFALO, NY- March 11, 2024 – Impact Journals publishes scholarly journals in the biomedical sciences with a focus on all areas of cancer and aging research. Aging is one of the most prominent journals published by Impact Journals

Impact Journals will be participating as an exhibitor at the American Association for Cancer Research (AACR) Annual Meeting 2024 from April 5-10 at the San Diego Convention Center in San Diego, California. This year, the AACR meeting theme is “Inspiring Science • Fueling Progress • Revolutionizing Care.”

Visit booth #4159 at the AACR Annual Meeting 2024 to connect with members of the Aging team.

About Aging-US:

Aging publishes research papers in all fields of aging research including but not limited, aging from yeast to mammals, cellular senescence, age-related diseases such as cancer and Alzheimer’s diseases and their prevention and treatment, anti-aging strategies and drug development and especially the role of signal transduction pathways such as mTOR in aging and potential approaches to modulate these signaling pathways to extend lifespan. The journal aims to promote treatment of age-related diseases by slowing down aging, validation of anti-aging drugs by treating age-related diseases, prevention of cancer by inhibiting aging. Cancer and COVID-19 are age-related diseases.

Aging is indexed and archived by PubMed/Medline (abbreviated as “Aging (Albany NY)”), PubMed CentralWeb of Science: Science Citation Index Expanded (abbreviated as “Aging‐US” and listed in the Cell Biology and Geriatrics & Gerontology categories), Scopus (abbreviated as “Aging” and listed in the Cell Biology and Aging categories), Biological Abstracts, BIOSIS Previews, EMBASE, META (Chan Zuckerberg Initiative) (2018-2022), and Dimensions (Digital Science).

Please visit our website at www.Aging-US.com​​ and connect with us:

  • Aging X
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  • Aging LinkedIn
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Click here to subscribe to Aging publication updates.

For media inquiries, please contact media@impactjournals.com.


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