Equities
Sam Ferraro

The Hayne Royal Commission brought into sharp focus the governance failures at the board level for many financial institutions. Prior to the release of the final report, the Australian Prudential Regulatory Authority had already exposed shortcomings around governance, culture and accountability at the Commonwealth Bank. It concluded that a sense... Show More

Macro
Sam Ferraro

There has been a material slowdown in China’s growth rate in recent years which in part is due to regulatory upheaval in the shadow banking sector. Here we offer an update on the fine balance achieved to date by Chinese authorities between boosting the resilience of the financial sector by... Show More

Sam Ferraro

The death last week of the founder of Vanguard, Mr John Bogle, offers a timely reminder of the upheaval in the asset management industry brought about by the advent of index investing around four decades ago. Show More

Sam Ferraro

Following its 5% to 10% miss on consensus earnings for 1H, Domino’s fell by around 15% from peak to trough last week. The market has little tolerance for earnings misses from growth stocks. Even after the price decline, the stock is still trading on well above 20 times 12 month... Show More

Collections

Macro analysis often gets a bad rap these days. Fund managers often prefer to associate themselves with value investors like Warren Buffett, who famously deride the use of macro analysis. However, we can’t all be Warren Buffett, so macro analysis can form an important part of many investment processes. Using macro... Show More

Collections

Sir John Templeton famously said; “bull markets are born on pessimism, grow on skepticism, peak on optimism and die on euphoria.” With the S&P 500 hitting new highs, and growth returning around the world, it’s natural to question how far along the path we are today. It’s a confusing backdrop for... Show More

Sam Ferraro

In a recent research paper, former Chair of the Federal Reserve, Mr Ben Bernanke, proposes price level targeting as an alternative framework for monetary policy. Since 2012, the Federal Reserve has had an explicit inflation target of 2% pa, with inflation commonly measured in terms of the chain price... Show More

Sam Ferraro

The RBA's biannual Financial Stability Review (FSR) has become essential reading since the financial crisis, even for stock-pickers. The central bank has used the October issue as an opportunity to vent about its concerns surrounding investor complacency in global financial markets. It has cited some of these concerns previously, but... Show More

Sam Ferraro

Summary: Market volatility conditions remain subdued in Australia, with volatility in the Australian dollar, government bond yields and the stock market close to historical lows. Lower stock market volatility appears to reflect a global volatility shock, with realised and implied volatility in the S&P500 also benign. Subdued market volatility belies... Show More

Hi Patrick, thanks for reaching out with the feedback. With respect to the ROE, if the lift in equity is associated with a reduction in ROE, then it is because the company is less risky. This is consistent with the MM proposition that a lift in equity capital reduces the expected cost of equity. From a Gordon growth perspective, its not clear that this changes the book multiple. Although the expected roe falls, so does the discount rate, k, which should offset one another. p/e = 1/(k-g). p/bvps = roe/(k-g).

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