Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Macroeconomics

US equities continue to test new highs, despite ongoing geopolitical tensions on the Korean peninsula. Meanwhile, equity mutual funds continue to experience outflows as passive investment vehicles dominate funds flows from retail investors.<figure class="editor-figure mceNonEditable"><img class="editor-image img-responsive" src="https://static-prod.smartkarma.com/images/media/000/033/743/original/ICI%20Mutual%20Funds.png?1505719246" data-smartkarma-image-id="33743"></figure><div class="content-caption">Mutual Funds Continue to Struggle to Attract New Cash Inflows</div>The riskiest components of the capital structure eventually benefitted the most from the Fed’s policy stance after Lehman Brothers’ failure. A Great Disconnect was created between vibrant risky asset prices and the real economy, while significant variation in corporate profits performance has emerged across different sectors.The financial sector has been the biggest winner from the Fed’s post-2008 policy stance via a significant reduction in interest expenses. Banks have, however, been forced to extend asset maturities in order to boost net interest margins.S&amp;P500 operating EPS estimates are based on Generally Accepted Accounting Principles (GAAP) that have changed over time and introduced an upward bias to earnings. Meanwhile, National Income &amp; Product Accounts (NIPA) corporate profits, based on tax accounting, have increased by a much smaller magnitude since 2009 Q2 compared to S&amp;P500 operating EPS.The growth differential between NIPA corporate profits and S&amp;P500 operating EPS has increased significantly since the Great Recession in favour of the latter. The constantly changing composition of the S&amp;P500 index goes some way in explaining the superior performance of operating EPS.NIPA profits will adjust for write-offs when they actually happen as dictated by tax accounting rules versus being deferred until a cash reserve is established. Vibrant buyback activity by S&amp;P500 companies has reduced the share count since 2009, thereby creating a significant tailwind for EPS growth.

US equities continue to test new highs, despite ongoing geopolitical tensions on the Korean peninsula. Meanwhile, equity mutual funds continue to experience outflows as passive investment vehicles dominate funds flows from retail investors.Mutual Funds Continue to Struggle to Attract New Cash InflowsThe riskiest components of the capital structure eventually benefitted the most from the Fed’s policy stance after Lehman Brothers’ failure. A Great Disconnect was created between vibrant risky asset prices and the real economy, while significant variation in corporate profits performance has emerged across different sectors.The financial sector has been the biggest winner from the Fed’s post-2008 policy stance via a significant reduction in interest expenses. Banks have, however, been forced to extend asset maturities in order to boost net interest margins.S&amp;P500 operating EPS estimates are based on Generally Accepted Accounting Principles (GAAP) that have changed over time and introduced an upward bias to earnings. Meanwhile, National Income &amp; Product Accounts (NIPA) corporate profits, based on tax accounting, have increased by a much smaller magnitude since 2009 Q2 compared to S&amp;P500 operating EPS.The growth differential between NIPA corporate profits and S&amp;P500 operating EPS has increased significantly since the Great Recession in favour of the latter. The constantly changing composition of the S&amp;P500 index goes some way in explaining the superior performance of operating EPS.NIPA profits will adjust for write-offs when they actually happen as dictated by tax accounting rules versus being deferred until a cash reserve is established. Vibrant buyback activity by S&amp;P500 companies has reduced the share count since 2009, thereby creating a significant tailwind for EPS growth.  

S&P500 Operating EPS Significantly Overstating Improvement in US Corporate Profits