Value Investing Is Back. But for How Long?
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,638,545 (+0.82%)       Melbourne $1,023,679 (+1.75%)       Brisbane $1,038,818 (+0.18%)       Adelaide $951,068 (+0.69%)       Perth $923,390 (-0.21%)       Hobart $759,192 (-0.42%)       Darwin $769,355 (-0.10%)       Canberra $964,485 (-0.83%)       National $1,074,245 (+0.50%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $777,604 (+1.00%)       Melbourne $478,404 (+0.18%)       Brisbane $668,589 (+0.89%)       Adelaide $498,047 (-0.58%)       Perth $519,492 (+1.90%)       Hobart $528,197 (-0.03%)       Darwin $378,865 (-1.17%)       Canberra $494,950 (+0.08%)       National $567,655 (+0.60%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 11,855 (+190)       Melbourne 14,114 (-991)       Brisbane 8,271 (+242)       Adelaide 2,797 (+147)       Perth 7,549 (+147)       Hobart 1,213 (+7)       Darwin 181 (-4)       Canberra 1,228 (+25)       National 47,208 (-237)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 9,100 (+118)       Melbourne 6,842 (-31)       Brisbane 1,703 (+24)       Adelaide 418 (+32)       Perth 1,696 (+19)       Hobart 245 (+15)       Darwin 279 (+8)       Canberra 1,140 (-4)       National 21,423 (+181)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $800 ($0)       Melbourne $590 ($0)       Brisbane $650 ($0)       Adelaide $620 ($0)       Perth $695 (-$5)       Hobart $555 (-$15)       Darwin $780 (+$20)       Canberra $700 ($0)       National $684 (+$1)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $600 ($0)       Brisbane $650 (+$5)       Adelaide $525 (+$25)       Perth $650 ($0)       Hobart $480 (-$13)       Darwin $570 (+$5)       Canberra $570 (-$10)       National $610 (+$1)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 6,415 (-92)       Melbourne 8,122 (-49)       Brisbane 4,023 (-50)       Adelaide 1,424 (-45)       Perth 2,128 (-99)       Hobart 232 (+21)       Darwin 103 (-17)       Canberra 559 (-41)       National 23,006 (-372)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 9,115 (-492)       Melbourne 6,656 (-238)       Brisbane 2,047 (-142)       Adelaide 349 (-56)       Perth 639 (-48)       Hobart 107 (+5)       Darwin 178 (-21)       Canberra 550 (-3)       National 19,641 (-995)                HOUSE ANNUAL GROSS YIELDS AND TREND         Sydney 2.54% (↓)       Melbourne 3.00% (↓)       Brisbane 3.25% (↓)       Adelaide 3.39% (↓)       Perth 3.91% (↓)       Hobart 3.80% (↓)     Darwin 5.27% (↑)      Canberra 3.77% (↑)        National 3.31% (↓)            UNIT ANNUAL GROSS YIELDS AND TREND         Sydney 5.02% (↓)       Melbourne 6.52% (↓)       Brisbane 5.06% (↓)     Adelaide 5.48% (↑)        Perth 6.51% (↓)       Hobart 4.73% (↓)     Darwin 7.82% (↑)        Canberra 5.99% (↓)       National 5.58% (↓)            HOUSE RENTAL VACANCY RATES AND TREND       Sydney 2.0% (↑)      Melbourne 1.9% (↑)      Brisbane 1.4% (↑)      Adelaide 1.3% (↑)      Perth 1.2% (↑)      Hobart 1.0% (↑)      Darwin 1.6% (↑)      Canberra 2.7% (↑)      National 1.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 2.4% (↑)      Melbourne 3.8% (↑)      Brisbane 2.0% (↑)      Adelaide 1.1% (↑)      Perth 0.9% (↑)      Hobart 1.4% (↑)      Darwin 2.8% (↑)      Canberra 2.9% (↑)      National 2.2% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND         Sydney 29.5 (↓)       Melbourne 31.6 (↓)       Brisbane 31.5 (↓)       Adelaide 26.2 (↓)       Perth 41.1 (↓)       Hobart 33.2 (↓)       Darwin 24.8 (↓)       Canberra 32.7 (↓)       National 31.3 (↓)            AVERAGE DAYS TO SELL UNITS AND TREND         Sydney 25.4 (↓)       Melbourne 31.6 (↓)       Brisbane 27.4 (↓)       Adelaide 23.7 (↓)       Perth 41.0 (↓)       Hobart 26.8 (↓)       Darwin 45.2 (↓)       Canberra 43.3 (↓)       National 33.0 (↓)           
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Value Investing Is Back. But for How Long?

A bounce in bond yields is good news for dividend payers.

By James Mackintosh
Wed, Feb 2, 2022 10:04amGrey Clock 3 min

Value investing—buying stocks that are cheap on measures such as earnings or book value—is having a renaissance. Up to last Thursday, large value stocks beat more expensive “growth” stocks by the most of any 50-day period since the technology bubble burst in 2000-01, with the exception of the post-vaccine rebound early last year.

The big question for investors: Does this mark the rebirth of what was a dying strategy? Or was this just another spasm, already fading as technology stocks rebound?

The answer depends in large part on the role of rising Treasury yields. Bond yields have leapt since early December, as expectations grew that the Federal Reserve would raise rates aggressively this year to tackle inflation. That coincided with a tumble in growth stocks, dragging the Nasdaq index to within a whisker of a bear market, down almost 20% from its November peak.

One interpretation is that the leap in yields was the pin that pricked the bubble in growth stocks, shocking investors out of their lazy assumption that Big Tech just always went up. For hard-core value investors (and after years of underperformance, they have to be hard-core), this marks the moment when the purchase of cheap stocks can return to its rightful place as a leading strategy.

Cliff Asness, founder of quantitative fund manager AQR, thinks it is plausible that the bond-yield rise was the shock that changed investor views on growth stocks. “It’s a catalyst not because of solid economic reasons but because catalysts for when irrationality will blow up are behavioural magic, not economics,” he argues.

I think this explanation works for the truly speculative growth stocks. A cluster of wildly expensive crypto, clean energy, meme stocks and SPACs have been deflating since early last year, when bond yields also soared. They plunged again as yields jumped this year, with the Ark Innovation exchange-traded fund—which holds many highly speculative stocks—falling 34% this year to Friday’s low. (By Monday’s close it was up 17% from that low.)

The link between bond yields and speculative growth stocks is clearly extremely loose, because their price is dominated by sentiment—Mr. Asness’s “behavioural magic”—not by spreadsheets of discounted cash flow.

Larger stocks can, of course, be dominated by sentiment too, as shown by the involvement of huge telecom, media and technology stocks in the dot-com bubble of 2000. But most of the time there is a tighter focus on the outlook for earnings and the discount rate.

It is that discount rate that provides the alternative interpretation for why growth stocks sold off as bond yields rose: mathematics. The valuation even of highly profitable companies such as Microsoft is high because they are expected to keep growing earnings at a high rate for a long time, and those far-in-the-future earnings are worth more today when the discount rate, based on bond yields, is lower. As that discount rate rises, those future earnings should be worth less to an investor.

In the bond market, this idea is known as the duration of a bond, the average time it takes for the cash from it to add up to the price you pay for it. The longer it is, the more sensitive the price is to changes in the yield. One example: The price of the 30-year Treasury bond fell more than 10% from its Dec. 3 high to its mid-January low, as its yield rose just 0.5 percentage point, because the low yield meant it had an exceptionally long duration of 23 years.

Something similar happened to stocks this year. The longer their duration, the more they fell, using the dividend yield as a simple proxy for the duration.

Because growth stocks have the highest duration (the lowest dividends), and value stocks the lowest (the highest dividends), value had a wonderful time. As bond yields have pulled back a bit, or at least their upward climb has been interrupted, growth stocks rebounded.

The trouble with this explanation is that the link between bond yields and bigger gains for value stocks isn’t super strong, and changes over time. Even in the past year, long-dated bond yields and a pure measure of value stocks only moved together about 30% of the time, and that relationship has been weaker recently.

Partly that is because other things matter too; most important, the market’s assessment of the economy’s strength has a big effect on value stocks.

But markets move with the heart as well as the head. Mr. Asness is right that sentiment matters, and it may be turning back in favour of value, helped by the math. I think bond yields are a bigger factor. If I’m right, the danger is that the Fed, geopolitics or supply problems might lead yields to pull back, and value’s recent strength evaporates.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: February 1, 2022.



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Amazon, Google, Microsoft and Meta pour billions into artificial intelligence, undeterred by DeepSeek’s rise

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Tech giants projected tens of billions of dollars in increased investment this year and sent a stark message about their plans for AI: We’re just getting started.

The four biggest spenders on the data centers that power artificial-intelligence systems all said in recent days that they would jack up investments further in 2025 after record outlays last year. Microsoft , Google and Meta Platforms have projected combined capital expenditures of at least $215 billion for their current fiscal years, an annual increase of more than 45%.

Amazon.com didn’t provide a full-year estimate but indicated on Thursday that total capex across its businesses is on course to grow to more than $100 billion, and said most of the increase will be for AI.

Their comments in recent quarterly earnings reports showed the AI arms race is still gaining momentum despite investor anxiety over the impact of China’s DeepSeek and whether these big U.S. companies will sufficiently profit from their unprecedented spending spree.

Investors have been especially shaken that DeepSeek replicated much of the capability of leading American AI systems despite spending less money and using fewer and less-powerful chips, according to its Chinese developer. Leaders of the U.S. companies were unbowed , touting advances in their own technology and arguing that lower costs will make AI more affordable and grow the demand for their cloud computing services, which AI needs to operate.

“We think virtually every application that we know of today is going to be reinvented with AI inside of it,” Amazon Chief Executive Andy Jassy said on Thursday’s earnings call.

Here is a breakdown of each company’s plans:

Amazon said a measure of its capex that includes leased equipment rose to a record of about $26 billion in the final quarter of 2024 , driven by spending in its cloud-computing division on equipment for data centers that host AI applications. Executives projected it would maintain the fourth-quarter spending volume in 2025, meaning an annual total of more than $100 billion by that measure.

The company—which gets most of its revenue from e-commerce and most of its profit from cloud computing—also projected overall sales for the current quarter that missed analysts’ expectations. Its shares slid about 4% in after-hours trading Thursday. The stock rose more than 40% in 2024 and was up nearly 9% this year before its earnings report.

Jassy said AI has the potential to propel historic change and that Amazon wants to be a leader of that progress.

“AI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the internet,” Jassy said.

Google shares are down about 7% since its earnings report Tuesday, which showed disappointing growth in its cloud-computing business. Still, parent-company Alphabet said it is accelerating investments in AI data centers as part of a surge in capital expenditures this year to about $75 billion, from $52.5 billion in 2024. The spending will go to infrastructure both for Google’s own use and for cloud-computing clients.

“I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down,” said CEO Sundar Pichai .

AI is “as big as it comes, and that’s why you’re seeing us invest to meet that moment,” he said.

Microsoft has said it plans to spend $80 billion on AI data centers in the fiscal year ending in June, and that spending would grow further next year , albeit at a slower pace.

Chief Executive Satya Nadella said AI will become much more extensively used , which he said is good news. “As AI becomes more efficient and accessible, we will see exponentially more demand,” Nadella said.

Growth for Microsoft’s cloud-computing business in the latest quarter also disappointed investors, leaving its stock down about 6% since its earnings report last week.

Meta, too, outlined a sizable increase in its investments driven by AI, including $60 billion to $65 billion in planned capital expenditures this year, roughly 70% higher than analysts had projected. Shares in Meta are up about 5% since its earnings report last week.

CEO Mark Zuckerberg said investing vast sums will enable it to adjust the technology as AI advances.

“That’s generally an advantage that we’re now going to be able to provide a higher quality of service than others who don’t necessarily have the business model to support it on a sustainable basis,” he said.

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This stylish family home combines a classic palette and finishes with a flexible floorplan

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