Diary of a Financier

Top Newsstuffs (November 5-11)

In Bookshelf on Sun 11 Nov 2012 at 06:52

Full bodied…

Memorandum: Bank of England & Fed conspired bad delivery of Bundesbank gold (May 31, 1968) | ZeroHedge
BOE memo to Fed reveals that the central banks conspired to have US Assay Office deliver 172 sub-par quality gold bars to Germany during Bretton Woods gold standard era: “No indication should, of course, be given to the Bundesbank.”

Rail Traffic Weekly: Negative blip attributed to Hurricane Sandy | Association of American Railroads (AAR)
Carloads -3% and Intermodal +3.5 (cumulative ytd volume); -6.8 and -6.2 respectively (vs. this week last year).
10 of 20 carload groups posted gains: Petroleum products +61.5, farm products +46.4 & lumber +24; iron/steel scrap -25.8, metallic ores -22.9 & minerals -22.5.
[Superstorm Sandy affected this week’s data.]

The Eight Scariest Charts For Equity Bulls | Tom Fitzpatrick (CitiFX)
Fitzpatrick finds Dow 30 (DJIA) & S&P 500 (SPX) analogues that align with pre-crash 1987.

Global Credit Cycle Lurches Down | BCA Research
BCA’s proprietary credit cycle indicator suggests that the US, Europe & China have all turned negative.

Interview: Cliff Asness (AQR) & Robert Arnot (Research Affiliates) | Morningstar Advisor
Two legends discuss formula investing, the rise of risk factors (quantitative models incorporating technicals like liquidity/size/momentum in addition to traditional fundamentals), and data mining (proliferated by HFT algorithms).

Bank of England halts QE after potency, effectiveness questioned | ZeroHedge
Because UK inflation at 2.2% is a concern & QE hasn’t impacted growth lately, BOE will suspend its own version of QE3, but they’ll maintain their Funding for Lending Scheme (FLS), which began in August.

Model says US recession odds are 100% | St. Louis Fed
Fed’s US Recession Probabilities index has accurately predicted all 6 recessions since 1967.
The model: “Recession probabilities for the US are obtained from a dynamic-factor markov-switching model applied to 4 monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing & trade sales.”
[Note that the underlying data are prone to revision, so spikes in the index are often restated the following month.]

The Chinese credit bubble: Debtload full frontal | ZeroHedge
Although hard to ascertain from spotty national statistics bureaus, China’s corporate debt/GDP is between 130-150%. Unlike sovereign & local, corporate debt is hard to falsify given international accounting standards, so using this level of corporate debt, we can use comps to extrapolate an enormous total debt/GDP for China.
After all: “Debt, like money, is fungible… [and it] will go to whatever sector has the capacity to carry it: be it corporate, household, financial, or, as a last resort, sovereign, in order to extract every possible ounce of future growth at the expense of current assets and cash flows, until neither viable collateral, nor cash flows can sustain it.”

4q12 & FY13 earnings expectations take a turn for the worst | Barclays Capital
Apple trimmed its 4q12 EPS guidance 25% below Street, which triggered broad consensus revisions: 4q12 EPS growth (y/y) is down from 10% to 7.2 (the high was 20% in 2/2012); 2013 growth down from 11.3% to 10.4 (high of 13% in 5/2012).

An investor’s guide to the 2012 Presidential Elections | The Big Picture
Nobody knows whether Obama or Romney will win, but we do know how markets will react, given the policies on which the candidates differ:
1. Sectors- energy, healthcare & defense
2. Federal Reserve- appointments & philosophy
3. Taxes- dividends & capital gains
4. Regulatory
[#1 is a short term effect, the rest are longer term.]

Highest net long positions in 10 Year Treasury since March 2008 | CFTC Commitment of Traders
Commercial traders’ positioning in 10y T-bond futures has reached March 2008 levels at 169,456 net long contracts; the record was >;200k in May 2008.
[Contrarian sell sign for Treasuries? Bullish for equities?]

Video: Chuck Pagano (Head Coach, Indianapolis Colts football) | ESPN
Mr. Pagano’s season & life have been interrupted by a leukemia diagnosis. In a lockerroom speech, he told his team ‘live in a vision, not in circumstances.’
[Reminiscent of Jimmy Valvano’s ESPY speech.]

Infographic: Quoting Elizabeth Warren | OnlineMBAPrograms.org
“There is nobody in this country who got rich on his own. Nobody.”
Provides statistics that defend the ideology of higher taxes, particularly on the wealthy 1%, who shouldn’t forget the public’s & the little man’s role in their past/present/future success.

The ECB is investigating the legality of its own loans to Spanish banks | Reuters
The ECB made loans to Spanish banks off B-rated collateral at only 0.5% haircuts. Not only can the ECB accept at worst A-rated paper, but it must also charge 5.5% haircuts for such loans (per Spanish treasury rates).

–Romeo

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