Diary of a Financier

Top Newsstuffs (June 10-16)

In Bookshelf on Sun 16 Jun 2013 at 05:10

Happy Dad’s Day, Dad…

Performance update: Major asset classes, styles, countries & regions (June 2013) | Bespoke Investment Group
Shows wtd/mtd/ytd returns for major ETFs.
Most of the world is deep in the red, except US equities & these top international gainers (in order): Japan ($EWJ), Germany ($EWG), France ($EWQ) & UK ($EWU).
[Surprising that global markets have performed so poorly.]
#Availability bias

Shifting gears: Shale drillers cut costs as era of exploration ends | Bloomberg
According to Chesapeake, “all of the major untapped petroleum deposits in the continental U.S. had been discovered” by 3/2012. The exploration phase has ended for US oil & gas companies, who are now having to cut production costs to deliver on cash flow/profit promises. Having spent $53B in land/leases in the last decade, they’ll now rely on more technological advances like better imaging data & faster/deeper fracking.
[$CHK used the term "inflection point," but I wonder if that's a euphemism. Without high depreciation & amortization, only the strong/lucky with real cash flows will survive the short sellers.]
$XOP #E&P

Rising rates reveal issue of repo failures | Financial Times (FT)
Fed talk of tapering & rising rates caused a mass scramble to borrow 10y Treasuries for short sales/hedging, but T-bonds also serve as collateral for short term funding markets (e.g. repos). So, given the volatility & demand for borrow, “fails to deliver” in the repo market increased from $14.5B to $58.5B last week, because the cost of borrowing soared.
New supply from Treasury auctions won’t necessarily alleviate the stress, due to a lingering short-bias.
$IEF $TNX #Unintended Consequences #Rehypothecation

Rail traffic weekly: Unchanged | Association of American Railroads (AAR)
Weekly traffic -0.3% (vs. this week last year); total ytd volume +0.9% y/y.
5 of 10 carload groups posted gains: Petroleum products +27.8%; grains -22.5.
[Nothing to see here, except petroleum oscillating back into deceleration.]

Chart: Major asset classes (1850-2013) | Global Financial Data
Really long term chart includes $SPX, $DJIA, $GC_F, $SI_F, $CL_F, $TNX & US Debt/GDP. Everything is near alltime highs (except 10y Treasury yield).

Why the Japanese Yen’s rise is snowballing & slamming speculators | Nomura
Chart shows speculators’ (non-commercial) JPY positioning of -$10B is extremely net short, although it’s far from the -$14B in 4q12 & -$20B in 2007.
$USDJPY #Carry trade

Infographic: Sensitivity of different asset prices to Fed balance sheet expansion | The Economist
Shows historical “average elasticity” (e.g. beta vs Fed balance sheet growth) of various global assets & their standard deviation from that mean during QEs.
Assets most exposed to tapering (in descending order): $TNX/$IEF, German 10y Bunds, British 10y bonds, EU IG bonds, $LQD, $GC_F, $DXY/$USD.
Assets with suppressed Beta to Fed balance sheet: $TUR, $HYG, $EEM, $HG_F, $EFA.
#Correlation

Quantum computing is here: The next generation of the digital age | Business Insider
Smaller, faster, stronger. Not only do quantum computers multitask by processing problems simultaneously (as opposed to modern PCs that operate in sequences), but their quantum bits (“quibits”) include both traditional binary code (0/1) & fractions that generate richer detail.
The technology is far from household-ready, but $GOOG, $LMT & NASA has purchased systems.

Presentation: The high cost of neuro-financial errors, how cognitive bias & performance chasing leads to investing failures | Barry Ritholtz (Fusion IQ)
Discusses behavioral economics & investor psychology, including habitual “romancing alpha & forsaking beta.”
Chart shows SPX forward EPS consensus forecasts (1985-2008) consistently higher than actual earnings in 22 of 25 years (except 2004-06), with average estimate for EPS growth 100% higher than realized (historical average has been a 6% growth rate).

–Romeo

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  1. […] stark contradiction to this: Infographic: Sensitivity of different asset prices to Fed balance sheet expansion | The Economist. I think the difference of opinion comes from their looking at the geometric effect of QE from […]

  2. […] worst case scenario… after all, the market has had to fade incessant downward consensus/guidance revisions over not only the past 2 years, but also 22 of the last 25 years.  That’s a huge part of why […]

  3. […] The phenomenon of FY earnings consensus downward revisions: The triumph of hope over experience | Gerald Minack (formerly of Morgan Stanley) As the MS strategist was leaving the firm, he admitted: “[Analysts] are almost always wrong – almost always because they are too high.” Charts the average historical 12mo forward consensus $SPX EPS growth forecasts (1976-2012), which almost always far exceed actual, reported earnings. [Previously] […]

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