Diary of a Financier

Top Newsstuffs (July 15-21)

In Bookshelf on Sun 21 Jul 2013 at 06:24

No shirt, no pants, no problem this weekend…

The mercantilist threat to global rebalancing | Pieria
Before 1979′s monetarist revolution (i.e. the end of the gold standard), economists focused on trade balances & strong currencies, but now it’s fiscal balances & devalued FX.
Fiat-enabled free trade replaced colonialism, then huge imbalances accumulated between developed & emerging markets. Higher wages & FX values are finally accruing to EMs like China, which means automation is cheaper than offshoring labor for a country like the US; extreme trade surpluses/deficits are flattening, marking the end of the mercantilist era.
Germany’s ruthless pursuit of a trade surplus threatens a smooth transition; the IMF should return its focus to trade imbalances instead of fiscal austerity.
[Previously: Hugh Hendry on the end of mercantilism]
#Globalization

Quant study: Brazilian equity returns after bear markets | Paststat
Calculates the 6-month return subsequent to a 6-mo, 20% drawdown in $BOVESPA:
In 23 occurences since 1995, average return +30.5% (+27.8% median) with 91% winners.
$EWZ #Bullish

The bull case for Brazil, the world’s most hated stock market | The Reformed Broker
$BOVESPA -22% ytd, -25% since 2010; economy struggling with poverty & inflation, and when the central bank raised rates to fight inflation (4.5% target), it crushed a lower class that was already struggling with a strong $BRL; recent protests are perhaps a purge & catalyst for change.
Demographics are good with median age 29 years old (39.5 in US & 44.6 in Japan); 52% of population in middle class.
[9.7 fwPE, 1.3 PB & 5.2 PCF all cheap relative to $EEM, $ACWI & Brazil's own 10y averages.]
$EWZ #Bullish #Long term

Street lowers consensus targets: 2q13 GDP now tracking 1.0% | Calculated Risk
$MER, $BCS & $JPM have all revised down Q2 growth estimates to 1.0%, due to the [expected] drag of fiscal austerity/sequestration.
[Bernanke said fiscal consolidation has shaved 1.5pp off FY13 GDP.]

Detroit files for Chapter 9 bankruptcy, largest municipal default in US history | Business Insider
The Motor City has $20B in long term liabilities, of which $11B is unsecured debt.
[Previously]
$MUB #Muni #Pension

Blackstone preparing to unleash a flood of real estate selling | MoneyBeat (WSJ)
$BX plans on accelerating RE asset sales & IPOs in next 18 mos to return capital to investors (LPs); Hilton & Brixmore are in their pipeline.
[Can't help but correlate this to 2007, when BX sold half of Sam Zell's 543 Equity Office properties in a few months, coinciding with the housing bubble burst; PE wants to sell at the top like everyone else, regardless of winding-down funds.]
#Bearish #Bad omen #Private Equity

Rail traffic weekly: Slugishness, blame it on the weather | Association of American Railroads (AAR)
Weekly traffic -1.3% y/y; ytd volume remains at +0.8% y/y.
6 of 10 carload groups posted gains: Petroleum products +19.7%; motor vehicles/parts -19.3% & grain -10.9.
[Heatwave seems responsible for poor weekly comps.]

NYSE margin debt & balances (May 2013) | Doug Short (dshort.com)
Gross nominal margin debt receded from April’s alltime high (down from $384B to $377B), as did real debt (still shy of 2007′s record).
Net margin balances still far exceeded 2007/11 pre-correction lows but have started normalizing, having missed the Tech Bubble’s record low deficit.
[I'd be more worried about this in the short term were the summer trading volume not so low, especially $SPY volume/MFI since June's bottom; the market's leverage is a problem we'll contend with over longer term. Previously]
#Bearish

Quant study: Beware the ides of Humphrey-Hawkins testimony | ZeroHedge
The Fed Chairman’s annual Congressional testimony (7/17 this year) historically seems to trigger seasonality, with $SPX averaging -1.5% drawdown by month end (in analogous pricetrends) & -2.5% by quarter end (over last 30 years).
#Brown noise #Sell in May

Quant study: Returns on negative Enterprise Value stocks (1972-2012) | Greenbackd
For 2,613 historical occurrences, a subsequent 12-month holding period averaged returns of 50.4%.
[Hence, one of my best performing quant screens.]

Simulating the smart grid: Energy Systems Integration Facility (ESIF) | MIT Technology Review
US government set up a $135mm supercomputer to experiment with integrating wind/solar solutions into preexisting fossil fuel infrastructure.
Goal is 80% renewable electricity by 2050.
#Innovation

Short duration alternatives to your traditional bond ETFs | The Wall Street Journal (WSJ)
In preparation for rising rates, these are low effective duration options for fixed income investors to pare interest rate risk in $LQD, $JNK/$HYG, $TIP & $ITM/$MUB.
[We recently bought some $SJNK.]

Full guide to Abenomics | Business Insider
Complete synopsis of Shinzo Abe & Hiroki Kiroda’s shock & awe stimulus, a 3-pronged approach to reviving the Japanese economy:
1. Monetary policy- target 2% inflation & devalue Yen
2. Fiscal stimulus- short term deficit spending before working toward a balance by 2015, budget surplus by 2020
3. Structural reforms
$NKY $JPY #Lost decade

Four charts to track timing for QE3 tapering | Calculated Risk
Includes actual & projected data for the Fed’s tapering targets: growth (GDP), unemployment & inflation (headline & core PCE).

–Romeo

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  1. […] an aggregate retrenchment underway, which may pare excesses over the long term. Previously: The mercantilist threat to global rebalancing] #Globalization […]

  2. […] voiced concerns about NYSE margin debt over the past couple months.  Despite falling from April’s alltime […]

  3. […] of P-E along with easy access to cash is making it tough to find good deals.” [Previously: Blackstone] $APO $BX $CG $FIG $SPX […]

  4. […] social unrest was exactly the kind of “purge” I had awaited to start buying, and their stock market’s selloff was enough of a capitulation to satisfy me, […]

  5. […] +1.1-1.2% vs 2.0 target 4. Core inflation (PCE)- 4q13 projection +1.2-1.3% vs 2.0 target [Previously & See […]

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