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 […]

  6. […] Japan rising? Shinzo Abe’s Excellent Adventure | Barry Eichengreen (Milken Institute) Comprehensive update to #Abenomics.  Key takeaways: Part of structural reforms (yet to be implemented) will expand “National Strategic Districts” plan, which relaxes taxes & regulation to attract foreign businesses ex health care, education & services. The “Three Arrows” reference is an allusion to Kurosawa’s film, Ran, in which a wise patriarch hands his kingdom to his 3 sons, stressing: “One arrow is easily broken, but, when bundled together, three arrows are not.”  The sons ignore the advice, ruining the kingdom–ironic since there’s debate over Abe’s implementation of the 3rd arrow. [Previously: Full guide to Abenomics] […]

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