Diary of a Financier

Top Newsstuffs (April 9-15)

In Bookshelf on Sun 15 Apr 2012 at 08:58

I heard a pundit say that he expects a sideways market for the foreseeable future. I have trouble imagining such an outcome. Maybe I’m conditioned to expect volatility, but the as to the direction of this market, the choice is binary, no? Up a crooked number or down a crooked number. Sideways none there is. (My vote’s already in.)

Enjoy this week’s top newsstuffs…


Rail Traffic Continues to Soften | Association of American Railroads (AAR)
Carloads post -7.7% y/y decline and intermodal +1.1%. Overall, broader trends have deteriorated with just 9 of the 20 segments posting gains:
Petroleum products +33.3%, Forestry +11.8%, Stone/Clay/Glass +11.2%.
Iron/Steel/Scrap -18.1%, Grain -16.6%, Coal -16.1%. 

High Frequency Trading: Why The Market Is Slowly Dying | Morgan Stanley
37% of the $22T in corporate equity is held by ‘Households and Nonprofits’ now, down from 50% in 2000. These retail investors started outsourcing money management, hence ‘Institutional’ ownership increased from 54% to 81%. Then in 2008, institutional marketshare plateaued, and so did its trading volume: down from 27% ADV in 2001-06 to 16% today. HFT filled the void, but because these tradebots have millisecond holding periods (no inventory), they provide fake liquidity by trading with one another to bid up markets, then they disappear and markets crash for want of a bid.
[I think MS misperscribes some of the causation here, because mass retirement of the baby boom has led to a system-wide rebalancing to overweight bond allocation.]

The World in Balance Sheet Recession | Richard Koo
Koo points to increase in European private-sector savings preceding 2011 Eurocrisis. Household/Corporate deleveraging needs to be coupled with public-sector (fiscal) stimulus to maintain growth.

Spain CDS Surges Just Shy of Record As Bank’s ECB Borrowings Go Parabolic | ZeroHedge
Spanish bank borrowings from ECB soared by €75B in March to €227.6B total, the highest ever, a 50% increase over February. Spain CDS touching 491bps, 2bps from November record high.

  1. Norway, Sweden, Australia & Canada haven’t reverted to trend growth in home prices (yet).
  2. Eurozone home price-income & price-rent ratios still outliers far above 100 average.
  3. Shallow correction experienced in Spain’s housing (to date) might have something to do with low mortgage debt/wealth and low withdrawals on home equity.
  4. Global residential investment has collapsed between 60-50% from 2007 highs in most countries, attributable to 2003-04 oversupply.
US Treasury’s Imminent Launch of Floating Rate Bonds | Manmohan Singh (IMF)
Huge development that could be central to the Treasury/Fed exit plan:
  1. The 1951 Accord reinstated the Fed’s independence after it was forced by Harry Truman to artificially pin T-bill rates at 0.375% throughout WWII (despite high CPI). The catch was that upon “independence,” the Fed’s ZIRP dissenters were relieved of their roles and replaced with Truman’s [dovish] selections.
  2. The Accord also had Treasury offer a bond swap to higher coupons for Fed’s holdings, helping Fed avoid capital losses via rising rates.
  3. The Treasury Borrowing Advisory Committee (TBAC), composed of Wall St banks, suggested issuing Floating Rate Notes in a 1/31/12 report: “Pricing for a hypothetical two year FRN was estimated to be in the arena of 3 month Treasury bills plus 8 basis points… the Committee was unanimously in favor of Treasury issuing FRNs… [Treasury] plans to announce a decision regarding whether or not to introduce an FRN product at the May 2012 Quarterly Refunding.” […and the fixed income market implodes.]

We have a problem, in Switzerland | Bruce Krasting
Heavy EURCHF selling in 3mo+6mo forward markets (implied 1.1990) and 12mo+2yr FX swaps (implied 1.17920), CHF 6mo+2yr T-bills trading with negative yields too. Can only mean hot money demand for Francs, leaving the SNB with its hands full.

Alcoa: The State of the World Economy in One Slide | Clusterstock
AA +5.6% afterhours. 1q12 EPS $0.10 v -$0.04(E), Revenue $6.006B v $5.770B(E). Reconfirm FY12 outlook +7% global aluminum growth with strong Chinese consumption +11%.

Surest Way to Succeed in Business: Make Yourself Useful | The Reformed Broker
Carl Icahn was a broker in search of clients. He found a niche as one of the most knowledgeable options traders at a time when options mystified the public. He owned that niche & clients came to him.
Find something you can be very good at, preferably something you are genuinely interested in and will have the patience to excel at.

Chesapeake Energy: Naked Risk Management | EconMatters
CHK enters 2012 without any natural gas hedges, whereas most producers have hedged up to 75% of FY production. That’s a big bullish bet on NG prices by CHK.

Cratering 2012 Earnings Expectations | Wall Street Journal
1q2012 EPS growth was forecast for 10% y/y in September, 4.50% in January, expectations now down to 0.95%.

China Unexpectedly Reports Trade Surplus | Bloomberg
$5.35B trade surplus vs. expected $3.15B deficit. Exports rose 8.9% y/y; imports increased 5.3%. Crediting US recovery and European stability for surprise. Likely to pause talk of monetary easing.

2013 Corporate Margin Expectations Seem Incredible | Morgan Stanley
42% of S&P 1500 companies expect to increase net margins this year, with a whopping 89% in 2013.

Union Pension Underfunding Soars 75% in 2011, Nears $400 Billion | Credit Suisse
Multi-employer plans 48% underfunded with $331bn of assets to support $686bn of liabilities. The gap is widening due to actuarial assumption of 7.5% compound return.

Did JPMorgan Pop The Student Loan Bubble? | ZeroHedge
Like Jamie Dimon pulling out of subprime housing in 2006, JPM (and US Bancorp) has ceased lending in private student loan market.


  1. […] (3m) T-bill auctions.Final decision will be announced at 8/2013 quarterly refunding.[Periously: IMF reacts to Treasury FRN proposal & TBAC recommends […]

  2. […] further evidence of the pending , rising rate regime, consider today’s FRN analogue to the 1951 Accord, which (coincidentally?) occurred at the last secular trough of 10y Treasury yields […]

  3. […] daily volumes (ADVs): Equity share volumes are at secular lows due (in part) to structural changes in the marketplace and […]

  4. […] daily volumes (ADVs): Equity share volumes are at secular lows due (in part) to structural changes in the marketplace and […]


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