Diary of a Financier

Top Newsstuffs (December 3-9)

In Bookshelf on Sun 9 Dec 2012 at 05:42

All you can eat…

Trends in a paperless world: The end of paper? | The Conversable Economist
Charts total paper & paperboard consumption by country/region (2000-2010): Global consumption is still rising due to China, but it’s falling fast in developed markets (North America -24% between 2006-09).

Unemployment data by every category (November 2012) | Floating Path
Breakdown of unemployment rates by demographics, including nominal rate (U3), real rate (U6), labor force participation, birth-death model, race & educational background.

Rail traffic weekly: Sequential deceleration for 2nd straight week (due to LA port strikes?) | Association of American Railroads (AAR)
Carloads -3.1% and Intermodal +3.3 (cumulative ytd volume); -2% and -1.1 respectively (vs. this week last year).
14 of 20 carload groups posted gains: Petroleum products +65.3%, metallic ores +27.2 & scrap metal +20.2; coal -12.7, waste -5.6 & foresty -5.
[Deceleration in growth rates these past 2 weeks will barely move the ytd cumulative this late in the year, but worth watching to see if these two data points turn into a trend. Important to note that labor strikes in Los Angeles & Long Beach may have had an effect.¹]

Photos: The 45 most powerful images of 2012 | BuzzFeed

Don’t let resilient GDP fool you into thinking the economy can survive sequestration | Pragmatic Capitalism
Many look at US GDP growth amidst 4 years of deficit reduction and think the economy can survive sequestration, but the private sector is not quite ready to lead the economy without the public sector’s aid. 4 straight quarters of double digit gains in private investment are largely responsible for recent GDP growth, but it won’t continue at this rate–and sequestration might throw it in reverse.
Cullen Roche also points to the resilience in private investment as a reason why the US will not suffer Japan’s lost decade(s).
#MMT/MMR

Buy cash at a discount: These companies have negative enterprise value (EV) | ZeroHedge
Tyler Durden ran a screen for companies with negative EV (market cap < net cash) & positive free cash flow (FCF): Career Education Corp (CECO), Imation (IMN), Nautral Tandem (IQNT) & Maxygen (MAXY).

Fixed income 2013 outlook | Economic Musings
Suggests that credit cycle hasn’t quite peaked:
1. Hedge funds are now buying non-Agency MBS as a housing deriviative, sending guys like Gundlach (DoubleLine) into CMBS & CLOs for value; don’t worry about leverage/credit cycle until CLOs get crowded.
2. Leveraged Loans show attractive relative value to High Yield, with spreads comfortably tight ~57bps (HY-LL); interest rate risk & the proliferation of CLOs will continue to aid floaters.

QE3 update: Alarmingly modest increase in bank reserves | Sober Look
QE3 has barely affected the bank reserves & the monetary base, as weekly POMOs (~$27B) have hardly offset MBS paydowns (~$20B) from rolloffs/prepays. But, with only $50B in ST notes left to sell, the Fed will succeed Operation Twist with unsteralized monetization in 1q13.

Infographic: The evolution of central banking in England & the United States (1604-2012) | Addogram
Compares the balance sheet compositions of the world’s last two lenders of last resort (keepers of the world’s reserve currencies): the Fed’s US Dollar (USD)  & Bank of England’s (BOE) Pound Sterling (GBP).
#Analogue

Federal Housing Administration audit reveals startling data | The New York Times (NYT)
FHA backs $1.1T in loans, and its mortgage insurance fund is running at -$13.48B deficit v. +$1.2B surplus in 2011(projected future premiums less future losses).

Global Purchasing Managers Index (November 2012): Reversal out of contractionary trend continues | Business Insider
Global PMI continued its rise from 48.8 to 49.7 (>50 indicates growth):
Japan slides ever deeper into contraction.
Asian expansion continues (especially China & South Korea).
Europe still contracting, but improves after summer’s depression levels.
US acceleration beat expectations (although ISM surprised on the downside).

Silicon Valley’s nuclear winter: The Series A capital crunch is here | Pandodaily
Venture capital (VCs) and angel investors had spread their seed capital far & wide, but there’s not a corresponding plethora of investors to take the baton in Series A financing round: nationwide, 2,000 startups with 5,000 employees have raised $1.6B in 2012 seed capital; only 20% will have access to Series A.

Video interview: James Galbraith- “The fiscal cliff is a scam” | The Real News Network
The political standoff was contrived to timely occur after the presidential election for two reasons:
1. Republicans are under pressure to cut a deal before additional Democrats are sworn into Congress in 2013.
2. It creates an opportunity to make long term cuts to entitlements (Medicare/Medicaid).
Congress can always take action to evade automatic spending cuts in 2013.

Corporate bond market: Normal credit spreads hide poor fundamentals as credit cycle crests | Matt King (Citi)
As fixed income prices keep rising, investors are reaching for yield. Central Banks have elbowed investors out of quality & helped keep default rates low–even though corporate leverage is increasing (revenues growing but EBITDA slowing).
Citi also says they expect a fiscal cliff resolution rally but worries about a crisis thereafter.
#Bearish

European bailout funds lose AAA ratings | Moody’s
EFSF & ESM downgraded from AAA to Aa1, driven by France’s recent downgrade.

Jos A Bank’s business model | Business Insider
JOSB’s mensware sales keep getting more & more incredible (e.g. 70% off or buy-1-get-7-free), but how do they make money? SEC filings clearly disclose they markup the initial price of merchandise, and gross margins have increased from 58-64% over the last 5 years.
#SoundsLooksFeelsTastesSmellsLikeAPonziScheme(OrBankruptcy)

–Romeo

¹We own Canadian Pacific (CP) in our portfolio, which actually benefitted this week from seaborne shipments being diverted from LA ports to railroads.  So, I’m not too quick to call the LA/LB strikes a net-net negative development.  That being said, here’s what the AAR itself had to say:

“Part of the reason for [mixed results] is a strike by harbor clerks at the Ports of Los Angeles and Long Beach that began on November 26 and was settled on December 5.  The two ports are by far the first and second highest-volume container ports in the country and are the source and destination for large amounts of U.S. rail intermodal traffic.”
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