Diary of a Financier

Top Newsstuffs (March 18-24)

In Bookshelf on Sun 24 Mar 2013 at 05:52

Big birthday week(end)…

The housing market is prepared for rising rates | David Stevens (CEO, Mortgage Bankers Association)
The housing market can easily withstand a rise in interest rates, even as high as 4%, “which is what [MBA] forecast for year end.”

Documentary: Passive Investing- The Evidence the Fund Management Industry Would Prefer You Not See | Sensible Investing
Featuring Jack Bogle (Vanguard) & Charles Ellis (Yale)

Solution to the Cyprus banking crisis | The Atlantic
To recapitalize its insolvent banks’ €5.8B liquidity shortfall, Cyprus can fix in 3 steps:
1. Consolidate big banks & spinoff bad bank- recapitalize bad bank w securitized, government guaranteed natural gas revenue bonds
2. Convert uninsured bank deposits (>€100k) into 5 & 10y CDs, the latter offering subordinated natural gas bonds as a sweetener
3. Extend maturity on Cypriot sovereign debt by 5 years (est. €6.6B savings)
#Eurocrisis #Default #Emergency Bailout

Rail traffic weekly: Growth velocity unchanged | Association of American Railroads (AAR)
Weekly traffic +0.6% (vs. this week last year); total ytd volume to +1.1% y/y.
5 of 10 carload groups posted gains: Petroleum products +58.3%; grains -19.2.
[As 1q closes, this ytd growth rate is looking mighty slow in perspective.]

The consequences of loose monetary policy: Where the cracks will first appear | Gerard Minack (Morgan Stanley)
ZIRP/QE caused a reach for yield, pumping-up junk bonds, so the first place we’ll see stress is in high yield.
Starting 4q11, corporate EBITDA growth started decelerating, while Debt accelerated (BB rated issuers), which suggests that we’re seeing a “dangerous mispricing of risk.”
[EPS look even worse than EBITDA, as you’d obviously factor-in amoritization & interest from the debt.]

US bank deposits in perspective | American Bankers Association (ABA)
$9.283T total US deposits v.
$25B deposit insurance (FDIC) v.
$297.514T notional derivatives

Analyzing the most sentiment driven rallies ever | Wall Street Rant
Shiller CAPE of 23x says SPX is currently overvalued.
Also, an analysis of PE multiple expansion’s contribution to 19 bull markets (as opposed to EPS growth’s) shows that this is the second least fundamentally-driven rally of all time; only 1935-37 was less, which led to 54% correction.
Data shows that the more sentiment-driven a rally, the deeper the correction.

Denmark races to prevent mass foreclosures from legacy crisis as home prices sink | Bloomberg
Danish government trying to find a solution to prevent a wave of foreclosures from 2003 IO loans that start principal amortization this year. 56% of their $590B mortgage industry–which is 2x GDP–are such IO loans.
Home prices have fallen to 2005 levels as 80% of under 35 year olds are underwater.

–Romeo

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  1. […] & implied volatility are low in the market.  This also happens to be the second-most sentiment driven rally of alltime.  Combine all that with a “not-inexpensive” market, and you have a […]

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