Easter weekend, but I’m (fortunately/unfortunately?) hunting for eggs in the ski slopes of Cali…
Rail traffic weekly: Q1 closes with slow growth | Association of American Railroads (AAR)
Weekly traffic +0.7% (vs. this week last year); total ytd volume to +1% y/y.
4 of 10 carload groups posted gains: Petroleum products +58.3%; grains -19.2.
[Growth actually decelerated ytd to close 1q13 +1%, which will not be enough to support the economy’s nor the stock market’s expectations.]
Will 2013 break the cycle of risk-off seasonality? | Fidelity
Charts seasonal peaks in economic momentum that’ve led to corrections every Spring since the 2008/9 crisis:
2010 (SPX -17% April-July)- end of QE1 & start of Eurocrisis
2011 (-21% May-October)- headline inflation scare (food & energy prices), overheating Chinese economy & Eurocrisis
2012 (-11% April-June)- Chinese soft landing & Eurocrisis
#Sell in May & go away
Photographs: America’s real Wild West | The Daily Mail
19th century, sepia-tinted photos show the original frontier’s landscape, pioneers & natives in all their unsullied glory.
Best predictor of regional financial crisis: Huge inflows of foreign money | The Big Picture
Looks at Cyprus’ debt & bank deposits, which dwarf GDP, and draws on observations by Paul Krugman that an influx of foreign capital is a harbinger of crisis:
Mexico/Brazil/Argentina in 1982; Sweden & Finland 1991; Mexico 1995; Thailand/Malaysia/Indonesia/Korea 1998; Argentina 2002; Iceland/Ireland/Greece/Portugal/Spain/Italy/Cyprus 2009-13.
Size matters: The source of the small-cap premium | Above the Market
Anthropologically, a premium multiple for small cap stock valuations isn’t merely a risk premium, but a “size premium,” in that larger companies accrue operational inefficiencies & contend with a probabilistic natural lifespan (i.e. expected time of survival).
Fannie, Freddie & Consumer Financial Protection Bureau investigate force-placed homeowner’s insurance | The Big Picture
GSEs & CFPB issuing fines & new rules regarding homeowners insurance, which banks jammed down the throats of mortgagees & investors, and usury fees/premiums for shotty coverage often flowed back to services or bank subsidiaries.
#Dodd-Frank Act $FNM $FRE
Motor City revived as Detroit withers to Motown shadow | Bloomberg
Documents the symbiotic relationship between Ford/General Motors & Detroit–sometimes mutualistic, other times parasitic. After decades of moving jobs out of their hometown, $GM & $F slid into bankruptcy & restructuring. Now having revived themselves, the automakers are buoying Detroit–mired in deficits & crime–with donations worth millions.
Collateralized Loan Obligations booming again | Financial Times (FT)
JPM data suggests that CLO equity tranches recovered +20% from crisis lows, which has renewed demand for junior/subordinated tranches in recent deals.
1q13 CLO issuance is $23B qtd, likely to break 2q07 record of $26B.
Dispelling the myth of corporate cash on the sidelines | Citigroup
All the talk of a surplus in corporate cash available to enhance shareholder value & buffer balance sheets is wrong, and market prices seem to have mispriced the credit risk of leverage:
1. The top 20 companies in the R3k ($RAY) account for 40% of corporate cash & almost all of the growth in balances
2. Net debt is growing faster than EBITDA
3. Cash/Total Debt continues to rapidly plunge
4. Despite low Commercial Paper issuance, companies haven’t increased the maturity composition of their outstanding debt (QE has caused a steep yield curve, which lures issuers to shorter tenors)
[Plus, so much of the cash in tied up abroad to avoid repatriation taxes. Previously: Jim Bianco & the AP.]
Offshore discovery puts Japan on cusp of energy independence | The Diplomat
Japanese government research team found 11 years’ worth of natural gas in an offshore “fire ice” methane hydrate discovery. They estimate a century’s worth of energy (and rare earth metals) exists in the surrounding seafloor.
Exploration & production technology will need to improve, because extraction costs are prohibitive right now ($50 vs. $15 for $NG_F imports).
Transcript: Ben Bernanke, “Monetary Policy & the Global Economy” (2013.03.25) | London School of Economics
In an LSE speech, the Fed Chairman compares today’s currency wars to 1935/36, after all developed markets had [uncoordinatedly] left the gold standard:
“The benefits of monetary accommodation in the advanced economies are not created in any significant way by changes in exchange rates; they come instead from the support for domestic aggregate demand in each country… because stronger growth in each economy confers beneficial spillovers to trading partners, these policies are not ‘beggar-thy-neighbor’ but rather are positive-sum, ‘enrich-thy-neighbor’ actions.”
[For every action, there is a reaction–whether that’s pulling-forward demand or exporting inflation to emerging markets. Either way, central bank policies have increased systemic leverage, and debts must be paid upon maturity.]
Financial Policy Committee says British bank shortfall looms | The UK Telegraph
Bank of England’s FPC reveals their report on UK banks’ capital shortfalls, which are as high as £60B (£35B due to VaR adjustments + £15B for writedowns + £10B for litigation reserves).
White paper: A pension deficit disorder | Institute for Policy Studies (IPS)
90 US CEOs (74 atop public companies) have continued their “Fix the Debt” campaign in Washington DC, originally organized amidst the media frenzy around the fiscal cliff. Their policy proposals reveal unabashed self interest, an explicit intent to reduce public entitlement benefits (Social Security/Medicare/Medicaid/welfare), while their own companies’ plans are woefully underfunded (average 72% funded).
As part of their proposal, they’re duplicitously lobbying for a “territorial tax system,” which would exempt their companies from taxes on repatriated profits (~$134B in savings)–ironically counterproductive to shoring up federal entitlements.