Diary of a Financier

Top Newsstuffs (April 1-7)

In Bookshelf on Sun 7 Apr 2013 at 04:29

Incredible reads waiting for you in the newsstand this weekend. Good stuff…

Rail traffic weekly: Q2 opens weakly, contines decelerating slide | Association of American Railroads (AAR)
Weekly traffic -2.8% (vs. this week last year); total ytd volume to +0.7% y/y.
3 of 10 carload groups posted gains: Petroleum products +55.6%; grains -27.4.
[Perception/reality gap widens, as this kind of volume combine with high inventories are major headwinds for Q2–considering the optimism in stocks & GDP.]
#Bearish

Chart: The bubble/mania cycle | Jean-Paul Rodrigue (Hofstra University)
A more detailed alternative to the Cycle of Psychology. Phases include: Stealth, Awareness, Mania & Blowoff.

The three amigos | Market Anthropology
Two chart analogues of particular interest:
1. NIKKEI 1992 v. Silver 2013- SI should collapse after a multi-week relief rally
2. Euro 2011 v. 2013- EUR should collapse immediately

Currency markets are misinterpreting the impact of QE | Richard Koo
Throughout post-Bretton Woods II era (fiat regime), base money & money supply tracked one another almost perfectly, but since global QE began after 2008’s crisis, the correlation between base money & inflation has disappeared, due to the balance sheet recession: the private sector is still deleveraging & not borrowing, turning the money multiplier negative and defanging central banks’ monetary policy.
Koo thinks that recent FX movements (e.g. JPY’s magnanimous devaluation) miss the fact that governments are merely offsetting households’ deleveraging, as opposed to releveraging the entire system.

Iron Ore bear market looms as supply trumps demand | Bloomberg
Seaborne supply will advance 9.1% & demand 8.3% in 2013, sending prices -34% ($135 to $80), according to consensus. Despite $133 YE13 PT (due to low Chinese stockpiles), Morgan Stanley predicts a surplus in 2014 that will proliferate through 2018. Australia most affected via slowing Chinese fixed investment.
$STF_F $CLF $XME

Video: Why Wall Street is hot for solar energy | WSJ Live (The Wall Street Journal)
Interview of David Field (CEO, OneRoof Energy): residential solar lease demand far exceeds available capital for securitizations, which “function like high quality mortgages”; users save 20% per month vs. traditional electricity.

White paper: “Asset Price Trend Theory- Reframing Portfolio Theory from the Ground Up” | Social Science Research Network (SSRN)
Relying on the assumption that asset prices trend, traditional optimization keeps portfolios 100% invested, using asset class diversification as a means of risk management, but that doesn’t mitigate drawdown risk. Only stop-loss protocol (“loss contingent exits”) truly limit negative variance.
#Modern Portfolio Theory (MPT)

Computer algorithms play matchmaker for US’s unemployed | Bloomberg
First, headhunters, then online resources like LinkedIn, now automated algorithms are helping jobseekers & employers find placements.
Highlights: AfterCollege Inc., CareerBuilder & Burning Glass.
$LNKD $CBDR

Economic death spiral: Housing crisis worsens in Netherlands | Der Spiegel
Dutch housing collapse continues in 2013, with mortgage debt up to €650B & consumer debt service/income up to 250% (vs. Spain’s 125%).
Historically Germany’s austere ally, Holland’s government will violate EU’s Maastricht Treaty this year by exceeding 3% deficit–despite a €46B austerity package (and €4.3B more coming in 2014). They’re entering death spiral with unemployment up to 7.7% (likely worse due to underreporting from droves of self-employed).
[Eurocrisis contagion has spread from periphery to core. Previously.]
#Bearish

Spring swoon again: Economic momentum sputtering out | Dan Greenhaus (BTIG) & Lewis Alexander (Nomura)
Consensus is migrating toward upward revisions of 1q13 GDP to +3.0%, spillover from a slow 4q12. Economic surprise indices are already turning lower for 2q.
A 3.0% 1q GDP report will include 1.2pp from inventory accumulation, which will recede in 2q, lowering 2q GDP to 1.4% after compound effect of lower government spending & consumer adjustment to increased taxes.
[Big question is: does the market expect another spring swoon? I’d say yes. Previously, “cycle of risk-off seasonality.”]

Sell-side consensus still extremely bearish, which is bullish | Merrill Lynch
Another extremely low reading, with only 47.6% (v. July’s record low 43.9%) of strategists bullish on equities–a contrarian bullish indicator.
#Bullish

Documentary: Super supercapacitor, the scientific accident that could change the world | Focus Forward Films (Vimeo)
Ric Kaner set out to find a new way to make graphene, both the thinnest & strongest material on earth; what he found was a new way to power the world: something that combines the best attributes of a battery (high capacity) with those of a capacitor (high discharge), and it’s carbon-based (recyclable/decomposable).
[This will literally change the world, solving our renewable energy quandary and resolving carbon emissions & environmental issues in one fell swoop.]
#Innovation

Global Purchasing Managers Index (March 2013): Emerging v. developed market divergence | Business Insider
Global PMI accelerates a bit (up to 51.2 from 50.9 last month), but Asian growth has diverged from developed market deceleration:
Chinese growth bounces higher (50.6 fm 50.1), along with Japan (50.4 fm 48.5) & the rest of Asia.
Europe contraction worsens (46.8 fm 47.9) with every country falling.
US ISM plummets (51.3 fm 54.2) with construction showing strong growth & consumer spending very weak.
#Bearish

Negative earnings guidance at 7 year highs | FactSet
1q13 was the 4th consecutive quarter in which more than 70% of management teams offered negative EPS guidance; FY13 negative guidance also increased in March, for 3rd consecutive month. 4q13 guidance was low too & 74% of companies beat.
#Low bar $SPX

–Romeo

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  1. […] SPX 2q13 earnings primer | ValueWalk/FactSet 81% of $SPX companies have provided negative guidance (below Street consensus) for Q2, which rate is the highest since 2006 & historically averages ~62%. Analyst consensus for EPS growth has been revised from +4.4% to +1.3% y/y, with $XLB bearing the brunt (fm +9.4% to -3%) & $XLF a beneficiary (+17.1%). [Only 106 companies provide guidance. Previously] […]

  2. […] 2.4% to 1.8%, due mostly to drops in PCE, exports & nonresidential fixed investment. [In April, expectations were for an upward revision to 3.0%! With Q2 also likely to miss expectations & FOMC […]

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