My favorite holiday, Patriots Day, is Monday… but I’m working. Marathon Monday & a Red Sox morning game, enjoy without me. 😦
Weekly exploration & production rig count: US oil rigs at highs, gas at lows | Baker Hughes (BHI)
Oil rigs +30 w/w to 1,387 total; biggest 3-week increase in over a year.
Gas rigs +2 to 377 total; last week was lowest level since 1999, down from 992 alltime high in 2010.
[We own $IEO now, with gas rigs at crisis-esque lows & $NG_F up to $4.25: “Be greedy when others are fearful.”]
Quantitative study: Putting bearish Investor Sentiment (AAII) into context | The Big Picture
Sentiment surveys are all flashing contrarian buy signals, including cash allocations @ 22.8% (16mo high) & bullish sentiment @ 19% (4yr low).
Barry Ritholtz analyzes historical performance given 2 conditions (SPX @ 3mo high & sentiment @ 3mo lows); his results: SPX rallied in 87% of forward 12mo periods w median returns of +11.2%.
Interview: Carmen Reinhart, ‘The crisis isn’t over & our pensions are screwed’ | Das Speigel
“The crisis isn’t over yet, not in the US and not in Europe… Nations seldom just grow themselves out of debt, you need a combination of austerity (so that you don’t add further to the pile of debt) and higher inflation (which is effectively a subtle form of taxation)…
“No doubt, pensions are screwed. Governments have a lot of leverage on what kinds of assets pension funds hold.”
[Reinhart & Rogoff are the foremost experts on crises, and I’m warming to the notion that we are Japan, since the Fed/Treasury can’t withstand rising interest rates.]
#This Time It’s [Not] Different #Lost Decades
There is no risk left anywhere: Risk indices suggest zero probability of shocks | International Monetary Fund (IMF)
IMF says capital markets are too complacent, citing proprietary risk model comprised of 4 composite indicators, which all price near-zero probability of shock: VIX, SovX (global most liquid), Euro SovX & Euro TED spread.
Such unanimous, extreme complacency is a contrarian sell signal also reached in 3q08 (SPX -40%), 2q10 (-17%) & 2q12 (-11%).
[I’d concur that global risk suppression as a result of central bank policies is a long term issue, but it’s not a trigger to sell in the short term–not at this point in the credit cycle.]
Yes, the rapidly shrinking federal deficit | Jan Hatzius (Goldman Sachs)
GS estimates that US federal budget deficit was just 4.5% of GDP in 1q13 (down from 10.1% peak in FY09). Reduction attributed to:
1. Lower government spending- average -4% annual decline since 2011 (first ever such decline in post-war era)
2. Higher receipts- federal taxes +$120B annualized in 1q13 (0.8% GDP) & +7% annualized since 2009
[Previously: The deficit will fix itself & The fastest postwar deficit reduction]
Banks resorting to old tricks to reduce regulatory capital levels | The New York Times (NYT)
Banks have started using hedge funds to circumvent regulators & Dodd-Frank:
Rather than selling assets at a loss (e.g. non-performing loans), banks transfer a slice of the risk to a buyer like a hedge fund, who agrees to cover a percentage of future losses in exchange for a fee, which premiums sometimes cost 15% per annum. Ostensibly limiting banks’ downside & tricking VaR models, this allows them to hold lower loan loss reserves & liquidity ratios.
[Transferring risk does not eliminate it, in fact, this kind of commingling between traditional & shadow banks increases systemic risk by concentrating counterparty risk in unregulated entities, which is how net notionals become gross.]
Rail traffic weekly: Nice sequential uptick breaks Q1’s deceleration trend | Association of American Railroads (AAR)
Weekly traffic +2.1% (vs. this week last year); total ytd volume to +0.8% y/y.
8 of 10 carload groups posted gains: Petroleum products +52.9% & minerals +10.9; grains -14.2.
[In context of the broader downtrend that ended Q1, this is a decent uptick.]
White paper: Where will the Eurocrisis turn next, Portugal or Slovenia? | OpenEurope
Forensic analysis of Portuguese & Slovenian economies in attempt to establish where European contagion will spread next.
FOMC minutes (March): Ben Bernanke says IOER would be main tightening tool | Bloomberg
“The principal tool that we contemplate [for tightening] is the interest rate paid on excess reserves (IOER)… Asset sales are late in the process and not meant to be the principal tool of policy normalization.”
Implicit regulation: How Canada avoids banking crises | The Big Picture
“There are other factors beyond the French legal history… in Canada, bankers cannot lobby regulators. Unlike the US, their Supreme Court does not think corporations are people. In Canada, money is not speech. There are explicit limitations on Corporate political donations. All of this adds up to a much more intensely regulated banking system than in America [where radical deregulation led to the 2008/9 crisis].”
[Barry Ritholtz has a fantastic discussion about rationalizations & cognitive biases in here too.]
Interview: Kyle Bass (Hayman Capital)- Market strategy & the “beginning of the end” for Japanese bonds | Bloomberg
Japan- “quantitatively insolvent”
Long positions- puts an emphasis on liquidity & the chase for yield, so he looks to US structured mortgage credit, where a price inefficiency exists since a lot of ratings-based buyers can’t purchase subprime that’s still 97% below investment grade (e.g. fallen angels/junk); RMBS second derivatives like servicers & mortgage insurers are also asymmetric risks/rewards since housing isn’t getting worse
Gold- can’t understand why it’s lagging unlimited central bank printing; $70T+ in global currency vs. $1.2T investible gold ($8T total gold outstanding)
[Gold is lagging because of the expectation of QEs’ end & rising real rates.]
Lumber prices near housing bubble high amid supply crunch | Calculated Risk
Even with prices having recovered from $140 (2009 crisis lows) back to $385, lumber still faces a supply/demand imbalance as it nears 2004’s high ~$432, after idled sawmills & pine beetles have choked supply; much more capacity is needed.
Charts: America is not drowning in debt | Capital Economics
Total US debt/GDP has fallen under 350% (from 380% high in 2009 & 250% in 2000), and assets/GDP up to 1300%, leaving net worth/GDP at 550% (average since 2000).
Public debt is up from 57% of GDP in 2009 to 95% (40% low in 2001 & 70% high in 1994); financial down from 125% in 2009 to 85%; household from 100% in 2009 to 80%.
US casino spending tumbles back to Great Recession levels | Bloomberg Briefs
Traditionally a strong indicator of the pressure on consumers’ discretionary income, US casino gaming spending declined 4.3% y/y in March.
As US Dollar confidence wanes, 12 US states push for precious metals as legal tender | Bloomberg
Following Utah’s legalization in 2011, 12 more states have lawmakers working to pass legislation for gold & silver bullion to be accepted as currency.
Includes: Arizona, Kansas, Texas, South Carolina, et al.
The Japanese buy-in: Retail investors take the plunge | The Wall Street Journal
News emanating from Japan that retail investors are starting to participate in equity market again. With $8.9T in savings deposits (vs. $7.7T in US), Japanese retail is woefully underinvested, allocating only 11% to stocks vs. 22% for Europeans vs. 45% Americans.
$NKY $DXJ $EWJ #Abenomics
80% chance of +40% short squeeze, as silver shorts surge to record levels | ZeroHedge
Silver short positions (46,909 contracts) have reached the highest level in at least 17 years. Similar such extremes have led to short squeezes, prevailing in 4 of 5 occurrences & averaging +40.5%:
7/1997- +70% rise in 29 weeks
11/2000- -13.5% in 53 wks
10/2002- +13.2% in 12 wks (start of secular bull market)
4/2003- +19% in 24 wks
8/2005- +114% in 37 wks
#Commitment of Traders (COT)
Bank of Japan’s clumsy interventions in government bond markets | ZeroHedge
Circuit breakers were triggered for the 2nd straight day after high-volume JGB futures buying that can only be the BoJ’s QE monetization: 10y yield -5bps (0.50% to 0.45%) before snapping back +7bps; in both instances, the spikes were retraced after trading resumed.
[With USDJPY +1% every day, imagine the JGB carnage were the BoJ not providing demand.]
#Open Market Operations #Collateral Damage #Abenomics