#BostonStrong in the wake of the horrible Marathon bombings, the subsequent shootings, and that crazy manhunt…
5 reasons behind the Emerging Markets correction | Sober Look
EM equities have diverged from DM because:
1. Apple deceleration- put downward pressure on Asian part/component suppliers
2. Chinese slowdown
3. Japanese Yen devaluation- hurting competitiveness of other export nations like South Korea
4. Commodity selloff- pressuring major exporters like Russia, Brazil & South Africa
5. US economic surprises- spectre of another spring swoon & softening demand resonates to EMs
Rail traffic weekly: Welcomed resilience, still averting spring swoon | Association of American Railroads (AAR)
Weekly traffic +1.2% (vs. this week last year); total ytd volume to +0.8% y/y.
4 of 10 carload groups posted gains: Petroleum products +51.2% & motor vehicles +10.9; metallic ores -13.8 & grains -12.1.
[In 2011/12, April started the “spring swoon” with horribly negative railtraffic growth, so 2013’s resilience is heartening, so far. With inventories at the bottom of their range, we may be able to bounce back shortly.]
A year-to-date look at the world’s stock markets by country (2013.04.18) | All Star Charts
I’m surprised how large the ytd divergence is among global equity index benchmarks:
1. Gainers- Japan +16%, US +9
2. Losers- MENA -14%, EMs -8, Canada -7, LatAm -5, Europe -5
[$EFA outperformed $SPY from 2002-08; $EEM outperformed from 2003-08; maybe it’s just part of a larger paradigm shift.]
Interview: Ned Davis (NDR) | The Big Picture
The legendary market technician reveals his four basic traits of successful investors:
1. Objective indicators- remove emotions from the investing process, focus on data instead of reacting to events
2. Discipline- let data drive decision making with pre-established rules that external factors don’t influence
3. Flexible- remain open-minded to new ideas & always revisit previous thoughts
4. Risk averse- “We are in the business of making mistakes; the only difference between the winners and the losers is that the winners make small mistakes, while the losers make big mistakes”
A Critique of Reinhart & Rogoff | Herndon, Ash & Polling (UMass Amherst)
R&R admit to an unintentionally faulty data set, invalidating their seminal work, Growth in a Time of Debt, the basis of Paul Ryan’s “Path to Prosperity” & other [enacted] austerity programs.
UMass professors were unable to replicate the results R&R (Harvard professors) rendered from the original data set. Among the issues:
1. Excel coding error excluded the first 5 countries in alphabet (coincidentally high-debt/average-growth)
2. R&R selectively excluded years of high debt & average growth for New Zeland (1946-50)
3. R&R used a debatable method to weigh the countries
As a result, countries in excess of 90% Debt/GDP experience no statistical drag on growth (+2.2% subsequent mean growth rate vs. -0.1% cited by R&R).
An update on housing starts: Finally some life (March 2013) | Calculated Risk
March housing starts +49% y/y; single family homes only +28.7%, so terrific data largely due to volatile multi-family category.
Regardless, this is a huge development since starts have dragged on the recovery–still ~50% below average (currently 1.036mm SAAR vs 1.5mm average between 1959-2000).
“Residential investment & housing starts are usually the best leading indicators… suggests the economy will continue to grow over the next couple of years.”
Forensic analysis of Japanese equity fund flows | JP Morgan (JPM)
Charts capital flows throughout start of Abenomics:
1. Net margin trading (buys-sells) at 4mm shs has reached overbought territory (historically, over 3mm shs), nearing 1990 & 2006 pre-crash levels (over 5mm shs)
2. Speculative positions (leveraged longs) in NIKKEI 225 futures at alltime highs
3. Foreigners buying Japanese stocks ~$17B/mo, historically resistance
4. Domestic selling of foreign assets at record high $17B/mo ($5B prior record)
[If we’ve learned anything from US QE, it’s “don’t fight the Fed,” which means rational fundamentals & technicals are mere noise.]
Obama’s budget proposal suggests taxable municipal bonds | Bruce Krasting
In a quiet corner of the White House budget proposal was an item permitting municipalities to issue taxable debt, a la the wildly successful Build America Bonds (BABs). Called America Fast Forward (AFF) Bonds, the program would tap global demand and be revenue-neutral for the federal government, which will pass its interest income tax onto municipalities to lower their cost of capital.