Diary of a Financier

Top Newsstuffs (April 22-28)

In Bookshelf on Sun 28 Apr 2013 at 05:43

I’m absolutely invigorated and refreshed by this normal, extraordinarily beautiful weekend in Boston; home alone, just me and my dog…

Long term chart: S&P 500 vs US 10y Treasury Yield (1791-2013) | Global Financial Data

“Critics of Central Bank intervention do not have a whole lot of work to do to place much blame on the Fed for these last 3 boom & bust cycles.”
Notice huge spikes in volatility about every 5 years & the reflexive response of falling yields that aren’t reversed.
$SPX $TNX #Disinflation

Bank of America mortgage putback settlement appeal | BTIG
In court proceedings (appeal) set to begin May 30, a judge could reverse the original $8.5B $BAC settlement reached with $BK per Article 77.
BoA’s downside is $60.5B (24% of book value), with only $8.6B in reserve provisions set aside.

The “supply effect”: The shrinking supply of assets (2003-13) | Citi
Charts the quarterly net issuance of new securities across the US, Eurozone & Japan. Their formula determines that the investible universe has shrunken from $3.5-4T to only $2.5T in annual growth since the 2008 crisis (actually under $2T in every period except 1H11).
Investible universe = government bonds + GSEs/Agencies + non-financial bonds + financial bonds + financial bonds + stock – QE
[Their focus on major developed markets ignores emerging markets, where issuance is higher, as are prices since 2008–undoubtedly an outlet for demand spillover from DM supply squeeze.]

Global Central Banks diversifying reserves by loading up on [even more] equities | Bloomberg
RBS survey shows that 23% of 60 central bankers said they own equity shares or plan on buying them: “If reserves are growing, so are diversification pressures” especially with low bond yields/high duration risk.
Bank of Japan (BOJ) is doubling its equities to $35.2B by 2014; Swiss National Bank (SNB) & Czeck National Bank increased holdings to 10% & 12% respectively; Bank of Israel started buying in 2012.
CBs have $11T in FX reserves, after total reserves increased $8.5T since 2003.
[These size buyers can only play in most liquid markets, so you better believe the Large Cap/Small Cap ratio ($IWB/$IWM) continues secular deterioration that started in 2000.]
#Chase for yield #This should end well #Hold to eternity

Rail traffic weekly: Weak sequential datapoint- Start of a trend or merely a blip? | Association of American Railroads (AAR)
Weekly traffic -0.8% (vs. this week last year); total ytd volume to +0.7% y/y.
4 of 10 carload groups posted gains: Petroleum products +40.1%; grains -21.8.
[Next week’s report will be a critical test of this economy’s resilience & whether or not we can avert another spring swoon.]

White paper: Medieval monetary practices with some implications for modern policy | Anthony Hotson (Vox EU)
Examines the history of the English Mint & Bank of England (1100s-2000s). Unlike today’s central banks that focus on price stability, the early Mint fixed the price of its specie vs. the bullion it contained, letting consumer commodity prices fluctuate freely. Whereas the Mint’s assets (bullion) were fixed to its liabilities (specie), today’s banks have to adjust capital (monetary base or reserves) to reflect changes in asset values (loan collateral).
The Mint posted a fixed price of specie (sterling/bullion), thereby establishing a cap & floor, which was remarkably stable for centuries until the BOE supplanted it in 1700s. Every generation, they’d collect old coins, melt them down & mint new ones (“mint condition”), which would weigh less due to their prior wear & tear–hence, devaluation or inflation would occur, as less bullion in the new coins fetched the same specie exchange rate.

The “Fab Five” stocks leading the market higher | Doug Kass (The Street)
Compares this market to the “Nifty Fifty” in 1960-70s and internet stocks in 2000’s tech bubble. Concentrated leadership among defensive equities (consumer nondurables/health care REITs/insurance/MLPs/utilities) has “disguised an internal market correction,” since economically-sensitive cyclicals (energy/materials/technology) have lagged.
“Fab Five” includes: $CL $CLX $GIS $KO $PG.
[When investors are chasing stodgy $XLP/$XLU/$XLV for slow, steady cash flows at these high premiums, what does that say about the economy, sentiment & growth prospects?]
#Sector Rotation #Bifurcated Recovery

The Flash Crash of 2013 (2013.04.23) | The Reformed Broker
In 3 minutes, markets crashed & recovered after the Associated Press’ (AP) twitter account got hacked & posted a false headline about the White House getting bombed with Obama hurt.
Inter-asset reactions were telling: $DJIA -150pts, $GC_F unch, $JPY & $TLT rally.

Chinese trade data suggest slower growth (March 2013) | Bloomberg Briefs
China’s exports +10% y/y, but -4.8% ex-Hong Kong, to where volumes jumped +93% y/y (from trend growth ~50%). This could be crowding out DM exporters, like US/Germany/Japan/France/Australia, whose exports were 1 sigma below trend over the same period.
Whether China’s channel stuffing or misreporting data, GDP growth targets may be greatly exaggerated.

Europe capitulates on austerity | The Guardian
After horrible European flash PMIs, EU & UK policymakers are admitting that austerity doesn’t work.
PIMCO’s Bill Gross urges EU fiscal spending & rate cuts. Said Jose Manuel Barroso (EC president): “austerity is, of course, not sustainable… We haven’t done everything right… The policy has reached its limits because it has to have a minimum of political & social support.”
[And markets rallied.]

Infographic: Chronological history of the world’s asset bubbles | Goldman Sachs (GS)
Timeline includes: Tipper and See-Saw Time (Germany 1621), Tulip Mania (Holland 1637), South Sea Bubble (Britain/South America 1720), Mississippi Company (US 1720), Railway Mania (Britain 1846), Encilhamento (Brazil 1892), Florida Land Boom (US 1920s), Poseidon Bubble (Australia 1970), Japanese Asset Bubble (1990s), Dot.com Bubble (US 2000), Jatukam Craze (Thailand 2006), Uranium Bubble (Canada 2007), and Housing Bubble (Global 2005-08).

Netflix’s real House of Cards is off balance sheet | Zero Hedge
1q13 earnings conference call reveals that the negative cash flow $NFLX’s off balance sheet liabilities from content +$500mm y/y to $3.3B (76% of total assets), bringing total liabilities up to $5.4B (130% of assets, which include only $1B cash & $3.3B unmonitizable content library).

White paper: On the nature of risk, time & reversibility | Peter Bernstein (Geneva Association, 1999)

Jim Cramer’s stock picks: 2011 & 2012 full audit | PunditTracker
Appraised only “featured” picks (e.g. not “Lightning Round”), which underperformed SPX by 142 bps (-0.1% v +1.4%).
[I’m showing this to anyone who watches Mad Money on CNBC.]

Changes to calculation of US GDP to add $500B in one-time revision | Bureau of Economic Analysis (BEA)
“Intangibles” such as books, films, songs, and R&D being changed from business costs (implied by the final price of goods/services) to investments, increasing GDP by 3%.
BEA will revise all historical data to reflect the change, so this will only affect Debt/GDP (not growth rates). The formula was last revised in 1999, to add computer software.


  1. […] South Korea is expanding (52.6 fm 52.0) despite slower exports (0.4% y/y vs 2.0 exp). [Previously: Questionable Chinese exports]Australia absolutely plummeted (36.7 fm 44.4) into deep contraction.Europe contraction continues […]

  2. […] GDP formula revision makes Great Recession & recovery look a lot better | Moneybeat (WSJ) Data revisions increase 2007-09 GDP from -3.2% to -2.9 (annualized) & subsequent recovery from +2.1 to +2.3. BEA changed the components in its official GDP calculation to include intellectual property (R&D and software) and pension distributions (rather than cash contributions). [Previously] […]

  3. […] today’s FRN analogue to the 1951 Accord, which (coincidentally?) occurred at the last secular trough of 10y Treasury yields […]


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