Diary of a Financier

Top Newsstuffs (April 29-May 5)

In Bookshelf on Sun 5 May 2013 at 05:19

May Day! May Day!

America’s future is so bright | Calculated Risk
1. Housing- demographics & household formation have housing starts & residential investment (economy’s best leading indicators) about to surge
2. Government employment- states & localities have stopped firing public workers, as 2013 payrolls are flat for the first time since 1/2007 (federal jobs are still hemorrhaging)
3. Budget deficit- momentum is building & the federal deficit will fall to 3% by F15 without any further policy cuts [CBO projects a deepening deficit thereafter]
4. Household debt- down from 3q08 peak of $12.68T to $11.34T, consumers have deleveraged; debt service to income is at alltime lows with housing (mortgages/rent) at 2001 levels (8.5% fm 11% high) & consumer at 1980s lows (4.8% fm 6% highs)
#Secular #Bullish

10 disruptive technologies completely changing the world | Citi
1. 3D printing
2. E-cigarettes- battery powered & smokeless
3. Genomics/personalized medicine
4. Mobile payments
5. Energy explorations- Hydraulic fracturing, horizontal drilling & offshore techniques
6. Oil to gas switching- CNG vehicles
7. Streaming content- $NFLX, $AMZN, $GOOG, Hulu & Roku
8. Software-as-a-Service (SaaS)- internet based (secondhand) software delivery that saves consumers from having to purchase downloads (e.g. Microsoft Office 360)
9. Software Defined Networking (SDNs)
10. Solar power- energy photovoltaics
#Innovations

Charts: Spot the odd one out, 2011 vs 2012 vs 2013 | Zero Hedge
Spring swoon illustrated, as US Macro index has again negatively diverged from $SPX this year, but equities have continued to rally unabated (no H&S or rounded top yet).
[You can see that 2012 never really “caught down” to Macro though, because the Fed got wise on seasonality, as has the ECB in 2013.]
#Contrarian Bullish

Rail traffic weekly: Slow trend growth gets slower | Association of American Railroads (AAR)
Weekly traffic -0.4% (vs. this week last year); total ytd volume to +0.7% y/y.
2 of 10 carload groups posted gains: Petroleum products +42.2%; grains -20.4 & ores/metals -11.

Treasury issues draft for Floating Rate Note term sheet | Zero Hedge
First ever Treasury FRN auction expected 4q13 or 1q14, indexed to weekly High Rate of 13-week (3m) T-bill auctions.
Final decision will be announced at 8/2013 quarterly refunding.
[Periously: IMF reacts to Treasury FRN proposal & TBAC recommends FRNs]
$IRX

White paper: Commercial Real Estate & Low Interest Rates | Federal Reserve Bank of San Francisco (FRBSF)
Between 2007-10, CRE prices fell 40%, CMBS issuance fell 18% & securitizations seized. Now, senior AAA CMBS spreads are back at alltime lows, but junior AAA tranches are still wide (but falling) after Eurocrisis. Cap rates are also at alltime lows for office, industrial & retail spaces (not multifamily, due to high rents/low owner-occupied demand).
The punchline: “Low interest rates are one of the only things currently supporting CRE prices… This apparent disconnect—low cap rates and weak fundamentals—has prompted some observers to question [the Fed’s ZIRP]… that low rates may be boosting CRE prices excessively… CRE yields are very low. However, other benchmark bond market yields are even lower, including nominal yields that don’t adjust to inflation, such as the 10y Treasury note or risky corporate bonds.”
[Got that? Cap rates are outrageously low due to low interest rates–but not due to ZIRP–and if we assume that relative nominal bond yields at alltime lows aren’t in a bubble, then CRE prices aren’t in a bubble either. Wtf?! This is like Bernanke’s 2005 home prices “largely reflect strong economic fundamentals” moment.]
#Cognitive Dissonance

Global Purchasing Managers Index (April 2013): World on brink of contraction after Australia plummets, Japan only bright spot | Business Insider
Global PMI decelerates to the brink of stagnation (down to 50.5 fm 51.2 last month), retracing beyond March’s gains.
Chinese growth misses expectations (50.6 fm 50.9), although 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 (46.7 fm 46.8), after big drop in Germany (48.1 fm 49.0) offsets improvements in others.
US ISM slips lower again (50.7 fm 51.3), but still in expansion, beating expectations with new orders spiking higher [see: Inventories], but employment plummeting.
Japan’s expansion accelerates (51.0 fm 50.4)–really the only good report.
#Bearish

Inflating the rental bubble: US homeownership rate drops to 1995 levels (1q13) | Zero Hedge
Homeownership declines -0.4% y/y to 65% (lowest in 18 years).
Institutional investors are ploughing money into buy-to-rent schemes, since median rental vacancy asking prices are near alltime highs ($718 v $725 in 2009) & vacant for sale asking prices far from highs ($139,800 v $200k in 2007), despite record home affordability.
[See also: Nominal/Real Homeprices & Price-to-Rent Ratios]

Handling Buffett’s billions: The story of Todd Combs & Ted Weschler | Omaha World Herald
Profiles Warren Buffet’s handpicked successors, two portfolio managers inheriting the reins to Berkshire Hathaway.
When asked how to prepare for a career in investing, Buffet once said: “Read 500 pages every day… That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
$BRK.A $BRK.B

Sallie Mae pulls bond deal, student debt bubble cracks | Zero Hedge
$SLM pulls $225mm 3.5% debt offering: “Investors whose thirst for yield has revived all manner of riskier asset classes decided they weren’t getting paid enough to buy at the offered price amid rising student loan defaults.”
$AGZ #ABS #Bearish

Optimism as a default setting | The Reformed Broker
Optimism prevails 90% of the time [and the system’s rigged in bulls’ favor]. There are no pessimists or permabears on the Forbes 400 or Fortune 500.
“The man who is a bear on the future of the United States will always go broke.” –J.P. Morgan

–Romeo

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  1. […] will now be a boon to GDP, having materially dragged on growth since 4q09. Second, housing, wherein demographics and household formation have both home starts and residential investment ready […]

  2. […] America’s future is still so bright | Bill McBride (Calculated Risk) [Previously] […]

  3. […] them defer to his monetary interventions [to save themselves from ideological constituents].) I expect the economy to have sufficient momentum to warrant a taper soon enough, which again is positive for […]

  4. […] As is not always the case, this particular entry finds data conclusive enough to make a long term prognosis.  After weighing both sides–bull v. bear–against one-another, I’m coming around to the idea of a 2014 bear market without an economic recession.  It takes data of high significance to persuade me toward such long term bearishness, because 95% of the time, my best strategy is keeping optimism as a default setting. […]

  5. […] FRN auction on 1/29/2014, with a $10-15B 2y issue. Also considering a new, 5y TIPS offering. [Previously] $FLTY $IRX […]

  6. […] full acknowledgement that my default setting should be bullish optimism 95% of the time, I think today’s market falls under that bearish 5% […]

  7. […] optimism is my default setting- Optimism prevails 95% of the time (bull markets), so focus more on the big picture and don’t even worry about […]

  8. […] on the longer-term. Even if I weren’t, this is a bull market, and even if it weren’t, optimism prevails 95% of the time. That means not only do I have a high probability of being wrong about ST […]

  9. […] always, my default setting should be bullish optimism 95% of the time.  In a majority of that 5% balance, a mere 10% SPX […]

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