Diary of a Financier

Top Newsstuffs (May 6-12)

In Bookshelf on Sun 12 May 2013 at 06:07

Biggest weekend of my life; my fiancée becomes my wife…

Rail traffic weekly: Nice increase, the beginning of the end of feared “Spring Swoon” | Association of American Railroads (AAR)
Weekly traffic +2.8% (vs. this week last year); total ytd volume to +0.8% y/y.
6 of 10 carload groups posted gains: Petroleum products +52.4%; grains -5.9.
[This barely moves the needle on the ytd growth rate, but it’s a spectacular pickup in activity, in coordination with low inventories.]

Synopsis: 2013 Ira Sohn Conference | The Reformed Broker
Featuring- Paul Singer (Elliot Management), Kyle Bass (Hayman Capital), Li Lu (Himalaya Capital), Keith Meister (Corvex/Icahn Partners), Bill Ackman (Pershing Square), Stanley Druckenmiller (Duquesne/Quantum Fund), Mitchell Julius (Canyon Partners), Steve Eisman (Emrys Partners/FrontPoint), David Stemerman (Conatus Capital), Jim Chanos (Kynikos), Jeffrey Gundlach (DoubleLine Funds), David Einhorn (Greenlight Capital)
[See also: Live feed]
#Hedge Funds

Fed Advisory Council warns of credit risk & asset price bubbles | Businessweek
In 2/8 meeting minutes obtained by Bloomberg via Freedom of Information Act, the panel of 12 Wall Street bankers warned:
“The margin pressures that the low-rate environment has put on financial institutions, coupled with dramatically increased compliance & other infrastructure costs, have caused many to seek higher returns by accepting greater interest rate or credit risk…
“The run-up in agriculture [farmland] prices is a bubble resulting from [ZIRP]…
“Student loan debt… has parallels to the housing crisis.”
Nevertheless, they “continue to support the FOMC’s current accommodative monetary policy,” despite opposing it on 12/2/11 & 9/14/12.
[What’s the point of an advisory committee if the Fed doesn’t heed the advice?]

The most detailed, interactive map of the internet ever (and making it was illegal) | Motherboard
An anonymous researcher hacked into 420k computers (not password protected) using his benign “Carna Botnet” program, and his resulting map shows traffic patterns & users logging in throughout the day.

Escalating response to currency gains, Sweden & New Zealand central banks join race to the bottom | Bloomberg
After $NZD & $SEK have appreciated to the detriment of their export economies, their respective central bankers announced interventions to weaken FX henceforth.
#Currency Wars

Empirical study: Denmark’s negative interest rate experience | FT Alphaville
In July 2012, the Danish central bank (Nationalbanken) lowered nominal deposit rates to -0.2% to stimulate lending & consumption. The experiment has actually drained liquidity from the system: no effect on FX; banks lost DKK150mm in interest expenses; business/household loan rates have not been reduced at all; MBS rates have not fallen below T-bills (no spread inversion).
[$DKK FX is pegged to $EUR, so the CD rate is the main transmission mechanism of monetary policy.]

Revisiting reflexivity: Contextualizing QE vs SPX, cause & effect | The Big Picture
Too many people attribute the entire SPX recovery since March 2009 to the Fed’s QE. (Annotated chart: SPX during QE1/QE2/OT/QE3/QE4)
Barry notes the folly of single variable analysis, and reminds us of the bidirectional reflexive relationship (i.e. markets progress in a circular cycle between overbought & oversold).

Senior loan officer survey (1q13): Credit demand increased & lending standards relaxed again | Federal Reserve (Fed)
Business loan demand rose & lending standards eased with C&I particularly notable.
For 5th straight quarter, CRE & prime mortgage demand increased with relaxed lending standards, although subprime still tight. Auto loan standards eased too, with positive trends (to lesser extent) in credit cards & other consumer loans.
[Credit extension/banks lending was my 2q13 ace-in-the-hole.]

The triumph of hope over reality: Divergence in equity prices & fundamentals | ZeroHedge
1. SPX FY13 EPS growth consensus has collapsed from +13% y/y (as of 2q12) to 7.6%, while FY13 estimates have risen from 9% to 11.3 over same period
2. FwPE expansion has occurred in lockstep with inflation expectations, yet the most recent multiple growth has persisted despite 5y inflation breakevens falling from 2.4% to 2.06 since March (and no new QE to fend off the deflationary threat)
3. Gold has plummeted, decoupling from central bank balance sheets, which growth has tapered off since 2012
#Bearish #Perception vs Reality


  1. […] with the Q1 restrospective report showing improvement across-the-board. Of particular note, I highlighted the looser lending standards and cheaper cost of capital becoming available to small & middle […]

  2. […] evidence to affirm this intuition in the Danish central bank’s (Nationalbanken) 2012 experiment with negative nominal rates, which failed to stimulate any lending or […]

  3. […] we saw the Danish central bank experiment with negative nominal rates in 2012, and their move failed to stimulate […]


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