Here we go Bruins, here we go…
The future of Television | stratechery
Three part series about cable TV:
1. The cord-cutting fantasy- getting only the content you want without paying for everything (e.g. unbundling) is a fantasy; pay TV is socialism that works
2. Why TV has resisted disruption- great content is differentiated, has high barriers to entry & depends on networks
3. The jobs TV does- the key question is attention, for which we hire TV, not set top boxes
[Why does he assume the TV stations get to maintain their pricing power & margins (i.e. cost push) if demand washes up from a la carte shift?]
Nonfarm payrolls & unemployment report (May 2013) | Bureau of Labor Statistics (BLS)
Report beat expectations (+175k jobs added vs +167k exp), raising unemployment rate from 7.5% to 7.6 after labor force participation increase from 63.3% to 63.4 (67% historical avg).
Bigger news was prior-month revisions, which make the report a net negative: March & April combine revised down -12k jobs.
[SPX +1.28% on the news.]
#Perception vs Reality
Rail traffic weekly: Increase, reversal revive trend | Association of American Railroads (AAR)
Weekly traffic +2.5% (vs. this week last year); total ytd volume +0.9% y/y.
5 of 10 carload groups posted gains: Petroleum products +40.7%; grains -20.7.
[Growth still slow, but good report returns us to trend, making white noise out of last week’s negative outlier; petroleum growth spikes to buck deceleration.]
Explaining the commodity price conundrum | Morgan Stanley
Commodities have either fully corrected (metals/agriculture) or ebbed (oil), diverging from equities since 2011.
While bullish on US “re-industrialization” (using cheap/plentiful $NG_F for manufacturing), MS attributes the underperformance to:
1. Supply- as late as 2011, BRICs were still building stockpiles from tail end of supercycle; US energy renaissance (fracking) has also topped-off excess supply
2. Demand- slowing emerging market growth
Synthetic Collateralized Debt Obligations return to Wall Street | The Wall Street Journal (WSJ)
In London, $C, $JPM & $MS are assembling synthetic CDOs again “due to investor demand.” Credit ratings are stiffer & higher tranches have more insulation from loss (e.g. credit enhancements).
[Dodd Frank regulation prohibits banks from investing in their own deals, but warehoused inventory & rehypothecated derivative claims are a threat. See also: ProShares files for Credit Default Swap (CDS) ETFs]
#Securitization #Derivatives #Shadow Banking
Asset allocation survey: Investors pour into stocks (May 2013) | American Association of Individual Investors (AAII)
Equity allocations +3.5pp to 65.2% (60% historical avg), highest since 9/2007.
Bonds -1.6pp to 18.1%, above 16% avg for 47th consecutive month, but lowest level since 2007.
Cash -1.8pp to 16.7% (24% avg), lowest since 2010.
Presentation: “What in the world is going on?” (2q13) | Jeff Gundlach (DoubleLine)
Expects Fed “tapering” QE this year (POMOs currently $85B/month) since waning budget deficit naturally reduces funding supply, but sees $TNX at 1.70% by YE13 because federal budget can’t handle an increase in interest expense.
Buy Japan ($DXJ) with $NKY under 13k. [Wish I said that.]
US population demographics show over 55yr olds working longer & displacing under 24yr olds in job market, causing structural damage; with life expectancy high, social security needs to increase the retirement age.
Charts show relationship between assets & QEs, which are positively correlated with stocks ($SPX) & negatively with Treasury bonds ($IEF).
Do rising interest rates lead to net interest margin improvement? | American Banker
Increasing yields alone don’t necessarily mean that banks’ NIMs will rise:
History shows that NIMs have a loose linear, positive relationship with the steepness of the yield curve, since banks borrow short & lend long term, but balance sheet management (asset/liability duration mismatch) is the ultimate determinant.
SPX 2q13 earnings primer | ValueWalk/FactSet
81% of $SPX companies have provided negative guidance (below Street consensus) for Q2, which rate is the highest since 2006 & historically averages ~62%.
Analyst consensus for EPS growth has been revised from +4.4% to +1.3% y/y, with $XLB bearing the brunt (fm +9.4% to -3%) & $XLF a beneficiary (+17.1%).
[Only 106 companies provide guidance. Previously]
Japan fails to plow weak Yen profits back into capital spending | Bloomberg
Abenomics’ wealth effect hasn’t convinced CEOs to invest in domestic Japanese businesses yet, as 1q13 Capital Expenditures fell -4.9% (-5.2% ex software)–worst drop since 2011’s earthquake.
FY13 corporate earnings are estimated to rise 33% from FX effects alone, so reinvestment & higher exports could prompt CapEx in coming quarters.
$USDJPY $NKY $DXJ
Detroit bankruptcy imminent | The Wall Street Journal (WSJ)
City officials have summoned union chiefs & creditors to a mid-June meeting to discuss restructuring Detroit’s $17B debt, after having delayed $226mm in pension payouts in April.
Detroit says it has ~2 months to avert the biggest muni default in US history.
[Previously: Balance sheets & budgets repaired, US munis prepare to spend and Motor City revived as Detroit withers to Motown shadow]
Complete guide to US bond market (and it’s a lot different than you think) | Learn Bonds
On average since 1988, bond market capitalization is 79% bigger than the stock market, 104% in 2012, with 1999 as the only year in which it was actually smaller. Treasury & Corporate bonds are the only sectors that’ve grown since 2008.
Also, breakdown of each bond sub-sector by segment & prorata share of the overall asset class/sector.
$AGG $TLT $AGZ $MBB $MUB $ABS $LQD $HYG $MMF
What’s happening in Turkey? | Talking Points Memo (TPM)
Full history & background to preface Turkish protests:
Post-Ottoman Empire, a rather secular military & elite ruling class had [peacefully] suppressed the religious values of the populace, until current Prime Minister Tayyip Erdogan tried to mesh the two factions. His regime seems to have taken an authoritarian slant, since his recent attempts at incorporating conservative Islamic mores–perhaps representative of a more authentic/populist republic–couldn’t avoid indictments of the militarists, who in turn are rumored to plot an overthrow of Erdogan’s government, despite his 50%+ approval ratings.
Prompted by Muslim outcry over a mere park development, displeasure about broader issues has escalated into nationwide riots.
#Arab Spring #Geopolitical #Socioeconomic
Global Purchasing Managers Index (May 2013): Global uptick as US & emerging markets ebb | Business Insider
Global PMI floats slightly higher (up to 50.6 fm 50.4 last month) in what felt like a Pyrrhic victory:
Japan’s expansion continues (51.5 fm 51.0).
China’s official PMI growth beats expectations for a drop to 50 (50.8 fm 50.6), but the unofficial manufacturing PMI–privately calculated & biased toward small/middle market businesses–wildly disagrees (49.2 fm 50.4). South Korea slips a bit (51.1 fm 52.6) amid a shocking export recovery (3.2% y/y fm 0.4, -0.9 exp), despite joining other Asian countries reporting weakness & “soft Chinese demand.”
Australia finally stemmed its collapse (43.8 fm 36.7), but marks the 23rd consecutive month of contraction.
Europe contraction continues across the board (48.3 fm 46.7), but all constituents improved.
The UK had one of the strongest showings, bouncing higher into expansion (51.3 fm 50.2), as did Canada (53.2 fm 50.1).
US ISM disappoints with a big drop into contraction (49.0 fm 50.7, 51.0 exp), lowest level since 6/2009.