Diary of a Financier

Top Newsstuffs (June 24-30)

In Bookshelf on Sun 30 Jun 2013 at 05:24

First ritualistic trip to the Cape of this summer…

Wikipedia founder Jimmy Wales is not a billionaire, barely a millionaire | The New York Times (NYT)
Despite being the 5th most trafficked website on the internet, Wikipedia maintains its core values by forgoing an estimated $5b in ad revenue to satisfy its 80k volunteer editor “community.”

Home prices & mortgage rates are uncorrelated | Calculated Risk
Since the 1970s, housing values have no strong correlation to changes in mortgage rates, although the relationship is strengthening recently due to institutional investors’ buy-to-rent schemes, which are very cost-sensitive.

The “distressing” gap: Homebuilders hurt by housing hangover | Mark Hanson
Builders’ volumes are slow thanks to the divergence between existing & new home sales (SAAR -60% v -25% from highs) that’s opened-up post-crisis, attributable to distressed properties:
1. Institutional buy-to-rent investors- modern flippers absorbing real estate due to QE/ZIRP’s hunt for yield
2. Double counting- when short sale/sale from bank REO occurs, then the buyer flips in the same year, volume data considers them separate transactions, giving the illusion of higher unit sales

Presentation: “What in the world is going on II?” (2q13 redux) | Jeff Gundlach (DoubleLine)
$SPX will recapture 1650, which suggests global assets should recover May/June losses; $NKY will bounce up to 14k but fail to breach this year; buy $EEM, expecting ST bounce from oversold conditions.
Recent reversals out of volatility will lead to stability in July.
Odd that Fed/Bernanke started talking about reducing QE given data dependence, but at the same time they lowered macro forecasts; QE will continue until it shows negative consequences (e.g. leverage or housing bubble).
10y Treasuries ($IEF) have outperformed all other components of $AGG since selloff began in May; 2s10s spread slope is near historical highs & resistance, suggesting $TNX will recede to 1.7% by YE, but he’s buying most battered sectors like $HYG.
TIPS ($TIP) still the worst US asset class, since they have highest duration when inflation is stable.
ABX & non-agency mortgages are in liquidation cycle (selling triggers stop losses triggers fear).

Rail traffic weekly: More slow trend growth | Association of American Railroads (AAR)
Weekly traffic +1.2% y/y; ytd volume remains at +0.9% y/y.
4 of 10 carload groups posted gains: Petroleum products +37.2%; grains -23.3%.

Is the wine industry a giant farce? | Priceonomics
A number of experiments on amateurs & experts have revealed that tasters can’t distinguish between expensive/cheap or even red/white.
“Our idea of taste as a constant… is a fiction… [Due to] an amalgamation of information from all 5 senses, our expectations, and how we think about what we are tasting, taste is easily manipulated.”
Also says wines’ pricing is arbitrary.

Analysis: Chinese “Big Four” banks’ financial statements | Avondale Asset Management
Appraisal of China’s 4 largest banks says they’re surprisingly healthy:
Liquidity- Loan/deposit ratio has only increased from 57% to 65% (vs 78% in US & 105% Europe) despite loans doubling since 2008; deposits/liabilities ~85% (vs 78% US & 52% Europe); cash & equivalents/assets 22% vs 16% US
Solvency- Nonperforming loans/assets 1% vs 3.5% US; loan loss reserves/loans 2.95% vs 2.1% US
Capital- 70% of capitalization is state-owned, as they’re already nationalized

1q13 GDP revised down | Calculated Risk
Q1 GDP growth revised down from 2.4% to 1.8%, due mostly to drops in PCE, exports & nonresidential fixed investment.
[In April, expectations were for an upward revision to 3.0%! With Q2 also likely to miss expectations & FOMC projections, 2h13 GDP must really beat consensus to trigger a QE taper.]
#Bearish (?)

Real home prices, price-to-rent ratio & prices by city (April 2013) | Calculated Risk
Across all indices, both nominal & real house prices have not only returned to their historical trend, but they’re also bouncing higher now. Inventories are low, so expect new supply to temper prices after this year of double-digit growth.
Owners’ equivalent rent (OER) is still rising, now above its 1.0-1.2 range from 1980s-90s.
#Bullish #Mean Reversion #Normalcy

What really happened in China’s liquidity crunch this June | JP Morgan
Good explanation goes into more detail than media reports & suggests that the PBOC intentionally orchestrated the squeeze, a byproduct of regulatory crackdown:
Like US SIVs, Chinese Wealth Management Products are short maturity (3-6 month) retail investment products used by banks to gather wholesale deposits. As competition among products increased, WMPs bought higher yielding (illiquid/junk) underlying bonds, increasing their asset/liability duration mismatch.
Not coincidentally, WMPs mature at quarter-end, when banks have to report loan/deposit ratios. So, the banks repo underlying WMP bonds with a friendly counterparty to satify capital requirements & redemptions, then reverse the repo when they issue new WMPs–like a ponzi scheme.
In May, regulators banned such off-balance sheet WMP repos, causing a scramble for cash & distressed selling in advance of June’s Q2-end.
[Previously: SHIBOR interbank market freezes]

Quant study: Stochastic oscillators | System Trader Success
300 aggregate years of data from 16 global markets yield counterintuitive results, saying buy high/sell low readings of the indicator:
The higher the %K (whether 0-10 or 90-100 range), the higher the subsequent annualized return, regardless of stochastic look back period (5-255 days); results show subsequent losses for readings 50%K, particularly 90-100%K.
[See also: MACD study & previously]

Italian bailout on the horizon | Mediobanca
“Time is running out,” said Antonio Guglielmi, an analyst who thinks Italy will need an EU bailout within 6 months, as bond yields had already started rising before the Fed’s QE taper talk sent them rocketing higher.
Slovenian or Argentinian crisis escalation could be catalysts.
#White noise

Troubled Asset Relief Program tracker (June 2013) | US Treasury
Interactive, annotated charts tracking TARP timeline & disbursements (repaid/outstanding), even by type of loan (AIG, Automakers, Banks, Credit & Housing).
[Amazing how little was actually disbursed on housing, especially compared to both the obligated amount & disbursements to corporations.]
#Moral hazard

Why basic 3D printers are crazy cheap now | Ars Technica
Particularly among hobbyists, demand has shifted away from higher resolution 3D printers to cheap hardware with expensive, smaller, more pliable filaments. Standardization & consumer interest have helped lower hardware prices too.


  1. More on Chinese SHIBOR spike…

    Inside China’s bank rate missteps | The Wall Street Journal (WSJ)
    “According to a previously undisclosed summary of a PBOC internal meeting on June 19, the central bank was especially concerned that in the first 10 days of June, Chinese banks increased lending by 1 trillion yuan ($163 billion)—an amount the central bank said “had never been seen in history.” And about 70% of that amount consisted of short-term notes that mostly don’t show up on banks’ balance sheets—making it easier for the banks to get around regulatory lending restrictions-—rather than lending the money to promising companies or projects.

    The PBOC evidently took that lending spike to be a sign of an expectation of further easy policy, and so the response was to do the hard opposite, let interest rates spike, and basically give the banks the back of the hand, letting them know that their risky behavior would not be rewarded.”


  2. […] inventory onto the market; concerns of artificial real estate demand due to ZIRP/QE, which have encouraged excessive institutional CRE/RRE own-to-rent […]

  3. […] expects $TNX to overshoot & hit 3.10 by YE13–a higher/faster rise would hurt risk assets [Previously: 10y high of 2.4% before ending year @ 1.7%] Emerging Markets- EM currencies are good leading […]

  4. […] which have all corrected 30-40% from their 2013 highs—at which point there were clear signs of froth.  This recovery is analogous to 1990-94’s, which took a breather with a correction in […]

  5. […] known unknown & therefore the problem's been identified with enough time to fix it. Previously: Chinese WMPs, BANs/LGFVs, non-performing loans & preemptive action. #Shadow banking $FXI $GXC #Liquidity […]

  6. […] spreads so tight that deals could go underwater if rates rise to normalized levels [Previously: Buy-to-rent investors driven by QE/ZIRP hunt for yield] #Asset-liability mismatch #Unintended consequences #Financial innovation #PE […]


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