Diary of a Financier

Top Newsstuffs (August 12-18)

In Bookshelf on Sun 18 Aug 2013 at 06:39

Quiet summer weekend to enjoy our homestead…

Quant study: Global equity assets’ performance after major drawdowns (1920-2013) | Mebane Faber Research
Unequivocable evidence supporting buy & hold after corrections/bear markets:
Data inputs- Average 3-year subsequent return for stock sectors/industries/countries after pullbacks of 60/70/80/90%
Results (e.g. sector)-
-60% drawdown → +57% 3y return
-70 → +87
-80 → +172
-90 → +240
[The hard part is determining when to buy, but Meb’s conclusion is to just hold your nose & do it.]

Rail traffic weekly: We have an accelerating trend | Association of American Railroads (AAR)
Weekly traffic +2.7% y/y; ytd remains +0.9% y/y.
6 of 10 carload groups posted gains: petroleum products +16.8%; grain -11.4.
[Third week of increasing gains qualifies these data as a growth trend.]
#Bullish

Solar power to trump shale gas, helped by US military | Ambrose Evans-Pritchard (UK Telegraph)
Complete guide to US solar energy, including updates on data, technology & forecasts:
US Department of Defense (DoD) is investing heavily in solar & the Department of Energy’s (DoE) “SunShot Initiative” is redoubling grants for R&D–all reminiscent of semiconductors in 1980s.
DoE expects 75% drop in average solar power costs by 2020 (to $1/watt for utilities, $1.25 for commercial & $1.50 for residential).
The world is already undergoing nonlinear demand surge, since prices in 10 major markets are already below parity ($0.60-70) without subsidies: Japan, South Korea, Australia, Italy, Greece, Spain, Israel, South Africa, Chile, Southern California & Hawaii; to be joined shortly by Thailand, Mexico, Argentina, Turkey & India.
$TAN #Alternative & Renewable Energy

The recession of 1937-38 was really caused by US Treasury’s gold sterilization (September 2011) | Douglas Irwin (VoxEU)
The Great Depression’s double-dip is often blamed on premature tightening (fiscal deficit reduction & Fed raising reserve rate requirements), but banks already had excess reserves to meet increased RRRs, so something else was responsible:
1/1934- The US returned to a gold standard by pegging the USD to gold @ $35/oz at a time when gold reserves were 85% of the monetary base; strong gold inflows ensued, expanding US money supply & an economic recovery
12/1936- For fear of inflation, FDR & the Treasury started sterilizing all gold inflows by holding new gold in an idle Treasury account instead of at the Fed, where it otherwise would’ve joined the monetary base; money supply (M2) froze between 1937-38, having grown +12% per annum from 1934-36; the economy tipped into recession in 2q1937
4/1938- The Treasury reversed its policy & began desterilizing gold inflows; the economy recovered in 6/1938
[This is actually a pretty widely held view: Previously]

John Paulson & Co cut Gold ETF stake in half | Bloomberg
For the first time since 2011, the hedge fund sold $GLD in 2q13, “due to a reduced need for hedging” its gold-denominated Advantage fund (e.g. redemptions).
#Capitulation $GDX

Foreigners sell more US securities than after Lehman bankruptcy (June 2013) | US Treasury International Capital (TIC)
Every US asset class was heavily sold (-$85.4B net total) by international investors in June: stocks -$26.8B, corporate bonds -$5B, Agencies -$5.2B & Treasuries -$40.8B (a record).
[Reinforces my thesis about the international chase for yield just beginning, as the Fed starts tapering & ECB still stimulating.]
#Bearish US #Bullish $EZU $IDV

The final text messages of UAE reporter killed in Egyptian protests | The National
The young reporter’s mother published her last Facebook conversation with her daughter, who was killed in the resumption of riots in Cairo.
[Absolutely gut-wrenching to read the mother’s helplessness & unanswered prayers.]
#Mortality #God #Religion #Agnosticism

Study: Capital spending during economic expansions (1961-2013) | Dr. Ed’s Blog (Yardeni Research)
As a GDP component, growth in private nonresidential fixed investment during the post-recession recovery (+20.6% since 2009) is the second weakest on record, with 7 comps since 1961.
Weakest subcomponents: Structures (-8.5% v +6.9% average), information processing equipment (+25.1 v +71.9) & software (+18.2 v +66.4)
Strongest: Transportation (+224.4 v +47.2) & industrial equipment (+23.3 v +25.7)
“The Cloud has radically increased the productivity (bang per buck) of technology… Less IT hardware and software can do much more than in the past… [so] there isn’t much here to make the case for a capital spending boom in the US,” although recent trade data show strong foreign demand for US capital goods (exports).
[Recoveries from Eurocrisis & Chinese slowdown are critical for my expectation of a pickup in SPX revenue growth to avert an earnings recession.]
#CapEx #Creative destruction

Bond hubris in riskiest credits is overwhelming Fed | Bloomberg
Covenant-lite loan issuance has surged to a record $155B already this year vs $96.6B in 2007 (prior record).
Junk bond issuance +24% y/y–high yield & leveraged loans (floating rate bank loans).
Payment-in-kind (PIK) notes already reached 6.5B, on pace to exceed 2012’s $8.1B record.
[Fed’s QE taper can’t come soon enough.]
$HYG $BKLN #Credit Cycle #Bond bubble

Analogue: 2013’s cyclical bull market stokes memories of 1982 | Michael Santoli
More & more technicians, economists, fundamental analysts & historians are comparing 2013 to the beginning of the last secular bull market in 1982.
Comparisons:
1. $SPX’s recent breakout above its 13-year trading range reminiscent of 1982’s rally out of 1960-70s consolidation channel (Mary Ann Bartels, Bank of America Merrill Lynch)
2. People mistrust Bernanke’s Fed & unconventional monetary policy a lot like Volcker’s Fed in the 80s
[I’d have to agree.]
#Bullish $DJIA

–Romeo

Advertisements
  1. […] I to continue following this set.  My mind wants to contrast that with a number of 1982 analogue sightings, which themselves suggest that we’re in the early stages of an unabated secular […]

Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s