My first real weekend with the new NFL season…
Leverage back to record highs | Citi
Corporate high grade leverage ratios (total debt/ttm EBITDA) have reached ~1.75x–a record exceeding 2007’s. New issuance still going toward buybacks & dividends.
Also, Neiman Marcus is being bought in a $6B LBO using paid-in-kind (PIK) toggle bonds, which haven’t been issued since 2008. The retailer last changed hands in a 2005 LBO at 6.5x leverage; today’s pro forma is 7.3x.
#Bearish #Credit cycle
Chart analogue: Bank Index vs Gold Miners (update) | Market Anthropology
Eric presents a number of analogues for $GC_F–all of which suggest a rally is starting.
Most notable is the tight-fitting comparison between $BKX (2010-11) & $GDX (2011-pres) daily fractals.
[See also & previously]
The best & worst performing asset classes since Lehman | Deutsche Bank
Worst- Greece, European banks, Brazil & commodities
Best- Silver, Gold, European High Yield, US HY, SPX, China & Japan
‘5-year rolling nominal global growth (GDP) is the lowest since the 1930s, so the performance of financial assets is almost entirely due to liquidity and not growth. Food for thought as tapering starts before growth has proven self-sustaining.’
Banks ally with hedge funds to skirt new capital regulations | Bloomberg
Banks are entering contracts called “Capital Relief Trades” (CRTs) with hedge funds, who insure specific loan losses using CDS via SPVs that’re funded by the sale of notes to investors.
These arrangements lower banks’ VaRs & capital/risk ratios, circumventing regulators, who can’t identify such OTC contracts.
[Reminiscent of synthetic CDOs. Previously: Banks resorting to old tricks]
#Shadow banking #Basel III
A case of broken BRICS: Another Emerging Markets crisis? | Niels Jensen (Absolute Return Partners)
While the Fed prepared to taper QE, EMs with high inflation or current account deficits are getting crushed as their currencies devalue vs $USD.
Luckily, EMs have built $8T in foreign reserves & Russia’s Putin set-up a $100B rescue fund [lol] to defend BRICS against speculative assaults (e.g. bond vigilantes).
[Previously: Fed denies EMs’ pleas for coordinated exit from unconventional monetary policy]
#Unintended consequences $EEM $EMB
Rail traffic weekly: Good times roll even faster | Association of American Railroads (AAR)
Weekly traffic +4.2% y/y; ytd increases to +1.0% y/y.
7 of 10 carload groups posted gains: motor vehicles & parts +21.9%; farm products ex-grain -8.6%.
[7th consecutive week of gains & a big acceleration; petroleum products drop off leaderboard (+4.8% weekly y/y) due to law-of-large-numbers & similarly coal’s slide is reversing (-1% weekly y/y)]
The scary story about booming car sales that nobody’s talking about | Michael Lombardi (Advisor Perspectives)
August light vehicle sales +17% y/y, but auto loans are at highest level since 3q07 ($92B), with subprime loans responsible for much of the increase. With rising rates, 90-day delinquencies should rise from their low 3.6% level.
Further, the Chinese slowdown should hurt automakers like $GM, who are banking on increasing US demand with steady growth from China (22% of sales).
[#Null hypothesis to the “Durable Goods pent-up demand” thesis I’ve been riding all year, which railtraffic seems to be affirming as we speak–although exuberant consumer leverage can generate false positives. I am worried about the froth in subprime credit & I do think the American consumer is tapped-out, but our cars are old, they need to be replaced & even prime buyers deferred new purchases since 2008.]
#Bearish $F $SMP
Chart analogue: Apple 2013 v WTI Crude Oil 2009 | Market Anthropology
Continues the comparison between $AAPL (2011-13) & WTI (2007-09), which suggests AAPL will slide to a trough ~$440 (-11% from 9/10 close) before resuming its recovery rally >$550.
Twin distortions: US economy will have to brave reversal in private & public sector balances (June 30, 2013) | John Hussman
By the laws of sectoral balances, consumption was supported by public sector deficits (2008-12), but now that federal deficits are being unwound, the private sector’s surplus will wane, taking corporate profits & consumption down with it.
[Although he’s a #Permabear, he’s right, and consumption will be affected, unless US trade balance swings to a surplus or private sector releverages. See also: September retail sales weak beyond autos & healthcare]
How Laura Poitras & Glenn Greenwald helped Snowden spill his secrets | The New York Times (NYT)
Fascinating account of whistleblower Edward Snowden’s leak, along with both the freelance documentary filmmaker & the UK Guardian journalist who helped him go public with his information about the NSA’s illegal surveillance.
[An amazing piece of investigative journalism that reads like a spy-thriller.]