Diary of a Financier

Top Newsstuffs (September 23-29)

In Bookshelf on Sun 29 Sep 2013 at 06:00

Exploring the ‘shire all weekend long…

Mariano Rivera bids farewell to Yankee Stadium | New York Yankees (YES Network)
Mo relieved by Andy Pettitte & Derek Jeter in the last pitching appearance of his career.  On the night his #42 was retired, the tearful closer leaves the field to a curtain call.
#Emotion #Baseball #America’s Pasttime

September vehicle sales expected to be weak | Calculated Risk
According to advanced estimates by Kelly Blue Book, JD Power & TrueCar, auto sales were likely -4% m/m & +4% y/y in September. Since Labor Day weekend straddled August & September this year, y/y comps were expected to be poor, but the even projected 15.4-15.7M SAAR will miss Street consensus for 16M.
#Bearish #Durable goods

Rail traffic weekly: Rally takes a breather | Association of American Railroads (AAR)
Weekly traffic +0.8% y/y; ytd growth increases to +1.1%.
6 of 10 carload groups posted gains: petroleum +8%; grain -21.3%.
[Pause after 8 consecutive weeks of accelerating growth.]

Stock market entering the final stage of a bubble | John Hussman (Hussman Funds)
SPX’s pattern of increasingly sharp rallies followed more & more closely by shallow declines is characteristic of “log-periodic oscillations with finite time singularity,” which is indicative of super-exponential growth that ends in crashes.
As manifest in low implied volatility, the Fed’s recent deferral of QE taper (the “Bernanke put”) has instilled enough complacency to enable a blowoff top.
[Previously: Didier Sornette’s Dragon Kings]
#Euphoria #Permabear #Bearish

Chart analogue: Bank Index vs Gold Miners (update) | Market Anthropology
Eric updates his tight-fitting comparison between $BKX (2010-11) & $GDX (2011-pres).  The rally in GDX should begin right now.
He also discusses fundamentals: miners’ boom years that ended in 2011 were characterized by poor CapEx, bad M&A, increasing extraction costs, and lax commodity hedging.  This bear market has shaken-up the industry, with seniors having tightened their belts & taken $25B in writedowns.
[See also & previously]

NYSE margin debt & balances (August 2013) | Doug Short (dshort.com)
Despite $SPX trading down in August, gross nominal margin debt rose slightly ($382.9B)–only 38bps below April’s alltime high ($384B).  Real debt was also up slightly, remaining above 2000′s high but still ~$50B shy of 2007′s record.
Net margin balances (-$99.7B debit) still far exceeded 2007/11 pre-correction lows & inch closer to Tech Bubble’s record low.

Markets are now worried about the US debt ceiling debates | Wonkblog (The Washington Post)
While the equity market ($SPX & $VIX) fades this next chapter in Congress’ annual standoff over raising the debt ceiling, US Treasuries’ CDS spreads spiked higher from 22 to 32bps on 9/23, retracing nearly all of their gains since the fiscal cliff in 1q13.
[See also & previously: Fiscal cliff YE12 & debt ceiling 2011]
#Grey swan #Credit default swap

Autonomous vehicles: The third industrial revolution & its virtuous cycle | The Economist
Computer controlled cars drive behind one-another using autosensors that perfectly space them & they communicate amongst themselves, as inspired by Volvo’s auto-drive system, called “platooning.”
The first generation of AVs can increase highway capacity by 5x & fuel efficiency by 15%; “computerized intersection managers” allow streams of traffic to flow through each other without disruption, lights, or accidents.
[If you don’t even need to be in your car for it to run errands, imagine what this could do for grocery shopping, deliveries, business inventories, etc. Previously: Google’s driverless cars]
#Disruptive technology $AMZN $EBAY $GOOG

Bloomberg Markets 50 Summit (2013.09.24) | Josh Brown (The Reformed Broker)
Regulation (Colm Kelleher, $MS)- markets are safer from systemic, international standpoint, since regulators changed the definition of capital in numerator & denominator of leverage ratios, but the real economy is not safer, since we haven’t deleveraged–we’ve only shifted leverage to governments’ balance sheets; “I don’t think we’ve answered the fundamental question of how we have growth without taking on the kind of debt that leads to crises” [Previously]
M&A (Steve Schwarzman, $BX & Jimmy Lee, $JPM)- it’s a seller’s market that’s better for corporations than private equity; expect “large, prominent transactions” before YE13, since the reality of tapering QE/ZIRP is sinking-in; balance sheets are the best they’ve been in >20 years; every potential deal decision being made today is being weighed against capital allocation like buybacks & dividends; “a little increase in rates isn’t going to stop this economy… they ought to more or less just get to it & we’ll all move on”
Volcker Rule/Dodd-Frank/Basel III (Glen Dubin, Highbridge)- opportunity has been created for PE firms now that banks have been forced out of certain businesses (e.g. Avenue getting right of first refusal on European distressed asset sales or Highbridge underwriting floating rate bank loans to high yield borrowers at LIBOR +10)
Real estate (Doug Yearley, $TOL)- the cloud & collaborative office is changing commercial (CRE); residential isn’t in a bubble because inventory is still low, lending standards still tight & building (housing starts) are still below trend with pent-up demand remaining from the crisis; others on the panel think rising rates will “trash” housing
China (Jim Chanos, Kynikos & Jim O’Neill, $GS)- irrespective of Chinese macro, investors have underestimated the Chinese consumer, with a log of internet companies like $BIDU having the potential to be bigger than $WMT; Chinese policymakers are deliberately slowing credit growth & offsetting the deceleration with an experimental “Shanghai free trade zone” that’s been established, where foreign banks are permitted to expand local operations [See also & Previously: China accelerates market liberalization by doubling QFII]
[Parts I & II]
#Bullish $BKLN $XLF $XHB $FXI $CNY

Complete guide to the Fed’s new, fixed rate, full allotment “overnight reverse-repo facility” | Bill Dudley (FRBNY)
Explains the mechanics & purpose of this new tool the Fed is beta-testing right now:
The NY Fed posts a fixed rate & accepts cash deposits from any counterparty (even non-Primary dealers like banks, GSEs & MMFs not eligible for IOER) in exchange for General Collateral.  It’s a way to soak-up the system’s excess liquidity, giving the central bank more control over money market funds, interest rates & the real economy.

Photos: The 18 most surreal landscapes on Earth | Business Insider
Beautiful pictures of the world’s most vibrant natural scenes.

The credit bubble is back & bigger than ever | ZeroHedge
Leveraged loan issuance ($188.7B 2013 ytd) is already 2x that of 2007 & 5x 2012’s ytd, as excess demand for floating rate bank loans has spilled into covenant-lite issues, which private equity has been happy to supply.
[Covenant-lite loans are normally intended for high grade corporations, but a euphoric chase-for-yield has compromised quality again.]
#Bearish $BKLN #Credit cycle #Permabear

Video: How the economic machine works | Ray Dalio (Bridgewater Associates)
The economy is an interaction between 3 forces:
1. Productivity growth- straight line expansionDalio's economic cycles
2. Long term debt cycle- accumulation pulls forward future productivity gains, then deleveraging quickly mean-reverts overconsumption, starting a depression (75-100 years)
3. Short term debt cycle- easy credit begets increased spending & inflation, causing the central bank to tighten, which lowers spending, then those who overleveraged default, leading to deflation, recession & central bank loosening (5-8 years)

Picture of the week:

3D street artwork: Obama & Putin sip coffee over Syria | Eduardo Relero (c/o Reuters)

3D street artwork (chalk): Obama & Putin sip coffee over Syria | Eduardo Relero (c/o Reuters)

#Diplomacy #Profound


  1. […] margin debt- A look at y/y real growth in margin debt vs the S&P 500 (SPX) shows a positive long term trend in credit extension against a negative trend in equity performance. […]

  2. […] Secretary Jacob Lew says US will technically default 10/17 if Congress fails to raise debt ceiling. Previously] #Keep calm & carry on #Credit default […]

  3. […] goosey” with “enhancements” like covenant-lite and/or PIK toggles. [Previously: The credit bubble is back & better than ever] #Bearish $BKLN $HYG #Credit […]

  4. […] Looks like they all start sliding after a tilted Head & Shoulders top is made, with a weak, shrugging right shoulder.  The patterns are all consistent with those observed by mathematicians and sociologists like Didier Sornette in his “Dragon King” studies. […]

  5. […] with enough time to fix it. Previously: Chinese WMPs, BANs/LGFVs, non-performing loans & preemptive action. #Shadow banking $FXI $GXC #Liquidity […]

  6. […] point in the greater credit cycle, these spread corrections are merely the undulations of a “short term debt cycle” — not the kind of systemic defaults associated with larger credit […]

  7. […] Leveraged loans & institutional bank loans:  Junk issuance and valuations at exuberant levels, including floaters and PIK toggles for M&A/LBOs. […]

  8. […] Leveraged loans & institutional bank loans:  Junk issuance and valuations at exuberant levels, including floaters and PIK toggles for M&A/LBOs. […]


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