Diary of a Financier

Top Newsstuffs (September 30-October 6)

In Bookshelf on Sun 6 Oct 2013 at 06:00

Post-wedding season wedding season starts today…

Man controls robotic leg with his mind | New England Journal of Medicine
Zac Vawter is the first human to receive a prosthetic, mind-controlled leg:
“The bionic leg uses electrodes & a microprocessor to read Vawter’s intentions via muscle contractions in his thigh… nerves near the amputation site tend to die off, leaving a dead circuit. To avoid this, during the amputation, doctors rewired [his] nerves so they could control muscle contractions in his thigh. This kept the nerves alive.”
[Bionic arms are relatively common, but risk of a faulty leg (e.g. balance metrics) are trickier.]

Rail traffic weekly: Resuming upward trajectory | Association of American Railroads (AAR)
Weekly traffic +1.6% y/y; ytd growth increases again to +1.2%.
5 of 10 carload groups posted gains: petroleum +14.3%, nonmetallic minerals +12.7, motor vehicles/parts +11.9; grain -19.5%.
[10th consecutive week of growth establishing a trend ~3%, up toward which the ytd cum will continue to migrate.]

CME hikes equity futures margin requirements | ZeroHedge
S&P 500, Dow Jones & Nasdaq initial & maintenance margins increased by 9%–including E-mini contracts.
[See also: NYSE margin debt & balances]
$ES_F #Leverage

FOMC: Fairly Obvious Manipulation Committee | The Armo Trader
Annotated chart shows every $SPX rally top & correction bottom since 2008 has been marked by a Fed QE or Operation Twist (OT) announcement.
#Liquidity trap #Don’t fight the Fed

US Treasury credit swaps keep moving higher during government shutdown | Cullen Roche (Pragmatic Capitalism)
Tsy CDS continue to widen, with the curve inverting at the front-end (<6y) & the long-end steepening.
Tbill spreads +25bps (from ~10 to 35bps) & Tbonds +15 (35 to 50bps).
[Treasury Secretary Jacob Lew says US will technically default 10/17 if Congress fails to raise debt ceiling. Previously]
#Keep calm & carry on #Credit default swap

Purchasing Managers Index (September 2013): Globe expansion reaches 27-month high | Business Insider
Global PMI keeps growing (51.6 to 51.7) for 11th consecutive month to a 27-month high:
Australia’s bounce goes into warp speed (46.4 to 51.7) in the wake of elections.
Japan rises again (52.2 to 52.5).
China’s official PMI hangs-on to expansion (50.3 to 51), as does unofficial (50.1 to 50.2) after July’s low.
The rest of Asia surged, with Taiwan, Vietnam & Indonesia all jumping +2pts into expansion.
Eurozone comeback pauses (51.4 to 51.1), perhaps amidst Italy’s political turmoil, but Germany & Spain were just as bad (ripple effect?).
UK remains a leader despite decelerating (57.2 to 56.7).
US ISM beats big again (55.7 to 56.2 v 55.0 exp), with employment growth surging (53.3 to 55.4); new orders decelerated (63.2 to 60.5) & production stayed steady (62.4 to 62.6), but both are at lofty levels indicative of strong manufacturing activity.
[We had been watching the emerging Asian recovery for a couple months, but this report spurred us to initiate a basket of long ETFs including Taiwan ($EWT) & Vietnam ($VNM), with China ($GXC) soon to follow.]

Quant study: S&P 500 long term regression & standard deviation (1871-2013) | Doug Short (dshort)
$SPX’s LT average annual real return is +1.74% & standard deviation 40.58%.
Currently trading at +68% deviation from trend vs prior highs of 81% before Great Depression,  152% Tech Bubble & 90% Great Recession.
[Chart shows that during the Great Moderation (since 1980s), corrections merely return to the trend, whereas bear markets after excesses (>2 sigmas) always snapped-back with corresponding corrections (<1 sigma).]
#Mean reversion

Analogue: S&P 500 2013 vs 1954 | Bespoke Investment Group (BIG)
The correlation coefficient for the $SPX ytd comparison to 1954 is 0.95, quantitatively stronger than any year on record.
In 1954, stocks recovered pre-Great Depression highs amidst the “Eisenhower Rally,” which surged +12% in Q4 to finish that year +45%.

S&P 500 bearish chart pattern | Peter Brandt (Factor Trading)
$SPX has wound into a ST (4-month) rising wedge. Peter think this setup will morph into a running wedge, which breaksout above trendline resistance to new highs.
[3x bear divergence in MACD sends a different signal to me, but I never trade against a bull market.]
#Elliott Wave Theory


  1. […] I plan on keeping more than half of our powder dry until the calendar gets closer to that 10/17 drop-dead date for a Treasury default (i.e. the 11th […]

  2. […] SPX’s long term regression The market is currently +80% above its mean vs. prior highs of +81% before Great Depression,  +152% Tech Bubble & +90% Great Recession. […]


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