Diary of a Financier

Top Newsstuffs (October 14-20)

In Bookshelf on Sun 20 Oct 2013 at 05:41

Absolutely love autumn in Boston…

Video documentary: No End in Sight | Charles H. Ferguson
The film accounts Washington DC’s systematic failures leading to its occupation of post-invasion Iraq, including chronic underestimation & an overall lack of reconstruction planning. In particular, 3 of Paul Bremmer’s unchecked, uninformed, bureaucratic decisions enabled the Islamist fundamentalists’ insurgence:
1. Not declaring martial law- After US troops captured Baghdad, Iraq was left lawless for a month, leading to a deteriorating cycle of looting, raping & murdering; the US Office for Reconstruction and Humanitarian Assistance (OHRA) had composed a detailed post-war plan, as tasked, which was entirely ignored; for example, 30 historic & systemically important sites were to be guarded (e.g. national archives & museums), but only the oil ministry was protected
2. De-Ba’athification- An executive order forced the blanket layoff of all members in Saddam Hussein’s political party (Ba’ath Party), banning all from future employment, including public workers like innocent teachers & librarians
3. Disbanding Iraq military- contrary to US military’s pleas, 500k Iraqi men from army to police were left unemployed, starting an uprising led by the very people who had training, organization & weapons access to counter US efforts
Interviews 35 government insiders, many former George W. Bush & Donald Rumsfeld loyalists who grew disillusioned with the cognitive dissonance.
#Moral bankruptcy #Cronyism

Okay, now it’s 1999 in stock market | Josh Brown (The Reformed Broker)
Looks at equity bubble indicators as this cyclical bull market (at least) hits an exuberant tilt with volume & momentum now instilled:
1. Tech darlings go full-tilt momo- $CRM $FB $GOOG $PCLN
2. IPO froth- sandwich shops are doubling on their 1st day of trading ($PBPB $SFM) & Renaissance is rolling-out an IPO ETF ($IPO)
3. Buy the Fucking Dip (#BTFD) has become part of our modern vernacular & even laymen’s everyday parlance
[Previously: Investor cycle of psychology update]
#Bullish (ST) #Bearish (LT) #Euphoria

Chart analogues: Dow 1930 vs 2013 & Gold 1977 vs 2013 | Tom DeMark (Market Studies Inc.)
Compares 2012-13’s market to 1928-30’s: popular hedge funds’ technician/chartist sees a strong, short term rally to new highs before a crash into a bear market.
Gold has bottomed & will rally significantly per 1975-77 comparison.
[Reinforces my ST & LT outlook.]
$DIA #Bullish ST #Bearish LT; $GLD #Bullish

Rail traffic weekly: Stable ~2% trend, affirming slow growth economy | Association of American Railroads (AAR)
Weekly traffic +1.9% y/y; ytd growth remains +1.2%.
7 of 10 carload groups posted gains: petroleum +15.3%, ores/metals +12.8; coal -4.9%.
[12th consecutive week of growth honed ~2% trend growth.]
$XME $GDX $KOL

US consumer spending decelerating: 4q13 & holiday shopping outlook downgraded to flat | eBay (2q13 earnings call)
Heard on the $EBAY quarterly conference call, CFO Bob Swan:
“From a macro standpoint, Europe and [Asia-Pacific] created a bit of anxiety for us in the first half of the year, but have stabilized through Q3… But at the same time, U.S. e-commerce softened considerably, [and] we have a cautious outlook for the holiday season…
“A dramatically decelerating U.S. ecommerce growth rate from Q2 of 16% to Q3 of 13%… lots of the fundamentals that we’re reading about are not all that positive. That being said, we’re not expecting really any improvement in the fourth quarter from what we’ve experienced for the last eight to 10 weeks. So we’re not expecting improvement. We’re just assuming that things are going to stabilize where they are.”
[Counterpoint: American Express ($AXP) says consumer spending expected to maintain +9% sequential trend growth rate through Q4]
#Bearish #Income gap #Bifurcated economy $EZU $FEZ $EEM $XRT

Fed Beige Book: “Economic activity increased at a modest to moderate pace” (September-October 2013) | Federal Reserve Bank of Chicago
“Districts generally remained cautiously optimistic in their outlook for future economic activity”:
“Multifamily [residential] construction remained stronger than single-family… vacancy rates continued to fall, rents rose, and the outlook for commercial real estate was generally positive…
“Nonresidential construction activity remained modest.”
Employment/hiring, manufacturing, lending, consumption & tourism/traveling maintained slow growth rates, but “many also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate.”
Retailers expect holiday sales to equal 2012’s–despite 2013’s holiday season being 6-days shorter.
[Continued slow growth means a QE Taper will be deferred into 1q14–already a likelihood given uber-dove Janet Yellen’s appointment as Fed Chairman; the question now is how much will the Street underestimate deferred output that’ll be recovered in YE13/1q14 due to the government shutdown.  See also: S&P cuts US 4q13 GDP growth estimate by 0.6pp, citing $24B in lost output due to government shutdown]
#Bullish $XHB $XRT $XLY

Photos: The world’s 10 most unique ocean landscapes | The World Geography
1. Eluthera Island, Bahamas- intersection of Atlantic Ocean & Caribbean Sea
2. Skagen, Denmark- intersection of Baltic & North Seas
3. Horizontal Falls, Australia (“The Horries”)
4. The Deep Channel, Great Barrier Reef, Australia
5. Underwater Waterfall, Mauritius
6. The Great Blue Hole, Belize
7. Ball’s Pyramid, Australia
8. Male, Maldives
9. Atlantic Ocean Road, Norway
10. Rock Islands, Palau

European auto sales: Mini-recovery (September 2013) | Quartz
Car sales in EU +5.4% y/y for the month, -3.9% ytd.
Exactly as in the US recovery, the low & high-end models are selling best, with the middle-market getting hollowed out across consumer goods–due to stagnant wage growth.
[Previously]
#Bullish $EZU $VLKAY #Durable goods #Luxury brands

Improving credit trends about to flatten out | Bank of America (2q13 earnings call)
Heard on $BAC quarterly conference call, CFO Bruce Thompson:
The tailwind from improving credit is about to stop; net charge offs fell from $4.1B to $1.7B y/y (from $2.1B q/q), expected to fall further in Q4 before stabilizing ~$1.5B throughout 2014.
[Previously]
#Bearish?

Japanese on gas & coal power plant building spree| Reuters
Given pricey oil & a nationwide abandonment of nuclear energy in the wake of Fukushima, Japan will complete 2 new coal-fired electricity plants by YE13 & 12 gas plants in 2014, all worth $7B.
[Somewhat an #unintended consequence of Abenomics’ devaluation of $JPY.]
$XME #Liquified Natural Gas (LNG)

Myth busting: “The US has never defaulted on its debt” | Washington’s Blog
Dispelling one of the great lies perpetrated by American politicians, the Treasury/government (and individual states) has indeed defaulted on its obligations before:
1790- Alexander Hamilton (Treasury Secretary) signed The Funding Act, which had the federal government assume states’ debt from the Revolutionary War, then effectively restructured the obligations by deferring interest payments 20 years
1933- FDR revoked “gold clauses” that gave creditors the right to request P&I payments and currency redemption in gold
1979- two separate instances; one prioritized payments by delaying individual investors’ T-bill redemptions; the other was a computer glitch that delayed P
[Counterpoint]
$TNX $SHV $SHY $IEI $IEF $TLH $TLT

Japan rising? Shinzo Abe’s Excellent Adventure | Barry Eichengreen (Milken Institute)
Comprehensive update to #Abenomics.  Key takeaways:
Part of structural reforms (yet to be implemented) will expand “National Strategic Districts” plan, which relaxes taxes & regulation to attract foreign businesses ex health care, education & services.
The “Three Arrows” reference is an allusion to Kurosawa’s film, Ran, in which a wise patriarch hands his kingdom to his 3 sons, stressing: “One arrow is easily broken, but, when bundled together, three arrows are not.”  The sons ignore the advice, ruining the kingdom–ironic since there’s debate over Abe’s implementation of the 3rd arrow.
[Previously: Full guide to Abenomics]

–Romeo

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  1. […] is now completing 2 new coal-fired power plants by YE13 and 12 gas plants by YE14.  Now that the $7B total CapEx […]

  2. […] onto the same side of the boat, even permabear David Rosenberg; yet another sign of exuberance. Previously] #Euphoria #Bearish […]

  3. […] about signs of subprime stress, albeit less frothy; consumer is definitely tapped-out.  See also: Downgrading consumer spending forecasts for holiday shopping season & Peak near term household consumption] #Credit cycle #Credit […]

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