Diary of a Financier

Top Newsstuffs (October 21-27)

In Bookshelf on Sun 27 Oct 2013 at 07:21

We’re putting pumpkin in everything we eat and drink this weekend; Go Sox!!…

Fed & OCC ask banks to tighten lending standards | Seeking Alpha Market Currents
Regulators sent letters to banks warning them to stop stripping covenants off bank loans.
The underwriting quality of leveraged loans is continually deteriorating, as junk-rated issuance is getting “loosey goosey” with “enhancements” like covenant-lite and/or PIK toggles.
[Previously: The credit bubble is back & better than ever]
#Bearish $BKLN $HYG #Credit Cycle

Investor sentiment survey: Extreme bullishness a sign of exuberance (October 23, 2013) | American Association of Individual Investors (AAII)
Surveys sentiment for equity performance over next 6 months (through April 2014):
Bulls +2.9pp to 49.2% vs 39% historical avg & 45% extreme high–highest since 1/2013, but below 4q10’s highs >55%.
Bears -7.3pp to 17.6% vs 30.5% historical avg & 25% extreme low–lowest since 1/2012.
[Contrarian sell signal & sign of exuberance.]
#Bearish #Euphoria

Rail traffic weekly: Hunkering-down at 2% trend growth | Association of American Railroads (AAR)
Weekly traffic +2.1% y/y; ytd growth remains +1.2%.
8 of 10 carload groups posted gains: petroleum +15.5%, grain +9.6; coal -6%.
[12th consecutive week of growth honed ~2% trend growth; grain volumes rebounding off of low 2012 y/y base.]

What’s behind the selloff in Crude Oil? | Sober Look
$CL_F down from $112 to mid-90s (-16%) attributable to:
1. Iran- sanctions being lifted, so Iranian exports about to hit market
2. US unemployment- private payrolls report was weak & missed expectations, signalling weak economy
3. US government shutdown- led to crude inventories accumulating

Charts: Sell US, buy Europe | Societe Generale Global Asset Allocation (SocGen)
Crams 700 years of global macro & market data in 12 charts.  Key takeaways:
Chart #3- Inverse correlation between Shiller CAPE & forward 10y SPX returns (1900-2013) says market performance should average +2% per annum through 2023
Chart #4- Inverse correlation between Corporate profits/GDP & forward 5y profit growth (1950-2012) warns corporate profits should recede -4% per annum through 2018
Chart #10 & #11- ECB balance sheet has been shrinking since 2h12, boosting $EUR while Fed/BoE/BoJ have continued easing; leaves substantial room for stimulus or at least devaluation as the Fed tightens
[Further supporting the idea of future/continued ECB easing is their discussion of a 2014 LTRO 2.]
#Bearish (US) #Bullish (EU)

NYSE margin debt & balances: Releveraging to new highs (September 2013) | Doug Short (dshort.com)
Gross nominal margin debt rose slightly ($401B)–blowing by April’s alltime high ($384B).  Real debt also spiked higher, remaining above 2000′s high & now only ~$25B shy of 2007′s record.
Net margin balances (-$110B debit) reach a ytd low, still far below 2007/11 pre-correction lows & drawing closer to Tech Bubble’s record low (-$123B).
[Right now, perhaps the most important thing I’m watching, which drives-home my conviction for a 2014 bear market.]

Video interview: Alan Greenspan (former Fed Chairman) on why bankers can’t self-regulate | Jon Stewart (The Daily Show)
The US economy’s transition from Partnership structures to Corporations radically reduced our focus on risk management.
The key assumption that people would act rationally in their own self-interest was wrong–or at least a poor model for a world in which corporations are people with their own self-interests.
[Reminds me of how different the world was when partners had their own capital at risk, as described by books like The Panic of 1907 &The House of Morgan; crises still occurred, but at least personal liability mattered & myopic risk taking was one less thing to regulate.]
#Deregulation #Joint & Thesis Liability

Photos: The 23 most Boston things to have ever happened | BuzzFeed
#Park the car in the Harvard Yard

Buy side consensus: Fall 2013 big money poll results | Barrons
Survey of 135 money managers, regarding stock market sentiment for 1h2014:
– 68% bullish vs 8% bearish
– Fundamentals- 71% say SPX fairly valued + 15% undervalued
– Bulls’ average SPX PT 1824 (+5%)
– Best sectors- Tech, Capital Goods
– Worst sectors- Utilities
[Everyone piling onto the same side of the boat, even permabear David Rosenberg; yet another sign of exuberance. Previously]
#Euphoria #Bearish #Contrarian


  1. […] and hearing all this, I continually reevaluate my thesis for 4q13 and 1h14.  Everyone’s piling onto the same side of the boat here, which is perfectly attune to the “transition to […]

  2. […] The only NYSE margin debt chart that matters | Philisophical Economics Charts NYSE margin debt/Total market capitalization (1960-2013), which shows the ratio rising from 0.5% in 1970 to 1.6% currently–above prior highs ~1.4% from 1987 & 2000, but below 1.8% alltime record in 2009. [This paints the same picture as real margin debt (i.e. inflation adjusted), but somehow rationalizes it as a bullish indicator by using a contorted narrative. Counterpoint: NYSE margin debt releveraging to new highs] […]

  3. Followup…
    As I expected, ECB cuts benchmark refinancing rate from 0.50 to 0.25bps & extends fixed
    refi tender procedures with full allotment until mid-2015.


  4. […] know the market’s a bit of a hot mess.  Great news out of Europe this morning, with the ECB deciding to ease its main policy rate from 50 to 25bps (the refinance rate) and extend its bank liquidity […]

  5. […] who I can tell you first hand is taking the handoff whenever tradiational banks or sponsors balk? Previously] #Bearish #Credit Cycle […]

  6. […] clamping-down on excesses by explicitly asking banks to tighten lending standards (I & […]

  7. […] Roubini (RGE, NYU) 7. 60% of my prospect list’s hold-outs [Another sign of exuberance. Previously] #Bearish #Contrarian […]

  8. […] NYU) 7. 60% of my prospect list’s hold-outs [Another sign of exuberance. Previously] #Bearish #Contrarian […]


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