Diary of a Financier

Top Newsstuffs (December 2-8)

In Bookshelf on Sun 8 Dec 2013 at 05:39

Rubbin’ elbows with pols in the capital…

Chart: Quantifying the effect of QE on net security supply | Citi
Illustrates “net issuance of securities vs. central bank interventions” by Fed, BoJ & ECB:
Total net has dropped from $4T to $1T (2008-13).
[Objective evidence of the supply squeeze created in quality assets, which has sent investors up the risk spectrum & chasing yield.]
#Unintended consequences

Quant study: The S&P 500’s history of 25%+ years | MKM Partners
In 16 occurrences of annual performance >25%, $SPX has returned an average of +5.47% in the subsequent year with an 18.27% standard deviation–underperforming its +11.5% average annual return.
[Statistically, these results are insignificant given the high sigma.  Qualitatively, 1945 may be the best analogue for 2013’s market, given the context of war ending, demographics upswinging, and secular disinflation bottoming; quantitatively too:
1944 +13%; 1945 +30%; 1946 -11%
2012 +13%; 2013 +30%; 2014 ?
Further reinforces my 2014 thesis.  Previously: SPX’s historical distribution of returns]
#Brown noise

Investor sentiment survey: Bullishness drops from extreme highs (December 4, 2013) | American Association of Individual Investors (AAII)
Surveys sentiment for equity performance over next 6 months (through June 2014):
Bulls -4.7pp to 42.6% vs 39% historical avg (45% considered extremely high & 57.6% modern high 11/2010); sharp reduction from last week’s highs.
Bears -0.7pp to 27.5 vs 30.5% historical avg (25% extremely low)–sharp recovery from 17.6% low a few weeks ago.
[Contrarian buy signal affirms that there are still too many bears for this to be full-fledged exuberance.]

The unemployment benefits cliff | Business Insider
1.3mm Americans will lose their unemployment benefits on 1/1/2014, followed by 850k more throughout the year.
Congress passed the Emergency Unemployment Compensation (EUC) provision in 2008 to extend benefits from 26 to 99 weeks, then they renewed it through 2013 during the Fiscal Cliff battle.

Sell side consensus indicator: Analysts’ optimism improving, barely a buy signal (November 30, 2013) | Bank of America Merrill Lynch
Wall Street analysts’ sentiment is improving, now up to 53.3 vs <54.5% pessimism threshold–still indicative of consensus bearishness (a contrarian “buy” signal).
Alltime low was 43.9% in July 2012, but we’re still below the March 2009 lows
[This is the quantitative manifestation of my ST bullishness–leaving room for an exuberant ascent. Indicator measures “average recommended equity allocation of Wall Street strategists as of the last business day of each month.”]

Purchasing Managers Index (November 2013): Worldwide expansion leaps to new, 30-month high | Business Insider
Global PMI keeps growing (52.1 to 53.2) for 13th consecutive month:
Australia’s recovery unwinds with a crash (53.1 to 47.7) led lower by exports (34.1 to 29.7).
Japan’s expansion continues with another skip up (54.2 to 55.1).Global PMIs (2013.11)
China’s official PMI shows steady expansion (51.4 unch), but unofficial decelerates a bit (50.9 to 50.8).
The rest of Asia’s still expanding, but a mixed bag, including South Korea up (50.2 to 50.4), Taiwan up (53 to 53.4), Vietnam down (51.5 to 50.3) & Indonesia down (50.9 to 50.3).
Eurozone comeback grows more bifurcated (51.3 to 51.6), with Germany (51.7 to 52.7) and Italy (50.7 to 51.4) rising to 2-1/2 year highs, but Spain (50.9 to 48.6) and France (49.1 to 48.4) somewhat plummeting.
UK regains its leading role with a big jump higher (56.4 to 58.5).
US ISM beats big again (56.4 to 57.3 v 55.2 exp), with most every compenent surging, like employment (53.2 to 56.5), new orders (60.6 to 63.6), production (60.8 to 62.8) & exports (57 to 59.5).
[See also: US ISM Non-manufacturing (Services) falls unexpectedly (55.4 to 53.9 v 55 exp)]

East African countries sign deal to form monetary union | East African Community (EAC)
States agree to start using single currency within 10 years, harmonize monetary & fiscal policies, and establish common central bank:
Kenya, Tanzania, Uganda, Rwanda and Burundi


  1. […] for “Euphoria,” and while a number of major bears just capitulated, there remains a [quantifiable] handful of doubters, whose surrender to the bull market’s momentum will mark the […]

  2. […] 2015, but $65B in automatic cuts from sequestration reversed. Democrats did not get another extension for unemployment benefits (yet). [All of a sudden, all the missing pieces (e.g. "uncertainty") for […]

  3. […] reversion (−)- Despite a lot of debate citing overfitted data, SPX typically mean reverts after big years like 2013. After >25% CY performance, SPX’s subsequent mean return is only […]

  4. […] reversion (PUSH) Despite a lot of debate citing overfitted data, SPX typically mean reverts after big years like 2013. After >25% CY performance, SPX’s subsequent mean return is only 5.47 […]

  5. […] reversion Despite a lot of debate citing overfitted data, SPX typically mean reverts after big years like 2013. After >25% CY performance, SPX’s subsequent mean return is only 5.47 […]


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