Diary of a Financier

Top Newsstuffs (December 9-15)

In Bookshelf on Sun 15 Dec 2013 at 06:20

Christmas partying!

US should lift domestic oil export restrictions | Exxon Mobil ($XOM)
“We are entering an era of abundance, and it’s time the US started exporting oil… We are not dealing with an era of scarcity as was the case during the 1973 Arab oil embargo when the U.S. imposed restrictions on exporting domestic oil… we need to rethink the regulatory scheme.”
[If XOM gets their lobbyists behind this, you better bet they’ll get what they want.  Anyone making a long term best on cheap NatGas should know that the arb spread between domestic & foreign hydrocarbons will compress eventually. Previously]
$USO $UNG $BNO $GLNG $LNG

Pensions make the most of stock rally | The Wall Street Journal (WSJ)
Defined Benefit (DB) assets/liabilities have risen from 77% to 96% in 2013, almost entirely eliminating the underfunded obligation crisis.
The equity market rally has increased asset values (responsible for 60% of funding gains), while rising rates have lowered actuaries’ future values & higher corporate profits have allowed higher cash contributions.
Out from under this burden, corporations have gained greater financial flexibility, and some are/may even shift remaining obligations to insurance companies.
[This is a very procyclical issue, so the risks are not gone until the plans terminate.  Previously: Reinhart says pensions are screwed & PBGC’s mounting deficit could lead to bailout]

Rail traffic weekly: Q4 rally continues after Thanksgiving | Association of American Railroads (AAR)
Weekly traffic +1.8% y/y; growth ticks higher to +1.7% ytd.
5 of 10 carload groups posted gains: petroleum +18.6%, grain +10.4; coal -13.3.
[This is normalized data after last 2 weeks were subject to calendar effects from incomparable y/y Thanksgiving holiday weeks.]
#Bullish $CL_F $XLE $XOP $DBA $KOL

Learn code switching before you learn code | Dashes
President Obama is encouraging schools to integrate software programming & coding in curriculum.
[It’s interesting because code is a computer language that tech industry experts have closely guarded, refusing to make it more accessible for the lay to maintain competitive advantages and high barriers to entry.  See also: Code.org, the government’s portal for its coding initiative]
#Computer science #Skills gap

Congress reaches budget deal, averts 2014 standoff | Calculated Risk
Agreement eliminates potential Q1 government shutdown:
Defense spending capped at $1T through 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 a Fed QE taper announcement have fallen into place; probability for FOMC taper in December increases, but March still most likely since a debt ceiling debate still remains for the end of February.]
#Taper ON?

Presentation: “Something for nothing” (4q13) | Jeff Gundlach (DoubleLine)
Fiscal deficit– concerned about entitlements’ accumulation over next decade, especially with Obamacare’s added burden ($502B total costs fm 2010-19)
Emerging markets– no way $EEM will outperform $SPX or $EFA over LT after last 10-years’ bull market, but $EMB (not $EMLC) is great relative value vs $HYG after the summer selloff
Treasuries– $TNX is capped at some low level because pensions will reallocate to bonds once another stock market rally makes them fully funded*
[*TNX might also be capped because EM central banks had a well-telegraphed opportunity to pare high duration USD Treasury ($IEF) & Agency ($AGZ) holdings in advance of a QE taper–thanks to the Fed’s transparent communications & gradual reduction of LSAPs, we shouldn’t see a repeat of the big summer selloff.]

Movie: The Man from Earth | Jerome Bixby & Richard Schenkman
A thoughtful, existential SciFi film that teases religion, anthropology, biology & history:
An impromptu goodbye party for Professor John Oldman becomes a mysterious interrogation after the retiring teacher reveals to his colleagues he’s a caveman who never ages & has lived for 14,000 years.
#Indie #Science fiction

Jumbo mortgage issuance surging | Bloomberg
Jumbos +34% ytd, mostly comprised of ARMs:
“People have decided that whatever happened in 2008 is not going to happen again,” said a San Francisco-based loan officer. “There is not much concern about home values falling again. There is more concern about bank borrowing costs going up” (e.g. rising rates).
[You’ve got to be kidding me.]
#Cognitive Dissonance or #Recency bias?

Speech: “Speculative Asset Prices” (Nobel Prize in Economics acceptance) | Robert Shiller
Takedown of the Efficient Market Hypothesis:
“Why are we so interested in the efficient markets model? We haven’t seen any compelling evidence for it… markets are too volatile for the efficient markets theory to be valid. People are inconstant.”
Only half or a third of stock market fluctuations can be explained by dividend discount models (DDM).
Behavioral economics is the key to explaining market movements.
Better price discovery can reduce volatility, and that demands more markets for anything from life expectancy to occupational income.
[Not so ironic timing for this speech, because he was the co-winner along with Eugene Fama–godfather of EMH.]

–Romeo

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  1. […] budget deal (+): the recent spending agreement averted another fiscal standoff in January, but a debt ceiling debate still awaits with a deadline […]

  2. […] GDP) & Malaysia in 90s (savings 40% GDP)–all more than China’s today. [Previously: Fed's transparent communications & guidance give EM central banks time to prepare for taper] $EEM $EMB $EMLC #Unintended […]

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