Diary of a Financier

Top Newsstuffs (December 16-22)

In Bookshelf on Sun 22 Dec 2013 at 05:01

Santa hasn’t replied to my letters, so it looks like I have some shopping to do this weekend…

How Warren Buffett interprets financial statements | Value Walk
As derived from his years worth of letters and speeches, a guide to how he reads and what he infers from balance sheets, income & cash flow statements.
#Value investing $BRK.B

Rail traffic weekly: Seasonal deceleration exacerbated by winter weather | Association of American Railroads (AAR)
Weekly traffic +0.3% y/y; growth remains +1.7% ytd.
4 of 10 carload groups posted gains: petroleum +10.4%, motor vehicles/parts +5.5; metallic ores -14, coal -8.4.
[We’ll see if carloads can withstand seasonal deceleration to finish the year strong; this & next week’s reports affected by nationwide snowstorms.  Previously: Railtraffic echoes increases in inventories & orders, but will shipments follow-through?]
$CL_F $XLE $XOP $XME $KOL

Federal Reserve Open Market Committee statement & press conference (December 18, 2013) | Seeking Alpha Market Currents
Fed announces start to QE tapering, reducing purchases from $85 to $75B/month ($5B less toward each Treasury & MBS LSAPs).
As expected, FOMC extends ZIRP to 2016 (dovish “enhanced forward rate guidance”) and “anticipates that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the Committee’s 2% longer-run goal.”
Updated FOMC 2014 projections:
– PCE inflation 1.4-1.6% (narrowed fm 1.3-1.8% in September)
– GDP growth 2.8-3.2% (increased fm 2.9-3.1%)
Unemployment rate 6.3-6.6% (narrowed fm 6.4-6.8%)
[Ben Bernanke’s last meeting.  At the close: $SPX +1.69%, $AGG -5bps, $FVX +2bps @ 1.515, $TNX +4bps @ 2.885, $GC_F -0.83%, $EEM +1.95%. See also: FOMC pregame]

China’s shadow currency: Bankers Acceptance Notes (BANs) | The Diplomat
BANs are like Letters of Credit (LOCs) or Trade Finance Notes (TFNs), in which banks guarantee a customer’s check payment.  They’re supposed to back transactions for physical goods, backed by payees’ deposit balances, but instead they’re being used as an underground currency, relying on high monetary velocity & trade volume:
Provinces & localities made huge infrastructure investments that haven’t yet attracted tax bases & are starved for revenue.  Hiding them as off-balance sheet liabilities, banks have been happy to issue & “perpetually” roll BANs to Local Government Finance Vehicles (LGFVs) in need of cash–akin to printing money.
Estimates say LGFVs have accumulated RMB 19T in debt with 9T in BANs outstanding vs 107T monetary base.
#SIVs $CNY

Volcker Rule shows its wide reach & banks scramble to reshuffle their portfolios | The Wall Street Journal (WSJ)
Regional & shadow banks are trying to avoid a “shotgun divestiture” of assets.
#Unintended consequences affect CDOs, MMFs, Tender Option Bonds (TOB municipals).
$KRE #Dodd-Frank #Regulation

Buffett, Slim, Greenspan, El-Erian & Lew pick the best books of 2013 | Bloomberg
Financiers’ favorites [straight to my reading list].

Update: The Big Four economic indicators (November 2013) | Doug Short (dshort, Advisor Perspectives)
Composite reached new post-crisis highs; tracks & charts 4 economic datapoints, including:
1. Industrial production
2. Real income
3. Nonfarm employment
4. Real retail sales
[This composite accurately predicted every recession since its inception in 1950s, but it seems to struggle with latency, low-frequency, and false warning signals, which noise last sounded in 1964, 1967, 1987 & 2005.]
#White noise #Coincident indicator

Stories from 1999 | Joe Fahmy (The Next Big Move)
Recounts memories of the Tech Bubble, comparing it to today’s market and concluding that we’re not [yet] in a bubble or exuberance.
[Qualitative, subjective comparison that characterizes real irrational exuberance, which we have yet to see in 2013/14.]
#Bullish #Euphoria (lite) #Analogue

Picture of the week:

Drawing: "Here's to 2013," illustrating the year & all its memories | Mario Zucca

Drawing: “Here’s to 2013,” illustrating the year & all its memories | Mario Zucca

–Romeo

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  1. […] (+)- Accommodative monetary policy will remain, with ZIRP likely for the longer-term (explicitly extended to 2016)–even after a QE taper has reduced LSAPs to nil.  In accordance with Janet […]

  2. […] & therefore the problem's been identified with enough time to fix it. Previously: Chinese WMPs, BANs/LGFVs, non-performing loans & preemptive action. #Shadow banking $FXI $GXC #Liquidity […]

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