Diary of a Financier

Top Newsstuffs (February 10-16)

In Bookshelf on Sun 16 Feb 2014 at 05:40

Catching up on some good TV with my new Chromecast this long weekend!

You’ll invest for free by 2018 | Medium
Predicts the low-cost, passive ETF wars among $WETF $BLK $STT #Vanguard will reduce internal expenses, commissions & advisory fees to nil in the intermediate term–even on active management.
[I only posted this for 2 reasons:
1. This is a “race to the bottom”
2. “Zero cost investing” has become the unanimous consensus expectation, which gives me a high-conviction sell-signal
The null hypothesis to the zero-cost thesis is a secular bull market that brings back America’s investing public; even -15% ytd @ $15, $WETF is a LT sell/short.]
#Bullish #Contrarian #Euphoria #Retail investors #Ingroup bias?

Complete guide to China’s trust product problem | Quartz
The first trust products have already begun defaulting, since 43% of the $1.8T trust/wealth management products (#WMPs) mature in 2014, 80% by 2015.
[$SHGIDX is -40% since 2009’s high, when murmurs of a “hard landing” first hit MSM–the manifestation of a known-unknown being discounted. Previously]
#Grey swan #Shadow banking $FXI $GXC #Liquidity #Insolvency

Quant study: The majority of bear markets have occured without an economic recession | The Stock Trader’s Almanac
57% (20/35) of $DJIA bear markets were not accompanied by a recession.
[Stock market ≠ Economy. Previously: 2014 will be a bear market without a recession (Rescinded)]

Rail traffic weekly: Slipping lower again | Association of American Railroads (AAR)
Weekly traffic -2% y/y; growth slips lower again to +0.3% ytd.
4 of 10 carload groups posted gains: farm products +5.8%, grain +4; coal -8.4.
[Still noise; the signal will have to come March, when pent-up demand will have to displace these effects from winter storms.]
$DBA $XME

Emerging markets: Cheap by any method, relative or absolute valuation | Barclays
EM equities showing good value in fundamentals:
1. Price/Book ratio– PB <1.5x has historically been a buy signal
[#Confirmation bias: Today’s PB @ 1.48x is much higher than prior lows like the Asian Crisis @ 0.9x, 9/11 @ 1.3x, Gulf War @ 1.4x, Financial Crisis @ 1.4x–although the trend is higher lows]
2. EM/DM relative earnings yields– EM discount is almost as high as in 2009, also nearing 2001 & 1998 highs
[#Observational selection bias: These historical comparisons all occurred during the EM secular bull market]
3. Valuation ratios– EM cheap per ttmPE, fwPE, PB & dividend yield–whether compared to its own history, $ACWI, or $SPX
[#Framing bias: Of course EM is cheap relative to average valuations; how cheap is it relative to the historical range of valuation ratios?]
$EEM #Noise #Micro

Emerging markets 2014 vs 1997: It’s different this time | Business Insider
Compared to Latin American debt crisis (1980s), Mexican Peso crisis (1994-5) & Asian crisis (1997-8), today’s EMs are far less vulnerable:
1. Foreign currency reserves/GDP– more than double 1997’s levels
2. Twin deficits– EM fiscal balances (budget deficits) & public debt/GDPs are a fraction of DMs’ levels during the Eurocrisis
“Local-currency… debt is more common, so FX depreciation is less of an issue from an external financing point of view… Current account positions are less vulnerable. Corporate and sovereign leverage is lower. Balance sheets do not face the same currency mismatches they did in the past.”
[It’s never different this time, although the similarities may be more of a rhyme than a perfect analogue: I think the dislocations associated with global QE/ZIRP can make EMs’ large FX reserves dissappear quickly (hot money) as the tides continue to turn. Previously: EMs descending into crises]
$EEM $EMB $EMLC #Macro

Chart: Corrections during the cyclical bull market (2009-present) | Lance Roberts (STA Wealth)
Quantifies & illustrates every major $SPX drawdown since the end of the crisis/Great Recession.

–Romeo

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  1. […] @ -0.4% ytd. 2 of 10 carload groups posted gains: petroleum +7.9%, grain +2.5; minerals -10.6. [Previously: "Still noise; the signal will have to come in March, when pent-up demand will have to displace […]

  2. […] characterization of China's Wealth Management Products (WMPs) as a "Grey Swan" was apt. Previously: The complete guide to China's Trust Product problem] #Shadow banking $FXI $GXC #Liquidity […]

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