Love this time of year, at the intersection of March Madness, baseball, and hockey playoffs…
Rail traffic weekly: Rally spikes higher as pent-up demand continues | Association of American Railroads (AAR)
– Weekly traffic: +10% y/y
– Growth ytd: +0.7pp @ +2.3%
– Carload groups: 8 of 10 posted gains, including grain +44.2%, minerals +11.2, motor vehicles +10.6; metals -13.7
[We have a trend! After tough winter weather in January/February, pent-up demand pitches-in with the biggest surge in this three week rally.]
#Bullish! $DBA $XLE $USO $UNG
ECB mulls idea of new QE | Bloomberg
At March’s ECB meeting, Mario Draghi announced that they’re modelling the effects of a €1T ($1.4T) QE after a “unanimous” agreement to use unconventional policy tools to avert deflation:
So far, early results suggest €80B monthly purchases would boost inflation by 0.2-0.8pp.
[In typical ECB style, they floated the trial balloon to see how markets would react, perhaps hoping the mere threat of QE would be a self-fulfilling prophecy a la OMT’s “whatever it takes… believe me, it will be enough”; in reaction, Spanish 5y fell to 1.74% vs US $FVX @ 1.69%. Previously: ECB has to ease with balance sheet shrinking & Euro strength]
$EURUSD $FEZ $EZU
New Chinese fiscal stimulus puts focus on growth targets | The Wall Street Journal (WSJ)
With scant detail, China’s State Council announced a new spending package for new railways, subways, low-income housing, and small business tax-breaks. Amounts & specifics not disclosed yet.
This could help shift debt loads from overburdened state/local governments unto the federal.
[$SHGIDX -74bps after the announcement, but this is a good-sounding step to address some areas of their economy that need help in this migration from exports/fixed investment to consumption emphasis.]
Oil math: Old method still used to calculate & overestimate reserves | Bloomberg
Derived in 1945, the “Arps Method” is still used to estimate reserves and depletion rates on oil & gas E&P discoveries.
It’s casting a doubt on the US’s estimated shale reserves (“100 year supply”), for which unconventional fracking method the formula — often extrapolated from a few, early, high performing wells — was never intended to be applied.
Researchers are scrambling for new formulas (e.g. Stretched Exponential, the Duong Method, and Simple Scaling Theory).
$IEO $XOP $OIH #Proved reserves #Probable reserves
Survey: Americans’ views on investing in the stock market (1990-2014) | Gallup
Poll asked people whether or not they thought today was a good time to put money into the market, and the results show broad “Irrational Non-Exuberance”:
– Bad idea: 50% respondents (vs. 28% in 1999 & 41% in 2006)
– Good idea: 46% respondents (vs. 67% in 1999 & 54% in 2006))
[Thanks to the #Recency Effect, low retail participation in this rally is allowing it to extend into a secular bull market; the history of this low-frequency survey shows the datapoints are insignificant as a timing mechanism (e.g. 1997-99), but they’re ultimately prescient nonetheless.]
#Bullish #Contrarian #Brown noise
Video: The best April Fools Day joke ever | BBC
In 4/1957, the BBC News show Panorama hoaxed all of Britain with a report about “the annual spaghetti harvest.”
Purchasing Managers Index (March 2014): Global expansion decelerates after 3-year high | Business Insider
Global Manufacturing PMI (-0.8 @ 52.4) falls after February’s 34-month high:
– Australia (-0.7 @ 47.9) still miring in contraction after YE13 crash, stuck with exports’ dead-weight (+5.1 @ 31.1)
– Japan (-1.6 @ 53.9) still strong, although headline fell again after January’s alltime high
– China’s official PMI (+0.1 @ 50.3) finally edged higher & unofficial (-0.5 @ 48.0) kept collapsing
– The rest of Asia’s dipping too, including South Korea (+0.8 @ 50.4), Taiwan (-2.0 @ 52.7) & Vietnam (+0.3 @ 51.3)
– Eurozone (-0.2 @ 53.0) expansion continues, with another slight deceleration led lower by Germany (-2.8 @ 56.5), despite broad gains elsewhere like Italy (+0.1 @ 52.4), Spain (+0.3 @ 52.8) & France (+2.4 @ 52.1)
– UK (-0.9 @ 55.3) finally decelerating after 12-months as a global leader
– Brazil (+0.2 @ 50.6) rallied for 6th straight month
– US ISM (+0.5 @ 53.7 v 54.0e) rises despite missing expectations with new orders (+0.6 @ 55.1) normalizing after recent volatility, production (+7.7 @ 55.9) recovering from a massive slide ytd, inventories (unch @ 52.5), deliveries (-4.5 @ 54.0), exports (+2.0 @ 55.5) & employment (-1.2 @ 51.1)
[Effects of extreme winter weather still being worked-out; these data are a decent sign for US manufacturing, corroborating February durable goods’ indication of inventory oversupplies reductions, but shipments still need to pickup. See also: US ISM Non-manufacturing (Services) accelerates (+1.5 @ 53.1 v 53.3e)]
Settling the profit margin debate once and for all | Jesse Livermore (Philisophical Economics)
While today’s corporate net profit margins (13.5% in 3q13) are barely at record highs, a long term chart (starting 1947) shows them akin to levels from prior quasi-ZIRP environments (1948-49 & 1966-67).
Further, the record corporate profits/GDP is an insignificant indicator, because US businesses have a record amount of net income (40%) coming from foreign revenues.
[Jesse’s point is that we have to believe these wide margins won’t mean revert since they’ve persisted for so long, but there’s clearly an intuitive, inverse correlation to interest rates/disinflation.]
7 reasons to expect a 2014 boom in Capital Expenditures | FT Alphaville
Street analysts have been calling for a CapEx recovery every year since 2010, but it has failed to materialize. Capital spending will boom in 2014 (est +5.5% vs +3.0 in 2013) for the following reasons:
1. Philly Fed’s Business Outlook Survey– 48.6% of businesses expect an increase in CapEx, highest since 2004 & up from 39.4% in 2013
2. Leading indicators– rising ISM new orders & business confidence
3. Bank lending- C&I demand is increasing with credit standards & pricing relaxing [Previously]
4. Aging capital stock– US structures are the oldest they’ve been since 1964; equipment since 1995; software since 1983 [Previously: The truth about old capital goods]
5. Capex fundamentals– CapEx/sales & CapEx/assets are historically low; market value of assets is high relative to replacement cost
6. Tailwinds– geopolitical uncertainty has ebbed
7. Productivity growth– deceleration in corporate efficiency
[Previously: Durable goods (February 2014) & Waning CapEx is structural]
NYSE margin debt & balances: More unanimous records (February 2014) | Doug Short (dshort.com)
– Gross nominal margin debt (+3.2% @ $466B) kept rising to another alltime high
– Real margin debt also increased to a 3rd-consecutive alltime high in excess of 7/2007′s prior record
– Net margin balances (-$177.5B debit) still reaching alltime lows, shattering even the Tech Bubble’s former record (-$123B) and crushing 2007 & 2011 pre-correction lows
[Incredible margin boom continues despite $SPX’s January/February 7%+ drawdown; March’s data will be interesting, after institutional cash was raised during the geopolitical tension around Russia/Ukraine’s Crimean conflict, then rumors of hedge funds getting margin calls amidst this momo selloff; given margin debt’s unfathomable highs and its historical correlation to SPX, this single variable may cause the market’s first correction since 2011 (19.4% drawdown); I’m watching retail participation in hopes of a handoff, although it’s unlikely to be a smooth transition.]