Diary of a Financier

Top Newsstuffs (May 19-25)

In Bookshelf on Sun 25 May 2014 at 05:25

Mountain man…

Video interview: Tim Geithner (former US Treasury Secretary) | Jon Stewart (The Daily Show)
Fantastic debate regarding the bailouts, banking, and derivatives, in which Stewart somewhat grills Geithner on the efficacy of the US government/taxpayers rescuing banksters — the “only” means of saving jobs & homeowners, according to Geithner.
[Too bad Geithner is a horrible debator.  IMHO, this debate only highlights the public’s ignorance & misunderstanding of the banking system, which is unfortunately a structural lynchpin. Frankly, the banking system needed to be saved to avoid a Depressionary, systemic collapse in the real economy, and penance is slowly being paid — albeit too meagre.  Main Street benefitted not only relative to the opportunity cost of inaction, but also absolutely (e.g. ZIRP/QE mortgage refinancing reduces households’ fixed costs).  That said, after emergency measures were implemented, regulators failed to replace them with more thoughtful interventions.  For example, FDIC banks should be utilities, and fiscal stimulus would’ve been more powerful for benefitting the real economy without Wall Street skimming from the trickle-down.  See also: Geithner’s Stress Test book failure; Previously: The bailouts’ counterfactual counterfactual]
#Moral hazard #Regulatory capture

A complete guide to Shiller Cyclically Adjusted Price-to-Earnings ratio | Josh Brown (The Reformed Broker)
Today’s CAPE: 25x vs 16x historical average
Forward 5y returns, historical average:
24-25x multiple → +4.3% annualized
25-26x multiple → +2.7% ”
TRB gives 7 reasons why we shouldn’t be so alarmed.
[Previously: “CAPE has no merit as a timing mechanism within 24 months’ latency”]
#Contrarian #Noise

Investor sentiment survey: Expecting a sideways market (May 21, 2014) | American Association of Individual Investors (AAII)
Respondents’ expectation for equity performance over next 6 months (through 11/2014):
– Bullish: -2.7pp w/w @ 30.4% vs 39.0 historical avg & 45 extreme high
– Bearish: +3.8pp @ 26.4 vs 30.5 LT avg & 25 extreme low; 18.5 postcrisis low in January
Neutral: -1.1pp @ 43.2 vs 30.5 LT average; remains 1σ above mean
– Bull/Bear ratio: @ 1.15 vs 1.28 avg
[Retail investors capitulated during the momo drawdown & the persistently large “neutral” cohort indicates uncertainty or an expectation of consolidation.]
#Neutral

Rail traffic weekly: Unfathomable acceleration continues | Association of American Railroads (AAR)
Weekly traffic: +5.6% y/y
Growth ytd: +0.3pp @ +4.0%
Carload groups: 8 of 10 posted gains, including grain +37.6%, forestry +7.6, motor vehicles +7.3, petroleum +7.1; chemicals -0.2
[6th consecutive week prolongs rally after tough winter weather throughout Q1; nobody’s talking about the acceleration of this important leading indicator.]
#Bullish! $DBA $XLE $USO $UNG

Book: The Great Depression: A Diary (1931-40) | Benjamin Roth
Author kept a diary of short thoughts & notes throughout the Great Depression.  He continually references the value of having cash in the bank for businesses’ balance sheets and investors’ allocations:
– December 1931: “It is generally believed that good stocks and bonds can now be bought at very attractive prices. The difficulty is that nobody has the cash to buy.”
– August 1936: “This depression has indelibly impressed on my mind one thing, and that is the value of having on hand sufficient capital to cover emergencies. My experience as a lawyer shows that a large proportion of business failures are caused by lack of capital rather than by lack of technical business knowledge.”
[“That cash you’re holding today is the raw material of tomorrow’s superior returns.” –Arnold Van Den Berg]
#Entrepreneur #Cash

Quant screen: Deep value reappears in Japanese stock market | Societe Generale
With most of global equities at “uncomfortably high valuation multiples,” SocGen’s proprietary screen shows Japan as not only deep value, but also the cheapest developed market:
“With the Nikkei ($NK225) -14% from its peak at the beginning of the year while other indices are hitting all time highs… the only developed market region seeing value emerge is Japan. Throw in the potential for more central bank action in response to the lacklustre impact of Abenomics’ arrows and a Yen-hedged foray back into Japanese equities may be the better choice than simply continuing to pay over for odds for more expensive US and European equity names.”
[Previously: Japanese technical breakout to resume]
$DXJ $EWJ $FXY $JPY

Video: Norm MacDonald’s “Moth Joke” | The Conan O’Brien Show (TBS)
They’re calling it the “funniest joke ever told.”
#Humor #Laugh a little

The true meaning of Sir John Templeton’s “This Time is [not] different” | Barry Ritholtz (The Big Picture)
People love to say “this time is never different,” but you have to ignore your own biases by looking at things in context:
e.g. Today’s $SPX PE is 17.35 vs 17.34 in 2007, but inflation (CPI) is currently 1.5% vs 2.8%.
[That’s why I prefer PEG ratios to PE. Previously: The folly of single variable analysis]
#Multifactor

Picture of the week:

A master of origami at MIT created this impression of the school's seal from a single, uncut sheet of paper.

Origami: A scholar & a blacksmith | Brian Chan (Origami Master, MIT)
A master of origami at MIT created this impression of the school’s seal from a single, uncut sheet of paper.

–Romeo

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  1. […] – Real GDP (2011-13): revised from +2.2% to +2.0% [Previously: Japan's growth strategy & Japan quantitatively/technically bullish] […]

  2. […] yield – bond yield) [Previously: SPX’s substantial return after fair value & CAPE and valuations in context] #Bullish #There Is No Alternative $SPY $IWM […]

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