Diary of a Financier

Top Newsstuffs (June 30 – July 6)

In Bookshelf on Sun 6 Jul 2014 at 06:20

Fireworks and hurricanes; sounds like the sequel to Sharknado

Macro

Purchasing Managers Index (June 2014): “Business is booming” | Markit Economics
Global Manufacturing PMI: +0.6 @ 52.7, accelerates higher into expansion
Australia: -0.3 @ 48.9, still struggling after YE13 crash
Japan: +1.6 @ 51.6, resumes expansion for first time after March’s crash from the sales tax increase
China: official +0.2 @ 51.0, edged higher again; unofficial +1.3 @ 50.7, continues recovery from March collapse
Rest of Asia: mixed bag
    South Korea: -1.1 @ 48.4
    Taiwan: +1.6 @ 54.0
    India: +0.1 @ 51.15
Eurozone: -0.4 @ 51.8, decelerates to a 7-month low
    Germany: -0.3 @ 52.0
    Italy: -0.6 @ 52.6
    France: -1.4 @ 48.2
    Spain: +1.7 @ 54.6
UK: +0.5 @ 57.5, stays a global leader for unprecedented 16th month
Brazil: -0.1 @ 48.7, remains in contraction
US ISM: -0.1 @ 55.3 v 55.9e, remains strong
    New orders: +2.0 @ 58.9
    Production: -1.0 @ 60.0
    Inventories: unch @ 53.0
    Deliveries: -1.3 @ 51.9
    Exports: -2.0 @ 54.5
    Employment: unch @ 52.8
[US PMI accelerated too: “Business was booming in US… We therefore expect GDP to rise at annualised rate in excess of 3%… Export performance, however, remains a real disappointment, and trade will likely act as a drag on the economy again in the second quarter. If worries about tighter policy from the Fed start to dampen domestic demand at the same time as exporters are struggling, growth could slow again in the second half of the year.” See also: US ISM Non-manufacturing (Services) -0.3 @ 56.0]
#Bullish

Rail traffic weekly: Impressive acceleration | Association of American Railroads (AAR)
Weekly traffic: +6.2% y/y
Growth ytd: +0.1pp @ +4.5%
Carload groups: 10 of 10 posted gains; petroleum +18.5%, grain +12.9%, minerals +10.7, motor vehicles/parts +8.1, metals +7.6
[12th consecutive week prolongs an unheralded rally.]
#Bullish! $XLE $USO $DBA $XME

Janet Yellen: Game on! | The Upshot
Fed Chairwoman Yellen is not concerned primarily with the presence or absence of bubbles, but rather with how those booms and busts will affect the real economy:
“She believes that it would most likely be a bad idea to raise interest rates to fight financial excesses. Her focus, crucially, is not on preventing Wall Street from having ups and downs, but on making sure that those ups and downs don’t bring economic disaster… Because a resilient financial system can withstand unexpected developments.”
#Antifragile

Sentiment

NYSE margin debt & balances: Another welcome decline (May 2014) | Doug Short (dshort.com)
– Nominal margin debt (+0.3% @ $438.5B) ticks up slightly after a 2-month decline from February’s alltime high
– Real margin debt kept declining, although it’s still in excess of 3/2000 & 7/2007′s highs
– Net margin balances (-$155B debit) also reversed a multi-month reversion off alltime lows, but they’re still shattering prior records from 2000, 2007 & 2011
[SPX didn’t crash until 3-5 months after real margin debt peaked in 2000 & 07, at which time margin levels had already receded.]
#Bearish #Latent indicator

Investor sentiment survey: Volatile swing back down to norms (July 2, 2014) | American Association of Individual Investors (AAII)
Respondents’ expectation for equity performance over next 6 months (through 12/2014):
– Bullish: +1.3pp w/w @ 38.5% vs 39.0 historical avg & 45 extreme high
– Bearish: +1.3pp @ 22.4 vs 30.5 LT avg & 25 extreme low; 18.5 postcrisis low in January
Neutral: +2.6pp @ 39.1 vs 30.5 LT average; remains 1σ above mean
– Bull/Bear ratio: @ 1.72 vs 1.28 avg
[Bears remain at extreme lows, but a persistently large Neutral cohort keeps Bulls at norm.]
#Neutral

Asset allocation survey: More moderation (June 2014) | American Association of Individual Investors (AAII)
– Stock allocations: +1.7pp @ 67.0%, above 60% LT avg for 15th consecutive month (longest post-crisis streak), but nearing 70% historical extreme
Bonds: +0.5pp @ 16.0%, right at 16% avg & nowhere near 10% low-end extreme
Cash: -2.1pp @ 17.1%, below 24% avg for 31 consecutive months & nearing 15% low-end extreme
#Neutral

Quant/Fundamental

Quant study: S&P 500 long term regression & standard deviation (1871-2014) | Doug Short (dshort)
$SPX’s LT average annual real return is +1.75% & standard deviation 40.52%:
Currently: +84% (deviation from trend)
– Panic of 1907: +85
Great Depression: +81
Tech Bubble: +149
Great Recession: +88
[Chart shows that in 21 years during the Great Moderation (since 1980s), corrections merely return to the trend, whereas bear markets after excesses (>2 sigmas) always snapped-back with corresponding corrections (<1 sigma).]
#Bearish #Mean reversion

Performance update: Major asset classes, styles, countries & regions (2014q2 & H1) | Bespoke Investment Group (BIG)
Major ETFs’ wtd/mtd/ytd returns:
US equities: $SPY +5.97%; Large & Mid Caps > Small Caps; Value > Growth
US sectors: leaders $XLU $XLE $XLV; laggers $XLY $IYZ $XLI $XLP
International equity: leaders $INP $EWI $EWC; laggers $RSX $FXI $EWG $EWJ
Global equity: leaders $SPY $EEM; lagger $EFA
Bonds: $AGG +2.79%; leaders $TLT
Commodities: $DBC +3.6%; leaders $UNG $USO $GLD

Interests

The world’s most ambitious Artificial Intelligence project | Business Insider
Cycorp has been operating in near-secrecy since 1984 with the mission to “codify general human knowledge and common sense so that computers might make use of it… by using a consistent language to build a model of the world.”
Unlike modern AI robots & virtual assistants like Apple’s
Siri or IBM’s Watson, this product, “Cyc,” is taught, not programmed.
#Machine Learning

–Romeo

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  1. […] debt: Every data permutation (nominal/real & gross/net) indicates that margin levels remain at extreme levels despite the stock market’s choppy start to the […]

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