Diary of a Financier

Top Newsstuffs (July 21-27)

In Bookshelf on Sun 27 Jul 2014 at 05:55

Top news and view from the week that was…

Macro

Manufacturers’ durable & capital goods (June 2014) | US Department of Commerce
Beats tarnished by big downward revisions for May (e.g. core capex from +0.7 to -1.2 mom); finally a healthy flow-through from increased orders to accelerating shipments, but inventories still rising:
– Core durable goods (ex-transportation)
    Orders: +3.9% yoy, +0.7% mom (beat +0.5e)
    Shipments: +4.2, -0.1
– Core capex (nondefense, ex-aircraft capital goods)
    Orders: +2.7, +1.4 (beat +0.5e)
    Shipments: +3.2, -1.0
– Inventory
    Inventories: +5.8, +0.4 @ $399.7B SA
[See also: Full report]
#Neutral

Inflation: Consumer Price Index (June 2014) | Bureau of Labor Statistics (BLS)
Good report given the rising concerns about inflation:
Headline CPI: +2.1% yoy, +0.2% mom (meets expectations); gas +3.3% responsible for 2/3rds of increase
Core CPI (ex food & energy): +1.9, +0.1 (misses +0.2e); rate decelerated m/m (+0.3 in May)

Rail traffic weekly | Association of American Railroads (AAR)
Another acceleration in an unheralded rally; autoparts surge continues to prove it’s real:
Weekly traffic: +6.7% yoy
Growth ytd: +0.1pp @ +4.7%
Carload groups: 9 of 10 posted gains; motor vehicles/parts +46%, grain +27.4, petroleum +25.3; coal -0.4
#Bullish! $DBA $XLE $USO $XME

Fed tapering is now tightening | David Kotok (Cumberland Advisors)
“In July, August, September, and October of this year, for the first time, the net issuance of US government securities [Treasuries] will exceed the absorption by the Fed [QEs] as it tapers… That shift is a tightening… it is clear that, in the absence of some extreme reaction, they are going to sustain this path.”
QE tapering is scheduled to conclude at YE14 when POMOs reach zero monthly; ZIRP ending sometime in 2015.
[Important to note that they’ll unwind or rewind any policy moves if necessary. Fed communications have insisted “tapering is not tightening.”]
#Taper tantrum

Credit

A renewed subprime credit bubble in used cars | DealBook (The New York Times)
Subprime auto loans with underwriters fudging borrowers’ income & charging usurous rates are re-emerging. Data:Auto loan originations (2006-13)
Auto loans outstanding: $859.6B; highest since 2005; 49% of all non-mortgage consumer credit
Auto loan originations: +14.7% yoy @ $145.6B in 2014q1
Subprime auto loans: $29B or 27% of 2013 originations; both highest share & gross amount since 2006 (36%)
[I had picked-up on signs of subprime froth in auto loans & mortgages in 2014q3, but data since has indicated both tightening lending standards & softening demand. See also: Automotive equity basket & Really old durable goods (autos don’t qualify)]
#Liar loans #NINJA loans #Usury

Sentiment

Investor sentiment survey: Back down to norms (July 23, 2014) | American Association of Individual Investors (AAII)
Bulls plummeting these last 2 weeks; the large Neutral cohort still swelling:
– Bull/Bear ratio: -0.40 @ 0.73 vs 1.28 avg
– Bullish: -2.7pp w/w @ 29.6% vs 39.0 historical avg & 45 extreme high
– Bearish: +1.5pp @ 29.9 vs 30.5 LT avg & 25 extreme low; 18.5 postcrisis low in January
Neutral: +1.3pp @ 40.4 vs 30.5 LT average; back within 1σ above mean
Measures respondents’ expectation for equity performance over next 6 months (through 1/2015).
#Bullish! #Contrarian

Fundamental/Quant

Europe: The fundamental case for bulls | The New York Times (NYT)
Bull arguments for buying European equities:
1. ECB is still easing: Draghi committed to throwing-in the kitchen sink, while the Fed is withdrawing US stimulus
2. Valuations: European PE @ 23% discount to US vs. 12% historical average
3. Earnings growth: Europe +10.2% vs US +7.8% (FY14e EPS growth)
4. Profits & net margins: Europe 40% below 2007 peak vs. US at alltime highs
[…except Europe’s LT growth is weaker due to poor population demographics. Nevertheless, has long Europe become a contrarian play again? Disclosure: long $HEDJ $IDV $VLKAY $YRAIF]
$EZU $FEZ

Interests

Master Limited Partnerships: Governance structure puts creditors & shareholders at risk | Moody’s
Downgrades entire MLP sector on structural negatives:
“At public companies, accountability to shareholders is a net plus for bondholders, even when bondholder & shareholder interests differ; by contrast, in the MLP model, the general partner’s (GP) limited accountability to the partnership’s actual owners — the common unitholders (LPs) — is a disadvantage for the MLP’s bondholders.”
[Previously: Misincentives & Financial product innovation]
$AMLP #Credit Ratings Agency

Crowdfunding: The complete guide | High Net Worth Magazine (HNW)
Some lessons about capital raises:
1. Avoid financiers: Angel investors/VCs/traditional finance often kill innovation when financial concerns meddle in business operations
2. Find like-minded souls: Use partners who believe in you, your vision, and extra-financial incentives
3. Focus products on a niche: Serve a specific need; solve one problem; your core product should have a homogenous identity to help clients & investors understand it
Advice for the crowdfunding process:
1. What’s the purpose: Why are you raising capital & why are you crowdfunding it (as opposed to other methods)?
2. Focus on the human element: Don’t dwell on the dollars; connect with investors & consumers by focusing on you, your product & the problem it solves
3. Don’t get wordy: A picture is worth 1000 words; don’t write what a picture can illustrate
4. Work all avenues: Search for loose change under every couch cushion
    i. Friends & family: Bootstrap before/during/after a crowdfund to drive traffic to your crowdfunding page, refine your pitch, spread-the-word & network
    ii. Social media: Repeatedly blast out your pitch & links via Twitter, Facebook & LinkedIn; most potential investors will use all the time before a deadline to consider an investment, so they often need reminders
5. Be persistent: Continuing to re-post a crowdfunding request (and social media) raises awareness & is free marketing
6. Have a plan: Write down your ideas & use checklists
#Entrepreneur #Startup #Venture capital #Seed #Fundraising

Natural solutions emerging to keep food fresher longer | Business Insider
New innovations replace chemical preservatives that’re normally used in perishable foodstuffs:
1. Edibile films: essential oils released by packaging interact with food to prevent spoilage (e.g. “active packaging” prevents moldy bread)
2. Zapping: 10 second high-energy waves sterilize food without heating it

Infographic: The running tab for the global financial crisis | The Wall Street Journal (WSJ)
Bank fines & legal settlements related to 2008’s credit crisis, including mortgage, foreclosure & legacy merger/bailout lawsuits:Fines paid by banks for global financial crisis misdeeds
1. Bank of America ($BAC): $56.01B
2. JP Morgan ($JPM): $27.09B
3. Wells Fargo ($WFC): $9.9B
4. Citigroup ($C): $4.74B
5. Morgan Stanley ($MS): $1.63B
6. Goldman Sachs ($GS): $0.88B
[Seriously, how does GS get-away with that?]
$XLF #Moral hazard #Too Big To Fail (TBTF)

–Romeo

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