Diary of a Financier

Top Newsstuffs (August 4-10)

In Bookshelf on Sun 10 Aug 2014 at 06:15

The best news, views, and data from the week that was…

Macro

Rail traffic weekly | Association of American Railroads (AAR)
Unheralded rally continues, suggesting economy is healthier than most people think; I’d expect moderation in trend growth this quarter after pent-up demand surge in Q2, but watch Q3 inventory levels if this persists:
Weekly traffic: +2pp @ +5.8% yoy
Growth ytd: unch @ +4.7%
Carload groups: 9 of 10 posted gains for the week yoy
    Petroleum: +24.3%
    Grain: +22.1
    Motor vehicles/parts: +14.6
    Metals: +9.9
#Bullish $XLE $USO $DBA $XLI $XME

Credit

Senior loan officer survey (2014q2) | Federal Reserve (Fed)
“Continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand”; combine with some recent carnage in $HYG $JNK, this appears to be a deleveraging corporate sector’s handoff to a releveraging household sector/real economy (as expected):
Commercial & Industrial Loans (C&I): demand absolutely surging; lending standards remain loose, but moderating; credit spreads still extremely tight
Commercial Real Estate (CRE/CMBS): demand stays strong after Q1’s alltime highs; lending standards remain loose except for construction/development, which is tightening from record lows
Residential mortgages (RRE/RMBS): demand spiked with Prime near alltime highs last seen in 2013q3; lending standards absolutely plunged, more than unwinding Q1’s tightening, especially for Prime with Alt-A & Subprime relatively unchanged
Consumer loans: demand increasing for all categories (credit card/auto loans/other); lending standards remain slightly loose
Data measures qoq change in credit demand, spreads, and lending standards.
[Previously: Renewed subprime bubble in auto loans]
#Bullish #Credit expansion #Credit cycle $MBB $AGZ $XLF

Quant/Fundamental

Quant study: S&P 500 long term regression & standard deviation (inflation-adjusted, 1871-2014) | Doug Short (dshort)
$SPX currently trading over 2σ from its long term trend, historically the threshhold of excess before a bear market:
– Mean: +1.75% (average annual real return)
Standard deviation: ±40.52%
Variances:
    Currently: +86%, return to trend is -45% @ 1057
    Panic of 1907: +85%
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
#Bearish #Mean reversion #Secular

Corporate debt: Companies have more than releveraged | Brett Arends (MarketWatch)
Despite deleveraging after the credit crisis, corporations have added more relative & absolute leverage than before the crisis; however, this data makes for an insignificant comparison since it includes only nonfinancial companies, and banks are currently delevered, whereas they were the greatest contributor to the precrisis debt supercycle:
2007: $7.2T gross debt; 40% average debt/equity
Today: $9.6T gross debt; 50% average debt/equity
[Previously: Credit expansion handoff coming as corporations deleverage & households releverage & Widening of credit spreads to impact stocks]
#Basel III #Credit cycle

Quant study: Selloffs from 52-week highs | Dana Lyons (J. Lyons Fund Management)
Analyzes $SPX subsequent performance after a minimum 2% daily decline from within 1% of a 52-week high; beyond the short term (> 1 month), the recovery has been significant, although the data have been inverted in all 5 occurrences since 2000, with ST outperformance giving-way to underperformance in the 3wk – 6mo timeframe:
Sample size: 22 occurrences (1950-2014)
Average subsequent performance:
    T+2wk:  -0.28% (-64bp underperformance vs. average market)
    T+2mo:  +2.70% (+154bps outperformance)
    T+6mo:  +6.85% (+332bps outperformance)
[Previously: Complete guide to bull & bear markets & The secular bull market]
#Bullish? #Brown noise?

Sentiment

Asset allocation survey (2014.07) | American Association of Individual Investors (AAII)
All asset class allocations remain near average levels, although cash is still hated:
– Stocks: +0.5pp @ 67.5% vs 60% average, 70% extreme high; above average for 16th consecutive month (longest post-crisis streak), but still below extreme
Bonds: +0.7pp @ 16.7% vs 16% avg, 10% extreme low; highest since 1/2014
Cash: -1.3pp @ 15.8% vs 24% avg, 15% extreme low; below avg for 32 consecutive months & nearing 15% low-end extreme
#Neutral

Investor sentiment survey (2014.08.06) | American Association of Individual Investors (AAII)
Contrarian buy signal with bulls still far below average and bears spiking; the large Neutral cohort has finally declined to normal levels:
– Bull/Bear ratio: -20bps @ 0.80 vs 1.28 avg
– Bullish: -0.2pp wow @ 30.9% vs 39.0 historical avg & 45 extreme high
– Bearish: +7.1pp @ 38.2 vs 30.5 LT avg & 25 extreme low; 18.5 postcrisis low in January
– Neutral: -6.9pp @ 30.9 vs 30.5 LT average; back within 1σ above mean
Measures respondents’ expectation for equity performance over next 6 months (through 2/2015).
#Bullish! #Contrarian

US quarterly refunding & fiscal report (2014q2) | Treasury Borrowing Advisory Committee (TBAC)
The banking industry’s advisory committee to the US Treasury issues a loud warning:
“Suppression of yield and vol induces investors to take on more risk (QE III). The market clings to perception of certainty regarding outcomes, despite the Fed shifting commitment modes from time or level-based to data dependent. This stage of policy should eventually lead to increased uncertainty and risk.”
Conclusions:
1. Monetary policy (QE/ZIRP) and regulatory changes (Dodd-Frank) have contributed to the decline in volatility
2. Less demand for volatility across asset classes naturally lowers the price for vol insurance ($VIX)
3. VAR-based analysis leads to self-reinforcing loops as low vol causes models to recommend scaling-up risk
4. The term structure of volatility is a powerful indicator: flatter vol curves would suggest excessive complacency and presage increasing risk
5. Volatility tends to rise mid-to-late stage of the business cycle as expansive endeavors increase through the system
6. An unexpected increase in volatility might come from broad-based selling of assets wanting to de-risk in front of a turn in Fed policy (e.g. crowding-out just before QE tapering turns into rising Fed Funds Rate)
7. With liquidity providers having declined in number and capacity, the system is less able to deal with such episodes of higher volatility; institutions which deliver absolute returns or provide liquidity to the system would be most at risk (e.g. Shadow Banks/MMFs)
[See also: The Supercommittee that really runs America]
#Complacency #Unintended consequences #Self-serving bias?

Interests

Wireless charging technology is now a reality | Business Insider
Meredith Perry started a company called “uBeam,” which is about to raise a Series A after being funded by Andreessen Horowitz & Marissa Myer in 2011:
“uBeam converts electricity to sound and sends it through the air over ultrasound. A receiver catches the waves and converts it back to electricity to power up devices in the room.”
#Startup #Venture Capital #VC #Cut the cord

Movie: Numbers | Robert Hoiz
Short indie film about Nick, a young man who sees numbers floating above people’s heads. He doesn’t know exactly what the numbers mean, although he can sense some patterns.
Eventually, he encounters a woman, Mia, with the same ability. Mia’s powers are honed, and she helps Nick understand — and come to terms with — his own.
[See also: Numbers explained]
#SciFi #Existential #Fate #Determinism #Romance

–Romeo

Advertisements
  1. […] are the only class not at pre-crisis levels, although they continue to recede [Previously: Senior loan officer survey shows household releveraging, corporate deleveraging & Renewed subprime bubble in car loans] […]

  2. […] prior records from 2000, 2007 & 2011 [Previously: US household debt/credit report, Senior loan officer survey & Renewed subprime bubble in auto loans] #Bearish #Latent […]

  3. […] is the only country in the world with 30y term mortgages & minimal down-payments. [Previously: Senior loan officer survey shows loosening for Prime to meet demand; See also: Mortgage credit is only too tight for less qualified buyers] $MBB $AGZ #MBS #Alt-A […]

  4. […] crushes prior records from 2000, 2007 & 2011 [Previously: US household debt/credit report, Senior loan officer survey & Renewed subprime bubble in auto loans] #Bearish #Latent […]

Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s