Diary of a Financier

Top Newsstuffs (August 18-24)

In Bookshelf on Sun 24 Aug 2014 at 06:00

Maine Street…

Macro

Rail traffic weekly (Week 33, 2014) | Association of American Railroads (AAR)
Unheralded rally is waning, settling-in at a 4% trend that suggests the economy is healthier than most people think; coal (38% of total volume) still weighing on overall performance:
Weekly traffic: +0.1pp @ +4.0% yoy
Growth rate: unch @ +4.7% ytd
Carload groups: 9 of 10 posted gains for the week yoy
    Petroleum: +19.5%
    Metals: +11.6
    Minerals: +7.4
    Grain: +7.1
    Motor vehicles/parts: +4.9
    Coal: -3.3
#Bullish $XLE $USO $XME $DBA $XLI

Inflation: Consumer Price Index (July 2014) | Bureau of Labor Statistics (BLS)
No surprises this month, keeping inflation in-line with Fed’s 2.0% target:
Headline CPI: -0.1pp @ +2.0% yoy, +0.1% mom (meets expectations); led higher by rents (primary +3.3% & OER +2.7% yoy, highest since 2009 & 08 respectively)
Core CPI (ex food & energy): unch @ +1.9 yoy, +0.1 mom (misses +0.2e)

US Treasuries: Yield curve & spreads | Tyler Durden (ZeroHedge)
Treasury curve continues to flatten with spreads hitting new postcrisis lows, calling the recovery into questions with sneaking fears of inversion (a harbinger to recession); the flattening curve makes net interest margin (NIM) difficult for banks:
5s30s: 151bps spread; flattest since 1/2009; half of peak steepness at YE2010
[Previously: 30y yield collapses to 9-month low as curve flattens & The bond market is wrong]
$FVX $TYX $IEI $TLT $TNX

US income & household formation by age & race/ethnicity | Doug Short (dshort, Advisor Perspectives)
In aggregate, household formation and incomes show stagnation since 2000, but more nuanced data by age group show severe retrenchment among prime working age cohorts (18-64), while baby boomers (65+) are thriving:
Median household incomes:Real median household income & household formation (by age group, 2009-14)
    Nominal growth: +32.1% since 2000; +3.9% since 2008 @ $53,891
    Real growth: -5.9% since 2000; -6.5% since 2009
Household formation (by age):
    Total: +4.6% since 2009
    25-34 (Echo Boom): +3.0%
    45-54: -5.2%
    65-74 (Baby Boomers): +26.7%
Population growth: +3.7% since 2009
Income data are also divergent when organized by race/ethnicity, with whites (-2.6% since 2009) relatively buoyant compared to minorities (Hispanics/blacks -7.7%).
[Previously: Demographics changing the American landscape & Data says you can’t blame boomers for labor force participation]
#Demographics #Secular bear market #Income inequality #Wealth gap

Speech: Labor Market Dynamics & Monetary Policy (Jackson Hole, WY 2014.08.22) | Janet Yellen (Chairwoman, Federal Reserve)
Yellen rationalizes stagnant postcrisis incomes, suggesting the labor market is stronger than data appears and wage growth is coming — proximity that contradicts the Fed’s recent econometric NAIRU @ 5.2 – 5.5% headline unemployment rate (vs 6.1% current):
“The recent behavior of both nominal and real wages point to weaker labor market conditions than would be indicated by the current unemployment rate… [but] three reasons why we should be cautious in drawing such a conclusion”:
1. Pent-up wage deflation: during recessions, employers face “downward nominal wage rigidity” that prevents them from lowering compensation, so wage growth during today’s recovery has been below trend to even-out the downturn’s excess
2. Cyclical & secular trend convergence: the cyclical recession combine with technology & globalization have suppressed real wages relative to productivity gains
3. Structural dislocations: due to the severity of the Great Recession, the stigma of long term unemployment impedes the excess labor supply’s reabsorption and bargaining leverage
[See also: Yellen says unemployment rate overstates improvement in labor market; Previously: Let’s not worry about inflation until we reach full employment]
#Data rationalization #Subjective #Anecdotal #Nuance

Sentiment

Investor sentiment survey (2014.08.20) | American Association of Individual Investors (AAII)
Sentiment swings into extreme levels indicative of exuberance; hard to imagine that bull/bear ratio was 0.80 only 2 weeks ago:
Bull/Bear ratio: +47bps @ 1.94 vs 1.28 historical average & 1.8 extreme high
Bullish: +6.3pp wow @ 46.1% vs 39.0 avg & 45 extreme high
Bearish: -3.3pp @ 23.7 vs 30.5 avg & 25 extreme low
Neutral: -3.0pp @ 30.2 vs 30.5 avg
Measures respondents’ expectation for equity performance over next 6 months (through 2/2015).
[Previously: Fund managers’ exposures nearing extreme levels, Retail asset allocations remain neutral & Margin debt back near alltime highs]
#Bearish #Contrarian #Procyclical

Interests

The “Hype Cycle” for emerging technologies (2014) | Gartner
Provides “an assessment of the maturity, business benefit, and future direction of more than 2,000 technologies, grouped into 98 areas.”
Estimates time in years before full productivity is reached, and charts the progress of along each’s life cycle:The hype cycle for emerging technologies 2014
Innovation: bioacoustic sensing, brain-computer interface, quantum computing, volumetric/holographic displays, smart robots
Peak expectations: autonomous vehicles, internet of things, wearables, consumer 3D printing, cryptocurrencies (e.g. Bitcoin)
Disillusionment: big data, gamification, augmented reality, mobile health monitoring, cloud computing, near field communication (e.g. Bluetooth), virtual reality
Enlightenment: gesture control (e.g. Kinect), activity streams (e.g. Facebook), enterprise 3D printing, 3D scanners
Productivity: Speech recognition
[Previously: The technology revelation]
#Tech 2.0

Electronic mail: Still the best thing on the internet | The Atlantic
Despite all the tech startups aimed at replacing or killing email, it’s still the web’s greatest tool.
Email is not dying; at most its innovative services are just being unbundled and optimized, but there’s value in a consolidated, yet decentralized platform that aggregates so much functionality:
1. Newsfeed: Email serves as an aggregator for media consumption
2. Passport/identity: an ID to verify accounts
3. Social communication: a primary means of private social interaction (especially for professionals), as opposed to public forums like chatrooms & message boards
4. Delivery & storage: for shipping & saving digital content
#Can’t fix what’s not broken #Simple is better

Solar power boom drives global panel shortage | Bloomberg
After 2012-13’s global glut, a demand surge has caused the biggest photovoltaic (PV) supply shortage since 2006:
Installations: +29% yoy @ 52GW FY14e; +17% @ 61GW FY15e
Production capacity: 59GW currently (70GW including outdated/obsolete manufacturers)
Benefits: manufacturers & large-scale ($ASYS $FSLR $TSL $YGE)
Threatens: small-scale ($SCTY, who recently bought a supplier)
$TAN

US corporate tax burden not as bad as it looks | Andrew Ross Sorkin (Dealbook)
Research by Professor Ed Kleinbard (USC) says US corporate taxes don’t hurt domestic companies’ international competitiveness; effective tax rates paid are far cheaper than the nominal tax code due to loopholes and deductions:
– Nominal tax rate: 35% vs 24.1% OECD average
Effective tax rate: 12.6%
The wave of tax inversions have been driven by corporate cash stockpiles abroad ($2T), so maybe a repatriation holiday is a better solution?  Small businesses still shoulder an asymmetric share.
[Previously: Obama’s bipartisan jobs bill & The truth about US taxes]
#Multinationals #Conglomerates #Globalization

–Romeo

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