Diary of a Financier

Top Newsstuffs (September 8-14)

In Bookshelf on Sun 14 Sep 2014 at 06:44

Top reads from the week that was…

Macro

Rail traffic weekly (Week 36, 2014) | Association of American Railroads (AAR)
Rally continues to wane, settling-in at a healthy +3% trend; volumes are comp-ing off a reasonably high base from 2013, which will get more difficult over next 2 weeks, particularly for autoparts, which collapsed this week; coal (38% of total volume) still weighing on overall performance:
Weekly traffic: +0.4pp @ +3.5% yoy
Growth rate: -0.1 @ +4.5% ytd
Carload groups: 9 of 10 posted gains for the week yoy
    Petroleum: +31.1%
    Minerals: +13.1
    Metals: +8.5
    Farm products: +7.0
    Chemicals: +5.8
    Motor vehicles/parts: +3.4
    Coal: -5.4
#Bullish $XLE $USO $XME $DBA $XLI

Retail sales (August 2014) | US Government Census
Sales beat expectations, resuming their healthy trend from a strong Q2, despite nice upward revisions:
Headline: +5.0% yoy, +0.6 mom (beats +0.4e); prior 2 months revised higher with July from unch to +0.3
Core (ex-autos): +4.1 yoy, +0.3 mom (meets +0.3e); prior month revised higher from +0.1 to +0.3
#Bullish $XLY $XLP

Sentiment

Investor sentiment survey (2014.09.10) | American Association of Individual Investors (AAII)
Sentiment gently descends from extreme levels to historical averages:
Bull/Bear ratio: -34bps @ 1.52 (vs 1.28 historical average & 1.8 extreme high)
Bullish: -4.3pp wow @ 40.4% (vs 39.0 avg & 45 extreme high)
Bearish: +2.6 @ 26.6 (vs 30.5 avg & 25 extreme low)
Neutral: +1.7 @ 33.0 (vs 30.5 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 3/2015).
[Previously: Fund managers’ exposures nearing extreme levels & Margin debt at extreme highs]
#Neutral #Contrarian #Procyclical

Credit

Leverage junk bonds to meet return targets | Citi
Citi’s strategists recommends leveraging high yield fixed income to meet investors’ required rates of return.  This one hits so many bubble indicators including Tortured Rationalizations, Financial Product Innovation, Tight Credit Spreads, Low Volatility, Unintended Consequences, Excess Leverage, etc:
“Investors needing to reach their bogeys in the 10% return range are better off using leverage to buy high-yield bonds rather than Treasuries, stocks, emerging market, or investment grade paper… high yield is less risky than Treasuries [due to both historical backtest & interest rate risk]…
“In HY, traders are increasingly using CDS, allowing them to put less money down than buying the actual debt… outstanding bets on CDS tied to junk bonds have soared to their highest level since at least 2011.”
#Bearish $HYG $BKLN #Duration risk #Exuberance

Interests

Fed Funds Rate: When will rates rise? | Bank of America Merrill Lynch (BAML)
Heading into next week’s FOMC meeting, some key metrics suggest ZIRP will not end until at least 2015h2.
Implied date of first Fed Funds Rate hike:Fed Funds Rate hikes- market implied & policy derived timing
Fed Funds Forward Futures: 2015q3 (but this market-derived forecast has fruitlessly predicted a hike within forward 12 months since 2009)
Taylor rule: 2015q3
Forward inertial policy rule: 2017q1
$IRX $SHV $SHY $SHM $CSJ

Presentation: “Fixed income playbook” (2014q3) | Jeffrey Gundlach (DoubleLine)
Currencies: still bullish $DXY after secular bottom made in 2011; specs can go long $CNY; $USDJPY @ 200 in long term
Bonds: 
    Top pick: $EMB (USD-denominated), which offers better yield per credit rating vs $LQD
    Credit: tactically added to $HYG during 7/2014 selloff; not worried about credit risk, ‘bond leverage was the last crisis, so it will not be the next crisis… be careful fighting the last war.’ [Previously: ‘I’m worried more about liquidity risk than credit in HY’]
Interest rates:
   
10y: in ST, rates will rally due to corporate new issuance calendar (heavy supply); beyond that, he’s agnostic because $TNX @ 2.5% is in the middle of his expected 2.2 – 2.8% range
    30y: $TYX prices having 3rd strongest ytd since 1974 (behind 1984 & 1995); market is implying that long-bond yields will fall when Fed raises rates a la 2004-06 tightening cycle
    Consensus: expectations still say TNX +50bps @ 2.92 by YE14, +100bps @ 3.57 by YE15 — both have been standard expectation since 2011
Fiscal: current budget deficit @ -3% (vs -10% low in 2009) should stay stable until 2019, when QE will have to resume since US Treasury will have to roll maturing Tbonds owned by the Fed with no incremental buyer
Housing: short $XHB; divergence between homeownership rate (plunging) and home prices (surging) is indicative of artificial demand being provided by speculators (i.e. institutional buy-to-rent)

–Romeo

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