Diary of a Financier

Top Newsstuffs (September 15-21)

In Bookshelf on Sun 21 Sep 2014 at 06:02

Top reads from the week that was…

Macro

Rail traffic weekly (Week 37, 2014) | Association of American Railroads (AAR)
Rally continues to wane, settling-in at a healthy +3% trend.
As I mentioned last week, volumes are comp-ing off a reasonably high base from 2013, which will get more difficult over this week & next, particularly for autoparts, which collapsed last week.
Coal (38% of total volume) still weighing on overall performance:
Weekly traffic: -0.4pp @ +3.1% yoy
Growth rate: unch @ +4.5% ytd
Carload groups: 6 of 10 posted gains for the week yoy
    Petroleum: +29.9%
    Minerals: +9.7
    Metals: +6.3
    Forestry: +5.9
    Motor vehicles/parts: +0.2
    Grain: -3.7
    Coal: -3.8
    Farming: -3.9
#Bullish $XLE $USO $XME $DBA $XLI

Inflation: Consumer Price Index (August 2014) | Bureau of Labor Statistics (BLS)
Inflation misses expectations, dipping below Fed’s 2.0% target:
Headline CPI: -0.3pp @ +1.7% yoy, -0.2% mom (misses unch consensus); dragged down by energy -2.6% mom
Core CPI (ex food & energy): -0.2 @ +1.7 yoy, unch mom (misses +0.2e)
#Neutral

Quant/Fundamental

Technicals: S&P 500 record highs despite NASDAQ/Russell 2000 bear markets | Bloomberg
While large caps are at alltime highs, other styles & sectors are in bear markets (-20%); so much for equal-weighted indexing:
S&P 500 ($SPY): 6% of stocks in bear market
Nasdaq Comp ($QQQ): 47% of stocks in bear market
Russell 2000 ($IWM): 40% of stocks in bear market
[Previously: Internal correction sees average stock in bear market]
#Market breadth

Quant study: Secular bull will continue rally, but watch for signs of a market top | Tom Lee (Fundstrat Global Advisors, formerly JP Morgan)
Lee is bullish, with “multiyear gains ahead for US equities”:
1. Pent-up demand
2. Delevered balance sheets: household, corporate & banks have deleveraged [Counterpoint: corporations have more than fully releveraged]
3. Stocks’ relative value: “There is no alternative (TINA)”
4. Low investor confidence
Watch for these signals of a top that historically precede a bubble burst:
1. Investment/GDP¹: currently 23% vs 28% extreme ($800B difference)
2. Corporate profit growth: SPX EPS average +53% growth from prior peak (@ $141 EPS)
3. Yield curve inversion: 10s30s invert (spread currently +75bps)
4. Relative valuations: SPX earnings yield falls -130bps under normalized bond yields (currently +300bps)
[Previously: The complete guide to corrections/bull/bear markets & Bubble checklist]

Sentiment

Investor sentiment survey (2014.09.17) | American Association of Individual Investors (AAII)
Sentiment gently bounces back into extreme levels:
Bull/Bear ratio: +31bps @ 1.83 (vs 1.28 historical average & 1.8 extreme high)
Bullish: +1.9pp wow @ 42.2% (vs 39.0 avg & 45 extreme high)
Bearish: -3.6 @ 23.0 (vs 30.5 avg & 25 extreme low)
Neutral: +1.8 @ 34.8 (vs 30.5 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 3/2015).
[Previously: Margin debt at extreme highs]
#Bearish #Contrarian #Procyclical

Global fund manager allocation survey (September 2014) | Bank of America Merrill Lynch (BAML)
Bonds & cash reach extremes, but equity allocations still modest.
Net portfolio positioning of global PMs (60/30/10 benchmark):
Equity: +3pp @ +47% net (vs +55% extreme)
Bonds: -2 @ -60 (at -60 extreme)
Cash: -0.5 @ +4.6 (near 4.5 extreme)
Europe: +5 @ +18; bounces after July’s crash from a postcrisis record @ 35
#Neutral

Interests

How quitting my corporate job for my startup dream fucked-up my life (at first) | Medium
Even though he succeeded after 2 years, this founder wasn’t prepared for the misery of his startup, and he offers some truth about entrepreneurship that’s often lost in Survivorship Biases:
1. You can’t care about what others think: The social pressure from friends & family is intense, because you’re alienated from non-entrepreneurs who don’t understand your lifestyle
2. Be single or have an extremely supportive partner: The commitment to your startup monopolizes your time & attention
3. Have 3 years’ worth of cash flow saved: Hidden costs like accountants & lawyers burn cash faster than anyone’s business plan, requiring austerity from your personal life
4. Prepare for no sleep: Painful days, sleepless nights, constant rejection & failure
5. Define success before you start: Is your goal monetary or work/life balance?

Mobile payments: The opportunity among “unbanked” consumers | Re/code
Some data regarding the market for mobile banking, focusing on “unbanked” people who don’t have access to a bank account or debit/credit cards:
Unbanked Americans: 22% of population (68mm adults) vs 90% with mobile phones
Unbanked global: 35% of population (2.5B adults) vs 85% with mobile phones
[In light of Apple Pay announcement with iPhone 6.]
#Money under the mattress #Startup #Entrepreneur #Peer-to-Peer (P2P)

–Romeo

¹Investment = CapEx + durable goods + construction spending

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  1. […] been monitoring the internal correction, which has Small Caps ($IWM) -2.5% ytd with the average stock in the Russell 3000 ($IWV) in a […]

  2. […] a +3% trend, and this should’ve been the last week of volumes comp-ing off a high base from 2013, especially for autos. Coal (38% of total volume) still weighing on overall performance: […]

  3. […] expectation for equity performance over next 6 months (through 4/2015). [Previously: Fund managers' exposures around extreme levels] #Bullish #Contrarian […]

  4. […] performance over next 6 months (through 4/2015). [Previously: Retail allocations are average, Fund managers' exposures around extreme levels & Margin debt back near record extremes] #Neutral […]

  5. […] OpEd: Why Bitcoin matters | Marc Andreessen (DealBook) Highlights: 1. Blockchain solves Byzantine General’s Problem: establishes trust between otherwise unrelated parties on an untrusted network like the internet 2. No overhead: enabling peer-to-peer exchanges without a third party intermediary lowers transaction fees to (almost) zero; there is algorithmic inflation built-in, with new $BTC being release to pay the miners who maintain Blockchain 3. Decentralized, open ledger: think of BTC as buying/selling slots (IP addresses) in the ledger 4. Enables transfer of digital property: digital signatures, digital contracts, digital keys (for physical locks or online lockers), digital title of physical assets such as cars and houses, digital stocks and bonds, and digital money 5. Value of BTCs: based on volume of payment flows & speculation on future proliferation (i.e. network effect) 6. Usage cases: international remittances, content micropayments, spam reduction, public payments/charity fundraising [Previously: Blockchain’s promise for “tokenization” of digital property & The opportunity for mobile payments in unbanked consumers] […]

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