Diary of a Financier

Top Newsstuffs (September 22-28)

In Bookshelf on Sun 28 Sep 2014 at 06:40

Top reads from the week that was…


Rail traffic weekly (Week 38, 2014) | Association of American Railroads (AAR)
Big acceleration exceeds expectations, considering that both the rally seemed to have been settling-in at 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:
Weekly traffic: +2.6pp @ +5.7% yoy
Growth rate: unch @ +4.5% ytd
Carload groups: 9 of 10 posted gains for the week yoy
    Petroleum: +26.8%
    Grain: +23.2 (big reversal after multi-week collapse)
    Minerals: +10.8
    Metals: +8.5
    Forestry: +5.9
    Farming: +4.0
    Motor vehicles/parts: +0.2
    Coal: -0.2
#Bullish $XLE $USO $XME $DBA $XLI

Gross Domestic Product: Third estimate (2014q2) & revisions (2014q1) | Bureau of Economic Analysis (BEA)
Upward revision meets expectations after an already huge initial release & second estimate; inventories unfortunately remain a major contributor, but investment in structures is a welcomed highlight:
Real GDP (Q2): +4.6% (revised +0.4pp)
    Inflation: +2.0% headline (+0.1pp); +1.7% core (unch)
    Consumption (PCE): +2.5 (unch)
    Government spending: -0.9 federal (unch); +3.4 state & local (+0.5pp)
    Fixed investment: +9.5 (+1.4pp); Structures +12.6 (+3.2pp)
    Private inventories: +1.42pp (+0.03) vs -1.16pp Q1
    Exports: +11.1 (+1.0pp) vs -9.2 Q1
    Imports: +11.3 (+0.3pp)
Real GDP per capita (Q2): +3.49% (unch); 9.8% below regression trend
Real GDP (Q1): -2.1 (unch)
[Previously: 2nd estimateThe bond market is wrongQ1 GDP in context, “I don’t like the suggestion that the weak Q1 was synecdoche for a broader trend in the economy.”]

Manufacturers’ durable & capital goods (August 2014) | US Department of Commerce
Another great report signals continued economic expansion, even with small upward revisions for July (that the market ignored again); another bump higher in ytd orders & shipments, but inventories keep piling-up; headline orders reverted after last month’s record spike (down from +22.6% to -18.2% mom):
Core durable goods (ex-transportation)
    Orders: +5.0% ytd, +0.7% mom (meets expectations)
    Shipments: +5.1 ytd, +0.1 mom
Core capex (nondefense, ex-aircraft capital goods)
    Orders: +4.6 ytd, +0.6 mom
    Shipments: +4.4 ytd, +0.1 mom
    Inventories: +6.3 ytd, +0.4 mom @ $403B SA (SA & NSA at record highs)
– Revisions (July)
    Core durable goods: Orders +0.3pp @ -0.5% mom; Shipments +0.5pp @ +1.9% mom
    Core capital goods: Orders +0.3pp @ -0.2% mom; Shipments +0.4pp @ +1.9% mom


NYSE margin debt & balances (August 2014) | Doug Short (dshort.com)
At or near record levels for all categories, which is astounding given the small cap “internal correction”; SPX didn’t crash until 3-5 months after real margin debt peaked in 2000 & 07, at which time margin levels had already receded:NYSE margin debt_Net margin balances 2014.09
Nominal margin debt: +0.7% mom @ $463B; continues start & stop oscillation started after March to May’s declines; only 0.6% below February’s alltime high @ $465.7B
Real margin debt: +0.6% mom; only 1.9% below February’s alltime high, but still in excess of prior highs in 3/2000 & 7/2007′s before those bear markets
Net margin balances (“buying power”): -0.6% @ -$183.1B debit; a new record again, which 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 indicator


Technical study: The effect of rising policy rates on the stock market (1946-2014) | Sam Stovall (S&P Capital IQ)
Evaluates Fed Funds Rate hikes and their historical impact on equities ($SPY) before & after the first increase:
Sample size: 16 tightening cycles (postwar)
SPX performance:
    Before (6 mos prior): -16% average; 80% resulted in at least a pullback (6 pullbacks/4 corrections/3 bear markets)
    After (6 mos post): +1.3% average; 38% resulted in at least a pullback
Top sectors: $XLK $XLE $XLB
#Bearish #Correlation analysis #Single variable analysis #Perception vs Reality gap


Investor sentiment survey (2014.09.17) | American Association of Individual Investors (AAII)
Sentiment gently descends from extreme levels:
Bull/Bear ratio: -35bps @ 1.48 (vs 1.28 historical average & 1.8 extreme high)
Bullish: -0.4pp wow @ 41.8% (vs 39.0 avg & 45 extreme high)
Bearish: +5.2 @ 28.2 (vs 30.5 avg & 25 extreme low)
Neutral: -4.9 @ 29.9 (vs 30.5 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 3/2015).
[Previously: Fund managers’ exposures around extreme levels]
#Bearish #Contrarian #Procyclical


US stock buyback boom: Short-sighted corporate financial engineering | The Financial Times (FT)
Increasing EPS by reducing share counts, boards are depleting cash for share repurchases in lieu of actual investment (i.e. CapEx or R&D):
SPX (2003-12): $2.4T buybacks (> 50% of net income) + $2T dividends (41% of net income) = 91% of net income
I’m curious if 9% retained earnings across a business cycle is historically atypical (i.e. low).
FT attributes the boom to executive compensation packages, which are 80% equity based (i.e. restricted stock & options).
[Previously: Modify pay packages, The misincentive and tortured rationalization of shareholder value programsCapEx deficit an unintended consequence]
#Return of capital #Myopic #Long term growth

Quant study: The effects of the US Dollar fluctuations on assets, economics & policy | Goldman Sachs
Evaluates the historical impact of USD purchasing power changes, specifically the effect of a stronger USD, which are negatively correlated to asset prices & economic data with high convexity, but aren’t as significant as econometric models assume:
USD forecast: +3% appreciation by 9/2015 (on trade-weighted basis)
GDP growth: -15bps in 2015 & -10bps in 2016 (-25bps & -30bps given more appreciation)
Core PCE inflation: -1bp in 2015 & -3bps in 2016 (-2bps & -6bps given more appreciation)
Fed Funds Rate (Taylor Rule): -5bps in 2015 & -15bps in 2016
[Previously: USD’s effect on oil]
$DXY $UUP #Correlation analysis #Ripple effect #Unconventional wisdom

Presentation: “How to start a startup” (Part 1 of 2) | Sam Altman (Founder, Y Combinator)
Part of his lecture series at Stanford:
1. Idea
2. Product: get users manually, get their feedback & focus on growth metrics (registrations, active users, activity, cohort retention, revenue)
3. Team
4. Execution
[See also: ZenPayroll’s guide to pitch decks for raising seed capital]
#Startup #Incubator #VC (Venture Capital)


  1. […] Deliveries: -1.7 @ 52.2     Exports: -1.5 @ 53.5     Employment: -3.5 @ 54.6 [Previously: Durable goods] […]

  2. […] Correlation (DXY/WTI, daily): currently zero vs 0.3979 historical average (inclusive) [Previously: The effects of USD on assets, economics & policy are surprisingly insignificant] #Unconventional wisdom $CL_F $USO […]

  3. […] performance over next 6 months (through 4/2015). [Previously: Retail allocations are average & Margin debt back near record extremes] #Neutral […]

  4. […] performance over next 6 months (through 4/2015). [Previously: Retail allocations are average & Margin debt back near record extremes] #Bearish […]

  5. […] Deliveries: -1.7 @ 52.2     Exports: -1.5 @ 53.5     Employment: -3.5 @ 54.6 [Previously: Durable goods] […]

  6. […] is the biggest risk in 2015… with Eurozone deflation the greatest tail risk.” [Previously: Margin debt back near record extremes] […]

  7. […] videos, readings, and discussions from great guest speakers of Silicon Valley fame. [Previously: How to start a startup] #MBA #Virtual/online classroom #Management #Business #Venture Capital […]


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