Diary of a Financier

Top Newsstuffs (September 29 – October 5)

In Bookshelf on Sun 5 Oct 2014 at 06:19

Top reads from the week that was…

Macro

Rail traffic weekly (Week 39, 2014) | Association of American Railroads (AAR)
Big dip actually moves the ytd needle lower for the first time in months; the rally seemed to have been settling-in at a +3% trend, so we’ll see next week whether this is a random datapoint or the start of a new trend.
Weekly traffic: -3.9pp @ +1.8% yoy
Growth rate: -0.1pp @ +4.4% ytd
Carload groups: 9 of 10 posted gains for the week yoy
    Petroleum: +24.9%
    Forestry: +3.6
    Minerals: +2.7
    Coal: +2.6, finally recovers
    Metals: -3.4
    Motor vehicles/parts: -8.0, disappointing collapse
#Bearish #Trend reversal? $XLE $USO $XME $DBA $XLI

Purchasing Managers Index (September 2014) | Markit Economics
Global manufacturing activity remains resilient, with notable weakness in South Asia; US trend reversion weighed on composite; continued German weakness was worse than expected, and considered positive (“bad is good”) for Draghi convincing Merkel of EU’s QE implementation need:
Global Manufacturing PMI: -0.4 @ 52.2, a 4-month low
Australia: -0.8 @ 46.5, YE13 crash resumes after July’s recovery
Japan: -0.5 @ 51.7
China: official +0.1 @ 51.1; unofficial unch @ 50.2
Rest of Asia: screaming higher
    South Korea: -1.5 @ 48.8, new orders continue collapse, including export orders, a sign of weakening global trade
    Taiwan: -2.8 @ 53.3, having been a global leader for 2 months
    India: -1.4 @ 51.0
Eurozone: -0.4 @ 50.3 (miss 50.5e), barely in expansion at 12-month low
    Germany: -1.5 @ 49.9 (miss 50.3e)
    Netherlands: +0.5 @ 52.2
    Italy: +0.9 @ 50.7
    France: +1.9 @ 48.8
    Spain: -0.2 @ 52.6
    Greece: -1.7 @ 48.4
UK: -0.3 @ 51.6, lowest in 14 months
Brazil: -0.9 @ 49.3
US PMIs:
    Manufacturing: -0.4 @ 57.5, slight decline from 4½-year highs
    Services (ISM): -1.0 @ 58.6 (beat 58.5e), falls from alltime high
US ISM: -2.4 @ 56.6 (miss 58.5e), falls from 3½-year highs; “generally positive business outlook… noting some labor shortages and continuing concern over geopolitical unrest”:
    New orders: -6.7 @ 60.0
    Production: +0.1 @ 64.6
    Inventories: -0.5 @ 51.5
    Deliveries: -1.7 @ 52.2
    Exports: -1.5 @ 53.5
    Employment: -3.5 @ 54.6
[Previously: Durable goods]
#Bullish

Technicals

Technical study: S&P 500 long term regression & standard deviation (inflation-adjusted, 1871-2014) | Doug Short (dshort)
$SPX currently trading over 2 sigmas from its long term trend, which has historically marked a top — a sign of excess where bull markets turn into bears:
– Mean: +1.75% (average annual real return)
Standard deviation (σ): ±40.54%
Variances:
    Currently: +89%, return to trend is -54% @ 1057
    Panic of 1907: +85%
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
#Bearish #Mean reversion #Secular

Sentiment

Investor sentiment survey (2014.10.01) | American Association of Individual Investors (AAII)
Sentiment keeps falling back down to attractive levels:
Bull/Bear ratio: -33bps @ 1.15 (vs 1.28 historical average & 1.8 extreme high)
Bullish: -6.4pp wow @ 35.4% (vs 39.0 avg & 45 extreme high)
Bearish: +2.7 @ 30.9 (vs 30.5 avg & 25 extreme low)
Neutral: +3.7 @ 33.7 (vs 30.5 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 4/2015).
[Previously: Fund managers’ exposures around extreme levels]
#Bullish #Contrarian #Procyclical

Asset allocation survey (September 2014) | American Association of Individual Investors (AAII)
Asset class allocations remain near average levels, cash still notably underweight:
– Stocks: -0.6pp @ 66.7% (vs 60% average & 70% extreme high); above average for 17th consecutive month (longest post-crisis streak), but still below extreme
Bonds: +0.2 @ 16.8 (vs 16 avg & 10 extreme low); highest since 1/2014
Cash: +0.5 @ 16.5 (vs 24 avg & 15 extreme low); below avg for 33 consecutive months & nearing 15% low-end extreme
#Neutral

Interests

The complete guide to the ECB’s new “Private QE” program | Blackrock
Mario Draghi released the full details of his “Asset Backed Securities & Covered Bond Purchase Programs,” which aims to reflate the ECB’s shrinking balance sheet (from €2T currently back up to €3T):
Start date: covered bonds 10/2014 (“CBPP3”); ABS purchases 2014q4 (“ABSPP”)
Duration: 2 years
Eligibility: Primary & secondary bonds within Eurosystem collateral framework; “Greece & Cyprus… are currently not eligible as collateral for monetary policy operations will be subject to specific rules with risk-mitigating measures”
This is in addition to their “Targeted Longer-Term Refinancing Operations” (TLRTO):
Start date: 9/2014
Duration: 8 tenders between 9/2014 – 6/2016
Interest rate: MRO +10bps
Maturity: 9/2018
Eligibility: 7% of bank loans to real economy (non-financials) eligible as collateral, excluding mortgages
[See also: Draghi speech on EU unemployment]

Internal email: My farewell to PIMCO | Bill Gross (Janus Mutual Funds)
The [former?] bond king himself penned a wonderful letter, which he had intended to blast email to his colleague upon his departure, had he not been forced-out so hastily.
An employee coup was attributed to Mr. Gross’s “erratic behavior,”  exiled him from the company he founded, built into the biggest investment company in the world ($2T AUM), and managed peerlessly as CIO for 43 years.
#Sad #Myopic #You’re only as good as your last trade?

–Romeo

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  1. […] ECB issued a press release last week that disclosed the details of its new, “Private QE” program, which will start […]

  2. […] traffic weekly (Week 40, 2014) | Association of American Railroads (AAR) Big bounce-back after last week’s dip, which now appears to have been an anomaly; resumes the +3% trend that’s been settling-in […]

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

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

  5. […] 6 months (through 4/2015). [See also: Recent volatility increases retail's willingness to buy & Retail allocations are average] #Bearish! […]

  6. […] 6 months (through 5/2015). [See also: Recent volatility increases retail's willingness to buy & Retail allocations are average] #Bearish! […]

  7. […] months (through 5/2015). [See also: Recent volatility increases retail’s willingness to buy, Retail allocations are average, Fund managers procyclically reduce risk exposures & Strategist sentiment remains a bullish […]

  8. […] (through 5/2015). [Previously: Recent volatility increases retail’s willingness to buy, Retail allocations are average, Fund managers procyclically reduce risk exposures & Strategist sentiment remains a bullish […]

  9. […] expectation for equity performance over next 6 months (through 5/2015). [Previously: Retail allocations are average, Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & […]

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