Diary of a Financier

Top Newsstuffs (October 13-19)

In Bookshelf on Sun 19 Oct 2014 at 06:37

Top reads from the week that was…

Macro

Rail traffic weekly (Week 41, 2014) | Association of American Railroads (AAR)
Velocity maintained, as growth remains well above trend; great report considering the renewed concerns of US & global economic slowdown:
Weekly traffic: -1.0pp @ +4.6% yoy
Growth rate: unch @ +4.5% ytd
Carload groups: 8 of 10 posted gains for the week yoy
    Petroleum: +19.5%
    Minerals: +12.2
    Coal: +4.6, recovery keeps traction in 3rd week of reversal
    Motor vehicles/parts: +3.9, continues recovery from Week 39’s disappointing collapse
    Forestry: +3.8
    Metals: +1.3
    Grain: -5.7
#Bullish #Latent indicator $XLE $USO $XLB $KOL $XME $XLI

Retail sales (September 2014) | US Government Census
Sales miss expectations, falling from their healthy Q2 & Q3 trend; although the sequential data were disappointing, the yoy numbers are still healthy:
Headline: +4.3% yoy, -0.3 mom (miss -0.1e); prior months unrevised
Core (ex-autos): +3.1 yoy, -0.2 mom (miss +0.2e); prior month unrevised
#Bearish $XLY $XLP

Fundamental

Selling the shale fracking boom: Exploration & Production companies misrepresenting proved reserves | Bloomberg
US shale drillers misrepresent proven oil & gas reserves by presenting higher estimates in investor presentations than in SEC filings:E&P misrepresentation of proved reserves
Sample size: 73 E&P companies (62 of which overestimate)
Average estimate: 6.6x actual proved reserves
The definition of “proved reserves” is highly subjective: “reasonable certainty that hydrocarbons will be extracted within 5 years.”
These are the kind of corruption/fraud anecdotes you hear after a market crashes, making it seem so obvious that there was a bubble.
[Previously: Outdated method of calculating petroleum reservesEnergy checks boxes on bubble checklist & Energy bubble?]
$XOP $IEO $OIH $XLE $USO #Hydraulic fracturing #Swimming naked

Analogue: 2014’s oil boom-bust an echo of 2012’s natural gas collapse | Bloomberg Businessweek
Rig counts suggest US oil shale boom’s bust is a product of oversupply, as many E&P companies are highly leveraged with high CapEx requirements, so therefore they need the cash flow for debt-coverage and can’t decrease production:BHI horizontal rig count index (Oil)
$CL_F: -30% drawdown since 6/2014 (from $115 to $80 vs $85 breakeven for high-cost drillers)
Horizontal rig count (oil): +256% since 2009 (from 379 to 1353)
The same conditions led to a collapse in nat gas prices in 2012, which forced an industry consolidation due to bankruptcies:
$NG_F: -58% drawdown in 2012 (from $4.8 to $2.0)
Rig count (gas): -80% since 2009 (from 1600 to 320)
[Previously: Gas rig counts recovering from lowest level since 1999]
$OIH $XOP $IEO $XLE $USO $UNG #Energy renaissance #Baker Hughes index

Earnings conference call: Baker Hughes CEO says fundamentals remain strong (2014.10.16) | Seeking Alpha Market Currents
$BHI CEO provides anecdotal evidence for bullishness on E&P and services stocks:
1. Breakevens: production & capex reductions won’t start until $CL_F < $75 (currently @ $80)
2. Producer sentiment: E&P companies expect crude oil prices will bounce; “the returns are still quite attractive… right now, it’s full steam ahead”
3. Guidance: BHI confirms Q4 estimates, expecting stable customer spending & continued deepwater projects
BHI missed EPS (shs -11% premarket) due to:
1. Gulf of Mexico: weaker offshore drilling
2. Middle East: geopolitical tension in Libya & Iraq
$OIH $XOP $IEO $XLE $USO $UNG #Energy renaissance #Hydraulic fracturing

Technical

Quant study: The 200 day moving average crossover signal doesn’t actually work (1961-2014) | Adam H Grimes
The 200DMA (nor any other)Quant study: SPX 200DMA statistical significance provides no statistically significant trading signals; there’s a large sample size (n), and while average (μ) subsequent returns appear to uphold the market maxim, large standard deviation (σ) makes results insignificant:
Criteria: $SPX crossover 200 SMA (i.e. breakdown under support or breakout over resistance)
[See also: Historical stock market corrections & bear markets (duration of time, by % drawdown)]
#Counterfactual #Unconventional wisdom #Myth buster

Sentiment

Investor sentiment survey (2014.10.15) | American Association of Individual Investors (AAII)
Sentiment remains at average levels, continuing its surprisingly countercyclical poise in the face of the market correction; I’m increasingly worried that retail investors are getting too complacent with their buy-the-dip mentality:
Bull/Bear ratio: -1bps wow @ 1.27 (just under 1.28 historical average & 1.8 extreme high)
Bullish: +2.8pp @ 42.7% (over 39.0 avg & under 45 extreme high)
Bearish: +2.7 @ 33.7 (over 30.5 avg & 25 extreme low)
Neutral: -5.5 @ 23.6 (under 30.5 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 4/2015).
[Previously: Retail allocations are average & Margin debt back near record extremes]
#Neutral #Contrarian

Global fund manager allocation survey (October 2014) | Bank of America Merrill Lynch (BAML)
Procyclical reduction in equity allocations; bonds & cash recede from near extremes.
Net portfolio positioning of global PMs (60/30/10 benchmark):
Equity: -13pp @ +32% net (below +55% extreme)
Bonds: -2 @ -60 (at -60 extreme)
Cash: +0.3 @ +4.9 (above 4.5 extreme)
Europe: -10 @ +4; bounces after July’s crash from a postcrisis record @ 35
Japan: @ +14
In addition:
“26% of the global panel now does not expect the ECB to initiate a program of QE, up from last month’s 19%.”
Not only is the ECB initiating QE, but they’re starting it this week!
[Previously: Retail allocations are average & Margin debt back near record extremes]
#Bullish

–Romeo

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  2. […] Recent volatility increases retail’s willingness to buy, Retail allocations are average, Fund managers procyclically reduce risk exposures & Strategist sentiment remains a bullish signal] #Bearish […]

  3. […] 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 & Recent volatility increases retail’s […]

  4. […] behind higher stock prices.” [Previously: HY & energy top checklist of bubble indicators, E&P reserve misrepresentations a hallmark of pre-crash fraud & Energy bubble?] $XLE $HYG $JNK […]

  5. […] over next 6 months (through 5/2015). [Previously: Retail asset allocations remain neutral, Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & Recent volatility increases retail’s […]

  6. […] over next 6 months (through 5/2015). [Previously: Retail asset allocations remain neutral, Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & Recent volatility increases retail’s […]

  7. […] over next 6 months (through 5/2015). [Previously: Retail asset allocations remain neutral, Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & Recent volatility increases retail’s […]

  8. […] expectation for equity performance over next 6 months (through 6/2015). [Previously: Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & Recent volatility increases retail’s […]

  9. […] expectation for equity performance over next 6 months (through 6/2015). [Previously: Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & Recent volatility increases retail’s […]

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