Diary of a Financier

Top Newsstuffs (October 20-26)

In Bookshelf on Sun 26 Oct 2014 at 05:58

Top reads from the week that was…

Macro

Rail traffic weekly (Week 42, 2014) | Association of American Railroads (AAR)
This deceleration has my attention, given the increasingly erratic sequential data this fall; nevertheless, growth remains well above trend:
Weekly traffic: -1.7pp @ +2.9% yoy
Growth rate: -0.1pp @ +4.4% ytd
Carload groups: 5 of 10 posted gains for the week yoy
    Petroleum: +17.4%
    Minerals: +12.5
    Metals: +7.9
    Forestry: +3.4
    Coal: +1.9
    Motor vehicles/parts: -3.4, unwinds recovery from Week 39’s disappointing collapse
    Chemicals: -4.6
#Bullish #Latent indicator $XLE $USO $XLB $KOL $XME $XLI

Inflation: Consumer Price Index (September 2014) | Bureau of Labor Statistics (BLS)
Inflation beats expectations, despite deflationistas’ primal scream; stays below Fed’s 2.0% target:
Headline CPI: unch @ +1.7% yoy, +0.1% mom (beats unch consensus); energy’s drag wanes (-0.7% mom vs -2.6% in August)
Core CPI (ex food & energy): unch @ +1.7 yoy, +0.1% mom (meets +0.1e)
#Neutral

Technical

Quant study: $SPX historical 6-month rolling returns (1928-2014) | Bank of America Merrill Lynch (BAML)
Calculates absolute & relative return for all 6mo rolling periods, which shows strong seasonality with a bias toward YE:SPX 6mo rolling returns (historical, 1928-2014)
November through April (best): +5.11% average return (outperforms control group by +1.41pp), 70.93% success rate (outperforms control group by +6.55pp)
May through October (worst): +1.93% average return (underperforms control group by -1.77pp), 63.22% success rate (underperforms control group by -1.16pp)
[Previously: For best results, buy in mid-October & hold until year end]
#Bullish #Sell in May & go away until Labor Day #Santa Clause rally #Conventional wisdom

Sentiment

Investor sentiment survey (2014.10.22) | American Association of Individual Investors (AAII)
Sentiment spikes into extreme levels, continuing its surprisingly countercyclical confidence 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: +96bps wow @ 2.21 (above 1.28 historical average & 1.8 extreme high)
Bullish: +7pp @ 49.7% (over 39.0 avg & 45 extreme high)
Bearish: -11.2 @ 22.5 (under 30.5 avg & 25 extreme low)
Neutral: +4.2 @ 27.8 (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]
#Bearish #Contrarian

Interests

Mortgages: Fannie Mae & Freddie Mac near deal to increase lending | The Wall Street Journal (WSJ)
$FNMA $FRE say the FHFA & lenders are close to agreement that would greatly expand mortgage credit.
Seems like some of this is a return to crisis-era policy & deregulation:
1. Fraud clarification: new lender protections against litigation & buybacks associated with bad loans
2. Lower down-payments: allow GSEs to guarantee loans with as low as 3% down
There have been renewed anecdotes of tighter home loan market since former Fed Chairman Ben Bernanke said he couldn’t refinance, but the US is the only country in the world with 30y term mortgages & minimal down-payments.
[Previously: Senior loan officer survey shows loosening for Prime to meet demand; See also: Mortgage credit is only too tight for less qualified buyers]
$MBB $AGZ #MBS #Alt-A #Subprime

–Romeo

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  1. […] weekly (Week 43, 2014) | Association of American Railroads (AAR) Nice acceleration relieves my fear that the increasingly erratic sequential data in September were sending an aggregate sign of […]

  2. […] & success rate. [Previously: Charting the average year in the stock market (daily) & SPX’s historical 6-month rolling returns] #Bullish […]

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