Diary of a Financier

Top Newsstuffs (November 3-9)

In Bookshelf on Sun 9 Nov 2014 at 05:22

Top reads from the week that was…

Macro

Rail traffic weekly (Week 44, 2014) | Association of American Railroads (AAR)
Growth remains well above GDP ytd trend (+2%):Rail traffic weekly 2014.11.06
Weekly traffic: +0.1pp @ +5.1% yoy
Growth rate: unch @ +4.5% ytd
Carload groups: 8 of 10 posted gains for the week yoy
    Petroleum: +20.4%
    Metals: +20.1, massive spike
    Grain: +14.5, big comeback after last week’s collapse
    Minerals: +3.1
    Coal: +1.0
    Motor vehicles/parts: -2.9
#Bullish #Latent indicator $XLE $USO $XLB $KOL $XME $XLI

Purchasing Managers Index (October 2014) | Markit Economics
Global manufacturing activity remains resilient, with more weakness in South Asia offset by developed markets’ slight gains:
Global Manufacturing PMI: unch @ 52.2, remains in expansion for 23rd straight month
Australia: +2.9 @ 49.4, finally reversing out of YE13 crash
Japan: +0.7 @ 52.4
China: official -0.3 @ 50.8; unofficial +0.2 @ 50.4
Rest of Asia: disappointing
    India: +0.6 @ 51.6
    South Korea: -0.1 @ 48.7, a sign of weakening global trade, but BoK lowered its policy rate 10/15
    Taiwan: -1.3 @ 52.0
    Vietnam: -0.7 @ 51.0
Eurozone: +0.3 @ 50.6 (miss 50.7e), floats off 12-month low
    Germany: +1.5 @ 51.4 (miss 51.8e)
    Netherlands: +0.8 @ 53.0
    Italy: -1.7 @ 49.0
    France: -0.3 @ 48.5
    Spain: unch @ 52.6
    Greece: +0.4 @ 48.8
UK: +1.8 @ 53.2, bounce off 14-month low
Brazil: -0.2 @ 49.1
US PMIs:
    Manufacturing: -1.6 @ 55.9, continues to descend from 4½-year highs
    Services (ISM): -1.5 @ 57.1 (miss 58.0e), falls again after August’s alltime high
US ISM: +2.4 @ 59.0 (beats 56.0e); “corresponds to a 4.1% [ytd] increase in GDP on an annualized basis… In addition, [October] corresponds to a 5.2% increase in real GDP”:
    New orders: +5.8 @ 65.8
    Production: +0.2 @ 64.8
    Inventories: +1.0 @ 52.5
    Deliveries: +4.0 @ 56.2
    Exports: -2.0 @ 51.5
    Employment: +0.9 @ 55.5
[Previously: GDP & durable goods both strong]
#Bullish

Credit

Senior loan officer survey (2014q3) | Federal Reserve (Fed)
Credit fundamentals seem strong for all types of loans, except residential mortgage demand is drying-up; combine with some recent spread widening in $HYG $JNK, a deleveraging corporate sector is handing-off to a releveraging household sector/real economy (as expected).
Surveys net respondents’ qoq change in credit demand, spreads, and lending standards:
Commercial & Industrial Loans (C&I):
    Demand: big business +15.8% net respondents, small biz +5.5%; both strengthen even after Q2’s surges
    Lending standards: big -10.5, small -8.2; both loosen
    Credit spreads: big -47.4, small -41.7; both tighten broadly (cheap interest rates)
Commercial Real Estate (CRE/CMBS):
    Demand: construction +17.6, multifamily +25.0, other +25.0; all strengthen even after Q1’s record surges
    Lending standards: construction -10.8, multifamily +1.3, other -6.7; all loosen except for multifamily tightening
Residential mortgages (RRE/RMBS):
    Demand: prime -1.4, Alt-A -20.0, subprime -16.7; big collapse qoq even despite decline in mortgage rates
    Lending standards: prime -11.1, Alt-A -5.7, subprime unch; continue to plunge
Consumer loans:
    Demand: credit cards +7.8, auto loans +25.4, other +8.3; all strengthen
    Lending standards: credit cards -8.8, auto loans -7.6, other +2.8; mostly loosen
    Commentary: regarding subprime auto loans “most banks reported no change relative to a year ago… most of those banks anticipated that their lending policies would stay about unchanged over the next year”
[Previously: Renewed subprime bubble in auto loans]
#Bullish #Credit expansion #Credit cycle $BKLN $MBB $AGZ $XLF

Sentiment

Investor sentiment survey (2014.11.05) | American Association of Individual Investors (AAII)
Sentiment accelerates even higher into exuberant extremes, on top of surprisingly countercyclical confidence in the face of the September/October’s double-dip internal correction, which has me worried that retail investors are getting too complacent:
Bull/Bear ratio: +114bps wow @ 3.49 (above 1.28 historical average & 1.8 extreme high)
Bullish: +3.3 @ 52.7% (over 39.0 avg & 45 extreme high)
Bearish: -6.0 @ 15.1 (under 30.5 avg & 25 extreme low)
Neutral: +2.7 @ 32.3 (over 30.5 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 5/2015).
[See also: Recent volatility increases retail’s willingness to buy]
#Bearish! #Contrarian

Asset allocation survey (October 2014) | American Association of Individual Investors (AAII)
Asset class allocations remaining at neutral levels, moderating slightly, in contrast to sentiment survey (above), as “decline in equity allocations suggests that some individual investors sought to reduce risk in reaction to the downward volatility that occurred last month”:
– Stocks: -2.6pp @ 64.1% (between 60% average & 70% extreme high); at 14-month low, but remains above average for 19th consecutive month (longest post-crisis streak)
Bonds: +0.4 @ 17.2 (above 16 avg & 10 extreme low); 11-month high
Cash: +2.1 @ 18.7 (between 24 avg & 15 extreme low); below avg for 35 consecutive months
#Neutral

Strategist sentiment survey: Sell side consensus indicator (October 2014) | Bank of America Merrill Lynch (BAML)
Sending a contrarian bullish signal, analysts and strategists remain extremely bearish, recommending underweight equity allocations:BAML sell side indicator 2014.10
Average equity allocation: +1.2pp @ 52.4% (below 60.1 average & 53.9 extreme low)
Indicator measures “average recommended equity allocation of Wall Street strategists as of the last business day of each month.”
#Bullish #Contrarian #Recency effect bias

Technicals

Technical study: S&P 500 long term regression & standard deviation (inflation-adjusted, 1871-2014) | Doug Short (dshort)
While it has paused over the last month, SPX still [barely] trading over 2 sigmas from its LT trend, which has historically marked a top — a sign of excess where bull markets turn into bears:
– Mean: +1.75% (average annual real return)SPX LT real regression 2014.10
Standard deviation (σ): ±40.54%
Variances:
    Currently: +82%, reversion to trend is -47% @ 1062
    Panic of 1907: +85%
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
#Bearish #Mean reversion #Secular

Interests

The harsh reality of the new enterprise IT world | TechCrunch
The technology business is changing, and B2B sales are getting more difficult despite the Tech 2.0 boom.
The problems:
Smaller ticket sizes: 6-figure ($hundred-thousands) deals are now considered big tickets for SaaS enterprise IT sales, whereas the 1990s regularly featured 9-figures ($hundred-millions)
Client retention: “stickiness is a thing of the past” due to product treadmills, Moore’s Law, and obsolescence; subscriptions & contracts that were once multiyear deals are now renewed quarterly or monthly, making it hard for small businesses to plan and invest in LT growth initiatives like R&D
Competition: “every incumbent has an upstart a few steps behind” due to the double-edged sword of technology’s lowering barriers to entry, startup costs & overhead — not to mention availability of capital due to VCs, crowdfunding & incubators
The solutions:
1. New metrics: Fundamental metrics like new sales are being replaced by client retention & lifetime value statistics
2. Customer success team: Supplement your product with a service team that’s focused on helping clients optimize their use of your product (e.g. salesforce hands-off new clients to relationship management team)
#Startup #Entrepreneur #Cloud #Software

Video interview: Why innovation dies at big corporations | Steve Jobs (1995)
Jobs uses IBM, Xerox & Pepsi as examples of companies that got big, old, and stodgy when they got too content with a core identity/product and failed to innovate, due to one major reason:
Product people lose control: Sales & marketing employees bring in the revenue, so they’re the ones promoted into executive management roles wherein they run the company and make decisions, but they lack the vision & creativity to think long term and keep their business relevant
“[Salesmen] have no conception of the craftsmanship that’s required to take a good idea and turn it into a good product. And they really have no feeling in their hearts about wanting to really help the customers.”
#Startup #Entrepreneur #Obsolete

–Romeo

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  1. […] to buy, Retail allocations are average, Fund managers procyclically reduce risk exposures & Strategist sentiment remains a bullish signal] #Bearish! […]

  2. […] to buy, Retail allocations are average, Fund managers procyclically reduce risk exposures & Strategist sentiment remains a bullish signal] #Bearish […]

  3. […] recovery from a record low, but still crushes prior records from 2000, 2007 & 2011 [Previously: Senior loan officer survey bullish & Renewed subprime bubble in auto loans] #Bearish #Latent […]

  4. […] over next 6 months (through 5/2015). [Previously: Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & Recent volatility increases retail’s willingness to buy] #Neutral […]

  5. […] [Previously: Retail asset allocations remain neutral, Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & Recent volatility increases retail’s willingness to buy] #Bearish […]

  6. […] [Previously: Retail asset allocations remain neutral, Fund managers report average risk exposures, Strategist sentiment remains a bullish signal & Recent volatility increases retail’s willingness to buy] #Neutral […]

  7. […] 07, at which time margin levels had already receded [Previously: Household debt/credit is healthy, Senior loan officer survey bullish, Leveraged loan market thankfully closed until 2015 & High yield energy sector credit enters […]

  8. […] 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 willingness to buy] #Bearish […]

  9. […] 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 willingness to buy] #Neutral […]

  10. […] 07, at which time margin levels had already receded [Previously: Household debt/credit is healthy, Senior loan officer survey bullish, Leveraged loan market thankfully closed until 2015 & High yield energy sector credit enters […]

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