Diary of a Financier

Top Newsstuffs (December 8-14)

In Bookshelf on Sun 14 Dec 2014 at 06:17

Top reads from the week that was…

Macro

Rail traffic weekly (Week 49, 2014) | Association of American Railroads (AAR)
The welcomed recovery in sequential growth continues; although traffic seasonally wanes in YE holiday season, yoy comps have a relatively high base from YE13 rally:Weekly railtraffic_2014 week 49
Weekly traffic: +0.8pp @ +7.0% yoy
Growth rate: unch @ +4.3% ytd
Carload groups: 8 of 10 posted gains for the week yoy
    Grain: +25.5%, big recovery
    Minerals: +17.0%
    Metals: +14.8
    Coal: +13.0
    Forestry: +12.0
    Petroleum: +7.0, multiyear boom keeps going-out with a whimper amidst $CL_F price collapse
    Motor vehicles/parts: +7.0
#Bullish #Latent indicator $XLE $USO $XLB $KOL $XME $XLI

Retail sales (November 2014) | US Government Census
Sales beat expectations, re-accelerating despite both upward revisions to October data and falling energy prices:
Headline: +5.1% yoy, +0.3 mom (beat +0.4e); prior month revised up (+0.2pp @ +0.5% mom)
Core (ex-autos): +4.3 yoy, +0.5 mom (beat +0.1e); prior month revised up (+0.1pp @ +0.4% mom)
#Bullish! $XLY $XLP

Technicals

Reaching the rotation: European equities could lead 2015 international rally | Barclays
In 2014 (-7.5% local), Europe again underperformed and disappointed expectations, but stocks in the region will significantly outperform in 2015, because:
1. Sentiment: Europe/DM fund flows vs performance (12m fw) 2009-14Fund flows have reached an extreme (2 sigma) outflow, after which forward 12-month performance is strong
2. Stimulus: In 2015q1, the ECB will announce “public QE” to supplement their Private QE program
3. Refinancing gap: Baa corporate bond yields are 200bps lower than on-the-run interest expenses (a la 2002-06)
4. Valuations: both P/B and ROE are at historic lows relative to US [and PEG too]
[Previously: The most important post about Europe you’ll read this year]
#Bullish $EZU $FEZ $HEDJ $EFA

Sentiment

Investor sentiment survey (2014.12.10) | American Association of Individual Investors (AAII)
Sentiment rises back above exuberant extremes, with alarming complacency and uncharacteristic countercyclicality having weathered multiple market events ytd (i.e. 2 internal corrections & energy bear market):
Bull/Bear ratio: +38bps wow @ 2.02 (above 1.28 historical average & 1.8 extreme high)
Bullish: +2.3pp @ 45.0% (over 39.0 avg & 45 extreme high)
Bearish: -3.6pp @ 22.3% (under 30.5 avg & 25 extreme low)
Neutral: -1.3pp @ 32.6% (over 30.5 avg)
Measures respondents’ expectation for equity performance 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 willingness to buy]
#Bearish #Contrarian

Interests

Special series on Boston: An innovation hotbed that doesn’t care whether or not you know it (Part 1) | Re/code
Locals like to call Kendall Square “the most innovative square mile on the planet.”
“It’s a city… trying to make a difference. There is a bias in the culture here to do things that matter.”
[See also: Full series; Previously: “Purpose” is the 4th “P”]
#Startup #Entrepreneur #Venture Capital #VC $XLK $IBB

Presentation: “This Time It’s Different” (2014q4) | Jeffrey Gundlach (DoubleLine)
Fed Funds: Fed will raise rates in 2015 due to philosophy, not fundamentals, so they’ll have dry powder for future crises
Economy:
    i. US GDP: postcrisis expansion (currently 65 months) has been so slow that it may enable a longer expansion than normal (54.5 month historical average)
    ii. Global GDP: many signals indicate that global growth is slowing (e.g. Oil, Bund yields, FX devaluations)
    iii. Inflation: Breakevens have collapsed again as QE ended & housing/rents are propping-up CPI
Currencies: continued $DXY strength will have US import deflation; I worry about a scenario that precipitated the Eurocrisis, as $EURUSD is falling as we’re talking about the end of Fed’s ZIRP with the ECB launching QEs
Rates:
Treasury vs Bund (1999-2014)    i. $TNX: 10y Treasury yields are going lower as long as they’re at a premium to German Bund yields (< 1%) [Previously: Bund/Tsy spread widest since 1999 & 2006]
    ii. 2015 outlook: 30y Treasury annual total return (1974-2014)2014 followed historical analogue, with a great year ($TLT +24% ytd) following a bad year (-15% in 2013), so 2015 should be mediocre (-4 to +4%)
    iii. Short term: decent upside considering significant negative net futures positioning (unconstrained funds are short for negative duration) and healthy supply/demand balance (e.g. lower budget deficit & strong foreign Tsy demand)
Credit: Opportunistically buying high yield ($JNK) due to big ytd underperformance relative to $AGG, but HY spreads typically widen during Fed tightening cycles — contrary to popular belief
China: Shanghai ($GXC $FXI) rally is over; oil’s ($USO) price collapse has been an unappreciated sign of weakening Chinese growth

–Romeo

Advertisements
  1. […] prices crashing ($DBC $USO) – ZIRP-end: Fed will raise Fed Funds Rate [Previously: Gundlach’s 2014q4 presentation] $TNX $TLT $TLH $IEF $IEI […]

  2. […] there’s no true arbitrage in Bund/Tsy spread, since the delta is currency risk! [Previously: “This time it’s different” (2014q4) & Tsy bull market to continue in 2014] #Bearish (equities) #Bullish (bonds) $XLE $USO […]

Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s