Diary of a Financier

Top Newsstuffs (December 29 – January 4)

In Bookshelf on Sun 4 Jan 2015 at 06:40

Top reads from the week that was…

Macro

Rail traffic weekly (Week 52, 2014) | Association of American Railroads (AAR)
Unprecedented year-end rally continues with another acceleration; although traffic seasonally wanes during YE holidays, yoy comps have a relatively high base from YE13 rally; 2015q1 also has a low yoy base due to 2014’s severe winter weather:Weekly railtraffic (2014 week 52)
Weekly traffic: +1.2pp @ +7.6% yoy
Growth rate: +0.1 @ +4.5% ytd
Carload groups: 9 of 10 posted gains for the week yoy
    Motor vehicles/parts: +41.6%, impressive
    Minerals: +26.3
    Coal: +9.9
    Grain: +7.3
    Petroleum: +5.9, multiyear boom still decelerating amidst oil price crash
    Farm/food: +4.4
    Metals: +1.5
#Bullish #Latent indicator $XLE $USO $XLB $KOL $XME $XLI

Purchasing Managers Index (December 2014) | Markit Economics
Global expansion persists despite another deceleration; although decelerating itself, the US remains incredibly strong, anchoring global composite; China threatens to pull-down manufacturing growth, but Europe finally feeling benefits of weaker EUR:
Global PMI (Composite): -0.9 @ 52.3, a 14-month low after July’s postcrisis high
Global PMI (Services): -1.1 @ 52.3, keeps sliding from July’s postcrisis high
Global PMI (Manufacturing): -0.2 @ 51.6, a 16-month low, but remains in expansion for 25th straight month
– US ISM (Services): -3.1 @ 56.2 (miss 58.2e), declining from near August’s alltime high
US ISM (Manufacturing): -3.2 @ 55.5 (misses 57.5e); “Retail sales much improved yoy… sales are slowing down as buyers reduce inventory in anticipation of lower prices [associated with energy crash]… and West Coast port issues are really affecting deliveries/materials imports… corresponds to a 4.2% [ytd] increase in GDP on an annualized basis… [December] corresponds to a 4.1% increase in GDP”:
    New orders: -8.7 @ 57.3
    Production: -5.6 @ 58.8
    Inventories: -6.0 @ 45.5
    Deliveries: +2.5 @ 59.3
    Exports: -3.0 @ 52.0
    Employment: +1.9 @ 56.8
Australia: -3.2 @ 46.9, back in hurt locker after recovering from YE13 crash
Japan: unch @ 52.0
China: official -0.2 @ 50.1 (meets 50.1e); unofficial -0.4 @ 49.6
Rest of Asia: positive
    India: +1.2 @ 54.5, 2-year high
    South Korea: +0.9 @ 49.9, still expect another BoK policy rate cut in 2015q1 (last was 10/15)
    Taiwan: -1.4 @ 50.0, “the fall in output and new orders may not be a one-off due to weak economic data in many export markets”
    Vietnam: +0.6 @ 52.7
Eurozone (Services): +0.5 @ 51.6 (miss 51.9e)
Eurozone (Manufacturing): +0.5 @ 50.6 (miss 50.8e), “largely on the back of increased exports” & weaker $EUR
    Germany: +1.7 @ 51.2, big bounce from a 17-month low after November’s crash
    Netherlands: -1.1 @ 53.5
    Italy: -0.6 @ 48.4, 19-month low
    France: -0.9 @ 47.5
    Spain: -0.9 @ 53.8, falls from a post-crisis high
    Greece: +0.3 @ 49.4
UK: -0.8 @ 52.5
Brazil: +1.5 @ 50.2
#Bullish

Tweetstorm: Secular stagnation theories are silly | Marc Andreessen (Andreessen Horowitz)
Interesting theory provides a counterpoint to claims that the US & developed markets are in an era of “secular stagnation,” saying this environment can be “wonderful,” with today’s lower rates due to structural factors like innovation & demographics (not QE):
“[Problem is] too much capital relative to the number of productive investible economic activities…
“Much of [technological progress] is price deflationary in nature… so even extremely rapid tech progress may not show up in GDP or productivity stats, even as it [results in] higher real standards of living.”
Two factors inhibiting investment/capex:
1. Regulatory burden
2. Corruption & expropriation
Benefits of this environment:
1. Global demographic tailwind: Rising millenials & youths are connected to internet & social media, giving rise to a “modern economy” that’s unaccounted-for by GDP formulas
2. Funding: “Oversupply of capital means that any investible project can get funded”
[Previously: Larry Summers’ theory of secular stagnation, IMF expects more ZIRP in the future of interest rates & The technology revelation’s effect on capex]
#Counterfactual #Talking his book? #Data-lite #Halo effect #Regulation #Disinflation $TNX

Sentiment

Investor sentiment survey (2014.12.24) | American Association of Individual Investors (AAII)
Maintains exuberant levels after last week’s unprecedented spike took sentiment back up to extremes; prolongs months’ worth of alarming complacency and uncharacteristic countercyclicality that weathered multiple market events in 2014 (e.g. 2 internal corrections & energy bear market):
Bull/Bear ratio: -1bp wow @ 2.68 (over 1.28 historical average & 1.8 extreme high)
Bullish: +0.8pp @ 51.7% (over 39.0 avg & 45 extreme high)
Bearish: +0.4 @ 19.3% (under 30.5 avg & 25 extreme low)
Neutral: -1.2pp @ 29.0% (under 30.5 avg)
Measures respondents’ 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 willingness to buy]
#Bearish #Contrarian

Interests

Syllabus: Startups 101 (Stanford Graduate School of Business) | Sam Altman (Y Combinator)
Includes the class’ entire syllabus, with lecture videos, readings, and discussions from great guest speakers of Silicon Valley fame.
[Previously: How to start a startup]
#MBA #Virtual/online classroom #Management #Business #Venture Capital (VC)

Full stack startups | Chris Dixon (Andreessen Horowitz)
Instead of building partial/narrow technology for licensing to industry giants, startups are smartly building “full stack” products with complete, end-to-end solutions.
For example:
“When Uber tried to inject technology and software into the taxi industry, it didn’t [work]… Instead of trying to sell software as an add-on… they asked: What would this industry look like if it were rebuilt from scratch using technology we have today?”
That’s not advising founders to aspire for totally proprietary builds, because leveraging APIs & open source features is a very cost effective example of Tech 2.0’s “deployment phase” (my “technology revelation”).
Benefits:
1. Better user experience: integration enhances
2. Bypass entrenched incumbents: they fear change & try to maintain the status quo
3. Better pricing power: controlling the end-user gives better economics
For example, what if Nest had simply built a connected thermostat & licensed it to Honeywell? The holism from controlling UI, UX, hardware design & customer service is valuable, especially when integrated with Apple’s ecosystem.
[See also: Complete guide to full-stack startups (Q&A)]
#Management #Internet-of-things (IoT)

Push & pull: The two eras of the internet age | Chris Dixon (Andreessen Horowitz)
“We are currently experiencing a positive feedback loop between social networks & media publishers, analogous to last decade’s search & information feedback loop [in which indexed search enabled meta derivatives like $TRIP $YELP],” so the big question is, who will be the big winners enabled by today’s regime?
There are two types of internet user activity: Push vs Pull: The two eras of the internetpull is when you actively seek information; push is when content passively comes to you…
Pull (2000s): Search, utility, stock, links
    e.g. Google → TripAdvisor/Wikipedia/Yelp/etc
Push (2010s): Social, media, flow, shares
    e.g. Facebook → meta derivative winners?
[See also: The enormous implications of Facebook indexing 1 trillion of our posts for search]
$XLK $GOOG $FB

Good riddance to social search | TechCrunch
Search algorithms are giving-up on experiments that incorporate social media in search results:
“The basic idea behind social search was that with all of the links and reviews we share on social media, search results could be made more relevant by including (and highlighting) that data right on the search results page…
“One of the reasons social search failed is because our social media ‘friendships’ don’t actually represent our real-life tastes all that well. Just because we follow people on Twitter or are friends with old high school classmates on Facebook doesn’t mean we like the same restaurants they do or share the politics they do. At the end of the day, I’m more likely to trust an overall score [crowdsourced] on Yelp, for example, than a single person’s recommendation.
“There’s only so much room on a single search results page, so whatever works best will get that space. Social search clearly did not. Instead, projects like Google’s Knowledge Graph and Bing’s equivalent have now taken over the sidebars of our search engines with information that’s actually useful.”
$XLK

Year in review: What happened to the internet in 2014 | Fred Wilson (VC, Union Square Ventures)
The early social media financier notes his observations of groundswells & significant user preference shifts underway in Web 2.0 world this past year, including:
1. Social media phase ended: not much innovation as major platforms have matured & secured
2. Messaging is the new social media
3. Sharing economy revealed: Uber & Airbnb are really just rebranded rental companies
4. Capital markets move to the internet: crowdfunding
5. Enterprise penetration: especially mobile & messaging
6. The death of files: file extensions (e.g. “.doc”) are finally obsolete thanks to cloud storage making all media fungible
$XLK #Predictions #Tea leaves #Venture Capitalist

–Romeo

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  1. […] capital raised is higher – Series A through Private Equity: volumes remain robust [See also: Marc Andreessen’s counterfactual for Larry Summers’ secular stagnation theory, “Oversupply of capital means that any investible project can get funded”] #Startup #Venture […]

  2. […] reminds me of Chris Dixon’s observation of the “Push & Pull” eras of the internet, wherein meta derivative winners ride on […]

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