Diary of a Financier

Top Newsstuffs (March 16-22)

In Bookshelf on Sun 22 Mar 2015 at 05:26

Top reads from the week that was…

Macro

Rail traffic weekly (Week 10, 2015) | Association of American Railroads (AAR)
Despite slow growth, this is a decent report due to a difficult yoy comp base, as 2014 & 2015 both show evidence of a pent-up demand surge after record snowfall in the Northeast & California port closures; but next week really needs to show more snap-back, since both issues are resolved:
Weekly traffic: +0.7pp @ +1.5% yoyRail traffic 2015 week 10
Growth rate: +0.1pp @ +0.1% ytd
Carload groups: 2 of 10 posted gains for the week yoy
    Grain: +7.8%
    Chemicals: -0.9
    Forestry: -2.2
    Farm: -2.9
    Motor vehicles/parts: -3.1
    Coal: -5.0
    Metals: -7.8
    Petroleum: -11.1
#Neutral $IYT

Fundamentals

Market valuation metric updates ($SPX, March 2015) | Alpha Architect
Absolute valuations say the market is fundamentally “fairly valued,” especially considering relative valuations (low interest rates amidst ZIRP):SPX valuation metrics 2015.03
PE: 54th percentile
PB: 65%
EV/EBITDA: 73%
EV/FCF: 25%
EV/GP: 56%
Compares current market multiples to historical averages (percentiles) since 1990, using the most statistically significant fundamental metrics.
[Previously: SPX +28% average return after fair value]
#Bullish

Technicals

Investors raise alarm over global bond liquidity shortage | The Wall Street Journal (WSJ)
The Bank of England (BoE) & Bank of International Settlements (BIS) are the latest authorities to warn about concerns of dangerously low liquidity, particularly among investment grade corporate credit, despite record net new issuance, due to:Global bond market- declining liquidity
1. Central banks: QEs have reduced the supply of high grade fixed income assets to dangerously low levels
2. Broker/dealers: new regulations & ZIRP have forced trading desks to reduce inventory
3. ETFs/indexing/mutual funds: record inflows have ring-fenced a lot of CUSIPs within passive funds
[Previously: ETFs can be a dangerous financial innovation & ETF tracking errors spike in bond selloff]
$LQD $AGG $BWX #Unintended consequences #Crisis? #Bubble?

Sentiment

Investor sentiment survey (2015.03.18) | American Association of Individual Investors (AAII)
Sentiment dips surprisingly lower, with a disappearance of bulls also maintaining a massive swell in the neutral cohort that are both indicative of healthy uncertainty:
Bull/Bear ratio: -38bps wow @ 0.86 (far under 1.28 historical average & 1.8 extreme high)
Bullish: -4.4pp @ 27.2% (far under 39.0 avg & 45 extreme high)
Bearish: +6.1 @ 31.5% (over 30.5 avg & 25 extreme low)
Neutral: -1.6 @ 41.4% (far over 30.5 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 9/2015).
[Previously: Retail allocations are neutral & Strategist sentiment remains a bullish signal]
#Bullish! #Contrarian

Global fund manager allocation survey (March 2015) | Bank of America Merrill Lynch (BAML)
Equity allocations rise higher into OW extremes, in a record flight of capital out of US into International; bond allocations procyclically recovering as yields have dipped ytd:
Equity: +1.0pp @ +58.0% OW (over +50% extreme); still OW highest beta sectors too
Bonds: +1.0 @ -54.0 UW (over -60 extreme)BAML fund manager allocation survey- equity/fixed income/cash 2015.03
Cash: -0.1 @ +4.6 OW (over +4.5 extreme)
Commodities: -1.5 @ -20.0 UW
Regions:
    US: -25.0 @ -19 UW
    Europe: +4.0 @ +60.0 OW; new alltime record
    Japan: +5.0 @ +40.0 OW
    Emerging Markets: -10.0 @ -11.0 UW
In 2014, contrarian sell signals in July/September/November/December were honored by the subsequent priceaction, as were buy signals in August/October.
Surveys a sample of 200+ PMs with $700B+ in AUM, asking for portfolio positioning (overweight/underweight) relative to 60/30/10 benchmark.
#Contrarian
#Bearish: $ACWI  $EFA $EWJ
#Bullish: $AGG $IWV $EEM $DBC

Quantitative

Interactive graphic: Global sovereign credit risk indicator | Blackrock
“Blackrock Sovereign Risk Index” (BSRI) is a dashboard that ranks countries by sovereign bond risk, using a composite of 4 quantitative datapoints:Blackrock Sovereign Risk Indicator 2015.03
1. Fiscal space (40% weight)
2. Willingness to pay (30%)
3. External financial position (20%)
4. Financial sector health (10%)
$BWX #CDS #Treasury

Interests

Chart: A 3-D view the predicts our economic future (1990-2015) | The Upshot (The New York Times)
Three Dimensional view of the US Treasury yield curve, plotting yield vs. time vs. maturity term:
3D US Treasury yield curve 2015.03
$IRX $FVX $TNX $TYX $AGG $TLT

–Romeo

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  1. […] (+): Almost every valuation metric suggests $SPX has reached fair value, and historically SPX enjoys +28% additional return after […]

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