Diary of a Financier

Top Newsstuffs (June 1-7)

In Bookshelf on Sun 7 Jun 2015 at 05:51

Top reads from the week that was…

Macro

Rail traffic weekly (Week 21, 2015) | Association of American Railroads (AAR)
Volumes slide deeper into contraction, which feels even worse since we should be seeing a snap-back as evidence of pent-up demand after weather disrupted Q1 traffic; however, the secular decline in coal (~35% of carload volumes) is massively skewing data, rendering useless the signal’s significance:
Weekly traffic: -2.2pp @ -4.9% yoyRailtraffic 2015 week 21
Growth rate: -0.2pp @ -0.6% ytd
Carload groups: 4 of 10 posted gains for the week yoy
    Other: +6.1%
    Motor vehicles/parts: +5.3
    Farm: +4.2
    Petroleum: +2.4
    Chemicals: -1.3
    Grain: -6.3
    Minerals: -7.7
    Forestry: -8.1
    Metals: -12.9
    Coal: -21.8; crash continues, heavily skewing data, even off weak yoy comp base
I considered that the fuel price collapse might’ve reallocated some traffic to trucking, but volumes there are declining too.
#Insignificant $IYT

Purchasing Managers Index (May 2015) | Markit Economics
Global expansion remains strong, but decelerates due to Asian contraction; US deceleration steadies at healthy velocity; European recovery stays strong:
Global PMI (Composite): -0.6 @ 53.6 (miss 53.9 LT average)
Global PMI (Services): -0.7 @ 54.1
Global PMI (Manufacturing): +0.2 @ 51.2; off a 21-month low as small acceleration in demand is starting to absorb last month’s surplus inventory
– US ISM (Services): -2.1 @ 55.7 (miss 57.2e); “corresponds to a 3.0% increase in GDP”
US ISM (Manufacturing): +1.3 @ 52.8 (beat 51.8e); “economy is showing signs of improvement… West Coast port issues have eased”:
    New orders: +2.3 @ 55.8ISM- PMI Manufacturing & Services 2015.04
    Production: -1.5 @ 54.5
    Inventories: +2.0 @ 51.5
    Deliveries: +0.6 @ 50.7
    Employment: +3.4 @ 51.7; recovers after a slide into contraction
Eurozone (Composite): -0.3 @ 53.6 (beat 53.4e); “consistent with euro area GDP growth of 2% in 2015”
Eurozone (Services): -0.3 @ 53.8 (beat 53.3e)
Eurozone (Manufacturing): +0.2 @ 52.2 (miss 52.3e)
    Germany: -1.0 @ 51.1
    Netherlands: +1.5 @ 55.5
    Italy: +1.0 @ 54.8
    France: +1.0 @ 49.4; 12-month high despite being only core country in contraction
    Spain: +1.6 @ 55.8
    Greece: -2.4 @ 46.5; plummets to 22-month low
Japan: +1.0 @ 50.9; off an 11-month low
China: official +0.1 @ 50.2 (meet 50.2e); unofficial +0.3 @ 49.2 (beat 49.1e)
India: +1.3 @ 52.6
South Korea: -1.0 @ 47.8
Taiwan: +0.1 @ 49.3
UK: +0.2 @ 52.0
Australia: +4.3 @ 52.3; multiyear contraction ends
Brazil: -0.1 @ 45.9; “downturn remains severe”
#Bullish

Credit

NYSE margin debt & balances (April 2015) | Doug Short (dshort.com)
All measures reach new records, spiking higher into extreme levels; stark juxtaposition to neutral investor sentiment surveys (see below); next month’s data should show signs of abatement due to Fed’s explicit intent to raise rates:NYSE margin debt vs SPX (real gross & net, 2015.04)
Nominal margin debt: +16.0% yoy, +6.5% mom @ $507.2B; new record high
Real margin debt: +6.2% mom; record high far above prior highs in 3/2000 & 7/2007′s before those bear markets
Net margin balances (“buying power”): -19.2% mom @ -$227.37B debit; record low (crushes prior records from 2000, 2007 & 2011)
[See also: Margin debt isn’t that bearish (it’s stayed as a constant % of NYSE market cap since 2007)]
#Bearish #Leverage #Latent indicator

Sentiment

Retail investor sentiment survey (2015.06.03) | American Association of Individual Investors (AAII)
Sentiment remains a buy signal; neutral cohort still outsized, now a significant indication of healthy uncertainty:
Bull/Bear ratio: +0.3bp wow @ 1.11 (below both 1.28 historical average & 1.80 extreme high)
Bullish: +0.3pp @ 27.3% (under both 38.9 avg & 45 extreme high)
Bearish: -0.5pp @ 24.6% (under 25 extreme low & 30.4 avg)
Neutral: +0.2pp @ 48.0% (over 30.7 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 11/2015).
[Previously: Fund manager allocations neutral]
#Bullish #Contrarian

Asset allocation survey (May 2015) | American Association of Individual Investors (AAII)
Equity allocations plummet, sending a new buy signal:
– Stocks: -10.1pp @ 57.8% (below 60% average & 70% extreme high); breaks streak of 25 consecutive months above average (longest post-crisis streak)
Bonds: +3.1pp @ 19.3% (above 16% avg & 10% extreme low); 10th consecutive month back above average
Cash: +6.9pp @ 22.8% (below 24% avg, above 15% extreme low); below avg for 42nd consecutive month
#Bullish! #Contrarian $SPY $AGG

Strategist sentiment survey: Sell side consensus indicator (May 2015) | Bank of America Merrill Lynch (BAML)
Big buy signal as analysts/strategists remain extremely bearish, recommending underweight equity allocations:Sell side consensus indicator 2015.05
Equity allocation (avg): +1.2pp @ 52.4% (below 59.8 average & 53.4 extreme low)
“Historically, when our indicator has been this low or lower, total returns over the subsequent 12 months have been positive 97% of the time, with median 12-month returns of +26%.”
Indicator measures “average recommended equity allocation of Wall Street strategists.”
#Bullish! #Contrarian #Recency effect bias

Technicals

Technical study: S&P 500 long term regression & standard deviation (June 2015) | Doug Short (dshort)
SPX 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: +1.77% (average annual real return)
Standard deviation (σ): ±40.6%SPX long term regression & standard deviation (1871-2015)
Variances:
    Currently: +1pp mom @ +94%, reversion to trend is -51% @ 1086
    Panic of 1907: +85%
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
Uses $SPX real (inflation-adjusted) prices with exponential regression starting in 1871.
#Bearish #Mean reversion #Secular

Study: Cross-asset class strategy for investing in economic expansions | Morgan Stanley
Compares relative performance of asset classes & styles during all phases of the economic cycle (downturn/repair/recovery/expansion).
During expansion:Cross-asset class relative performance across US economic cycle
Growth > Value (+0.1% avg 3-month outperformance)
Large cap > Small cap (+2.2% avg)
International > Domestic (+0.2% avg)
High yield > Investment grade (+0.7% avg)

–Romeo

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  1. […] (through 1/2016). [Previously: Retail allocations neutral, Institutional allocations neutral & Strategist allocations are bullish signal] #Bullish […]

  2. […] over next 6 months (through 2/2016). [Previously: Institutional allocations neutral & Strategist allocations are bullish signal] #Bullish […]

  3. […] (through 2/2016). [Previously: Retail allocations neutral, Institutional allocations neutral & Strategist allocations are bullish signal] #Bullish […]

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