Diary of a Financier

Top Newsstuffs (August 31 – September 6)

In Bookshelf on Sun 6 Sep 2015 at 07:19

Top reads from the week that was…

Macro

Rail traffic monthly (August 2015) | Association of American Railroads (AAR)
After pent-up demand recovery failed to materialize in Q2, July continues to disappoint:Railtraffic weekly 2015.08
Monthly traffic: +1.0pp @ -0.8% yoy
Growth rate: unch @ -1.0% ytd
Carload groups: 6 of 20 posted gains for the month yoy
China’s economic slowdown is impacting all energy & basic materials; in particular, the secular decline of coal volumes (~40% of carloads makes it the largest category) is negatively skewing the data.
#Bearish $IYT $XLB $XLE $DBC

Purchasing Managers Index (August 2015) | Markit Economics
Global expansion stays strong; US & European expansions maintain leadership, but emerging Asia’s contraction remains a headwall:
Global PMI (Composite): unch @ 53.7 (under 53.9 LT average)
Global PMI (Services): +0.3 @ 54.4
Global PMI (Manufacturing): -0.3 @ 50.7; lowest since 7/2013 as “jobs growth slowing to near stagnation”
US ISM (Composite): -1.4 @ 58.0
– US ISM (Services): -1.3 @ 59.0 (beat 58.5e); ytd corresponds to +4.4% annualized GDP
US ISM (Manufacturing): -1.6 @ 51.1 (miss 52.8e); ytd corresponds to +2.9% annualized GDP; continued inventory drawdown (as expected) sets-up a strong 2H outlook; commentary indicates net benefits of energy/commodity price reductions & challenge of labor market tightness, but 2H expectations are high, as FX headwinds will abate as we lap yoy comps:
    New orders: -4.8 @ 51.7US ISM PMI Composite (2015.08)
    Production: -2.4 @ 53.6
    Deliveries: +1.8 @ 50.7
    Inventories: -1.0 @ 48.5
    Backlog: +4.0 @ 46.5
    Employment: -1.5 @ 51.2
Eurozone (Composite): +0.4 @ 54.3 (beat 54.1e); “GDP looks set to have risen 0.4% in Q3”
Eurozone (Services): +0.4 @ 54.4 (beat 54.3e)
Eurozone (Manufacturing): -0.1 @ 52.3 (miss 52.4e)
    Germany: +1.5 @ 53.3
    Netherlands: -2.1 @ 53.9
    Italy: -1.5 @ 53.8; falls from 51-month high
    France: -1.3 @ 48.3; contraction worsens
    Spain: -0.4 @ 53.2
    Greece: +8.9 @ 39.1; recovers from record low after sovereign bankruptcy
Japan: +0.5 @ 51.7
China: official -0.3 @ 49.7 (meet 49.7e); unofficial -0.5 @ 47.3 (beat 47.1e)
India: -0.4 @ 52.3
South Korea: +0.3 @ 47.9
Taiwan: -1.0 @ 46.1; new 35-month low
UK: -0.4 @ 51.5
Australia: +1.3 @ 51.7; rally continues after multi-year contraction
Brazil: -1.4 @ 45.8; “suffering from major capital outflows, reflecting a toxic combination of deteriorating confidence, lower commodity prices, and expectations of US rate hike”
#Bullish

Credit

NYSE margin debt & balances (July 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, 2015.07)
Nominal margin debt: +5.9% yoy, -3.5% mom @ $487B; just off April’s record high
Real margin debt: -3.4% mom; 4.7% off record high (4/2015), but still far above prior highs from 3/2000 & 7/2007′s before those bear markets
Net margin balances (“buying power”): -7.9% mom @ -$205.8B debit; recovers from record low, but still 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 (2015.09.02) | American Association of Individual Investors (AAII)
Sentiment remains a buy signal at extreme lows despite rare optimism amidst market turmoil; neutral cohort re-ascends, having spent all of 2015 ytd at extreme highs — an indication of healthy uncertainty:AAII retail investor sentiment survey- bullishbearish 2015.09.02
Bull/Bear ratio: -9bp wow @ 1.02 (below both 1.30 historical average & 1.80 extreme high)
Bullish: -0.1pp @ 32.4% (under both 39.0 avg & 45 extreme high); near postcrisis low
Bearish: -6.6pp @ 31.7% (above both 30.0 avg & 25 extreme low)
Neutral: +6.7pp @ 35.9% (above 31.0 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 2/2016).
[Previously: Institutional allocations neutral & Strategist allocations are bullish signal]
#Bullish #Contrarian

Asset allocation survey (September 2015) | American Association of Individual Investors (AAII)
Equity allocations largely unchanged, maintaining neutral signal:
– Stocks: -2.4pp @ 65.0% (above 60% average; below 70% extreme high); 29th consecutive month above average (longest post-crisis streak)
Bonds: +0.8pp @ 16.3% (above 16% avg & 10% extreme low)
Cash: +1.6pp @ 18.7% (below 24% avg; above 15% extreme low); below avg for 44th-consecutive month
#Neutral #Contrarian $SPY $AGG

Technicals

Technical study: S&P 500 long term regression & standard deviation (August 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: -9pp mom @ +84%; reversion to trend is -38.7% @ 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

–Romeo

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  1. […] expectation for equity performance over next 6 months (through 2/2016). [Previously: Retail allocations neutral, Institutional allocations neutral & Strategist allocations are bullish signal] #Bullish […]

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