Diary of a Financier

Top Newsstuffs (November 2-8)

In Bookshelf on Sun 8 Nov 2015 at 06:57

Top reads from the week that was…

Macro

Rail traffic monthly (October 2015) | Association of American Railroads (AAR)
Comments echo other macro data, which indicate a bifurcation between services strength & manufacturing weakness — attributable to China/commodities supercycle bust & energy crash:Railtraffic monthly 2015.10
Monthly traffic: -2.3pp @ -4.3% yoy
Growth rate: -0.3pp @ -1.4% ytd
Carload groups: 5 of 20 posted gains for the month yoy
In particular, the secular decline of coal volumes (~40% of carloads makes it the largest category) is negatively skewing the data.
#Irrelevant $IYT $XLB $XLE $DBC

Purchasing Managers Index (October 2015) | Markit Economics
Global growth accelerates out of stagnation, beating expectations, with internals suggestive of a Q4 boom:
Global PMI (Composite): +0.6 @ 53.4 (below 53.9 LT average)
Global PMI (Services): +0.4 @ 53.7
Global PMI (Manufacturing): +0.7 @ 51.4; recovers from 14-month low as employment rises out of contraction
US ISM (Composite): +1.9 @ 58.0; subindices setup for acceleration into YEUS ISM PMI Composite 2015.10
– US ISM (Services): +2.2 @ 59.1 (beat 56.7e); this month corresponds to +4.5% real GDP (annualized)
    New orders: +5.3 @ 62.0
US ISM (Manufacturing): -0.1 @ 50.1 (beat 50.0e); weak report indicates stagnation, as commentary cites uncertainty; this month corresponds to +2.2% real GDP (annualized)
    New orders: +2.8 @ 52.9
    Inventories: -2.0 @ 46.5
Eurozone (Composite): +0.3 @ 53.9 (miss 54.0e); corresponds to +0.4% real GDP (annualized)
Eurozone (Services): +0.4 @ 54.1 (miss 54.2e)
Eurozone (Manufacturing): +0.3 @ 52.3 (beat 52.0e)
UK: +3.8 @ 55.5
Japan: +1.4 @ 52.4
China: official unch @ 49.8 (misses 50.0e); unofficial +1.1 @ 48.3
India: -0.5 @ 50.7
South Korea: -0.1 @ 49.1
Taiwan: +0.9 @ 47.8; continues recovery fm 35-month low
Brazil: -2.9 @ 44.1; new 79-month low suggests “a deepening downturn”
#Bullish

Credit

Senior loan officer survey (2015q3) | Federal Reserve (Fed)
Credit fundamentals seem strong for all types of loans, except residential mortgage demand is procyclically drying-up; combine with some recent spread widening in $HYG $JNK, a deleveraging corporate sector is handing-off to a releveraging household sector/real economy (as expected):
Commercial & Industrial Loans (C&I): demand remains strong, but supply stays flat
Commercial Real Estate (CRE/CMBS): demand accelerates meaningfully, but supply tightens moderately
Residential mortgages (RRE/RMBS): demand plunges into contraction, despite looser supply (subprime supply tightened significantly)
Consumer loans: demand remains strong, aided by loose supply
Surveys net respondents’ qoq change in credit demand, spreads & lending standards.
[Previously: Commercial bank lending remains bullish & Total consumer indebtedness remains neutral]
#Bullish #Credit expansion #Credit cycle $KBE $KRE

Technicals

Technical study: S&P 500 long term regression & standard deviation (October 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: +1.78% average annual real return
Standard deviation (σ): ±40.6%SPX long term regression & standard deviation (2015.10)
Variances:
    Currently: +8pp mom @ +85%
    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

Sentiment

Retail investor sentiment survey (2015.11.04) | American Association of Individual Investors (AAII)
Sentiment remains at the upper-bounds of exuberance, although Neutral cohort swells in a healthy sign of uncertainty:
Bull/Bear ratio: +14bp wow @ 2.10 (above 1.30 historical average)AAII retail investor sentiment survey- bulls/bears 2015.11.04.
Bullish: -1.4pp @ 39.0% (meets 39 avg)
Bearish: -2.0pp @ 18.6% (below 25 extreme low & 30 avg)
Neutral: +3.4pp @ 42.4% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 5/2016).
[Previously: Institutional allocations neutral & Strategist sentiment extremely bearish]
#Bearish #Contrarian

Asset allocation survey (October 2015) | American Association of Individual Investors (AAII)
Equity allocations largely unchanged, maintaining neutral signal:
– Stocks: +1.1pp @ 64.7% (above 60% average; below 70% extreme high); lowest since 8/2013
Bonds: +0.1pp @ 16.6% (above 16% avg & 10% extreme low); a 6-month high
Cash: -1.3pp @ 18.7% (below 24% avg; above 15% extreme low); below avg for 46th-consecutive month
#Neutral #Contrarian $SPY $AGG

–Romeo

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