Diary of a Financier

Top Newsstuffs (November 30 – December 6)

In Bookshelf on Sun 6 Dec 2015 at 06:23

Top reads from the week that was…

Macro

Rail traffic monthly (November 2015) | Association of American Railroads (AAR)
Railroads indicate a crash in economic activity this month, led lower by energy & materials — attributable to China/commodities supercycle bust:Railtraffic monthly 2015.11
Monthly traffic: -1.7pp @ -6.0% yoy
Growth rate: -0.4pp @ -1.8% ytd
Carload groups: 6 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 (November 2015) | Markit Economics
Global growth accelerates out of stagnation, beating expectations, with internals suggestive of a Q4 boom:
Global PMI (Composite): +0.3 @ 53.7 (below 53.9 LT average)
Global PMI (Services): +0.6 @ 54.1
Global PMI (Manufacturing): -0.1 @ 51.3
US ISM (Composite): -3.0 @ 55.0US ISM PMI Composite 2015.11; hurt by strong dollar ($USD)
– US ISM (Services): -3.2 @ 55.9 (miss 58.2e); still a healthy expansion, but deceleration is notable, especially given internals; corresponds to +3.1% real GDP (annualized)
    New orders: -4.5 @ 57.5
    Production: -4.8 @ 58.2
    Inventories: +2.0 @ 54.5
    Employment: -4.2 @ 55.0
    Exports: -5.0 @ 49.5
US ISM (Manufacturing): -1.5 @ 48.6 (miss 50.5e); surprisingly weak report dips into contraction for first time in 36 months (11/2012), but inventory draw-down & employment surge are healthy leading indicators; corresponds to +1.7% real GDP (annualized)
    New orders: -4.0 @ 48.9
    Inventories: -3.5 @ 43.0
    Employment: +3.7 @ 51.3
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): +0.5 @ 52.8 (meet 52.8e)
UK: -2.5 @ 52.7; falls fm 16-month high
Japan: +0.2 @ 52.6; highest in 20 months
China: official -0.2 @ 49.6 (miss 49.8e); unofficial +0.3 @ 48.6
India: -0.4 @ 50.3; lowest in 25 months
South Korea: unch @ 49.1
Taiwan: +1.7 @ 49.5; continues recovery fm 35-month low
Brazil: -0.3 @ 43.8; lowest in 80 months
#Bullish

Credit

NYSE margin debt & balances (October 2015) | Doug Short (dshort.com)
All measures indicate procyclical releveraging amidst the market’s recovery from a Q3 correction; expect deleveraging to return with Fed rate hikes:NYSE margin debt vs SPX (real gross & net, 2015.10)
Nominal margin debt: +4.0% yoy, +4.0% mom @ $472B
Real margin debt: +4.0% mom; 7.1% off record high (4/2015), but still above prior highs from 3/2000 & 7/2007′s before those bear markets
Net margin balances (“buying power”): -12.5% mom @ -$193B debit; remains well-off record lows, but still doubles prior records from 2000, 2007 & 2011
[See also: Margin debt/NYSE ratio constant since 2007 & Margin debt/SPX ratio constant since 2007]
#Bearish #Leverage #Latent indicator

Fundamentals

Corporate financing gap at recessionary lows | JP Morgan
The US corporate financing deficit has plunged to lows that preceded 2001 & 2008 recessions:US corporate financing gap
Corporate financing gap = cash flow generation – spending (capex + dividends)
[A postcrisis capital surplus was aided by Fed QE/ZIRP, but now the pendulum is swinging the other way with a Fed Funds Rate hike nearing. Household/consumer balance sheets are as deleveraged as they’ve been since the 1980s with the ability to pickup the slack, but the flowthrough to corporate profits is slow.]
#Bearish #False positive? #Unintended consequences? #Releveraging

Sentiment

Retail investor sentiment survey (2015.12.02) | American Association of Individual Investors (AAII)
Sentiment returns to a neutral signal after last week’s collapse; neutral cohort spikes back to highs in a healthy sign of uncertainty:
Bull/Bear ratio: +38bp wow @ 1.39 (above 1.30 historical average)AAII retail investor sentiment survey- bulls/neutrals 2015.12.02
Bullish: -2.9pp @ 29.5% (below 39 avg)
Bearish: -4.8pp @ 21.2% (below 30 avg & 25 extreme low)
Neutral: +7.7pp @ 49.3% (above 31 avg); near alltime high fm 5/2015
Measures respondents’ expectation for equity performance over next 6 months (through 5/2016).
[Previously: Institutional allocations neutral & Strategist sentiment still a buy signal]
#Neutral #Contrarian

Asset allocation survey (November 2015) | American Association of Individual Investors (AAII)
Equity allocations largely unchanged, maintaining neutral signal:
– Stocks: +0.8pp @ 65.5% (above 60% average; below 70% extreme high); rises from 26-month low
Bonds: +0.1pp @ 16.7% (above 16% avg & 10% extreme low); a 7-month high
Cash: -0.9pp @ 17.8% (below 24% avg; above 15% extreme low); below avg for 47th-consecutive month
#Neutral #Contrarian $SPY $AGG

Technicals

Technical study: S&P 500 long term regression & standard deviation (October 2015) | Doug Short (dshort)
During the postcrisis bull market, SPX has persistently remained over 2 sigmas from its LT trend — price levels which have historically marked a top:
– Mean: +1.78% average annual real returnSPX long term regression & standard deviation (2015.11)
Standard deviation (σ): ±40.6%
Variances:
    Currently: +4pp mom @ +89%
    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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