Diary of a Financier

Top Newsstuffs (December 7-13)

In Bookshelf on Sun 13 Dec 2015 at 07:15

Top reads from the week that was…

Macro

Retail sales (November 2015) | US Government Census
Decent report relative to expectations, but sales decelerate again; below-trend growth remains disappointing, especially given the tailwind of “consumer stimulus” from lower energy prices, which high base has already been lapped by yoy comps:Retail sales (%change yoy & $gross, 2015.11)
Headline: -0.3pp @ +1.4% yoy, +0.2% mom (misses +0.3e); prior month unrevised
    Autos: -2.6pp @ +4.0% yoy, -0.4% mom
Core (ex-autos): +0.2pp @ +0.7% yoy, +0.4% mom (meets +0.4e); prior month revised down (-0.1pp @ -0.1% mom)
    Gas: -0.4pp @ -19.9% yoy, -0.8% mom
#Neutral

Sentiment

Retail investor sentiment survey (2015.12.09) | American Association of Individual Investors (AAII)
Sentiment drops into a significant buy signal, with a slice of the massive neutral cohort flipping to bearishness; positioned for Santa Claus rally:
Bull/Bear ratio: -44bp wow @ 0.95 (below 1.30 historical average)AAII retail investor sentiment survey- bulls/bears 2015.12.09
Bullish: -1.0pp @ 28.5% (below 39 avg)
Bearish: +8.7pp @ 29.9% (below 30 avg, above 25 extreme low)
Neutral: -7.7pp @ 41.6% (above 31 avg); near alltime high fm 5/2015
Measures respondents’ expectation for equity performance over next 6 months (through 5/2016).
[Previously: Retail allocations neutral; Institutional allocations neutral & Strategist sentiment still a buy signal]
#Bullish! #Contrarian

Interests

The future is still so bright | Calculated Risk
Catalysts for continued US economic growth in 2016…
1. Releveraging: household deleveraging ended in 2013, leaving consumers with more disposable income
2. Employment momentum: economic drag from federal/state/local government layoffs has ended; 2014 was best year for broad employment since 90s & 2015 was 2nd best
3. Housing recovery: Housing Starts should rally +40% (fm 1.06M saar to 1.5M LT avg) due to low inventory & household formation (e.g. large millennial cohort moving into 30s, i.e. renting to owning)
4. Commercial real estate (CRE): acceleration in Architecture Billings signal that investment should surge in 2016
5. Demographics (LT): the prime working age population (25-54 years old) is now growing @ +0.5% per year; having peaked in 2007 & bottomed in 2012, it will exceed its prior peak in 2016 & spike in 2020
[Previously: The future is so bright, I gotta wear shades]
#Bullish

Lower oil prices are boosting global demand (September 30, 2015) | Dr. Ed’s Blog (Ed Yardeni)
With oil prices crashing, global demand actually rose to an alltime high in August, with its highest growth rate in 4-years:Global oil demand 1987-2015
Global oil demand (monthly): +2.0% yoy; alltime high & fastest rate since 8/2011
    Developed market demand: +0.9% yoy
    Emerging market demand: +3.1% yoy
[Previously: ST supply & demand curves for oil are steep]
#Perception vs reality gap $USO

2016 oil production outlook | OilPrice.com
After 2015 was one of the worst years for energy/E&P in history, 2016 looks just as bad…
1. OPEC: cartel removed their 30Mb/d limit, so each sovereign can increase production if prices rally.
[OPEC production is already operating at capacity & new supply from Iran coming back online is already priced-in.]
2. Hedges expiring: 20% of 2015 production was hedged @ $80+, so rolling those hedges @ $40-50 futures prices will crush revenues.
[At $XLE’s current valuation & flat FY16e growth consensus, this has already been discounted; FY17e EPS growth @ +52% may get trimmed, but again valuations have already discounted downward revisions.]
3. Credit spreads: financing has gotten tight for those in need of liquidity.
4. Fracklog: there’s a backlog of drilled but uncompleted wells (incremental +200kb/d in FY16e), which are subject to both cash flow needs & regulatory time limits on completions.
5. Offshore shadow supply: onshore rig counts & production data don’t account for offshore, for which legacy contracts ramp-up production in 2015/16 (incremental +300kb/d in FY15).
#Bearish $XOP $IEO

–Romeo

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