Diary of a Financier

Top Newsstuffs (December 14-20)

In Bookshelf on Sun 20 Dec 2015 at 06:47

Top reads from the week that was…

Macro

Real incomes (November 2015) | Bureau of Labor Statistics (BLS)
Personal income growth remains decent, albeit sufficient to aid consumption’s acceleration (buoying the economy) in 2016 amidst a strong dollar, low energy prices & deleveraged household balance sheets…Real income- avg hourly earnings (%change mom, 2015.11)
Real hourly earnings (for all employees): -0.6pp @ +1.8% yoy, +0.1% mom
Earnings reflect average hours, inflation-adjusted, for all private, nonfarm employees (wages & salaries).
[Previously: A new generation of Depression Babies?]
#Neutral

Housing permits, starts & completions (November 2015) | US Government Census
The strong trend returns after a blip last month; ytd growth remains macro’s lonely sign of pent-up demand…Housing starts 2015.11
Monthly housing starts:  +18.3pp @ +16.5% yoy, 10.5% mom @ 1.173M saar (beats 1.140M exp); prior months revised slightly higher
Growth rate:  +0.8pp @ +11.0% ytd
[Previously: The future is still so bright; See also: BAML says housing starts will accelerate & return to historical average in 2016/17]
#Bullish #Green shoots

Inflation: Consumer Price Index (November 2015) | Bureau of Labor Statistics (BLS)
Core inflation finally hits the Fed’s 2% target, and headline’s headwind from the energy price crash is abating; this qualifies as “price stability” per the Fed’s dual mandate, supportive of a policy rate hike:Core inflation- PCE, CPI, Median CPI, trimmed mean CPI 2015.11
Headline CPI: +0.3pp @ +0.5% ttm, unch mom (meets unch exp)
    Energy: +2.4pp @ -14.7% ttm, -1.3% mom; sequential drag is ending, as yoy comps are lapping their high base
Core CPI (ex food & energy): +0.1pp @ +2.0% ttm, +0.2% mom (meets +0.2e)
#Bullish #Fed Funds #Rate hike #ZIRP

Credit

Loans & leases in bank credit, all commercial banks (2015.12.16) | St. Louis Federal Reserve (FRED)
Lending growth accelerates a bit more, maintaining its healthy trend:Loans & leases in bank credit, all commercial banks (weekly, %yoy) 2015.10.07
Weekly loan growth: +0.1pp @ +8.1% yoy (beat 7.3% historical average)
This is a key indicator, as I’d expect continued expansion due to household & corporate balance sheets being most deleveraged as any point since the 1970s, but the private sector may be suffering from post-traumatic strike — a hangover from the crisis (like “Depression Babies”).
#Bullish #Releveraging $XLF $KBE $KRE

Sentiment

Retail investor sentiment survey (2015.12.17) | American Association of Individual Investors (AAII)
Sentiment plunges deeper into a screaming buy signal; positioned for Santa Claus rally:
Bull/Bear ratio: -34bp wow @ 0.61 (below 1.30 historical average)AAII retail investor sentiment survey- bullsbears 2015.12.17
Bullish: -4.6pp @ 23.9% (below 39 avg & 30 extreme)
Bearish: +9.5pp @ 39.4% (above 30 avg & near 40 extreme)
Neutral: -4.9pp @ 36.8% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months.
[Previously: Retail allocations neutral & Strategist sentiment still a buy signal]
#Bullish! #Contrarian

Global fund manager allocation survey (December 2015) | Bank of America Merrill Lynch (BAML)
Risk allocations remain a neutral signal for risk in aggregate, with a Fed Funds rate hike appearing entirely discounted:
Equity: -1pp @ +42% OW (between +15% to +50% extremes); still OW highest beta/cyclical sectors
Bonds: -5pp @ -64% UW (beyond -60 extreme low)BAML fund manager allocation survey- equity/fixed income/cash/sectors 2015.12
Cash: +0.3pp @ +5.2% OW (beyond +4.5 extreme high)
Commodities: -6pp @ -29% UW (-1.8σ)
Regions:
    US: -13pp @ -19% UW; an 8-year low
    Europe: -3pp @ +55% OW (beyond extreme high, +1.5σ)
    Japan: +9pp @ +37% OW
    Emerging Markets: +4pp @ -27% UW; near record low (-34% in 9/2015)
Surveys a sample of 200+ PMs with $700B+ in AUM, asking for portfolio positioning (overweight/underweight) relative to 60/30/10 benchmark.
#Contrarian
#Bearish: $XLF $XLY $EZU #Cash $EWJ
#Neutral: $XLK $ACWI $XPH $XLY $DXY
#Bullish:  $EUR $EEM $DBC $XLB $XLE $AGG $XLP $SPY

Technicals

Stocks’ reaction to Fed Funds rate hikes (1980-2015) | Deutsche Bank
Charts S&P 500 average performance before & after the first rate increase in Fed tightening cycles since 1980 (sample size of 7)…Average SPX performance before & after Fed Funds rate hikes (1980-2015)
SPX (4-mos before): +5.2%
SPX (6-mos after): +10.0%
#Bullish #Quant #Single-factor

US Dollar’s reaction to Fed Funds rate hikes (1970-2015) | Credit Suisse
Charts the trade-weighted USD’s counterintuitive performance before & after the first rate increase in Fed tightening cycles since 1970 (sample of 5)…USD performance before & after Fed Funds rate hikes (1980-2015)
USD (3-mos before): unch
USD (3-mos after): -5%
USD (9-mos after): -7% w high variance
[Previously: 70% of Credit Suisse clients expect Dollar to strengthen]
$DXY $UUP #Currency #Quant #Single-factor

What bull market? | Josh Brown (The Reformed Broker)
No concerns about a bubble or late-cycle bull market anymore, since global equity markets have consolidated (at best) over the past 18 months & fundamentals are dictating performance again…
1/ Stocks have consolidated: US indices flat & international in another bear marketGlobal equities (by index, 2014.07 - 2015.12)
2/ Earnings matter again: no EPS growth → no returns
3/ Buybacks buoying stock prices
4/ Every secular bull market has years of consolidation
#Bullish

Interests

Kinder Morgan: Evidence that the Master Limited Partnership model is changing | SL Capital
The MLP business model relied on external capital to finance growth (e.g. spot secondaries & bond offerings) — as opposed to reinvesting cash flows — but its narrow investor population (due to tax advantages & K-1s) is now tapped…
“Examining [healthy] operating performance & distribution coverage is clearly not the solution to establishing the security of [dividend payouts… because] the MLP structure is the cheaper legal entity through which to finance energy infrastructure, but the market is coming up short of enough interested capital. We may be transitioning to a different type of security, with lower payouts that grow faster and more internally financed growth. It’s not what original MLP investors signed up for.”
#MLP $AMLP $KMI

–Romeo

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