Top reads from the week that was…
Real incomes (January 2016) | Bureau of Labor Statistics (BLS)
Personal income growth remains decent, sufficient to aid consumption’s acceleration (buoying the economy) in 2016 amidst a strong dollar, low energy prices & deleveraged household balance sheets…
– Real average hourly earnings: -0.9pp @ +1.1% yoy, +0.4% mom; prior month revised higher
Earnings reflect average hours, inflation-adjusted, seasonally adjusted, for all private, nonfarm employees (wages & salaries).
[Previously: A new generation of Depression Babies?]
Housing permits, starts & completions (January 2016) | US Government Census
Housing remains macro’s lonely sign of pent-up demand with this better-than-meets-the-eye report, considering prior months’ upward revisions & trend velocity maintained…
– Monthly housing starts: -4.6pp @ +1.8% yoy, -3.8% mom @ 1.099M saar (miss 1.175M exp); prior month revised slightly lower
– Growth rate: n/a @ +1.8% ytd
[Previously: The future is still so bright; See also: BAML says housing starts will accelerate & return to historical average in 2016/17, but Expect home sales to soften in 2016 due to low inventories]
Inflation: Consumer Price Index (January 2016) | Bureau of Labor Statistics (BLS)
Core inflation rises to 4-year high, exceeding the Fed’s 2% target again; as headline’s headwind from the energy price crash is abating, the discussion will now turn to overheating & the Fed’s assertion that the last 18 months’ deflationary bout was “transitory”…
– Core CPI (ex food & energy): +0.1pp @ +2.2% ttm, +0.3% mom (beats +0.1e)
– Headline CPI: +0.7pp @ +1.4% ttm, unch mom (beats -0.1e)
Energy: +6.1pp @ -6.5% ttm, -2.8% mom; sequential drag continues to abate, as yoy comps are lapping their high base
Commitment of Traders (COT): S&P 500 net speculative positioning (2016.02.12) | Commodity Futures Trading Commission (CFTC)
Extreme short positioning repairs a bit, now at the top of its short-covering range…
– Net speculative positioning: +75.5k wow @ -158.8k contracts short; bounces further from 10/2014’s low (-278.2k)
Measures difference between non-commercial longs & shorts in SPX futures (# contracts).
#Bullish $ES_F $SP_F
Retail investor sentiment survey (2016.02.17) | American Association of Individual Investors (AAII)
Sentiment bounds off near historic lows, but maintains an extreme buy signal — a procyclical collapse amidst global market turmoil…
– Bull/Bear ratio: +34bp wow @ 0.73 (below 1.00 extreme & 1.30 historical average)
– Bullish: +8.3pp @ 27.6% (below 30 extreme & 39 avg)
– Bearish: -10.9pp @ 37.8% (above 30 avg)
– Neutral: +2.6pp @ 34.6% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 7/2016).
[Previously: Retail allocations neutral, Institutional allocations neutral & Strategist sentiment still a buy signal]
Global fund manager allocation survey (February 2016) | Bank of America Merrill Lynch (BAML)
Risk allocations continue procyclical plummet into extreme lows, producing a risk-on buy signal for the first time since 2012, with cash at crisis levels (on par with Tech bubble and worse than both Lehman & Grexit)…
– Equity: -16pp @ +5% OW (under +15% lower extreme & +50% upper); still OW highest beta/cyclical sectors
– Bonds: +11pp @ -36% UW (back inside -60 extreme low)
– Cash: +0.2pp @ +5.6% OW (beyond +4.5 extreme high); highest since 12/2001
– Commodities: +1pp @ -29% UW (-1.7σ)
US: -4pp @ -19% UW; ties an 8-year low
Europe: -15pp @ +36% OW (still beyond extreme high, +1.0σ)
Japan: -7pp @ +24% OW
Emerging Markets: +10pp @ -23% UW; off 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.
#Bullish! (risk) #Contrarian
#Bearish: #Cash $XLY $XLU $DXY $EZU
#Bullish: $XLE $EEM $XLB $DBC $XLI
Analogues: 2008/09 vs 2015/16 | ZeroHedge
Two chart comparisons that’re tight-fitting on monthly basis, but weak daily correlations — both bearish harbingers…
1. $SPX 2008/09 vs 2015/16: portends +8.3% rally to 1980 through 3/2016, before a -50% bear market drawdown to 990 through 9/2016
2. $LEH 2007/08 vs $DB 2015/16: portends immediate collapse
I can imagine the tail risk of Deutsche Bank collapsing a la Lehman, due to its $75T worth of gross notional derivative exposure, which is eating a hole in its balance sheet due to negative rates’ effect of increasing collateral requirements — but that implies a low-probability outcome.
[Previously: DB is deleveraging at an emergency’s pace (2011)]
#Bearish? #Black swan
Fannie Mae in danger of needing a bailout | The Financial Times (FT)
$FNMA’s capital buffer has dwindled fm $30B to $1.2B (since 2008), so extrapolating the current run-rate suggests it’ll have to go into receivership or a Treasury bailout in 1/2018.
Simple solution: let it retain profits.
#GSE $MBB $AGZ #MBS #Agency