Top reads from the week that was…
Loans & leases in bank credit, all commercial banks (2016.03.02) | St. Louis Federal Reserve (FRED)
Lending growth decelerated a bit to open March, but maintained its healthy trend; continues to allay concerns that credit cycle may be turning lower…
– Weekly loan growth: -0.1pp wow @ +7.8% 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 (i.e. “Depression Babies”).
[Previously: Consumer indebtedness remains neutral & Loan officer survey sends bearish signal]
#Bullish #Releveraging $XLF $KBE $KRE
Commitment of Traders (COT): S&P 500 net speculative positioning (2016.03.11) | Commodity Futures Trading Commission (CFTC)
Despite the market’s continued recovery, shorts wade deeper into extreme levels, maintaining the chance of short-covering to prolong the rally…
– Net speculative positioning: -14.3k wow @ -205.7k contracts short (below -150k extreme)
Measures difference between non-commercial longs & shorts in SPX futures (# contracts).
#Bullish! $ES_F $SP_F
Retail investor sentiment survey (2016.03.10) | American Association of Individual Investors (AAII)
Sentiment remains a neutral signal, but continues rally with a spike into the upper echelons of confidence…
– Bull/Bear ratio: +43bp wow @ 1.53 (above 1.30 historical average, but between 1.00 & 1.80 extremes)
– Bullish: +5.3pp @ 37.4% (below 39 avg, but between 30 & 45 extremes); a 5-month high
– Bearish: -4.9pp @ 24.4% (below 30 avg & 25 extreme low); lowest level ytd
– Neutral: -0.5pp @ 38.3% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 8/2016).
[Previously: Retail allocations remain neutral, Institutional allocations send bullish signal & Strategist sentiment still a buy signal]
Presentation: “Connect the dots” multiasset class outlook (2016q1ii) | Jeffrey Gundlach (DoubleLine Funds)
1/ Fed tightening:
Not only should the Fed not raise rates in 2016h1, but the market doesn’t expect it to; the Shadow Fed Funds Rate (accounting for QE) has this tightening cycle tracking as aggressive as any during the Great Moderation and the yield curve’s flattening (2s10s) says the Fed should stop now.
2/ US economy:
Labor markets are too strong for an imminent recession.
3/ Interest rates ($TNX $TYX):
The long-end of the yield curve has already bottomed.
4/ Risk assets:
The rally in risk assets is near its end…
i/ Stocks ($IWM $IWV $SPY): ‘2% upside but 20% downside’
ii/ Commodities ($DBC): haven’t bottomed yet
iii/ Credit ($HYG $BKLN $LQD): leverage is at alltime highs (even if you exclude Energy); spreads will widen again until oil reaches $38 – $45 (but oil inventories are still too high for a recovery)
5/ Global central banks (Negative Interest Rate Policy):
In contrast to QEs, both European and Japanese stocks & FX reacted poorly to NIRP announcements, which are hurting banks and won’t work.
[See also: Complete slide deck; Previously: Outlook (1/2016)]
$USO $EFA $IEF $TLT