Diary of a Financier

Top Newsstuffs (April 4-10)

In Bookshelf on Sun 10 Apr 2016 at 06:00

Top reads from the week that was…

Macro

Rail traffic monthly (March 2016) | Association of American Railroads (AAR)
The decline in railroad volume reaccelerates, regardless of difficult yoy comps; still indicative of the collapse in manufacturing activity, led lower by energy & materials amidst the commodity supercycle’s bust…Railtraffic monthly 2016.03
Monthly traffic: -11.5pp @ -11.0% yoy
Growth rate: -2.9pp @ -6.5% ytd
Carload groups: 7 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.
#Bearish #Irrelevant? $IYT $XLB $XLE $DBC

Technicals

Commitment of Traders (COT): S&P 500 net speculative positioning (2016.04.05) | Commodity Futures Trading Commission (CFTC)
Along with the market’s continued recovery, the net short positioning is well within its normal range…SPX futures- net speculative positions (non-commercial longs less shorts) 2016.04.05
Net speculative positioning: +17.9k wow @ -104.2k contracts short (above -150k extreme)
Measures difference between non-commercial longs & shorts in SPX futures (# contracts) as of Tuesday’s trade date.
#Neutral $ES_F $SP_F

Technical study: S&P 500 long term regression & standard deviation (inflation-adjusted, March 2016) | Doug Short (dshort)
SPX rallies right back up to 2 sigmas above its LT trend, but it remains off the cycle high, which level has historically marked a market top…
Historical variances:
    Currently: +7pp mom @ +80% (down fm cycle high @ +91%)
    Panic of 1907: +85%SPX long term regression & standard deviation (2016.03)
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
– Mean: +1.78% average annual real return
Standard deviation (σ): ±40.6%
Uses $SPX real (inflation-adjusted) prices with exponential regression starting in 1871.
#Bearish #Mean reversion #Secular

Sentiment

Retail investor sentiment survey (2016.04.07) | American Association of Individual Investors (AAII)
Despite retracing some of last week’s decline, sentiment remains a neutral signal with an outsized neutral cohort indicative of healthy uncertainty…
Bull/Bear ratio: +45bp wow @ 1.50 (above 1.30 historical average, but between 1.00 – 1.80 extremes)
Bullish: +5.0pp @ 32.2% (below 39 avg, but between 30 – 45 extremes)
Bearish: -4.3pp @ 21.5% (below 30 avg & 25 extreme low); new ytd low
Neutral: -0.7pp @ 46.3% (above 31 avg); off a ytd high
Measures respondents’ expectation for equity performance over next 6 months (through 10/2016).
[Previously: Institutional allocations send bullish signal & Strategist sentiment still a buy signal]
#Neutral #Contrarian #Wall of worry

Asset allocation survey (March 2016) | American Association of Individual Investors (AAII)
Allocations maintain neutral signals, but cash & equities are at levels not seen in 3-years, nearing bullish signals…
– Stocks: +2.5pp @ 64.0% (between 60% average & 70% extreme high); lowest since 3/2013
Bonds: +0.3pp @ 17.5% (above 16% avg & 10% extreme low); highest since 5/2013
Cash: -2.8pp @ 18.5% (below 24% avg; above 15% extreme low); off highest level since 3/2013
#Neutral #Contrarian $SPY $AGG

Interests

Credit outlook: Prolonged, “rolling blackouts” coming in High Yield | Bank of America Merrill Lynch (BAML)
Forecasts “defaults to be much closer to the 1998 experience than the 2007 one… a period of many years where the market experiences general weakness & moderately high defaults as individual sectors take turns realizing their moment of distress”…
1/ Base case: 25% default rate w 22c recovery rate
2/Worst case: 40% default rate (vs 33% crisis avg) w 16c recovery rates (currently @ 40c vs 50c crisis avg)
During the base case analogue period, HY credit initially underperformed equities…
1998: +2.9% TR (-2568bp underperformance vs SPX)
1999: +2.5% (-1854bp)HY- avg default & recovery rates (1996-2015)
2000: -5.0% (+410bp)
2001: +4.4% (+749bp)
2002: -1.9% (+2020bp)
“Too much emphasis has been placed on Adjusted EBITDA, an approximation of cash flow that doesn’t take into account one-off charges, working capital, capex, etc…HY- EBITDA growth (1998-2015)
“6 out of 17 sectors realized negative year-over-year Adjusted EBITDA in Q4, with a 7th sector growing at just 0.5%. On an unadjusted basis, 9 sectors realized negative EBITDA growth for Q4…
“One reason for the collapse in recovery rates: the extensively documented chronic underinvestment in replenishing the asset base, and instead ‘investing’ in buybacks & dividends.”
[Previously: Mind the GAAP vs non-GAAP gap]
#Known unknown $HYG $JNK $BKLN #Credit cycle

The hidden crisis: Federal, state & local government entitlement deficits | Moody’s
Unfunded liabilities will spike in 2018, sharply increasing US government budget deficits…
Total public unfunded liabilities: $20.4T (114% of GDP)
    i/ Federal pensions: $3.5T unfunded liabilities (20% of GDP)
    ii/ State & local government pensions: $3.5T (20% of GDP)
    iii/ Social security: $13.4T (75% of GDP)
    iv/ Medicare: $3.2T (18% of GDP)
$MUB $TLT #defined benefit #DB plans

Study reveals magnitude of the 1099 economy; now we need modern policy to foster contract workers | New Republic
The growth of the “Gig Economy” is responsible for all of the net jobs added over the last decade (+9.4M).
1099 workers’ share of the laborforce…
2005: 10.1%
2015: 15.8%
#Entrepreneurs #Contractor workers

–Romeo

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