Diary of a Financier

Top Newsstuffs (April 11-17)

In Bookshelf on Sun 17 Apr 2016 at 05:39

Top reads from the week that was…

Macro

Retail sales (March 2016) | US Government Census
Although the Street was disappointed, this was a decent report considering big upward revisions to prior months & generally weak seasonality; data remains solid when controlled for energy prices, which signals green-shoots from the US consumer; with Q1 retail sales +2.8% yoy, -0.1% qoq, consumption will buoy GDP, albeit more modest than expected…Retail sales (%change yoy & $gross, 2016.03)
Core (ex-autos): -0.9pp @ +1.8% yoy, +0.2% mom (miss +0.4e); prior months revised higher
    Gas: -0.1pp @ -15.6% yoy, +0.9% mom
Core core (ex-gas & autos): -1.4pp @ +3.4% yoy, -0.4% mom
Headline: -2.0pp @ +1.7% yoy, -0.3% mom (miss +0.1e); prior months revised higher
Retail sales account for ~31% of US GDP (~45% of the Consumption component).
[Previously: Consumption boom or depression babies?]
#Neutral $XLY

Inflation: Consumer Price Index (March 2016) | Bureau of Labor Statistics (BLS)
Core inflation maintains acceptable levels near the Fed’s 2% target, and headline should soon follow, as energy’s drag wanes…Core inflation- PCE, CPI, Median CPI, trimmed mean CPI 2016.03
Core CPI (ex food & energy): -0.1pp @ +2.2% ttm, +0.1% mom (misses +0.2e)
Headline CPI: -0.1pp @ +0.9% ttm, +0.1% mom (misses +0.2e)
    Energy: -0.1pp @ -12.6% ttm, +0.9% mom
#Neutral

Technicals

Commitment of Traders (COT): S&P 500 net speculative positioning (2016.04.12) | 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) 2016.04.12
Net speculative positioning: +14.7k wow @ -89.5k 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

Sentiment

Retail investor sentiment survey (2016.04.14) | American Association of Individual Investors (AAII)
Sentiment remains a neutral signal, but the massive, swelling neutral cohort is indicative of healthy uncertainty…Retail investor sentiment survey- bulls & bears 2016.04.14
Bull/Bear ratio: -38bp wow @ 1.12 (below 1.30 historical average, but between 1.00 – 1.80 extremes)
Bullish: -4.3pp @ 27.8% (below 39 avg & 30 – 45 extremes)
Bearish: +3.4pp @ 24.9% (below 30 avg & 25 extreme low); off a ytd low
Neutral: +0.9pp @ 47.3% (above 31 avg); another 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

Global fund manager allocation survey (April 2016) | Bank of America Merrill Lynch (BAML)
Risk allocations remain in extreme lows, maintaining a risk-on buy signal akin to 2012’s…
Equity: -4pp @ +9% OW (under +15 & +50 extremes); still OW highest beta/cyclical sectors
Bonds: -1pp @ -38% UW (between -60 & -20 extremes)BAML fund manager allocation survey- equity, fixed income, cash & sectors 2016.04
Cash: +0.3pp @ +5.4% OW (beyond +4.5 extreme high); back up near a 15-year high (5.6% in 2/2016)
Commodities: -8pp @ -22% UW (below -20 & +12 extremes)
Regions:
    US: +3pp @ -10% UW
    Europe: -8pp @ +33% OW
    Japan: -18pp @ -3% UW
    Emerging Markets: +3pp @ -8% UW
Surveys a sample of 200+ PMs with $700B+ in AUM, asking for portfolio positioning (overweight/underweight) relative to 60/30/10 benchmark.
#Bullish #Contrarian
#Bearish: $VNQ #Cash $XLY $XLK
#Bullish:  $XLE $EEM $DBC $XLB

Interests

Energy price crash yields no consumer stimulus, now a headwind | Econbrowser
“while there was a modest boost in spending in 2014h2 & 2015h1, it was significantly less than would have been predicted from the historical relation between spending and energy prices. Moreover, any boost seems to have completely vanished by this point, with actual consumption even a little below what would have been predicted had there been no drop in energy prices at all…Total consumption- actual (black) vs potential vs predictive model given current energy crash (green)
“For a net oil importer like the US, the direct dollar gains to consumers exceed the dollar losses to domestic producers. Even so, multiplier effects from displaced workers and capital in the oil sector could end up eating away at some of those net gains.”
Given the lack of consumer stimulus & the loss of multiplier effects, expect the Energy industry to significantly drag on GDP in 2016FY…
i/ Energy & Materials services spending: -56% yoy @ $65B in 2015 (-0.5pp fm GDP)
ii/ E&P job growth: +750k net new hires postcrisis (-0.5pp to unemployment rate)
Consumer expenditures on energy relative to total consumer spending…Energy's share of consumer spending (%share, 1959-2016)
currently: 3.7% (alltime low)
2014: 5.4%
average: 6.0%

[Previously: Consumption boom or depression babies?]
#Bearish $XLE $XLY $USO $UNG $XOP $OIH

The US has entered a toxic corporate debt crisis | Societe Generale, Quant Analysts
“debt on US non-financial corporate balance sheets represents one of the largest mispriced risks in terms of future market stability, downside risk & future economic growth… US corporations have decided to borrow money in order to fuel growth larger than that warranted by economic demand.”
Recent valuation corrections & writedowns have started the crisis…Corporate debt- Debt/Assets ratio & Net Debt/EBITDA (%growth yoy, 1999-2015)
Total Debt/Assets: ratio @ cycle highs (above 2000 & 2009 highs)
Companies are spending 35% more than their incoming cash flows…
Net debt vs EBITDA: spread between growth rates @ cycle highs (above 1998 & 2008 highs)

#Bearish $HYG $JNK $LQD

–Romeo

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