Diary of a Financier

Top Newsstuffs (August 22-28)

In Bookshelf on Sun 28 Aug 2016 at 05:59

Top reads from the last two weeks…

Macro

Manufacturers’ durable & capital goods (July 2016)
by US Department of Commerce

This is not the great report it’s being heralded as: although sequential data crushed expectations, already horrible prior months were somehow revised lower and yoy comps worsened; capex continues to struggle due to mining/energy bust; this manifests the continuing secular decline in manufacturing; on the bright side, the much-needed drawdown in inventories continues…
Core durable goods (ex-transportation)Core durable goods & capex (% change yoy, 2016.07)
    Orders: -0.3pp @ -1.4% ytd, +1.5% mom (beat +0.4e)
    Shipments: -0.4pp @ -2.2% ytd, +0.4% mom
Core capex (capital goods, ex-defense & aircraft)
    Orders: -0.5pp @ -4.3% ytd, +1.6% mom (beat +0.2e)
    Shipments: -0.7pp @ -5.2% ytd, -0.4% mom
Core inventory (ex-transportation)
    Inventories: +1.0pp @ -3.1% ytd, +0.3% mom
#Bearish #Contraction $XLI

Gross Domestic Product: Second estimate (2016q2)
by Bureau of Economic Analysis (BEA)

The revision meets expectations; although Q2 growth  was a major disappointment & Investment really collapsed, there should be a decent tailwind from this 5th straight quarter of big Inventory drawdowns…
Real GDP (Q2): -0.1pp @ +1.1% qoq saar (meets +1.1e)Real GDP components 2016q2.ii
    Inflation: Core +2.1%; Headline +2.3%
    Consumption (PCE): +0.2pp @ +4.4%; off last quarter’s 2-year low
    Investment: unch @ -9.7%; Residential -7.7%; Nonresidential -0.9%, attributable to energy
    Government spending: -0.6pp @ -1.5%; Federal -0.3%; State & local -2.2%
    Exports: -0.2pp @ +1.2%
    Imports: +0.9pp @ +0.3%
    Inventories: -10bp @ -1.26pp detraction fm GDP growth rate
Real GDP per capita (Q2): +0.43% yoy; -10.3% below LT regression trend
Real GDP (2016q1): -0.3pp @ +0.8% qoq saar
Real GDP (2015FY): +0.2pp @ +2.6% yoy
Real GDP (2014FY): unch @ +2.4% yoy
Real GDP (2013FY): +0.2pp @ +1.7% yoy
#Bearish

Credit

NYSE margin debt & balances (July 2016)
by Doug Short (dshort’s Advisor Perspectives)

All measure indicate continued deleveraging, as expected amidst Fed tightening; importantly decoupling from an organic market rally…NYSE margin debt vs SPX (gross & net, 2016.06)
Nominal margin debt: -0.8% mom, -11.4% yoy @ $447B; -11.8% fm record high (4/2015), but still above prior highs from 3/2000 & 7/2007′s before those bear markets
Net margin balances (“buying power”): +9.1% mom, +40.5% yoy @ -$133B debit; maintains trend recovery from record lows, but remains far above prior records from 2000, 2007 & 2011
[See also: Margin debt & SPX growth rates in lockstep, Margin debt/NYSE ratio constant since 2007 & Margin debt/SPX ratio constant since 2007]
#Bullish #Leverage #Lagging indicator

Technicals

Commitment of Traders (COT): VIX net speculative positioning (2016.08.23) | Commodity Futures Trading Commission (CFTC)
Along with this summer’s incredibly low vol, VIX speculators have reached an alltime record net short positioning, and BAML is alarmed by the proliferation of return-enhancing strategies (like selling puts)…VIX futures- net speculative positions (non-commercial longs less shorts) 2016.08.23
“The recent chase for yield has potentially reached an important inflection point. Selling vol to enhance yield is now at an extreme level, with net speculative VIX exposure at all time shorts. Furthermore, this reach for yield is apparent across FX, equity, and fixed-income markets… complacency combined with short vol exposure could set up the market for a highly volatile and correlated sell off on the next shock.”
[See also: S&P 500 net speculative positioning is overwhelmingly long & at ytd highs]
#Bearish $VXX #options

Sentiment

Retail investor sentiment survey (2016.08.25)
by The American Association of Individual Investors (AAII)

Sentiment drops to the lowest levels since Brexit in a bull signal, redoubled by the persistently outsized Neutral cohort; there’s no better manifestation of investors’ postcrisis PTSD…
Bull/Bear ratio: -18bp wow @ 0.99 (below 1.30 historical average & 1.00 – 1.80 extremes)
Bullish: -6.2pp @ 29.4% (below 39 avg & 30 – 45 extremes); lowest since Brexit
Bearish: +3.2pp @ 29.6% (below 30 avg & between 25 – 40 extremes)
Neutral: +2.9pp @ 41.0% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 2/2017).
[Previously: Retail allocations remain neutral & Institutional sentiment remains a bullish signal]
#Bullish #Contrarian #TINA

–Romeo

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