Diary of a Financier

Top Newsstuffs (April 10-16)

In Bookshelf on Sun 16 Apr 2017 at 05:56

Top reads from across the past week…

Macro (BULLISH)

Retail sales (March 2017)
by US Government Census

This was a bad report that looks even worse after significant downward revisions to prior months’ data; despite the sequential deceleration, yoy growth remains firmly above trend GDP, although we’re still in the midst of easy yoy comps due to energy’s low base, which is offsetting the weakness in brick & mortar retailers…
Core (ex-autos): -0.7pp @ +5.0% yoy, unch mom (miss +0.3e)
Headline: -0.5pp @ +5.2% yoy, -0.2% mom (miss unch exp); prior month revised significantly lower
Retail sales account for ~31% of US GDP (~45% of the Consumption component).
[Previously: Consumer confidence remains extremely bullish signal & Income/consumption remain bullish signals]
#Bullish $XLY $XRT #tailwind

Inflation: Consumer Price Index (March 2017)
by Bureau of Labor Statistics (BLS)

Prices fall in a big surprise relative to consensus; energy’s still lapping its low base for yoy comps, although sequential declines weighed on headline data; regardless, inflation is right around the Fed’s 2% target, and Yellen has said she’d tolerate higher run-rates, so don’t expect too hawkish of a tightening cycle from the Fed…
Core CPI (ex food & energy): -0.2pp @ +2.0% ttm, -0.1% mom (miss +0.2e)
Headline CPI: -0.3pp @ +2.4% ttm, -0.3% mom (miss unch exp); down from highest run-rate since 2/2012
[Previously: Yellen’s “Optimal Control Policy” could have Fed target 2.5% inflation]
#Neutral #Dovish $TIP

Credit (NEUTRAL)

Loans & leases in bank credit, all commercial banks (2017.03.01)
by St. Louis Federal Reserve (FRED)

Lending growth continued to decelerate deeper into multi-year lows, although econometrics suggest that this is a lagged effect of last year’s industrial production slowdown…
Weekly loan growth: -14bps wow @ +3.81% yoy (below 7.3% historical average); lowest level since 4/2014
This is a key indicator; although the Fed’s rising rates & Trump’s deregulation increase NIMs, I’d expect continued credit expansion due to household & corporate balance sheets being more deleveraged than at any point since the 1970s.
[Previously: Consumer indebtedness remains a bullish signal, Banks’ future credit supply & demand fundamentals expected to remain neutral & Households remain extremely deleveraged]
#Neutral #Releveraging? #Credit cycle $XLF $KBE $KRE

Sentiment (BULLISH)

Retail investor sentiment survey (2017.04.13)
by The American Association of Individual Investors (AAII)

Sentiment remains at extremes, historically a sign of outperformance (SPX +6.3% average over next 6-months)…
Bull/Bear ratio: +7bps wow @ 0.78 (below both 1.30 historical average & between 1.00 – 1.80 extremes)
Bullish: +0.7pp @ 29.0% (below both 39 avg & 30 – 45 extremes)
Bearish: -2.2pp @ 37.4% (above 30 avg, but between 25 – 40 extremes)
Neutral: +1.6pp @ 33.6% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 9/2017).
[Previously: Retail allocations remain neutral, Institutional allocations are barely neutral & Quantifying the “wall of worry”]
#Bullish! #Contrarian

Technicals (NEUTRAL)

Technical study: S&P 500 long term regression & standard deviation (March 2017)
by Doug Short (dshort)

The inflation-adjusted SPX is still resting right above the 2 sigma threshold (relative to its LT trend) — a level that has historically marked a market top…
Historical variances:
    Currently: unch mom @ +98%; remains at a cycle high
    Panic of 1907: +85%
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
– Mean: +1.8% 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

Fundamentals (BULLISH)

Valuations (NEUTRAL)

–Romeo

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