Diary of a Financier

Top Newsstuffs (July 10-16)

In Bookshelf on Sun 16 Jul 2017 at 05:50

Top reads from across the past week…

Macro (BULLISH)

Retail sales (June 2017)
by US Government Census

The downside surprises continue with this sizable deceleration; although prior month data was revised higher, core growth missed estimates by a lot; growth remains slightly above trend, likely to come further down to earth as easy yoy comps taper into YE; carnage among brick & mortar retailers continues…
Core (ex-autos): -1.4pp @ +2.4% yoy, -0.2% mom (miss +0.4e); prior month revised higher
Headline: -1.0pp @ +2.8% yoy, -0.2% mom (miss +0.1e); prior month revised higher
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 (June 2017)
by Bureau of Labor Statistics (BLS)

Inflation misses expectations across the board, continuing to decelerate further below the Fed’s 2% target; while energy remained sequentially weak, its easy yoy comps are still a tailwind, which will wane steadily into YE; services (+2.5% ttm) are the only thing buoying core…
Core CPI (ex food & energy): unch @ +1.7% ttm, +0.1% mom (miss +0.2e); a 19-month low
Headline CPI: -0.3pp @ +1.6% ttm, unch mom (miss +0.1e)
Yellen has said she’d even tolerate higher run-rates, so don’t expect too hawkish of a tightening cycle from the Fed.
[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 (2017.05.31)
by St. Louis Federal Reserve (FRED)

Lending growth is getting worse, decelerating to new multi-year lows; econometrics suggest that this could be a lagged effect of 2015/16’s industrial production slowdown, which difficult comp doesn’t get lapped until 2017YE…
Weekly loan growth: -83bps mom @ +3.28% yoy (below 7.3% historical average)
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: Households remain extremely deleveraged & Banks’ future credit supply & demand fundamentals expected to remain neutral]
#Bearish #Releveraging? #Credit cycle $XLF $KBE $KRE

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

 

Sentiment (BULLISH)

Retail investor sentiment survey (2017.07.13)
by The American Association of Individual Investors (AAII)

Sentiment drops ever so slightly into a bullish signal, with the Neutral cohort remaining outsized — manifesting the wall of worry…
Bull/Bear ratio: -4bps wow @ 0.95 (below both 1.30 historical average + 1.00 – 1.80 extremes)
Bullish: -1.3pp @ 28.2% (below both 39 avg + 30 – 45 extremes)
Bearish: -0.2pp @ 29.6% (below 30 avg, between 25 – 40 extremes); up from ytd lows
Neutral: +1.6pp @ 42.1% (above 31 avg); back near post-Election highs
Measures respondents’ expectation for equity performance over next 6 months (through 12/2017).
[Previously: Retail allocations remain neutral, Institutional allocations remain a bullish signal, Strategists’ consensus remains a neutral signal & Quantifying the “wall of worry”]
#Bullish #Contrarian

Technicals (NEUTRAL)

NYSE margin debt & balances (May 2017)
by Doug Short (dshort’s Advisor Perspectives)

Despite new record highs, margin debt levels aren’t sounding alarm bells, since they’re increasing in lockstep with the market; yoy comps are misrepresentative due to a low base…
Nominal margin debt: -1.7% mom, +19.7% yoy @ $539.9B; down from a record high
Net credit (“buying power”): +3.0% mom, -64.6% yoy @ -$240.7B debit
[See also: Margin debt & SPX growth rates in lockstep, Margin debt/NYSE ratio constant since 2007 & Margin debt/SPX ratio constant since 2007]
#Neutral #Leverage #Lagging indicator

Technical study: S&P 500 long term regression & standard deviation (June 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 @ +99%; a new 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

–Romeo

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