Diary of a Financier

Top Newsstuffs (September 18-24)

In Bookshelf on Sun 24 Sep 2017 at 05:53

Top reads from across the past week…

Macro (BULLISH)

Housing permits, starts & completions (August 2017)
by US Government Census

This is a nice bump amidst a choppy string of reports, although it still remains below trend growth; multifamily’s headwind (-23% yoy) will continue to drag on data as its cyclical boom has ended (as expected)…
Monthly housing starts:  +7.0pp @ +1.4% yoy, -0.8% mom @ 1.180M saar (beat 1.173e); prior months revised higher
Growth rate: +0.3pp @ +2.7% ytd
Residential investment accounts for 3-5% of US GDP, part of housing’s 15-18% total contribution to growth.
[Previously: The future is still so bright; See also: BAML says housing starts will accelerate & return to historical average in 2016/17 & Homebuilder confidence remains near 11-year highs]
#Neutral $XHB $ITB

 

Credit (BEARISH)

Loans & leases in bank credit, all commercial banks (2017.09.06)
by St. Louis Federal Reserve (FRED)

Lending growth remains ugly, continuing a ytd deceleration 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: -45bps mom @ +3.30% yoy (below 7.3% historical average)
This is a key indicator; although the Fed’s rising rates & Trump’s deregulation jawboning should increase NIMs and corporate debt is relatively bloated, I’d still expect continued, aggregate credit expansion, since household balance sheets are more deleveraged than at any point since the 1970s.
[Previously: Households remain extremely deleveraged; See also: Senior loan officer survey expects bank credit supply & demand fundamentals to remain neutral]
#Bearish #Releveraging!? #Credit cycle $XLF $KBE $KRE

 

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

S&P 500 valuation update: Growth rates accelerating off low base (2017.09.16)
by Fundamentalis

Despite slightly elevated multiples, a recovery in Energy (EPS +135% yoy Q3e) and acceleration in Tech (+9.5%) will naturally compress the market’s PE ratio; Earnings Yields also show attractive relative valuations (+100bps spread over Baa corporates)…
EPS (ntm): +3.11 mom @ $137.83
PE ratio (fw): unch mom @ 18.0x
PEG ratio: -2bps wow @ 1.88x; remains in trend compression as forward growth rate accelerates
Earnings yield: -2bps mom @ 5.51%
EPS growth rate (ntm): +7bps mom @ 9.63%

[See also: Modern capital markets warrant higher valuation multiples]
#Neutral #Valuations $SPY

 

Sentiment (BULLISH)

Retail investor sentiment survey (2017.09.21)
by The American Association of Individual Investors (AAII)

After last week’s unprecedented surge from one extreme to another, sentiment retraces a bit, moderating down from a contrarian bearish signal back into neutral territory…
Bull/Bear ratio: -41bps wow @ 1.47 (above 1.30 historical average, within 1.00 – 1.80 extremes)
Bullish: -1.2pp @ 40.1% (above 39 avg, within 30 – 45 extremes)
Bearish: +5.2pp @ 27.2% (below 30 avg, within 25 – 40 extremes); up from a 17-month low
Neutral: -4.1pp @ 32.7% (above 31 avg, below 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 3/2018).
[Previously: Retail allocations remain neutral, Institutional allocations maintain bullish signal for US riskStrategists’ consensus remains a neutral signal & Quantifying the “wall of worry”]
#Neutral #Contrarian

 

Technicals (NEUTRAL)

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

Margin debt levels reaccelerate to record highs, remaining in reasonable proportion to market performance, although this now bears watching; yoy comps are still misrepresentative due to a low base, but they’re now lapping that into year-end…
Nominal margin debt: +2.0% mom, +15.9% yoy @ $549.9B; a new alltime high
Net credit (“buying power”): -7.2% mom, -55.6% yoy @ -$255.9B debit; a new alltime low
[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

 

–Romeo

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