Diary of a Financier

Top Newsstuffs (October 16-22)

In Bookshelf on Sun 22 Oct 2017 at 05:11

Top reads from across the past week…


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

Data misses expectations with a big sequential dip, although yoy comps show a nice bump relative to a low base; albeit near trend growth, ytd data remain underwhelming due to multifamily’s headwind (-23% yoy), which will continue to drag on data as its cyclical boom has ended (as expected)…Housing starts 2017.09
Monthly housing starts:  +4.7pp @ +6.1% yoy, -4.7% mom @ 1.127M saar (miss 1.170e); prior months revised slightly higher
Growth rate: +0.6pp @ +3.1% 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 (2017.10.11)
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…Bank loans 2017.10.11
Weekly loan growth: -4bps mom @ +3.29% 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 (2017.10.13)
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); entering the quarter, Q3e EPS growth is +4.4% yoy, so expect upward revisions, as consensus historically undershoots the quarter by 4.2pp…
EPS (ntm): +4.07 mom @ $141.90
PE ratio (fw): unch mom @ 18.0x
PEG ratio: -5bps mom @ 1.83x; remains in trend compression as forward growth rate accelerates
Earnings yield: +5bps mom @ 5.51%
EPS growth rate (ntm): +18bps mom @ 9.81%

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


Sentiment (BULLISH)

Retail investor sentiment survey (2017.10.19)
by The American Association of Individual Investors (AAII)

Sentiment spikes, albeit right in the middle of neutral territory in aggregate; the neutral cohort has returned to average — a sign of both broader-based participation and the wall-of-worry’s dismantling…
Bull/Bear ratio: -12bps wow @ 1.36x (above 1.30 historical average, within 1.00 – 1.80 extremes)
Bullish: -1.8pp @ 37.9% (below 39 avg, within 30 – 45 extremes)
Bearish: +1.0pp @ 27.9% (below 30 avg, within 25 – 40 extremes)
Neutral: +0.8pp @ 34.1% (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 risk, Strategist sentiment remains neutral & Quantifying the “wall of worry”]
#Neutral #Contrarian


Technicals (NEUTRAL)

NYSE margin debt & balances (August 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

Commitment of Traders (COT): S&P 500 net speculative positioning (2017.10.20)
Commodity Futures Trading Commission (CFTC)

Speculators surge up to near ytd highs, spiking higher into extremes indicative of a contrarian bearish signal…Net speculative positioning- S&P 500 Futures 2017.10.20
Net speculative positioning: +21.4k wow @ +161.9k contracts long (beyond -150k & +100k extremes)
Measures difference between non-commercial longs & shorts in SPX futures (# contracts) as of Tuesday’s trade date.
[See also: EUR net speculative positions at multiyear highs send bearish signal]
#Bearish $ES_F $SP_F $SPY





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