Month: June 2014

SHOWTIME UPDATE

• The U.S. economy is showing clear signs of “lifting off”. The latest manufacturing flash PMI was very, very strong, there are more and more signs that capex are being raised, bank loans are accelerating (+9.2% a.r. in past 21 weeks), unemployment claims near a 7-year low.
• Chain store sales jumped 2% last week, bringing the 4-wk moving average up 3.3% Y/Y, its best gain since January 2013.

There is clearly no summer swoon in the U.S. this year. The Eurozone seems to maintain its slow recovery while China’s recent flash PMI was more encouraging.

• First Call’s earnings revisions index surged to 57.5 last week.

U.S. Existing Home Sales Improve to Seven-Month High

Sales of existing single-family homes in May jumped 4.9% (-5.0% y/y) to 4.890 million (AR) from 4.660 million in April, earlier reported as 4.650 million. Despite the increase, however, sales remained 9.1% below the peak reached last July.

Distressed homes – foreclosures and short sales – accounted for 11 percent of May sales, down from 18 percent in May 2013. Eight percent of May sales were foreclosures and three percent were short sales. Foreclosures sold for an average discount of 18 percent below market value in May, while short sales were discounted 11 percent.

The percent share of first-time buyers represented 27% of all buyers in May, down from 29% in April (same as in April 2013).

The inventory of unsold homes rose 2.2% last month (6.0% y/y) to 2.280 million but remained 43.6% below the 2007 peak.

The WSJ adds this interesting info:

Sales of homes priced above $1 million, an admittedly small and thus volatile cohort, was the only segment of the market to see year-over-year increases in existing home sales in May.

And Zerohedge provides the last bit of info:

(…) In fact, on a price bucket basis, the May data was uniformly worse than April (chart below)!

The logical follow up question: what is the total percentage of sales by given price bucket? The answer, once again, below.

Ray of hope for housing: ISI’s homebuilders survey has bounced back significantly.

Meteorologists shift tone on El Niño Commodity investors hold breath over global weather conditions

In its latest bulletin the Australian Bureau of Meteorology maintained the strong likelihood of El Niño – the warming of parts of the Pacific Ocean – developing this year, but it noted that “in the absence of the necessary atmospheric response, warming has levelled off in recent weeks”.

The bureau added that the areas of warm water in the Pacific were counter to typical patterns for the weather phenomenon.

The International Research Institute for Climate and Society at Columbia University has also said that although during May through to mid-June conditions were near the borderline of a weak El Niño condition in the ocean, the necessary changes in the atmosphere had yet to occur.

Traders are still considering what this actually means for the weather later in the year, but they are also likely to become more cautious as the gains over the past six months in some commodities, such as cocoa, have been driven by the El Niño outlook.

Another weather event closely linked to El Niño which will be crucial to several commodities is the Indian monsoon.

El Niño tends to lead to a weaker monsoon, and accordingly India’s Meteorological Department has predicted below average rainfall.

But a closer look at the data shows that the two weather events may not necessarily be so closely correlated. (…)

Bets Rise on Stock Bumps Ahead A gauge of expected market volatility last week hit its lowest level since 2007, adding to losses for investors wagering on swings. Yet many traders are sticking to their bets that the placid stretch is ending.

The Dow Jones Industrial Average has gone 32 months without a 10% decline, the fifth-longest run on record. The S&P 500 hasn’t closed up or down 1% in 46 days, the longest stretch since 1995.

Yet the number of outstanding options contracts that profit from a rise in VIX futures ended Wednesday at its highest level since January’s all-time high, at 8.1 million, according to Trade Alert. Many traders are betting the market has become too calm and that volatility is overdue for a spike. (…)

Energy Sector Goes Wild

Big Investors Missed Stock Rally Corporate pension funds and university endowments have missed out on much of the rally for stocks since 2009, following a push to diversify into other investments that have had disappointing performances.

The institutions, ranging from large corporations such as General Motors Co.GM +1.24% to big universities such as Harvard, have been shifting to hedge funds, private equity and venture capital. But while these alternative investments outpaced stocks during 2008’s market meltdown and are seen as potentially less volatile, they have badly lagged behind the S&P 500 since 2009, a period in which U.S. stock indexes have more than doubled. (…)

The recent poor showing has put a spotlight on pension funds and endowments that have turned away from stocks for more than a decade, including the period after the market’s plunge, when stocks became inexpensive relative to their earnings. (…)

The average college endowment had 16% of its investment portfolio in U.S. stocks as of the end of June 2013, the most recent academic year, according to a poll of 835 schools conducted by Commonfund, an organization that helps invest money for colleges. That is down from 23% in 2008 and 32% a decade ago. The 18% allocation to foreign stocks didn’t change in that period. Schools in the poll, which collectively manage nearly $450 billion, had 53% of their funds in alternative strategies, up from 33% in 2003.

The average allocation of corporate pension funds to stocks was 43% at the end of last year, down from 61% at the end of 2003, according to J.P. Morgan Chase JPM +1.11%& Co. The average public pension fund had 52% of its portfolio in stocks at the end of 2013, down from 61% at the end of 2003, J.P. Morgan said.

While stockholdings have shrunk, alternative investments made up 25% of the portfolios of public pension funds, up from 10% a decade ago. Corporate funds had 21% of their money in alternative investments, up from 11% at the end of 2003, J.P. Morgan said. Hedge funds and private-equity firms can use a range of strategies, including betting against stocks and buying and selling companies.

The shifts haven’t worked out lately. Since the start of 2009, when the market began rallying, the S&P 500 has climbed 137%, including dividends, to record levels. By contrast, the average hedge fund is up 48%, according to research firm HFR Inc., while the average hedge fund that is focused on stocks has risen 57%. Over that same time, private-equity funds have climbed 109% on average, while venture-capital funds rose 81%, according to Cambridge Associates. (…)

Placing money with hedge funds once was viewed as risky; today, a mix of stocks, bonds and cash is seen as more dangerous, industry members said, partly because alternative investments held up better during the financial crisis and are seen as more dependable investments. (…)