Photo: Iain Farrell via Flickr
We thought we had it all figured out before this week started.We were wrong.
The top minds in the investment business offered some novel analysis, broke conventional wisdom, and even opened our eyes to some misperceptions.
This particular week, we learned there may be a simple explanation for the market rally, falling natural gas prices might have little to do with oversupply, analysts have no idea what is happening with treasuries, and the ECRI and Conference Board’s leading indexes may be converging .
What follows are excerpts from such stories this week. All of the important stuff you might have missed this week, right here.
The Conference Board is changing its Leading Economic Indicators, and things are looking worse than we thought
'...In a December 2011 abstract from the Conference Board: 'Following an extensive reevaluation of existing indicators included in the Conference Board Leading Economic Index for the United States, we propose a comprehensive revision of the composite index.'...
...The new LEI has not only NOT achieved a new high in the post recessionary cycle but has also recently turned down recently showing some potential for economic weakness ahead...'
'...The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -7.5 in its latest reading, data through January 13. The latest public data point is a reduced contraction from last week's -8.6, and the underlying WLI rose from an adjusted 121.1 to 123.4 (see the third chart below).
'...Two key findings: First, analyst recommendations are like dairy products in that it is best to use them quickly or not at all. Shares tend to drift in the direction of recommendation changes, but for weeks or months, not years. Second, 'sells' tend to be far more prescient than 'buys.' '
'...The dirty little secret is that US non-financial debt rose by more than $5 trillion from the end of 2007 through the third-quarter of 2011. In the last year alone, the real economy has added roughly $1.4 trillion in debt to the overall US non-financial total...'
'...Consumer defaults ticked to the highest level in nine months as the national composite index inched up two basis points to 2.24%, data from S&P Indices and Experian shows.
'Led by the mortgage markets, the second half of 2011 saw a slight reversal of the two-year downward trend in consumer credit default rates,' says David M. Blitzer, a Managing Director at S&P Indices...'
'...there's plenty of pent up demand for cars, housing, and other basic needs that have lifted the economy merely by reverting to the mean.
One of our favourite charts around is car sales divided by the total population, which shows how abnormally low the current rate of sales is -- even though sales have been picking up nicely...'
'...The UST market continues to operate in its own world, divorced from other markets and fundamental factors, as the curve bull-flattened on a day when stocks, oil, EUR and peripheral debt also rallied.
While there is no shortage of plausible reasons for the UST moves ... the fact that the UST market seems to react only to bad news and ignores good news ... indicates a lack of conviction among rates investors. We maintain that current market levels are not sustainable ...'
'...However, having rallied from below 1200 over the past six weeks, even as earnings estimates fell, we do not expect a favourable reaction to either the reality of slowing growth or the inability to beat expectations significantly. In addition, two earnings-related indicators - the ratio of negative-to-positive preannouncements and our earnings surprise index for the 7% of S&P 500 companies that have reported - point to a poor-to-middling earnings season...'
'...We estimate that if temperatures for the remainder of this winter just match the 10-year average, then the full winter would end up ~4% warmer than-normal. However, most forecasts are calling for continued mild temperatures through February. Meanwhile, last winter was ~6% colder-than-normal.
The unusually warm progression of this winter has resulted in ~3.2 Bcf/d lower demand in the residential and commercial sectors through the end of December versus a normal winter...'
...'The New York based firm held more than $8.4 billion in gross risk to Italy, Spain, Greece, Ireland and Portugal at the close of the quarter ...
Gross exposure to Italy, which has been closely watched by analysts, surged 37% to $6.3 billion from the close of the third quarter in September. However, days after the close of the fourth quarter, Morgan aggressively cut its exposure to the country and its banks, as well as other peripheral nations, lowering total gross exposure to $5.0 billion...'
The 'Enron Field Curse' Suggests We Should Avoid Investing In Companies That Put Their Name On A Stadium
'...Victor Niederhoffer analysed the performance of companies buying naming rights from 1990 to 2001, in his book Practical Speculation.
These companies trailed the S&P 500 by a median of -8% in the year they named a stadium and a median of -27% three years later (they beat the index on mean thanks to the extraodinary performance of Qualcomm)...'
'...although cumulative growth in air traffic has totaled roughly 45% since 2000, fuel consumed by the global fleet of aircraft is up less than 5% over the same period, as airlines have accelerated aircraft parking/retirements of older aeroplane models and ordered newer more efficient replacements at a record pace.
Greater efficiency (i.e. load factors) and fleet renewal are at the heart of an airline's competitiveness in a world where fuel is now an airline's largest single operating cost...'