Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
Spurious correlations are kryptonite of Wall St’s AI rush by Robin Wigglesworth (FT)
When you run enough data sets through regressions, you will inevitably find some correlations. The question is, are they spurious and fleeting, or helpful in identifying forward returns? [Link; paywall]
Hedge Funds That Use AI Just Had Their Worst Month Ever by Dani Burger (Bloomberg)
While hedge funds that invest based on algorithms are still very small in AUM terms, they still get a lot of attention and it’s worth remembering they’re anything but bulletproof. [Link; auto-playing video]
What’s the Biggest Trade on the New York Stock Exchange? The Last One by Corrie Driebusch, Alexander Osipovich and Gregory Zuckerman (WSJ)
With an increasing share of investing being done through various types of passive vehicles, the end-of-day NYSE auction has grown in importance. [Link; paywall]
Forming an Alliance With U.S. Allies Against Bad Chinese Trade Practices Won’t Be Enough to Bring the Trade Deficit Down by Brad W. Setser (Council on Foreign Relations)
A dense 1300 words on the drivers of the US trade deficit, which are only partly related to China. A host of other countries have much larger current account surpluses versus their economies’ size and pursue much more aggressive policy to protect those surpluses. [Link]
Tracking the international footprints of global firms by Stefan Avdjiev, Mary Everett, Philip R. Lane, and Hyun Song Shin (BIS Quarterly Review)
As companies’ ownership structures have shifted into complex global networks of financing, concepts like the current account balance haven’t kept up in keeping track of international economic activity. [Link, 20 page PDF]
Will Employment Keep Growing? Disabled Workers Offer a Clue by Ernie Tedeeschi (NYT)
The population of workers not in the labor force due to illness or disability are declining as the economy continues to churn out job creation, suggesting there’s still slack left in the labor market. [Link; soft paywall]
Saudis Said to Use Coercion and Abuse to Seize Billions by Ben Hubbard, David D. Kirkpatrick, Kate Kelly, and Mark Mazetti (NYT)
An accounting of the “anti-corruption campaign” that was really more like the consolidation of assets within a crime family, conducted using ankle monitors and luxury hotel imprisonment rather than cement galoshes. [Link; soft paywall]
This Woman Wrote Her Novel At A Tire Store And Now They Are Her Biggest Fans by Farrah Penn (BuzzFeed)
A woman struggling with writers block found her most productive penning would happen at the tire store. She is now the small shop’s Writer In Residence. [Link]
This Company Will 3-D Print You in Action-Figure Form by Kevin J. Ryan, Jardley Jean-Louis and Chris Beier (Inc)
Ever wanted to immortalize yourself in toy form? This company gives you the chance to do just that. [Link]
She found a dating app on her boyfriend’s phone. Then she bought a samurai sword. by Kyle Swenson (WaPo)
Between the colorful headline and the details of this story, we don’t want to wreck it with a wordy description, but luckily nobody was killed despite the best efforts at first degree murder. [Link]
Hundreds of Missouri’s 15-year-old brides may have married their rapists by Eric Adler (The Kansas City Star)
Missouri’s lax laws around teenage marriage make it a safe haven for perpetrators of statutory rape and their accomplices, who marry victims in order to avoid jail time. [Link]
Why Wikipedia Works by Brian Feldman (NY Mag)
Immensely profitable companies, casual researchers, and everyone in between rely on Wikipedia for quick, reliable information about the world. How did it become so dominant and ubiquitous, and how does it stay that way? [Link]
Vanilla valuation by Julie Van Rosendaal (Globe & Mail)
All you need to know about vanilla. The flavor is found in places you might not expect it (chocolate, for instance), is highly labor intensive and weather-sensitive, and is grown in relatively few places. [Link; soft paywall]
Behind the Breakneck Unraveling of Toys ‘R’ Us by Eliza Ronalds-Hannon, Matthew Townsend, and Lauren Coleman-Lochner (Bloomberg)
How a beloved brand collapsed into bankruptcy. [Link; auto-playing video]
United Flies Dog To Japan By Mistake (CBS Chicago/AP)
In addition to killing a dog by stuffing it into an overhead compartment this week, United also apparently sent a canine passenger across the Pacific in error. [Link; auto-playing video]
The Loneliness of the American Paralympics Reporter by Ben Shpigel (NYT)
The New York Times is one of only two outlets to send correspondents for coverage of the Winter Paralympic Games; this summary is insightful into what that process is like, and how little interest is expressed towards the impaired athletes’ pursuit of excellence. [Link; soft paywall]
I’d Be an ‘A’ Student if I Could Just Read My Notes by Melissa Korn (WSJ)
Modern college students are under-practiced at writing with pen and paper, and the results show when they encounter professors who ban laptops in class. [Link; paywall]
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Have a great Sunday!
Looking for deeper insight on global markets and economics? In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model. This week, we’ve added a section that helps break down momentum in developed market foreign exchange crosses.
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The S&P 500 is starting the trading day just barely above its 50-day moving average, but the percentage of stocks in the index trading above their 50-DMAs is only at 43%. Also, as shown in the second chart below, there are now more stocks oversold (22.6%) than overbought (21%). Both of these readings on breadth are a sign of weakening internals. This is a key trend to keep an eye on.
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Looking for deeper insight on markets? In tonight’s Closer sent to Bespoke Institutional clients, we review import price indices, the current political backdrop for consumers, and international capital flows into the US.
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We’ve just released our weekly Sector Snapshot report (see a sample here) for Bespoke Premium and Bespoke Institutional members. Please log-in here to view the report if you’re already a member. If you’re not yet a subscriber and would like to see the report, please start a two-week free trial to Bespoke Premium now.
Below is one of the many charts included in this week’s Sector Snapshot, which highlights the percentage of stocks in S&P 500 sectors currently trading above their 50-day moving averages. As shown, seven sectors have readings that are weaker than the S&P 500, while just four have readings that are stronger.
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It can be a challenge staying on top of what’s happening in the FX market; which currencies are strong, which are weak, and positioning. If you don’t watch the space closely, it can be helpful to have a go-to source for the big picture on foreign currencies. That’s where our Friday edition of The Closer comes in. Click here to learn more about the Closer and how to access it daily.
In addition to recapping price action in equities and interest rates, thematic trades in US markets, and recent economic surprise data for major economies, we also recap developments in the FX markets in our Friday Closer report. One way to do that is to compare the performance of each major developed market currency versus the others. In the first chart below, we do that. When a currency is strengthening broadly, the indices are rising. When they’re weakening, they fall. As shown, EUR has been strong broadly over the past year while the USD has been weak. CAD and SEK have seen a decline in broad strength in recent months while JPY and NOK have picked up. (All of the charts and tables in this post appear in our Friday Closer each week.)
To gain access to these charts each week in our Friday Closer, start a Bespoke Institutional trial now.
Another way to show strength versus other currencies is to use heatmaps. Each Friday, our recap shows the relative strength of each G10 cross versus all the others, heatmapped to show changes in relative momentum. When a currency is broadly swinging from underperformance (red) to outperformance (green), new uptrends may be starting for its crosses.
We also show how extended trends are by comparing them to moving averages, across all combinations of G10 currencies. In the tables below, we can see EUR, JPY, and GBP are broadly elevated versus their 50-DMAs, and that those 50-DMAs are elevated relative to the 200-DMA. Conversely, SEK and CAD are very weak relative to their trends. This can provide an opportunity to fade or hop on to existing trends in the market.
Finally, we use the Commitment of Traders report to show how speculators in the US FX futures market are positioned. Each chart shows the speculators’ position relative to total open interest; negative readings indicate short positioning, positive represent longs. These series can provide contrarian signals for positioning in foreign exchange markets. As shown in the charts, as of last week large short positioning in JPY were in the process of being closed, while the opposite (large longs being moved back towards neutral) was true in CAD.
To gain access to these charts each week in our Friday Closer, start a Bespoke Institutional trial now.
After a hitting the highest level since 1999 back in December, Homebuilder sentiment dropped for the third straight month in March, falling from a downwardly revised level of 71 down to 70. A decline is a decline, but any reading in homebuilder sentiment that still has a 7-handle is quite impressive.
The table below shows the breakdown of present and future sales, traffic, and sentiment by region. Traffic saw quite a large downtick and is currently just barely above 50, which could be due to higher interest rates shrinking the pool of prospective buyers. On a regional basis, the only region of the country where sentiment declined, however, was in the Midwest. In the South region, homebuilder sentiment is actually just below the highest levels of the economic expansion.
After four straight months of declines, the General Business Conditions for the Empire Manufacturing report came in better than expected this month. While economists were forecasting a slight increase to 15.0 from last month’s level of 13.1, the actual reading came in at 22.5, which is the highest since last October. Over the last few months, even as the General Business index declined, the index for expectations six months out continued to improve. In this month’s report, we saw a bit of a reset as the current conditions index bounced, and the expectations index pulled back.
Plans for Technology Spending and Capital Expenditures both pulled back for the second straight month after a torrid run to multi-year highs.
Looking at the internals of the report, the trend we mentioned above where current conditions improved and expectations declined is also evident. As far as Current Conditions are concerned, “Number of Employees” was the only category that declined, while most of the indices regarding expectations declined. A couple of other highlights worth pointing out in the internals of the report are that the index of current Shipments rose to its highest level since October 2009 and Delivery Times hit the highest level in the history of the survey (dating back to 2001). Finally, current levels of Prices Paid and Prices Received were the highest since early 2012.
Whenever you’re talking markets and charts, the last thing a bull wants to hear is the word downtrend. That is unless it relates to weekly Jobless Claims, and in the case of this indicator, they remain stuck in one of the most prolonged downtrends any of us will ever see. In this week’s report, first-time claims came in at 226K compared to expectations for 228K and last week’s level of 230K. This is the 9th straight week that claims have been below 250K, which is the longest streak since 1973. More importantly, though, it is the 158th straight week where claims have come in below 300K. Three years ago, it was considered an extraordinary accomplishment for the economy that claims dropped below 300K. Now, we’re just three weeks away from tying the longest streak of sub 300K readings ever!
The four-week moving average also saw a slight decline this week, falling to 221.5K from 222.25K. That’s just 1K above the multi-decade low of 220.5K that we dropped to in the last week of February.
On a non-seasonally adjusted basis (NSA), claims almost dropped below 200K, falling from 225.5K down to 204.6K. For the current week of the year, this is the lowest weekly print since 1969, and it is also more than 130K below the average of 335K for the current week of the year dating back to 2000.