361 Capital Weekly Research Briefing

361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.

361 Capital Weekly Research Briefing

June 9, 2014

Timely perspectives from the 361 Capital research & portfolio management team

Written by Blaine Rollins, CFA


 

And after being taunted by the Shorts for too long, the Stock Market entered Beast Mode last week…

(500px)

Well that was a solid two week run. On the 21st of May, my list of 2 dozen market indicators went 90% positive. While a good sign for equities, I thought it was a bit aggressive given the weakness in Bank stocks, Consumer Cyclicals and Small Caps, plus the ongoing unrest in Russia. But one by one, the worries moved further away and the markets accelerated their buying of RISK assets. Even leading hedge funder, David Tepper, who caused a market pullback with his cautionary comments in May at the SALT Conference reversed course last week and suggested most of his worries had been neutralized. And Friday’s jobs data may have been the capper as continued slow growing employment data ensures that Goldilocks will be dancing on the beach for the month of June.

So the green flags are out and the market is running. You can easily see that in last week’s numbers as cyclical groups took the win, place and show spots…

Looking broader and deeper showed even greater risk appetite as Banks led financials, Italy led Europe and Brazil led the Emerging Markets. Even Retail stocks decided to outperform for the week which is a sure sign of market recovery…

Looking more closely at the Market’s major sticking points for 2014… Russia, Financials and Small Caps have each recovered their 50 & 200 day moving averages…

This chart of global 10 year bond yields shows not only the major improvement in yields in the last 3 months, but also the number of countries that are now cheaper than the U.S.!

Speaking of the rebound in Financial stocks, look at this ongoing improvement in consumer loan volumes. Maybe this chart also explains the recent action in the Consumer Cyclicals and Retail stocks…

 

Speaking of economic growth, you may not find more positive language from the Railroad industry…
“If you’re looking for a sign that the economy is shaking off its first quarter lethargy, rail traffic in May could be that sign,” said AAR Senior Vice President John T. Gray. “Crushed stone, steel, motor vehicles, lumber, chemicals— the list of commodities showing carload gains in May goes on and on. And intermodal continues to surge. All in all, there’s very little to dislike about May’s rail traffic figures. We hope it really is a sign that the economy is beginning a period of solid growth.”

(AssociationofAmericanRailroads)

This is one chart I came across over the weekend that is now stuck in my head. Just look at the underperformance in Mega Cap stocks. This can’t continue forever. Especially in a time like now where M&A activity is rewarding both the buyers and sellers of the deals…

(Leuthold Group)

Seattle recently voted to raise their minimum wage to $15. That minimum wage would be under the market in any North Dakota boom town…

 

The Walmart in Williston ND is paying $17.20 per hour, which is 2.4X the minimum wage

And if you thought that the economy and demographics would shrink the size of new home builds, then you were wrong…

In 2013, the median size of a new single-family home completed in the United States was 2,384 square feet (the average, not surprisingly, was tugged even higher by the mega-mega home: 2,598 square feet). That median is above the pre-crash peak of 2,277 square feet in 2007, and it dwarfs the size of homes we were building back in 1973 (median size then: 1,525 square feet). Historically, this trend actually runs counter to another demographic pattern: Our homes have been getting larger as our households have actually been shrinking. So the long-running American appetite for ever bigger homes can’t be explained by the need to fit more people into them (the recession, however, has caused a bit of a blip in this trend).

(WashingtonPost)

Tweets of the week…

Geek tweet of the week that you just might have to explain to your kids…

(bad_robot)

Have a great summer and have fun finding a wave with your name on it…

(@clarklittle)

In the event that you missed a past Research Briefing, here is the archive…

361 Capital Research Briefing Archive

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, 361 Capital is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of 361 Capital.

Blaine Rollins, CFA, is managing director, senior portfolio manager and a member of the Investment Committee at 361 Capital. He is responsible for manager due-diligence, investment research, portfolio construction, hedging and trading strategies. Previously Mr. Rollins served as Executive Vice President at Janus Capital Corporation and portfolio manager of the Janus Fund, Janus Balanced Fund, Janus Equity Income Fund, Janus Aspen Growth Portfolio, Janus Advisor Large Cap Growth Fund, and the Janus Triton Fund. A frequent industry speaker, Mr. Rollins earned a Bachelor’s degree in Finance from the University of Colorado, and he is a Chartered Financial Analyst.

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