Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

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TECHNOLOGY

THE DAILY EDGE (11 April 2018): Inflation threatens

Many face-offs underway: U.S. vs China on trade, U.S. vs Syria and Russia, Trump vs Mueller, FB (and tech) vs EU and Congress. But a key one is inflation vs bonds vs equities.

CONSUMER PRICE INDEX – MARCH 2018

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in March on a seasonally adjusted basis after rising 0.2 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.4 percent before seasonal adjustment.

A decline in the gasoline index more than outweighed increases in the indexes for shelter, medical care, and food to result in the slight seasonally adjusted decline in the all items index. The energy index fell sharply due mainly to the 4.9-percent decrease in the gasoline index. The index for food rose 0.1 percent over the month, with the indexes for food at home and food away from home both increasing.

The index for all items less food and energy increased 0.2 percent in March, the same increase as in February. Along with shelter and medical care, the indexes for personal care, motor vehicle insurance, and airline fares all rose. The indexes for apparel, for communication, and for used cars and trucks all declined over the month.
The index for all items less food and energy rose 2.1 percent, its largest 12-month increase since the period ending February 2017.

Core CPI:

  • last 6 months annualized: +2.4%
  • last 4 months annualized: +2.7%
  • last 3 months annualized: +2.8%
U.S. Producer Price Gains Accelerate

The headline Final Demand Producer Price Index using new methodology increased 0.3% in March following a 0.2% rise in February. Twelve-month growth rose to 3.0%. A 0.2% March rise had been expected in the Action Economics Forecast Survey. The PPI excluding food & energy increased 0.3% versus an expected 0.2% rise. Year-on-year growth accelerated to 2.7%, the fastest pace since late-2011. An updated measure of core producer price inflation (the overall index excluding food, energy and trade services) strengthened 0.4% for the third consecutive month. Prices for this index rose 2.9% y/y, the strongest reading since the series began in August 2013.

Using the old methodology for the Producer Price Index, prices rose 0.2% (2.9% y/y). Excluding food & energy, the index increased 0.2% (1.9% y/y) following no change.

Final demand goods prices rose 0.3% (3.2% y/y) after a 0.1% dip. The goods price index excluding food & energy gained 0.3% (2.2% y/y) after three consecutive 0.2% increases. (…)

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Core PPI is up 2.9% YoY In March but has been rising at a 4.9% annualized rate in Q1. Core goods: +2.8%; Services: +3.6%.

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The huge acceleration in health care prices has to squeeze consumers in 2018.

Source: @jbjakobsen

  • The PPI report suggests that the services component of the PCE inflation measure could suddenly spike. (The Daily Shot)

Source: Capital Economics

  • David Rosenberg says that 25% of firms reported to the NFIB that they plan to raise prices, a ten-year high. Look what they have already done:

  • And here is that breakout in crude oil. (The Daily Shot)

What’s bizarre on this next chart?

Global economy suffers loss of momentum in March

Global economic growth slowed sharply to the weakest for over a year in March. The JPMorgan Global PMIâ„¢, compiled by IHS Markit, fell for the first time in six months, down sharply from 54.8 in February to a 16-month low of 53.3. The 1.5 index point drop was the steepest seen for two years. To put the decline in context, while the February PMI reading was consistent with global GDP rising at an annual rate of 3.0% (at market exchange rates), the March reading is indicative of 2.5% growth.

Inflows of new business and backlogs of work also rose to weaker extents than seen in the previous month. Employment growth remained more resilient, easing only marginally from the decade-high rates seen in prior months to suggest that firms continued to focus on expanding capacity to meet rising demand. Future expectations also remained elevated, suggesting that at least some of the slowdown may prove temporary. Bad weather was cited in many countries as curbing business activity in March.

Surprised smile From the WSJ:

New technology may start creating different patterns for inventories in apparel supply chains. Some factories in southern China are working with software that’s aimed at making the very fastest of fast fashion, offering custom-made clothing and shoes. The WSJ’s Natasha Khan reports the business model is being called “click, buy and make,” and aims to sharply curtail the time from purchase to shipping in a field that’s both notoriously inefficient and extremely sensitive to rapidly-changing tastes. Spencer Fung, who runs Hong Kong’s Li & Fung Ltd. , one of the largest supply-chain managers in the global garment industry, said new technologies could ultimately mean that more companies would be able to place small orders and avoid being stuck with extra inventory. Production costs remain a concern, but companies say advancements in automation will help them stitch together the leanest of lean supply chains.

‘Just look at the average size of orders—it’s been going down for years. It went from hundreds of thousands to tens of thousands. And it will keep going down until it approaches a unit of one.’

—Spencer Fung of supplier Li & Fung Ltd., on the impact of technology on apparel orders.

Thumbs down White House Says Trump Has Power to Dismiss Mueller The White House said President Trump believes he has the authority to fire special counsel Robert Mueller, as lawmakers from both parties warned against doing so one day after an FBI raid on his lawyer.
Left hug Right hug Facebook’s Zuckerberg and Senators Face Off Lawmakers grilled Facebook Chief Executive Mark Zuckerberg over the company’s handling of user privacy while also signaling they were prepared to embark on a new era of regulation for big tech companies.

(…) During several hours of questioning, Mr. Zuckerberg sought to manage the discontent through a combination of contrition for missteps and calm explanations to complicated questions. And yet throughout, the 33-year-old billionaire was careful not to commit to any major changes in how the platform functions or how it sells advertising.

Mr. Zuckerberg acknowledged that Facebook feels responsibility for what is posted on its service.

“It’s clear now that we didn’t do enough to prevent these tools from being used for harm as well,” Zuckerberg said. “And that goes for fake news, foreign interference in elections and hate speech, as well as developers and data privacy.”

“It’s not enough to just build tools. We need to make sure that they’re used for good,” he said. “And that means that we need to now take a more active view in policing the ecosystem.” (…)

“We didn’t take a broad enough view of our responsibility, and that was a big mistake. And it was my mistake, and I’m sorry. I started Facebook, I run it, and I’m responsible for what happens here.” (…)

“The status quo no longer works,” said Sen. Chuck Grassley (R., Iowa), the Judiciary Committee chairman. “Congress must determine if and how we need to strengthen privacy standards to ensure transparency and understanding for the billions of consumers who utilize these products.” (…)

Ultimately, Mr. Zuckerberg didn’t promise basic changes to the design of its platform and advertising business, including Facebook’s reliance on users’ personal information to show relevant ads in their news feeds. Facebook instead is promising to enforce its policies more stringently. (…)

“We’ve seen these apology tours before,” Sen. Richard Blumenthal (D-Conn.) said. “You have refused to acknowledge even an ethical obligation to have reported this violation of the FTC consent decree.”

The senator said he has letters from Facebook employees that indicated not only a lack of resources but also a “lack of attention to privacy, and so my reservation about your testimony today is that I don’t see how you can change your business model unless there are special rules of the road.” (…)

From the WaPo:

14 years of Mark Zuckerberg saying sorry, not sorry

Zuck’s longtime motto “move fast and break things” should now be “move fast and fix things”. Can’t claim a lack of resources. FB earned nearly $40B in the last 3 years!

IT MUST BE PRETTY LATE IN THE CYCLE

Yesterday I received an unrequested email from “Value Investor” which, presumably, offers investment advice to value investors. The web site claims to provide “free undervalued penny stock picks” with particular expertise in

  • Biotech
  • Cannabis
  • Crypto
  • Mining

Our subscribers have been able to see mining companies grow from concept to full production, emerging biotech companies go from pre-Phase 1 all the way to FDA approval, tech companies from blue print phases all the way to commercially retailing their products, and of course our subscribers have seen the budding businesses in cannabis literally grow from seed to sale, now with the addition of the crypto / blockchain sector there has NEVER been a better time to create your own market success story.

The value & price model is our mantra because the markets are all about making money. By handpicking featured companies, our members are allowed access to in-depth research and detailed reporting on some of the market’s most valuable, hidden prospects. We show you these early opportunities before the Wall Street elite have a chance to catch on. With a keen sense of trend spotting, ValueInvestor.com is becoming the premiere destination for real, actionable ideas offering short, mid, and long-term potential for our members.

Devil

Given the worldwide water crisis, I’m wondering if they would see value in this product?

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NEW$ & VIEW$ (2 JUNE 2016): Watching the Monitoring…

May U.S. Auto Sales Slump

(…) In total, Americans purchased 1.54 million cars and light trucks last month in the U.S., according to data provider Autodata Corp., 6% fewer than a year earlier. The drop largely is due to two fewer selling days last month; sales were up modestly when adjusted for seasonal factors. (…)

May’s seasonally-adjusted annual sales rate, or SAAR, was 17.45 million vehicles, a healthy number by historic standards, but well behind the pace set in May 2015 and short of the 18 million-plus level set late last year. (…)

For now, substantial gains from fleet buyers who purchase outside the dealer network is propping up industry sales and keeping volumes near the record pace set in 2015. Fleet sales last month increased 13% compared with May 2015. (…)

But other key measures fell last month compared with a year ago, including annualized sales pace and consumer purchases at dealers. That shift is fueling worries that demand in the world’s most profitable vehicle market has peaked.

The nation’s largest auto maker, General Motors Co., which recently has focused more on retail buyers, posted a sharper decline than rivals. Toyota Motor Corp. also reported a sales drop, eroding U.S. market shares for two of the biggest auto makers in the world in 2016.

Overall, sales to individual consumers fell 10.6% in May, according to GM. Such sales are considered the best indicator of market demand. (…)

Another red flag: Sales incentives crept up 11% last month compared with the prior May, exceeding $3,000 per vehicle on average, Autodata reports. (…)

CalculatedRisk has the auto charts strongly suggesting that that we have seen the cyclical peak.

Auto inventories were already high at the end of April:

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There is also this new problem for U.S. manufacturers:

Imports share of the light vehicle market rose to 21.4%, the highest level since December 2013. Imports share of the passenger car market of 27.4% compared to 27.1% during all of last year. Imports share of the light truck market jumped to 17.2%, the highest level since March 2010. (Haver Analytics)

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High inventories and rising imports share mean tougher days for the U.S. manufacturing industry, already hurting from oil and the dollar:

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Speaking of manufacturing, yesterday’s PMIs from across the world were pretty dismal as order books were weak across the globe. China, in particular, seems nowhere near –re-accelerating:

Order books were hit by an increased rate of decline in new export orders during May. Producers of investment goods such as plant and machinery reported the steepest decline in export sales, as well as reduced total new orders, pointing to weak domestic and global investment demand. In contrast, manufacturers of consumer goods reported improvements in new orders and exports.

The past year has seen the largest culling of factory jobs seen over the survey’s 11 year history, exceeding that seen during the height of the global financial crisis as firms cut capacity to bring production in line with demand. So far this year, the highest incidence of job cutting has been seen in the energy & extraction, transport and chemicals & plastics sectors. The food & drink sector has seen the lowest rate of job cutting. (Markit)

Elsewhere, the Asian PMI excluding China and Japan pointed to stagnation, with the GDP-weighted index coming in at exactly 50.0.

The ongoing malaise in Asian manufacturing was once again linked to a downturn in trade flows, in turn broadly the result of weak global demand growth. New export orders fell across Asia at the second-fastest rate seen for just over three-and-a-half years.

Japan saw the steepest fall, suffering the largest monthly decline since January 2013 as the stronger yet hit competitiveness, followed by China, where the downturn was also one of the steepest seen over the past three years. Only Vietnam eked out any noteworthy increase in exports, although both Malaysia and South Korea reported marginal gains. (Markit)

U.S. Construction Activity Reverses Earlier Gain

The value of construction put-in-place declined 1.8% during April (+4.5% y/y) following a 1.5% March rise, revised from 0.3%. February’s 1.4% gain also was revised from 1.0%.

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So when Mrs. Yellen says that “growth looks to be picking up from the various data that we monitor” …

Does the Fed monitor the Redbook data?

Store sales rose 0.9 percent year-on-year in the May 28 week, helped by Memorial Day promotional sales and food shopping ahead of the long weekend. Month-to-date May store sales were a solid 2.2 percent higher than in April, which however was a rather weak sales month, but they were up only 0.7 percent from May of last year, well below the 2.2 percent year-over-year monthly growth rate seen at the beginning of the year. What may be considered to be disappointingly slow same-store sales growth was exactly in line with Redbook’s targets, and despite expectations of strong seasonal sales by retailers, Redbook’s preliminary targets for June are not exactly challenging either, up 0.8 percent year-over-year and down 0.8 percent from May.

Fed’s Beige Book: ‘Tight Labor Markets’ Are Pushing Up Wages Labor markets are tightening across most regions of the U.S., lifting wages for many workers, the Federal Reserve said in its latest beige book report on regional economic conditions.

The central bank’s latest report on regional economic conditions, known as the beige book, said Wednesday that “tight labor markets were widely noted in most districts.” Employment and wage growth were described as modest, with pay raises “concentrated in areas of labor tightness.” (…)

An exception was the oil patch, with “soft labor markets” reported across energy sectors in the Atlanta, Cleveland, Dallas, Kansas City and Minneapolis districts.

More generally, the Fed reported modest or moderate economic growth in the majority of its 12 districts. (…)

The wide-ranging report released Wednesday said consumer spending was “up modestly on balance” in many regions. Reports on the factory economy were mixed, and banks generally saw higher demand for loans. Crop conditions were described as “promising in many districts,” though “low commodity prices continued to put pressure on agricultural incomes.” (…)

Long-sluggish U.S. inflation remained subdued, with price pressures rising “slightly” across most regions, according to the report.

Brazil’s data reveal depths of recession

Brazil’s economy contracted 5.4 per cent in the first quarter from a year earlier, highlighting the challenge facing interim president Michel Temer as he tries to end the country’s worst recession in more than a century.

The figures were better, however, than analysts had expected with a Reuters poll forecasting a 6 per cent contraction, while the quarter-on-quarter decline was 0.3 per cent compared with a consensus estimate of 0.8 per cent. (…)

GDP contracted for the fifth straight quarter in the three months to March and has declined or been virtually flat in eight of the past 10 quarters. (…)

Government spending “increased by 1.1 per cent quarter-on-quarter, reflecting a last-ditch attempt by the Dilma administration to win back public support”, said Capital Economics’ Mr Shearing. “But with fiscal policy now set to tighten, this prop to the economy will go.” (…)

Saudis say Opec must steward oil market Riyadh considers output ceiling, Iran wants individual quotas

Saudi Arabia’s new energy minister has said it is time for Opec to “steward the market” to help supply and demand back into balance, suggesting the cartel’s largest producer is shifting approach after two years of letting oil prices fall.

Khalid Al Falih, speaking at the Opec secretariat before the group’s twice-yearly meeting, said the group should “encourage the rebalancing to take place” and said the kingdom wanted to avoid any oil shocks, damping fears Saudi Arabia is preparing to raise production significantly.

“Whatever action we take will be taking into consideration that the market is doing quite well by itself, so we will be very gentle in our approach,” said Mr Falih.

Saudi Arabia is expected to propose reinstating the group’s production ceiling, which was removed entirely at the December gathering of ministers.

The meeting is likely to be a showdown between the kingdom and its regional rival Iran, which has said any production target must be governed by individual output quotas.

“Anything without country quotas means nothing,” said Iran’s oil minister Bijan Zanganeh, who added the country’s output had risen to 3.8m barrels a day since sanctions against its oil industry were largely lifted in January.

He added Iran was targeting more than 4.7m b/d in the long term, illustrating the difficulty Opec may face in agreeing any output constraints. (…)

Internet Boom Times Are Over, Says Guru Mary Meeker

Growth of internet users worldwide is essentially flat, and smartphone growth is slowing, too. Those sobering insights were among the hundreds packed into the much-awaited Internet Trends report, an annual tech industry ritual led by Mary Meeker, a general partner at Kleiner Perkins Caufield & Byers. (…)

Contact: edgeandodds [at] gmail.com