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

Invest with smart knowledge and objective odds

THE DAILY EDGE (21 September 2017)

Existing-Home Sales Tumble for Third Straight Month

Sales of previously owned homes fell in August to the lowest level in a year, reflecting a shortage of properties on the market and a sharp drop in Houston home purchases because of Hurricane Harvey.

Existing-home sales declined 1.7% from a month earlier to a seasonally adjusted annual rate of 5.35 million, the National Association of Realtors said Wednesday. That marked the third straight monthly drop, with continued declines expected in the coming months. Sales rose just 0.2% over the 12 months ending in August.

(…) the number of homes for sale at the end of August declined 2.1% from a month earlier and is 6.5% lower than a year ago.(…)

Mr. Yun estimated that overall sales would have been flat from the previous month without the hurricane effects. (…)

The median price of homes sold last month reached $253,500, up 5.6% from a year earlier. That was more than double the growth in Americans’ incomes. (…)

Weakish just about everywhere (chart from Haver Analytics):

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Note that first-timers are now 31% of buyers, down from 33% last month.

Fed’s Signals Bump Up Bank Stocks Global bank shares climbed and haven assets remained under pressure as investors ramped up bets the Federal Reserve would tighten monetary policy.

(…) The Fed left rates unchanged and penciled in one more rate rise in 2017, signaling continued optimism about the economy even though persistently low inflation has prompted some officials to voice greater skepticism about a move this year.

(…) they also showed rate increases are likely to end at a lower point than they had previously projected.

The median projection for the longer-run level of interest rates edged down to 2.75% from 3% in June. This is considerably lower than where Fed officials have stopped raising rates in the past. (…)

“I can’t say I can easily point to a sufficient set of factors that explain this year why inflation has been as low,” she said.

She said officials had more work to do to determine if the inflation soft patch would continue, and if it did, it could require an even more gradual pace of rate rises. (…)

Beginning in October, the Fed will end its practice of fully reinvesting the principal payments of maturing into new bonds and instead allow $10 billion in holdings to roll off without reinvestment every month. Those amounts will increase by $10 billion each quarter to a maximum of $50 billion. (…)

Overall somewhat less hawkish Fed on softer economy and puzzlingly low inflation. Firm but flexible…

S&P Lowers China’s Credit Rating Credit-rating firm also changes outlook to stable from negative

(…) The action brings all the three major credit-rating firms in line in terms of their views of the creditworthiness of the world’s second-largest economy. Fitch Ratings lowered China’s rating in 2013, and Moody’s Investors Service did so in May.

The downgrade of China’s rating, the first such move by S&P since 1999, reflects its assessment that “a prolonged period of strong credit growth has increased China’s economic and financial risks.” (…)

What Passive Buying and Selling Means for Stocks The rise of passive investing is changing the makeup of markets. Even active investors are now resigning themselves to the influence of indexing and are contriving ways to take advantage of its impact.

(…) But with passive investing this year representing about 29% of assets in domestic stock funds alone, according to Moody’s Investors Service —a figure the firm sees topping 50% as soon as 2021—investors who pick single stocks are paying attention. (…)

So far, researchers say, the influence of passive investing is most pronounced for midsize- and small-company stocks, which generally trade less frequently than the largest ones. (…)

“Portfolio managers should be aware of heavy ETF ownership,” Mr. Pankaj said. “It can be an advantage when flows are positive, but you want to be careful when they turn around.” (…)

Meanwhile, the S&P 500 hits new highs without help from its past stalwarts:

  • GOOG.a: –6.4% since July 24.
  • AMZN: –11.0% since July 27.
  • FB: –3.0% since July 27.
  • NFLX: –3.3 since July 21.
  • MSFT: 0.0% since August 31.
  • AAPL: –6.9% since September 1.

THE DAILY EDGE (20 September 2017)

U.S. Housing Starts Ease While Permits Rise

In the month before housing starts & permits were meaningfully affected by Hurricanes Harvey and Irma, stability in these housing data was evident. Total starts eased 0.8% (+0.5 y/y) to 1.180 million units (AR) in August from 1.190 million units in July, revised from 1.155 million units.

Single-family starts increased 1.6% (14.4% y/y) to 851,000 from 838,000. Starts of multi-family units declined 6.5% (-25.1% y/y) to 329,000, the lowest level in nine months. (…)

Building permits increased 5.7% (2.6% y/y) to 1.300 million from 1.230 million in July. Permits to build single-family homes eased 1.5% to 880,000 (+7.3% y/y), while multi-family permits strengthened 19.6% (14.4% y/y) to 500,000.

Bespoke illustrates the split in the housing market: 

Ford to cut production at five North American vehicle plants

Ford Motor Co (F.N) said on Tuesday it plans to idle five North American vehicle assembly plants for a total of 10 weeks to reduce inventories of slow-selling models. The plants affected include three assembly plants in the United States and two in Mexico, the company said in a statement. (…)

The factories involved employ more than 15,000 people, according to Ford’s website. (…)

10 weeks!!!

A Surprise Bump in Bad Card Loans Credit card lenders are seeing some of the highest delinquency rates in years.

(…) At Capital One, loans over 30 days delinquent in its domestic credit card portfolio ticked up to 4% of total loans in August, from 3.5% in April, monthly data from the company shows. Over the same period, this ratio rose to 4.5% from 4.1% at Synchrony, and to 5.3% from 4.7% at Alliance Data. (…)

Credit problems are creeping up, he said, because consumer debt has been rising faster than incomes. Seeing this, Capital One began slowing its lending growth last year, having “surged with growth” in 2014 and 2015. (…)

Europe’s largest car companies have more than doubled the amount of lending on their balance sheets since the financial crisis, with the growing use of auto credit in global car sales pushing their total exposure to borrowers to record highs. (…)

Seemingly cheap financing deals offer the opportunity to drive away a brand new car less than two weeks from signing on the dotted line. There can be little or no deposit, while monthly payments from as little as £100 can stretch the bill over a two- to four-year period. (…)

Salespeople at three dealerships visited by the Guardian offered vehicles on the road with little or no deposit. One suggested a £1,000 downpayment to secure a 1.5l Mini Cooper, with a top speed of 127mph, which could be refunded when the car was collected from the showroom a few days later. Deposits can even be paid for by credit card, adding to the debt pile.

Two dealerships offered to contribute to the deposit. A Volkswagen showroom offered £1,000 off the £3,500 suggested deposit on a 1.4l Golf TSI. When asked why, the salesman said it was because the finance package was put together by the German manufacturer’s own credit lending arm to encourage sales. (…)

Fed up, Fed down, Fed Ex!

Starting Jan. 1, FedEx said FedEx Freight, Express, Ground and Home Delivery shipping rates in the U.S. would increase by an average of 4.9%.

4.9%! What is it? Can’t be wages, can’t be oil. Could it be demand?

Cass says demand growth is accelerating:

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But that is over a weak base in 2016. The actual Shipments Index is hitting its previous seasonal peak.

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Intermodal railcar loadings have flattened while truck tonnage growth is decelerating (chart from Ed Yardeni):

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RBC’s rail momentum gauge is clearly trending down:

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Let’s hope the consumer spends in coming weeks…

Tech Stocks Fuel Emerging-Markets Rally The technology sector of the MSCI Emerging Markets Index is up 54% this year

(…) Top performers include South Korea’s Samsung Electronics Co. , Taiwan Semiconductor Manufacturing Co. and fast-growing Chinese e-commerce companies Alibaba Group Holding Ltd. and Tencent Holdings Ltd. (…)

Punch It’s good to know what your buying when using index funds. This fund is roughly 25% Financials and 25% Tech.

BITCOIN

Hmmm…Pretty concentrated bubble: only 4% own 95% of bitcoins.

(…) But how many people own bitcoin, and how is the currency distributed around the world? Check out our new visualization. ()