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 (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. ()

THE DAILY EDGE (19 September 2017)

U.S. Business Confidence Shaken by Political and Climate Instability

The Business Confidence Index fell sharply from 56.7 to 54.2 in September reflecting both the uncertainty caused by unusually violent weather experienced in the Caribbean and Southern U.S. states, and continuing political problems in The Americas, Asia, Europe and the Middle East.

Economic growth as reflected by the Market Growth and Sales Indexes remained high, Staffing levels increased satisfactorily and Price Inflation remained under control, but overall the September results from the Sales Managers Indexes suggested a general air of uncertainty, which caused the headline Index to fall to a lower level than recent months.

                                               Sales Managers’ Index (SMI)          Sales Growth Index

  
                                                                Prices Charged Index                     Staffing Levels Index
  
U.S. Home Builder Index Declines

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COMMERCIAL CONSTRUCTION INDEX

The USG Corporation + U.S. Chamber of Commerce Commercial Construction Index (CCI) is a quarterly economic index designed to gauge the outlook for and resulting confidence in the commercial construction industry. Recognizing

In Q3 2017, more than three quarters of contractors report steady or increasing backlogs. Large companies continue to see backlog increases, but smaller companies appear to see a slight shift downward in the current quarter compared with Q2 2017.

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Employment in construction has risen 25% since 2012 compared with +10% for total employment.

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Unfinished Business: Why Oil Output May Surprise There are signs that the surge in drilling by shale-oil producers has ended, reducing estimates of U.S. oil output and pushing up prices.

(…) The U.S. Energy Information Administration last week cut estimated U.S. crude-oil production by 1.3% and 1.4% for the third and fourth quarters of 2017 compared with August estimates, respectively. (…)

But the crucial step between drilling wells and producing oil—completion—has lagged behind. That means that the backlog of drilled but uncompleted wells, or DUCs, has risen and oil production may be lower than expected in the coming months. In the prolific Permian Basin alone, the number of DUCs was 2,330 in July,according to the EIA—an all-time-high and an increase of 94% compared with a year earlier. Since that figure is now nearly two months old, the number might have continued moving higher even as the rig count declined. (…)

Yet the buildup of DUCs is also bearish since it creates latent supply. Because the incremental cash cost to start pumping crude is low for a DUC, the payback period for an oil company is only a year or so. Even for wells not drilled, analysts at Citigroup estimate the break-even cost to drill and complete a well is just $29 a barrel on a production-weighted basis for the drillers they cover once the costs of acreage and sunk capital costs are excluded for the companies they cover. (…)

Tax Cuts on the Horizon for Canada’s New Fiscal Champion

Tax cuts for workers and businesses are looming in Quebec as the provincial government prepares to use its fiscal cushion to give voters relief ahead of planned elections in less than 13 months.

A booming economy and a vibrant job market are putting Canada’s second-most populous province on track to post a third-consecutive year of budget surpluses. Premier Philippe Couillard indicated he’s ready to turn on the stimulus taps further to lower a level of taxation he sees as a hurdle to economic growth and investment. (…)

‘Buyback trade’ fizzles as stock repurchases slow

(…) Companies in the S&P 500 bought back about $120bn of their own stock in the second quarter, a 9.8 per cent decrease from the first quarter of the year, and a 5.8 per cent decline from the same period in 2016, according to S&P Dow Jones Indices numbers released on Monday.

For the 12 months ending June 2017, S&P 500 companies spent just over $500bn on buybacks, according to S&P Dow Jones, down 14.5 per cent from the preceding 12 months. (…)

BITCOIN
  • Central banks should consider introducing their own cryptocurrencies to counter the risks from the explosive growth in bitcoin and other virtual currencies, the Bank for International Settlements said in a new report.
  • Behind every bubble is a good idea bursting to get out, and bitcoin kind of looks like a good idea, at least if you squint a bit, writes James Mackintosh.