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 (23 December 2016): Trade War?

Martini glass Plate Merry Christmas!  Messenger Gift with a bow

U.S. Economy Approaches Year’s End on Lackluster Note Measures of economic vitality including income growth, consumer spending and inflation weakened in November.

Household spending rose just 0.2% in November from the month before, a slowdown in growth from the previous two months, while incomes flatlined, the Commerce Department said Thursday. (…) But income growth has softened: Wage and salary income rose 3.5% in November from a year earlier, the slowest year-over-year gain since December 2013. (…)

Spending for October was revised up to a 0.4% gain from an initial estimate of up 0.3%. Incomes in October advanced 0.5% versus a previous reading of up 0.6%.

The personal-consumption expenditures price index, the Fed’s preferred inflation measure, was unchanged in November and up 1.4% from a year earlier. (…)So-called core prices, which exclude the volatile categories of food and energy, also held flat from the prior month and were up 1.6% from a year earlier. That was the weakest annual increase since July.

When adjusting for inflation, Thursday’s report showed consumer spending rose 0.1% in November from the prior month. Inflation-adjusted disposable personal income—income after taxes—was down 0.1%.

Americans saved a smaller share of their income last month. The personal saving rate fell to 5.5% from 5.7% the prior month.

The all-important American consumer is difficult to read this year. November was very weak across all income and spending measures following a strong summer and early fall. October was a strong month income-wise but real spending rose only 0.1%. Last month, income growth turned down. Q4 so far is showing real consumer expenditures up at a dismal 1.2% annual rate. (Table from Haver Analytics)

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Gift with a bow Retailers Make Final Push to Lure Last-Minute Shoppers

(…) In October, the National Retail Federation forecast that Americans would spend $655.8 billion in November and December, or a 3.6% increase from a year ago. However, in dollar terms, retail sales slowed slightly versus last year in the weeks between Thanksgiving and Christmas, according to data from NPD Group, a market research firm.

“This year’s trend clearly demonstrates how extreme promotions, now most noticeable in toys and electronics, are steering retail off the path of growth,” said Marshal Cohen, NPD’s chief industry analyst. “Even though we are lagging behind so far, don’t be surprised if that last week pulls in a lot of business,” for brick-and-mortar retailers. (…)

The level of promotional activity, especially among apparel retailers, ticked up the weekend before Christmas, according to Simeon Siegel, a Nomura Instinet analyst. Of the 21 retailers he follows, nine offered deeper discounts compared with the same weekend, known as “Super Saturday,” a year ago. (…)

The Christmas Tree Indicator: Consumers Are Joyful

Sales of Christmas trees have jumped 10% from a year ago, the largest increase on record, according to Oscar Sloterbeck, head of company surveys at Evercore ISI, which has tracked this data since 2003. (…)

Christmas tree sales growth in states that went for Mr. Trump was 3 percentage points stronger than in states won by Hillary Clinton. That is similar to what took place in 2008 when Barack Obama was elected, except in favor of the Democrat.

US student loan defaults hit a new high.

Source: @delislealleges, @Tmp_Research via The Daily Shot

Durable-Goods Orders Fall 4.6%

Orders for durable goods—products designed to last longer than three years, such as trucks or computers—declined 4.6% from a month earlier to a seasonally adjusted $228.17 billion, the Commerce Department said Thursday. (…)

When excluding orders tied to transportation, new orders increased 0.5%. When excluding defense, another choppy category, orders slid 6.6%. (…)

Core capital goods orders (nondefense capital goods orders excluding aircraft) rose 0.9% in November, the fifth increase in the last 6 months. New trend? (Table from Haver Analytics)

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U.S. Leading Economic Indicators Hold Steady

The Conference Board’s Composite Index of Leading Economic Indicators remained unchanged during November (0.7% y/y) following an unrevised 0.1% October uptick. A 0.2% rise had been expected in the Action Economics Forecast Survey. The six-month change in the index improved to 2.0% (AR)

Contributing positively to the index last month were initial unemployment insurance claims, a steeper interest rate yield curve, nondefense capital goods orders, factory orders for consumer goods, stock prices, consumer expectations for business/economic conditions, stock prices and the leading credit index. Contributing negatively were the average workweek, building permits, a lower ISM new orders diffusion index and more initial claims for unemployment insurance.

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Hmmm…

Trump team floats a 10% tariff on imports

President-elect Donald Trump’s transition team is discussing a proposal to impose tariffs as high as 10% on imports, according to multiple sources.

A senior Trump transition official said Thursday the team is mulling up to a 10% tariff aimed at spurring US manufacturing, which could be implemented via executive action or as part of a sweeping tax reform package they would push through Congress. (…)

The senior transition official said the transition team is beginning to find “common ground” with House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady, pointing in particular to the border adjustment tax measure included in House Republicans’ “Better Way” tax reform proposal, which would disincentivize imports through tax policy.

Aides to Ryan and Brady declined to say they had “common ground” with Trump, but acknowledged they are in deep discussions with transition staffers on the issue. (…)

At least one business community organization is worried enough about the prospect of the tariff it already has prepared talking points, obtained by CNN Wednesday night.

“This $100 billion tax on American consumers and industry would impose heavy costs on the US economy, particularly for the manufacturing sector and American workers, with highly negative political repercussions,” according to the talking points. “Rather than using a trade policy sledgehammer that would inflict serious collateral damage, the Trump administration should use the scalpel of US trade remedy law to achieve its goals.”

The talking points also claim the tariffs would lead to American job loss and result in a tax to consumers, both of which would harm the US economy. (…)

Trade hawks to rule the roost in Trump’s White House Appointments suggest economic relations, particularly with China, are set for shake-up

(…) With the naming on Wednesday of Mr Navarro, a longtime critic of US-China policy, to lead a new National Trade Council in the White House, the president-elect sent a signal that he intends to deliver on some of his most bombastic economic promises on trade.

Together with Wilbur Ross, the billionaire investor Mr Trump has chosen to lead the commerce department and act as his point person on trade, Mr Navarro co-authored a much-scrutinised white paper in September that helped flesh out the Republican candidate’s economic policy. It put reducing the trade deficit and fighting back against “cheating” by US trading partners such as China at the core, arguing that US workers had for too long suffered from what it viewed as bad trade policy. (…)

Maybe this is not a coincidence:

President Xi Open to Growth in China Falling Below 6.5%

President Xi Jinping is open to China’s economic growth slowing below the government’s 6.5 percent target due to rising debt and concern about an uncertain global environment after Donald Trump’s election win in the U.S., according to a person familiar with the situation.

Xi told a meeting of the Communist Party’s financial and economic leading group this week that China doesn’t need to meet the objective if doing so creates too much risk, said the person, who asked not to be named because the discussions were private. (…)

The shift signals that leaders see systemic risk as great enough to warrant re-evaluating key goals and may be less inclined to add to fiscal and monetary stimulus. (…)

Some meeting participants sounded the alarm about unsustainable debt, noting that other nations have experienced crises after borrowing climbed to around 300 percent of GDP, the person said. China’s debt-to-GDP ratio rose to about 270 percent this year, the person said. (…)

At another meeting last week, Xi and his top economic policy lieutenants pledged to make preventing and controlling financial risk to avoid asset bubbles a top priority for 2017. They also said they plan prudent and neutral monetary policy and proactive fiscal policy next year, according to a statement after the three-day Central Economic Work Conference. (…)

World Trade Falls to 2014 Level, just in Time for a “Trade War”

(…) “But maybe if you’re going to do it,” Icahn said about the looming trade war with China, “you should get it over with, right?” (…)

Loonie Tumbles After Canadian Economy Unexpectedly Crashes Back Into Contraction

After 4 straight quarters of MoM growth in GDP, the Canadian economy plunged 0.3% in Q4 (considerably worse than the 0.0% expectations) despite a resugenece in crude prices. The Loonie is tumbling, back at 5-week lows, as manufacturing shrank a shocking 2.0% YoY – most since 2013.

  • Goods-producing sector fell 1.3% m/m in Oct.
  • Service-producing sector rose 0.1% m/m in Oct.
  • Largest upside contributor was real estate, +0.05 ppts
  • Largest downside contributor was manufacturing, -0.20 ppts
  • Manufacturing output falls 2.0% m/m, biggest decline since December 2013
 
Punk Credit Suisse agrees $5.3 billion U.S. mortgage settlement
The most addictive drug: Facebook

The social-media giant has defied even optimists’ projections of how big the 12-year-old firm could become. Today the company’s flagship social network claims 1.8bn active monthly users. Facebook has attracted these hordes by engineering features that are highly addictive and relevant to their lives, so people keep coming back for more hits. Throw in the other apps it owns, such as WhatsApp, Instagram and Facebook Messenger, and Facebook accounts for 30% of Americans’ mobile browsing time, compared with 11% for Google and YouTube combined. Collecting data on users has helped Facebook become the world’s second-largest advertising company on mobile devices. But Mark Zuckerberg wants to turn it into an even bigger part of the mobile ecosystem—hence the plans to develop Messenger and other messaging services into portals through which people can order taxis, communicate with businesses and so on. Being as useful as it is addictive could win Facebook even more friends. (The Economist)

THE DAILY EDGE (22 December 2016): Effective Tweets!

U.S. Existing-Home Sales Rose in November to New Postcrisis High Homebuying activity increased in November to the strongest sales pace in nearly a decade, though rising prices and mortgage rates could pressure the U.S. housing sector in the new year.

Purchases of previously owned homes, which account for the vast majority of U.S. sales, edged up 0.7% from October to a seasonally adjusted annual rate of 5.61 million last month, the National Association of Realtors said Wednesday. That was the third straight monthly rise, beating economists’ expectations for a modest November decline, and the strongest sales rate since February 2007. (…)

Sales in November rose 15.4% compared with the same month a year earlier. The annual gain was exaggerated by a one-off plunge in sales during November 2015 that the NAR had blamed on new federal mortgages rules delaying closings.

First-time home buyers represented 32% of November sales. (…)

The total inventory of homes on the market declined 9.3% y/y to 1.850 million. (Chart from Haver Analytics)

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The Mortgage Bankers Association reported that its total Mortgage Market Volume Index increased 2.5% last week (-9.5% y/y), but made up just part of the prior week’s 4.0% decline. Since their peak early in July, applications have fallen by roughly one-third. Refinancing applications gained 3.0% w/w, yet were off by one-half versus the level early in July. Purchase applications increased 2.7% (0.9% y/y), but were 6.8% below the high early in June.

The effective interest rate on a 15-year mortgage rose to 3.73%, up from the July low of 2.97%. The effective rate on a 30-year fixed-rate loan rose to 4.52%, up from the 3.70% low in early-July. The rate on a Jumbo 30-year loan increased to 4.43%. For adjustable 5-year mortgages, the effective interest rate of 3.54% was higher than 2.87% roughly six months ago.

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Trump’s New Appointments Shake Up Trade, Regulation Donald Trump selected billionaire investor Carl Icahn and Peter Navarro, a critic of trade with China, for his economic team.

Donald Trump’s Win Sends Economic Optimism to Highest Level Since 2012 Donald Trump’s election has pushed confidence in the economy’s direction to its most favorable level in four years, according to the latest WSJ/NBC News poll.

Some 42% of respondents say they believe the economy will get better over the coming year, versus 19% who say it will get worse. The last time Americans were as optimistic about the economy came in October 2012, when 45% saw the economy getting better, compared with just 9% who saw it getting worse.

One year ago, some 24% of respondents believed the economy would improve over the following 12 months, equal to the share who believed it would worsen. (…)

In the WSJ/NBC News poll, the improving economic sentiment is driven largely by Republicans’ postelection enthusiasm. Some 68% of Republican voters see the economy improving over the next year, versus 6% who believe it will get worse. Last year, just 14% of Republicans saw the economy improving, compared with 34% who saw it getting worse.

Independent voters also believe the economy will improve by a 22-percentage-point margin, a reversal from last year, when independents saw the economy getting worse by a 15-percentage-point margin. (…)

Gallup’s survey is even more upbeat:

Gallup's U.S. Economic Confidence Index -- Weekly Averages

  • The Trump effect: the outlook soared post elections:

U.S. Economic Confidence Index Components -- Weekly Averages Since January 2016

Americans now need to translate that optimism into actions:

  • Total housing starts have been flat for nearly 2 years.
  • Core retail sales have been choppy in recent months and clearly weak in November.
  • Small biz owners have also reacted positively to Mr. Trump’s election but their capex plans actually declined in the November survey.
  • Sales of light vehicles have levelled off lately and are down 2.1% YoY.
U.S. Car Makers Idle Plants Amid Oversupply Concerns Detroit auto makers are pulling back on first-quarter production in response to a cooling in retail demand and a shift in consumer tastes, a speed bump for an industry that has laid the foundation for U.S. economic expansion in recent years.
Number of the Day
10.8%

Year-over-year decline in U.S. rail shipments of motor vehicles and auto parts last week, according to the Association of American Railroads.

All three domestic car companies this week said they have scheduled down time at some of their factories for as much as three weeks in January. Auto makers typically idle assembly plants for a week or two around the holidays—but shutting factories for multiple weeks in January is unusual.

The moves are an attempt to help clear inventory of certain models such as sedans and minivans, which have been stacking up on dealer lots at a rapid pace in recent months. Such cars have attracted paltry interest among buyers more interested in sport-utility vehicles. (…)

Auto makers produced 3.6% more vehicles in North America last month than November 2015, according to researcher WardsAuto.com, a sign that executives were optimistic U.S. auto demand would be buoyant heading into 2017. (…)

Wards on Wednesday projected December car sales would grow at a strong seasonably adjusted pace. Inventory, however, will continue ballooning, the firm said, mostly due to increases in stocks at dealers selling GM, Ford and Chrysler products. (…)

  • Number of the Day: 10.8%: Year-over-year decline in U.S. rail shipments of motor vehicles and auto parts last week, according to the Association of American Railroads. (WSJ)

There are now bulls everywhere. (Chart from Yardeni Research)

And these bulls are very relaxed and serene:

  • VIX Hits Lowest Intraday Level in More than a Year The CBOE Volatility Index, often touted as the stock market’s fear gauge, dropped to its lowest intraday level since August 2015, one sign that investors aren’t pricing big risks into the market.

(…) the relationship between S&P 500 sectors broken down since the U.S. presidential elections as investors bet on individual winners and losers under a Donald Trump administration. The result has been big volatility moves in certain corners of the market that balance out with little effect on the broader index, Mr. Chintawongvanich said. (…)

Jamie Dimon on Trump, Taxes, and a U.S. Renaissance
Trump Administration ‘Hell-Bent’ on Making Big Changes, Dalio Says
Boeing chief praises Trump after meeting over Air Force One costs Defence executives discuss projects with president-elect after cost criticism

Good PR from everybody. I don’t know why TWTR is not going up given how effective it is proving to be in managing a country. Maybe Twitter should be nationalized.

Boeing’s chief executive lavished praise on Donald Trump on Wednesday after a meeting to discuss the president-elect’s sharp criticisms of the cost of the US group’s Air Force One contract and other big defence programmes.

“It was a terrific conversation. Got a lot of respect for him. He’s a good man. And he’s doing the right thing,” Dennis Muilenburg said after the meeting, which was prompted when Mr Trump sent an angry tweet earlier this month threatening to cancel the Air Force One contract. (…)

Mr Muilenburg called the meeting “very productive” and said he was “very encouraged by the dialogue”. Of the $4bn cost estimate, he said: “We’re going to get it done for less than that . . . I was able to give the president-elect my personal commitment on behalf of the Boeing Company.” (…)

BA shareholders should tweet Muilenburg to ask him to personally guarantee Boeing will not lose money on AF1.

Mr Muilenburg had already spoken to the president-elect immediately after his tweet and told him that the cost of Air Force One was largely determined by government requirements for security, communications and other specifications. After Wednesday’s meeting, Mr Muilenburg said: “We’re all focused on the same thing here; we’re going to make sure that we give our warfighters the best capability in the world and that we do it in a way that is affordable for our taxpayers.” (…)

Mr. Trump is just as effective with female execs, making a move here from The Apprentice to So You Think You Can Dance?

The president-elect also met another US defence contractor that has felt the sharp side of his Twitter feed recently, Lockheed Martin’s chief executive Marillyn Hewson.

Mr Trump tweeted last week that “the F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after” his inauguration.

Asked whether he had secured any concessions from Ms Hewson, Mr Trump told reporters: “We’re just beginning, it’s a dance . . . but we’re going to get the costs down and we’re going to get it done beautifully.”

I am sure he’s a beautiful dancer. This last one is a beauty after all the above:

He also held a meeting with senior military leaders and praised them as “good negotiators”. The Pentagon this week pushed back against his criticism of the F-35, saying it has “basically been on schedule” and “on budget” since 2011. (…)

The President-elect should give tweeting lessons to these “good negotiators”.