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

NEW$ & VIEW$ (12 NOVEMBER 2015)

Busy day for Fed followers:

Here’s a round-up of who’s speaking and when (all times ET):

  • 9:05 – 9:45 a.m. St. Louis Fed President James Bullard.
  • 9:30 a.m. Fed Chair Janet Yellen.
  • 9:45 – 11:00 a.m. Richmond Fed’s Jeffrey Lacker on panel at CATO Institute.
  • 10:15 a.m. Chicago Fed President Charles Evans.
  • 12:15 p.m. NY Fed President William Dudley.
  • 6:00 p.m. Fed Vice Chair Stanley Fischer.

Right after Draghi set the stage for the ECB’s December meeting:

Mario Draghi signaled that the European Central Bank is ready to boost stimulus at its December meeting at a hearing in the European Parliament this morning. He said that signs of a turnaround in core inflation have somewhat weakened and downside risks are visible.

Macy’s cuts full-year forecast, sends shivers through retail

Warm weather, low spending by tourists and a pileup of unsold inventory prompted Macy’s Inc (M.N) to cut its full-year forecast on Wednesday, raising wide concerns about the retail sector’s financial health. (…)

Sales at stores open at least a year fell 3.6 percent in their third straight quarterly decline.

Good lengthy piece by the WSJ helping understand what’s going on at Macy’s and other dept. stores. That chart sums it up:

A Record Share of Young Women Are Living at Home

A larger share of young American women are living with family now than at any time since the 1940s, as more of them forgo early marriage for higher education, Pew found.(…) Recent data shows college students are significantly more likely to live with family than young adults who aren’t in school.

Marriage prompted many young women to fly the coop in 1940, when the typical woman first married at age 21.5. By 2014, the median age at first marriage had risen to 27 for women. And the share of married young women had dropped by half, from 62% in 1940 to 30% in 2013, according to Pew.

The data tell a similar story for young men. Last year 42.8% of men lived at home—higher than women, but not at its 1940 peak, when 47.5% of them lived at home. Back then, the lingering effects of the Great Depression–including an unemployment rate of nearly 15%–likely kept more of them at home.

A July Pew report from Pew showed that a higher percentage of millennials—adults born in 1981 or later—were living with parents than in 2010, despite earning close to their prerecession wages. Declining marriage rates, higher rental costs and rising student debt may all be partly to blame.

China Learns What Pushing on a String Feels Like

Data out Thursday showed lending in October to be decidedly lackluster. Banks extended 513.6 billion yuan ($80.7 billion) of new loans, down 3.3% from a year earlier. Total social financing, a broader measure of credit that includes various kinds of shadow loans, was also weak. Total credit outstanding was up just 12% from a year earlier, close to its slowest pace in over a decade. (…)

Capital outflows are also making the PBOC’s job harder. Figures out on Wednesday indicated that there was a massive $224 billion of investment outflows in the third quarter.

Facing this, the PBOC has been intervening to keep the currency from depreciating, selling off dollars and buying up yuan. Unfortunately this shrinks the domestic money supply, thus counteracting much of the PBOC’s easing measures. (…)

The outflow situation appeared to improve in October. The PBOC’s forex reserves unexpectedly ticked up for the month, suggesting it didn’t have to intervene as much in the currency markets. (…)

China Speeds Up Fiscal Spending in October to Support Growth

Fiscal spending jumped 36.1 percent from a year earlier to 1.35 trillion yuan ($210 billion), while fiscal revenue rose 8.7 percent to 1.44 trillion yuan, the Finance Ministry said Thursday. In the first ten months of the year, spending advanced 18.1 percent and revenue increased 7.7 percent. (…)

“With downward economic pressure and structural tax and fee cuts, fiscal revenue will face considerable difficulties in the next two months,” the Ministry of Finance said in the statement. “As revenue growth slows, fiscal expenditure has clearly been expedited to ensure that all key spending is completed.” (…)

Eurozone Industrial Output Falls

(…) The European Union’s statistics agency said industrial output was down 0.3% from August, but up 1.7% from a year earlier. (…)

The decline in output was concentrated in Germany, the eurozone’s largest member and its export powerhouse. Eurostat recorded a 1.2% drop in German output, but increases in other large members of the currency area, including 0.2% rises in both France and Italy, and a 1.4% rise in Spain.

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Markit’s PMI for October provides some hope:

Output growth ticked higher during the latest survey month, underpinned by a slightly sharper increase in new orders. Intakes of new export business* also rose at a moderately faster pace, the quickest since June. The strongest rates of output growth were signalled in the Netherlands, Italy and Austria, which were also the only nations to report faster rates of expansion than September. Germany and Ireland also reported relatively solid expansions of output, whereas as growth was comparatively modest in France and Spain.

Also, things improved in Germany as the month of October progressed:

The improvement in the headline index between its flash and final estimates was largely centred on Germany, where the PMI rose by 0.5 points since its first publication through stronger trends in the output (+0.5) and new orders (+1.1) components.

GREEN SHOOTS

The JPMorgan Global PMI, compiled by Markit, regained some poise in October after slipping to a nine-month low in September, rising to 53.4. However, the survey merely signals a rate of worldwide GDP growth of just over 2% per annum.

Services continued to drive the upturn, as has been the case throughout much of the past two years, though an upturn in the goods-producing sector meant the divergence narrowed. The latter is especially welcome as it hints at a potential upturn in global trade flows, weakness in which has been a key factor behind this year’s slowdown in many countries. Global exports grew at the fastest rate for ten months, rising for the first time since June.

Growth slowed in the US in Q3 (down to 0.4%, or 1.5% annualised), as flagged ahead by Markit’s US PMI surveys, but domestic demand showed encouraging signs of resilience. The PMI surveys also signalled a continuation of the moderate growth trend at the start of the fourth quarter. An upturn in exports helped allay global growth worries and the pace of expansion in services remained robust. Non-farm payrolls also impressed and wage growth accelerated, fuelling expectations of the Fed hiking interest rates in December.

Emerging markets continued to act as a brake on global growth in October, albeit with the drag easing. At 49.7, the Emerging Market PMI remained below the neutral 50.0 level for the fourth time in the past five months. Although the data point to a pick-up from what has been the worst performance since 2009, the emerging market index is still signalling GDP growth of less than 4%.

China remained mired in weakness, contributing to ongoing malaise across much of Asia. At 49.9, the ‘all-sector’ Caixin (Markit-compiled) PMI for Chinac learly indicates a risk that GDP growth will slow further from the 6.9% pace seen in Q3. However, the manufacturing downturn eased amid better export demand, the rate of decline having been the most severe for six-and-a-half years in September. Growth meanwhile picked up slightly in the service sector, which once again provided the main thrust to the economy.

Japan’s goods producers reported renewed signs of life as exports picked up. Together with an upturn in services growth, the Nikkei PMI survey indicates that Japan has enjoyed a growth upturn in Q3 which has gathered pace at the start of Q4. The stronger survey data support the Bank of Japan’s recent decision to keep policy on hold rather than inject more stimulus.

The Eurozone PMI edged higher in October to signal a 0.4% rate of GDP growth at the start of Q4, matching the pace indicated for Q3. Spain continued to lead the upturn, followed by Germany and Italy, with France once again trailing but nevertheless showing renewed signs of life. However, with inflation remaining absent, the ECB talked up the possibility of further QE by the end of the year.

China’s successful rebalancing is very important for world economies. Chinese retail sales rose 11.0% YoY in October. Given current retail sales of 2.7T yuan, this is a 0.3T yuan ($47B) increase in sales. Back in 2007 when retail sales were growing 14% YoY, it meant +0.1T yuan in additional demand. For perspective, U.S. retail sales rose by $10B YoY in October.

China’s IPOs Will Return a ‘Conservative’ 300%, Chinese Bank Says

NEW$ & VIEW$ (11 NOVEMBER 2015): China Bottoming Out.

New York’s Cuomo Increases Minimum Wage for State Workers New York Gov. Andrew Cuomo announced plans to give all state workers a minimum wage of $15 an hour, making New York the first state in the nation to set pay for its public-sector employees that high.

The wage increase will be phased in by the end of 2018 for state workers in New York City and by the end of 2021 for state workers elsewhere. (…)

Mr. Cuomo boosted minimum wages for fast-food workers earlier this year. The state’s minimum wage is $8.75 and is set to increase to $9 at the end of December.

Several U.S. cities, including Los Angeles, have passed measures to increase their minimum wages to $15 an hour in the coming years, and California and Oregon are considering similar statewide measures.

(…) The prospects of building a bloc of voters around the push for a $15 minimum wage “are huge,” SEIU President Mary Kay Henry said in an interview Tuesday morning.  “I think it’s quite possible to inspire the 64 million workers earning under $15.”

Low-wage workers could have a bearing on national politics, mostly because their numbers are so large. The SEIU’s estimate is roughly in line with Labor Departmentdata showing that 50% of U.S. workers earned less than $17.09 an hour last year.

More than 12 million Americans work in the food-service industry, according the Labor Department. Their median wage last year was $9.20 an hour. (…)

U.S. Import Price Decline Is Broad-Based

Import prices declined 0.5% during October (-10.5% y/y) following a 0.6% shortfall in September, revised from -0.1%. Nonpetroleum import prices fell 0.4% (-3.4% y/y). Prices have not risen m/m since March of last year.

Export prices fell 0.2% (-6.7% y/y) following a 0.6% drop.  A 0.8% shortfall (-15.9% y/y) in industrial supplies & materials prices led the way lower. This decline reflected lower fuels & building materials prices, without which prices fell 0.5% (-8.4% y/y).

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Non-petroleum import prices have dropped at a 4.1% annualized pace in the last 3 months.

China shoppers pick up economic baton Fixed-asset investment near 15-year low amid painful rebalancing

Chart: China key activity indicators, Oct 2015(…) Urban fixed-asset investment grew at an annual rate of 10.2 per cent in the first 10 months of the year, the slowest pace since 2000 and the 17th straight month of declines, according to the statistics bureau. Industrial production, a gauge of the manufacturing sector, matched the six-year low of 5.6 per cent annual growth touched in April. (…)

Retail sales grew 11 per cent in October, the swiftest annual rate this year. Passenger car sales also grew strongly, rising by 13.3 per cent to 1.9m units in October, the fastest pace in 17 months, according to the China Association of Automobile Manufacturers. (…)

Property was the biggest drag on fixed-asset investment, with real estate investment dipping to 2 per cent, the slowest pace since data began in 2004. Home sales and prices have begun to creep higher in recent months following a year of declines, but developers are delaying new construction in the face of unsold inventory gluts. (…)

Beijing has ramped up fiscal spending to fill the gap. Fixed-asset investment by local governments rose 10.6 per cent in the year to October. (…)

Bloomberg’s monthly GDP estimator has flattened out:

FYI: Numbers that Explain the World’s Largest Shopping Holiday

Below are 11 such numbers that help tell the story of Singles Day, the holiday that Jack Ma built.

11.11 The date Chinese university students selected back in the mid-1990s as a sort of anti-Valentine’s Day for single people. What started as a joke has become the world’s largest shopping holiday.

$1 Billion How much merchandise Alibaba sold last Singles Day within the first three minutes of the sale.

Over $9.3 Billion Total sales within 24 hours. This amount far exceeds the combined sales revenue of Black Friday and Cyber Monday, the two largest American shopping holidays. (…)

China's Singles Day Bigger Than Black Friday and Cyber MOnday Combined

$277 The average amount each shopper is expected to spend.

760 Million The number of packages China’s postal service estimates will be needed to ship Singles Day orders. This is up 40 percent from the 540 million used last year.

1.7 Million The estimated number of deliverymen and women that will be needed.

200 The estimated number of jets and airplanes that will be deployed to handle the sales volume in China alone.

French and Italian IP Show Fledgling Recovery

France and Italy are the second and third largest economies, respectively, in the EMU. Their recent trends in industrial output make a good summary of what is going on in the EMU as a whole. Neither is particularly strong and yet both are managing increases in output. Both Italy and France have two IP increases in the last two months; for France there are two increases in a row. Both show an IP increase in September and both show an IP increase of about 2% year-over-year (1.8% for France and 2.2% for Italy). Both show some recent weakness in IP growth in their respective consumer sectors.

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U.S. Wholesale Inventory Accumulation Improves

Inventories at the wholesale level rose 0.5% during September (4.5% y/y) following a 0.3% August increase. The rise was paced by a 1.3% jump (8.4% y/y) in furniture and a 0.5% rise (12.8% y/y) in automotive inventories.. Computer & peripherals fell 1.7% (+1.8% y/y) and electrical goods inventories eased 0.3% (+5.4% y/y. Nondurable goods inventories increased 1.9% (7.5% y/y). The gain reflected a 2.3% rise (14.4% y/y) in apparel but petroleum inventories eased 0.6% (-18.2% y/y). Chemical inventories declined 1.6% (+4.0% y/y).

Sales in the wholesale sector improved 0.5% (-3.6% y/y) after two months of decline. Motor vehicle sales jumped 2.3% (5.9% y/y) though furniture purchases were off 2.7% (+4.6% y/y). Machinery equipment sales improved 0.2% (-3.6% y/y). Nondurable goods sales increased 0.3% (-6.1% y/y) as apparel sales gained 1.9% (6.3% y/y). Chemical sales improved 0.5% (-2.9% y/y) but petroleum sales declined 4.6% (-39.1% y/y).

Just kidding Wholesale apparel sales are up 6.3% YoY. Apparel prices are down 1.4% YoY. Volume: +7.7%!! Retail sales of clothing stores were up 4.7% YoY in September. Which explains this:

(…) Nomura and Citi retail analysts on Monday forecast weak third-quarter results at Macy’sInc. and Kohl’s Corp. due to slower-than-expected sales that had left the pair awash in excess merchandise at the end of the period. Executives at Ltd.and Ralph Lauren Corp., which supply the chains with goods, earlier said there has been a buildup of inventory at big department stores.

Chris Peterson, president of global brands at Ralph Lauren, told analysts last week that inventory at department stores is “a little bit” elevated, referring to the broader retail industry.

Specialty stores and apparel manufacturers also are experiencing “a build-up in inventories beyond the natural increase ahead of the holidays,” according to a recent report from analysts at Macquarie Research. (…)

On Tuesday, Cowen and Co. published a report warning “inventory is above sales growth across retail,” and noting that merchandise levels were bloated at DSW Inc., Dicks Sporting Goods Inc. and Skechers U.S.A. Inc., among other chains. Under Armour said accelerated deliveries resulted in its higher inventory levels, but also aided sales. VF said it stocked up since it plans to open more retail stores. DSW said it made more purchases because hard to acquire brands had become available. The other companies weren’t available for immediate comment. On recent calls with investors, some retail executives cited the easing of congestion at West Coast ports, among other reasons. (…)

Retailers also are feeling the effects of a downturn in tourism to the U.S. as a result of the stronger dollar, and unusually warm weather across much of the country that has curbed shoppers’ appetite for sweaters, coats and other cold-weather goods. (…)

Pointing up OPEC Challenges Shale Afresh as Iraq Crude Floods U.S. Market

Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show. Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures. (…)

Iraq, pumping the most since at least 1962 amid competition among OPEC nations to find buyers, is discounting prices to woo customers. The U.S. may increasingly become one of them after its own output dropped by as much as 500,000 barrels a day since June. (…)

Iraq is among the least expensive places in the world to extract crude. Capital costs are about seven times cheaper than for light, tight oil suppliers in the U.S. when measured by fields’ daily plateau capacity, according to the International Energy Agency in Paris. (…)

Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December. (…)

DEAL TRIVIA:

ISI calculates that over the past 21 months there have been 1,441 M&A deals totalling $8.2T. Incredible!

Fidelity Marks Down Value of Snapchat Stake by 25% Revised estimate comes amid growing uncertainty around the soaring valuations of private tech startups

The change was the first by Fidelity since it invested in Snapchat in May at a valuation of $16 billion. (…)

Snapchat expects to generate about $50 million in revenue this year, a person familiar with the matter said in August.

On Friday, payment processor Square Inc. proposed to value itself at $3.9 billion in a planned initial public offering, down from $6 billion last year. Startups including e-commerce site Jet.com Inc., local-services website Thumbtack Inc., secondhand-good marketplace OfferUp Inc. and used-car seller Beepi Inc. have scaled back their expected valuations from private investors. (…)

Earlier this year, BlackRock Inc., an investor in cloud-storage startup Dropbox Inc., cut its estimate of the company’s per-share value by 24%, securities filings show.