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: 12 SEPTEMBER 2019: Inflation Jumps

CPI for all items rises 0.1% in August as medical care, shelter indexes increase

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in August on a seasonally adjusted basis after rising 0.3 percent in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.

Increases in the indexes for shelter and medical care were the major factors in the seasonally adjusted all items monthly increase, outweighing a decline in the energy index. The energy index fell 1.9 percent in August as the gasoline index declined 3.5 percent. The food index was unchanged for the third month in a row.

The index for all items less food and energy rose 0.3 percent in August, the same increase as in June and July. Along with the indexes for medical care and shelter, the indexes for recreation, used cars and trucks, and airline fares were among the indexes that increased in August. The indexes for new vehicles and household furnishings and operations declined over the month.

Pointing upThe index for all items less food and energy rose 2.4 percent over the last 12 months, its largest 12-month increase since July 2018. The food index rose 1.7 percent over the last year while the energy index declined 4.4 percent.

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Transitory, they said!. Core CPI is up at a 3.6% a.r. in the last 3 months. Core Goods: +3.2%, Core Services: 3.6%, etc…

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U.S. Producer Prices Increase Minimally; Core Price Index Strengthens

The Producer Price Index for final demand edged 0.1% higher during August (1.8% y/y) following a 0.2% July rise.(…) Producer prices excluding food & energy strengthened 0.3% last month (2.3% y/y) after edging 0.1% lower in July. (…) The PPI excluding food, beverages and trade services, another measure of underlying price inflation, increased 0.4% (1.9% y/y) last month after easing 0.1% in July. It was the largest increase in three months. (…)

Prices for core goods for final demand were unchanged in August (1.0% y/y) for the fourth time in the last five months. (…) Services prices strengthened 0.3% (2.7% y/y) after easing 0.1%, while trade services prices rose a steady 0.2% (3.8% y/y). (…) Prices for intermediate demand fell 0.7% (-2.9% y/y), down for the third month in the last four. (…)

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Trump Delays Tariffs on Chinese Goods Ahead of Trade Talks The U.S. will delay by two weeks a planned increase in tariffs on some Chinese imports, potentially easing chilled relations ahead of planned trade talks next month.

Mr. Trump said on Twitter Wednesday that the U.S. will delay a tariff increase that was to go into effect on roughly $250 billion in goods on Oct. 1. He termed the delay a goodwill gesture made at the request of Chinese Vice Premier Liu He, as Oct. 1 marks the 70th anniversary of the founding of the People’s Republic of China.

The planned tariff increases were to cover largely nonconsumer items—materials businesses use to produce goods—with the levy going from 25% to 30%. (…)

The U.S. on Sept. 1 imposed new tariffs on about $111 billion in products, including for the first time some consumer goods imported from China. Another round of tariffs set to take effect Dec. 15 would cover consumer goods extensively, including smartphones, toys and apparel. (…)

China’s Commerce Ministry said Thursday that it welcomed the postponement and that Chinese companies had started making price inquiries for U.S. agricultural goods including soybeans and pork.

Beijing suspended purchases of the U.S. products in August. Ministry spokesman Gao Feng said that the possible resumption of agricultural products isn’t a bargaining chip in trade talks.

So, you think you can dance? If this was not so serious …

China Seeks to Narrow U.S. Talks to Break Deadlock Beijing is looking to narrow the scope of its negotiations with the U.S. to only trade matters, putting thornier national-security issues on a separate track in hopes it would help both sides resolve some immediate issues.

(…) In preparation for a new round of talks scheduled to take place in Washington early next month, Chinese negotiators are making plans to boost purchases of U.S. agricultural products, give American companies greater access to China’s market and bolster intellectual-property protections, these people said.

Beijing hopes to adopt this two-track approach before the planned talks between Beijing’s trade team, led by Vice Premier Liu He, and the U.S. delegation, led by Trade Representative Robert Lighthizer, these people said. While Mr. Liu would continue to lead talks on trade issues, a separate team would be assigned to manage the other geopolitical matters, they said. (…)

Ifo think-tank cuts German growth forecast over next two years Warnings that manufacturing slowdown will spread to services industry and hit jobs
OPEC+ Faces ‘Daunting’ Oil Market Surplus in 2020, IEA Says

Demand for the group’s crude in the first half of 2020 will be 1.4 million barrels a day below its August output as production surges from their competitors, including the U.S. Though an increase in stockpiles has taken a pause for now, growth in other countries, including Brazil and Norway means that 2020 could see a significant increase in oil stockpiles and pressure on prices. As an illustration of the challenge OPEC is facing, the U.S. briefly overtook Saudi Arabia as the world’s largest oil exporter in June.

A committee of OPEC+ members is meeting in Abu Dhabi on Thursday to discuss compliance with output cuts that are due to expire in March. Though Russia said earlier this week that deeper cuts are currently off the agenda, the International Energy Agency’s balances suggest the group’s current production levels won’t be enough to prevent a return to inventory builds next year. (…)

Supply from outside the Organization of Petroleum Exporting Countries will grow by 1.3 million barrels a day in the second half of the year, after an “enormous production surge” over the same period last year. That will be followed by a 2.3 million barrel a day increase in 2020. (…)

The agency retained its oil demand growth forecast of 1.1 million barrels a day this year as the market continues to be whipsawed by the trade war between the U.S. and China. Consumption increased by just 200,000 barrels a day in June, meaning world oil demand growth averaged 450,000 barrels a day in the first half.

Those figures should rebound to 2 million barrels a day in the fourth quarter, driven in part by lower prices. For that to happen though, there needs to be no further deterioration in the economic climate or trade disputes, the agency said. (…)

TECHNICALS WATCH

The latest (as of yesterday’s close) 13/34–Week EMA Trend chart courtesy of CMG Wealth:

From the same source:

  • NDR Crowd Sentiment Poll: Neutral Pessimism (S/T Bullish for Equities). The current weekly sentiment reading is 60.6. It was 56.7 last week.  The current regime is highlighted in yellow.

Source: Ned Davis Research
NDR Disclosure; CMG Disclosure.

Charles Schwab’s Liz Ann Sonders explains:

In the case of Ned Davis Research’s Crowd Sentiment Poll (which is an amalgamation of seven distinct sentiment measures, some attitudinal and some behavioral), even with the latest rally in stocks, sentiment dipped slightly into the “extreme pessimism” zone as you can see below. That has historically been the second-best zone for stocks in terms of annualized performance.

Here’s the Rule of 20 barometer at today’s opening of 3013 with August core CPI at 2.4%:

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Oxford Tops Global University Rankings, as China Gains Anew The University of Oxford topped a list of the best universities in the world for the fourth straight year. The U.S. remained the dominant nation overall, but China’s large investment in higher education continues to generate dividends.

The U.S. remained the dominant nation overall, with seven schools in the top 10 and 60 in the top 200, but China’s massive investment in higher education continues to generate dividends, including placing nine more schools than last year in the overall ranking of nearly 1,400 universities. For the first time, China is now spending more money than any other nation, according to one closely watched funding metric. (…)

But the balance of power continues to shift toward Asia in general and China in particular. The number of top 200 universities in Asia grew by two to 24. China had seven in the top 200, the same as last year, led by Tsinghua University at No. 23 and Peking University at 24.

The tilt toward China is easier to see over a longer stretch. The U.S. has lost nine universities from the world top 400 list in five years, while at the same time, China has gained five.

Decline in U.S. performance over the past five years is largely due to disinvestment in public universities, which have seen a 5% drop in institutional income over that time. (…)

In the category of institutional income per academic staff member, a measure of the level of financial resources at the disposal of an institution for academic purposes, Chinese universities are now better off than their U.S. counterparts. (…)

THE DAILY EDGE: 11 SEPTEMBER 2019

Did you miss THE PROFIT PROBLEMS?

U.S. Job Openings Cool in Slowing Labor Market A pullback in openings aligns with other labor-market signals pointing to a slowdown

Job postings fell 3% from a year earlier in July to 7.217 million after declining 2% in June, the Labor Department reported Tuesday. Before June, job openings hadn’t decreased year over year since early 2017. (…)

Openings peaked at 7.6 million in November and have decreased by about 400,000 since then.

Still, the number of available jobs remains high. Job openings exceeded the number of unemployed Americans by 1.2 million in July, the 17th straight month openings have outnumbered job seekers. (…)

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Quits keep rising, more pressure on labor costs:

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  • The Conference Board Employment Trends Indexâ„¢ (ETI) Declined Slightly in August
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Median U.S. Household Income Showed No Growth in 2018

Median household income was $63,179 in 2018, an uptick of 0.9% that census officials said isn’t statistically significant from the prior year based on figures adjusted for inflation. The poverty rate in 2018 was 11.8%, a decrease of a half percentage point from 2017, marking the fourth consecutive annual decline in the national poverty rate. It was the first time the official poverty rate fell significantly below its level at the start of the recession in 2007.

Census officials said that median household income was essentially the same as it was during previous peaks in 1999 and 2007.

The share of Americans who lack health insurance rose for the first time since 2009, according to the figures. In 2018, 8.5% of people, or 27.5 million, didn’t have health insurance at any point during the year, compared with 7.9% of people, or 25.6 million, the previous year. That reversal comes years after the 2010 Affordable Care Act expanded insurance coverage to millions of Americans. (…)

U.S. Businesses Say China’s Slowdown Is a Greater Threat Than Trade War U.S. companies are downshifting in China as its economy slows and trade tensions with the U.S. persist, according to a new survey.

(…) More than three quarters of the 333 respondents to this year’s survey said they remained profitable in China last year, but only half forecast revenue growth in 2019, down sharply from 81% in 2018 and similar rates in recent years. Likewise, a solid majority—61%—said they held a positive view about business prospects in China over the coming five years. In past years, however, that figure was routinely 80% or higher. Now, 21% express outright pessimism about the five-year outlook, a figure that in the recent past hadn’t touched 10%. (…)

A slowing Chinese economy is considered the biggest challenge in the next three to five years by nearly 58% of respondents, a risk recognized by only about a third of respondents a year earlier. Amcham said 18% of responding members intend to cut China investment this year, three times as many as those who said last year they planned to do so. Fifty-three percent of respondents said tariffs are leading to slower or less investment spending, while 20% said they plan to cut head count.

The manufacturing-heavy chamber said market access remains a crucial demand of members, and 75% of them disapprove of President Trump’s application of tariffs, as members would prefer deeper engagement with China. More than two-thirds gave a thumbs down to the China International Import Expo trade fair, President Xi Jinping’s signature initiative to expand business opportunities for foreign companies. (…)

Global Currency Decline Bruises Investors Currencies around the world are tumbling to multiyear lows against the dollar, bruising investors’ portfolios and fanning the flames of a global trade war.

The Chinese yuan recently hit its lowest level in more than a decade against the dollar, the euro dropped to a fresh two-year low last week and the British pound is at depths it hasn’t consistently plumbed since the 1980s.

Some emerging-market currencies such as the Colombian peso have fallen to their lowest prices on record against the dollar, while Argentina has recently introduced capital controls after its peso plunged in August. Out of 41 currencies tracked by The Wall Street Journal, only nine are up against the dollar in 2019. (…)

As falling rates and slowing growth drove bond yields lower, investors headed to the U.S., where the economy is relatively strong and the payout on Treasurys stands far above that offered by many other government bonds. That shift has weighed on large parts of the foreign-exchange market while pushing the dollar up to historic highs against the currencies of many U.S. trading partners. (…)

For developing countries, however, a depreciating currency can be a headache. Accelerating inflation can be a problem in emerging markets, where central banks must often fight to keep prices from rising too quickly.

A falling currency makes it harder for developing countries to service their dollar-denominated debt. Too sharp a drop can unnerve investors, causing a stampede as money managers ditch emerging-market assets. (…)

JPMorgan CEO Dimon Raises Specter of Zero Rates

James Dimon, chief executive of JPMorgan Chase & Co., said at an industry conference Tuesday the bank has begun discussing what fees and charges it could introduce if interest rates go to zero or lower.

While Mr. Dimon stressed he wasn’t expecting zero rates at this point, the fact that he would entertain such a conversation is a sign of how sharply the environment has changed. A year ago, the Federal Reserve was still raising rates, and many bankers including Mr. Dimon expected the rate increases to continue into this year. (…)

Wells Fargo & Co., Citigroup Inc. and JPMorganJPM 1.27% all told investors at this week’sBarclays financial services conference in New York that lending profitability in the second half of the year would likely be less than the banks had previously expected.

The bankers blamed falling interest rates along with a growing list of global concerns including Brexit and protests in Hong Kong, which they say are hampering business clients from making decisions. The trade war between China and the U.S. remains the biggest impediment, the bankers said.

“People are a little less willing to make bets,”Bank of America Corp. ’s Chief Operating Officer Thomas Montag said. Some clients are changing supply chains, while others are holding off on drawing down on their revolving lines of credit, he said. “There’s enough uncertainty going on in the world that they’re going to wait.”

There were some brighter spots: Bank of America and JPMorgan were more upbeat on trading revenue. Lower interest rates have spurred increased mortgage origination. And generally the banks said U.S. consumers remained strong.

Latest data to Aug. 28 shows steady loan growth in the 6-7% range:

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A graphic with no descriptionft.com

China to Announce Policies to Cushion Trade War, Global Times Editor Says
SMALL TALK ON SMALL CAPS

The Daily Shot reproduces this relative valuation chart suggesting that small caps are cheap relative to large caps:

Source: @LizAnnSonders, @LeutholdGroup

They are indeed cheaper but beware of the 20% or so apparent discount. One, we don’t know how the small cap P/E is calculated, if it includes losses or not (some 30% of the Russell 2000 index components are losing money). Two, the outlook is not improving:

  • This chart compares the NFIB index with the Russell 2000 small-cap stock index (on a year-over-year basis). (The Daily Shot)

Source: Capital Economics

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Amazon Probed by U.S. Antitrust Officials Over Marketplace The FTC is interviewing merchants to determine whether the e-commerce giant is using its market power to hurt competition.
Shifty Young Americans are less trusting of other people – and key institutions – than their elders

Around three-quarters (73%) of U.S. adults under 30 believe people “just look out for themselves” most of the time. A similar share (71%) say most people “would try to take advantage of you if they got a chance,” and six-in-ten say most people “can’t be trusted.” Across all three of these questions, adults under 30 are significantly more likely than their older counterparts to take a pessimistic view of their fellow Americans.

All told, nearly half of young adults (46%) are what the Center’s report de

All told, nearly half of young adults (46%) are what the Center’s report defines as “low trusters” – people who, compared with other Americans, are more likely to see others as selfish, exploitative and untrustworthy, rather than helpful, fair and trustworthy. Older Americans are less likely to be low trusters. For example, just 19% of adults ages 65 and older fall into this category, according to the survey, which was conducted in late 2018 among 10,618 U.S. adults. (You can read more here about how the study grouped Americans into low, medium and high trust categories.)

Young adults also express less confidence in their fellow citizens to act in certain civically minded ways. (…)