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 (22 August 2018)

RETAIL SAILS
Target’s Sales Growth Highest in More Than a Decade Target said same-store sales rose at the fastest rate in more than a decade, buoyed by efforts to improve locations and e-commerce capabilities as well as a booming economy.

Comparable sales at the company increased 6.5% in the quarter ended Aug. 4, helped by stronger traffic at retail stores. Total revenue climbed 6.9% to $17.78 billion. (…)

Earlier this month, Walmart Inc. said its quarterly sales rose at the fastest rate in over a decade. Some retailers have also been picking up market share from competitors like J.C. Penney Co. and Toys “R” Us Inc. that have closed locations.

Target said it expects same-store sales in the third quarter and rest of 2018 to be “in line with” comparable sales growth so far this year, 4.8%. (…)

La-Z-Boy Reports Jump in Sales

(…) La-Z-Boy said it was “encouraged” by the improvement in its retail operations as a key same-store sales metric for its La-Z-Boy Furniture Galleries network rose 3.1%. Meanwhile, in the wholesale segment, upholstery sales benefited in part from sales of more higher-priced items. (…)

Hmmm…

From the WSJ:

Manafort, Cohen and Trump A guilty plea and verdict raise the political stakes for the President.

The jury conviction of Paul Manafort and the guilty plea by Michael Cohen on Tuesday are a damaging commentary on the shady operators Donald Trump associated with in his private and political life. Whether they also pose a fatal threat to his Presidency is far from clear, however, and the evidence in both cases is unrelated to the Russian collusion claims that set these prosecutions in motion. (…)

Mr. Mueller threw 18 charges at Mr. Manafort, no doubt figuring that some would stick, and that a conviction might cause Mr. Manafort to cooperate against Mr. Trump. Mr. Manafort now faces up to 80 years in prison, so he certainly has incentive to cooperate. But the question is how much Mr. Manafort even knows about any Russian connections. Nothing that has emerged publicly in two years of FBI and Congressional probes has demonstrated Trump-Russia collusion in 2016.

Mr. Cohen’s guilty plea may pose a greater risk to Mr. Trump given the lawyer’s role in paying $130,000 to pornography actress Stephanie Clifford so she would keep silent about an alleged affair with Mr. Trump in 2006. Mr. Cohen first denied making the payments, and Mr. Trump publicly denied knowing about them, but Mr. Cohen now says they both knew. (…)

Mr. Trump’s biggest vulnerability appears to be whether the payments to Ms. Clifford violated campaign-finance law. Mr. Cohen pleaded guilty to a campaign-finance charge, which prosecutors may have wanted to stipulate were criminal to hold against Mr. Trump. Mr. Cohen told the court he paid Ms. Clifford at the request of “the candidate,” which has to mean Mr. Trump. (…)

We doubt Mr. Mueller will indict Mr. Trump as a sitting President, but the ultimate threat to Mr. Trump is political. Congress decides what is an impeachable offense, and if Democrats retake the House in November they will define “high crimes and misdemeanors.” The Cohen and Manafort convictions raise the stakes for Mr. Trump and his Presidency, but voters may want to see more than evidence about payments to a porn star to overturn the results of a presidential election.

Bloomberg:

Cohen’s Guilty Plea Puts Trump in a Perilous Spot The prospect of a criminal prosecution will loom over the rest of his presidency.

(…) This event is therefore unprecedented in U.S. history. Never before has someone pleaded guilty in open court and said he acted at the direction of the president. We are therefore entering into a new phase of the Trump presidency — one that will be complex and treacherous for the president and for the country.

When it became clear that Nixon was criminally liable for acts he had committed as part of the Watergate cover-up, Congress initiated impeachment proceedings. Nixon soon resigned rather than face impeachment. (…)

Although he won’t be charged while he’s president, Trump could be charged with a federal crime the moment he leaves office. The prospect of criminal prosecution is therefore almost certainly going to loom over the rest of Trump’s term.

The best possible scenario for Trump is that the crime could be seen as technical. If the suggestions by Trump’s current lawyer, Rudy Giuliani, are to be believed, Trump was funneling the payment to Daniels through Cohen. If this is true, Trump was making an unauthorized and illegal campaign contribution to his own campaign. That’s a crime, but maybe not an earth-shattering one, if you already support Trump. Congressional leaders could see it the same way.

We would be faced with the bizarre scenario of a president, the nation’s chief law enforcement officer, who has been directly implicated in a federal crime — and suffers no legal consequences, at least while he’s in office.

As for impeachment, is directing the federal criminal violation a “high crime and misdemeanor” under the Constitution? It took place before Trump was in office, and it’s possible to argue that the crime was therefore not “high” because it wasn’t committed by President Trump but by candidate Trump.

Yet Trump’s alleged crime was connected to the presidency: According to Cohen, he committed it in order to get elected. This could arguably make it a “high” crime — high because it is tied to the office that Trump now holds. In any case, the ultimate definition of what is a high crime will be made by Congress. (…)

But the bottom line is this: Can the country tolerate having a president who has been directly implicated in violating the law?

The FT:

Trump’s future will be settled by politics, not the law Despite so many scandals, the court of public opinion is the one that really matters

(…) the next best way to winkle the president out of office. The process is more political than legal. The constitution requires a bare majority of the House of Representatives to impeach. If the Democrats win the House in November’s midterm elections, this might happen. But the constitution then requires a two-thirds majority of the Senate for the president’s actual removal. This is much harder to envisage. Without it, Mr Trump could emulate his predecessors Andrew Johnson and Bill Clinton by governing on, impeached but intact. (…)

WaPo:

Despite Cohen’s claim, legal consequences unlikely for Trump while he holds office 

(…) Democrats have been split on whether calling for Trump’s impeachment is politically astute before November. But Cohen’s plea could revise that calculation and pressure Democrats to promise to launch hearings should they win the House, which has the constitutional authority to initiate impeachment proceedings. (…)

“The combination of the Manafort conviction and the guilty plea by Michael Cohen creates a legal maelstrom for the president’s lawyers, who now have to do battle on two fronts, fending off unrelated charges that both involve individuals who were at one time close to the president,” said Robert Mintz, a former federal prosecutor who now works at the firm McCarter & English. (…)

ZeroHedge:

Cohen Willing To Tell Mueller About Trump’s “Conspiracy To Collude” With Russia

If there was any doubt whether Michael Cohen had flipped, despite statements that he was not cooperating with the government as part of his guilty plea and refusing to name the “candidate” who instructed him to violate campaign finance law, that was promptly dissolved in the following hours when Cohen’s lawyer, Lanny Davis said that his client has “knowledge” about computer hacking and collusion, and is willing to speak with Special Counsel Robert Mueller about a “conspiracy to collude” with Russia during the 2016 presidential campaign. (…)

“Mr. Cohen has knowledge on certain subjects that should be of interest to the special counsel and is more than happy to tell the special counsel all that he knows,” Davis told MSNBC on Tuesday.

“Not just about the obvious possibility of a conspiracy to collude and corrupt the American democracy system in the 2016 election, which the Trump Tower meeting was all about, but also knowledge about the computer crime of hacking and whether or not Mr. Trump knew ahead of time about that crime and even cheered it on.” (…)

THE DAILY EDGE (21 August 2018)

Still traveling and posting sporadically.

U.S. Leading Economic Indicators Continue to Strengthen

The Conference Board’s Composite Index of Leading Economic Indicators increased 0.6% (6.3% y/y) during July. The improvement followed an unrevised 0.5% June gain and an upwardly revised 0.1% uptick. A 0.4% increase had been expected in the Action Economics Forecast Survey. The index is comprised of 10 components which tend to precede changes in the overall economy.

Amongst the components of the index, most made a positive contribution. Improvement was led by fewer initial claims for unemployment insurance, the leading credit index, a steeper interest rate spread between 10-Year Treasuries & Fed funds and a higher ISM new orders index. In addition, average consumer expectations for business/economic conditions contributed positively. Also, higher stock prices, more building permits, more orders for consumer goods & materials and an increased number of new orders for nondefense capital goods excluding aircraft had positive effects on the leading index change. The average workweek for production workers had a neutral effect.

Three-month growth in the leading index picked up to 5.2 % (AR), but remained below its 10.3% December 2017 peak.

The Index of Coincident Economic Indicators increased 0.2% (2.4% y/y) in July after a 0.3% June gain. (…)

Three-month growth in the coincident index of 2.3% (AR) has been fairly steady recently and was improved from 1.6% growth in Q1.

The Index of Lagging Economic Indicators declined 0.2% (+2.3% y/y) last month and reversed June’s increase. It was the first decline in the index since March. (…)

Three-month growth in the lagging index fell to 1.9%, its weakest growth since March and down from 4.3% in June. (…)

From Advisor Perspectives:

Smoothed LEI

As we can see, the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk. Here is a twelve month smoothed out version, which further eliminates the whipsaws:

FIBER: Industrial Commodity Prices Move Lower

The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) fell 3.7% last month and extended the retreat in prices since the peak two months ago. The decline left the index unchanged over the last twelve months. During the last ten years there has been a 65% correlation between the y/y change in industrial commodity prices and the y/y change in factory sector output. (…)

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EMU Inflation Picture Gets as Dicey as the Outlook for EMU Policy

The EMU inflation picture has begun to get dicey with headline inflation at or above 2% for two months running and the core rate (excluding food and energy) running at a pace closer to 1%.

Headline inflation, the formally ‘targeted’ HICP measure, shows a progression to a higher pace as inflation rises from a pace of 2.1% over 12 months to 2.2% over six months to 3.1% over three months. Meanwhile core inflation is dead in the water at a pace of 1.2% over all those same horizons. This, of course, gives EMU members plenty to argue about. (…)

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U.S. Moves Toward New Tariffs on China Despite Trade Talks Two approaches reflect split in Trump administration on how to deal with Beijing; American companies complain about levies at hearings

(…) The twin administration initiatives—pursuing tariffs on $200 billion of Chinese goodswhile relaunching talks to scrap tariffs—underscore a split within the U.S. administration, with negotiators in the U.S. Treasury Department offering a carrot, while the office of the U.S. trade representative threatens with a stick, both with the approval of President Trump, according to people familiar with the administration’s internal deliberations. (…)

Witnesses underscored the difficulty of trying to find suppliers outside China for their products. In some cases, executives and industry representatives said that the components or products are only available in China or cautioned against the time and resources necessary for establishing a supply line in a different country, including the U.S. (…)

So far, the administration has levied 25% tariffs on $34 billion in Chinese goods—mainly machinery and electronic components—which was matched dollar for dollar by Beijing. On Thursday, 25% tariffs are set to go in place on another $16 billion of Chinese imports, which Beijing also promises to match. (…)

On Wednesday, Chinese negotiators are due to start talking with a U.S. team led by Treasury Undersecretary David Malpass, at the invitation of the U.S. The negotiations are aimed at finding a way for both sides to address the trade disputes, the officials said, and could lead to more rounds of talks. If all goes well, the two sides would figure out a way to end the trade dispute ahead of planned meetings between Mr. Trump and Chinese leader Xi Jinping at multilateral summits in November, said officials in both nations.

But there are plenty of obstacles ahead, particularly if the U.S. goes ahead with its tariffs plans and China hits back, as it has threatened, with tariffs on another $60 billion of U.S. goods. That would mean $110 billion of U.S. exports to China—85% of the total—would be subject to tariffs. Such an outcome is likely to increase pressure on Mr. Trump to go ahead with even more levies.

Trump Auto Tariffs Face Delays Amid Europe, Nafta Talks The Trump administration is pushing back its timetable for completing a controversial study into whether to impose auto tariffs, as officials negotiate with some of the world’s largest car exporters.

(…) in an interview Monday with The Wall Street Journal, Mr. Ross said it is now “not clear the report will be out at the end of the month.” He said the delay was “in view of the negotiations” ongoing with the European Commission, Mexico, and Canada.

Mr. Ross also suggested that it was taking longer than anticipated to sift through the reams of material submitted by auto makers in the U.S. and around the world opposed to the prospect of new tariffs pushing up the costs to consumers and disrupting global supply chains.

Mr. Ross declined to set a new timetable, noting that the law used to justify the report doesn’t require any findings until next year. (…)

Asked when the report would be completed, Mr. Ross declined to give a new date, adding that the 1962 national security tariff law being used to justify the probe “gives us 270 days from when we started, which gets us into next year.” The legal deadline for a report is mid-February. (…)

Maybe that has to do with recent polls showing Republicans trailing behind Democrats in the House and a tight race at the Senate.

Did you miss AMERICA CURSED?

EARNINGS WATCH
U.S. Stocks Poised to Enter Longest Bull Market U.S. stocks are on the verge of surpassing their longest-running rally, ratifying a market rebound that began in the ashes of the financial crisis and defying those who have questioned its staying power.

I started blogging On Jan. 3, 2009, trying to male sense, for me, of the mess the world was in. Writing compelled me to be thorough and objective, really for my own financial sake. That led me to conclude in early March 2009 that there was virtually no more downside risk for equities, that valuation were down to generational lows and that all that was needed was more positive economic news to make investors less worried (S&P 500 P/E Ratio at Troughs: A Detailed Analysis of the Past 80 Years).

Then earnings took off, more than tripling since then while valuations almost doubled.

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At this point, valuations are slightly (6%) above the “20 fair value level” on the dependable Rule of 20 as earnings continue to win the race with inflation.

For how long?

While companies keep beating on Q2 results, pre-announcements for Q3 are a little worse than at the same time during Q2’18 and Q3’17.

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