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 August 2018)

Email Still traveling, although “stuck” in Jasper Alberta because of the BC forest fires. There is no better place to get stuck than Jasper Park Lodge.

Home Sales Tumbled In July for the Longest Slump Since 2013 ‘Too many would-be buyers are either being priced out or are deciding to postpone their search’

Existing-home sales fell 0.7% in July from June to a seasonally adjusted annual rate of 5.34 million units, the National Association of Realtors said Wednesday. That marked the fourth straight month of declines.

Compared with a year earlier, sales in July were down 1.5%. (…)

A shortage of homes on the market has fueled the sharp rise in prices, which rose 4.5% in July from a year earlier to a median price of $269,600. Average hourly wages, by comparison, were up just 2.7%. (…)

The average interest rate on a 30-year fixed-rate mortgage in July was 4.53%, up from 4.03% in January and 3.97% in July 2017, according to Freddie Mac. (…)

Fed Signals Rate Increase Next Month
Global liquidity is drying up

(…) Since January, the number of rate hikes globally has increased quite a bit. According to a six-month rolling sum of global central bank rate hikes compiled by Bank of America Merrill Lynch, we’re nearing pre-Lehman levels:

Given this tightening — much of which traces back to emerging markets trying to stem currency tremors or manage inflationary pressures — global liquidity has contracted quite substantially.

Using an indicator that tracks the broad money supply of the top 30 major economies converted into dollars relative to US M2 money supply, Neels Heneke and Mehul Daya at Nedbank find that the supply of dollars has become increasingly scarce. This is thanks in part to a stronger US dollar and economy, slowing credit growth in China, protectionism and explicit moves from the Fed and Treasury to remove money from the financial system:

US liquidity matters most because the greenback serves as the world’s reserve currency and most foreign debt is dollar-denominated. Global central banks prefer holding dollars than any other currency by a large margin, and over $4.4trn worth of trades involve the dollar daily. (…)

(…) here’s Redeker again in a recent note on what happens after quantitative tightening (QT) picks up:

October will likely see the Fed’s QT pace reach US$600bn/yr; headwinds for US capital markets will inevitably increase. Continued EM selling pressure provides US markets with temporary liquidity inflows, but this suggests EM growth slowing down even faster, dampening US corporate profitability and eventually growth, too. Slowing liquidity inflows, faster Fed QT, and a weaker corporate outlook suggest US risk assets peaking.

FLASH PMIs
U.S. private sector output growth loses momentum in August
  • Flash U.S. Composite Output Index at 55.0 (55.7 in July). 4-month low.
  • Flash U.S. Services Business Activity Index at 55.2 (56.0 in July). 4-month low.
  • Flash U.S. Manufacturing PMI at 54.5 (55.3 in July). 9-month low.
  • Flash U.S. Manufacturing Output Index at 54.3 (54.5 in July). 11-month low.

(…) Payroll numbers meanwhile increased at the slowest pace since June 2017. (…)

Staffing levels increased at the softest pace for over one year in August. Survey respondents noted that more cautious hiring strategies largely reflected the need to reduce operating expenses at their business units. Latest data revealed another sharp rise in input costs at private sector companies, although the rate of inflation moderated to a seven-month low. Reports from panel members continued to cite higher prices for steel-intensive items, alongside renewed pressure to boost staff wages. (…)

The PMI is indicative of the economy growing at an annualised rate of roughly 2.5%, down from a 3.0% indicated rate in July.

Output, new orders and employment growth all moderated, adding to signs that the economy has cooled after strong growth in the second quarter. Backlogs of uncompleted work, a key indicator of future output and hiring, meanwhile fell for the first time for over a year, suggesting the slowing trend could persist into the fall. (…)

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Eurozone PMI signals steady expansion in August but optimism hits two-year low
  • Flash Eurozone PMI Composite Output Index at 54.4 (54.3 in July). 2-month high.
  • Flash Eurozone Services PMI Activity Index at 54.4 (54.2 in July). 2-month high.
  • Flash Eurozone Manufacturing PMI Output Index at 54.5 (54.4 in July). 3-month high.
  • Flash Eurozone Manufacturing PMI at 54.6 (55.1 in July). 21-month low.

(…) Although growth rates improved slightly in manufacturing and services, both remained among the weakest seen for at least one-and-a-half years.

Similarly, new order growth picked up marginally in both sectors but, measured overall, was nevertheless the third-weakest since December 2016. A particularly sluggish performance was seen in manufacturing, where new export orders registered the smallest monthly rise for two years. (…)

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Japan’s goods-producing sector continues to grow at relatively soft pace
  • Japan Flash Manufacturing PMI increases slightly to 52.5 in August, from 52.3 in July.
  • Input and output price inflation at multi-year highs.
  • Overall demand improves, but export orders fail to rise for a third straight month.

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China, U.S. Fire Off New Tariffs in Middle of Trade Talks The restarted negotiations involve lower-level officials—both sides have played down hopes for major progress in this round of talks

Just after the U.S. Customs and Border Protection order went into effect at 12:01 a.m. Thursday, China’s Commerce Ministry announced the imposition of retaliatory measures. The tit-for-tat 25% duties cover Chinese-made chemicals, machinery, tractor parts and U.S.-produced fishmeal, industrial lubricants, engines and trucks, among other goods. (…)

Nafta Talks Near Accord on Key Points, Mexican Official Says

(…) After Wednesday’s talks ended, Jesus Seade, the incoming trade negotiator for Mexican President-elect Andrés Manuel López Obrador, said he was “optimistic” of reaching a deal on Nafta but that it was premature to specify the timing. He said “it could be that we finish everything between the U.S. and Mexico this week.” Talks are set to resume on Thursday.

Trade negotiators from both countries want to sort out bilateral trade issues in the treaty before Canadian negotiators rejoin talks, possibly in coming days. (…)

Cohen, Manafort and Midterms

Interesting points from Karl Rove:

(…) So what’s the likely political fallout from these courtroom bombshells? (…)

Following Tuesday’s verdict, the president declared that special counsel Robert Mueller’s successful prosecution of Mr. Manafort “has nothing to do with Russian collusion.” Mr. Trump is right—for now. Only the final special-counsel report will settle that definitively. Still, there’s reason to be skeptical of the collusion narrative. Every presidential campaign leaks, and the Trump campaign leaked more than any in history. If there had been collusion, the public would likely know about it by now. (…)

Mr. Cohen’s guilty pleas are more troubling for Mr. Trump, and not simply because Mr. Cohen admitted to paying hush money to Stormy Daniels and Karen McDougal, who claim to have had affairs with Mr. Trump. Mr. Cohen now says Mr. Trump directed him to make the payments to protect his election prospects, an action some believe constitutes a violation of campaign-finance laws.

But many legal analysts doubt the payments were illegal, including Bob Bauer, former White House counsel to President Obama and legal adviser to Mr. Obama’s campaigns. In an article last month, Mr. Bauer suggested that “the question for legal purposes is whether Trump would have made this payment even if he had not been a candidate.” The president, he believes, “does not have to deny that politics played some part in his and Cohen’s plotting.” Rather, Mr. Bauer argues that Mr. Trump’s desire to protect his personal reputation complicates the campaign-finance question: “A dual motive is enough to muddy the legal waters.” Unable to prove the payments were made solely for a political purpose, it is unlikely that prosecutors will proceed with charges.

Still, Tuesday’s events will bring significant damage. Messrs. Manafort’s and Cohen’s legal troubles will further cement in the public’s mind that corrupt people weaseled their way into Mr. Trump’s orbit before and during his presidential campaign. This notion will be reinforced further when Mr. Manafort’s next trial begins in September, over charges of money laundering, failing to register as a foreign agent, and lying to federal agents.

The events will also strengthen congressional Democrats’ argument that their party is a necessary check on the president. Yet while Democrats have the advantage now, they could easily overplay their hand and turn off swing voters who don’t want America plunged into a political circus like the one Republicans created by impeaching Bill Clinton in 1998.

Given Justice Department guidelines, Mr. Mueller—in contrast to James Comey —is unlikely to act in ways that affect the election once September begins. The president may still choose to lash out at the special-counsel investigation, but that would hurt him and his party. Rather than attacking the Mueller probe, Mr. Trump’s best approach would be to focus on his agenda. That would be a better strategy than reviving Tuesday’s sordid drama.

EARNINGS WATCH

Almost done. 476 reports in, 80% beat rate wit a +5.2% surprise factor. Q2 EPS up 24.7% (21.7% ex-Energy) with an amazing 9.4% revenue growth rate (8.3% ex-E).

Q3e: +22.4%. Q4e: +20.2%.

Aramco IPO halted, oil giant disbands advisers – sources

Rumour is that Elon Musk will soon tweet that he is mulling buying Aramco and merge it with Tesla. Winking smile

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.” (…)