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 (9 August 2018): Guidance Worsens

U.S. to Impose Tariffs on Another $16 Billion in Chinese Imports Penalties, which take effect Aug. 23, come on top of $34 billion imposed in July

(…) The list of products covered by the Aug. 23 tariffs reflects the Trump administration’s efforts to hold off imposing import taxes on goods that would hit consumers as long as possible. The list includes mainly industrial goods such as “lubricating oils,” “fittings of plastics, for plastic tubes, pipes, and hoses,” and “voltage and voltage-current regulators.” (…)

(…) State-run tabloid Global Times, in an opinion piece last week, warned that American brands including Apple Inc. are positioned to become Beijing’s bargaining chips in the trade battle.

“The Chinese market is vital for many top U.S. brands, giving Beijing more leeway to play hardball in the trade conflict,” it said. “If Apple wants to continue raking in enormous profits from the Chinese markets amid trade tensions, the company needs to do more to share the economic cake with local Chinese people.” (…)

Clock Well, this is August 9 and there are no signs of any serious high level talks taking place behind the scene.

The consumer-price index increased 2.1% in July from a year earlier, compared with a 1.9% gain in June, the National Bureau of Statistics said.

Food prices rose 0.5% from a year earlier after climbing 0.3% in June. Pork prices, which has been the main drag, fell less sharply in July.

Nonfood prices rose 2.4% on year, compared with a 2.2% on-year increase in June. Gasoline and diesel prices surged by more than 20% on year, adding about 0.42 percentage point to the headline index, the bureau said. (…)

On a month-over-month basis, the CPI rose 0.3% in July from a month earlier. In June, the index edged down 0.1% from the previous month.

The producer-price index rose 4.6% in July, compared with a 4.7 % on-year increase in June. The reading for factory-gate prices was higher than a 4.4% increase forecast by economists polled in the survey.

The PPI inched up 0.1% in July from a month earlier. In June, it edged up 0.3% from the preceding month.

FAKE OIL
Discrepancy Over Saudi Oil Data Could Rattle Markets Saudi Arabia has pressured independent energy analysts to alter their estimates of its oil production, a move that could put it in conflict with other OPEC members.

(…) The data showing differing trends between official and independent estimates of Saudi output is set to be published Monday in the cartel’s monthly report, potentially causing confusion in trading markets about how much oil is reaching consumers. (…)

The kingdom has called some agencies over the last week, asking that analysts change their estimates, according to people familiar with the discussions. Some agencies rebuffed the request but others bowed to the pressure, they said. (…)

Saudi officials told OPEC delegates last weekend that the kingdom’s production had fallen by 200,000 barrels to 10.29 million barrels a day in July, according to energy ministry officials. Oil prices rose 1.6% in New York Monday.

But according to New York-based S&P Global Platts, a provider of energy information, Saudi production increased to about 10.6 million barrels a day last month. The Energy Information Administration, a branch of the U.S. Department of Energy, arrived at the same estimate. (…)

The agencies use contacts in governments, storage information and ship-tracking data to provide what tends to be reliable data on the kingdom. With their data, “there is no agenda, there is no ulterior motive,” Mr. Hall said. (…)

The lack of consensus extends to the kingdom itself. A Saudi oil official and an adviser said they were told privately the country’s production is higher than the official figures. (…)

But Saudi officials say discrepancies over the kingdom’s production reflect dueling political pressures from the U.S. and Iran. The U.S., concerned about rising fuel prices, wants Saudi Arabia to replace Iranian oil because it is about to ban Tehran’s crude exports under revived sanctions.

Iran has criticized Saudi Arabia for increasing output, alleging it’s a way to respond to U.S. pressure rather than market needs. (…)

Iraq, OPEC’s second largest producer, is also disputing independent assessments showing it only respected 12% of its agreed cuts in June. “We are going to refuse these figures,” Iraq’s State Oil Marketing Organization said in a letter to at least three independent agencies earlier this month.

  • Saudis Order Fund Managers to Dump Canadian Assets Saudi Arabia is ordering its citizens to leave Canada, selling its financial assets there and freezing trade between the two countries as part of a diplomatic spat that has highlighted the kingdom’s extreme sensitivity to criticism.
EARNINGS WATCH

440 S&P 500 companies have reported. 79% beat, +5.2% surprise factor with 9 of 11 sectors surprising by more than +5%!

Q2 EPS now seen up 24.1%, after +26.6% in Q1.

Here’s the rub: only 27 companies have positively pre-announced for Q3, down from 34 and 33 at the same time during Q3’17 and Q2’18 respectively. 58.3% have negatively pre-announced, up from 55.2% and 48.1% respectively. During the last 7 days, 1 positive and 14 negatives.

This sure looks like one of very few times when it is just as dangerous using trailing earnings as forward earnings.

WORLD AND SECTORS MOVING AVERAGES

Trends in 200 dmas for major world and U.S. sectors. Green = positive trends (softer green = weak positive). Sorry for color blinds.

TRENDS IN 200-DAY MOVING AVERAGES

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This Week’s Elections Hold Warning Signs for GOP The elections held in five states underscored the Republican Party’s growing challenges with suburban voters, which could expand the battlefield in November’s midterms.

(…) According to an analysis from the Cook Political Report Wednesday, there are 68 GOP-held seats that are less solidly Republican than the Ohio 12th. Democrats must net 23 seats to gain control of the House in November. (…)

THE DAILY EDGE (8 August 2018)

Jobs Go Unfilled as the Economy Expands Job openings reached 6.7 million last quarter, a 17-year high, with demand for workers growing the most in transportation

(…) Overall in June, the number of available jobs exceeded the number of unemployed Americans by nearly 100,000. (…)

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The number of unfilled jobs in transportation, warehousing and utilities, combined, grew by 109,000 over the past year to 298,000, a 58% increase, the largest growth rate of about 20 broad groupings tracked by the Labor Department. (…)

To attract drivers, Scotlynn has raised pay about 4% from a year earlier and purchased new Peterbilt and Kenworth trucks with high-end features such as leather seats and double-size bunks. (…)

Average weekly pay for retail nonsupervisory workers rose 4.7% from a year earlier in July, the Labor Department said last week. That is well ahead of nearly 3% overall wage growth. But the sector pays those workers an average of $15.31 an hour. Average hourly pay in manufacturing is $20.88 an hour and in construction it is $26.74, making it hard for retailers to compete. (…)

Punch Did you know that in each of May, June and July of this year, ALL net new jobs were filled by Americans with no college education. Looked at the other way, jobs held by College educated Americans declined 332,000 during the last 3 months while employment for High School Graduates with No College rose by 1.1 million, which is more than the sum of all months since October 2016. This goes a long way explaining why average wages remain so subdued.

  • Pilot Shortage Spurs Hiring Spree Airlines are boosting salaries and setting up training centers to combat what is projected to be one of the biggest-ever pilot shortfalls.
U.S. Small-Business Owners’ Optimism at Record High

U.S. small-business owners are more optimistic now than at any point in the 15-year history of the Wells Fargo/Gallup Small Business Index. In the latest quarterly survey, which measures small-business owners’ attitudes about a wide variety of factors affecting their businesses, the overall index score is +118. This is higher than prior 2018 measures — with Quarter 2, 2018, at +106 and Quarter 1 at +107. The index now sits just above the record-high +114 from 2006. (…)

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Note: the red arrow is from me to remind us all that this is merely a coincident indicator.

Confused smile But wait, there is this other survey, also conducted in July:

  • Trump’s Tariffs Turn Small Businesses Upside Down Large companies have mostly shrugged off the impact of the U.S.’s trade skirmish with China. Smaller ones and startups lack the wiggle room to absorb cost increases or shift production, and many are re-evaluating their plans and strategies.

(…) The impact is now being felt particularly acutely by small businesses and startups. Broadly, this class of company, like others, feels good about the economy. But compared with larger operations, they have less ability to deflect higher materials prices or pass along new costs to customers.

Tariffs throw a wrench into pricing calculations and eat into profit margins. Smaller firms also are less able to shift production to other locations and have smaller reserves to draw on when times get tough.

Even those that benefit from a surge in domestic business are struggling to ramp up quickly enough to take advantage. (…)

Among smaller firms, optimism for growth fell in July to its lowest level since the 2016 presidential election, according to a monthly survey of more than 750 small firms for The Wall Street Journal by Vistage Worldwide Inc. (…)

Some companies expect little impact from tariffs, either because their competitors face the same economics or because strong demand makes it easier to pass along higher costs. (…)

In sectors where tariffs have yet to take hold, companies are stocking up ahead of expected price increases, which can be difficult for smaller businesses. (…)

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Figure 1. Purdue/CME Group Ag Economy Barometer, October 2015-July 2018.
 Figure 8. By how much do you expect your farm’s net income to decline because of trade conflicts?
Chinese exports accelerate even as Trump escalates trade war

(…) China’s exports for July rose a bigger than expected 12.2 percent year-on-year, showing little tariff impact for now and beating June’s 11.2 percent rise and analysts expectations in a Reuters poll for 10 percent growth.

Of more direct consequence in the Sino-U.S. trade war, China’s surplus with the United States shrank only marginally to $28.09 billion last month from a record $28.97 billion in June. (…)

China’s trade with the U.S. also continued to rise in July despite the tariffs, with exports up 11.2 percent year-on-year, and imports increasing 11.1 percent. (…)

U.S. to Impose Tariffs on Another $16 Billion in Chinese Imports
Trump’s Trade Deal With Seoul Jeopardized by Car-Tariff Fight
Maersk Cuts Forecast as Shipping Slump Deepens 

A.P. Moeller-Maersk AMKBY 6.49% A/S, the world’s biggest cargo carrier, warned Tuesday its earnings would be weaker than expected this year due to rising fuel prices, soft freight rates and escalating trade tensions. (…)

Container shipping moves 98% of the world’s manufactured goods, but freight rates are about half of break-even levels across major trade routes. Rates have declined despite a wave of consolidation over the past two years that has resulted in only about a half dozen global operators.

“The operators are less, but competition continues to eat us all up because of rampant overcapacity,” said a senior executive of a European box-ship operator who asked not to be named. “Price wars and undercutting is more fierce than ever.” (…)

Maersk has said the initial round of tariffs is expected to have a small impact on its business, but “a continued escalation could result in severe consequences for global trade.”

High-Stakes Races in Ohio, Kansas Are Too Close to Call Two high-stakes elections in Ohio and Kansas during the homestretch of primary season were too close to call, foreshadowing the fierce battle to come around the nation in November’s midterms.

(…) In an Ohio House district that President Trump won by 11 percentage points in 2016, Republican Troy Balderson claimed a razor-thin victory over Democrat Danny O’Connor, although the Associated Press said the race is too close to call.

The closely watched Republican gubernatorial primary in Kansas also was headed to a photo finish with Kris Kobach, the state’s controversial secretary of state, running neck and neck against Gov. Jeff Colyer. (…)

No matter the final outcome, the special election’s narrow margin could foreshadow deep trouble for the GOP’s effort to keep control of the House this November. Democrats need to win 23 seats from the GOP to take a majority.

The district is typical of the dozens of House seats targeted by Democrats, who hope to capitalize on suburban Republicans’ frustration with Mr. Trump. (…)

EARNINGS WATCH

428 reports in, beat rate at 79% and surprise factor at +5.3% with only 2 sectors below +5.2%!

But pre-announcements keep getting worse:

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