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 March 2018): Strong Payroll

Payroll employment increases by 313,000 in February; unemployment rate unchanged at 4.1%
  • Total nonfarm payroll employment increased by 313,000 in February, and the unemployment rate was unchanged at 4.1 percent, the U.S. Bureau of Labor Statistics reported today.
  • The change in total nonfarm payroll employment for December was revised up from +160,000 to +175,000, and the change for January was revised up from +200,000 to +239,000. With these revisions, employment gains in December and January combined were 54,000 more than previously reported.
  • In February, construction employment increased by 61,000, with gains in specialty trade contractors (+38,000) and construction of buildings (+16,000). Construction has added 185,000 jobs over the past 4 months. Retail trade employment increased by 50,000 over the month.
  • The average workweek for all employees on private nonfarm payrolls rose by 0.1 hour to 34.5 hours in February.
  • In February, average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents to $26.75, following a 7-cent gain in January. Over the year, average hourly earnings have increased by 68 cents, or 2.6 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 6 cents to $22.40 in February. (+2.5%)

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  • The civilian labor force rose by 806,000 in February. The labor force participation rate increased by 0.3 percentage point over the month to 63.0 percent but changed little over the year.
  • In February, total employment, as measured by the household survey, rose by 785,000.
U.S. Household Debt Rose Last Quarter at Fastest Rate Since 2007

The pace of household debt accumulation during the quarter reflects the Fed’s previously reported outsize 7.8 percent annualized rise in consumer credit, along with a 3 percent gain in mortgage borrowing. Such activity helped fuel a 3.8 percent rise in consumer spending in the period, the fastest in more than a year. (…)

(…) U.S. households also saw their net worth rise to nearly seven times their disposable personal income in 2017, swelling past earlier prerecession peaks. (…) Previous busts—in the early and late 2000s—were preceded by periods of rising asset values and low saving, and the current wealth-to-income level surpasses that seen in the run-up to earlier recessions. (…)

Money The problem is that the people with the debt in the first headline are not the same as the people with the high net worth in the second…So #2 is no offset to #1. (Chart below via ValueWalk)

Savings Rate

The share of wealth held by the top 1% rose to 39% in 2016, up from 30% in 1989, according to the Fed’s survey of consumer finances, which is conducted every three years.

Household debts rose at an annual rate of 5.2% in the fourth quarter, with liabilities increasing by $208.6 billion. Borrowing has continued to climb even as the Fed has been gradually raising short-term interest rates, making mortgages, home-equity lines and other loans more expensive. (…)

Fresh Evidence of Flaring Wage Growth Appeared in Fed’s Beige Book

In many of the Fed’s 12 regional districts, wage growth picked up to a moderate pace, the Fed reported in its latest roundup of anecdotal information about regional economic conditions known as the beige book. The report was based on information collected through Feb. 26. (…) Meanwhile, the report also suggested ramped up price growth was occurring, with most districts noting moderate inflation after some previously described price growth as “modest.” (…)

Trump sets steel and aluminum tariffs; Mexico, Canada exempted

(…) “You would have trouble thinking of a more aggressive way to offend our friends and allies,” said one former US official. (…) “If you put tariffs against your allies, you wonder who your enemies are,” Mr Draghi said. (…)

Messenger Who’s a “real friend”? A country who will give in on trade talks?

NBF: “Expect Brussels to come out swinging over the next few days with some form of retaliation. Investors better hope this will not snowball into an all-out trade war.”

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(…) “A trade war is never the right solution,” [Chinese Foreign Minister] Wang said. “In a globalized world, it is particularly unhelpful, as it will harm both the initiator and the target countries. In the event of a trade war, China will make a justified and necessary response.” (…)

U.S. Business Leaders Upbeat About Economy, But Worried About Inflation

(…) Close to 80% of executives said they were upbeat about the prospects for the U.S. economy, up from 74% who said so in the fourth quarter of 2017. Chief executives, chief financial officers and other certified public accountants are also more optimistic about the outlook for their own company, with 71% sharing that sentiment this quarter, up from 70% in the fourth quarter of 2017.

Executives — on average — expect revenue to grow by 5% in the coming 12 months, while profit is forecast to accelerate by 4.4%, the AICPA said in a statement. The share of executives that plan to expand their business ticked up to 72% in February, when the survey was conducted, from 71% in the fourth quarter.

(…) nearly half — 49% — of the respondents said they are concerned about inflation over the next six months, up significantly from 27% in the last quarter of 2017. Rising labor costs, raw material costs and higher interest rates are among the top concerns for executives, according to the survey.

Business leaders expect salary and benefit costs to rise 2.7% during the next 12 months, while headcount is forecast to increase by 2.1%. Close to 30% of respondents said they have too few employees and plan to hire. Over 10% — 14% — said they don’t have enough staff but hesitate to recruit more employees.

Global hiring at decade-high, price pressures build

Worldwide employment growth continued to run at its highest rate for a decade, buoyed by firms boosting capacity, which has been increasingly stretched as a result of faster growth of new orders. February saw inflows of new business rise to the greatest extent since June 2014, registering one of the biggest increases in demand seen over the past seven years.

Average prices charged for goods and services meanwhile rose worldwide at a rate only exceeded once (February 2011) since the global financial crisis. Higher prices generally reflected improved pricing power amid stronger demand, though also reflected the need for firms to pass higher costs on to customers. Historical comparisons of selling prices and costs nonetheless suggest that the current upturn in demand is boosting profit margins. (…)

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[Eurozone] inflationary pressures also remained elevated, adding to sense that policymakers will start to sound more hawkish, but trends are more varied. Germany is seeing an especially strong increase in prices while France and Italy are notable in seeing companies struggle to pass higher costs on to customers. (…)

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U.S. capacity is clearly being strained by the upturn in demand, as indicated by the largest build-up of uncompleted orders since early-2015 and reports of increasingly stretched supply chains. The concern is that price pressures are building as demand outstrips supply. Average prices charged for goods and services showed the largest monthly rise since September 2014, which is likely to feed through to higher consumer price inflation. (…)

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Canadian housing starts exceeded expectations and continue to trend higher.
FANG+

Bespoke built a new index:

(…) While FANG was simply a combination of Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOGL), FANG+ takes those four names and adds in other favorites of the action-seeking trading community like Apple (AAPL), Alibaba (BABA), Baidu (BIDU), NVIDIA (NVDA), Tesla (TSLA), and Twitter (TWTR).  Talk about a hyper-growth investor’s dream!  Taking a look at the performance of FANG+ since its inception late last year, the index has been on quite a tear with a gain of over 34% since late October. (…)

… while the S&P 500 Index rose 7%. Downside to the 50d m.a. is 9%. To the 200d m.a.: 22%!

THE DAILY EDGE (8 March 2018)

U.S. Considers Broad Curbs on Chinese Imports, Takeovers

The Trump administration is considering clamping down on Chinese investments in the U.S. and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property, according to people familiar with the matter.

An announcement following an investigation by the U.S. Trade Representative’s office into China’s IP practices is expected in the coming weeks, potentially handing President Donald Trump further cause to impose trade restrictions. (…)

Under the most severe scenario being weighed, the U.S. could impose tariffs on a wide range of Chinese imports, from shoes and clothing to consumer electronics, according to two people familiar with the matter who spoke on condition of anonymity because the discussions aren’t public.

The Trump administration could combine the tariffs with restrictions on Chinese investments in the U.S., which are reviewed for national-security risks by Treasury’s Committee on Foreign Investment in the U.S., the people said. The new measures being considered by the administration could go beyond even domestic security considerations. (…)

U.S. Factory Orders Reverse Course

Manufacturers’ orders declined 1.4% (+6.6% y/y) during January following a 1.8% December rise, revised from 1.7% reported initially. Total factory orders excluding transportation improved 0.4% (6.5% y/y), the weakest rise since June. Durable goods orders slumped 3.6% (+7.0% y/y), revised from -3.7% in the advance report, following a 2.7% gain. (…)

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Will soaring consumer confidence boost consumption?

The divergence between “hard” and “soft” data continues. (The Daily Shot)

Source: Capital Economics

U.S. Consumer Credit Usage Slackens

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ECB Unexpectedly Dials Back Stimulus Pledge as Economy Improves

“Unexpectedly”? Be serious, Europe is booming.

S&P 500 companies expected to buy back $800 billion of their own shares this year

(…) J.P. Morgan notes that buybacks will be a support for stocks and recommends that investors continue to buy the dips. Analysts are expecting a combination of improving economic growth and lower taxes to contribute $100 billion of buybacks. Repatriation is expected to contribute about $200 billion. (…)

Fed’s Brainard Sees Rate Rises as Appropriate as Inflation Firms Federal Reserve governor Lael Brainard said she has become more confident inflation will hit the central bank’s target, allowing officials to continue raising interest rates gradually.

(…) Ms. Brainard in recent years was one of the Fed’s most vocal advocates for patience in raising interest rates, noting that inflation remained subdued despite a strong labor market. (…)

West Virginia Teachers Strike Ends With 5% Pay Raise
Global Inflation Stalled in January Inflation in the world’s largest economies was unchanged for a third straight month in January, while it fell in rich countries, according to figures released by the OECD.

Inflation in the world’s largest economies was unchanged for a third straight month in January, while it fell in rich countries, according to figures released Tuesday by the Organization for Economic Cooperation and Development. (…) It said consumer prices across the Group of 20 largest economies, which account for most of the world’s economic activity, were 2.5% higher in January than a year earlier. That annual rate of inflation was the same as in November and December.

The OECD said that across its 35 members—which are mostly rich countries—the annual rate of inflation dipped slightly to 2.2% in January from 2.3% December, having also fallen in the earlier month. That drop wasn’t solely due to volatile items such as food and energy, since the core rate of inflation dipped to 1.8% from was 1.9%. (…)

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China’s household debt problem

A lot of the increased debt is tied into housing. China’s house prices are a very important to watch.

China’s property market accounts for a significant share of economic growth—as much as a third, according to Moody’s Investors Service—sending ripples outward into the global economy. The property boom stoked imports of housing materials, cars, appliances and other products. UBS called Chinese property one of the major engines of global growth in 2017. (WSJ)

JPMorgan Co-President Warns Equity Markets Could Fall as Much as 40%