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One month after the Fed “modestly” downgraded its outlook on the US economy from “modest to moderate” growth to “slight to modest pace”, there were no notable changes in the latest, just released November Beige Book, in which the Fed said that at the national level, economic activity expanded “modestly” from October through mid-November, similar to the pace of growth seen over the prior reporting period.

The good news for the US economy, which for the past two quarters was almost entirely driven by consumer spending…

… is that most districts reported “stable to moderately growing consumer spending”, and increases in auto sales and tourism were seen across several Districts, even if St Louis noted that “multiple auto dealers continued to note seeing an increased preference for used and low-end vehicles.”

In welcome news for the US manufacturing recession, more Districts reported an expansion in the current period in manufacturing, than the previous one, even though the majority continued to experience no growth. Meanwhile, the picture for nonfinancial services remained quite positive, with most Districts reporting modest to moderate growth. Some more perspectives on the economy from sectors including:

• Transportation activity was rather mixed across Districts. Reports from the banking sector indicated continued but slightly slower growth in loan volumes.
• Home sales were mostly flat to up, and residential construction experienced more widespread growth compared to the prior report.
• Construction and leasing activity of nonresidential real estate continued to increase at a modest pace.
• Agricultural conditions were little changed overall, remaining strained by weather and low crop prices.
• Activity in the energy sector deteriorated modestly among reporting Districts. Outlooks generally remained positive, with some contacts expecting the current pace of growth to continue into next year.

While the economy was roughly unchanged over the past month, the Fed founds that employment continued to rise slightly overall, even as labor markets remained tight across the U.S. Several Districts noted relatively strong job gains in  professional and technical services as well as healthcare, while reports were mixed for employment in manufacturing, with some Districts noting rising headcounts while others noted stable employment levels and one District reported layoffs. And while there were scattered reports of labor reductions in retail and wholesale trade, the prevailing complaint was one of continued labor shortages as the vast majority of Districts continued to note difficulty hiring driven by a lack of qualified applicants as the labor market remained very tight.

The shortage of workers spanned most industries and skill levels, and some contacts noted that their inability to fill vacancies was constraining business growth with multiple contacts reporting “bringing back retired workers as a way to fill openings.” Moderate wage growth continued across most Districts, and the Fed said that wage pressures intensified for low-skill positions, even if reports from both the BLS and Umich shows that wage growth has now peaked and is moving lower.

Finally, prices rose at a modest pace during the reporting period, with the Fed noting that reports regarding input costs and selling prices in the manufacturing sector were mixed, with some Districts noting deceleration in prices, while others cited increased cost pressures and a few indicated little to no change. Of note, some retailers mentioned higher costs, which contacts in some Districts attributed to tariffs. And yet, it will come as great news to Trump that most firms’ ability to raise prices to cover higher costs remained limited, suggesting there was no tariff passthru inflation, though a few Districts noted that companies affected by the tariffs were more inclined to pass on cost increases.

At the same time, service sector prices in reporting Districts were mostly flat to up. Energy and steel prices were flat to down, while reports on construction materials and agricultural commodity prices were mixed. Overall, the Fed said that firms generally expected higher prices going forward. Now if only the Fed would also join them and hike rates…

Quantifying the shift in the economy, while respondents showed a modest increase in concerns about trade, with “Tariff” mentions rising from a 4 month low of 24 to 30, mentions of “slow”-ness eased somewhat, and dropped from 56 back to 51 last month, which is to be expected in light of the modest improvement in the broader outlook.

What is perhaps more amusing is that one month after one Fed region blamed sharks and tornadoes for the recent downgrade in the economic outlook, this month it was revealed that it wasn’t the weather after all, but rather “a much deeper contraction in capital equipment spending.” Surely, that mistake is easy to make.

 A heavy equipment producer noted a slowdown in sales that they initially blamed on heavy rainfall this year, but said this “masks a much deeper contraction in capital equipment spending”

Oops.

Finally, here are some of the most notable Beige Book anecdotes from the various regional Feds, as picked by Bloomberg:

• Boston: Office leasing demand in Boston has been robust even as leasing activity has slowed because of extremely low vacancy rates
• New York: Prices for Broadway theater tickets have edged down and are slightly lower than a year ago
• Philadelphia: One staffing firm reported more difficulty recruiting for firms that only offered minimum wage, and another indicated that a different staffing firm was deploying yard signs to recruit for jobs paying $16 an hour
• Cleveland: A clothing retailer reduced the use of price discounting to offset higher costs resulting from tariffs. By contrast, a food retailer said that while tariffs had increased costs, the company ‘cannot raise prices on a whim’ because of fierce competition
• Richmond: A Virginia yarn manufacturer reported that economic uncertainty is hurting demand by leading some customers to reduce inventory levels
• Atlanta: Monthly Mississippi casino gross revenues were up for the first nine months of the year compared with the same time frame in 2018
• Chicago: Contacts indicated that the labor market was tight and that it was difficult to fill positions at all skill levels. Multiple contacts reported bringing back retired workers as a way to fill openings.
• St. Louis: Multiple auto dealers continued to note seeing an increased preference for used and low-end vehicles
• Minneapolis: A heavy equipment producer noted a slowdown in sales that they initially blamed on heavy rainfall this year, but said this ‘masks a much deeper contraction in capital equipment spending’
• Kansas City: The number of active rigs continued to decline across most states but was primarily driven by a decrease in Oklahoma
• Dallas: Contacts noted continued concern among agricultural producers over trade issues with China but noted there was increased optimism regarding trade talks and the possibility of some tariffs being removed
• San Francisco: A few businesses in higher cost urban areas noted efforts to relocate jobs to lower cost areas of the district in order to contain labor compensation

The bottom line: the Beige Book will just weak (or perhaps strong) enough to justify the Fed’s decision to stay “patient” on future interest-rate hikes (or cuts) amid a healthy, but modest economic expansion, one where the only thing that matters is the S&P500.

China First Capital Group, an investment holding company, saw its equity trading on the Hong Kong exchange placed in a trading halt on Wednesday after it crashed 78% in minutes, reported Bloomberg. 

The collapse in equity wasn’t just limited to China First Capital. Another company that is partly owned by the investment holding company also saw its shares initially crash by 80% but ended the session down 33%. Both moves wiped out $1.2 billion in shareholder value, underscore how the Hong Kong market is fraught with volatility. 

Chen Keyu, Virscend’s director of investor relations, told Bloomberg that the sudden crash in Virscend shares could’ve been due to a margin call by China First Capital.

Bloomberg said the abrupt stock slumps are “once again putting the spotlight on corporate governance at the city’s listed companies.” 

Adding that “One oft-cited catalyst for the outsized swings is forced selling by major shareholders who have borrowed against their positions. That can lead to a domino effect when companies are connected by investors or business lines, and it’s not always clear under Hong Kong’s disclosure rules when a stake has been pledged.” 

We noted last year some prominent risks facing the Chinese stock market was the threat of margin calls resulting in forced selling of stocks pledged as collateral for loans. 

Companies who pledged shares as loan collateral could be one of the reasons behind Wednesday’s margin call dump in China First Capital that spread into Virscend. 

There was another panic last week when ArtGo Holdings plunged 98% after MSCI rejected plans to add the stock to its benchmark indexes. Then another stock, a Chinese furniture maker, plummeted 91% after a short-seller questioned the company’s accounting practices. 

The next significant risk for investors in Hong Kong and or Chinese stocks are sliding prices because of a decelerating regional economy. As a result, this would lead to additional margin calls and force a vicious circle of panic selling. 

 

Authored by Mac Slavo via SHTFplan.com,

The embattled biotech company Monsanto will have to pay a hefty fine of $10 million for spraying a dangerous pesticide on “research crops” in Hawaii.  Over 160 lbs if the pesticide used was stockpiled and sprayed even after it was banned by the US government.

Monsanto admitted that it used the pesticide containing methyl parathion, the active ingredient in Penncap-M, on corn seed and other crops on the Hawaii island of Maui back in 2014.  The company also did this knowing that it was prohibited by the Environmental Protection Agency (EPA) the previous year. The controversial company told its employees to go back into the sprayed fields seven days after the toxic Pennicap-M was used, whereas the area should have been closed off for 31 days.

The US Justice Department, which investigated the case, said that over 72 kg (160 lbs) of the chemical was illegally stored at a company facility, endangering “the environment, surrounding communities and Monsanto workers.” Methyl parathion is fatal if inhaled and hazardous if swallowed.

Things are not looking up for Monsanto.  The company has agreed to pay $10 million, which includes a $6 million criminal fine and $4 million in community service payments. The payoff is part of a deal by which federal prosecutors will dismiss felony charges against Monsanto in two years if it abides by the law.

This news comes as Monsanto faces a flurry of lawsuits over the potential hazards of its products. Just yesterday, Canadian lawyers launched a $500 million lawsuit against Monsanto and its owner, Bayer of Germany. It says Canadian plaintiffs affected by weed killer Roundup have been diagnosed with different forms of cancer, including brain and lung cancer. -RT

BUSTED! Monsanto Caught Writing Their Own Independent Safety Reviews

Last month, a lawsuit put together by Maui residents blamed birth defects on chemicals from Monsanto cornfields. The plaintiffs believe that multiple toxins were heavily sprayed to test the seeds on Monsanto fields near their homes, local media reported.

Deere & Co. warned Wednesday that sales would drop in its agriculture-and-turf and construction-and-forestry segments through 2020, citing the ongoing trade war. 

After nearly 17 months of trade disputes between the US and China, with no immediate resolution, farmers across Central and Midwest states have seen their personal incomes collapse, soaring farm bankruptcies, depressed commodity prices, and little relief from the government bailouts (mostly because the farm bailouts went to big corporate farms). As a result, the farming industry has plunged into a nasty recession, with tractor sales coming to a screeching halt. 

Deere shares are down 3.5% to 4% on Wednesday morning following the better than expected Q4 earnings report.

Investors were alarmed when guidance for agriculture-and-turf 2020 sales was lowered by 5% to 10% for the full year. The construction and forestry segment was also guided lower, down 10% to 15% next year. 

“John Deere’s performance reflected continued uncertainties in the agricultural sector,” CEO John May said. “Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about making major investments in new equipment.”

The first hints that suggested farmers were being crushed by the trade war was a collapse in tractor and equipment sales reported by local dealerships across the Midwest in August. 

In May, JPMorgan told clients that the US farm industry was on the verge of disaster, with farmers caught in the crossfire of an escalating trade war.

“Overall, this is a perfect storm for US farmers,” JPMorgan analyst Ann Duignan warned investors.

Duignan downgraded Deere’s stock to underweight in May, citing fundamentals in the Central and Midwest are “rapidly deteriorating.”

Deere derives 60% of its sales from North America. The lower guidance for 2020 could suggest Deere shares are headed for a big slide.