Month: March 2019

UMich Confidence Slumps In Late February, Near 2-Year Lows

U.S. consumer sentiment unexpectedly fell from an initial February reading and remained near the prior month’s two-year low, signaling that Americans haven’t quite shaken off the government shutdown and trade war.

The University of Michigan’s final February sentiment index was 93.8, well below the preliminary reading of 95.5. Most notably, the measure of current conditions weakened from the earlier reading to the lowest since November 2016 while expectations were lower than in the initial report.

Following the dismal spending datya earlier today, UMich’s report showed 25 percent of all consumers reported worsening finances, the highest proportion recorded since Donald Trump was elected president

Buying Conditions rebounded in February…

The data contrast with other February sentiment readings that were more upbeat after the government shutdown ended and stocks rallied.

“The bounce-back from the end of the federal shutdown faded in late February,” Richard Curtin, director of the Michigan survey, said in a statement.

“While the overall level of confidence remains diminished, it is still quite positive.”

However, while upper- and middle-class income-earners’ confidence rebounded, low-income earners’ confidence slipped lower…

Upper-income households anticipated a 3 percent income gain, “well above those with incomes in the bottom two- thirds,” according to the report. Which leaves the question – why don’t the poor just pile all their hard-earned minimum wages into the stock market? Everything would be ‘equal’ then, right?

Finally, long-term inflation expectations reading of 2.3% matches record low…

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Fighting Erupts In Kashmir As Pakistan Delays Return Of Indian Pilot

The international community breathed a sigh of relief on Thursday after Pakistani Prime Minister Imran Khan said a captured Indian air force pilot would be released as a “goodwill gesture” to prevent the latest conflict between the two nuclear-armed neighbors from escalating.

India

But it’s beginning to look like that burst of optimism was premature.

Cross-border clashes erupted along “line of control” that separates Indian-controlled and Pakistani-controlled Kashmir. Exchanges of conventional weapons fire have been reported in in Bala Kote, Mendhar, Jammu and Kashmir, according to local media reports. The fire comes as Pakistan has reportedly delayed the return of Wing Commander Abhinandan Varthaman, who is being hailed as a hero in India after he was shot down Wednesday in the first bout of aerial combat between India and Pakistan in nearly fifty years.

According to one local Pakistani source, the return of the pilot was delayed by Pakistan’s military following a disagreement about the timing. Crowds of demonstrators who had amassed on both sides of the border have reportedly started to disperse.

Western media reports published Friday before the delay was revealed credited Varthaman with possibly averting a nuclear crisis.

The description of Varthaman’s efforts mirrored something out of an action movie. Here’s more on that from the Washington Post:

In a scene that could have been out of a movie, Varthaman parachuted out of his flaming plane and then asked the gathering crowd where he was. Upon finding out he was in Pakistan, he ran backward, firing his pistol in the air to keep back the angry young locals.

When they got too close, he jumped into a pond and destroyed sensitive documents and maps by swallowing some and soaking others before he was captured.

As WaPo pointed out, flying runs in Varthaman’s family. His mother and pilot father were welcomed as heroes after traveling to the reception ceremony, as video of their reception showed.

Flying runs in the family: the elder Varthaman, now retired, was a decorated senior officer in the Indian air force who reached the rank of air marshal. In an ironic twist, Simhakutty Varthaman once advised a filmmaker who made a movie about a pilot jailed in Pakistan after being captured in war. In the movie, the hero is ultimately reunited with his family.

After the capture, his father expressed hope for his son’s safe return and said the family was praying that he “does not get tortured.” On Thursday night, the pilot’s parents flew to Delhi ahead of their son’s release. As passengers on the flight realized who the couple was, they burst out in applause and cheers.

According to Reuters, Pakistan’s Foreign Minister Shah Mahmood Qureshi said Varthaman would be handed over to Indian authorities later on Friday, though exactly when remains unclear.

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“Downside Risks Prevail” – US Manufacturing Survey Plunges To 26-Month Lows

With US economic data at its most disappointing in 18 months, it should not be surprising that Markit’s US Manufacturing PMI plummeted to 53.0 in February – its lowest since August 2017.

Under the hood in the PMI data, new orders tumbled to 52.7 (lowest since June 2017), and output slowed to its weakest since Sept 2017.

ISM’s Manufacturing survey rebounded in January (like PMI) after December’s plunge, and was expected to slide back modestly in February, but it didn’t – it plunged back to cycle lows…54.2 – the lowest since Dec 2016

ISM Prices Paid contracted (49.4) for the second month in a row as new orders and employment stumbled.

Chris Williamson, Chief Business Economist at IHS Markit said:

“The PMI indicates the US manufacturing sector is growing at its weakest rate for one and a half years, with firms reporting a marked easing in production growth in February, linked to a similar slowdown in order book growth.

“The survey exhibits a strong advance correlation with comparable official data, and suggests that factory production and orders growth rates are close to stalling mid-way through the first quarter, albeit in part representing some pay-back after a strong January. Export markets remained the principal drag on order books.

“Having seen demand grow faster than production through much of 2018, order book and output trends have come back into line in recent months, hinting at an alleviation of capacity constraints as demand cools. Backlogs of works barely rose as a result, and price pressures have likewise moderated, though tariffs were again reported to have pushed costs higher. Hiring has consequently also slowed.

“Worries regarding the impact of tariffs and trade wars, alongside wider poltical uncertainty, undermined business confidence, with expectations of future growth running at one of the most subdued levels seen for over two years and suggesting downside risks prevail for coming months.“

*  *  *

Of course, this is just the kind of bad news the stock market will love – shitty US manufacturing means Powell’s on hold for longer (and/or QE or rate-cuts imminent), which can only be great for stocks, right?!!

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US Army Takes 50 Tons Of Gold From Syria In Alleged Deal With ISIS

Authord by Elias Marat via The Mind Unleashed,

As the remaining pockets of ISIS fighters faced imminent defeat in northeast Syria, the United States allegedly gave them an offer they couldn’t refuse: give us your massive caches of gold – or die.

According to reports by Syrian state news agency SANA, U.S. forces struck a deal with ISIS whereby the terrorist group would give up 50 tons of gold across eastern Syria’s Deir el-Zour province in exchange for safe passage.

The precious metal, worth about $2.13 billion, was plundered by the self-designated “caliphate” as its reign of terror spread across Syria and Iraq between 2015 and 2017.

Turkish newspaper Daily Sabah reports that local sources claim U.S. Army helicopters have already transferred the gold from the U.S. forces’ base in Kobani, the Kurdish-controlled city that lies close to Syria’s northern border with Syria. A portion of the gold was also distributed to the Kurdish People’s Protection Units (YPG), which dominates the U.S.-allied Syrian Democratic Forces (SDF).

The news comes after SANA claimed that locals witnessed U.S. helicopters airlifting large cases of gold amounting to about 40 tons from the al-Dashisha area in Hasaka’s southern countryside earlier this month. The gold was purportedly looted by ISIS from Mosul in Iraq and other parts of Syria.

The Syrian state media outlet claimed that ISIS leaders were on-hand to guide the U.S. helicopters to the places where the gold was stashed, “closing a deal by which Washington spared hundreds of the terror organization’s field leaders and experts.”

The claims by the Syrian government outlet coincide with reports by U.K.-based war monitor, the Syrian Observatory of Human Rights (SOHR), which alleged that the U.S. and its Kurdish allies had been sparing ISIS fighters in hopes of acquiring the group’s war spoils.

The SOHR said:

“The U.S.-led coalition forces and the Syrian Democratic Forces (SDF) deliberately do not target the areas under the control of the ISIL terrorists and commanders in Eastern Euphrates in Deir el-Zour as they are trying to locate this treasure by forcing the ISIL militants to speak about its location after surrendering.”

Syrian and Russian media alike have long alleged that, contrary to Washington’s claims, it is waging a war on the extremist group. U.S. forces are instead collaborating with them in myriad ways.

During the destruction of ISIS-controlled Raqqa in Syria by the U.S.-led coalition, a secret deal was struck with the group that granted members safe passage as it evacuated the area. The deal, uncovered by the BBC, ensured the survival and freedom of many top ISIS leaders and a number of foreign fighters.

The U.S. still maintains its base in al-Tanf at the Syrian-Jordanian border in contravention of international law and against the wishes of the Syrian government on the pretext of combating ISIS. Moscow has repeatedly accused the United States of forming new armed groups from the remains of ISIS, where they are allegedly given free rein and pop up “like a jack-in-the-box” to ambush Syrian troops before fading back into the U.S.-controlled region.

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Kamala Harris Wants to Revive the ERA: Reason Roundup

One of President Kamala Harris’ first orders of business would be to accomplish a second-wave feminist dream, according to comments she made during a live podcast taping in Iowa last weekend. Asked what she would do for women during her first 100 days if she won the presidency, Sen. Harris (D-Calif.) said: “Passing the ERA, let’s start there.”

That would be the Equal Rights Amendment, a long sought and mostly symbolic measure saying that women have the same rights in the U.S. as men. (“Equality of rights under the law shall not be denied or abridged by the United States or by any State on account of sex.”) For this to make sense in 2019, you have to assume that all of the mentions of mankind, etc., in the Constitution don’t currently include women and that only documents and laws officially referencing women do.

Some ERA advocates will point out that in practice, women still face discrimination. But that’s not for lack of legal guidance, and adding another federal mandate isn’t going to make everyone in the country not sexist.

It’s telling, however, that Harris’ answer here was to focus on a go-nowhere ra-ra-girl-power measure rather than anything that could actually improve women’s lives. Criminal justice reform? Over-the-counter birth control? Stopping the separation of immigrant mothers from their children? Nah—something that sounds nice, changes nothing, and endears her to all those deep-pocketed boomer feminists and the kind of women who hold protest signs that say “If Hillary were president, we’d be at brunch.”

The ERA needs the approval of 38 states to be ratified. So far, it has never been able to get past 37.

During the podcast, Harris also signaled that she would introduce nationwide public-school kindergarten and “a national policy for affordable childcare.”

FREE MINDS

Bad digital regulations abound. Thailand is cracking down on the internet, with what “internet freedom activists have called…’cyber martial law,'” reports Reuters.

Meanwhile, in the U.S., Democrats are pushing a “data privacy” bill that would bar businesses, nonprofits, and others from targeting ads toward specific demographic groups. The law is being pushed as somehow anti-discriminatory, but it would effectively prevent groups—including those geared at only women, LGBTQ people, people of color, immigrants from a certain area, or whatever category—from explicitly targeting the people they want to reach.

FREE MARKETS

Crowding out home child care. Niskanen Center analyst Samuel Hammond tweets us through the flaws in Sen. Elizabeth Warren’s child care proposal. Click through for the whole thread.

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Analysts Slam Tesla’s “Anticlimactic” Surprise Dump As Secretive Conference Call Details Emerge

Tesla released a flurry of news alongside its $35,000 Model 3 reveal yesterday which had been largely leaked in advance, that has sent shares sliding on Friday, the day the company has to make a nearly $1 billion convertible bond payment in cash (as the Tesla stock price failed to rise above the conversion price)

Analyst reaction to the news was tepid at best, with Barclays saying the event “undercut a few of [the] pillar[s]” to its bull case and Morgan Stanley saying it thought the announcement gave “bears more material to work with than bulls”. JP Morgan predicted “another round of potentially thousands of lay-offs”. Goldman Sachs called the event “anticlimactic for investors” and, of course, there was Gordon Johnson’s comprehensively bearish take on Tesla’s “demand problem” which we published last night. 

But the strangest thing about Thursday night’s news dump wasn’t the company’s release of a fully stripped down, bare-bones $35,000 Model 3, nor was it the fact that Tesla is going to be closing almost all of its retail outlets just months after announcing plans to open more of them, as the New York Times’ Neal Boudette noted.

The strangest thing about yesterday wasn’t even that Tesla’s counsel in its ongoing case with the SEC was replaced.

No, the strangest thing about yesterday was the fact that Tesla – a company under scrutiny by the SEC right now for its practices regarding disclosure – appeared to hold a conference call for select members of the media and investment community that the rest of the public did not have access to. Further, the company reportedly discouraged people from recording the call, where they proceeded to take questions on the news release, offering answers that certainly seem to be material in nature.

One Twitter sleuth, Paul Huettner, CFA, reportedly had access to the call and did his best on Twitter to summarize some of the key points that Tesla made that retail investors and uninvited newsmedia may not have had access to. Those points included:

1. Tesla specifically asking the newsmedia to not record or publish transcripts from the call.

2. Elon Musk pitching lower car insurance as a Model 3 benefit.

3. Elon Musk reportedly telling Phil Lebeau that it’s “foolish to focus on the reservation list” for the Model 3. 

4. …followed by Musk admitting he “doesn’t know” what demand is.

5. Before ducking one reporter’s question on layoffs that would occur as a result of the upcoming store closings.

6. Musk reportedly also said an even cheaper future Model 3 model is coming in “at least 2-3 years”.

7. Musk offering what sounds like extremely material guidance on the company’s financial performance for the upcoming Q1 and Q2 reports.

8. And finally, when asked about profit margin on the Model 3, Musk reportedly responded that he “wasn’t going to answer questions like that”.

Naturally, Twitter users, including newsmedia and investors, were aghast at the way Tesla communicated these answers:

We can’t imagine the SEC would be amused, not only by the content of this call, but the matter in which its selective participants found out about it. We look forward to a transcript eventually making its way to the public domain, where it can be dissected by critics of the company on Twitter first, and hopefully wind up as the freshest document on top of a pile of evidence that regulators will use to throw the book at the company second. We’re not holding out hope, however. 

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India’s Airstrike Against Pakistan Borrow’s America’s Terror-Fighting Strategy

ModiThis week India launched air strikes against Pakistan to avenge a suicide bombing that killed more than 40 soldiers on Valentine’s Day. The strikes, which dropped a load of bombs on what India claims was a terrorist camp run by the outfit that orchestrated the attack, show India taking a leaf from the page of America’s raid of Osama bin Laden’s hideaway—which, as it turns out, was a mere 40 miles from the camp India targeted.

One reason for this shift in strategy is that Indian leaders cannot ignore America’s operation against bin Laden in the face of rising anti-Pakistani sentiment on the street. Doing so, I argue in a column for The Week, would have come across as “an admission of impotence.”

But did America actually set a good example for India?

Go here to find out.

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Is The Economic Slowdown Over Or Just Getting Started?

Authored by Bryce Coward via Knowledge Leaders Capital blog,

With US stocks up 11% YTD and nearly 19% since the Christmas Eve low, one could surmise that the economic slowdown that occurred in the back half of 2018 both globally and in the United States was a thing of the past, or at least would be over soon.

After all, the Fed is no longer tightening policy, China has been easing for over a year and expectations for an ECB rate hike keep getting punted further down the line.

Yet, we shouldn’t forget that the Fed has done nothing more than alter forward guidance, China’s stimulus appears to be not working as well as it did in the past, and the ECB has few conventional or even semi-conventional policy arrows left in the quiver.

Furthermore, and more importantly, the tightening of financial conditions that occurred in 2018 has yet to fully feed through to economic conditions and still has a long way to run. After all, changes in financial conditions are like hangovers in that they only start to be felt by the body (real economy) long after the intoxicant (easing of financial conditions) stops being ingested. Therefore, it’s the changes in financial conditions that happened in the previous 1 to 2 years that we should be paying attention to to get an accurate read on where the economy is headed in the months and quarters ahead. And by changes in financial conditions we simply mean changes in interest rates and measures of credit creation.

For example, in the first chart below we plot the United States ISM manufacturing PMI (a gauge of economic activity) against the 20 month difference in the 10 year treasury bond yield, and we advance the treasury bond series by about 2 years. We see that changes in interest rates that happened 20 months ago impact economic activity today. In this case, it’s the increase in interest rates that we saw from 2016-2018 that are now having a slowing impact on economic growth now, and it looks like that baked-in tightening will continue through the end of 2019. In other words, the slight uptick we have witnessed in the PMI should be overlooked as the longer-term trend appears to be lower for the next 11 months.

Changes in the money supply are painting a similar picture. Here we plot the YoY percent change in the money supply and advance it by 6 months before overlaying the ISM manufacturing PMI. The tightness in the money supply (thank you Fed) that is still occurring looks like it will have a material impact on economic conditions through the summer of 2019 at least.

The phenomenon of changes in financial conditions leading economic growth is a global one. For example, despite all the easing measures enacted by the Chinese authorities, the Chinese money supply is growing at the slowest pace on record at only .4% YoY. The slowdown of the money supply portends a lower Chinese manufacturing PMI through the summer of 2019, a trend that was reinforced just today with the weaker than expected PMI reading out of China. It does appear as though the advertised easing in China has been rather ineffective in boosting credit creation as it did from 2015-2016.

One could of course look past these indicators showing a further global slowdown and assume stocks know better this time or that the Fed’s forward guidance will overwhelm these relationships. Even in that situation though, we are faced with the prospect of a further US slowdown thanks to the weak China data reported today. Because China is close to the beginning of the global supply chain and the US is close to the end, there is a tight relationship between new orders of Chinese products and US economic growth. 

New orders of Chinese products lead US economic growth by about a quarter, and those new orders just hit a 3 year low. 

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For Nanny-Statism, California’s Supreme Court Might Be Worse Than the State Legislature: New at Reason

There’s Big Government, Big Labor, Big Business and now—drum-roll please—something called Big Soda. At a news conference Wednesday at the state Capitol, five lawmakers introduced a package of bills to ban the sale of Big-Gulp-style soft drinks and impose a state tax on sugary drinks.

“Big Soda has profited off of life-threatening disease and suffering for too long,” intoned Assemblyman David Chiu (D-San Francisco).

These Nanny State efforts are commonplace, and provide fodder for people living in more-sensible locales. Look, they say, at how Sacramento politicians want to tax anything—and pose a constant threat to California’s business climate. That largely is true. Highly publicized limits on the use of everything from plastic bags to straws gain much-deserved ridicule, but obscure some of the biggest threats to Californians’ ability to live free and prosper.

Consider something we might call Big Justice. The term doesn’t have the same ring as Big Soda, but the California Supreme Court, in recent months, has proven itself more nettlesome than the Legislature. That takes some doing. Unlike lawmakers, who are usually are fairly forthright about their goals and intent, the justices have left most of us befuddled, writes Steven Greenhut.

View this article.

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Canada In Recession? GDP Unexpectedly Drops For 2nd Month In A Row

Canadian GDP just contracted for the second month in a row, leaving the headline Canada GDP up just 0.4% SAAR in 4Q, according to Statistics Canada (dramatically below the estimate of +1.0%). The headline quarterly change misses even lowest of economist estimates.

Under the hood it was just as ugly, with household consumption growth slowing further to 0.7% QoQ (weakest since 2015), investment and housing declining sharply, and helped only by an inventories accumulation (inventories added 1.53 percentage points to growth in 4Q).

Business gross fixed capital formation dropped 9.6% in 4Q, from -8.4% in previous quarter:

  • Non-residential investment falls 10.9%, largest decline since 2016

  • Residential structures fall 14.7%, biggest decline since 2009

Final domestic demand tumbled 1.5% in 4Q, from -0.5% in previous quarter

Worse still, first half of 2018 growth revised down to 2.0% from 2.3%. 

But apart from that – everything is awesome and you should be buying Canadian stocks!!

The result – as Poloz et al. are about to reverse all hawkishness even further – a tumble in the loonie…

 

 

 

 

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