Wednesday 31 October 2018

ZTE Two! What Happens Next Week?

Baltic Dry Index. 1513 -09   Brent Crude 76.39

The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.

Alan Greenspan

US and Asian stock markets stabilised into the month-end, sort of, but it’s an unconvincing stabilisation, and one I suspect will sell off again on Friday ahead of the start of Trump’s all out economic war on Iran’s oil exports, next Tuesday’s US mid-term elections, the November meeting between Presidents Trump and Xi, and yesterday’s US attempt to put China’s Fujian Jinhua Integrated Circuit Co Ltd out of business. ZTE two.

Below, the attempt to get Goldilocks out of the morgue. Even the Fed’s New York Plunge Protection Team can’t resurrect Goldilocks, not while Trump’s Trade War Hooligan Team are going flat out to bring down China’s economy, and with it everyone else’s.

It is very difficult to predict when a bond crisis could happen.

Alan Greenspan

Asia stocks crawl up after a merciless October for global equities

October 31, 2018 / 12:38 AM / Updated 3 hours ago
TOKYO (Reuters) - Asian stocks pulled away from 20-month lows on Wednesday, thanks to a rebound on Wall Street, although investors remained cautious after an October month that saw sharp downturns across global equity markets.

A confluence of factors from Sino-U.S. trade tensions to worries about U.S. corporate earnings to the end of easy money in development economies have spurred volatility in financial markets in the past few weeks. 

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.75 percent, but it was still on track to fall roughly 11 percent this month.

The index had dropped to its lowest level since February 2017 on Monday as worries over corporate profits weighed heavily on U.S. equities.

Wall Street’s three stock indexes jumped more than 1 percent on Tuesday, helped by strong gains for chip and transport stocks as investors took advantage of cheaper prices following the steep recent pullback for equities. [.N]

Hong Kong’s Hang Seng rose 1 percent and the Shanghai Composite Index climbed 0.75 percent, with the gains coming despite weak factory activity data for this month.

---- “The recent slide in equities had gone to such an extent that it was bound to invite buyers, such as in the Japanese stock market,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

The MSCI AC World index, which includes a few large emerging markets in addition to developed markets, was down 8.5 percent this month and has lost about $4 trillion in value. The narrower MSCI World Index was down 8.7 percent and has wiped out $4.5 trillion in October.

Ichikawa at Sumitomo Mitsui Asset Management said the outlook for markets was still cloudy, adding that the U.S.-China trade row will “likely to remain a factor of concern beyond the U.S. midterm elections.”

---- U.S. President Donald Trump said during an interview with Fox News late on Monday that he thought there could be an agreement with China on trade. But he also said he had billions of dollars worth of new tariffs ready to be imposed if a deal was not possible.

Samsung slashes capex, calls end to chip boom after record third quarter

October 30, 2018 / 11:58 PM / Updated 29 minutes ago
SEOUL (Reuters) - Samsung Electronics Co Ltd (005930.KS) slashed 2018 capex by more than a quarter on Wednesday and warned of lower profit until early next year, calling an end to a two-year boom in memory chips that fuelled record third-quarter profit.

The downbeat forecast by the world’s biggest maker of memory chips and smartphones adds to investor jitters over waning global demand for mobile and other electronics devices that roiled world stock markets this month. 

The South Korean technology giant said it expected a quarter-on-quarter earnings decline in the fourth quarter due to weak demand for memory chips and higher smartphone marketing spend during the year-end holiday season.

“Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve,” Samsung said in a statement.

---- Samsung, one of the industry’s biggest buyers of chip-manufacturing tools, said its capital spending this year would drop by 27 percent to 31.8 trillion won ($28 billion) from a record 43.4 trillion won last year.

“NAND (flash memory) chip prices will further decline through the first half of next year ... (as) Toshiba’s (6502.T) new production line will start and Hynix (000660.KS) starts mass production of one of its NAND lines,” said Song Myung-sup, an analyst at HI Investment & Securities.

“Oversupply is expected to continue.”

As stocks' nine-year bull run fades, a bear market beckons: McGeever

October 31, 2018 / 12:03 AM / Updated 6 hours ago
By Jamie McGeever

LONDON, Oct 31 (Reuters) - Wall Street’s nine-year bull run may be on its last legs - raising fears of a widening bear market mirroring the length of the historic upswing as 20 percent-plus reversals grip large swathes of the global equities universe.

If a prolonged equity funk feeds back into the real economy via cowed business sentiment, reduced corporate spending and investment, the threat of a deeper global economic downturn and even recession mounts. 

So far, so cyclical. For many, it’s long overdue.

The big question, and arguably the bigger worry, is just how much monetary and fiscal policymakers can cushion the fall.

Investors are starting to realize they may be at a turning point. A Morgan Stanley client survey of over 100 portfolio managers and chief investment officers shows 80 percent of them cautious or bearish, and only 20 percent optimistic or bullish.

The survey notes a “psyche shift” that wasn’t there in February, when a sudden burst of market volatility triggered a 12 pct slide on Wall Street. Then, there was “strong” buying of the dips as clients added heavily to their long positions. Now, they are far more inclined to sell into any rally.

“It’s becoming clear after investor feedback and market action that sentiment has taken a significantly bearish turn,” Morgan Stanley notes.

BlackRock notes that stocks and earnings growth are already decoupling globally, and that’s before the widely anticipated slowdown in earnings growth next year.

Analysts at Goldman Sachs point out that last week marked the first time since 1990 that the S&P 500 fell 13 days in a three-week period. The magnitude of the losses may not be on a par with the dotcom collapse or 2008, but the frequency is “dramatic” and should ring alarm bells.

Tuesday, 9 October 2018

Stocks, Sentiment Changes. Dive, Dive, Dive!

China factory growth weakest in over two years, slump in export orders deepens

October 31, 2018 / 1:16 AM / Updated 2 hours ago
BEIJING (Reuters) - China’s manufacturing sector in October expanded at its weakest pace in over two years, hurt by slowing domestic and external demand, in a sign of deepening cracks in the economy from an intensifying trade war with the United States.

Anxiety about China’s cooling growth and its likely drag on the global economy have vexed financial markets recently, and Wednesday’s official Purchasing Managers’ Index (PMI) indicates more stress for investors through coming months.

The official PMI - which gives global investors their first look at business conditions in China at the start of the last quarter of the year - fell to 50.2 in October, the lowest since July 2016 and down from 50.8 in September.

It was a touch above the 50-point mark that separates growth from contraction for a 27th straight month, but undershot the 50.6 forecast in a Reuters poll.

In China trade war news, another massive intervention in international trade, ZTE style.  Trade War Team Trump, just gave the rest of the world another reason not to rely of US made technology. Short term gain for long term pain. Did China’s “spies” really get a five year free run at America’s jet engines?

U.S. restricts exports to Chinese semiconductor firm Fujian Jinhua

October 29, 2018 / 6:12 PM
WASHINGTON (Reuters) - U.S. President Donald Trump’s administration took action on Monday to cut off a Chinese state-backed chipmaker from U.S. suppliers amid allegations the firm stole intellectual property from U.S. semiconductor company Micron Technology Inc.

The Commerce Department said it had put Fujian Jinhua Integrated Circuit Co Ltd on a list of entities that cannot buy components, software and technology goods from U.S. firms. 

The administration is concerned the Chinese firm could flood the market with cheap chips that are also made by U.S. companies that supply the U.S. military. If the U.S. chipmakers go out of business, the military would lose a supplier for an item that must come from the United States.

Trade experts said the Trump administration’s move may be an unprecedented effort to use a legal tool known for punishing foreign companies that send U.S.-origin goods to sanctioned countries such as Iran to instead protect the economic viability of a U.S. firm.

The move escalated what until now had been a business dispute into the realm of an international trade conflict between the United States and China. The Commerce Department spokesman said the move was “based on the regulatory standard.”

The action against Fujian Jinhua is likely to ignite new tensions between Beijing and Washington since the company is at the heart of the “Made in China 2025” programme to develop new high-technology industries.

---- Fujian Jinhua makes so-called DRAM, the memory chips that make computers, phones and other devices run more quickly and smoothly.

Micron, a maker of memory chips with factories in Virginia and Utah, has accused Fujian Jinhua and Taiwanese partner United Microelectronics Corp of stealing its chip designs in a lawsuit in California. In turn, the companies countersued Micron in China, where courts sided with them and banned some of Micron’s chips in China.

---- A Commerce Department spokesman said the agency would review any appeal by Fujian Jinhua.
China’s Commerce Ministry said in a Tuesday statement responding to the news that it opposed the United States interfering in companies’ normal international trade and misusing export control measures.

“China urges the U.S. side to take steps and immediately stop its mistaken ways,” the ministry added.

U.S. Accuses Chinese Spies of Campaign to Steal Jet Engine Tech

By Isabel Reynolds and Dong Lyu
Updated on 31 October 2018, 04:58 GMT
The U.S. unveiled charges against two alleged Chinese spies for orchestrating a conspiracy to steal prized jet engine technology from private companies, as the Trump administration raises pressure on Beijing to address its trade grievances.

The U.S. Justice Department said Tuesday the Chinese intelligence officers worked with hackers and “co-opted company insiders” to acquire commercial aviation technology in a campaign of computer intrusions that lasted more than five years. They sought to obtain intellectual property and confidential business data, including information related to a turbofan engine used in commercial airliners, the government said.

The case comes amid growing trade friction between the U.S. and China and follows on the heels of another case in which a Chinese intelligence official was extradited from Belgium and charged with conspiring to steal trade secrets from an Ohio aviation company earlier this month. A U.S. Army recruit was also indicted in September for working as an agent of a Chinese intelligence officer.

Intellectual property theft is among the Trump administration’s chief complaints in a trade war that has rattled global markets and seen the world’s two largest economies slap tariffs on hundreds of billions of dollars of each other’s goods. China has long been focused on acquiring advanced jet-engine technology in its efforts to close the gap with Western manufacturers on the production of commercial and military aircraft.

Fear and euphoria are dominant forces, and fear is many multiples the size of euphoria. Bubbles go up very slowly as euphoria builds. Then fear hits, and it comes down very sharply. When I started to look at that, I was sort of intellectually shocked. Contagion is the critical phenomenon which causes the thing to fall apart.

Alan Greenspan

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

Today, transport. So the future’s electric, not so fast.

What the History of Gas Stations Means for Electric Cars

Before they’ll make the leap, road-trip-loving Americans want to know charging stations are everywhere
By Joe Nocera  29 October 2018, 16:43 GMT
On my way to a conference in Ann Arbor, Michigan, last week, I took a little detour to Dearborn, to visit the Henry Ford Museum of Innovation. 1  I wanted to see what a Model T’s gas tank looked like.

The importance of the Model T, which the Ford Motor Co. began selling in 1908, is  a familiar story: It was the first car that was both widely affordable and widely available, thanks to the mass manufacturing techniques Henry Ford developed and the economies of scale they made possible.

But there is another, less well-known aspect of the Model T’s history: the role it played in the development of gas stations — and the role gas stations played in the rise of the automobile. With all the ferment surrounding the evolution of electric vehicles, it occurred to me that it might be instructive to look at the interplay between gas stations and cars a century ago.

It turns out that the Model T’s gas tank was under the front seat cushion; to refill it, you had to raise the cushion and pour the gasoline into a hole on the top of the tank. Before you could even get to that stage, though, you first had to go to a store — often the local general store — where you ladled the gasoline into a container of some sort and then, using a funnel, poured it from the container into the gas tank. It was messy, inefficient and ultimately untenable if autos were going to replace the horse and buggy. 2

By 1912, this system had largely given way to pumps set up on sidewalks by small entrepreneurs, who bought gas from a wholesaler. They used nozzles made to fit the opening of the Model T’s tank, which created an ad hoc standardization, ensuring that all nozzles and all gas tanks were interoperable.

At which point the big boys — the major oil producers like Texaco and Shell and Esso — muscled these small businessmen aside and began the process of establishing national chains of gas stations, building the stand-alone stations we’re now so familiar with.

“They were vertical integrators,” said Matt Anderson, the Ford museum’s curator of transportation. The oil producers understood that the more cars that were on the road, the more oil they could sell —  and the more gas stations a driver could find, the more people would feel comfortable buying that first car. The strategy worked: According to the 2007 book “Fill ’Er Up: The Great American Gas Station,” 3  between 1909 and 1918, the number of cars on American roads increased from 312,000 to 6.2 million.

As I was reading about gas stations in the museum library, I began to compare their evolution with the current state of play for electric vehicle chargers. One difference is that the auto, even in its most primitive early 20th century form, was so vast an improvement over horse and buggies that everybody was desperate to buy one. In the early years, the gas station industry was racing to keep up with the rapidly growing auto industry.

The dynamic of the electric car/recharging industries is almost the opposite. A lot of people like the idea of driving an environmentally friendly vehicle, but in transportation terms, it is not an absolute necessity. Many people — most people — will likely hold back until they are convinced the infrastructure is in place to allow a driver to go anywhere without running out of juice. Thus, if the electric car industry is to succeed the way it hopes, the charging industry has to lead, not follow.

A second issue is standardization. Although Tesla is the best-known electric car on the market, it doesn’t dominate the way the Model T did. Yet the company has, rather foolishly, created a charger that can be used only with Tesla autos. For recharging in your garage, that’s fine. But for a long drive, it’s a problem. Tesla claims that its network of 1,359 charging stations “can get you anywhere you want to go.” But in a country with 115,000 gas stations, that’s not close to being enough.

Mar 4, 2012, 12:28pm

The Story of Henry Ford's $5 a Day Wages: It's Not What You Think

There's an argument you see around sometimes about Henry Ford's decision to pay his workers those famed $5 a day wages. It was that he realised that he should pay his workers sufficiently large sums to that they could afford the products they were making. In this manner he could expand the market for his products.

It should be obvious that this story doesn't work: Boeing would most certainly be in trouble if they had to pay their workers sufficient to afford a new jetliner. It's also obviously true that you want every other employer to be paying their workers sufficient that they can afford your products: but that's very much not the same as claiming that Ford should pay his workers so that they can afford Fords.
So, if creating that blue collar middle class that could afford the cars wasn't why Ford brought in his $5 a day wages, what was the reason?

Actually, it was the turnover of his staff.

At the time, workers could count on about $2.25 per day, for which they worked nine-hour shifts. It was pretty good money in those days, but the toll was too much for many to bear. Ford's turnover rate was very high. In 1913, Ford hired more than 52,000 men to keep a workforce of only 14,000. New workers required a costly break-in period, making matters worse for the company. Also, some men simply walked away from the line to quit and look for a job elsewhere. Then the line stopped and production of cars halted. The increased cost and delayed production kept Ford from selling his cars at the low price he wanted. Drastic measures were necessary if he was to keep up this production.

----- It's also not true that the offer was of $5 a day in wages. It was all rather more complicated than that:

The $5-a-day rate was about half pay and half bonus. The bonus came with character requirements and was enforced by the Socialization Organization. This was a committee that would visit the employees' homes to ensure that they were doing things the "American way." They were supposed to avoid social ills such as gambling and drinking. They were to learn English, and many (primarily the recent immigrants) had to attend classes to become "Americanized." Women were not eligible for the bonus unless they were single and supporting the family. Also, men were not eligible if their wives worked outside the home.

Finally, when you’ve got a wining hand play it for all it’s worth. President Erdogan goes in for the kill.

Turkey presses Saudi to say who sent Khashoggi killers - Erdogan

October 30, 2018 / 8:29 AM
ANKARA (Reuters) - The Turkish lawyer looking into the death of Jamal Khashoggi has asked Saudi Arabia’s prosecutor to disclose who sent the team involved in the journalist’s killing, President Tayyip Erdogan said on Tuesday.

Saudi prosecutor Saud Al Mojeb held talks with Istanbul’s prosecutor on Monday and Tuesday about Khashoggi’s death in the Saudi consulate in Istanbul, which has escalated into a crisis for the world’s top oil exporter. 

Riyadh at first denied any knowledge of, or role in, his disappearance four weeks ago but Mojeb has contradicted those statements, saying the killing of Khashoggi, a critic of de facto ruler Crown Prince Mohammed bin Salman, was premeditated.

The case has put into focus the West’s close relationship with Saudi Arabia - a major arms buyer and lynchpin of Washington’s regional plans to contain Iran - given the widespread scepticism over its initial response.

Turkey has kept up the pressure on the Saudis, demanding a full explanation and releasing a steady flow of evidence which undermined Riyadh’s early denials.

Saudi Arabia says that 18 suspects in the case will face justice in the kingdom, despite repeated calls from Ankara for them to be extradited for trial in Turkey.

“Yesterday, our prosecutor told the Saudi prosecutor that the prosecution could be carried out in Turkey since the location of the crime is Istanbul,” Erdogan told reporters at Turkey’s parliament.

Saudi officials also needed to disclose who had sent a 15-strong team to Istanbul to carry out the operation targeting Khashoggi, as well as the identity of a local agent said to have helped dispose of his body.

“Our prosecutor asked who sent the group that came here and said that this needed to be looked at,” Erdogan said. “Saudi officials need to reveal the local cooperators. Let us know whoever this person is and we will find them.

“We cannot leave this issue unsolved, we need to solve it now. There is no point in procrastinating or trying to save some people from under this.”

Exclusive: Defense firms see only hundreds of new U.S. jobs from Saudi mega deal

October 30, 2018 / 5:16 AM
WASHINGTON (Reuters) - Every time President Donald Trump mentions the $110 billion arms deal he negotiated with Saudi Arabia last year, he quickly follows up, saying “It’s 500,000 jobs.”

But if he means new U.S. defense jobs, an internal document seen by Reuters from Lockheed Martin forecasts fewer than 1,000 positions would be created by the defense contractor, which could potentially deliver around $28 billion of goods in the deal.

Lockheed instead predicts the deal could create nearly 10,000 new jobs in Saudi Arabia, while keeping up to 18,000 existing U.S. workers busy if the whole package comes together - an outcome experts say is unlikely.

A person familiar with Raytheon’s planning said if the Saudi order were executed it could help to sustain about 10,000 U.S. jobs, but the number of new jobs created would be a small percentage of that figure.

Lockheed Martin Corp declined to comment on the Saudi package. Raytheon Co’s Chief Financial Officer Toby O’Brien said last week that hiring overall is growing, but he did not pin it to any particular program.

The White House did not immediately respond to a request for comment.

Jobs are important to Trump. He campaigned on his ability to create American jobs, especially high-paying manufacturing ones. Meanwhile he has limited his criticism of Saudi leadership over the killing of a prominent critic because he did not want to endanger the massive arms deal.

Trump’s 500,000 figure has been greeted with widespread skepticism given the five biggest U.S. defense contractors, who make nearly every item on the Saudi list, now employ 383,000 people.

Documents seen by Reuters and interviews with defense industry sources familiar with the arms package suggest that between 20,000 and 40,000 current U.S. defense industry workers could be involved in Saudi-bound production if the whole $110 billion package goes through.

We really can't forecast all that well, and yet we pretend that we can, but we really can't.

Alan Greenspan

Technology Update.
With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards?

Finally, a robust fuel cell that runs on methane at practical temperatures

Date: October 29, 2018

Source: Georgia Institute of Technology

Summary: Either exorbitantly expensive fuel or insanely hot temperatures have made fuel cells a boutique proposition, but now there's one that runs on cheap methane and at much lower temperatures. 

Fuel cells have not been particularly known for their practicality and affordability, but that may have just changed. There's a new cell that runs on cheap fuel at temperatures comparable to automobile engines and which slashes materials costs.

Though the cell is in the lab, it has high potential to someday electrically power homes and perhaps cars, say the researchers at the Georgia Institute of Technology who led its development. In a new study in the journal Nature Energy the researchers detailed how they reimagined the entire fuel cell with the help of a newly invented fuel catalyst.

The catalyst has dispensed with high-priced hydrogen fuel by making its own out of cheap, readily available methane. And improvements throughout the cell cooled the seething operating temperatures that are customary in methane fuel cells dramatically, a striking engineering accomplishment.

Methane fuel cells usually require temperatures of 750 to 1,000 degrees Celsius to run. This new one needs only about 500, which is even a notch cooler than automobile combustion engines, which run at around 600 degrees Celsius.

That lower temperature could trigger cascading cost savings in the ancillary technology needed to operate a fuel cell, potentially pushing the new cell to commercial viability. The researchers feel confident that engineers can design electric power units around this fuel cell with reasonable effort, something that has eluded previous methane fuel cells.

"Our cell could make for a straightforward, robust overall system that uses cheap stainless steel to make interconnectors," said Meilin Liu, who led the study and is a Regents' Professor in Georgia Tech's School of Material Science and Engineering. Interconnectors are parts that help bring together many fuel cells into a stack, or functional unit.

"Above 750 degrees Celsius, no metal would withstand the temperature without oxidation, so you'd have a lot of trouble getting materials, and they would be extremely expensive and fragile, and contaminate the cell," Liu said.

"Lowering the temperature to 500 degrees Celsius is a sensation in our world. Very few people have even tried it," said Ben deGlee, a graduate research assistant in Liu's lab and one of the first authors of the study. "When you get that low, it makes the job of the engineer designing the stack and connected technologies much easier."

----The research was based on a type of fuel cell with high potential for commercial viability, the solid oxide fuel cell (SOFC). SOFCs are known for their versatility in fuels they can use.

If it goes to market, though the new cell might not power automobiles for a while, it could land sooner in basements as part of a more decentralized, cleaner, cheaper electrical power grid. The fuel cell stack itself would be about the size of a shoebox, plus ancillary technology to make it run.

"The hope is you could install this device like a tankless water heater. It would run off of natural gas to power your house," Liu said. "That would save society and industry the enormous cost of new power plants and large electrical grid expansions."

"It would make homes and businesses more power independent," Liu said. "That kind of system would be called distributed generation, and our sponsors want to develop that."

At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn't. Instead, northern Europe fell into subsidizing southern Europe's excess consumption, that is, its current account deficits.

Alan Greenspan

The monthly Coppock Indicators finished September.

DJIA: 26,458 +199 Down. NASDAQ: 8,046 +261 Down. SP500: 2,914 +166 Down.
All three slow indicators moved down in March, but the S&P and NASDAQ  turned up in August.  September will be critical for confirmation of this change. All 3 slow indicators failed to confirm August’s positive change making October very vulnerable to a sell-off.