Thursday 31 October 2019

Damn the Torpedoes! Buy More!!!

Baltic Dry Index. 1782 -20 Brent Crude 60.86 Spot Gold 1498

Never ending Brexit now January 31, or maybe sooner.
Trump’s Nuclear China Tariffs Now in effect.
The USA v EU trade war started October 18. Now in effect.

List of stock market crashes and bear markets

With the Fed rate cut in place, a trade deal “lite” part one between China and America all but ready to be signed, though where is now unknown, and Brexit to be resolved one way or another on December 12th, it’s time to dress up stock markets for the last trading day of October.

Ignore those horrible manufacturing figure out of China, and ignore Germany leading the EUSSR into recession, buy more! Buy more! What could possibly go wrong?   

Well buying overpriced stocks at the top of the market right before a recession, for one thing. And what if the next move for the Fed is up? Who makes money buying tops?

I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.

Jesse Livermore

Asian stocks rally after Fed rate cut, BOJ keeps policy steady

October 31, 2019 / 12:48 AM
TOKYO (Reuters) - Asian shares jumped on Thursday to a three-month high and the dollar fell broadly after the Federal Reserve cut interest rates as expected and U.S. Treasury yields declined.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.68% to the highest since July 30. Hong Kong shares rose 1.16%, while Japan’s Nikkei stock index rose 0.2%. 

U.S. Treasury yields slipped in Asia after the rate cut, but Fed Chairman Jerome Powell signalled additional trims are unlikely because there are several areas of strength in the U.S. economy.

The yen held onto gains versus the dollar after the Bank of Japan keep its ultra-easy monetary policy in place as expected and changed its forward guidance to more clearly signal the future chance of a rate cut.

Debate at the Fed and the BOJ highlights the struggle that many central banks are facing.

The U.S.-China trade war and Britain’s divorce from the European Union have increased uncertainty, but central banks are somewhat reluctant to ease policy aggressively because interest rates are already very low in many major economies.

“The biggest thing that stands out is stocks look stronger after the Fed,” said Tsutomu Soma, general manager of fixed income business solutions at SBI Securities in Tokyo.

“Risks like U.S.-China or Brexit haven’t been resolved completely, but the markets are starting to look beyond these risks.”

U.S. stock futures edged 0.01% higher on Thursday in Asia after the S&P 500 rose 0.33% to close at a record high on Wednesday for the second time in three trading sessions.

A positive mood on Wall Street carried over to Asian equities, except for Australian shares, which fell 0.51% after weak earnings from Australia and New Zealand Banking Group.

China manufacturing drops to 8-month low

By Liyan Qi  Published: Oct 31, 2019 2:06 a.m. ET
Chinese manufacturing activity fell to an eight-month low in October, an official gauge showed, raising another warning signal as hopes for a U.S.-China trade truce were dealt a further blow.

China’s official gauge of factory activity, the manufacturing purchasing managers index, dropped to 49.3 in October from 49.8 in September, the National Bureau of Statistics said Thursday.
The index has stayed below the 50 mark, which separates expansion from contraction, for six straight months, indicating worsening business sentiment despite the government’s efforts to spur economic growth.

Economists were expecting factory activity to have held steady this month, partly due to easing trade tensions between China and the U.S. But the cancellation of a summit of Asia-Pacific Economic Cooperation members has complicated efforts by the world’s two largest economies to sign a limited trade agreement designed to keep new tariffs at bay.

Even if a partial trade deal were reached, that alone probably wouldn’t help China’s economy in the absence of other policy supports, said Serena Zhou, an economist at Mizuho Securities.

“The latest PMI again proved that China’s economy is under notable downward pressure,” Ms. Zhou said. “I don’t think an interim trade deal in November can quickly turn the situation around.”

The drop in manufacturing activity adds pressure on Beijing policy makers, who are seeking to juice economic growth while taming inflation expectations.

---- Surging pork prices pushed China’s consumer inflation to a near six-year high in September, while China’s producer-price deflation deepened more amid falling raw-material prices and soft demand, latest official data showed.

“Yes, the central bank is under pressure to stabilize [economic] growth, but it seems more worried about heating inflation expectations,” said Yang Weixiao, an economist at Founder Securities.

Weakness in the official factory-activity report was broad-based. A subindex measuring total new orders received by China’s manufacturers decreased to 49.6 in October from 50.5 in September, the statistics bureau said.

New export orders, an indicator of external demand for Chinese goods, fell to 47.0 from 48.2 in September, while import orders tumbled to 46.9 from 47.1 a month earlier. Production also eased to 50.8 in October, compared with 51.9 in September.

Meantime, business activity outside China’s factory gates expanded at the slowest pace in October in nearly four years, as weaker growth among service providers outweighed strength in the construction sector, a separate official gauge showed.

Chile's APEC cancellation creates hurdle for U.S.-China trade deal

October 31, 2019 / 12:28 AM
WASHINGTON/BEIJING/SINGAPORE (Reuters) - Leaders from the United States and China encountered a new obstacle in their struggle to end a damaging trade war on Wednesday, when the summit where they were supposed to meet was canceled because of violent protests.

U.S. President Donald Trump said this week he hoped to sign an interim trade deal with Chinese counterpart Xi Jinping during the Nov. 16-17 Asia-Pacific Economic Cooperation summit in Chile. Chilean officials said they canceled the summit to focus on restoring law and order in the country.
The White House said afterwards the United States still expects to sign an initial trade agreement with China next month, but no alternate location had yet been set for Xi and Trump to meet.

“We look forward to finalizing Phase One of the historic trade deal with China within the same time frame,” the White House said in a statement that omitted a mention of the president or his planned meeting with Xi.

China’s commerce ministry said in a statement on Thursday the bilateral talks will continue to proceed as previously planned and the lead trade negotiators from both countries will speak by telephone on Friday.

U.S. and Chinese negotiators have been racing to finalize a text of the “phase one” agreement for Trump and Xi to sign next month, a process clouded by wrangling over U.S. demands for a timetable of Chinese purchases of U.S. farm products.

Treasury Secretary Steven Mnuchin, who was traveling in the Middle East, told Reuters on Wednesday that U.S. discussions with China had been productive, and work on finalizing the text of the deal was continuing. China’s commerce ministry also said on Thursday the negotiations were progressing well.

Finally, the wealth and jobs destroying EUSSR again, soon to become 7.5 billion euros a year poorer. Rather than cutback and live within their new income, most in the EUSSR want Germany and Holland to put in the missing billions.

France outshines Germany as euro zone economic gloom deepens

October 30, 2019 / 11:28 AM
PARIS/BERLIN (Reuters) - Strong domestic stimulus is helping France shrug off a global slowdown even as export-dependent Germany heads closer to a recession, starkly divergent data on the euro zone’s two leading economies showed on Wednesday.

France saw national output rise 0.3% in the third quarter - defying forecasts for slightly slower growth - as unemployment in Germany rose faster than expected and its chambers of commerce warned that exports would shrink next year for the first time since the financial crisis as world trade friction mounts.

The contrast in national fortunes was underlined as incoming European Central Bank chief Christine Lagarde doubled down on her predecessor Mario Draghi’s calls on Germany to use some of its budget surplus to invest in growth-enhancing measures.

“Those that have the room for maneuver, those that have a budget surplus, that’s to say Germany, the Netherlands, why not use that budget surplus and invest in infrastructure? ... Why not invest in education, why not invest in innovation, to allow for a better re-balancing?” she told France’s RTL broadcaster.

France’s economy, which has long relied more on domestic consumption than that of its northern neighbor, got a boost from President Emmanuel Macron’s injection of 10 billion euros in stimulus to quell the “yellow vest” protests this year.

Most of that money went on boosting benefits for minimum-wage earning workers. Paris has also said it would cut taxes by more than 10 billion euros in total next year.

“At the same time, measures enacted in recent years .. have contributed to make the French labor market more flexible and have lowered labor costs for corporates,” JP Morgan’s Raphael Brun-Aguerre said of reforms begun under Macron’s predecessor Francois Hollande and pursued by him.

A separate read-out by the European Commission in Brussels showed that economic sentiment across the 19-country euro zone as a whole deteriorated in October for a second straight month as pessimism in industry spread to services and consumers.

A breakdown showed that sentiment fell in Germany for the second straight month and to its lowest level in more than six years. France also saw a small dip but remained above the euro zone average.

The Germany economy shrank 0.1% in the second quarter, and third-quarter output figures next month are expected to show another fall, putting the country in recession by the standard definition.

Export-reliant Germany is also more exposed than most to the disputes triggered by U.S. President Donald Trump’s “America First” policies and a cooling of Chinese growth.

“For our economy, with its strong industrial core, this is a huge challenge,” DIHK Chambers of Industry and Commerce President Eric Schweitzer said when presenting the association’s latest business sentiment survey of more than 28,000 managers.

DIHK said it expects Germany’s annual export growth to wither to 0.3% this year from 2.1% in 2018, adding that exports are likely to shrink by 0.5% next year. Germany has in recent years averaged export growth of around 5.5%, Schweitzer said.

Jean-Claude Juncker. Failed Luxembourg Prime Minister and ex-president of the Euro Group of Finance Ministers. Confessed liar. European Commission President. Scotch connoisseur.

Crooks and Scoundrels Corner.

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

Today, how to rig stocks the official way. Poster Child: Texas Instruments.  No problems until that recession hits.

Opinion: Here’s how share buybacks get used to transfer billions of dollars to senior management under the guise of returning cash to shareholders

By Ben Hunt  Published: Oct 30, 2019 9:26 a.m. ET
Financialization is profit margin growth without labor productivity growth.

Financialization is the zero-sum game aspect of capitalism, where profit margin growth is both pulled forward from future real growth and pulled away from current economic risk-taking.

Financialization is the story of using share buybacks to mortgage the future of public companies over and over and over again for the primary benefit of today’s management shareholders.

Texas Instruments TXN, +0.06% recently caught my eye. And while I decided to dig into its story, what happened isn’t unique to this company.

Texas Instruments is, in fact, a poster child for financialization. And there’s nothing illegal or incompetent about it.

I’m going to focus on a five-year stretch of the company’s financials, from 2014 through 2018. This is where the truly meteoric stock-price appreciation took place over the past 10 years, even with the stock market’s swoon in the fourth quarter of 2018, and comparing full-year financials makes for a more apples-to-apples comparison.

But before I get into the numbers, let me tell you the story.

The Texas Instruments story is free cash flow and earnings growth that management “returns to shareholders”. Earnings per share on a fully diluted weighted basis has more than doubled from 2014 through 2018, net income available to shareholders on a GAAP basis has doubled, and cash from operations has almost doubled.

What makes this a story of financialization is the why of the very real free cash flows and earnings growth and the how of the allocation of those cash flows and earnings.

The why is pretty simple. Management has cut its cost structure to the everlovin’ bone.

At the end of 2013, the company’s cost of goods sold (COGS) was 48% of revenues. By the end of 2018, COGS was 35%. Gross margins went from 52% to 65%.

At the end of 2013, sales, general and administrative costs (SG&A) was 15.2% of revenues. By the end of 2018, SG&A was 10.7%.

At the end of 2013, research and development expenses (R&D) was 12.5% of revenues. By the end of 2018, R&D was 9.9%.

And while it’s not part of the fixed cost structure, Texas Instruments was a keen beneficiary of the Tax Cuts and Jobs Act of 2017, seeing its 2017 tax rate of 16% cut to 7% in 2018 and reducing its tax bill by $1.2 billion.

See, there was zero revenue growth at the company from 2014 to 2015 (flat in both years), and tiny growth from 2015 to 2016 (less than 3%). But there was healthy revenue growth from 2016 to 2017 (11% or so) and so-so growth from 2017 to 2018 (6% or so). And when you’re cutting costs like Texas Instruments was doing over a multiyear period, even mediocre top-line increases can lead to dramatic profit increases.

How dramatic? Cash from operations was $3.9 billion in 2014, but by 2018 was $7.2 billion. Nice!

Over this five-year period, Texas Instruments generated $25.5 billion in cash from operations and $32.5 billion in earnings before interest, taxes, depreciation and amortization (Ebitda).

From a cash perspective, of course you’ve got to pay taxes out of all that, which comes to about $7 billion over the five years, but you can defer some of this to minimize the cash hit. And you’ve got to pay interest on the $5.1 billion in debt you’ve taken out, which comes to … oh yeah, basically nothing … thank you, Fed! And you’ve got to account for depreciation and amortization, which comes to $5.2 billion over the five years … but this is a non-cash expense, so it’s not going to dig into that cash hoard. And you’ve got some cash puts and takes from working capital and inventory and what not, but nothing dramatic. And you’ve got $1.3 billion in stock-based comp, but again that’s a non-cash expense … whew!

And — oh, here’s an interesting cash windfall — Texas Instruments raised about $2.5 billion by selling stock over these five years. Wait, what? Selling stock, not buying stock? Selling stock to whom? Hold that thought …

Put it all together and I figure the company generated about $25 billion in truly free cash flow over this 5-year span. What is management going to spend this treasure chest on?

Most accountants are honorable men, trying to do a job. But they are hired by corporations, not by investors.

George Goodman, aka Adam Smith, The Money Game. But What Do The Numbers Mean?

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?

Elon Musk offers discounted solar panels and batteries after California blackouts

Millions are without power as fires rage and preemptive outages become the new norm
Tesla is offering a discount on solar panels and batteries to people who are affected by wildfire power outages, Tesla CEO Elon Musk tweeted today. More than 2 million people across California have been affected by power outages since October 25th as utility companies try to prevent their power lines from sparking new blazes. A fire just north of San Francisco has already consumed more than 66,000 acres and is only 5 percent under control.
Musk offered $1,000 off to customers who are affected by the outages. His generosity is likely to benefit more affluent Californians’ who are coping with the power loss, given the price of a home installation. On its website, Tesla lists the average price of a Solar Roof as $33,950. Its home battery system, the Powerwall, costs roughly $14,100 for a 2,200-square-foot home. The company unveiled Solar Glass Roof tiles just three days ago.
Preemptive power outages are becoming the new normal in California as the state faces increasingly devastating wildfire seasons and utility companies are blamed for being the culprits behind disasters like the 2018 Camp Fire that nearly leveled the entire town of Paradise. The current outages are the second massive blackout affecting Pacific Gas and Electric Company customers this month. Though the outages are meant to avoid catastrophe, they can cause a crisis for those who rely on powered medical devices.
The fragile, flammable nature of the power grid means that some residents are turning to solar power as a way to keep the lights on. Homes with solar panels are still connected to the energy grid, but with a battery system, they can keep the power on if the grid fails. After roughly 2 million people lost power roughly two weeks ago, solar panel and battery sales jumped, CBS News reported. “It’s like controlled chaos right now — it’s an overwhelming response,” Tim Hamor, co-owner of California-based solar installer Alternative Energy Systems, told CBS.

Tesla seems to be seeing an uptick in sales, too. “Apologies to those waiting for Solar/Powerwall outside California, as we are prioritizing those affected by wildfires,” Musk tweeted today. On an October 25th call with reporters, Musk said that his company was “seeing some demand growth” as a result of the blackouts. “When you’re just sitting there in the dark and all of your devices are battery powered and you lose your phone connection, it’s like a security risk. You can’t even call 911.”

Interest rates are the most important prices in the economy, according to Nobel laureate F.A. Hayek, because they reflect the collective time preference of individuals to consume either now or later. Accordingly, interest rates co-ordinate allocation of capital across the economy by signalling to businesses whether they should invest. Distortions in interest rates can cause “clusters of errors” in which large swathes of businesses unwittingly miscalculate at the same time.

Hayek observed that interest rate stimulus interfered with economic calculations, causing managers to invest in projects that would not otherwise have appeared profitable. Losses can subsequently materialise as customer demand fails to meet forecasts that were, in retrospect, optimistic. Long-term projects are highly sensitive to interest rates and are therefore more susceptible to such distortions. Pension obligations and long-term, capital-intensive projects are at high risk of miscalculation based on artificially low rates.

The monthly Coppock Indicators finished September

DJIA: 26,917 +57 Up. NASDAQ: 7,999 +62 Up. SP500: 2,977 +61 Up.

Another inconclusive month, but all three moved up weakly.   I would not rely on nor take such a weak buy signal.