Baltic Dry Index. 1898 -18 Brent
Crude 58.91 Spot Gold 1484
Never ending Brexit now October 31, maybe. 15 days away.
Trump’s Nuclear China Tariffs Now In Effect.
The USA v EU trade war starts October 18. Just 2 days away.
“But land is land, and it's safer than the
stocks and bonds of Wall Street swindlers.”
Long
Day's Journey into Night
A near Brexit exit “agreement,” seems to have been the
trigger for widespread optimism to return to global stocks.
Somehow, magically, a Brexit agreement, no one to know
what it is, is going to turn around the global manufacturing recession, sort
out the USA v China trade and technology wars, sort out all the American and
European political melodramas, sort out Europe’s bankrupt banks, and usher in a
prosperous and profitable future for WeWork and all of its precarious, nervous,
landlords. And they all lived happily ever after.
Call me old fashioned, but I’m sceptical. The Fed is busy
monetising again and that’s always a sign of systemic trouble in the financial
system. As Reuters reports below, there isn’t even a consensus in the Fed as to
what’s actually happening in the global and US economy right now.
Last Friday’s “USA v China trade agreement part one,” now
seems to be more of a Trumpian mirage than real, as does China’s “pledge” to
buy up 50 billion of US farm products.
Our markets have entered Fairy Tale Land. A parallel universe
far from the harsh reality of life for most on planet earth. A perfect time to
be exiting over priced stocks near the top.
Asian shares tick up, sterling off five-month peak as crunch Brexit talks eyed
October 16, 2019 /
1:55 AM
SYDNEY/TOKYO
(Reuters) - Asian shares inched higher while sterling came off five-month highs
in volatile trade on Wednesday as investors looked to whether Britain can
secure a deal to avoid a disorderly exit from the European Union.
Officials and diplomats involved in negotiations over the acrimonious divorce between the world’s fifth-largest economy and its biggest trading bloc said that differences over the terms of the split had narrowed significantly.
The news lit a fire under European and U.S. equities, which jumped about 1% on Tuesday. The British pound GBP=D3 rocketed to $1.28, a level not seen since May 21.
The pound has strengthened nearly 5% over the past week as investors rushed to reprice the prospect of a last-minute Brexit deal before the end-October deadline.
Still, the pound lost steam in Asia, falling 0.3% to $1.2752, as uncertainties remained on whether a deal will be sealed at a make-or-break EU summit on Thursday and Friday and if Britain’s minority government can get it through a divided UK parliament.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4% while Japan's Nikkei .N225 jumped 1.5%, hitting 10-month highs.
Australian shares added 0.9% while South Korea's KOSPI index .KS11 climbed 0.6%, maintaining gains after South Korea's central bank cut its policy interest rate for the second time in three months, matching a record low to address mounting deflationary pressures.
Stronger-than-expected earnings from major U.S. banks JPMorgan (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N) also boosted equities even as the International Monetary Fund downgraded its 2019 global growth forecast for a fifth time.
More
U.S.-China tariffs drag global growth to lowest in a decade: IMF
October 15, 2019 /
2:15 PM
WASHINGTON
(Reuters) - The U.S.-China trade war will cut 2019 global growth to its slowest
pace since the 2008-2009 financial crisis, the International Monetary Fund
warned on Tuesday, but said output would rebound if their dueling tariffs were
removed.
The forecasts set a gloomy backdrop for the IMF and World Bank annual meetings this week in Washington, the first for the Fund’s new managing director, Kristalina Georgieva. She is inheriting a range of problems, from stagnating trade to unrest in Ecuador and political backlash in Argentina over IMF-mandated austerity programs.
Without a nearly simultaneous easing of monetary policy by major central banks, IMF chief economist Gita Gopinath said global growth would be half a percentage point lower in 2019 — at 2.5%, teetering on the edge of widespread recession.
“The weakness in growth is driven by a sharp deterioration in
manufacturing activity and global trade, with higher tariffs and prolonged
trade policy uncertainty damaging investment and demand for capital goods,”
Gopinath said.
The global crisis lender said that by 2020, announced tariffs would
reduce global economic output by 0.8%. That translates to a loss of about $700
billion — the equivalent of making Switzerland’s economy disappear.
The growth downgrade assumes that all announced U.S. tariffs on Chinese
goods are put in place, along with Chinese retaliation. These include a 5
percentage point U.S. duty increase on Chinese goods originally scheduled for
Tuesday and 10% tariffs on $156 billion in Chinese goods scheduled for Dec. 15.
More
Uncertainty seen persisting, along with Fed's divide
October 16, 2019
/ 12:33 AM
LOS ANGELES
(Reuters) - With two weeks to go until their next policy meeting, U.S. central
bankers appear unconvinced a partial U.S.-China trade deal is enough to dispel
the policy uncertainty that has weighed on economic growth for months.
And yet, with unemployment at decades-long lows and consumer spending
strong, Federal Reserve policymakers remain far from united behind cutting
borrowing costs any further than they already have.
“Right now, I see the economy in a good place, and policy accommodation
in a good place,” San Francisco Fed President Mary Daly told reporters after a
speech a the Los Angeles World Affairs Council & Town Hall.
Businesses retain an overarching sense of uncertainty, she said, even
though “the gusting (of headwinds) seems to have gone down a little bit on the
news of some progress on Brexit, some progress on trade negotiations between
the U.S. and China,” she said.
Weak inflation, including fresh data on Tuesday showing the three-year
inflation outlook among U.S. consumers falling to its lowest level on record,
has her attention, she said.
---- “In terms of what to do going forward, I would like to see additional data, because the economy is in a really good place right now,” Daly said.
Speaking in London earlier in the day, St. Louis Federal Reserve Bank
President James Bullard painted a gloomier picture.
Like Daly, he sees what he called continued “trade regime uncertainty”
as a key risk to the U.S. economy.
But other risks remain high as well, including continued weak inflation
and slowing global growth.
And unlike Daly, who said she sees policy as currently “slightly
accommodative”, Bullard said in his view it may be “too restrictive”.
As a result, the Fed “may choose to provide additional accommodation
going forward, but decisions will be made on a meeting-by-meeting basis,” he
said in remarks to a conference in London on Tuesday.
Neither Daly nor Bullard speak for the Fed’s policy setting panel as a
whole, made up as it is of 17 different people with sometimes sharply different
views.
But they do represent two broad groups within the central bank: those
who like Fed Chair Jerome Powell believe the outlook is generally positive, and
those who believe the U.S. economy needs even easier policy to avoid sinking
into a recession.
A third group believes the Fed has already gone a bit too far in
lowering rates, and fears too-easy policy could lead to financial instability
if investors take on too much risk and asset values get stretched.
More
China Threatens to Retaliate If U.S. Enacts Hong Kong Bill
By Iain Marlow, Daniel Flatley, and Dandan Li
Updated on October 16, 2019, 5:00 AM GMT+1
China threatened unspecified “strong countermeasures” if
the U.S. Congress enacts legislation supporting Hong Kong protesters, in a sign
of the deepening strain between the world’s two largest economies as they
attempt to seal a trade deal.China’s foreign ministry issued the warning Wednesday after the U.S. House passed a package of measures backing a pro-democracy movement that has rocked the former British colony for more than four months. Among them was the Hong Kong Human Rights and Democracy Act, which subjects the city’s special U.S. trading status to annual reviews and provides for sanctions against officials deemed responsible for undermining its “fundamental freedoms and autonomy.”
While the legislation must also pass the U.S. Senate and be signed by President Donald Trump to become law, it already has strong bipartisan support in the Republican-run upper chamber. The Hong Kong measures was passed by the Democrat-controlled House by unanimous voice votes Tuesday.
Chinese Ministry of Foreign Affairs spokesman Geng Shuang warned American lawmakers to stop meddling in China’s internal affairs “before falling off the edge of the cliff,” without specifying how it would retaliate.
More
Finally, is the Fairy Tale world of valuations from SoftBank
Group and Silly Con Valley about to implode? My guess as an old dinosaur,
watching markets since 1968, is that it is.
The Millennial Urban Lifestyle Is About to Get More Expensive
As WeWork crashes and Uber bleeds cash, the consumer-tech gold
rush may be coming to an end.
6:00
AM ET
Several
weeks ago, I met up with a friend in New York who suggested we grab a bite at a
Scottish bar in the West Village. He had booked the table through something
called Seated, a restaurant app that pays users who make reservations on the platform.
We ordered two cocktails each, along with some food. And in exchange for the
hard labor of drinking whiskey, the app awarded us $30 in credits redeemable at
a variety of retailers.
I am never offended by freebies. But this arrangement seemed almost
obscenely generous. To throw cash at people every time they walk into a
restaurant does not sound like a business. It sounds like a plot to lose money
as fast as possible—or to provide New Yorkers, who are constantly dining out,
with a kind of minimum basic income.
“How does this thing make any sense?” I asked my friend.
“I don’t know if it makes sense, and I don’t know how long it’s going to
last,” he said, pausing to scroll through redemption options. “So, do you want
your half in Amazon credits or Starbucks?”
----Starting about a decade ago, a fleet of well-known start-ups promised to change the way we work, work out, eat, shop, cook, commute, and sleep. These lifestyle-adjustment companies were so influential that wannabe entrepreneurs saw them as a template, flooding Silicon Valley with “Uber for X” pitches.
But as their promises soared, their profits didn’t. It’s easy to spend all day riding unicorns whose most magical property is their ability to combine high valuations with persistently negative earnings—something I’ve pointed out before. If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you’ve interacted with seven companies that will collectively lose nearly $14 billion this year. If you use Lime scooters to bop around the city, download Wag to walk your dog, and sign up for Blue Apron to make a meal, that’s three more brands that have never earned a dime or have seen their valuations fall by more than 50 percent.
These companies don’t give away cold hard cash as blatantly as Seated. But they’re not so different from the restaurant app. To maximize customer growth they have strategically—or at least “strategically”—throttled their prices, in effect providing a massive consumer subsidy. You might call it the Millennial Lifestyle Sponsorship, in which consumer tech companies, along with their venture-capital backers, help fund the daily habits of their disproportionately young and urban user base. With each Uber ride, WeWork membership, and hand-delivered dinner, the typical consumer has been getting a sweetheart deal.
For consumers—if not for many beleaguered contract workers—the MLS is a magnificent deal, a capital-to-labor transfer of wealth in pursuit of long-term profit; the sort of thing that might simultaneously please Bernie Sanders and the ghost of Milton Friedman.
But this was never going to last forever. WeWork’s disastrous IPO attempt has triggered reverberations across the industry. The theme of consumer tech has shifted from magic to margins. Venture capitalists and start-up founders alike have re-embraced an old mantra: Profits matter.
More
“I will tell you the secret to getting rich
on Wall Street. You try to be greedy when others are fearful. And you try to be
fearful when others are greedy.”
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled
over.
Today, WeWork again. What were they smoking when
someone wrote the WeWork IPO? Note, though the article doesn’t spell it out,
the “G&A” expenses referred to, is probably general and administrative
expenses.
Despite all the bad press, WeWork is still frenetically
pressing on regardless. In for a penny, in for a Pound, perhaps?
WeWork—The IPO That Shouldn’t?
18 Sep 2019|by
Nori Gerardo Lietz
No IPO in recent memory has received as much
negative pre-public publicity as WeWork, which provides shared workspaces and services for
startups and other enterprises. The outpouring of criticism has focused on a
number of items including a record of past and probable continuing losses, its
original proposed stratospheric valuation, its byzantine corporate structure,
its woeful (or nonexistent) corporate governance, and most of all its
flamboyant founder, Adam Neumann.
So perhaps it was not a surprise when WeWork,
given the continuing criticism, announced recently it would delay the IPO for
at least for a few months.
---- To ameliorate some of the
criticism, and to salvage its IPO, WeWork recently pivoted. It proposed its IPO
valuation of $47 billion be slashed, added a woman to its board of directors,
and, this past week, indicated it would modify its corporate governance
structure. Whether these actions will be sufficient remains to be seen. WeWork
clearly is not advancing its case from a position of strength.
What is the difference and is it warranted?
A dive into the numbers
Are the reasons cited above the reason to
cause WeWork’s IPO to collapse? No. The reason for pulling support should be
based on the numbers in its prospectus, not on emotional reactions to Adam
Neumann. There has been a paucity of this analysis.
With co-author Sean Bracken, I’ve analyzed
the company, minus the surrounding drama, by focusing on the financials and
other operational details published in the company’s prospectus. The lessons to be found there are
classic examples (and warnings to other IPO companies) of how not to frame a
public offering. WeWork took advantage of being deemed an “emerging company”
under the Jumpstart Our Business Startups Act of 2012. The JOBS Act permits
these companies to apply differing, i.e., lower, standards in terms of
disclosure in an IPO. In my opinion, WeWork should be pilloried for exploiting
these standards.
There are numerous examples provided in our
analysis, entitled Why WeWork Won’t (pdf), but
some of the major examples of how they could have made a better case for the
company by not obfuscating their financials are highlighted below.
In short, WeWork took advantage of the JOBS
Act to present their financials in such a way that, in aggregate, could be
considered misleading. In general, they presented the most favorable outcomes,
without providing counterbalancing offsets to revenues and expenses.
For example, WeWork never presented a
GAAP-compliant EBIDTA line anywhere in the prospectus, which is a very basic
metric. Instead, they proposed a new metric, “contribution margin”, as the
basis of how to analyze their unit economics. This metric incorporates the
benefit of free rent and other concessions they receive from landlords on the
front-end without disclosing the future costs the company will incur when these
concessions burn off.
Among several items detailed in my analysis,
WeWork failed to include major expenses in their current operations that could
materially impact their contribution margin, such as the failure to record any
reserves for their furniture, fixtures, and equipment that are very real
current costs. They fail to allocate any of their corporate G&A to their
open, operating facilities. GAAP would require them to allocate all of it in an
EBIDTA calculation. If these items are included, WeWork’s contribution margin
becomes substantially negative. Ultimately, the metric WeWork proposes to use
is of marginal utility in analyzing the company’s results.
Missing information
The prospectus fails to give guidance to
potential investors in other areas. WeWork fails to discuss the impact of the
free rent and other concessions it has to give to its enterprise
tenants as an offset to the concessions they have received from landlords.
Further, there is no discussion of the potential impact of the revenue sharing
arrangements WeWork provides landlords in exchange for the latter’s willingness
to provide the capital for the buildout and tenant improvements at their
facilities. Both factors will have an impact on their top line revenues. WeWork
also fails to address how they will get their G&A growth under control to
some reasonable level. G&A is growing at a rate that exceeds their topline
revenue growth.
More
WeWork opens new sites at breakneck speed despite cash-burn concerns
October 14, 2019 /
6:02 AM
NEW YORK (Reuters)
- WeWork has opened almost as many new locations in the last 3-1/2 months as it
did in the whole first half of this year, likely accelerating the speed with
which the office-sharing company is burning through cash as increasingly
hard-nosed investors scrutinize its prospects for going public.
According to a Reuters analysis of information on the company’s website,
WeWork had 622 sites open in 123 cities on Oct. 10. That compares with its
footprint of 528 locations in 111 cities on June 30 that was outlined in the
prospectus for its abandoned IPO.
The website also identifies 89 sites as “coming soon” and 117 sites as
“just announced” - all new locations that are yet to open.
Altogether, WeWork says on the website that it will soon have 845
locations in 125 cities, but it is unclear whether all those will still open. A
WeWork spokesman declined to comment on its plans.
The quickening pace of new office openings adds to the risks for WeWork,
a company that has created a global brand for its shared workspace concept but
was forced to halt plans to go public on Sept. 30 because of investor concerns
about how it was valued and whether its business model is sustainable.
More
“Many a
time in the past, when an active operator on Wall Street, he had done
things...which would have caused raised eyebrows on the fo'c'sle of a pirate
sloop - and done them without a blush.”
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?
Gresham House seals battery optimisation deal with KiWi Power
Published: 14 Oct 2019, 11:58
Gresham House New Energy has signed a contract with KiWi Power for the
optimisation of its 15MW Lockleaze battery in Bristol.
The battery is set to go live this month and will be the latest
addition to KiWi’s storage portfolio, which is set to hit 80MW by the end of
this year.
Engie-backed KiWi’s proprietary technology platform will
automatically dispatch the battery in real-time, following a strategy designed
to maximise its value and lifespan by continuously evaluating the degradation
cost of each market action, the aggregator said.
The battery will be optimised against multiple revenue streams,
including ancillary services, and participate in the Balancing Mechanism.
Thomas Jennings, head of optimisation at KiWi Power, said the
aggregator will "maximise" the returns of the
battery, increasing its performance and hunt value.
Ben Guest, managing director of Gresham House New Energy, said KiWi’s
five years of experience gives the firm “confidence they are a strong
partner” to deliver long-term value.
“Energy storage technology is vital to maximising the potential of
renewable energy and offers an attractive new asset class for investors wanting
to support the UK’s transition to a cleaner, more sustainable future.”
Gresham also signed a deal with EDF Energy
last month for the optimisation of a 20MW storage project through its
PowerShift platform. EDF is also optimising Anesco’s Clayhill
battery through the demand side response platform.
But from Monday’s
LIR, some caution is needed by the early uptakers of battery technology.
The Arizona Battery Explosion Is Changing Conventional Wisdom on Safety
Six
months later, GTM gets an exclusive update from APS and Fluence on an event
that’s forcing a new look at grid battery engineering.
Julian SpectorOctober 10, 2019
It's been nearly
six months since an explosion ripped
through a grid battery near Phoenix and upended the industry's understanding of
the technology's safety.
The McMicken conflagration injured first responders and marred the safety record of the U.S. energy storage industry. The ability to store wind and solar electricity is crucial to the continued growth of clean energy, but the fire showed the risks of battery storage, even when handled by highly experienced professionals.
The McMicken conflagration injured first responders and marred the safety record of the U.S. energy storage industry. The ability to store wind and solar electricity is crucial to the continued growth of clean energy, but the fire showed the risks of battery storage, even when handled by highly experienced professionals.
More
“It was the job of people like
me to make up reasons, to spin a plausible yarn. And it’s amazing what people
will believe. Heavy selling out of the Middle East was an old standby. Since no
one ever had any clue what the Arabs were doing with their money or why, no
story involving Arabs could ever be refuted. So if you didn’t know why the
dollar was falling, you shouted out something about Arabs.”
Liar's Poker
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.
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