Baltic Dry Index. 1897 -1 Brent
Crude 58.97 Spot Gold 1488
Never ending Brexit now October 31, maybe. 14 days away.
Trump’s Nuclear China Tariffs Now In Effect.
The USA v EU trade war starts October 18. Just 1 day away.
“Buy potatoes,” he said. “Gotta hop.” Then
he hung up. Of course. A cloud of fallout would threaten European food and
water supplies, including the potato crop, placing a premium on uncontaminated
American substitutes. Perhaps a few folks other than potato farmers think of
the price of potatoes in America minutes after the explosion of a nuclear
reactor in Russian, but I have never met them.”
Liar's Poker
Our markets are mostly going nowhere ahead of a slew of meetings
just getting underway. Aside from the EU “Great Leaders” meeting starting today
in Brussels, where a Brexit leaving agreement may or may not be reached, little
is expected of the other meetings.
G-20 finance ministers are appropriately meeting today in
Washington, District of Crooks, ahead of the annual meetings of the IMF and
World Bank. And Nero fiddled while Rome burned.
Below, more on those trade wars that are so easy to win.
Last Friday’s US v China trade agreement, including 50 billion of Chinese farm
purchases, seems to have melted faster than October snow.
Asian markets mixed as U.S.-China trade deal needs more time
By Marketwatch
and Associated
Press
Published: Oct 16,
2019 11:11 p.m. ET
Asian markets were mixed in early trading Thursday amid a
report that there’s still a ways to go before the U.S. and China finalize a
“phase one” limited trade deal.U.S. Treasury Secretary Steve Mnuchin said ongoing negotiations are hoped to be wrapped up and a deal signed next month, the South China Morning Post reported Thursday, but there has been no invitation from Chinese officials for further high-level talks in Beijing. The report said Mnuchin hopes President Donald Trump and China’s President Xi Jinping will sign an agreement at the Asia-Pacific Economic Cooperation summit in Chile in mid-November. Mnuchin also said there was no plan yet on what to do about U.S. tariff hikes on $156 billion of Chinese goods scheduled to take effect in December.
Meanwhile, there was optimism in Europe that a Brexit agreement could be reached as soon as Thursday, as German Chancellor Angela Merkel told reporters that negotiations were “in the final stretch.”
Japan’s Nikkei NIK, +0.10% edged up 0.1% and Hong Kong’s Hang Seng Index HSI, +0.74% gained 0.9%. The Shanghai Composite SHCOMP, +0.00% inched up 0.1% as the Shenzhen Composite 399106, +0.17% rose 0.2%. South Korea’s 180721, -0.14% etreated 0.2%, while benchmark indexes in Taiwan Y9999, -0.10% , Singapore STI, -0.24% , Malaysia FBMKLCI, -0.08% and Indonesia JAKIDX, +0.16% were mixed. Australia’s S&P/ASX 200 XJO, -0.73% fell 0.4%.
More
U.S. would win tariff war with Europe ‘very easily,’ Trump boasts
Published: Oct 16,
2019 4:57 p.m. ET
WASHINGTON — President Donald Trump voiced confidence
Wednesday that the U.S. could not lose a tariff war with the European Union as
the U.S. prepares to impose trade sanctions on up to $7.5 billion worth of EU
goods.The Trump administration plans to impose punitive tariffs starting Friday following a World Trade Organization ruling that European plane maker Airbus AIR, -0.10% received illegal subsidies. Trump used a meeting with Italian President Sergio Mattarella to focus on a trade deficit with the EU that stood at $109 billion in 2018.
Trump insisted that the U.S. couldn’t lose a tariff war with the European Union because he says the trade imbalance is so great.
“It’s a very tough situation for us for many years. But now it’s a very tough situation for them because I can remedy the situation very easily. And there really is not any financial counterattack.
Hopefully, I don’t have to do that,” Trump said.
Trump also used a news conference with Mattarella to urge Italy to increase its defense spending. Trump says Italy is spending only 1.1% of its gross domestic product on defense, short of a goal set by NATO allies during the Obama administration of spending 2%. Trump said he was pleased, however, that Italy has agreed to purchase 90 “brand-new, beautiful F-35s,” a fighter jet produced by Lockheed Martin LMT, +0.02% .
The leaders spoke at the White House after meetings that were expected to focus on trade, digital taxes and countering Chinese trade practices they consider unfair.
Mattarella said trade tensions were to the benefit of no one and described tariffs as “counterproductive.”
More
How brutal trade wars are hurting European economies
Published: Oct 16,
2019 11:05 a.m. ET
The cost of being collateral damage to the tariff wars launched by the
U.S. against the rest of the world is mounting for Europe, as befits the
world’s largest trading area.
But headline numbers hide different realities at the national level,
illustrating the particular predicaments Europe’s largest economies are facing.
They also underline why and how Brexit, whatever its date and shape, will hit
all European economies.
Germany’s still massive surpluses once again illustrates the need for
rebalancing the economy with a stronger domestic component. The UK’s persistent
deficit in the trade of goods explains how crucial its future relationship with
the EU will be, if it wants to keep a strong services industry, notably in
finance. The Macron touch is yet to be seen on France’s performance on world
markets, and Italy’s persistent trade surplus is an indication of its economic
potential.
More
IMF heightens warnings on corporate debt following central bank cuts
October 16, 2019
/ 1:41 PM
WASHINGTON (Reuters) - The International Monetary Fund heightened its
warnings for the corporate debt market on Wednesday, as investors search for
richer returns in riskier assets after recent interest rate cuts by central
banks.
The IMF, whose fall meetings with the World Bank begin in Washington
this week, also warned the main drivers of downside risks to the global economy
remained ongoing trade tensions and policy uncertainty.
A major geopolitical event, like the United Kingdom exiting the European
Union without a new agreement in place, could trigger a sharp tightening of
financial conditions, the IMF said in its bi-annual Global Financial Stability
Report.
The IMF and other economic policymakers have expressed concern over high
levels of risky corporate debt in the past. But the group said Wednesday that
attempts by central banks worldwide to lower interest rates to combat immediate
economic risks has exacerbated the situation, leading to “worrisome” levels of
debt with poor credit quality and increasing financial vulnerabilities over the
medium-term.
The IMF warned that 40% of all corporate debt in major economies could
be considered “at risk” in another global downturn, exceeding levels seen
during the 2008-2009 financial crisis.
---- The IMF warned that investors may be “overly complacent” about downside risks this late in the economic cycle. On Tuesday, the IMF cut its 2019 global growth projection to its lowest level since the financial crisis, largely due to ongoing trade feuds.
The IMF singled out rising risks in corporate and non-bank financial
sectors as a source of concern. Investors, facing lower interest rates, are
taking on more illiquid investments with weaker investor covenants in search of
higher rates of return, it said.
More
Fed’s back printing money – so what gives?
By John Crudele October 14,
2019 | 10:39pm
Although there’s been no official announcement, the Federal
Reserve has restarted QE — better known as Quack Economics.You might know it better as Quantitative Easing, in which the central bank buys large amounts of government bonds or other assets to help stimulate the economy. There have been three of these QEs since the financial crisis more than 10 years ago. But the big question now: Is there a new crisis that has the Fed dusting off QE?
The Fed isn’t saying.
QE is simple to understand even though economists gave it a sophisticated name. Here’s how it works: The Fed electronically prints trillions of dollars in extra money, which it uses to purchase bonds and other securities.
This was supposed to keep interest rates low. And the low interest rates were supposed to help the
economy grow.
Once the economy got going, the Fed was supposed to stop printing money. The economy would then stand on its own.
I used the phrase “supposed to” a number of times because QE didn’t quite live up to expectations. And there have been many vocal critics — myself included — who have argued that QE was just another version of the age-old money-printing schemes that have created enormous inflation problems in the past.
----Another big problem is that QE didn’t do much to help the economy, which has been stuck at around 2 percent annual growth for years.
Still another problem: What the Fed is really doing is rigging the bond
market, where interest rate levels are ultimately determined.
By being a shill bidder at government bond auctions with QE money in its
pocket, the Fed is causing the prices of bonds to go up. And that automatically
causes the yield on those bonds (the interest rate) to come down.
Like at any other auction, eventually legitimate buyers won’t stand for
this bid rigging any more.
----Then last week the Fed double reneged when it announced that it would start purchasing $60 billion a month in securities from the open market.
This is the same as QE only the Fed didn’t call it that. So, if the Fed
instituted Quantitative Easing in the first place in 2008 because there was a
financial crisis, what’s the problem now?
There are plenty of problems to choose from. Here are some guesses:
Since QE was employed the first time because of a banking/Wall Street crisis, the first guess has to be that there is a hidden problem now that the Fed knows about and we don’t. US financial markets look healthy, although there are bubbles. The best guess is that the Fed is worried about a crisis somewhere else in the world that might affect us.
The political crisis in Washington would be my best guess. Although others in the media won’t admit it, there is currently a constitutional crisis in this country.
Democrats have been trying to expel President Trump from office ever since he was elected. Right now there is an impeachment investigation in the House. The Fed may be trying to get in front of all this through QE rather than rate cuts.
Or, maybe the economy is really doing as well as we are led to believe by government statistics. Maybe the Fed knows something we don’t (although that’s unlikely in this case) and is reviving Quantitative Easing for this reason.
More
Finally, WeWork again. Below, the WSJ just might be on to
something regarding fake valuations. Think back to the glory days of failed
investment bank Drexel Burnham.
WeWork Debacle Highlights Risks of High Valuations Set by Existing Investors
Earlier this year, SoftBank led a funding round valuing the company at $47 billion. It could go below $10 billion in the wake of a failed IPO.
Yuliya ChernovaOct. 14, 2019 3:55 pm ET
SoftBank Group Corp. led WeWork’s August 2017 fundraising round at a $20 billion valuation, then another valuing the provider of shared office space at $47 billion in January this year. Now, SoftBank is preparing a financing deal that could value We Co., WeWork’s parent, at less than $10 billion, The Wall Street Journal reported, citing people familiar with the matter. The company needs funding to stave off a cash crunch in the wake of a failed effort to go public.
Historically, inside venture deals were less likely to be done at higher valuations than those by new investors, according to Michael Ewens, a professor of finance and entrepreneurship at California Institute of Technology, who led a study of follow-on investments in more than 10,000 companies that raised their first round between 1990 and 2008.
Startups that raised an inside round were 20% more likely to go out of business and were valued 30% less at exit, the survey found. That is likely because companies that tapped their existing backers were struggling, Mr. Ewens said.
However, Mr. Ewens said that firms have incentives to inflate the paper value of their existing holdings, potentially making such valuations less valid.
“It’s not really market pricing,” he said.
Today, venture capitalists are more likely to lead rounds for portfolio companies they believe are doing well, observers say.
Statistics from PitchBook Data Inc. show an increase in both the number and value of inside-led rounds over the last decade, but that growth is roughly in line with that of the broader venture market.
SoftBank has done several inside up rounds, both directly and through its Vision Fund. It backed insurance startup Lemonade Inc. at a valuation of about $600 million in 2017, then led a new round valuing it at more than $2 billion this year. It led similar up rounds in Indian hotel brand Oyo Hotel & Homes, officially named Oravel Stays Pvt. Ltd., and real-estate company Compass, incorporated as Urban Compass Inc.
In the case of Compass, at least one other investor didn’t mark its holdings up to SoftBank’s higher valuation. Early investor Thrive Capital marked its valuation at $2.3 billion as of the second quarter of 2019, according to a person familiar with the matter. That was a 40% increase from its mark at the end of 2018, the person said, but well short of the $4.4 billion valuation assigned to the company by SoftBank in a September 2018 fundraising, according to a WSJ Pro report.
Marks by investors in the same company could vary because of differences in the rights attributable to the shares each investor owns. It isn’t clear what accounted for the difference in the Compass case. A Vision Fund representative declined to comment on other firms’ marks.
More
“Because the lenders sold many—though not
all—of the loans they made to other investors, in the form of mortgage bonds,
the industry was also fraught with moral hazard. “It was a fast-buck business,”
says Jacobs. “Any business where you can sell a product and make money without
having to worry how the product performs is going to attract sleazy people.”
The Big Short: Inside the
Doomsday Machine
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled
over.
No crooks today, they’ll be back tomorrow. Today why Warren Buffett is
sitting in record cash.
One look at this and you’ll get why Warren Buffett sits on a record cash pile
Published: Oct 15, 2019 12:30 p.m. ET
At the midpoint of the year, Warren Buffett’s Berkshire
Hathaway BRK.A,
+0.84% was sitting on a record cash pile
of $122 billion, leading one longtime shareholder to dump his position because,
as he recently explained, “thumb-sucking has not cut the Heinz KHC, +0.62% mustard during the Great Bull Market.”But why has the Oracle of Omaha opted to add to his massive cash hoard even as the Dow Jones Industrial Average DJIA, +0.89% and the S&P 500 SPX, +1.00% — both up nicely in Tuesday’s session — continue to bang out record highs?
One reason may lie in this chart, a variant to what Buffett has described as “the best single measure of where valuations stand at any given moment,” which was posted by Gary Evans of the Global Macro Monitor blog this week:
----
Evans also used this chart of the number of hours of work needed to buy the
S&P. “The average person, making the average salary is not a big holder of
stocks,” he pointed out, “but the metric does give a heads up when the stock
market becomes divorced from the underlying economic trend.”
an the market keep chugging along in the face of historic valuations?
Evans says it’s possible but investors “will need a theme to fuel the
delusion.”
Those themes could come in the form of “QE Forever,” though he says
that’s not likely. “That jig is almost up and any further rise in inflation
will put a stake through its heart,” Evans wrote in his post.
Or, perhaps artificial intelligence will be a driving force.
“This is the one to watch, which will be a major disruptive force for
decades to come,” he explained. “The theme goes something like this: Companies
can lay off all their workers and replace them with machines and algorithms,
which will inflate margins to infinity and beyond.”
In that case, however, aggregate demand and economic growth would be
crushed, he said. “The geniuses are trying to find a balance and, thus far,
have come up with concepts such as Universal Basic Income and Modern Monetary
Theory.”
Nevertheless, Evans remains unconvinced stocks will avoid a big
reversal.
“Wake us up after the above charts regress to their means, about 40%
lower,” he wrote as he urged readers to “turn off the talking heads on bubble
vision and #FinTwit, who will find it difficult to interpret the... charts because
their salaries and year-end bonuses depend on their not understanding them or
are incentivized to dismiss them outright.”
More plus charts.
“For
though there was no chance of persuading a pension fund manager looking to make
a longer-term loan to buy a Freddie Mac bond that could evaporate tomorrow, one
could easily sell him the third tranche of a CMO.”
Liar's
Poker
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?
Twist-based refrigeration: Twisting and coiling 'twistocaloric' yarns to keep cool
Date:
October 10, 2019
Source:
University of Texas at Dallas
Summary:
Researchers have discovered a new technology for refrigeration that is based on
twisting and untwisting fibers. They demonstrated twist-based refrigeration
using materials as diverse as natural rubber, ordinary fishing line and nickel
titanium wire.
An international team led by researchers at The University of Texas at
Dallas and Nankai University in China has discovered a new technology for
refrigeration that is based on twisting and untwisting fibers.
In research published in the Oct. 11 issue of the journal Science,
they demonstrated twist-based refrigeration using materials as diverse as
natural rubber, ordinary fishing line and nickel titanium wire.
"Our group has demonstrated what we call 'twistocaloric cooling' by
changing the twist in fibers. We call coolers that use twist changes for
refrigeration 'twist fridges,'" said Dr. Ray Baughman, director of the
Alan G. MacDiarmid NanoTech Institute at UT Dallas. Baughman is a corresponding
author of the study, along with Dr. Zunfeng Liu, a professor in the State Key
Lab of Medicinal Chemical Biology in the College of Pharmacy at Nankai
University in Tianjin.
The Quest for New Technologies
According to the International Institute of Refrigeration, refrigeration
and air conditioning consume about 20% of global electrical energy.
Conventional refrigerators also release gases that significantly contribute to
global warming.
As consumption continues to grow, especially due to the increasing needs
of developing nations, researchers are investigating alternative cooling
technologies to increase refrigeration efficiency, lower costs and reduce size.
Stretching a rubber band heats the rubber, and releasing the stretch
cools it: This is called elastocaloric cooling. Other solid substances for
cooling include electrocaloric and magnetocaloric materials, which cool via
changes in electric and magnetic fields, respectively.
"This elastocaloric behavior of natural rubber has been known since
the early 1800s. But to get high cooling from a rubber band, you have to
release a very large stretch," Baughman said. "With twistocaloric
cooling, we found that all you have to do is release twist."
----Large reversible cooling was also achieved by removing twist from nickel titanium wires and by unplying bundles of these wires. A maximum surface cooling of 17 degrees Celsius was observed when the researchers untwisted a single wire. Unplying a four-wire bundle produced even higher cooling of 20.8 degrees Celsius.
The researchers placed a three-ply nickel titanium wire cable in a
device they built that cooled a stream of water by up to 7.7 degrees Celsius
when the cable was unplied. "By using further cycles of twist and twist
release, much higher cooling can be achieved," Liu said.
In another set of experiments, they coated the different types of fibers
with thermochromic paint, which changes color in response to temperature
variations produced by twisting fibers or stretching coiled fibers. Such fibers
could be used for remotely readable sensors of strain and twist, as well as for
color-changing textiles for clothing.
"Many challenges and opportunities exist on the path from these
initial discoveries to commercialization of twist fridges for diverse large-
and small-scale applications," Baughman said. "Among the challenges
are the need to demonstrate refined devices and materials that provide
application-targeted cycle lifetimes and efficiencies by recovering part of the
inputted mechanical energy. The opportunities include using
performance-optimized twistocaloric materials, rather than the few presently
studied commercially available candidates."
“Take a typical three-hundred-million-dollar CMO. It would be
divided into three tranches, or slices of a hundred million dollars each.
Investors in each tranche received interest payments. But the owners of the
first tranche received all principal repayments from all three hundred million
dollars of mortgage bonds held in trust. Not until first tranche holders were
entirely paid off did second tranche investors receive any prepayments. Not
until both first and second tranche investors had been entirely paid off did
the holder of a third tranche certificate receive prepayments.”
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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