Industrial Output – not much attention

The Industrial Output report was published this morning and not much was said about it … my thought is that the GM strike and impact muted folks’ interest. I found it a bit alarming, even if you discount GM impact

Yes, i know services are more important than manufacturing, but where does the money come from to pay for the services? Tourists? Seems rather parasitic if all the money made in services originated in services, right?

I’m keeping my eye on manufacturing and industrial production regardless of what the talking heads spew …

Mr Toad’s wild interest rate ride

so many variables marching around driving these vectors: China, Turkey, UK, QE-lite (or not), US debt, and that does not even start with economic cycle influences. My guess, the ride is not over yet and selective fixed rate purchase opportunities will surface from time to time – but i am running out of patience on the short (3 month) – (depending on your objectives of course) – i am watching the 2-5year zone and influences.

Bank card delinquency month to month – not so good

That link will take you to an interactive table (see below pic). I just scanned June to August and all are higher except BAC. Not a good sign of healthy consumer that everybody seems to be postulating. This is a new data set for me, so I cannot pose materiality or significance to the month to month increases, but surely is something to watch.

Heisenberg on ECB QE

note: if you are unfamilar with the terms above, you probably will want to skip this post

There are two points in the excellent post that I found worth making a mental note.

First, quote:

“But beyond that, BofA’s Barnaby Martin notes that one “overlooked” aspect of QE is the way in which it “‘transforms’ sovereign debt-to-GDP ratios by moving bonds from risk-averse investors towards more risk-tolerant central banks”.

Central banks are actually sequestering fixed rate risk. That surely makes it easier for investors to stretch out their risk beyond what under non-QE times would be irrational.

Second quote: (my bold)

“Indeed, the ultimate manifestation of new era stimulus (MMT) requires close coordination between fiscal and monetary policy, something Stephanie Kelton will be more than happy to tell you all about. Additionally, Martin describes central banks as “buy-and-hold”, which pretty much by definition means these asset purchases are arm’s length deficit financing, one step removed from MMT. (He doesn’t say that, nor does he advocate for it, we’re just doing some common sense extrapolating.)”

It seems politicians have been spineless to make the needed fiscal policy decisions and debt financing needs exceeded traditional methods … so put in some QE and you get a) ‘off the Treasury books debt financing’ and a risk floor for both investors and politicians. Sounds fishy to me and one has to ask just how stable this would be with another major global financial uh oh? … CB folks have a tough row to hoe.

EV & Heavy Metals

I previously posted about EV heavy metal impacts with the intent of balancing out the ‘environmental costs’ of selecting an EV (which most people think is the less evil compared to combustion engine vechicles).

A post today has another angle on heavy metals in batteries – concentrated supplies in countries with their own issues. In this case, nikel and batteries and Indonesia. I am not looking at this as investment or trade (commodities are way beyond my comfort zone today), but as another clue in building a solid plan on EV investing (and perhaps my own purchase when trucks are available at value pricing).

Quote: “The country of Indonesia, which reportedly accounts for 27% of the world’s nickel supply, announced last week that it was accelerating its export ban for the metal. The original plan was to stop exporting nickel after 2021, but there were thoughts recently that the timeline would be moved up perhaps a year or so. Last week’s shocking news was that the ban would start after December 2019, partly an effort to stop the country’s rising government deficit. “

For Tesla stock investors, I think this is just one more big red flag waving in the wind.

Mr Toad’s Wild Interest Rate Ride – July & August

There has been so much ink spilled and shared on interest rates recently and almost everybody i talk to mentions rates and / or the inverted curve. Negative rates too ….

4 Week rolling averages are now

30 year – 2.085
10 year – 1.598
2 year – 1.557
3mo – 1.979

My opinion is that between now and the next FED meeting, rates will bounce on the news of the day … and unless swings prompt my investment scavenger instincts (value), I will wait for any further rate dependent capital allocation until both EU and FED have given there September actions.

Interesting 5G data point

SA posted a quick update on SK Telecom 5G users and data usage – quote (bold is mine, and there is no more to the SA post):

SK Telecom (SKM -1%) says it’s built up 1M 5G subscribers just four months after launching service. That’s twice as fast to a 1M milestone as SK accomplished with its 4G launch in 2011. The South Korean company says the 5G subscribers are using 33.7 GB of data each month, vs. 20.4 GB from 4G subscribers. The million subs make up about 3.6% of the total subscriber base of 28M.

This will be an important indicator to watch as deployments roll forward beyond ‘super / power users’ … data usage will be critical to the narrative behind data center, network and storage companies’ future. This one data point suggests >50% increase in data usage … extrapolate that one out!

CBO on Budget

The non-partisan CBO published their regular budget update report. Heisenberg referenced in a post this morning, so I will not recopy the salient points as Heisenberg did a great summary.

Some of these points are very important for investors and every US voter. At minimum, please read Heisenberg’s post.

Update 8-22 – IHS PMI print this morning throws a bit of cold water on CBO estimates (even as bad as they were) – Heisenberg put a good narrative around this and waxed a bit political (deservedly). Here is the key point to my update – quote:

Moore called the August numbers “a clear signal that economic growth has continued to soften in the third quarter”, and said the data “collectively point to annualized GDP growth of around 1.5%”. That is woefully short of the administration’s lofty 3% goal, and lower than CBO’s estimate which accompanied the group’s worrisome budget forecast released Wednesday.

Needless to say, a good phrase here would be: Uh Oh!

Mr Duy on Fed and baseline view

Mr Duy’s post this morning was a bit longer than normal yet worth every character … his summary took me by surprise (see my bold below)

Bottom Line: I agree with the assessment that risks to the economy have grown in the past 6 months. Boiled down to the essentials, the economy is slowing to trend and the multiplying downside risks leave it vulnerable to slowing below trend. The yield curve is telling me that these shocks will not overwhelm the Fed. Powell & Co. can still sustain the expansion and are expected to do so. “Expected” is key of course; the slower the Fed moves, the more likely they are to miss the opportunity to avoid recession. A policy error is a very real potential outcome here. To enhance the odds of avoiding recession, I would advise the Fed to get a 50bp cut done at the next meeting. While I fully expect the Fed to ease at the September meeting, at the moment the Fed seems likely to stick with the less aggressive 25bp cut.

I’m watching these variables and the subsequent analysis as a guide to when / how much to gather more bonds / t-bills / utility stocks.

Update 8-15: Mr Duy updated his post yesterday given the bucket of economic data today fit into his paradigm perfectly – quote: “Bottom Line: It remains too early to see a recession in the data. It’s reasonable to worry about the pessimistic signal from the yield curve but even if it does foreshadow recession, a recession call now is likely still too early. “

Close to ending recession watch?

New Deal Democrat (SA author) made a clear statement in weekly update that I found interesting. I am not sure that I agree, but the case made is rational and data-driven – quote: “The nowcast remains positive. The short-term forecast, which has been very volatile recently, and two weeks ago was briefly positive, since then has been slightly negative. But the big action has been in the long leading indicators, especially interest rates, which have now turned very positive. If Q2 corporate profits increase in the 2nd GDP report in three weeks, as they have in S&P corporate earnings, almost certainly I will go off recession watch.” (my bold)

Time will tell … careful observations and patience are my focus

Mr Duy and Mr Toad’s ride … Whew!

The drop on the 10yr below the YTD trendline is material, imho

Mr Duy comments on employment with 6 points; here is #6: quote – “6.) Still, there is a risk the Fed holds steady. In June, the Fed clearly signaled a rate cut in July. In July, we don’t have such a strong signal for September. It’s not in the bag. Things that I don’t think the Fed has come to terms with yet: 1.)  if they want higher interest rates in the future, they need to keep rates lower now and 2.) the whole idea of getting rates well above 2% in a world where the major economies can’t hold 0% is just not going to work.”