by ilene - January 27th, 2015 1:11 am
There is plenty of economic data this week and earnings season is in full swing. Despite this, I suspect that news from Europe will dominate the market discussion.
I expect market participants to be watching closely for The Message from Europe.
Prior Theme Recap
In last week’s WTWA I predicted that there would be a focus on the message from corporate earnings reports. That was very accurate for the week as a whole. The big exception was the ECB celebration and commentary on Thursday. There was plenty of speculation about what the corporate news was telling us about energy price effects, the impact of dollar strength on earnings, and especially the outlook. I expect that to continue this week as well.
Feel free to join in my exercise in thinking about the upcoming theme. We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead.
This Week’s Theme
This is an especially difficult week for my regular approach of guessing the theme. I could be completely wrong by the time you read this post on Sunday or Monday. Sometimes you plan, but also remain flexible.
- The Greek snap election has important implications for the Eurozone, a possible “Grexit,” changing bailout rules, and policies involving other Eurozone members. Sara Sjolin at MarketWatch has a good account of the issues, the contending parties, and how to interpret the news.
- The ECB plan for QE is still actively debated. Most are trying to use the US program as a template to interpret the needed size and potential for success. Dr. Ed is rather skeptical.
- The FOMC announces policy at mid-week. Will anyone care?
- Earnings season is still in the early stages. Since this provides an independent source of economic data, it will command respect.
These competing themes have a common thread – the influence of Europe on the world economy, corporate earnings, and
Self-Driving “Fully Automated” Vehicles on German Autobahn; Supply Chain Math; Uber and Kahn Academy
by ilene - January 26th, 2015 10:32 pm
Courtesy of Mish.
Don't worry taxi drivers, this is only a test: Self-driving cars to hit German Autobahn.
A section of the A9 Autobahn in Bavaria will be converted into a test route for self-driving cars, Transport Minister Alexander Dobrindt said on Monday.
"We will set up a test stretch on the A9 Autobahn" Dobrindt told the Frankfurter Allgemeine Zeitung in an interview, adding that the first steps towards the "Digital Testing Ground Autobahn" project would be taken this year.
Under Dobrindt's plan, the upgraded road will offer infrastructure allowing the cars to communicate with the road and with other vehicles around them.
"Cars with assisted driving and later fully-automated cars will be able to drive there", Dobrindt said.
"The German car industry will also be able to be world leaders in digital cars".
He added that "German manufacturers won't rely on Google" – the current leader in the field – to produce their own self-driving vehicles.
Cars, Trucks, Taxis
People will not give up their cars. But who needs truck drivers? And who needs taxi drivers?
I suspect trucking will be the first industry to go mostly driverless.
The Last Mile
Many claim trucks cannot load or unload themselves. Others argue trucks cannot maneuver around cities. Let's assume those objections are true whether they are or not.
Here's the simple solution as I have proposed before: Nothing stops a trucking company from having distribution facilities right off an interstate near major cities where local drivers deliver the goods the last mile….
Picture source here.
by ilene - January 26th, 2015 9:46 pm
The recent ascent of the US dollar and weakening of the Euro and Yen have far reaching consequences. For US companies that depend on foreign sales, the consequences can be harsh. Priceline's European assets get priced in US Dollars, making them worth less as the Euro falls. Further, the company's European customers have less money to spend. Sixty percent of Priceline's revenue is estimated to come from Europe.
Sometimes it seems like the tech industry is its own little world, comfortably insulated from the turmoil that might be happening in other parts of the global economy. That seemed the case back in 2009, when the streets of San Francisco seemed much more bustling with startup activity than anywhere else in the country.
Many of the startups that emerged during the course of the Great Recession have quickly grown to become successful business models that are pursuing expansion in Europe and Asia. In doing so, they are finding it harder to stay immune to the turmoil in other economies. Those facing this conundrum might keep an eye on Priceline, which has been getting hit by economic forces beyond its control.
….The primary reasons for Priceline’s lackluster performance have more to do with where it’s doing business, rather than how.
About 87 percent of Priceline’s revenue comes from international markets – with 60 percent alone estimated to be coming from Europe – but the company reports results in US dollars. The problem is that the dollar has been growing stronger against most major currencies as the EU and Japan have been pushing generous monetary policies that result in weaker currencies. As the company has noted in its SEC filings, “a weakening of the Euro decreases our Euro-denominated net assets, gross bookings, gross profit, operating expenses, and net income as expressed in US dollars.”
Picture via Pixabay.
by ilene - January 26th, 2015 9:16 pm
Courtesy of Tim Knight from Slope of Hope
If for some reason you were to join me in my car, going about my daily errands around Palo Alto, we would in all likelihood pass the intersection of Alma and Charleston, and you might ask me who this guard was at the railroad tracks and why he was there:
"Oh, he's there to make sure high school kids don't jump in front of a train to kill themselves", I would reply. And you, assuming you come from a place that isn't insane, would be puzzled and appalled at my answer.
The thing is, I've gotten used to this lunatic asylum. The overpressured kids in this town, some of whom are expected to somehow Make It Big, can't tolerate the thought of not being one of the 6% that are admitted into, say, Stanford, so they decide to end their lives about 60 years ahead of schedule. I personally think the notion of paying a man to sit, day after day, hour after hour, to guard a fifty foot stretch of track along a 45 mile corridor is preposterous, but I guess the town fathers wanted to show they cared.
The heart of the issue isn't the fact that this one railroad crossing is or isn't guarded by someone. It has to do with what the kids think they have to "achieve" to be worthwhile.
I was reminded of this by the front page story in this morning's Palo Alto Daily Post:
Note the remark in the rightmost column: "The student's death was not connected with the suicide death of an adult man who stepped in front of a Caltrain at Charleston Road on Sunday afternoon." You read that right. The very next day. Oh, and at the exact spot that the gent in the picture above guards…………..on weekdays.
Strangeways, here we come.
by ilene - January 26th, 2015 8:40 pm
Writing for Haaretz.com, Jewish journalist Damian Pachter – who first reported on the death of the special prosecutor – recounts the intimidation, the sleepless nights, the agent who stalked him and his ultimate decision to head for Israel… "So here they are, the craziest 48 hours of my life…"
When my source gave me the scoop on Alberto Nisman’s death, I was writing a piece on the special prosecutor’s accusations against President Cristina Fernández de Kirchner, her (Jewish) Foreign Minister Héctor Timerman, two pro-Iran “social activists” and parliamentarian Andrés Larroque. I learned that Nisman had been shot dead in his home.
The vetting process wasn’t too tough because of my source’s incredible attention to detail. His name will never be revealed.
Two things stood in my mind: my source’s safety and people’s right to know what happened that day, though not necessarily in that order.
Of course, for both speed and the contagion effect, Twitter was the way to go. The information was so solid I never doubted my source, despite my one or two colleagues who doubted me because I only had 420 Twitter followers — a number now eclipsing 10,000.
As the night went on, journalists contacted me in order to get the news from me even more directly. The first to do so was Gabriel Bracesco.
Once I tweeted that Nisman had died, hundreds of people quickly retweeted the news and started following me. That was my first of many sleepless days.
“You just broke the best story in decades,” lots of people said. “You’re crazy,” was another take. Either way, nobody questioned that the situation was very grave.
The following days were marked by a government trying to create an official story. First, the head of state suggested a “suicide hypothesis,” then a mysterious murder. They of course were not to blame. In anything.
Encontraron al fiscal Alberto Nisman en el baño de su casa de Puerto Madero sobre un charco de sangre. No respiraba. Los médicos están allí.
— Damian Pachter (@damianpachter) January 19,
by ilene - January 26th, 2015 8:03 pm
Courtesy of Mish.
Here's a new map of major military operations in Ukraine.
I say "new" but the caption indicates it is a day old. An estimated 7,000 to 8,000 Ukrainian troops are about to be encircled.
Major Military Operations – January 25
Colonel Cassad posted this interesting video of rebel positions over time
link if video does not play: DNR Advance Over Time
DNR stands for "Donetsk People's Republic". Each encirclement (cauldron) has eventually been obliterated.
Mike "Mish" Shedlock
by ilene - January 26th, 2015 7:16 pm
With the US unemployment rate having become a irrelevant anachronism from a bygone era, indicative merely of the record millions of Americans – increasingly those in their prime working years - who drop out of the labor force every year rather than the slack, or lack thereof, in it, even the Federal Reserve has been forced to admit the favorite BLS metric for generations of economists is now redundant. Instead, it has chosen to focus on a different one: that of wages, which indeed, have gone nowhere fast, and in fact just posted their biggest monthly drop since before the Lehman crash!
However, it appears that the chart above tells only half the story. For the other half we go to a chart in Odey Asset Management's year-end letter breaking down the difference between unionized and non-unionized labor, and which shows something stunning.
Here is Crispin Odey's commentary on the record divergence between wages growth for unionized and non-unionized wages:
"What is interesting is how differently private sector wages are growing in America for unionised labour forces and non-unionised. This suggests that there is huge value in being in a union at the moment, and that non-union private sector workers in the US do not appreciate the negotiating leverage they have with companies. With unemployment falling almost every month at the moment, and currently sitting at 5.6%, there is a risk of a sharp catch-up in this ‘underpaid’ dynamic."
We disagree with the latter, but agree with the former. Because for all the bluster and talk about an imminent wage hike "just around the corner" – talk which has been taking place for the past 5 years without any effect, perhaps it is time for America's politicians, if only those who pander to the wealth and wage inquality populism, to realize just how grotesque the difference between wages for organized labor vs unorganized, has become.
So a simple solution: want to boost US wages across the board? Then just unionize everyone!
by ilene - January 26th, 2015 3:57 pm
Courtesy of James H Kunstler via Kunstler.com
The more detached from reality American culture becomes the more strictly ceremonial leadership gets, as illustrated by the raft of bromides Barack Obama floated past the assembled vassalage of government last week in another grand effort to avoid the necessities of the moment.
Those necessities include freeing a hostage public from the tyrannical clutches of corporate despotism — the evil empire of big boxes, big burgers, big pharma, Big Brother — and the atrocious rackets fostered by them that masquerade as an economy. The template of the life we have known is broken and the pieces within are flying apart, and no amount of wishing or promising can keep them going. If this society is even going to survive, the people have to smash their way out of this template prison, probably against the efforts of the people and organizations now running it merely for their own benefit.
The future is telling us very clearly: get smaller, get finer, get more local, get less complex, get less grandiose, do it now. Do you want to eat food in the years ahead? Better make sure you live in a part of the country where small-scale farming and backyard gardening is possible because the General Mills Agri-Biz GMO Cheerios model will be folding its big tent along with its financing agents in the debt Ponzi banking system.
Do you want to have a personal economic future? Think about what you can do to make yourself useful in a local economy made up of your neighbors. And if you live in one of the thousands of soulless, neighborless suburban wastelands that amount to nothing but big box and big burger plantations, you better get out and find a real town in some other part of the country.
Do you believe that computers and robot factories will define the years to come? Maybe you have failed to notice that the US electric grid is decrepit and in need of at least a $1 trillion upgrade-and-rebuild, which, by the way, is not going to happen. What is all that crap going to run on? America’s disappointment with the broken promises of technology will be so epic that we’ll be lucky not to slide back into a world ruled…
by ilene - January 26th, 2015 3:04 pm
Courtesy of Mish.
When black markets in currencies develop, you can be 100% sure the official exchange rate is overinflated.
In Venezuela, the fixed rate of exchange is 6.3 bolivars to the dollar, the floating rate of exchange is 50 bolivars to the dollar, and the black market rate is 184 bolivars to the dollar. The latter is what the currency is really worth at the moment.
From 6.3 to 184 is a loss of 96.6%
Even at the floating rate of 50 bolivars to the dollar, Venezuela's currency woes an increasing threat to U.S. corporate profits.
- Ford Motor Co on Friday said it was taking a pre-tax charge of $800 million for its Venezuela business. It blamed Venezuelan exchange control regulations that have restricted the ability of its operations in the country to pay dividends and obligations in U.S. dollars. Ford also said that it was unable to maintain normal production in Venezuela with the availability of vehicle parts constrained.
- On Friday, diaper and tissue maker Kimberly-Clark Corp said it took a fourth-quarter charge of $462 million for its Venezuelan business.
- At the end of the third quarter, for example, American Airlines Group Inc, had $721 million held in the Venezuelan currency, at a weighted average exchange rate of 6.41 bolivars to the dollar. Theoretically, if the airline tried to repatriate all of that money into dollars at the current black market rate of 184 bolivars per U.S. dollar as quoted by the website dolartoday.com, it would only receive about $25 million.
- Overall, foreign companies have an estimated $16 billion in outstanding dividends listed on their balance sheets that they have not been able to return to headquarters, according to Caracas-based research firm Ecoanalitica.
Dolar Today Quote
Here's the quote from Dolar Today.
Clorox did the smart thing and exited Venezuela entirely. I can see why Ford would not want to abandon its plant (but it's likely to be nationalized anyway).
Why American Airlines and Kimberly-Clark stick around is a mystery.
Mike "Mish" Shedlock
by ilene - January 26th, 2015 1:19 pm
Courtesy of Reggie Middleton
Here Comes The Boom!
By now, everybody who cares knows about the Swiss National Bank's removal of its EUR floor, and the havoc that it caused to FX brokerages around the world (Currency Brokers Fighting Insolvency Are Learning the Value of Our Blockchain Technologies – the Hard Way). I explained to clients that what seemed like a stupid move by the SNB was actually a strategic move borne out of fear. Days later, the ECB came out with the QE package from hell (or heaven, depending on how you view perpetual bailouts), and my explanation gained lucidity for many.
A single country devaluing, even if it's a significant global economy such as the US, will result in a rise throughout other major currencies. This rise will easily be absorbed. The problem is when the major economies of the world have a singular problem – the problem that the world has now, that was started back in 2008. That problem is a structural recession and slow growth. Now when the US, or more accurately from a chronological perspective, the EU/ECB devalue, they export unemployment/deflation to neighboring states who not only do not want it but are actively pursuing their own policies to eradicate it. What do these states do when unemployment is sent over to their countries? They retaliate by doing the same. Enter… War!
Of course, the story doesn't end there. This is a macro trader's nirvana, provided he/she has at least a modicum of insight.
It's All Out War!
As stated above, ECB President Mario Draghi, announced the deflation export attack on all nations who didn't have the central banking chutzpah to defend themselves, and the throwing down of the gauntlet even to those who do, self-preservation concerns prompted preemptive strikes from the northern Europeans and Asians. The Swiss National Bank would have had to expand a balance sheet that had already grown 3x in 2yrs to an exponentially larger size, and that growth would have been fueled by Pumping continuously depreciating euros onto it. While the Fed doesn't have to worry about mark to market losses like the average Joe, the SNB simply cannot continuously replace 1 value unit with .8 value units at an increasing rate without…