Saturday, July 20, 2019

Smack in Midst of Trade War, Boeing to Open Its First 737 Plant in China

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by Mish Shedlock, The Maven:

Boeing will inaugurate its Zhoushan 737 finishing center on Saturday in China, in a rare endeavor outside the US.

This headline seems suitable for “The Onion”, Boeing to Open Its First 737 Plant in China Under Shadow of a Trade War.

The Chicago-based planemaker will inaugurate its completion and delivery center in Zhoushan, 90 miles southeast of Shanghai, on Saturday, after more than a year of construction. The facility marks a rare industrial foray outside of the U.S. for Boeing and a joint venture with state-owned planemaker Commercial Aircraft Corp. of China Ltd.

Seasonality in Cryptocurrencies – An Interesting Pattern in Bitcoin

by Dimitri Speck, Acting Man:

Looking for Opportunities

The last time we discussed Bitcoin was in May 2017 when we pointed out that Bitcoin too suffers from seasonal weakness in the summer. We have shown that a seasonal pattern in Bitcoin can be easily identified. More than a year has passed since then and readers may wonder why we have not addressed the topic again. There is a simple reason for this: the lack of extensive historical data for cryptocurrencies in combination with their extreme volatility.

REGISTERED COMEX GOLD INVENTORY DOWN TO ONLY 6.6 TONNES

by Harvey Organ, Harvey Organ Blog:

GOLD UP $9.35 TO $1280.15//SILVER UP 34 CENTS TO $14.95/QUEUE JUMPING HUGE IN SILVER AT 1.375 MILLION OZ///ALSO QUEUE JUMPING IN GOLD//BEIJING WARNS TRUMP TO COMPROMISE OR ELSE !!//DEUTSCHE BANK AND COMMERZBANK AGAIN FAIL TO MAKE A DEAL AT A MERGER//STRONG JOBS REPORT EVEN THOUGH 100% OF THE GAIN WAS THROUGH THE B/D PLUG//POOR WAGE GROWTH NUMBERS FINALLY ALLOWS GOLD AND SILVER TO RISE TODAY//A MUST VIEW SWAMP STORY TONIGHT

Wall Street Discovers the Brick-and-Mortar Meltdown

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by Wolf Richter, Wolf Street:

Oh Lordy.

Finally time to make some easy money by betting on the collapse of brick-and-mortar retail, years after it began? Here’s a grisly thought: As of today, there’s an ETF for that.

In its launch announcement today, ProShares explained:

Over 30 major retailers have declared bankruptcy over the past three years, nearly two-thirds of those in 2017, including Toys “R” Us, RadioShack, and Payless. The pressure is expected to continue with some analysts predicting that online sales growth will outpace bricks and mortar retailers 3 to 1 by 2020.

Retail is being profoundly disrupted by shoppers moving online, oversaturated markets and changing consumer behaviors.

The brick-and-mortar retail pain splits two ways: Retailers that have failed to build a vibrant online sales channel and are dependent on their physical stores; and the landlords that lease stores to them.

This ETF focuses on the first, the retailers. The ticker is evocatively named EMTY. As an inverse ETF, it’s supposed to rise in price when the Solactive-ProShares Bricks and Mortar Retail Store Index, which is composed of 56 “traditional” brick-and-mortar retail stocks, declines.

Included in the index are department stores, supermarkets, and retailers of apparel, consumer electronics, and home improvement items. From the top down, with the year-to-date share-price plunge unless otherwise noted:

  • Rite Aid (-82{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528})
  • J.C. Penney (-62{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528})
  • Office Depot (-47{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} since Aug 7, 2017)
  • Sears (-67{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} since April 18, 2017)
  • Smart & Final Stores (-47{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528})
  • Express (-33{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528})
  • GNC Holding (-43{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528})
  • Barnes & Noble (-34{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} YTD, including the spike today … more in a moment)
  • Chico’s FAS (-46{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528})

Going back further, it’s even worse. Many of them have lost most of their value since their respective peaks a few years ago. For example, GNC is down 90{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} since November 2013.

Wal-Mart Stores and Target have only a tiny presence in the index, and Amazon is absent. So the top names on the list are truly among the weakest still-standing publicly traded retailers. But they’re in much better shape than the PE-owned retailers many of which have already toppled into bankruptcy.

In fact, most of the retailers that went bankrupt in recent years and that grace our Brick-and-Mortar-Meltdown hall of fame, were owned by private equity firms. This includes Toys “R” Us and Payless. Both are specifically named in the announcement cited above. Radio Shack, the third retailer named above, was also privately owned when it filed for bankruptcy. So you couldn’t short their shares because the shares are privately held.

What is toppling private-equity-owned retailers is the time-honored principle by PE firms of buying companies via a leveraged buyouts, stripping out cash, and loading them up with debt. For the retailers it means that debt servicing costs are so high that they have no free cash flow to advance and update their business, invest in a vibrant online presence, and invest in masterful merchandising and service at their physical stores. These retailers have been doomed by their PE owners.

But you can’t short the shares of these retailers because they’re privately held. So the easy targets for shorts are off the table. For the ETF promoters to throw those three bankrupt privately-owned retailers as a lure into the announcement of an ETF that bets against publicly traded retailers is disingenuous, to say the least.

Given the collapse of the shares of publicly traded retailers that started years ago, this newfangled ETF might have missed the best part of the party. And there have been other ways to short them: The SPDR S&P Retail ETF (XRT) – down 8{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} year-to-date and down 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} since its peak in July 2015 – has long been a short-seller favorite.

Nevertheless, the announcement goes on:

Investors are witnessing signs of trouble in the malls and falling stock prices in the markets. For the first time, investors can turn these trends into a potential investment opportunity through an ETF.

Physical retailers are under immense pressure. E-commerce is threatening to take over retail as consumer habits change, shopping moves online, and physical stores struggle to remain viable. With this disruption comes opportunity.

This ETF is the first one “specifically designed to benefit from the decline of bricks and mortar retailers,” it says.

So the lowest hanging fruit – retailers owned by PE firms – is not available to short. The weak retailers that are publicly traded and are available to short have been declining for years, their shares have gotten crushed, and much of the fun has been had.

Despite this prepackaged once-in-a-lifetime opportunity to short an entire industry years after the sell-off has started, additional risks remain, even in this long-term structural decline of the brick-and-mortar retail industry that will never recover: Short term, anything can happen. See Barnes & Noble today.

Read More @ WolfStreet.com

GOLD HOLDERS – CENTENNIAL OPPORTUNITY

by Egon Von Greyerz, Gold Switzerland:

Strategic investments are made for the long run and with no intent of short term gains or concern of short term fluctuations. This kind of investing is based on buying undervalued and unloved assets and holding them for a very long term. This is what we did with gold in early 2002 for our investors and ourselves.

Having come down from $850 in 1980, not only did gold represent incredible value at $300 in 2002, but it was also the best insurance possible against a financial system which was turning increasingly unsound. Sixteen years later we are still sitting on our gold. We have seen a high of $1,920 in 2011 and a low of $1,050 in 2015. Have we ever been tempted to sell the gold? No, not for one second. We would rather buy more than sell an ounce.

The OTHER Half Of The Social Scam (MUST READ)

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by Karl Denninger, Market Ticker:

Folks, cut the crap ok?

I know what you’re thinking — I’ll just turn off “third party cookies” and all will be ok (in relation to my previous article.)

Incidentally, that is not the default for Chrome and other browsers. Gee, I wonder why? Who runs all sorts of third-party ad networks again?

But that aside this doesn’t work.

The reason is an HTTP field called an “Etag.”

A Tale of Two Crooked Companies

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by Clint Siegner, Money Metals:

Are people still letting what might be viewed as a criminal enterprise manage their deposits and mortgages? Unfortunately, it is a rhetorical question. Millions of people are still clients of major Wall Street banks despite widespread financial malfeasance.

They are ignoring warning signs while misplacing their trust in regulators and authorities. They shouldn’t.

Too Big to Jail

If you deal with crooked people, you should expect to get screwed – sooner or later. Even if the crooks are people you never meet or interact with in a large multi-national bank.

QE Unwind Is Too Slow, Says Fed Governor, Thus Launching First Trial Balloon

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by Wolf Richter, Wolf Street:

“The very slow pace may still be contributing to a buildup of various financial imbalances.”

So we have the first Fed Governor and member of the policy-setting FOMC who came out and said that the QE Unwind that began last October with baby steps isn’t fast enough. And because it’s so slow it may actually contribute to, rather than lower, the “financial imbalances.”

In her speech, Kansas City Fed President Esther George pointed at the growth of the economy, the tightness in the labor market, the additional support the economy will get from consumers and companies as they spend or invest the tax cuts, etc., etc. And despite this growth, “the stance of monetary policy remains quite accommodative,” she said.

She cited the federal funds rate – the overnight interest rate the Fed targets. The Fed’s current target range is 1.25% to 1.50%, which is “well below estimates of its longer-run value of around 3%,” she said.

The Fed would have to raise rates at least six more times of 25 basis points each, for a total of at least 1.5 percentage points, to bring the federal funds rate to around 3% and get back to neutral. If the Fed wanted to actually tighten after that, it would have to raise rates further. So far, so good.

And then came her concerns about the Fed’s balance sheet.

Under QE, the Fed acquired $1.7 trillion in Treasury securities and $1.78 trillion in mortgage-backed securities, for a total of about $3.5 trillion. After QE ended in October 2014, the Fed then maintained the levels by replacing maturing securities.

But in October last year, it commenced the QE-Unwind and started to not replace some maturing securities. This has the effect of shrinking its balance sheet. Just like the Fed “tapered” QE by phasing it out over the course of a year, it is also ramping up the QE-Unwind over the course of a year.

But the pace of the QE-Unwind has been too slow, according to George – and this may be destabilizing the financial markets:

By the end of this year, however, only about a quarter of the increase to the Fed’s balance sheet resulting from the first round of large scale asset purchases will be unwound.

These holdings of longer-term assets were intended to put downward pressure on longer term interest rates. Many investors responded, as would be expected, by purchasing riskier assets in a reach for higher yield. As a result, asset prices may have become distorted relative to the economic fundamentals.

The reference to “distorted” asset prices is the same verse we’ve heard from other Fed governors: Asset prices have become inflated. Since assets are leveraged, they have become a risk to financial stability. Then she adds:

The very slow pace of our balance sheet normalization may still be contributing to a buildup of various financial imbalances.

In other words, because the QE Unwind is so slow, it doesn’t really work as an unwind but continues to inflate asset prices, which would be the opposite of what the Fed wants to accomplish:

While until recently, financial markets remained remarkably stable, it is not uncommon to see volatility rise when asset prices become inflated and investors struggle to find a new equilibrium.

Read More @ WolfStreet.com

China & Buying Gold – Why?

by Martin Armstrong, Armstrong Economics:

QUESTION: Mr. Armstrong; I believe you said at the WEC in 2017 that central banks will diversify and increase their gold reserves going into the currency crisis coming in 2021. China has continued to increase its gold reserves. You would please update on that development.

Cut The Crap – NOW*

by Karl Denninger, Market Ticker:

I said NOW damnit.

12.4% tax for FICA, 2.9% for Medicare.

Total is 15.3%.  Of that 81% is FICA, 19% is Medicare.

The total in “Social Insurance and Retirement” taxes taken in (that is, the entirety) in the first two months of the fiscal year was $179 billion.  Of that $145 billion was Social Security tax and just $34 billion was Medicare tax.