Housing, Freight, Infrastructure, Trump advice, MMT hysteria, Cooling real estate markets

Tax Reform Exacerbates Sales Cooldown in the U.S.

(WSJ) U.S. tax reform has exacerbated a gradual cooldown in U.S. home sales over the past year in certain parts of the country, according to research from realtor.com. The Tax Cuts and Jobs Act, which went into effect on Jan. 1, 2018, allows homeowners to deduct mortgage interest on a loan up to $750,000—down from $1 million—and caps state and local tax deductions to only $10,000. Home sales fell 6% across a sample of 30 counties where a large proportion of households took the mortgage interest deduction, while home sales rose by a modest 0.3% in a sample of 30 counties where taxpayers didn’t use the deduction.

Sliding Freight Rates Send More Big Bulk Ships to Scrapyards

(WSJ) Ship-broker BTIG said in a report that 107,000 deadweight metric tons of ship steel were recycled in the first three months of this year, up 35% from 78,000 metric tons in the same period a year ago. Of 23 vessels scrapped, 16 were capesize vessels, the biggest cargo ships. Capes now command daily freight rates of around $9,000, well below the average $25,000 needed to break even. The Baltic Dry index was at 726 points on Friday, down 27% in the past 12 months. The ship-breaking industry has annual revenue up to $5 billion and 2018 was one of the busiest years ever.

U.S. Democrats seek up to $2 trillion to invest in aging infrastructure

(Reuters) House of Representatives Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer said they would try to revive an effort for major investments in public works. The White House said President Trump had spoken recently with Pelosi and “agreed to meet soon to discuss working together on infrastructure,” spokesman Judd Deere said. “I’m all for taking it (infrastructure legislation) up once the president and Democrats, everybody says: ‘OK, here’s how we’re going to pay for it.’ As soon as that magically appears, I think we have a way forward,” Senate Majority Leader Mitch McConnell said.

In case there was any doubt he’s still doing his own tweets:

President Donald Trump encourages France to use “flying water tankers” to put out a raging fire at the Notre Dame Cathedral in Paris as firefighters rushed to save one of the country’s most visited landmarks.

“So horrible to watch the massive fire at Notre Dame Cathedral in Paris,” the president tweets. “Perhaps flying water tankers could be used to put it out. Must act quickly!”
“If you hit that with tons of water from above, that’s going to collapse the entire structure and make the situation worse,” said Wayne McPartland, a retired New York City Fire Department battalion chief. “If you miss, you might hit civilians in the street.”

They are talking about me!
:(

Automatic cuts, China vehicle sales, Greenspan on wealth effect

Trump may allow $125B in cuts if Congress doesn’t act

(The Hill) President Trump has indicated that he would allow $125 billion in spending cuts to take place if Congress does not agree to his spending plan, White House adviser Larry Kudlow said Thursday. Kudlow was referring to budget caps set in place in the 2011 Budget Control Act (BCA), a law that was meant to force bipartisan cooperation on budgeting by threatening steep cuts to both defense and nondefense spending. Without legislation to raise the caps, 2020 defense spending would drop $71 billion and nondefense spending would drop $54 billion from current levels — about a 10 percent across-the-board cut.

Vehicle sales in China continue to drop, NEV sales rise

(China Daily) Chinese sales of passenger vehicles, MPVs, SUVs and minivans in March dropped 12 percent on a yearly basis to 1.78 million units. This is the 10th consecutive monthly decrease, according to the China Passenger Car Association (CPCA). The MPV sector saw the largest sales decline, 20.2 percent to 130,000 units in the past month, while SUVs and sedans dropped 10.7 and 12 percent, respectively. As China began to cut manufacturing sector VAT from 16 to 13 percent on April 1, some imported and high-end vehicle brands lowered prices to boost sales nationwide.

I hadn’t seen this quantified and looks reasonable to me, via the various credit channels:

However, Greenspan said much of the improvement has come from a rise in stock market prices: He sees a “stock market aura” in the economy. A rise of 10 percent in the S&P 500 corresponds to a 1 percent real GDP increase, he said. The S&P 500 has risen nearly 16 percent in 2019 and is on track for its best performance in history should current trends hold.

Freight, Pensions, ECB, Germany

Truckers Cut Payrolls As Freight Demand Softens

Funding pensions reduces aggregate demand:

The Long Bull Market Has Failed to Fix Public Pensions

Long term loans to banks do nothing for the macro economy and negative interest rates are a tax:

Mario Draghi signaled that the European Central Bank expects to rely on long-term bank loans and tweaks to its negative interest-rate policy as a first defense if officials need to intensify their fight against the economic slowdown.

The comments came as the ECB president warned that euro-area growth has cooled further this year and could yet worsen. In a sign that hopes of a second-half rebound are fading, he said the weakness “will extend into the rest of the year.”

Germany’s Economy Runs on Low Wages

Buy backs, Inflation, Credit applications, Philly Fed

So the question is regarding dividends vs stock buy backs- do stock buy backs cause stocks to be over valued or do dividends cause them to be undervalued?
;)

A Surprising Connection Between the Bull Market and Stock Buybacks

(WSJ) A study published last year in the Financial Analysts Journal, “Net Buybacks and the Seven Dwarfs,” found that net buybacks—the number of shares that companies repurchased across the entire stock market, less the number of new shares issued—explain the bulk of the intermediate- and longer-term differences in stock-market returns around the world. In an analysis of 43 countries’ stock markets between 1997 and 2017, the researchers found that net buybacks explain 80% of the difference in countries’ returns.

Maybe core inflation does start rising after rates are hiked?


Note the 2018 deceleration:


Signs of elevated recession risk here:

Auto sales, Lumber, Rail loadings, Global survey, Profits comments, Las Vegas Real Estate, Central Banks buying gold

This has been know to be associated with the housing cycle:

Framing Lumber Prices Down 30% Year-over-year

This has taken a dive recently:

Global economy enters ‘synchronised slowdown’

(F) The global economy has entered a “synchronised slowdown” which may be difficult to reverse in 2019, according to the latest update of a tracking index compiled by the Brookings Institution and the Financial Times. The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and investor confidence with their historical averages for the global economy and for individual countries. The headline readings slipped back significantly at the end of last year and are at their lowest levels for both advanced and emerging economies since 2016.

Corporate Profit Squeeze Looms, Threatening Stocks’ Climb

(WSJ) Analysts project S&P 500 profits in the first quarter will contract 4.2% from a year earlier, according to FactSet, followed by flat growth in the second quarter. That puts the broad index at risk of entering its first earnings recession—marked by at least two or more consecutive quarters of negative earnings growth—since 2016. S&P 500 companies grew profits 20% in 2018, one of the best growth rates since the financial crisis, according to FactSet. Analysts see profits growing just 3.7% this year. S&P 500 companies are trading at 16.7 times their future earnings, the same level the broad index traded at in early October.

Las Vegas Real Estate in March: Sales Down 16% YoY, Inventory up 92% YoY

Gold buying like this functions as ‘off balance sheet deficit spending’. It’s off balance sheet as the payments by the CB don’t count as fiscal expenditures as they are accounted for as CB asset. And it’s functionally state deficit spending as the purchases add income in the form of net financial assets to the non government sectors:

China’s on a bullion-buying spree. The world’s second-largest economy expanded its gold reserves for the fourth straight month, adding to optimism that central banks globally will continue to build holdings.

The People’s Bank of China raised reserves to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website. In tonnage terms, last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December.

China, the world’s top gold producer and consumer, is facing signs of a slowing economy, even as some progress is being made in trade negotiations with the U.S. The latest data from the PBOC indicate that the country has resumed adding gold to its reserves at a steady pace, much like the period from mid-2015 to October 2016, when the country boosted holdings almost every month. Should China continue to accumulate bullion at that pace over 2019, it may end the year as the top buyer after Russia, which added 274 tons in 2018.

Governments worldwide added 651.5 tons of bullion in 2018, the second-highest total on record, according to the World Gold Council. Russia quadrupled its reserves within the span of a decade amid President Vladimir Putin’s quest to break the country’s reliance on the U.S. dollar, and data from the central bank show that holdings rose by 1 million ounces in February, the most since November.

Employment, Durable goods, Trucking, Rail traffic, Draghi on rates, Dollar status

Looks like there was a drop in employment growth by firms with under 50 employees:


‘Last hire first fired’ has made this a leading indicator in prior cycles:

Heavy-Duty Truck Orders Hit the Brakes in March

Trucking companies slammed the brakes on orders for heavy-duty trucks in March, signaling caution amid long backlogs for delivery and a softening freight market.

North American freight carriers ordered 15,700 Class 8 trucks, the big rigs used for regional and long-haul routes, according to a preliminary report from ACT Research. That is a 66% drop compared with March 2018, and the lowest level since October 2016, when tepid shipping demand meant many transportation companies held back on upgrading or expanding their fleets.

The slide in March, in which orders also declined 6.7% from February, follows a long surge in fleet expansion in 2018, when trucking companies riding one of the strongest freight markets in years rushed to order new trucks, outpacing manufacturers’ production capacity.

“Orders have gotten weak because you can’t get a truck this year,” said Tim Denoyer, an ACT vice president and senior analyst

The drop in orders could help burn through those backlogs. March is the fourth straight month in which new orders were significantly lower than the rate of new vehicle production, according to ACT.

Still, with few production slots available until 2020, trucking companies may be holding back because it is difficult to determine if they will have enough business at that point to support extra capacity.

Shipping demand has been slipping in the first quarter of 2019. The average price for hiring a truck on the spot market, where companies book last-minute transportation, was down 13.4% in March compared with the same month in 2018, according to online freight marketplace DAT Solutions LLC. The Cass Freight Index for U.S. shipments dropped 2.1% year-over-year in February, the third straight monthly decline.

Rail Week Ending 30 March 2019: Continuing Deeper In Contraction Year-to-Date

Week 13 of 2019 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. The economically intuitive sectors rolling averages remain in contraction.

As previously discussed for the last 25 years:

“But what if the dollars loses it’s reserve currency status?” Seems it’s already happened:

Earnings, New issuance, UK services, Germany, MMT comments

Expect Pre-Earnings Frowns to Turn Upside Down

(WSJ) Analysts polled by Refinitiv think earnings per share for companies in the S&P 500 will be down 2% from a year earlier. The number of companies that have had negative first-quarter earnings warnings so far has outpaced those with positive preannouncements by a 2.8-to-1 ratio—well above the ratio of 1.2 to 1 registered at the same time ahead of first-quarter earnings season last year or the 1.9 to 1 ahead of the fourth-quarter earnings season. By this point in the calendar, the earnings bar tends to be low enough for companies to easily clear. Positive surprises typically outweigh negative ones by more than 3-to-1.

Sharp sell-off late last year takes its toll on equity deals

(FT) Proceeds from stock market listings in the region fell 99 per cent in the first quarter compared with the same period last year, with just $144m raised, Refinitiv data show. Including follow-on deals for companies already listed on stock markets in Europe, the number of transactions, at 81, was down by almost half. Proceeds from initial public offerings in the UK dropped a more modest 85 per cent, while US and Chinese companies’ IPO proceeds both halved compared with the first quarter of last year. In total, Refinitiv reported that 404 equity deals were launched around the world in March.

Retail sales, Construction spending, Chem activity, Apartment vacancy, Equity flows, South Korea exports, Trump comments

Not looking good:


Not looking good:


In contraction:

South Korea March exports contract for fourth month

(Reuters) Overseas sales slid 8.2 percent in annual terms in March. Imports shrank by 6.7 percent in March from a year earlier. This produced a $5.22 billion trade surplus, nearly doubling the amount in February, the Korea Customs Service data showed on Monday. Analysts say the fall in exports was led by a slump in semiconductor business, the country’s key export, as well as cooling demand from China, its biggest market, amid the trade war with the United States. Bank of Korea Governor Lee Ju-yeol said last week the central bank may change its current neutral stance on monetary policy should “recovery sentiment” worsen significantly.

Trump’s Great Lakes Whoppers

Trump, March 28: I support the Great Lakes. Always have. They’re beautiful. They’re big. Very deep. Record deepness, right? And I’m going to get, in honor of my friends, full funding of $300 million for the Great Lakes Restoration Initiative, which you’ve been trying to get for over 30 years. So we’ll get it done. It’s time. It’s time. You’ve been trying to get it over 30 years. I would say it’s time, right?

In its first fiscal year, Obama recommended — and the initiative received — $475 million. After that high point, funding dropped in fiscal year 2011 to just under $300 million. And funding has stayed steady around that level ever since.

In his last two budget proposals, including the fiscal year 2020 budget released this month, Trump proposed just $30 million — the equivalent of a 90 percent cut. In his first proposed budget for fiscal year 2018, the president allotted zero funding for the program.

Personal income and spending, Border closing

Income and spending both weakening:

Income:


Ratcheting down with each setback:


Spending:

Highlights

Consumer spending in January wasn’t able to meet Econoday’s consensus, up only marginally at 0.1 percent even against the easy comparison of December which is now revised yet 1 tenth lower to minus 0.6 percent. Weakness in January spending is centered in durable goods and reflects the month’s very sharp drop in vehicle sales.

The Bureau of Economic Analysis is still catching up following the government shutdown and today’s report is a split between lagging data on spending and prices and up-to-date data on personal income which was also subdued, up 0.2 percent in data for February though the wages & salaries component did manage a respectable 0.3 percent gain.

Turning to prices they are also subdued, down 0.1 percent for the PCE price index in data for January and up only 0.1 percent for the core. Both of these miss the consensus forecasts. Year-on-year rates are at 1.4 percent overall with the core slipping back 2 tenths to 1.8 percent.

Nearly all the readings in today’s set of data miss the consensus with January consumer spending pointing to opening trouble for first-quarter GDP and the weakness in core prices raising the risk that the Federal Reserve may soon be defending the downside of its 2 percent inflation target. On both scores, the balance for neutral monetary policy tilts, however slightly, toward the rate-cut side.

This would slow things down further, for example:

Trump threatens to close ‘large sections’ of US-Mexico border next week over illegal immigration