June Swoon

Posted On Jun 17, 2019 By Dave Gonigam

  • Weak economic numbers, just in time for a Fed meeting
  • A surprise cut? Rickards handicaps this week’s Fed outcome
  • Facebook casts a glow on bitcoin — mainstream adoption next?
  • Media failure: A truly depressing poll result
  • Did fleeing money prompt a climb-down in Hong Kong?
  • A pig in China: Word choice gets economist in trouble
  • Solar energy in versus energy out: A reader debate.

We’re getting an early read this morning on how the economy is doing so far in June. So far, not so good.

Around midmonth, a handful of economic numbers roll in that include figures for the current month. Two of them arrived this morning.

Up first is the Federal Reserve’s Empire State Manufacturing Index. This is a survey of factory managers in New York state. If the number is above zero, that indicates a growing factory sector. Below zero points to shrinkage.

Since the 2016 election the number has been consistently above zero. Last month’s number was a solid 17.8.

Before this month’s number came out, dozens of economists polled by Econoday were expecting the number to pull back to 10.0 — still solidly above the zero line. The most pessimistic guess was 7.0 — also suggesting growth.

In other words, all systems go. And nothing that would possibly suggest any sort of —

HOLY MOTHER OF GOD!!

Record Drop Chart

The number collapsed to minus 8.6. That’s the steepest one-month drop in a data series going back to 2001. The “internals” of the survey were uniformly lousy. New orders are falling like a stone. Meanwhile, costs from suppliers are rising sharply… and it’s getting harder to pass those costs along to customers.

Is it tariffs? Is it the economy slowing down after a 10-year expansion? Alas, the survey doesn’t offer a clear answer there…

The second so-far-in-June number is likewise a disappointment, if not necessarily a shock.

The National Association of Home Builders issues a monthly Housing Market Index of sentiment among its members. With this number 50 or better is good. The June number rings in this morning at 64 — still solidly in growth territory, but less than the “expert consensus” was looking for.

As it happens, the Federal Reserve’s Open Market Committee holds one of its every-six-weeks meetings starting tomorrow to set interest rates.

And this is one of the “big” meetings in which, four times a year, the committee’s members issue their projections for the economy… which points to what the Fed’s future policy might be.

Even though the Fed has taken a steadily “dovish” turn all year (amid plenty of presidential browbeating), the likelihood of a rate cut is slim. This morning, futures traders are pricing in an 81% probability the Fed will stand pat and hold off on cutting rates until the end of July.

Our Jim Rickards is traipsing the high country of Peru and Bolivia this month, but over the weekend he jumped in on Twitter long enough to offer his own outlook…

Jim Rickards Tweet

It was shortly after New Year’s Day that Fed chairman Jerome Powell said the Fed would be “patient” in assessing any changes to interest rates. “Patient” is an important word the Fed trots out now and then to telegraph its intentions. It means “no change for now.”

Cutting rates at the end of this week’s meeting on Wednesday would look as if the Fed was panicked, and that would likewise panic the stock market.

And why panic the stock market at a time the S&P 500 is still only 2% below its record high?

All the major U.S. stock indexes are in the green this morning, if not by much. The S&P is six points away from 2,900, the Dow is solidly above 26,000 and the Nasdaq has leaped past 7,800.

Gold is edging back to $1,337. Crude has shed a dime to $52.40 despite a pledge by the Iranian government to step up uranium enrichment to levels beyond those set by the 2015 Iran nuclear deal. Considering the United States abandoned the deal more than a year ago, it’s a wonder Tehran waited this long.

Bitcoin has poked above $9,000 for the first time in more than a year, thanks to the “Facebook effect.”

As you might have heard at the end of last week, FB is planning to launch a cryptocurrency called libra — with the help of Visa, Mastercard and other big-name partners. The plans are still in the germinating stage, but FB will issue a white paper tomorrow that will shed further light.

“This will change the crypto landscape,” avers Kamal Ravikant — the veteran crypto hand who does the granular research for Altucher’s Crypto Trader.

“Consider this,” he says: “2.7 billion people are on Facebook worldwide. If only a fraction of these people use Facebook’s crypto, it will make a significant dent in global payments and crypto awareness.”

What’s more, “Most merchants have a presence on Facebook. A Facebook coin will allow users to pay for things without leaving the platform.”

Can you say, “Captive audience”?

“We sometimes say that when crypto is ‘Venmo easy’ we’ll be heading toward mainstream adoption,” Kamal concludes. “Facebook will help us get there.”

And now a milestone in the annals of media failure: A poll finds the number of Americans buying into “Russian collusion” has risen since the release of the Mueller report.

Every few months, Fox News pollsters have asked the question, “Do you think the Trump campaign coordinated with the Russian government during the 2016 presidential election, or not?”

In mid-March, a month before the Muller report’s release, 44% answered yes. But last week — even though we now know Mueller’s report found no evidence of collusion — the “yes” faction jumped to 50%. That’s far and away the highest in the two-year history of the pollsters asking the question, with the same wording every time.

*Sigh*… It reminds me of when I was still in the news business and a Washington Post poll from September 2003 found 69% of respondents believing it was at least “likely” Saddam Hussein had a role in the Sept. 11 attacks. This was six months after Washington launched its disastrous invasion of Iraq.

Yes, people came around to the truth of the matter eventually. But that was despite the media’s coverage, not because of it.

Your editor’s quest to uncover an investing strategy that sidesteps breathless headlines and spin and simply “follows the money” is in its final stages. More to come in July…

Hong Kong’s government is backing down on its hot-button extradition legislation… and we can’t shake the thought it’s all about the money.

Last week, throngs turned out to protest a bill that would allow criminal suspects to be extradited to mainland China for trial. The government promised to “suspend” consideration of the bill. Over the weekend, Hong Kong Chief Executive Carrie Lam apologized and promised to “take on criticisms in the most sincere and humble way.”

On Friday, the Reuters newswire reported several Hong Kong tycoons had started moving their wealth offshore, citing “financial advisers, bankers and lawyers familiar with such transactions.”

Said one adviser executing these transactions, “The fear is that the bar is coming right down on Beijing’s ability to get your assets in Hong Kong. Singapore is the favored destination.”

More broadly, Nicholas Lardy from the Peterson Institute tells the BBC that passage of the bill “would undermine Hong Kong’s status both as a hub for multinational firm operations and as a global financial center.”

The story isn’t over; protesters have rejected Lam’s apology and they turned out in the streets again yesterday. They want the proposed legislation not just suspended but scrapped altogether.

[Aside: Secretary of State Mike Pompeo says President Trump will “raise the matter” of Hong Kong’s governance with Chinese President Xi Jinping if they meet on the sidelines of the G20 summit in Japan later this month.

Right. We imagine that will go over about as well as Xi “raising the matter” of, say, Puerto Rican independence with Trump. Sheesh…]

A uniquely Asian twist on “PC” culture is threatening the career of an economist with a major global bank.

The trouble began when Paul Donovan, a Briton who’s chief economist at UBS Global Wealth Management, issued his daily audio commentary last Wednesday. He discussed an outbreak of swine flu that’s affecting the Chinese livestock market and whether it would have an impact beyond China. He said…

“Chinese consumer prices rose. This was mainly due to sick pigs. Does this matter? It matters if you are a Chinese pig. It matters if you like eating pork in China. It does not really matter to the rest of the world.”

China’s state-run Global Times reported the comments had “sparked an uproar across Chinese social media.” In particular, a honcho at one of China’s state-run banks denounced the remarks as “distasteful and racist”… although he refused to explain why when asked for comment by the Financial Times.

No matter — UBS put Donovan on leave and Donovan has already started an apology tour, including an interview on Bloomberg TV in which he acknowledged “hugely culturally insensitive language.”

Bloomberg Paul Donovan

Would it have made a difference if he said “a pig in China” instead of “a Chinese pig”?

And the damage is done: It appears UBS has been shut out of a billion-dollar bond deal with a Chinese company as a result of the remark.

To the mailbag, where we emphasize that just because we publish a reader’s comment does not mean we necessarily endorse it or grant it credibility.

On Friday we ran a remark from someone who said he’d looked into solar panels for his home and concluded the amount of energy required to produce a photovoltaic cell is greater than the amount of energy it would produce over its lifetime.

That prompted someone to write in over the weekend: “Using quotes and statements like this makes me wonder if you share the sentiment. If you do, why didn’t you at least provide something to substantiate the claim? If you don’t, you should challenge the writer to provide the source of his numbers and how he calculated that.

“This is important. It’s 2019, not 2005, when solar companies were selling a promise. The entire world is going solar and there is not a shortage of raw data on solar costs (including manufacturing). You criticize the media endlessly for not being skeptical enough about sources but it seems you are no better when it’s your turn to inform or pontificate.”

The 5: For cryin’ out loud, the guy was talking about his personal experience in a tangential remark reacting to an item we had about the amount of metal that goes into electric vehicles.

And besides, in such instances other readers frequently step up with their own input — as they have here. To wit…

“This looks like one of those ‘alternate facts’ that unfortunately does an impressively good job spreading itself around the internet these days,” a reader writes.

“In the early days of solar power that might possibly have been a contrarian statistic worth repeating, but it’s been out of date for at least a decade. Brookhaven National Laboratory gave a value of just six months for EPBT (energy payback time) for solar panels, and that was back in 2010.

“Maybe that’s a bit optimistic, but at worst it looks like energy out is at the very least seven times energy in these days, assuming a 30-year lifespan.

Dollar payback time of course can vary much more than that, depending on subsidies and such. But your reader is clearly talking about energy payback, and I just can’t think of any way to run the numbers to make that statement even vaguely true.”

“My family and I have owned the same PV panels for over 30 years ourselves,” says another, “and they’re still quite capable of producing more power — maybe not quite as much, but enough for what we need at our cabin. As the first link above says, the decrease in energy output is usually less than 1% per year, so for many uses a 30-year lifespan is actually wildly conservative.”

The 5: Thanks for weighing in. And not taking it out on us…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Among the big market movers today is a cancer biotech player called Array BioPharma — a favorite of our science-and-wealth maven Ray Blanco. ARRY is up 56% today on a takeover by Pfizer.

Don’t worry if you missed out. Ray has another opportunity on his radar — a tech play that could collapse the size of one of your monthly bills and deliver you stock market riches all at once. Check it out right here.


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