Archives for October 25, 2018

Fed’s Beige Book says wages, prices growing at ‘modest to moderate’ rates

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A sign of tight labor markets in New Jersey.

Labor markets remain tight throughout the country

The Fed’s snapshot: Wages and prices moved higher in the Federal Reserve’s 12 districts through mid-October but not faster than a “modest to moderate” pace, according to the latest Beige Book report released by the central bank on Wednesday. Districts across the country reported tight labor markets. Firms were using “non-wage strategies,” like bonuses and lengthy vacation allowances, to recruit workers.

Retailers in “some” districts were able to raise selling prices. They cited higher transportation costs and worried about impending cost increases from trade tariffs.

Overall economic activity expanded at a “modest to moderate” pace, the Beige Book said. St. Louis and New York saw weaker growth, while Dallas reported more robust conditions.

What happened: Manufacturing reported “moderate output” despite firms facing rising costs for materials and shipping, uncertainties over the trade environment, and a shortage of qualified workers.

Commercial and residential real estate were mixed. Consumer spending was modest. Tourism was again a bright spot.

Telling anecdotes: Nearly two-thirds of manufacturing contacts in the Cleveland district raised their prices in September and early October. This was the fifth straight report where more than half of manufacturers in the district raised prices.

In Philadelphia, one firm reported “significant pushback” to its announced price hikes from a major retail customer. Other firms in the district reported difficulty meeting the prices of foreign competitors now that tariffs were in place.

Because of worker shortages, one firm in St. Louis had launched a program to teach foreign-born workers English to prepare them for jobs in the medical field.

In Southern California, hotels were passing along higher costs to guests in the form of one-off surcharges.

Big picture: President Donald Trump doesn’t want the Fed to keep hiking rates, but the central bank isn’t going to pause given the reports of higher wages and prices in this report. Another rate hike in December remains firmly on the table.

Market reaction: Stocks were lower in volatile trading on Wednesday, with the Dow Jones Industrial Average DJIA, -2.41% slumping by 240 points after having attempted a recovery earlier.

New-home sales plunge to a near two-year low as housing picture deteriorates

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A worker carries building supplies outside a partially completed home in Georgetown, Texas.

Year-to-date sales are just 3.5% higher than in the same period last year.

The numbers: New-home sales ran at a seasonally adjusted annual rate of 553,000 in September, the Commerce Department said Wednesday.

Sales of newly-constructed homes swooned to the lowest since December 2016. September’s selling pace of 553,000 was 5.5% lower than in August, and 13.2% lower than a year ago.

What happened: Sales badly missed the MarketWatch consensus forecast of a 620,000 pace, and revisions to prior months were all downward.

The median selling price in September was $320,000, 3.5% lower than a year ago. At the current pace of sales, it would take 7.1 months to exhaust available supply, a 6-year high.

Big picture: The government’s reports on residential construction are based on small samples and often revised heavily, making it unwise to rely on data from any single month for the big picture. But the story so far in 2018 has been one of continuing deterioration. For the year to date, sales are just 3.5% higher than in the same period last year, a measurement that’s been falling steadily throughout the year.

For years, the housing story has been about strong demand, and limited supply. That dynamic may be starting to shift, however, as unrelenting price gains, higher mortgage rates, and scant choices may be nudging would-be homebuyers out of the market.

Inventory in the market for previously-owned homes has been inching up and sales declining.

What they’re saying: Analysts reacted to the Commerce Department release on Wednesday with surprise.

But the BTIG/HomeSphere September survey, conducted by a team of analysts led by Carl Reichardt, Jr., and released about a week before the government report, found that conditions for respondents “deteriorated markedly” this month. About one-third of survey respondents — small and mid-sized builders across the country — said sales were worse than they had expected. Some 22% said sales rates were lower than in September 2017, more than the 15% who reported lower sales than year-ago levels in August.

“The September drop likely is due in part to Hurricane Michael, which the consensus seems to have ignored, even though it clearly hit the existing home sales numbers reported last week” said Ian Shepherdson, chief economist for Pantheon Macro. “We expect a clear rebound in October and then a spike in November, following August’s brief jump in mortgage applications. But the bigger picture is one of a market under pressure from rising rates and the beginnings of a cyclical tightening in lending standards.”

Market reaction: Stocks began dropping soon after the new-home sales release, with the Dow Jones Industrial Average DJIA, -2.41% down by over 100 points. Home builder shares also turned lower, with shares of the iShares U.S. Home Construction ETF ITB, -2.82% in negative territory.

Consider one of these tools to up your money game

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CFP Michael Kitces, co-founder of XY Planning Network, partner and director of wealth management for Pinnacle Advisory Group and publisher of Nerd’s Eye View, explains how automatic budgeting tools can up your financial game.

Is there one money habit we should all adopt?

Q: What money habit do you recommend most to your clients, and why?

The financial habit I recommend most is to sign up for a digital tool, like Mint.com or YNAB, to automatically track your spending.

The virtue of using these tools is that, simply put, you’ll finally know where all your money is going. Some even do a pretty good job of categorizing your spending—though they wouldn’t know how you use your cash—which gives you a better understanding of not just how much you’re spending, but also exactly what you’re spending money on.

Often, it’s difficult to identify our worst spending habits until technology makes it easy to add up, whether it’s dining out a bit more than we should, a hobby that needs to be reined in or some old subscriptions you never use. But once it’s right in front of you, most people are able to recognize quickly what needs to change—and then actually make those changes.

In fact, one UCLA study of Personal Capital users found that the average person was able to cut their spending by 15% in the first six months after using the company’s software to track their spending. And that wasn’t even with the intervention of a financial adviser or coach. It’s just the power of having software that easily aggregates the information and reflects it back to you in a useful way, allowing you to make your own financial decisions.

AMD’s stock craters more than 20% after weak graphics sales

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AMD Chief Executive Lisa Su.

Chip maker reports computing and graphics sales of $938 million while Street expected $1.05 billion

Advanced Micro Devices Inc. shares plummeted in the extended session Wednesday after the chip maker’s outlook and revenue fell short of Wall Street estimates owing to weaker-than-expected graphics sales as blockchain-related became a negligible part of the company’s business.

AMD AMD, -17.42% which had been down as much as 25% after hours, were last down 22% in the extended session following the company’s conference call, Shares closed down 9.2% at $22.79 in regular trading.

AMD’s third-quarter revenue rose to $1.65 billion from $1.58 billion in the year-ago period. Wall Street expected revenue of $1.7 billion from AMD, which had forecast revenue of $1.65 billion to $1.75 billion for the third quarter. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, expected revenue of $1.75 billion.

“Client and server processor sales increased significantly although graphics channel sales were lower in the quarter,” said Lisa Su, AMD chief executive, in a statement.

On the conference call, Su said weak graphics processing unit, or GPU, sales resulted from a dropoff in blockchain-related sales, which includes those to cryptocurrency miners. In the previous year’s quarter, blockchain sales accounted for a “high single digit percentage” of AMD’s revenue, whereas in this quarter they were “negligible,” said Chief Financial Officer Devinder Kumar on the call.

Less than a year ago, the price of Bitcoin BTCUSD, -0.47% topped out at more than $19,000 in December, while the price of Ether, the cryptocurrency that runs of the Etherium blockchain, had surged to more than $1,300 in January. That was when AMD was saying about 10% of GPU revenue was tied to blockchain sales. On Wednesday, Bitcoin traded at $6,463.01, while Ether was at $201.22.

AMD reported computing and graphics sales of $938 million for the third quarter, while analysts had expected $1.05 billion. The company reported enterprise embedded and semi-custom sales of $715 million, while analysts had forecast $653 million.

Su said she expects data center GPU sales to be a “meaningful contribution” to fourth-quarter sales, but it won’t be a quick fix.

“We are expecting that it might take a couple quarters to completely get back to a normal channel, however it is factored into our Q4 guidance,” Su told analysts. For the fourth quarter, AMD estimates revenue of $1.4 billion to $1.5 billion, while analysts had forecast revenue of $1.6 billion.

The company reported third-quarter net income of $102 million, or 9 cents a share, compared with $61 million, or 6 cents a share, in the year-ago period. Adjusted earnings were 13 cents a share.

AMD was expected to post adjusted earnings of 12 cents a share, according to analysts surveyed by FactSet. Estimize had called for earnings of 15 cents a share.

Of the 34 analysts who cover AMD, 13 have buy or overweight ratings, 16 have hold ratings and five have sell or underweight ratings, with an average price target of $25.62, according to FactSet.

AMD shares have been on a volatile roller-coaster ride after the company reported its best earnings in seven years in its previous report, rallying to peak at a 12-year high of $34.14 in mid-September, capping an impressive five-month, 200% surge, and were 33% off from that peak by the close Wednesday.

Adding to fears of a China trade war and a supply glut, chip maker stocks have led the broader market selloff of late as other chip makers have also forecast weaker-than-expected outlooks.

As of Wednesday’s close, AMD’s stock remains the best year-to-date performer on the S&P 500 with a 122% gain and has been the second-most actively traded stock on the index over the past 52 weeks. In comparison, the S&P 500 SPX, -3.09% is down 0.7% for the year, the tech-heavy Nasdaq Composite Index COMP, -4.43% is up 3%, and the PHLX Semiconductor Index SOX, -6.61% is down 8.5%.

Data being ‘weaponized’?

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Apple CEO Tim Cook speaks during a data privacy conference at the European Parliament in Brussels, Wednesday, Oct. 24, 2018.

The head of Apple on Wednesday endorsed tough privacy laws for both Europe and the U.S. and renewed the technology giant’s commitment to protecting personal data, which he warned was being “weaponized” against users.

Speaking at an international conference on data privacy, Apple CEO Tim Cook applauded European Union authorities for bringing in a strict new data privacy law this year and said the iPhone maker supports a U.S. federal privacy law.

Cook’s remarks, along with comments due later from Google and Facebook top bosses, in the European Union’s home base in Brussels, underscore how the U.S. tech giants are jostling to curry favour in the region as regulators tighten their scrutiny.

Data protection has become a major political issue worldwide, and European regulators have led the charge in setting new rules for the big internet companies. The EU’s new General Data Protection Regulation, or GDPR, requires companies to change the way they do business in the region, and a number of headline-grabbing data breaches have raised public awareness of the issue.

“In many jurisdictions, regulators are asking tough questions. It is time for rest of the world, including my home country, to follow your lead,” Cook said.

“We at Apple are in full support of a comprehensive federal privacy law in the United States,” he said, to applause from hundreds of privacy officials from more than 70 countries.

In the U.S., California is moving to put in regulations similar to the EU’s strict rules by 2020 and other states are mulling more aggressive laws. That’s rattled the big tech companies, which are pushing for a federal law that would treat them more leniently.

Cook warned that technology’s promise to drive breakthroughs that benefit humanity is at risk of being overshadowed by the harm it can cause by deepening division and spreading false information. He said the trade in personal information “has exploded into a data industrial complex.”

“Our own information, from the everyday to the deeply personal, is being weaponized against us with military efficiency,” he said. Scraps of personal data are collected for digital profiles that let businesses know users better than they know themselves and allow companies to offer users increasingly extreme content that hardens their convictions,” Cook said.

“This is surveillance. And these stockpiles of personal data serve only to enrich only the companies that collect them,” he said.

Cook’s appearance seems set to one-up his tech rivals and show off his company’s credentials in data privacy, which has become a weak point for both Facebook and Google.

“With the spotlight shining as directly as it is, Apple have the opportunity to show that they are the leading player and they are taking up the mantle,” said Ben Robson, a lawyer at Oury Clark specializing in data privacy. Cook’s appearance “is going to have good currency,” with officials, he added.

Facebook CEO Mark Zuckerberg and Google head Sundar Pichai were scheduled to address by video the annual meeting of global data privacy chiefs. Only Cook attended in person.

He has repeatedly said privacy is a “fundamental human right” and vowed his company wouldn’t sell ads based on customer data the way companies like Facebook do.

His speech comes a week after the iPhone maker unveiled expanded privacy protection measures for people in the U.S., Canada, Australia and New Zealand, including allowing them to download all personal data held by Apple. European users already had access to this feature after GDPR took effect in May. Apple plans to expand it worldwide.

Sporting brands merge

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Fairfax Financial Holdings Ltd. says it is merging its Sporting Life Inc. and Golf Town Ltd. brands.

The Toronto-based company says the two sporting goods retailers will operate separately with their own branding and management teams, but will make joint investments in technology, staffing and their supply chains.

Fairfax and Signature Global Asset Management, a division of CI Investments Inc., acquired Golf Town and its 47 stores in 2016.

Fairfax purchased 75 per cent of Sporting Life in 2011 from founders from David and Patti Russell.

David Russell said in a statement that he believes the partnership will be a “natural hedge” and will create strong profits throughout the whole year because Sporting Life sees its best sales rates in winter and Golf Town experiences them in summer.

A handful of Golf Town locations have shut down in recent years, but Sporting Life has grown to operate 11 stores in Ontario, Quebec and Alberta and says it is eyeing additional locations in British Columbia and Manitoba.