Venezuela’s Grim Reaper – A Weekly Report

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

The Grim Reaper has taken his scythe to the Venezuelan bolivar. The death of the bolivar is depicted in the following chart. A bolivar is worthless, and with its collapse, Venezuela is witnessing the world’s worst inflation. 

 

As the bolivar collapsed and inflation accelerated, the Banco Central de Venezuela (BCV) became an unreliable source of inflation data. Indeed, from December 2014 until January 2016, the BCV did not report inflation statistics. Then, the BCV pulled a rabbit out of its hat in January 2016 and reported a phony the annual inflation rate for the third quarter of 2015. So, the last official inflation data by the BCV is almost two years old. To remedy this problem, the Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, began to measure inflation in 2013. 

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black market (read: free market) for currency and the black market data are available, changes in the black market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

I compute the implied annual inflation rate on a daily basis by using PPP to translate changes in the VEF/USD exchange rate into an annual inflation rate. The chart below shows the course of that annual rate, which peaked at 1823% (yr/yr) in early August 2017. At present, Venezuela’s annual inflation rate is 1195%, the highest in the world (see the chart below).

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Chain-Store Stock Carnage Continues (Despite Biggest Jump In Retail Sales Since 2016)

Oh the irony - as bulls celebrate the best jump in retail sales since 2016, the scene for retailer stocks is an utter bloodbath...

Earlier today, US Retail Sales in July rebounded dramatically to a 0.6% MoM gain - the most since Dec 2016 - driven a surge in motor vehicles (record incentives) and department stores (more inventives?). Year-over-year saw upward revisions and a rebound to a 4.2% rise in July.

The last two month's declines in Retail Sales have been revised away magically and we have now gone 5 months without a decline...

 

But one glimpse at the carnage in chain-store stocks tells a very different story... Following a week of disappointing earnings from J.C. Penney Co. and Macy’s Inc., the drumbeat resumed Tuesday as results from Advance Auto Parts Inc., Coach Inc. and Dick’s Sporting Goods Inc. sent their shares crashing...

 

As Bloomberg notes, at this rate, the group is poised for the worst annual decline in share prices since the financial crisis.

“Everybody is being burned in retail and people are just questioning, ‘Is there any place that’s Amazon-free?’” Gary Bradshaw, a Dallas-based fund manager for Hodges Capital Management Inc., said by phone.

 

“There will be some winners in retail but boy, it’s just a land mine."

However, Vitaliy Katsenelson more accurately states It’s not just Amazon’s fault. Changing consumer habits are killing old retail biz...

Retail stocks have been annihilated recently, despite the economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter.

 

Jeff Bezos and Amazon get most of the credit, but this credit is misplaced. Today, online sales represent only 8.5 percent of total retail sales. Amazon, at $80 billion in sales, accounts only for 1.5 percent of total U.S. retail sales, which at the end of 2016 were around $5.5 trillion. Though it is human nature to look for the simplest explanation, in truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales.

 

Our consumption needs and preferences have changed significantly. Ten years ago we spent a pittance on cellphones. Today Apple sells roughly $100 billion worth of i-goods in the U.S., and about two-thirds of those sales are iPhones.

 

Consumer income has not changed much since 2006, thus over the last 10 years $190 billion in consumer spending was diverted toward mobile phones. Between phones and their services, this is $340 billion that will not be spent on T-shirts and shoes.

 

But we are not done. The combination of mid-single-digit health-care inflation and the proliferation of high-deductible plans has increased consumer direct health-care costs and further chipped away at our discretionary dollars. Health-care spending in the U.S. is $3.3 trillion, and just 3 percent of that figure is almost $100 billion.

 

Then there are soft, hard-to-quantify factors. Millennials and millennial-want-to-be generations (speaking for myself here) don’t really care about clothes as much as we may have 10 years ago.

 

All this brings us to a hard and sad reality: The U.S. is over-retailed. We simply have too many stores. Americans have four or five times more square footage per capita than other developed countries. This bloated square footage was created for a different consumer, the one who in in the ’90s and ’00s was borrowing money against her house and spending it at her local shopping mall.

But the bottom line, as we noted previously, is that America's malls, retail stores, and fast-food restaurants are hugely overbuilt.

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Spitznagel: Why Cryptocurrencies Will Never Be Safe Havens

Authored by Mark Spitznagel via The Mises Institute,

Every further new high in the price of Bitcoin brings ever more claims that it is destined to become the preeminent safe haven investment of the modern age — the new gold.

But there’s no getting around the fact that Bitcoin is essentially a speculative investment in a new technology, specifically the blockchain. Think of the blockchain, very basically, as layers of independent electronic security that encapsulate a cryptocurrency and keep it frozen in time and space — like layers of amber around a fly. This is what makes a cryptocurrency “crypto.”

That’s not to say that the price of Bitcoin cannot make further (and further…) new highs. After all, that is what speculative bubbles do (until they don’t). 

Bitcoin and each new initial coin offering (ICO) should be thought of as software infrastructure innovation tools, not competing currencies. It’s the amber that determines their value, not the flies. Cryptocurrencies are a very significant value-added technological innovation that calls directly into question the government monopoly over money. This insurrection against government-manipulated fiat money will only grow more pronounced as cryptocurrencies catch on as transactional fiduciary media; at that point, who will need government money? The blockchain, though still in its infancy, is a really big deal.

While governments can’t control cryptocurrencies directly, why shouldn’t we expect cryptocurrencies to face the same fate as what started happening to numbered Swiss bank accounts (whose secrecy remain legally enforced by Swiss law)? All local governments had to do was make it illegal to hide, and thus force law-abiding citizens to become criminals if they fail to disclose such accounts. We should expect similar anti-money laundering hygiene and taxation among the cryptocurrencies. The more electronic security layers inherent in a cryptocurrency’s perceived value, the more vulnerable its price is to such an eventual decree.

Bitcoins should be regarded as assets, or really equities, not as currencies. They are each little business plans — each perceived to create future value. They are not stores-of-value, but rather volatile expectations on the future success of these business plans. But most ICOs probably don’t have viable business plans; they are truly castles in the sky, relying only on momentum effects among the growing herd of crypto-investors. (The Securities and Exchange Commission is correct in looking at them as equities.) Thus, we should expect their current value to be derived by the same razor-thin equity risk premiums and bubbly growth expectations that we see throughout markets today. And we should expect that value to suffer the same fate as occurs at the end of every speculative bubble. 

If you wanted to create your own private country with your own currency, no matter how safe you were from outside invaders, you’d be wise to start with some pre-existing store-of-value, such as a foreign currency, gold, or land. Otherwise, why would anyone trade for your new currency? Arbitrarily assigning a store-of-value component to a cryptocurrency, no matter how secure it is, is trying to do the same thing (except much easier than starting a new country). And somehow it’s been working.

Moreover, as competing cryptocurrencies are created, whether for specific applications (such as automating contracts, for instance), these ICOs seem to have the effect of driving up all cryptocurrencies. Clearly, there is the potential for additional cryptocurrencies to bolster the transactional value of each other—perhaps even adding to the fungibility of all cryptocurrencies. But as various cryptocurrencies start competing with each other, they will not be additive in value. The technology, like new innovations, can, in fact, create some value from thin air. But not so any underlying store-of-value component in the cryptocurrencies. As a new cryptocurrency is assigned units of a store-of-value, those units must, by necessity, leave other stores-of-value, whether gold or another cryptocurrency. New depositories of value must siphon off the existing depositories of value. On a global scale, it is very much a zero sum game.

Or, as we might say, we can improve the layers of amber, but we can’t create more flies.

This competition, both in the technology and the underlying store-of-value, must, by definition, constrain each specific cryptocurrency’s price appreciation. Put simply, cryptocurrencies have an enormous scarcity problem. The constraints on any one cryptocurrency’s supply are an enormous improvement over the lack of any constraint whatsoever on governments when it comes to printing currencies. However, unlike physical assets such as gold and silver that have unique physical attributes endowing them with monetary importance for millennia, the problem is that there is no barrier to entry for cryptocurrencies; as each new competing cryptocurrency finds success, it dilutes or inflates the universe of the others.

The store-of-value component of cryptocurrencies — which is, at a bare-minimum, a fundamental requirement for safe haven status — is a minuscule part of its value and appreciation. After all, stores of value are just that: stable and reliable holding places of value. They do not create new value, but are finite in supply and are merely intended to hold value that has already been created through savings and productive investment. To miss this point is to perpetuate the very same fallacy that global central banks blindly follow today. You simply cannot create money, or capital, from thin air (whether it be credit or a new cool cryptocurrency). Rather, it represents resources that have been created and saved for future consumption. There is simply no way around this fundamental truth.

Viewing cryptocurrencies as having safe haven status opens investors to layering more risk on their portfolios. Holding Bitcoins and other cryptocurrencies likely constitutes a bigger bet on the same central bank-driven bubble that some hope to protect themselves against. The great irony is that both the libertarian supporters of cryptocurrencies and the interventionist supporters of central bank-manipulated fiat money both fall for this very same fallacy.

Cryptocurrencies are a very important development, and an enormous step in the direction toward the decentralization of monetary power. This has enormously positive potential, and I am a big cheerleader for their success. But caveat emptor - thinking that we are magically creating new stores-of-value and thus a new safe haven is a profound mistake.

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The Fed Issues A Warning As Household Debt Hits New All Time High

After we first reported last week that US credit card debt hit a new all time high with both student and auto loans rising to fresh records with every new report...

... it won't come as a surprise that according to the just released latest quarterly household debt and credit report by the NY Fed, Americans' debt rose to a new record high in the second quarter on the back of an increase in every form of debt: from mortgage, to auto, student and credit card debt. Aggregate household debt increased for the 12th consecutive quarter, and are now $164 billion higher than the previous peak of $12.68 trillion set in Q3, 2008. As of June 30, 2017, total household indebtedness was $12.84 trillion, or 69% of US GDP: a $114 billion (0.9%) increase from the first quarter of 2017 and up $552 billion from a year ago. Overall household debt is now 15.1% above the Q2 2013 trough.

Mortgage balances, the largest component of household debt, increased again during the first quarter to $8.69 trillion, an increase of $64 billion from the first quarter of 2017. Balances on home equity lines of credit (HELOC) were roughly flat, and now stand at $452 billion. Non-housing balances were up in the second quarter. Auto loans grew by $23 billion and credit card balances increased by $20 billion, while student loan balances were roughly flat.

  • Confirming the slowdown in mortgage activity, mortgage originations in Q2 declined to $421 billion from $491 billion. Meanwhile, there were $148 billion in auto loan originations in the second quarter of 2017, an uptick from the first quarter and about the same as the very high level in the 2nd quarter of 2016.
  • Auto loan balances increased by $23 billion, continuing their 6-year trend. Auto loan delinquency rates increased slightly, with 3.9% of auto loan balances 90 or more days delinquent on June 30. The aggregate credit card limit rose for the 18h consecutive quarter, with a 1.6% increase.
  • Outstanding student loan balances rose modestly, and stood at $1.34 trillion as of June 30, 2017. The second quarter typically witnesses slow or no growth in student loan balances due to the academic cycle. As discussed previously, a perilously high 11.2% of aggregate student loan debt was 90+ days delinquent or in default in 2017 Q2.

In a troubling development, the report noted that the distribution of the credit scores of newly originating mortgage and auto loan borrowers shifted downward somewhat, as the median score for originating borrowers for auto loans dropped 8 points to 698, and the median origination score for mortgages declined to 754. For now this credit score decline has not impacted the credit market: about 85,000 individuals had a new foreclosure notation added to their credit reports in the second quarter as foreclosures remained low by historical standards.

And while much of the report was in line with recent trends, and the overall debt that was delinquent, at 4.8%, was on par with the previous quarters, the NY Fed did issue a red flag warning over the transitions of credit card balances into delinquency, which the New York Fed said "ticked up notably."

Discussing the troubling deterioration in credit card defaults, first pointed out here in April, the New York Fed said that credit card balance flows into both early and serious delinquencies increased from a year ago, describing this as "a persistent upward movement not seen since 2009." As shown in the chart below, the transition into 30 and 90-Day delinquencies has, over the past two quarters, surged to the highest rate since the first quarter of 2013, suggesting something drastically changed in the last three quarters when it comes to US consumer behavior.

“While relatively low, credit card delinquency flows climbed notably over the past year,” said Andrew Haughwout, senior vice president at the New York Fed. “This is occurring within the context of loosening lending standards, as borrowers with lower credit scores recover their ability to access credit cards. The current state of credit card delinquency flows can be an early indicator of future trends and we will closely monitor the degree to which this uptick is predictive of further consumer distress.

That bolded statement, is the first official warning by the Fed that the US consumer is sick, and the Fed has no way reasonable explanation for this troubling jump in delinquencies. Timestamp it, because this will certainly not the be the last time the Fed warns about the dangerous consequences of all-time high credit card debt.

As for the "further uptick in consumer distress", we are just guessing but the fact that credit card defaults are jumping at a time when sales at fast food and other restaurants have declined for 17 consecutive quarters, and when $250 billion in US household savings was just "revised" away, may all be connected.

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One Analyst Throws Up On Today’s Retail Sales Data: Here’s Why

Two weeks ago we reported that July auto sales were a disaster: recall sales for bloated with inventory GM were down 15% YoY, Ford off 7% and Chrysler down 11% - despite record incentive spending - as overall auto sales declined and disappointed for yet another month. And yet, according to this morning's retail sales report from the Census Bureau, sales for "motor vehicle & parts stores" rose much more robustly than anyone had anticipated, rising 1.2%, the fastest pace since December.

This number was so bizarre, and so out of context with recent sales data, that SouthBay Research threw up all over it in its morning note today. Here's why:

  • Retail Sales m/m: 0.6%
  • Retail Sales ex Autos m/m: 0.45%
  • Retail Sales ex Autos & Amazon m/m: 0.3%

Consumer Retail Spending was Actually Mild, As Expected

  • Auto Sales growth unbelievable
  • Amazon Prime Day juiced the results

 

Don't believe the auto sales data.  Per the BEA, unit sales were flat m/m (+90K).  Meanwhile, per JD Power, July average retail prices were $950 lower than June's as auto dealers struggled to make sales and incentives averaged $3.9K, the highest on record and $100 higher than June.

  • Hmmm, no rise in auto sales per the real world and the BEA.  Coupled with a fall in net prices. But in fantasy land, the Census Bureau announces a $1.2B m/m jump in sales and a 7%+ y/y rise.

 

Amazon Prime Day Was Huge...and will Cut August Sales

  • Nonstore Retail Sales jumped $700M m/m.  That's the Amazon Prime Day effect. I modeled it lower and that's the source of my miss this month

 

Reasons for Caution: Government Data is Overstating Reality

  • The Retail strength does reinforce my view that macro data favors the US in 2H and that the dollar is oversold. But the Retail headline figure is wrong and analysts were correct: consumer spending as captured by Retail is sluggish.  The fact that reality is badly captured by the Retail figures is concerning insofar as it affects the Fed's decision making. 

 

The opportunity is to recognize that consumer spending in the real world will pull back and it will also be missed by the official data.  With Consensus unprepared for the pull back, it will deliver a greater shock.

Meanwhile, here's a quick look at SouthBay's proprietary "Vice Index."

For those who are unfamiliar, the vice index tracks US consumer spending on alcohol, marijuana, prostitution and gambling, Vices are a special form of discretionary spending that is highly sensitive to near-term
economic conditions: i) Cash based: depends on free cash flow; ii) Luxury spending: wants not needs; iii) Significant dollar amount: not pricey but not cheap. Vice spending is broadly representative of the US consumer: i) Broad-based: Every socioeconomic and demographic group participates; ii) High-volume transactions: Over 100M discrete events per year.

The reason why this index is of particular interest, is because vices predict retail spending with a 4-month lead. Luxury spending is the 1st thing to be affected by changes in household finances.

This is what the index shows:

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Trump Slams “Grandstanding” CEOs Who Have Quit His Council

Well, on the bright side, it took him around 12 hours to respond to last night's resignations...

The remaining CEOs on Trump's council had the following to say (via Business Insider)

  • Andrew Liveris, Dow Chemical Company, will remain on the council. "I condemn the violence this weekend in Charlottesville, Virginia, and my thoughts and prayers are with those who lost loved ones and with the people of Virginia," Liveris said in an emailed statement. "In Dow, there is no room for hatred, racism, or bigotry. Dow will continue to work to strengthen the social and economic fabric of the communities where it operates — including supporting policies that help create employment opportunities in manufacturing and rebuild the American workforce."
  • Bill Brown, Harris Corporation, did not respond to a request for comment.
  • Michael Dell, Dell Technologies, will remain on the council. "While we wouldn't comment on any member's personal decision, there's no change in Dell engaging with the Trump administration and governments around the world to share our perspective on policy issues that affect our company, customers, and employees," a spokeswoman said.
  • John Ferriola, Nucor Corporation, did not respond to a request for comment.
  • Jeff Fettig, Whirlpool Corporation, will remain on the council. "Whirlpool Corp. believes strongly in an open and inclusive culture that respects people of all races and backgrounds," the company said in a statement. "Our company has long fostered an environment of acceptance and tolerance in the workplace. The company will continue on the Manufacturing Jobs Initiative to represent our industry, our 15,000 US manufacturing workers, and to provide input and advice on ways to create jobs and strengthen US manufacturing competitiveness."
  • Alex Gorsky, Johnson & Johnson, did not respond to a request for comment.
  • Greg Hayes, United Technologies Corp., did not respond to a request for comment.
  • Marillyn Hewson, Lockheed Martin, declined to comment.
  • Jeff Immelt, General Electric, will remain on the council. "GE has no tolerance for hate, bigotry or racism, and we strongly condemn the violent extremism in Charlottesville over the weekend," a GE representative said in a statement. "GE is a proudly inclusive company with employees who represent all religions, nationalities, sexual orientations, and races. With more than 100,000 employees in the United States, it is important for GE to participate in the discussion on how to drive growth and productivity in the US, therefore, Jeff Immelt will remain on the Presidential Committee on American Manufacturing while he is the chairman of GE."
  • Jim Kamsickas, Dana Inc., did not respond to a request for comment.
  • Rich Kyle, The Timken Company, did not respond to a request for comment.
  • Richard Trumka, AFL-CIO, said the group was aware of Frazier's decision and assessing its role. "The AFL-CIO has unequivocally denounced the actions of bigoted domestic terrorists in Charlottesville and called on the president to do the same," Trumka said in a statement. "We are aware of the decisions by other members of the President's Manufacturing Council, which has yet to hold any real meeting*, and are assessing our role. While the AFL-CIO will remain a powerful voice for the freedoms of working people, there are real questions into the effectiveness of this council to deliver real policy that lifts working families."
  • Thea Lee, formerly AFL-CIO, departed as the group's deputy chief of staff, and it is unclear whether she will remain a member of the council.
  • Denise Morrison, Campbell Soup Company, will remain on the council. "The reprehensible scenes of bigotry and hatred on display in Charlottesville over the weekend have no place in our society," a company representative said. "Not simply because of the violence, but because the racist ideology at the center of the protests is wrong and must be condemned in no uncertain terms. Campbell has long held the belief that diversity and inclusion are critical to the success of our business and our culture. Our commitment to diversity and inclusion is unwavering, and we will remain active champions for these efforts. We believe it continues to be important for Campbell to have a voice and provide input on matters that will affect our industry, our company and our employees in support of growth. Therefore, Ms. Morrison will remain on the President's Manufacturing Jobs Initiative."
  • Dennis Muilenburg, Boeing, will remain on the council.
  • Doug Oberhelman, formerly Caterpillar, did not respond to a request for comment.
  • Scott Paul, Alliance for American Manufacturing, was unavailable for comment.
  • Michael Polk, Newell Brands, did not respond to a request for comment.
  • Mark Sutton, International Paper, will remain on the council. "International Paper strongly condemns the violence that took place in Charlottesville over the weekend — there is no place for hatred, bigotry, and racism in our society," an International Paper representative said. "We are a company that fosters an inclusive workforce where all employees are valued and treated with dignity and respect. Through our participation on the Manufacturing Jobs Council, we will work to strengthen the social and economic fabric of communities across the country by creating employment opportunities in manufacturing."
  • Inge Thulin, 3M, did not respond to a request for comment.
  • Wendell Weeks, Corning, did not respond to a request for comment.

Who will be "the last CEO standing"?

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“Attack Venezuela!?” Ron Paul Rants “Trump Can’t Be Serious!”

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

There is something unsettling about how President Trump has surrounded himself with generals. From his defense secretary to his national security advisor to his White House chief of staff, Trump looks to senior military officers to fill key positions that have been customarily filled by civilians. He’s surrounded by generals and threatens war at the drop of a hat.

President Trump began last week by threatening “fire and fury” on North Korea. He continued through the week claiming, falsely, that Iran is violating the terms of the nuclear deal. He finally ended the week by threatening a US military attack on Venezuela.

He told reporters on Friday that,

“We have many options for Venezuela including a possible military option if necessary. …We have troops all over the world in places that are very, very far away. Venezuela is not very far away and the people are suffering, and they are dying.”

Venezuela’s defense minister called Trump’s threat “an act of craziness.”

Even more worrisome, when Venezuelan president Nicolas Maduro tried to call President Trump for clarification he was refused. The White House stated that discussions with the Venezuelan president could only take place once democracy was restored in the country. Does that mean President Trump is moving toward declaring Maduro no longer the legitimate president of Venezuela? Is Trump taking a page from Obama’s failed regime change policy for Syria and declaring that “Maduro must go”?

The current unrest in Venezuela is related to the economic shortcomings of that country’s centrally-planned economy. The 20th century has shown us very clearly that state control over an economy leads to mismanagement, mal-investment, massive shortages, and finally economic collapse. That is why those of us who advocate free market economics constantly warn that US government intervention in our own economy is leading us toward a similar financial crisis.

But there is another factor in the unrest in Venezuela. For many years the United States government, through the CIA, the National Endowment for Democracy, and US government funded NGOs, have been trying to overthrow the Venezuelan government. They almost succeeded in 2002, when then-president Hugo Chavez was briefly driven from office. Washington has spent millions trying to manipulate Venezuela’s elections and overturn the results. US policy is to create unrest and then use that unrest as a pretext for US intervention.

Military officers play an important role in defending the United States. Their job is to fight and win wars. But the White House is becoming the war house and the president seems to see war as a first solution rather than a last resort. His threats of military action against a Venezuela that neither threatens nor could threaten the United States suggests a shocking lack of judgment.

Congress should take President Trump’s threats seriously. In the 1980s, when President Reagan was determined to overthrow the Nicaraguan government using a proxy army, Congress passed a series of amendments, named after their author, Rep. Edward Boland (D-MA), to prohibit the president from using funds it appropriated to do so. Congress should make it clear in a similar manner that absent a Venezuelan attack on the United States, President Trump would be committing a serious crime in ignoring the Constitution were he to follow through with his threats. Maybe they should call it the “We’re Not The World’s Policeman” act.

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Autonomous Cars Could Impact Nearly 16 Million Jobs In U.S., Commerce Department Finds

The technology required to enable fully autonomous cars is not here yet. You'll get no argument from us on that point. 

Despite the loftiest of wishes from companies like Uber and Tesla, for now autonomous cars can't seem to stop running red lights...which is a slight issue.  And that says nothing about the societal transformation required to fully adopt such technology which will likely span a generation.  Let's face it, just like grandma refused to adopt the e-commerce revolution, there are certain people who will simply never trust a computer to drive them around.

All that said, it is inevitable that, at some point in the future, autonomous vehicles will be the norm.  And, when that day comes, it will undoubtedly wreak further havoc on a U.S. job market where 95 million people have already decided they would rather sit at home than look for a job...at least according to a new study from the U.S. Commerce Department

According to the study released last week, nearly 4 million jobs in the U.S. could be completely eliminated by autonomous vehicle technology while closer 16 million will be radically transformed.

The expected introduction of autonomous, or “self-driving,” vehicles (AVs) promises to have a potentially profound impact on labor demand. This paper explores this potential effect by identifying the occupations most likely to be directly affected by the business adoption of autonomous vehicles.

 

In 2015, 15.5 million U.S. workers were employed in occupations that could be affected (to varying degrees) by the introduction of automated vehicles. This represents about one in nine workers.

 

We divide these occupations into “motor vehicle operators” and “other on-the-job drivers.” Motor vehicle operators are occupations for which driving vehicles to transport persons and goods is a primary activity, are more likely to be displaced by AVs than other driving-related occupations. In 2015, there were 3.8 million workers in these occupations. These workers were predominately male, older, less educated, and compensated less than the typical worker. Motor vehicle operator jobs are most concentrated in the transportation and warehousing sector.

 

Other on-the-job drivers use roadway motor vehicles to deliver services or to travel to work sites, such as first responders, construction trades, repair and installation, and personal home care aides. In 2015, there were 11.7 million workers in these occupations and they are mostly concentrated in construction, administrative and waste management, health care, and government. Other-on-the-job drivers may be more likely to benefit from greater productivity and better working conditions offered by AVs than motor vehicle operator occupations.

 

So which professions will be hit the hardest?  Well, the Commerce Department says that 65% of the most obvious job losses will likely come from the long and short-haul commercial delivery businesses.

 

Of course, the direct driving job losses say nothing about the 2nd-derivative losses that will also inevitably come.  For instance, consider our post from almost exactly one year ago in which we argued that autonomous cars could double the capacity utilization of passenger vehicles thus cutting a 'normalized' auto SAAR in half (see: Ford Announces Plans To Self-Destruct Starting In 2021).

So what do we mean when we say an autonomous car pretty much ensures Ford's demise?  To be clear, we're not specifically targeting Ford...the whole auto industry is in serious trouble when truly autonomous driving arrives.  Below is a little math to help illustrate the point.

 

Right now there are roughly 250mm light-duty passenger cars on the road in the U.S. (that's about 1 car per driving age person, btw, which is fairly astounding by itself).  American's travel roughly 3 trillion miles per year in aggregate which which means that each car travels an average of 12k miles per year.  Now if you assume the average rate of travel is 45 miles per hour then you'll find that each car is implied to be on the road for an average of about 45 minutes per day.  That's a capacity utilization of about 3% (see table below for quick math).

 

Capacity Utilization

 

A 3% capacity utilization ratio is, needless to say, fairly terrible.  We don't imagine too many CFOs would model capital allocation decisions based on a 3% capacity utilization for fixed assets.  That said, individuals are forced to underwrite car purchases to a 3% capacity utilization because they have no choice.  People have to get to work and 100% reliance on public transit options as just not feasible for most people in this country.

 

That is, until the arrival of completely autonomous vehicles.  The problem with mass transit is that people still need a car to get back and forth to the train station or bus stop.  The problem with Ubers/Taxis is that they're expensive for daily use due primarily to the labor overhead that's built into your per mile rate.  But fully autonomous vehicles solve both those problems.  Now, people will have the option of a vehicle at their beck and call without having to fund the upfront capital cost of a purchase and/or the per unit human capital costs inherent in taking an Uber.  In other words, the per mile rental rate of a fully autonomous car should be competed down to a level that provides an adequate return solely on the cost of the vehicle...no wages, no benefits, none of the typical hassles associated with employing people.  Or, said another way, taking an Uber is going to get really freaking cheap.

 

But the best part is that capacity utilization with fully autonomous cars can skyrocket driving per unit costs even lower for passengers.  For example, when you drive to work right now your car sits there all day until you drive home.  In the autonomous car world, that car will drive you to work then go pick up multiple other people to do the same thing.  Now, if capacity utilization doubles from just 3% to 6% all of sudden half the number of cars are required in the US which means annual SAAR goes from ~17mm to ~8.5mm...which means Ford and GM likely find themselves in another bailout situation.

 

Normalized SAAR

 

And, if you're making half the cars, guess how many people you need to make them?

Oh well, at least there's always that McDonalds job to fall back on...oh wait...

Mcdonalds

 

The full Commerce Department study can be viewed here:

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Hedge Funds’ Love Affair With FAANG Fizzles: Full 13-F Breakdown

One quarter after virtually every hedge fund loaded up on one or more of the six most influential tech stocks in the U.S stock market, Facebook, Apple, Amazon, Netflix and Google - a handful of stocks roughly responsible for half the market's YTD gains - the love affair with FAANG continued, albeit far less passionately, with quite a few cases of "buyer's remorse" emerging. According to an analysis by Reuters, closely-watched U.S. hedge fund managers were generally bearish on FAANGs in Q2, with eight prominent investors in aggregate cutting or liquidating 18 stakes in the companies, according to the latest 13-F dump.

Among those who had chilled on the tech space, were Coatue Management, Omega Advisors, Third Point, Tiger Global Management, Appaloosa Management, Paulson & Co, Soros Fund Management and Greenlight Capital, who in aggregate slashed 16 stakes, sold two stakes, increased six stakes, opened two new stakes, and maintained two positions in the so-called FAANG stocks in the three months ended June 30.

Some examples:

  • Dan Loeb's Third Point increased its stake in GOOGL by 120,000 class A shares to 575,000 and increased its position in Facebook by 500,000 class A shares to 3.5 million as of June 30.
  • On the other hand, Leon Cooperman's Omega Advisors took a more bearish stance overall and cut its stake in Facebook by 26,700 class A shares to 236,200. It also cut its stake in Netflix by 12,700 shares to 65,000 shares and trimmed its stake in Amazon by 8,900 shares to 10,500 shares. Omega kept its stake in Alphabet of 158,835 class A shares unchanged.
  • Soros Fund Management sold its entire stake in Alphabet of 1,300 class A
    shares, cut its stake in Facebook Inc by 161,373 class A shares to
    476,713, sold its entire stake in Netflix of 131,966 shares, but took a
    new stake in Amazon of 7,500 shares.
  • Chase Coleman's Tiger Global - a pioneer in tech investing  - cut its stake in Amazon by 110,120 shares to 1.2 million shares and trimmed its stake in Netflix by 52,600 shares to 376,400.
  • Philippe Laffont’s Coatue Management trimmed its stake in Netflix by 17,909 shares to 3 million shares and cut its stake in Apple by 46,060 shares to 2.9 million shares.
  • David Einhorn’s Greenlight Capital also cut its Apple position by 42,400 shares to 3.9 mln shares.
  • John Paulson unimaginatively named hedge fund took a new stake of 12,300 shares in Apple.

On the bullish side, most "balls to the wall" was David Tepper, whose Appaloosa Management increased its stake in Apple by 325,000 shares to 625,000, raised its Alphabet position by 110,000 shares to 585,000 - the fund's second largest position at roughly $531MM as of Q2 - and boosted its Facebook holdings  by almost 450k shares to 2.356 million shares.

However, Appaloosa's most bullish bet was a massive, 3.6 million new share position in Alibaba, equal to over $520MM as of June 30.

As a reminder, in Q2 all of the FAANG stocks rose in the second quarter, with Alphabet surging the most, by 9.7% and Apple the least at just 0.3%. Judging by the move in the third quarter, in which all of the FAANG stocks have continued their ascent, with Netflix gaining the most at 14.5% and Alphabet the least at 1%, some of those who sold were likely dragged right back in.

Below, courtesy of Bloomberg, is a breakdown of some key moves by marquee hedge funds during the second quarter:

ADAGE CAPITAL

  • Top new buys: BCR, EMR, CBS, LMT, NDSN, DXC, KGC, GDDY
  • Top exits: OGE, JCI, EQT, MPC, SQM, RF, TMUS, LII, RBC, AGR
  • Boosted stakes in HON, DOV, DHR, ABX, SPR, COF, CMCSA, GOOG, AERI, NOC
  • Cut stakes in DE, DIS, CC, GD, ITW, TIF, BKH, JAZZ, AAPL, FOXA

APPALOOSA MANAGEMENT

  • Top new buys: BABA, DG, SYK, ETE, LB, WFC, CX
  • Top exits: RF, PFE, MYL, TEVA, SYMC, CHTR, MT, UAL, GLBL, X
  • Boosted stakes in MU, GOOG, WDC, FB, AAPL, URI, TMO, UNH, DAL
  • Cut stakes in LUV, GM, AGN, KMI, WPZ, HCA, NUE, BSX, MHK, PNC

BAUPOST GROUP

  • Top new buys: CAR, SRUN, SRC
  • Top exits: INVA, MCK, SYT, ABC
  • Boosted stakes in SYF, AR, ESRX, QRVO, CAH, PRTK, FWP
  • Cut stakes in CACC, LNG

BERKSHIRE HATHAWAY

  • Top new buys: SYF, STOR
  • Top exits: GE
  • Boosted stakes in BK, GM, AAPL
  • Cut stakes in IBM, WFC, WBC, SIRI, UAL, AAL, DAL

BLUE HARBOR

  • Top new buys: INCR, AXTA, COMM, CLNS
  • Top exits: AKAM
  • Boosted stakes in OTEX, ADNT, SPY, FFIV, RDC
  • Cut stakes in BWXT, AVT, AGCO, XLNX, LAZ, IWM

BRIDGEWATER ASSOCIATES

  • Top new buys: GLD, CHK
  • Top exits: DIS, CVS, SPLS, MU, CTL, AET, X, DISH, JCP, WMT
  • Boosted stakes in HYG, RL, NFX, SWN
  • Cut stakes in ENDP, CLF, IPG, UPS, PBR, COP, BP, KORS, CVX, XOM

COATUE MANAGEMENT

  • Top new buys: SHOP, NOW, CRM, CGNX, ON
  • Top exits: JPM, ZAYO, ILMN
  • Boosted stakes in BABA, TWLO, ALGT, NTRI, CMCM
  • Cut stakes in BAC, EBAY, DIS, APPL, NTNX

CORVEX MANAGEMENT

  • Top new buys: CTL, TWX, JBLU, FDX, SBNY, BTU, CFCO
  • Top exits: YUM, YUMC, BLL, CRM, PX, CL, HUM, ETFC, JACK, PRXL
  • Boosted stakes in EGN, SIG, GOOGL, BAC
  • Cut stakes in BIO, MDCO, PAH, RF, FB, NOMD

DUQUESNE FAMILY OFFICE

  • Top new buys: BABA, MRK, NOW, YUMC, DAL, V, MA, SBAC, CCI
  • Top exits: LYB, ABX, BAC, AA, AEM, PXD, COG, LNG, SYMC, TMUS
  • Boosted stakes in FB, GOOGL, MSFT, AMZN, CMCSA, PCLN, JD, CTRP, PYPL, EA
  • Cut stakes in PTC

ELLIOTT MANAGEMENT

  • Top new buys: NXPI, BTU, NORD, GIMO, WYN, ATHN, FMSA, ARCC
  • Boosted stakes in ECA, MPC, AA, RYAAY, EGN, ACAD, GPI, SAH, ABG, NRG
  • Cut stakes in LOGM, CJ

FIDELITY MANAGEMENT

  • Top new buys: EEX, YEXT, FPH, ATUS, NCSM
  • Top exits: GCO, VR, SYT, NYRT, FCN
  • Boosted stakes in PYPL, BABA, GOOGL, UNH, FB
  • Cut stakes in APC, AAPL, CMG, TJX, NXPI

GREENLIGHT CAPITAL

  • Top new buys: HPE, TGNA, ADNT, TPX, CARS, NYRT
  • Top exits: TWX, SYT, CI, IAC, ALR, TPH, FMC
  • Boosted stakes in PRGO, MYL, DDS, MU, DSW
  • Cut stakes in CC, PVH, FRED, QHC, AAPL, MON

HIGHFIELDS CAPITAL MANAGEMENT

  • Top new buys: HDS, FOXA, GS, KO, NVDA, DLTR, MCD, FE
  • Top exits: CVS, SYT, MPC, IAC, KMI, YPF, BTE
  • Boosted stakes in TWX, TEVA, TV, FDX, MON, WBA, VER, TGT, HCA
  • Cut stakes in AMT, CCE, GOOG, TSLA, GOOGL, APO, VOD, ICE, NAK, HLT

ICAHN ASSOCIATES

  • Boosted stakes in IEP, FCX
  • Cut stakes in PYPL, AIG, XRX

JANA PARTNERS

  • Top new buys: EQT, ZBH, P, FDC, MOH, CDK, PF, SFM
  • Top exits: WLTW, AET, ADS, SHPG, BMY, WBMD, ACAD, SNAP, BMRN, GWPH
  • Boosted stakes in WFM, HPE, HDS, NUVA, ZAYO, DERM
  • Cut stakes in UHS, DOW, CAG, SHW, CRM, HAWK, TIF, LBRDK, CTSH, LADR

LANSDOWNE PARTNERS

  • Top new buys: PYPL, WDC, FSLR, HCC, VXX, CAFD, BTU, SWK, ENIC
  • Top exits: WFC, SNAP, GE, NFLX, TGP, TGS, ALGN, TSLA, SPWR
  • Boosted stakes in TSM, DAL, BAC, JPM, LB, C, HAS, CNQ, JCI, BABA
  • Cut stakes in DIS, CMCSA, FB, NKE, IR, ETN, UTX, ADNT, HON, SYY

LONE PINE CAPITAL

  • Top new buys: MSFT, ORLY, MA, ICE, TRU, NOW, UNH, ATUS, AAP, CRM
  • Top exits: NKE, EA, V, PCLN, DLTR, RICE, COMM, SHPG, ALGN, ECA
  • Boosted stakes in BABA, Q, EXPE, CMCSA, FLT, FB, ANET, SNAP, TMUS, TV
  • Cut stakes in CHTR, SYMC, CSX, ALB, ADBE, EQIX, ULTA, ATVI, STZ

LONG POND CAPITAL

  • Top new buys: DHI, SLG, VER, RF, BXP, HLT, LSI, ATH, FOR
  • Top exits: ESS, GGP, REG, LEN, TPH, CZR, INXN, UDR, QCP, BK
  • Boosted stakes in AIV, PGRE, SRC, WFC, RPAI, CLGX, TCO
  • Cut stakes in EQR, MSG, LOW, FCE/A, MAC, LQ

MARCATO CAPITAL

  • Top new buys: NTCT, CFCO, RYAM
  • Top exits: SIG, FC
  • Boosted stakes in DECK, TEX, RCII, LQ, BWLD
  • Cut stakes in AVT, BID, GT, ERI, TPHS, IAC

MAVERICK CAPITAL

  • Top new buys: TAP, DOW, MGM, QCOM, FIS, CHTR, V, ATUS, MIK
  • Top exits: NWL, KHC, SBAC, FLT, MYL, CMCSA, NVDA, HSY, MELI, FFIV
  • Boosted stakes in DLTR, EVHC, IPXL, WYNN, LVS, UHS, FB, SHPG, MCD, WTW
  • Cut stakes in ADBE, PFE, COMM, AET, CI, USFD, VMC, WCN, ORLY, ANDV

MELVIN CAPITAL

  • Top new buys: GOOGL, WYN, QSR, YUM, FLT, TTWO, PANW, EDU, MHK
  • Top exits: AAP, FOXA, FDX, DLTR, CALM, NTES, SKX, MAS, HDS, DFRG
  • Boosted stakes in BABA, STZ, AMZN, V, ADBE, WYNN, KMX, LOW, AOBC, LAUR
  • Cut stakes in MCD, FB, SHW, DE, COO, BURL, THO, RLGY, SUM, CASY

MOORE CAPITAL

  • Top new buys: MON, WMT, CDEV, AMT, SRUN, PVH, YNDX, QTS, SBAC
  • Top exits: GS, MS, EXPE, CTRP, PCAR, SNAP, MCD, DLTR, CMG, WLK
  • Boosted stakes in GOOGL, JD, UTX, MLCO, CRM, BURL, IT, VMC, CCL
  • Cut stakes in MSFT, BAC, AAPL, ATH, HD, XLF, AER, BKD, PLYA, SYF

OMEGA ADVISORS

  • Top new buys: MXL, OCN, CVA, LB, TRN, ADSK, AAL, ETE, NCLH
  • Top exits: WBA, TPH, WPZ, HUM, P, FL, IBKC, CLF, FGL, AA
  • Boosted stakes in MSFT, SBGI, VVV, NBR, ZNGA, PVH, GIMO, FRAC, WPX, SYF
  • Cut stakes in HRG, ASPS, ARRS, HES, LOW, BERY, AMZN, AIG, NRZ

PERSHING SQUARE

  • Top new buys: ADP
  • Top exits: APD
  • Boosted stakes in HHC
  • Cut stakes in MDLZ

POINT72 ASSET MANAGEMENT

  • Top new buys: JNJ, IGT, PAGP, WMT, LMT, DHR, LLL, CAH, BKD, MSG
  • Top exits: BDX, BCR, JCI, MEOH, CTSH, APA, COST, ESRX, FTI, GPC
  • Boosted stakes in BIIB, GOOGL, CMCSA, TTWO, GOOG, EA, V, AMZN, OLN
  • Cut stakes in FB, AAP, MCD, DIS, TWX, EOG, CLR, PK, ANDV, MYL

POINTSTATE CAPITAL

  • Top new buys: C, MGM, CCI, SBAC, BTU, DAL, ADBE, BA, TSRO, REGN
  • Top exits: ECA, VIAB, FANG, PNC, PE, HON, CRM, URI, ALKS, OLN
  • Boosted stakes in BABA, COG, AMZN, CMCSA, BAC, BMA, ETN, RICE, WMB, AGRO
  • Cut stakes in DOW, LYB, WFC, STZ, TMUS, CSX, EA, CFG, VRTX, BIIB

RENAISSANCE TECHNOLOGIES

  • Top new buys: PFE, MCK, ADSK, AIG, WDAY, T, WFC, KHC, AXP, NKE
  • Top exits: PCLN, TSLA, TEVA, AMD, CVS, MYL, REGN, TAP, ESRX, INFO
  • Boosted stakes in BMY, DPZ, NVDA, EA, CL, LLY, GSK, GILD, SBUX, AMGN
  • Cut stakes in CMCSA, FB, AET, MRK, PX, UNH, SHW, SIRI, INTC, NFLX

RUANE CUNNIFF & GOLDFARB

  • Top new buys: SPSC, APPF
  • Top exits: PRGO, CHTR, AMG, MCD, NVO, GHC, CVS, MSFT, ACGL, JNJ
  • Boosted stakes in OMC, PCLN, FCAU, GOOGL, V, CACC, WAT, GOOG, KMX
  • Cut stakes in FAST, BIDU, ORLY, BRK/B, BRK/A, TJX, WUBA, PRI, CMG, COF

SANDELL ASSET

  • Top new buys: ALR, GNCMA, WFM, BCR, TWX, BABA, TIVO, PCRX, BKS
  • Top exits: BOBE, WGL, CIT, VIAV
  • Boosted stakes in MGI, NXPI, BRCD, LVLT

SOROS FUND MANAGEMENT

  • Top new buys: EQT, ATUS, GIS, K, PAGP, BCR, TRGP, CARS, NEP
  • Top exits: AGRO, HPE, SYMC, CJ, SUPV, COP, GS, NFLX, VMW, CTXS
  • Boosted stakes in VIAV, MMYT, KHC, EPC, BABA, NOMD, TWX, ATGE, TIVO, ALLT
  • Cut stakes in LRCX, WMB, TMUS, CRC, FB, SBAC, TTWO, LBRDK, SNAP

STARBOARD VALUE

  • Top new buys: FCE/A, WBMD, ILG, SRC, PHG
  • Top exits: TRCO, CL, MYCC, PNK
  • Boosted stakes in HPE, FTNT, AAP
  • Cut stakes in NSP, BCO, CTSH, BAX, ABCO, QTM

TEMASEK

  • Top new buys: NFX, GRA, AVGO, KREF, NETS, CELG, AMGN, BIIB, MON
  • Top exits: SNAP
  • Boosted stakes in RDS/B, REGN, ALXN, UNVR
  • Cut stakes in GILD, ATH, AMRS, TMO, PTLA

TIGER GLOBAL

  • Top new buys: NETS, ATUS, JCP, OKTA, CLDR
  • Top exits: NTES, MELI, ELF
  • Boosted stakes in MSFT, TDG, APO, FLT, CMCSA, AWI
  • Cut stakes in CHTR, FCAU, DPZ, GOOG, GOOGL, FB, QSR, NFLX, ONDK, AMZN

THIRD POINT

  • Top new buys: BLK, BABA, NXPI, VMC, ALXN, FMC, BMA, EQT
  • Top exits: JPM, CRM, QCOM, ZAYO, RICE, CE, PXD, AA, NOMD, SNAP
  • Boosted stakes in GOOGL, FB, BAC, ANTM, PE, RSPP, TWX, DHR, DOW, HPE
  • Cut stakes in CHTR, SHW, HUM, MHK, STZ, HON, GD, BAX

TRIAN FUND

  • Boosted stakes in BK, PNR, PG, SYY, GE
  • Cut stakes in MDLZ, WEN

TUDOR INVESTMENT

  • Top new buys: FB, TRCO, FICO, CACQ, DISH, PCLN, GOOG, DXC
  • Top exits: SYT, BIVV, THS, BOBE, MBLY, CFG, CTAS, KEY, CB, MMC
  • Boosted stakes in GOOGL, AMZN, SPY, BCR, LVLT, AKRX, IAC, SEE, UNP
  • Cut stakes in DVA, ZBH, TSS, UNH, PCRX, FIS, BABA, NDAQ, EW, RTN

VALUEACT

  • Top new buys: KKR
  • Boosted stakes in STX, AFI
  • Cut stakes in MSFT, CBG, WLTW, BIVV, NTCT

VIKING GLOBAL

  • Top new buys: WFC, APC, AFL, BABA, TDG, MOH, RJF, FLT, NSC, LOW
  • Top exits: GOOG, SCHW, JPM, ICE, BIIB, DIS, UTX, CNC, GPOR, WDC
  • Boosted stakes in V, CRM, PH, JAZZ, LYB, NUVA, AVXS, XRAY, CALA, HDB
  • Cut stakes in FB, DOW, WBA, JD, NFLX, GOOGL, MSFT, DE, AMZN, ECA

Source: BBG

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