February 23, 2018

Soaring Asset Prices, Diminishing Savings Accounts

Posted in Keith Knutsson tagged at 3:28 am by Keith Knutsson

With stock prices through the roofs and job prospects improving, Americans are finally on an optimistic spending spree. As a result, this is leaving many Americans with less in their savings accounts, taking away from how much they save for retirement.

U.S. household net worth rose from $56 trillion in 2008 to $97 trillion in Q3 of 2017. Economists say it is natural for individuals and families to be spending more money when asset values are increasing. This is called the “wealth effect.” The wealth effect is the premise that when the value of stock portfolios rises due to escalating stock prices, investors feel more comfortable and secure about their wealth, causing them to spend more.

However, when spending is taken too far it can serve as a warning that markets are getting overheated. Previous busts, as we saw in the mid-2000s and the late-1990s, were preceded by periods of rising asset values and extremely low saving.

In December, the U.S. household saving rate dropped to its lowest level since the height of the 2000s housing boom, when many Americans were drawing on rising equity in their homes to spend on vacations, luxury goods, and other consumer discretionary products as opposed to saving. One factor that is different this time around, is that consumers are not spending on debt as aggressively as they used to. With new regulations in place, consumers and investors are less vulnerable should another recession hit the U.S. economy.

According to the U.S. Commerce Department, the saving rate was 2.4% of disposable household income. This is the lowest rate of saving since September 2005. The saving rate had risen to 6.6% when the recession ended in June 2009.

“U.S. consumers are now confident about their employment prospects, see their portfolios and properties increasing in value, and feel that their assets are doing the saving for them” said Keith Knutsson of Integrale Advisors.


February 10, 2018

Retailers On Returns

Posted in Keith Knutsson tagged at 4:17 am by Keith Knutsson

Over the holiday shopping season, retailers score big. However, in late December and January, when disputes over purchases spike, it’s time for payback for consumers.

According to a report by the U.S. Commerce Department, U.S. merchants and credit card issuers can expect to see $980 million in disputed charges reversed in the consumers’ favor. The volume of these post-holiday chargebacks is 25% to 35% higher compared with other times of the year.

The following factors contribute to the increase:

  • The disputes rise proportionately as holiday spending increases. Online retailers, eager to cash in on the buying spree, decrease security rules for approving transactions. Furthermore, increasing the count of stolen card numbers, allowing scammers to advantage of the opportunities, leading to even more disputes.
  • “Friendly fraud”, when consumers make online purchases with their own cards and then, after receiving the goods or services, claim they haven’t, and request chargebacks.
  • Less than 1% of transactions result in chargebacks. However, payment-card purchases exceed $5 trillion on an annual basis.
  • There are multiple parties are involved in a chargeback, including the cardholder, card issuer, card network, merchant processor and merchant, making the process rather complicated.

A chargeback occurs when a card issuer or retailer pays back a cardholder for a disputed transaction. When the issuer and retailer disagree over who is liable for the charge, the network decides. Often, the consumer wins due to the avid competition for customer loyalty and company reputation.

“The ability to return a good has become an essential feature in the retail industry. However, chargebacks can certainly be misused, and this is reflected on the retailers’ bottom line” said Keith Knutsson of Integrale Advisors.

February 2, 2018

Amazon Sells Groceries, Get Used to It

Posted in Keith Knutsson tagged at 7:49 pm by Keith Knutsson

One year after it was promised, Amazon.com Inc.’s cashierless convenience store is scheduled to open to the public on Monday January 22nd, 2018.

The new Amazon Go store, which will be located in the base of Amazon’s main headquarters in Seattle, uses machine-learning algorithms and computer imaging to track consumers and charge them for what they put in their cart. Therefore, eliminating checkout counters, cashiers, and baggers. This is an experiment done by Amazon that is part of the company’s broader effort to reinvent how consumers do their grocery shopping, and eventually, perhaps all of their shopping.

Amazon announced the new Go store in December 2016, and said it would open to the public in early 2017. The opening was delayed, however, as some technical issues needed to be worked out. In addition, Amazon workers were used to train the system. That training helped Amazon Go’s technology better identify objects and follow the different speeds and patterns of shoppers.

“The Go project shows how Amazon is attempting to transform shopping in physical retail stores after many years of setting the standard for retail online” said Keith Knutsson of Integrale Advisors.

In August 2017, Amazon completed a $13.5 billion deal to buy grocery chain Whole Foods, adding 470 brick-and-mortar stores to its portfolio overnight. The Amazon Go technology uses cameras throughout the store to track shoppers once they are inside. A customer entering the store scans his or her phone and then becomes represented internally as a mobile 3-D object to the system. Cameras also are pointed at the shelves to determine shoppers’ interactions with goods.

Although some store jobs become obsolete with this system, others do not. Certain store associates are still needed for maintaining the system functions, customer service if a shopper is not satisfied, and for instances where customers purchasing alcohol must show identification.


January 14, 2018

Growth Opportunities for the World of Automation

Posted in Keith Knutsson tagged at 12:15 pm by Keith Knutsson

Where the word automation increasingly penetrates individuals’ vocabulary, the fear of it follows soon after. Recent worldwide research reports estimate a task replacement rate in excess of 50% in the current workforce. While these research reports appear drastic to an outside view, it is important to consider the parameters and categorization of such and separate the technical from the practical. Current estimates for complete automation of jobs globally is limited to 5%. In other words, while a majority of jobs will witness a reformation in the workplace, the commonly depicted dystopian overhaul is not anticipated.

Despite limited reform in this new environment where AI will increase productivity and economic growth, millions of people in slowing industries might still be required to switch occupations or upgrade skills. Automation will have limited impact on jobs that involve managing people, applying expertise, and social interactions – areas where machines continue to struggle matching human performance for now. Research therefore suggests that the next decade will experience a profound demand opportunity among creatives, technology professionals, teachers, caregivers, builders and managers.

A multitude of economic factors, trend and expectations lead to a fortuitous outlook by economists. First, global consumption is estimated to grow by $23 trillion between 2015 and 2030. A majority of this growth is due to the consuming classes in emerging economies. While the emerging markets most definitely will capture some of that value, the effects will also be felt by the world’s biggest exporters. Second, by 2030 there will be over 300 million more people aged 65+ years than in 2014. This demographic change will result in a spending patterns shift with increased concentration on healthcare and personal services. Third, a potential that pay-for services will substitute for currently unpaid and primarily domestic work. This marketization of previously unpaid work is already prevalent in advanced economies and likely to continue. These trends along with expected increased investment in infrastructure and renewable energy put much potential in growth opportunities for the world of automation.

Keith Knutsson of Integrale Advisors commented, “the idea that machines will create this dystopian society has been as old as society itself. In the past, doubters have proven wrong and technological advancement has created growth for society at every level.”

Ultimately the technical feasibility of automation remains to be seen.


January 10, 2018

Increased Demand For Durable Goods

Posted in Keith Knutsson tagged , at 2:02 am by Keith Knutsson

Orders for long-lasting factory goods increased in November, one of the many recent signs of improving demand this year for U.S. manufactured products.

Durable goods are products designed to last at least three years, such as cars or computers. According to the U.S. Commerce Department, orders for these goods increased 1.3% from the prior month to a seasonally adjusted $241.36 billion in November. The increase was led by orders for motor vehicles, military equipment, and airplanes.

Order numbers for October were revised to a 0.4% decrease from a previous estimate of a 0.8% drop. Through the beginning of 2017, demand for durable products was up 5.4%, compared to the same period a year earlier.

New orders and business investment in nondefense capital goods, decreased 0.1% in November. However, October’s reading was revised up to a 0.8% gain. The business investment measure increased 5.1% in the first 11 months of this year compared to the same period in 2016.

“The increase in this year’s capital spending is consistent with other measures showing confidence in the U.S. economy” said Keith Knutsson of Integrale Advisors.

Manufacturing has been an area of strength for the economy for many years. Orders for durable goods are up three of the past four months. Steady spending by domestic consumers and a thriving global economy have resulted in the best stretch of durable goods production growth in over a decade.

January 6, 2018

Global Equities Enjoy A Steady Run

Posted in Keith Knutsson tagged at 2:05 pm by Keith Knutsson

Global stocks last year enjoyed their best yearly performance since the 2007-2008 crisis recovery.  This come as accelerating economic growth across the world helped power several major markets. The FTSE All-World index rose 22% in 2017. The S&P 500 benchmark gained 19% in the past 12 months, its sixth best annual performance over the past two decades. Analysts are predicting another good year for the U.S. equity market, forecasting the first double-digit growth in earnings since 2011.

The biggest factor behind the stock market rally has been the accelerating growth in the U.S., Europe and Asia. Global growth continues to be driven by industrial activity and investment. The UK’s FTSE 100 has also played a part in the growth, rising another 5% this month. The gains were fueled by a recovery in commodity prices, which lifted many of the natural resource companies based in London.

Contrary to expectations at the start of the year, global bond markets have also seen a great year. Many investors and analysts had expected that the combination of the election of President Donald Trump, tighter monetary policy, and accelerating inflation would end a three-decade bull run for bonds. On the other hand, the Bloomberg Barclays Global Aggregate, a broad $50tn fixed-income benchmark, has returned over 7% this year.

“Global equity markets, as well as bond markets outperformed this year and I think that’s going to continue through the new year.” said Keith Knutsson of Integrale Advisors.

After a great holiday shopping season, retailers are bracing for an influx of returns. In 2017, traditional and online retailers have expanded the number of locations and ways consumers can return merchandise. Some of the new features will include in-store return kiosks, return lockers in the mall, parcel shipping locations, and at-home pickup.

“A lot more retailers are offering options for the convenience of the consumer in order to enhance and promote customer loyalty” said Keith Knutsson of Integrale Advisors.

Amazon Inc. said it has expanded options for in-person returns this year, with a network of 2,000 “locker” locations, including 400 at Whole Foods stores, where customers can drop off items to be returned. Amazon also partnered with Kohl’s Corporation in Chicago and Los Angeles, which are now accepting returns of Amazon goods purchased online.

Wal-Mart Stores Inc. introduced its new express return kiosks, located in its stores, where customers can complete the return process in less than five minutes and receive a refund within the duration of that day.

As shoppers increasingly turned to the internet for their holiday purchases this year, they were more likely to order from online retailers with fast delivery and an easy return process. According to Adobe, online holiday sales are expected to top $107 billion this year, an increase of 13.8% over 2016.

With higher volumes of merchandise coming back through a wider variety of channels this year, analysts say handling the reverse supply chain can be costly. Those returns will require additional manual work because every item shipped back must be inspected for damages. By the time returned goods make their way back to the shelf, they could be selling at a discount, causing retailers to potentially take a loss. The logistics of returning an item continue to grow in complexity, causing companies to become more innovative, and adjust to the increase in returns.

December 28, 2017

Oil Prices On The Rise

Posted in Keith Knutsson tagged at 4:20 am by Keith Knutsson

Oil prices pushed higher on last week, after U.S. government data showed a larger-than-expected drop in U.S. Oil stockpiles. The price of light sweet crude oil for February delivery rose 0.6% to $57.92 a barrel and Brent oil, gained 0.5%, to $64.14 a barrel. According to the U.S. Energy Information Administration, crude stockpiles fell by 6.5 million barrels in mid-December.

“Since the demand for gas is so inelastic, gas prices are one of the main drivers of consumer sentiment, and the price of gas depends on the price of oil” said Keith Knutsson of Integrale Advisors.

Analysts say the decline in the U.S. stockpile was largely due to refineries increasing production in the last couple of weeks, taking crude oil out of storage. Furthermore, oil prices have seen support from the recent disruption of supply from a major pipeline in the North Sea.

As of last week, the Forties Pipeline closed down due to a crack in the well. This resulted in the disruption of the flow of 450,000 barrels of oil a day. A representative from the pipeline has stated that the outage could last for another couple of weeks.

The concerns about oil supply come as inventories in the OPEC market have reached a “normalized level”. This is a result of the ongoing efforts by the Organization of the Petroleum Exporting Countries and other major producers to limit output.

OPEC and 10 producers outside the organization, agreed to hold back crude oil output by nearly 2% in an effort to limit the global supply glut that has weighed on prices since 2014. In November, the group decided to extend the deal through the end of 2018, with a review period in the middle of the year. Gasoline futures are up 1.8% to $1.7270/gallon and diesel futures are trading at $1.9407/gallon.

December 5, 2017

Senate Passes Tax Code Revision Bill

Posted in Integrale Advisors LLC, Keith Knutsson tagged at 2:29 am by Keith Knutsson

The Senate passed sweeping revisions to the U.S. tax code on Saturday after Republicans secured enough votes to pass the measure. The revision bill included $1.4 trillion in tax cuts, lowering the corporate rate to 20% from 35%, restructures international business tax rules and temporarily lowers individual taxes.

The bill passed 51-49, with all but one Republican voting for it and all Democrats voting against. The only Republican to vote against the bill, Senator Bob Corker of Tennessee, expressed his opposition before the vote, stating worries it would expand budget deficits.

The bill’s ultimate passage would mean a great deal to republicans, marking a legislative victory for President Donald Trump and the GOP. President Trump has made a tax overhaul one of his main economic policy goals, focusing on rewriting business taxes in an attempt to make the U.S. more competitive internationally. The bill could also give republicans a boost in the upcoming 2018 midterm elections, which could ultimately influence the presidential campaign in 2020.

The House and Senate still need to reconcile competing versions of the tax plan, something GOP leaders hope to do by Christmas. The bills overlap in many ways, and lawmakers expressed optimism about getting a final deal done by the new year.

Senate Republicans called the bill an “economic booster shot”, arguing the bill would promote faster sustained growth and higher wages. However, Congress’s own nonpartisan economic analysis found that the economic benefits would be modest and would fade over time.

The Joint Committee on Taxation estimated that the tax cuts wouldn’t pay for themselves, as Republicans originally promised. The analysis estimated the tax cuts would increase deficits by $1 trillion over a decade, even after factoring in economic growth.

Investors, for now, are more excited about the prospect of lower corporate taxes than about the risks associated with larger government deficits. The Dow Jones Industrial Average rose 673.60 points for the week, or 2.9%, to 24231.59. Yields on 10-year Treasury notes, which might be expected to rise if bond investors were worried about deficits, remain around 2.5%.

“This bill, when ultimately passed will provide much needed tax relief for lower and middle-class families, while spurring the creation of favorable jobs and stronger economic growth in the U.S.” said Keith Knutsson of Integrale Advisors.

November 23, 2017

U.S. Housing Start Growth

Posted in Keith Knutsson, Real Estate tagged , at 6:47 pm by Keith Knutsson

U.S. housing starts grew last month to the highest level in over a year, a sign that builders and developers are back on track after hurricanes Harvey and Irma wreaked havoc on residential construction in the Southeast U.S.

According to the U.S. Commerce Department, housing starts increased 13.7% from September to October to a seasonally adjusted annual rate of 1.29 million. In addition, residential building permits, a key signal for projected development, grew 5.9% to an annual pace of 1.297 million.

Multifamily starts saw a 37% increase and single family starts rose 5.3% from the previous month. October starts for single-family homes in the South are now at the highest level in a decade, increasing 16.6% from September.

“The following trends are likely to continue as multifamily developers scale back new luxury development and single-family projects continue to increase in response to increasing wage growth, low unemployment, and rising demand” said Keith Knutsson of Integrale Advisors.

Currently, the political climate on capitol hill is an important aspect of property development. A recent House bill proposes to cut the amount of mortgage interest that is deductible and the Senate bill would eliminate the deduction for state and local taxes, both of which could lower demand for expensive property. Stipulations in the House bill could also significantly reduce affordable housing production and have an impact on multifamily demand.

Labor shortages, rising cost of land, and increasing land-use regulations have helped create a shortage of home inventory. As a result, these factors are driving up home prices faster than wages and inflation. Last month, the National Association of Realtors reported that homes are spending an average of 3-4 weeks on the market, the shortest period in over thirty years.

November 20, 2017

Emerging Markets and Idiosyncratic Risk

Posted in Keith Knutsson tagged at 2:34 am by Keith Knutsson

Morgan Stanley is betting on improving performance of emerging markets, citing improving asset valuations and widening rate differentials as the key factors. For the past year, growth and decreasing current account deficits are the drove the emerging markets gains this year.

After a good performance for the year, due to underlying confidence in EM reduction in risk factors such as falling commodity prices and reduced anxiety over the outlook for China’s economy, the high-yield currencies of emerging markets are also extremely sensitive to US interest rate hikes. Additionally, there is a multitude of idiosyncratic reasons why assets in the emerging market class have experienced downward pressure in the past weeks.

The markets are considering the mentioned NAFTA worries going forward. Foreign Minister Luis Viegaray cited the possible impact of cooperation with the U.S for security and immigration as a concerning factor.

In South Africa doubts persist on the adoption of policies needed to drive growth, investment and job creation for several years due to infighting in the ruling African National Congress. The power struggle over who should succeed Jacob Zuma as its leader in December and as president in 2019 is proving challenging.

Keith Knutsson of Integrale Advisors stated, ”If the current risk factors in the Emerging Markets are as temporary as they seem, there is exceptional potential for investors.”

An increase in global liquidity could lift emerging markets in the coming weeks. Natural rise in prices of oil should help liquidity, but due to the price increase taking root in tensions within the Middle East the effect has been limited.

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