Apple Bites

Financial Review with Sinclair Noe — September 9, 2014

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB) 

DOW – 97 = 17,013
SPX – 13 = 1988
NAS – 40 = 4552
10 YR YLD + .03 = 2.50%
OIL + .05 = 92.80
GOLD + .30 = 1256.80
SILV + .04 = 19.16

Today’s epiphany is courtesy of Apple; they unveiled not one but three new things. Let’s examine.

The iPhone 6 is the new phone, and it is a little bit bigger than the old phone. And they even have an iPhone 6 plus, which is a little bit bigger. So, the new phones won’t fit in your pocket anymore. I know, it’s like the most totally incredible thing ever.

The Apple Watch is smaller than the old phone; so small it can be strapped on your wrist. It even has a dial so older people will realize it is supposed to be a watch and not just a little phone strapped to your wrist. It is called the Apple Watch because iWatch was just a little too creepy.

The third thing is Apple Pay, which is a payment processing service that has Apple partnering with American Express, MasterCard, and Visa so you can pay for purchases with a big iPhone 6 or an Apple Watch, just like you can pay for things with an American Express, MasterCard, or Visa credit card. The big difference is this is new technology, whereas the credit card is like 50 years old; and this new technology runs on batteries that might last for 12 hours before requiring a charge. But, you don’t need to carry a small piece of plastic that doesn’t require batteries and your transaction will be more secure because it will use the technology of iCloud, which is the same technology that allows hackers to get naked pictures of celebrities, so you know it’s really, really safe.

Apple share price moved higher by about 4.8% during the day but closed down – .37 at 97.99.

Moving over to the economic news of the day:
On the heels of a disappointing jobs report last week, the Labor Department reports more workers are quitting their jobs. The JOLT report, or Job Openings and Labor Turnover summary shows about 2.52 million workers quit their jobs in July, the most since June 2008, and up from 2.31 million a year earlier. This is actually considered healthy, because the idea is that people don’t quit their jobs, unless they think they can find a better job. Or maybe a lot of people just don’t like their job. There were 4.67 million job openings at the end of July, down slightly from 4.68 million openings.

Average consumer spending fell in 2013, its first drop in three years; cautious families cut expenditures on restaurants, clothing, entertainment, alcohol and tobacco, and slashed charitable contributions. Last year, total average expenditures by families, singles and other “consumer units” hit $51,100, down 0.7% from 2012′s tally of $51,442, as income edged down. Makes sense; people earned less and spent less. Meanwhile, spending rose for necessities, such as housing and health care.

Today’s young Americans are burdened by debt at a far greater rate than prior generations; 35% of Americans age 24 to 28 have debts that exceed their assets. That’s roughly double the proportion of their peers in the late 1980s and mid-1970s. The share of young Americans with debt, if not the overall dollar amount, has actually fallen from prior generations. Today, 75% of young Americans have debt, compared with 76.5% of late baby boomers at the same age and 78.2% of early baby boomers; but big shifts in the types of debt held by the groups have led to far different experiences.

Younger Americans today are taking on far less mortgage debt and far more student and credit-card debt than the early and late boomers did at the same age. Only 19.8% of today’s young Americans have home-related debt, down from 29.9% of their peers in the late 1980s and 43.1% of those in the mid-1970s. Conversely, 22.4% of young Americans today have education debt, compared with 5.1% among late baby boomers and none among early boomers.

Most people think the economy is headed in the wrong direction, and that is the global economy, not just here in the US. Pew Research Center asked nearly 49,000 people in 44 countries whether they liked the direction in which their country was heading, about their view of the economy, and where they thought the economy was heading. The Greeks, Italians, Spanish, and Ukrainians are the most pessimistic about their economy with 97%, 96%, 93%, and 93% of respondents, respectively, saying their current economic situation was bad. Greece led with the highest percentage of respondents who thought things would get worse in the next 12 months with 53%.

The Chinese are very optimistic. Only 6% of Chinese respondents thought things were bad, and only 2% thought things would get worse. Similarly, only 11% of respondents from Vietnam thought things were bad, along with 15% of those in Germany. In the US, 58% of respondents thought the economy was bad, and 30% thought it would get worse in the next 12 months.

The National Federation of Independent Business said its Small Business Optimism Index for August rose 0.4 to 96.1. Eight of the index’s 10 components either improved or showed no change. The job growth indicated in the survey was sluggish, with owners adding an average of only 0.02 workers per firm, and fewer saying they planned to hire more workers in the future. Some businesses appeared to lose pricing power, with 15 percent of respondents saying they had reduced prices, and a drop in the number of owners saying they planned price hikes. Though more owners said they expect an improvement in business conditions than said so in the month before, a slight majority still are not convinced conditions will improve. The index is still 4 points below where it was before the start of the 2007 financial crisis and recession.

Senator Elizabeth Warren is holding hearings on Capitol Hill, and she actually had the cajones to ask regulators why no senior officials at Bank of America, Citi and JPMorgan Chase have been prosecuted over their role in the housing collapse. The three banks have agreed to a combined tens of billions in penalties, but no officials have been sentenced over the alleged misconduct. Warren allowed that the regulators themselves can’t prosecute; that would be up to the Justice Department. But regulators can provide referrals.

Daniel Tarullo, the governor at the Federal Reserve who’s most involved in bank regulation, said the central bank provided information to the Justice Department. But, when pressed, he indicated that the Fed didn’t specifically refer anyone. Warren noted that after the savings-and-loan crisis in the 1970s and the 1980s, the government brought over 1,000 prosecutions and got over 800 convictions. Warren, by the way, wasn’t alone. Sen. Richard Shelby, the Alabama Republican, put the onus on the Justice Department for the lack of prosecutions. Shelby said: “People shouldn’t be able to buy their way out of culpability.”

No, they should not be able to, but they are.

The Obama administration announced a series of measures to help shore up crumbling infrastructure, including half a billion dollars in loans for the electric grid; part of a $1 trillion dollar plan to fund transportation, water and electricity needs over the next 6 years. New efforts include $518 million in loans for 22 electric projects from the Department of Agriculture that will build 5,600 miles of electrical lines in rural areas and improve the electric grid. Currently, the grid is unable to withstand many outages tied to weather, costing the economy up to $33 billion each year.

Treasury Secretary Jack Lew said investing in infrastructure has historically been one of the best ways to create jobs and boost economic growth, but spending has fallen over the past decade, as two-thirds of roads are now in disrepair, and one out of nine US bridges have structural deficiencies.

The European Union’s trade commissioner is practically begging for the US to start exporting oil and natural gas to Europe. Tension between Russia and the West over the future of Ukraine is spurring the European Union to renew efforts to end decades of dependence on Russian gas. One solution would be greater access to US oil and nat gas resources. Overturning a 40-year US ban on oil exports by agreeing to send oil to Europe could pressure Russian President Vladimir Putin by lowering global crude prices. Nat gas prices in Europe are about 3 times what they are in the US, and one concern is that exporting nat gas, could drive up prices in the US. Whatever happens likely won’t happen for at least a year, which raises the possibility of a cold winter in Europe, if Russia-Ukraine situation turns even uglier.

Speaking of natural gas. McDonald’s reports that global sales at stores open more than a year dropped 3.7 percent in August. That was the company’s worst month for same-store sales since the spring of 2003. This is the second month in a row that McDonald’s has reported global same-store sales that set 10-year marks for awfulness. Performance was dragged down largely by the Asia/Pacific, Middle East and African regions, where same-store sales plunged 14.5 percent. McDonald’s is still recovering after a video surfaced showing workers at one of its meat suppliers in China engaging in unhygienic practices, including picking up meat off the floor and putting it back in a processing machine. McDonald’s was forced to pull meat off menus in many China outlets after the scandal came to light. No word on whether diners could tell the difference between meat and the non-meat menus. McDonald’s US same-store sales fell 2.8 percent, and in August McDonald’s captured its second smallest share of the fast-food market since 2011.