Morning in Arizona

Morning in Arizona
Rainbows over Canyonlands - Dave Stoker

The Headline Animator

Thursday, February 19, 2015

Blue Light Special

Financial Review

Blue Light Special


DOW – 44 = 17,985
SPX – 2 = 2097
NAS + 18 = 4924
10 YR YLD + .04 = 2.11%
OIL – .77 = 51.37
GOLD – 6.10 = 1208.20
SILV – .12 = 16.48

The S&P 500 is up 5.2 percent in February, rebounding from a January slump. If the index holds those gains it will be the best monthly performance since October 2011.

Crude-oil futures fell to the lowest level in a week, after data showed inventories have built up much faster than expected. According to a report from the American Petroleum Institute late yesterday, US crude stocks rose by 14.3 million barrels last week vs. expectations of a 3.2 million. The today the US Energy Information Administration released a report showing crude inventories rose 7.7 million barrels for the week ended Feb. 13; that was about double expectations, but far less than the API report. And prices bounced back.

The latest EIA data peg total commercial crude inventories at 425 million barrels, with the government referring to the total as “the highest level for this time of year in at least the last 80 years.” One possible reason for the rising inventories is that there has been a United Steelworkers strike at 11 refineries that account for 13% of US output capacity.  A slowdown in refining would lessen the demand for crude oil. Another possible reason why inventories continue to rise is that most domestic oil drillers have taken on debt, and they have to keep pumping oil to service that debt, at least for now.

The number of Americans filing new claims for unemployment benefits fell more than expected last week, offering fresh evidence that the labor market was gathering steam. Initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 283,000 for the week ended Feb. 14.

Leading U.S. economic indicators edged up 0.2% in January, and the December index was revised lower to 0.4%. The Conference Board said the lack of strong momentum in residential construction, along with a weak outlook for new orders in manufacturing, poses a downside risk for the US economy.

The Arizona Regional Multiple Listing Service (ARMLS) reports that for the second consecutive month, inventory in the Phoenix residential real estate market was down year-over-year. Active inventory is now down 4.9% year-over-year. Housing prices bottomed in Phoenix is 2011 at about the current level of inventory. Overall sales in January were down 0.3% year-over-year. And cash sales were down 12% to 32% of total sales. Now, with tighter inventory, we might see a little more price appreciation in 2015.

Greece has submitted a formal request for a six-month loan extension, and it looks like the new Greek government blinked; they pledged to abide by all its previous commitments and recognize the bailout as legally binding. However, the wording of its first point implied that Greece wants to haggle over implementing reforms demanded by the original bailout agreement. Even so, the request is still a major climbdown for the new government, led by Tsipras’ radical left-wing Syriza party, which swept to power on a pledge to overthrow the bailout agreement in January and subsequently declared it “dead”. It pledges to honor all of Greece’s debts and, just as importantly, to continue accepting monitoring visits from the three institutions that have overseen Athens’ implementation of the bailout to date, the hated “troika” of European Central Bank, the International Monetary Fund and the European Commission.

And this morning, Germany rejected the request for bridge financing. The Germans called the proposal a Trojan Horse, that looks to end the current bailout program and acquire bridge financing. Greece’s current €240 billion ($273 billion) financing arrangement expires as the end of this month. After that, the country would find itself cut off from European and International Monetary Fund loans that have kept it afloat for five years. A Greek government spokesman insisted that the eurogroup had only two options: either to accept or reject the Greek request. “It will then be clear who wants to find a solution and who doesn’t.”

Euro-region finance ministers will make a “detailed assessment” of the request and formulate a response later today.

Japanese exports surged in January, providing more evidence that the world’s third largest economy is slowly climbing out of recession. Exports rose by 17% on year last month, their biggest jump since late 2013, while imports in January contracted 9% Y/Y. Helped by gains in financial and shipping companies, Tokyo’s Nikkei touched its highest level since May 2000, that’s a 15 year high. The GDP numbers out yesterday showed the world’s third-largest economy emerging from a brief recession—if you use the conventional definition of two straight quarters of contracting GDP.

True, that was about half the 3.7% analysts had forecasted. But it’s a welcome development, especially given that export growth was a key driver of the quarter. The weak yen engineered by the Bank of Japan seems to be giving a spark to Japan’s important exporting sector.

The key question for the future of Japanese growth is how consumer demand responds. For the moment, Japanese consumers, like consumers worldwide, are getting a real wage raise thanks to declining energy prices. But to create sustainable consumer growth, corporations have to be convinced to give workers a larger cut of profits. It just might be possible. The largest employer in the US, Wal-Mart, signaled today that it was going to begin raising wages for its workforce, in a nod to both rising political pressure and tightening labor markets. Similar dynamics are in place in Japan.

Wal-Mart reported fourth-quarter profit rose to $4.97 billion, or $1.53 a share, from $4.43 billion, or $1.36 a share, a year ago.  Sales rose to $131.6 billion from $129.7 billion. Wal-Mart missed on both the top and bottom line. But the big news from Wal-mart is that the company said it will give raises to about 500,000 full-time and part time employees and ensure hourly employees earn at least $9 an hour, $1.75 above federal minimum wage. By Feb. 1, 2016, current employees will earn at least $10 an hour.

The company also said it would strengthen a “department manager” role, giving it a minimum wage of $13 per hour this year and $15 next, thus offering low-wage hourly workers a clearer path to advancement. Including similar bumps at Walmart-owned Sam’s Clubs, the company expects 500,000 workers to receive a raise at a cost of $1 billion a year.

That all sounds good and magnanimous, but Wal-Mart was more or less dragged, kicking and screaming to this moment. Over the past three years, Wal-Mart has faced a wave of union-backed attacks: legal, political, media, and consumer pressure, anchored by the first coordinated store walkouts in the company’s history.

Back in its 2007 fiscal year, before the recession, Walmart reported $183,500 in revenue per employee and $5,938 in profit. Not bad, but by 2014 those numbers had risen 18 percent and 22 percent. The company’s sales and profits rose nicely in that time while the company kept a lid on its payroll. Gains went to Walmart shareholders, not Walmart workers. Of course, it takes a lot of people to run a Wal-Mart store, and the unemployment rate has dropped down to 5.7%, meaning Wal-Mart now faces competition for workers.

The decision is likely to ripple across the economy and will undoubtedly lead to similar moves by other companies. Indeed, Wal-Mart is not the first to raise wages, just the biggest; and as the biggest, it sets a standard for the entire retail industry. Walmart CEO Doug McMillon told analysts higher wages lead to a better experience for workers and customers, “which can drive higher sales and returns for our shareholders.” In Walmart’s case, many of the 1.3 million US workers are also customers that can spend their extra dollars at Wal-Mart. And most Wal-Mart workers will spend their paychecks as soon as they are cashed. It still is just about $1 billion in wage increases, and so don’t look for a big change in economic numbers on a nationwide level. All things equal, that amounts to a gain of 0.097% in average hourly earnings for retail workers. For all workers, that translates into a rise of 0.01% — basically, nothing. But it is a step in the right direction.

We’ve all heard the stories of cybersecurity breaches and hack attacks. Maybe you wonder how hackers manage to hack what should be secure computers. Well, in the case of Lenovo, the world’s largest PC maker, they pre-installed a virus-like software on laptops that makes the devices more vulnerable to hacking. Users reported as early as last June that a program called Superfish pre-installed by Lenovo on consumer laptops was ‘adware’, or software that automatically displays adverts. Superfish was malicious software that hijacks and throws open encrypted connections, paving the way for hackers to also commandeer these connections and eavesdrop, in what is known as a man-in-the-middle attack.

The Los Angeles Times reports that two medical scopes used at UCLA’s Ronald Reagan Medical Center may have been contaminated with the potentially deadly, antibiotic-resistant bacteria known as CRE. Two patients have died from complications that may be connected to the bacteria, and authorities believe that 179 more patients have been exposed. The really scary part of this is that infections occurred even though the instruments had been cleaned according to the manufacturer’s instructions.

Most healthy people aren’t at risk of catching a CRE infection, but in hospitals this bacteria can be quite dangerous: CRE kills as many as half of all people in whom the infection has spread to the bloodstream. The Centers for Disease Control and Prevention (CDC) are working with the California Department of Public Health to investigate the situation, which is expected to result in more infections.

The problem isn’t just in Los Angeles, though. Last month, USA Today reported that hospitals around the country struggle with transmissions of bacteria on these scopes—medical devices commonly used to treat digestive-system problems—and there have been several other under-the-radar outbreaks of CRE.

Samsung Electronics has acquired mobile wallet startup LoopPay, indicating its intention to launch a smartphone payments service to compete with Apple Pay and others. Despite strong backing, mobile payments have been slow to catch on, as many retailers have been reluctant to adopt the infrastructure required for the mobile payment options to work. LoopPay, however, works off existing magnetic-stripe card readers by transmitting a magnetic signal similar to that of a swiped card, putting Samsung at an advantage.

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