It’s About to Get Hot
DOW + 46 = 18,019
SPX + 8 = 2096
NAS + 36 = 4893
10 YR YLD + .04 = 2.02%
OIL + 1.43 = 52.46
GOLD + 6.20 = 1228.90
SILV + .48 = 17.42
The S&P 500 Index closed at an all-time high, taking out the previous record close from December 29. Whenever the S&P 500 hits a record high, we acknowledge it, but for some reason we don’t have a big celebration. When the Dow Industrials hit records we have the orchestra, the parade, milk and cookies; it’s a big ridiculous mess, but S&P 500 record high close; well done, attaboy, next.
Next would be the Russell 2000 index of small and mid-cap stocks hitting a record high close. Well done, next.
The Dow Jones Industrial Average finished above 18,000 for the first time this year. The Nasdaq Composite ended at its highest level since March 2000. For the week, the S&P 500 gained 2%. The Dow Industrial Average was up 1.1% on the week. For the second day, American Express led declines for the Dow, following news Costco was ending its exclusive business arrangement with AmEx. The Nasdaq Composite gained 3% over the past week, and is now within a few percentage points of record highs. The Russell 2000 gained 1.5% on the week.
In economic news, consumer sentiment slipped in February to a three-month low, according to the University of Michigan sentiment index. There has been this hope that low oil prices would have consumers spending like drunken sailors on shore leave; but that hasn’t happened. For the most part, people have been saving a little. It seems like nobody really believes that oil prices will stay low.
The prices we paid for imported goods fell sharply again in January mainly because of much cheaper oil, a trend that’s keeping inflation under wraps. The import price index dropped a seasonally adjusted 2.8% last month. Excluding fuel, import prices declined by 0.7% last month.
Weather will weigh on U.S. growth this quarter, just not nearly as much as last year. We keep seeing those pictures of Boston buried in snow, and they expect another snowstorm to hit New England this weekend, but it’s not as bad as last year’s Polar Vortex. Snowfall is on track to subtract 0.4 percentage point from growth in the three months through March, based on estimates from Macroeconomic Advisers LLC. That’s way smaller than the estimated 1.4 point weather-created hit to GDP growth for the same period last year.
Europe is growing. Not much, but it is growth. The morning started with economic data on the Eurozone. Boosted by strong domestic demand and household spending, the German economy grew at a 0.7% pace in the fourth quarter, after expanding 0.1% in the previous three months, while data from France showed that GDP grew by 0.1% during the quarter, meeting analysts’ expectations. The Eurozone economy as a whole saw growth of 0.3%.
AIG posted a sharply lower fourth-quarter profit as low interest rates and refinancing expensive debt hurt the insurer’s results. The company reported an operating profit of $1.37B, well short of the $1.67B reported in the year-earlier period. AIG is planning to cut annual general operating costs by 3 percent to 5 percent through 2017. AIG also announced that it would buy back about $2.5B in shares of common stock on top of the roughly $4.9B in stock it repurchased in 2014.
Freescale Semiconductor has hired investment bankers to explore a possible sale. The company went public in 2011 after being taken private in 2006 for $17.6B. Freescale’s shares have soared over 75% in the last three months, with much of the rise coming after its strong Q4 results.
Activist investor Harry Wilson and four hedge funds are pressing GM for an $8B share repurchase by mid-2016. The company is weighing the potential impact of the buyback, which may dent its balance sheet and jeopardize its credit ratings. Two ratings firms indicated this week that the proposed buyback could hurt GM’s current credit rating, which is one notch above junk status. Wilson, however, says GM needs to better manage its $25B in cash, and is looking to nominate himself for the company’s board.
West Coast seaports will be mostly closed for the next few days. Cargo has been struggling for months to cross the docks amid historically bad levels of congestion. The management association, representing large international corporations that run the ports, said it halted ship operations because it believes workers are engaged in a slowdown, and owners do not want to pay the higher premium wages dock workers receive for weekend and holiday shifts.
President Obama went to Silicon Valley today to hustle support from the tech industry for closer cooperation in defending against hackers. Obama signed an executive order aimed at encouraging companies to share more information about cybersecurity threats with the government and each other through new private-sector led information sharing and analysis organizations, or hubs where companies share information with each other and with the Department of Homeland Security.
It is one step in a long effort to make companies as well as privacy and consumer advocates more comfortable with proposed legislation that would offer firms protection from being sued for handing over customer information to the government. Upset about the lack of reforms to surveillance programs, the CEOs of Google, Facebook and Yahoo stayed away from today’s conference, but Apple CEO Tim Cook gave an address and other CEOs attended and spoke.
In his speech, Cook said: “History has shown us that sacrificing our right to privacy can have dire consequences. We still live in a world where all people are not treated equally, too many people do not feel free to practice their religion or express their opinion or love who they choose — a world in which that information can make the difference between life and death.”
Apple had a very good reason to show up for the President’s visit: A seal of approval for Apple Pay.
The White House announced that Apple’s mobile-payment system will be enabled for users of federal-payment cards, including Social Security and veterans benefits that are paid out via debit cards. The deal includes the Direct Express payment network and government cards issued through GSA SmartPay, which handles more than 87.4 million transaction worth $26.4 billion each year. Cook also said Apple Pay will become available in September for many transactions with the federal government, such as at national parks.
Apple Pay is being watched closely to see whether Apple can foster wider use of digital wallets, a goal that has eluded tech companies for years. Major banks and credit-card companies, including MasterCard, teamed up with Apple to develop Apple Pay, which uses the world’s largest payment networks’ tokenization products, a system that replaces some account information with a digital ID for online and mobile purchases.
Visa CEO Charlie Scharf has said that there will be “an awful lot of things being announced and implemented” in the next year that compete with Apple Pay. The networks have also outlined a road map of standards for how banks and merchants can adopt the technology. To coincide with today’s event, Visa announced an expansion of its token services this year and MasterCard said it plans to spend $20 million on a program that uses biometrics to verify purchases.
We have followed the droughts in the Southwest and California for the past couple of years, and now, according to NASA atmospheric scientists in a new study in the journal Science Advances, things are going to get a lot worse. We are about to go from droughts to mega-droughts.
According to the NASA scientists: “Unprecedented drought conditions” — the worst in more than 1,000 years — are likely to come to the Southwest and Central Plains after 2050 and stick around because of global warming. “Nearly every year is going to be dry toward the end of the 21st century compared to what we think of as normal conditions now. We’re going to have to think about a much drier future in western North America.”
There’s more than an 80 percent chance that much of the central and western United States will have a 35-year-or-longer “megadrought” later this century, according to study co-author Toby Ault of Cornell University, adding that “water in the Southwest is going to become more precious than it already is.”
The study is based on current increasing rate of rising emissions of carbon dioxide and complex simulations run by 17 different computer models, which generally agreed on the outcome. The regions looked at include California, Nevada, Utah, Colorado, New Mexico, Arizona, northern Texas, Oklahoma, Kansas, Nebraska, South Dakota, most of Iowa, southern Minnesota, western Missouri, western Arkansas, and northwestern Louisiana.
Looking back in records trapped in tree ring and other data, there were megadroughts in the Southwest and Central Plains in the 1100s and 1200s that lasted several decades, but these will be worse. Those were natural and not caused by climate change, unlike those forecast for the future.
Because of changes in the climate, the Southwest will see less rain. But for both regions the biggest problem will be the heat, which will increase evaporation and dry out the soil. The result is a vicious cycle: The air grows even drier, and hotter.
Scientists had already figured that climate change would increase the odds of worse droughts in the future, but this study makes it look worse and adds to a chorus of strong research.