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Wednesday, January 27, 2016

Lonesome Tom and Tom Alone

Financial Review

Lonesome Tom and Tom Alone

DOW – 222 = 15,944
SPX – 20 = 1882
NAS – 99 = 4468
10 Y + .01 = 2.00%
OIL + .71 = 32.16
GOLD + 5.00 = 1125.70

Stocks started the session down, a little over 150 points, then rallied and turned positive, then the Fed released its policy statement to wrap up its two-day FOMC meeting, and stocks fell again; 350 points from peak to trough, even though there was no surprise in the statement.

The Federal Reserve statement had a few changes from the last statement. First, there was no change in interest rates – as expected. The Fed says it expects the economy will continue to warrant only gradual rate increases – as expected. They will closely monitor global economic and financial developments – a soft backpedal from December, when they said risks were balanced. Not a big surprise.

Inflation is expected to remain low because oil prices are down, but that won’t last forever – yeah, yeah. The strong dollar is a bit of a drag. Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year – an acknowledgement that economic growth slowed, well that’s different.

Their confidence in the economy has eroded since December. Not exactly. The Fed also noted the strength of some economic measuring sticks, including continued job growth, more spending by businesses and consumers, and the revival of the housing market.

All in all, the Fed statement was expected. So why did the market selloff? Well, they didn’t rule out another rate hike at the March 16 FOMC meeting; they didn’t commit to a hike either. So, go figure; and while you figure, sell something.

Purchases of new U.S. homes surged in December to the highest level in 10 months, closing out the best year for housing since 2007. Sales jumped 10.8 percent last month, the most since August 2014, to a 544,000 annualized pace. For all of 2015, purchases of new properties climbed 14.6 percent to 501,000. The warmest December on record probably played a big role in the stronger-than-forecast sales gain during the month, but the most basic reason is that demand is outpacing supply.

Puerto Rico plans to meet with creditors on Friday to discuss a possible restructuring of $70 billion of municipal bonds. The talks come as the island struggles to make progress on two tracks – striking deals with bondholders and persuading U.S. legislators that it merits relief from the federal government. Further complicating the process, the territory has more than a dozen types of bonds and is negotiating simultaneously with several creditor groups that have competing claims.

Facebook reported another quarter of soaring revenue. Sales rose 52 percent from a year earlier to $5.84 billion on the strength of its mobile advertising business and an increase in daily users. Profit rose to $1.56 billion, more than doubling from a year earlier. The numbers far surpassed Wall Street’s expectations of $1.2 billion in profit on $5.37 billion in revenue. Facebook reported after the close, and shares jumped in after-hours trade.

Boeing says profit this year will miss analyst estimates by more than a dollar a share as it delivers fewer jetliners. Adjusted profit will probably be $8.15 to $8.35 a share this year. That compared with an average prediction of $9.42.

PayPal’s fourth-quarter sales beat estimates, as it won new vendors and made mobile purchases easier, reassuring investors concerned about the company’s prospects as an independent company. Profit, excluding some items, was 36 cents a share (2 cents better than estimates) on revenue of $2.6 billion. After separating from EBay last year, PayPal increased its total payments volume by bringing on new merchants and enticing shoppers with a Buy button that streamlines transactions on smartphones.

Royal Dutch Shell shareholders approved its $50 billion takeover of BG Group today, clearing the last main hurdle to creating the biggest liquefied natural gas trader in the world. The merger could happen as soon as February 15.

Three major U.S. shale oil firms announced big cuts to their 2016 capital spending plans yesterday in a bid to survive $30 a barrel oil prices, with one of them saying prices would need to rise more than 20% just to turn a profit. The cuts from Hess Corp., Continental Resources and Noble Energy ranged from 40% to 66%, marking the second straight year of pullbacks by a trio of businesses normally seen as among the most resilient shale oil producers. The American Petroleum Institute late Tuesday reported that crude supplies climbed by 11.4 million barrels for the week ended Jan. 22.

Since passage of the last major energy law, in 2007, the United States has gone from fears of oil and gas shortages to becoming the world’s leading producer of both fuels. The use of wind and solar power is rapidly accelerating as those sources become cheaper than fossil fuels in some parts of the country. And President Obama’s clean air regulations are reshaping the nation’s power systems, as electric utilities shutter coal-fired power plants and replace them with alternative sources.

But the nation’s energy infrastructure has not kept pace with those changes. And so Congress today started debating a comprehensive energy bill for the first time in more than 8 years. Right now, Congress is just talking and they might not do anything.

Just hours after senators began debating the bill, it came under attack by both liberal and conservative advocacy groups. In a letter to senators, the Sierra Club complained that the bill’s section on energy efficiency in buildings would actually roll back some existing efficiency standards.

Americans for Limited Government, a conservative group, urged lawmakers to reject the bill. In a letter, the group wrote, “There is no excuse for the Senate to move forward with legislation that continues the practice of picking energy winners and losers, expands federal government authority and fails to turn control of federal lands back to the states.”

California regulators are set to decide how much rooftop solar customers can get for selling their excess clean energy. The California Public Utilities Commission will consider a proposal about continuing a policy called net metering, which requires utilities to pay rooftop solar customers the full retail rate for electricity they put onto the grid.

The solar industry has been largely supportive of the proposed measure while the state’s investor-owned utilities have called it unfair and say it means people who don’t have solar systems are subsidizing those who do, so they want to pay less. Seems the utilities don’t want to pay for electricity. I know the feeling.

Meredith Corp. walked away from its attempt to merge with Media General; that opens the door for Nexstar Broadcasting Group to proceed with its plan to acquire the TV station owner after months of negotiation.  Meredith, the owner of broadcast stations and magazines like Better Homes and Gardens, agreed to a termination package that includes a $60 million breakup fee.

Media General initially agreed to acquire Meredith for $2.4 billion in September. Nexstar later offered to buy Media General, eventually reaching an agreement for about $2.3 billion. But that deal couldn’t move forward until Meredith released Media General from its commitment.

Four years after unveiling its wearable glass headset, Alphabet has shut down several social media accounts linked to its Glass gadget, ending the push to popularize its hi-tech eyeglasses. Google stopped selling Glass to consumers last year, but unveiled a reboot of the device, called GG1, in December.

Meanwhile, Google’s secretive drone delivery project could include a component designed to store packages securely. A patent filed Tuesday in the United States, describes a “delivery receptacle” designed to take packages from an “aerial delivery device” for deposit to a secure location. The receptacle would use infrared beacons to connect with drones in the air and then guide them for delivery.

FedEx announced a new share repurchase program covering up to 25 million shares ($3 billion at current prices). The question is what will they do when the drones take over?

Despite a slight drop in sales, Toyota managed to hang on to the title of world’s best-selling automaker in 2015. The company sold 10.15 million cars last year, while Volkswagen came in second with 9.93 million autos, followed in third place by General Motors with 9.8 million vehicles. Volkswagen had been top in the first half of 2015 before a diesel emissions scandal set back sales.

The Federal Trade Commission has a filed a suit against DeVry, alleging that it deceived students with promises they would find jobs that would pay more than they would earn with degrees from other colleges. The FTC said DeVry claimed that 90% of its graduates' land jobs within six months of completing their studies, and that they earned 15% more on average than others.

A jury in London has acquitted five former brokers of charges that they helped a onetime trader at UBS and Citigroup manipulate an important benchmark interest rate known as Libor. The jury is still considering charges against a sixth broker. Prosecutors had accused the men of helping Tom Hayes, a former trader at UBS and Citigroup, by rigging Libor, which helps determine the borrowing costs for trillions of dollars in loans.

In December, Hayes was sentenced to 11 years. A dozen banks have been fined about $9 billion by global authorities over the last four years in relation to the manipulation of Libor. So, there you have it, Tom Hayes rigged a multi-trillion-dollar marketplace all by his lonesome, resulting in billions of dollars of fines; no executives knew anything or helped this mid-level trader, just Tom. Now move along, move along, nothing more to see.

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