An Imperfect Circle
DOW + 15 = 17,229
SPX – 2 = 2019
NAS + 1 = 4750
10 Y – .02 = 1.96%
OIL – 1.15 = 37.35
GOLD – 15.10 = 1236.00
No economic reports scheduled for this morning but the remainder of the week will be busy. The Fed FOMC will release their economic forecast along with their policy statement on Wednesday. One area of near-unanimous agreement is that the Fed will not raise rates this week. Instead, we will look at the FOMC’s economic forecast and the language they use in their statement. Also on the calendar: February retail sales, Housing Starts, Industrial Production, Job Openings, Philly Fed, Consumer Sentiment Index, and the Commerce Department’s current account for the fourth quarter. The reports could shed more light on the health of the U.S. economy and the future path of monetary policy.
Morgan Stanley strategists are growing increasingly concerned about the risk of a global recession, slashing forecasts for all major equity markets and advising investors to sell stocks that have recently rallied. They also cut bond yield forecasts for 2016, saying the U.S. central bank will wait until December before raising interest rates. According to the company report, Treasury 10-year yields might fall to 1.45% by the end of September, analysts wrote, approaching the record low of 1.38% set in 2012. They also warned that a slowing global economy and high production would prevent any sharp rises in oil prices. For 2016, Morgan Stanley now sees the US economy growing by 1.7%, down from a previous forecast of 1.9%. The Eurozone is expected to grow by 1.5%, down from 1.8%, while the outlook for emerging-market economies was cut to 4% from 4.4%.
If you don’t like that analysis, Goldman Sachs issued a report saying they think the Fed will hike rates in June, and an April rate increase is still on the table, even if it rattles financial markets. Goldman analysts say it is more important for policymakers to assure a smooth landing for the economy rather than a steady stock market.
The Bank of Japan’s policy board is set to discuss this week whether to exempt $90 billion in short-term funds from its newly imposed negative interest rate, after the securities industry warned that investment money would be driven into bank deposits. China’s central bank won’t resort to excessive stimulus to bolster growth but will keep a flexible stance in the event of an economic shock – domestic or global. The PBOC cut interest rates six times since November 2014 and reduced the amount of cash that commercial lenders must hold as reserves. Both the Swiss National Bank and Bank of England opine on Thursday
Next weekend’s oil talks may be in jeopardy after Iran’s Oil Minister said his country won’t join a group production freeze until it doubles its post-sanctions output. Iran said they would only join the output freeze group once they reached production of 4 million barrels a day. In a sign that investors are growing more skeptical about a rebound in oil prices, ICE data showed on Monday that speculators had cut net long positions in Brent crude by 9,500 contracts in the week to March 8.
For now, share buybacks continue to prop up the stock market. Mutual fund and exchange traded fund investors have been selling – pulling out $40 billion since January and on pace for $60 billion, one of the biggest quarterly withdrawals ever. On the flip side, S&P 500 Index companies are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. Of course, buybacks can get dangerous, especially when companies take on debt to buy their shares. And you have to wonder how far this extreme can go.
More than three million people marched through cities across Brazil on Sunday to protest political corruption, a weak economy, and to call for the impeachment of President Dilma Rousseff, in a showing that could accelerate efforts to remove her from office. The demonstration in Sao Paulo was the largest ever recorded by polling firm Datafolha. Brazilians demonstrated peacefully for Rousseff’s ouster, expressing their support for the anti-corruption blitz that has put several high-profile executives and politicians behind bars.
In late 2010, in the waning months of the Financial Crisis Inquiry Commission, the panel responsible for determining who and what caused the financial meltdown that lead to the worst recession in decades voted to refer Robert Rubin to the Department of Justice for investigation. The panel stated it believed Rubin, a former U.S. Treasury Secretary who has held top roles at Goldman Sachs and later Citigroup, “may have violated the laws of the United States in relation to the financial crisis.” Rubin, the commission alleged, along with some other members of Citi’s top management, may have been “culpable” for misleading Citi’s investors and the market by hiding the extent of the bank’s subprime exposure, stating at one point that it was 76% lower than what it actually was.
No government action was ever brought against Rubin. And there is no evidence that Department of Justice acted on the crisis commission’s recommendations. A source close to Rubin says the former Wall Street executive was never contacted by the Justice Department in relation to the commission’s allegations. And it wasn’t just Rubin and a few executives at Citi, the FCIC referred several cases to the Department of Justice and, as we all know, nothing happened. The bankers were never jailed, never indicted. A few fines were paid, but that mainly came from shareholders. No major Wall Street figure was ever prosecuted for crimes related to the financial crisis.
On Friday, the National Archives released the previously unreleased documents from the Financial Crisis Inquiry Commission, including minutes of meetings and transcripts of interviews. The FCIC investigations included some pretty clear evidence for fraud and other criminal acts; the cases were referred to the Department of Justice; nothing was done. Why didn’t the DOJ act? They won’t say. None of this is surprising but it is a well-documented and devastating indictment of how the banksters have corrupted the justice system. And sadly, that is the only kind of indictment we will ever see.
Plaintiffs suing General Motors over a faulty ignition switch will get two chances in a Manhattan court this week to argue that the U.S. automaker should be held accountable for injuries, deaths and lost vehicle value. Jury selection begins later today in the second trial involving a car accident allegedly caused by GM’s defective device (a first trial ended in January following claims of misleading testimony). In the same courthouse tomorrow, plaintiffs suing over lost vehicle value and accidents that occurred before GM’s 2009 bankruptcy will seek to reverse last year’s court decisions that freed “New GM” from several liabilities.
Starwood Hotels & Resorts Worldwide received a buyout offer from a consortium led by China’s Anbang Insurance Group, possibly derailing the company’s planned takeover by rival Marriott International. The offer of $76 per share in cash values Starwood at $12.8 billion. Marriott said it remained committed to its offer for Starwood, which would create the world’s largest hotel chain with top brands including Sheraton, Ritz Carlton and the Autograph Collection. Marriott’s offer of $72.08 per share in stock and cash valued Starwood at $12.18 billion on Nov. 16. That offer is now worth about $11 billion as Marriott shares have dropped 6.5 percent since.
Private equity firm Apollo Global Management is nearing a deal to acquire The Fresh Market, Inc. for $28.50 per share in cash, or more than $1.3 billion, in a move that could derail bids from Kroger, KKR, and TPG Capital. An agreement could be announced as early as today, but a deal has not yet been finalized and was still possible to be amended or fall apart at the last minute.
AlphaGo, Google’s Go-playing computer, took a 3-0 lead on Saturday against one of the world’s top players, clinching the five game series. “I am very sorry for the powerless display,” Lee Sedol told reporters in Seoul. “I have never felt before such severe pressure as I do now, and I suppose my abilities were a bit lacking to overcome that.” Lee struck back to win game four against AlphaGo on Sunday. The fifth match will take place tomorrow.
The annual Game Developers Conference kicks off today in San Francisco, where more than 26K people from around the globe will congregate for a five-day gathering focused on augmented- and virtual-reality. According to Digi-Capital, investors in 2016 have already have pumped $1.1 billion into the technologies, more than the total for any prior year. Researchers at Gartner estimate nearly 40 million headsets will be sold world-wide by 2020.
Just in case you’re thinking that digital games are nothing more than games, Microsoft announced today that computer scientists and amateurs will be able to evaluate and develop artificial intelligence, or AI, software using its Minecraft virtual landscapes. Improving AI software by getting it to play video games has been done before. But Microsoft suggests the open-ended nature of Minecraft makes it particularly useful because of the huge variety of situations it can simulate from first-person perspectives.
Today is Pi Day, March 14, or 3-14, the first three digits in Pi; which refers to the ratio of a circle’s circumference to its diameter, and not a delicious desert. The diameter of a circle is the distance from edge to edge, measuring straight through the center. The circumference of a circle is the distance around. And the ratio works on any circle, big or small, which means Pi is a constant number. As an irrational and transcendental number, it will continue infinitely without repetition or pattern, except of course, that it embodies the order inherent in a perfect circle. The first 6 digits in Pi are 3.14159, and if you round that number up, you get 3.1416, which would match March 14, 2016.