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Rainbows over Canyonlands - Dave Stoker

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Monday, April 18, 2016

No Deal in Doha, Dilma Doomed

Financial Review

No Deal in Doha, Dilma Doomed

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DOW + 106 = 18,004
SPX + 13 = 2094
NAS + 21 = 4960
10 Y + .02 = 1.77%
OIL – .42 = 39.94
GOLD – 2.00 = 1233.10

The Dow topped 18,000 for the first time since July. At the year’s low in mid-February, the Dow had fallen to nearly 15,500.

There was no oil deal at Doha. Talks concluded without a deal as Saudi Arabia demanded that Iran take part in any production freeze.  Iran urged other oil producers to continue efforts to prop up prices, but insisted it was justified in not yet freezing its own output following the lifting of sanctions in January. Iran’s oil minister said over the weekend that other producers had to deal with the reality that Iran has returned to the oil market.

The reality for many oil producing nations is that low oil prices have left their national budgets on the brink of disaster. Meanwhile, oil workers in Kuwait went on strike to protest government cutbacks; the net effect of the work stoppage is like a production freeze, but it isn’t expected to last a long time.

The Nikkei stock index in Japan fell 3.4 percent after a series of earthquakes measuring up to 7.3 magnitude struck a southern manufacturing hub, killing at least 42 people and forcing major companies to close factories. About 30,000 rescue workers were scouring the rubble for survivors and handing out food to those unable to return to their homes following the quakes.  Japanese exporters like Toyota and Sony suspended production in the aftermath of a major earthquake. Meanwhile, Ecuador over the weekend was hit with its biggest quake in decades,7.8 magnitude, which killed at least 350 people (at last count) and injured over 2,000.

Saudi Arabia says that it will sell up to $750 billion in treasuries and other American assets if Congress passes a bill that would allow the Kingdom to be held responsible in US courts for any role in 9/11. Families of the Sept. 11 victims have used the courts to try to hold members of the Saudi royal family, Saudi banks and charities liable because of what the plaintiffs charged was Saudi financial support for terrorism.

These efforts have largely been stymied, in part because of a 1976 law that gives foreign nations some immunity from lawsuits in American courts. The Senate bill is intended to make clear that the immunity given to foreign nations under the law should not apply in cases where nations are found culpable for terrorist attacks that kill Americans on United States soil. The argument against wiping out Saudi immunity is that Americans might be in legal jeopardy if other nations decide to retaliate and strip Americans of immunity abroad.

Brazilian President Dilma Rousseff lost a decisive impeachment vote in the lower house of Congress on Sunday and appeared almost certain to be forced from office in a move that would end 13 years of Workers’ Party rule. The opposition counted more than the two-thirds majority it needed to send the impeachment motion to the Senate.

If the Senate agrees to go ahead with the impeachment, as seems likely, Rousseff would be suspended from her post and be replaced by Vice President Michel Temer as acting president pending her trial. Temer would serve out Rousseff’s term until 2018 if she is found guilty. While Rousseff herself has not been personally charged with corruption, many of the lawmakers who decided her fate on Sunday have been. Both the vice president and speaker of the House are under investigation.

Confidence among US homebuilders was little changed in April, indicating the housing market lacked momentum as the spring selling season got under way. The National Association of Home Builders/Wells Fargo builder sentiment gauge held at 58 this month, where it’s been since February. Readings greater than 50 mean more respondents report good market conditions. Better buyer traffic and growing optimism about the outlook for the next six months made up for a drop in current sales of single-family homes

For the S&P 500 index, as of this morning, we have Q1 results from 41 index members that represent 11.1% of the index’s total market capitalization. Total earnings for these 41 index members are down -9.4% from the same period last year on -0.7% lower revenues, with 75.6% beating EPS estimates and 53.7% beating revenue estimates. Once the bar is set so low, it’s easy to step over it.

Morgan Stanley’s quarterly profit fell by more than half as the Wall Street bank’s fixed-income trading and investment banking businesses took a hit from market volatility early in the year. But the earnings still beat expectations as the bank cut employee compensation. Morgan Stanley’s stock fell about 21 percent in the quarter – the sharpest decline of any big US bank.

PepsiCo reported a better-than-expected quarterly profit as it trimmed costs and demand rose in North America for its snacks. Global beverage volumes rose 3 percent. Cost of sales fell 6.4 percent as raw material prices declined. PepsiCo maintained its 2016 forecast of a profit of $4.66 per share and a growth of 4 percent in revenue.

Hasbro, the No. 2 US toymaker, reported better-than-expected quarterly profit and revenue. Hasbro holds a number of lucrative licensing deals for making toys based on blockbuster franchises such as “Jurassic Park”, “Star Wars”, “Avengers”, and Disney Princess dolls.

After the close, IBM reported a 4.6 percent fall in quarterly revenue, hurt by a strong dollar and muted IT spending amid global economic uncertainty. Revenue declined for the 16th straight quarter. Net income fell to $2.01 billion, or $2.09 per share, from $2.33 billion, or $2.35 per share, a year earlier.

Also, right after the closing bell, Netflix posted earnings. First-quarter net income rose to $27.7 million, or 6 cents a share, from $23.7 million, or 5 cents. Sales grew 24 percent to $1.96 billion. But it’s really more about their subscriptions; Netflix expects to add 2 million new international customers. That’s fewer than the 3.5 million. Shares dropped like a rock.

Sport Chalet’s parent company, Vestis Retail Group, has filed for Chapter 11 bankruptcy protection. The news comes two days after Sport Chalet initiated store-closing sales at its 47 locations and stopped all online sales operations. Sport Chalet has 40 stores in California. It also operates five stores in Arizona and two in Las Vegas. Sport Chalet said it will continue to honor gift cards and loyalty rewards; an internal memo obtained by the Los Angeles Times set a cutoff date of April 29. No closing date for the stores was given.

Corporate borrowers across the world have defaulted on $50 billion of debt so far this year as the number of delinquent companies accelerates at its fastest pace since the financial crisis in 2009. Nearly half of the defaults have occurred in the oil/gas and mining industries, spurred by the sharp decline in commodity prices, slowing global growth and lackluster demand for base metals and crude. Latest defaults: Peabody Energy, Energy XXI, and Goodrich Petroleum.

Today is the due date for potential bidders to submit bids to buy Yahoo’s core internet business. Verizon might be a front runner. We aren’t sure if Time, Alphabet, Comcast and AT&T will submit bids. Verizon may still face competition from private equity companies including Bain Capital, Advent International, and TPG. Cerberus Capital is considering a deal for YP Holdings to acquire Yahoo. YP as in Yellow Pages. It has a certain old school charm about it.

It looks like Europe is preparing for another legal showdown with Google, this time over its Android mobile operating system. Euro-regulators are concerned that phone makers and operators are required to preload a set of Google apps, rather than letting them decide for themselves which apps to load.

Twelve years ago, Google started digitizing about 20 million books. The Authors Guild and several writers sued Google in 2005, saying the digital library was a commercial venture that drove down sales of their work. Today, the Supreme Court refused to revive a challenge to Google Books, turning down an appeal from the authors, meaning a lower court decision stands; the digital books are “fair use” of the authors’ work. The justices gave no reasons for declining to hear the case.

The Supreme Court today heard arguments in the case of the United States v. Texas. At issue are the president’s executive actions on immigration, which have been on hold for more than a year as a result of a challenge from Texas and 25 other states. At the heart of the case are two constitutional questions: Whether the states have legal “standing” to sue over how the federal government administers immigration policy, and whether the policy itself complies with the mandate that the president “take care” that the laws be faithfully executed.

The Fifth Circuit Court of Appeals sided with Texas in 2015, issuing a nationwide injunction to prevent the immigration actions from taking effect. If the Supreme Court reaches a 4-4 stalemate, it will affirm that lower court decision without setting precedent for other circuits. That means a different Circuit Court of Appeals might reach an opposite outcome, upholding Obama’s actions, and that’s where everything really goes haywire.

Or the Supremes might just punt; they could make a very narrow ruling by determining that Texas lacks standing, meaning the state can’t sue because it hasn’t been harmed. States aren’t usually allowed to sue just because some federal action requires them to spend a marginal amount of new money. If they could, states would challenge everything the federal government does.

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