Morning in Arizona

Morning in Arizona
Rainbows over Canyonlands - Dave Stoker

The Headline Animator

Monday, August 29, 2016

De Facto Fail

Financial Review

De Facto Fail

DOW + 107 = 18,502
SPX + 11 = 2180
NAS + 13 = 5232
10 Y – .07 = 1.57%
OIL – .69 = 46.95
GOLD + 2.70 = 1324.20

Federal Reserve Chair Janet Yellen, in a speech Friday, said the case for a rate hike had strengthened, but left open the timing. Fed Vice-chair Stanley Fischer followed up by saying a September hike was a possibility. The Fed will have plenty of economic data in the next few days culminating in Friday’s Jobs Report for August.

The market is pricing in a 42% chance of a September interest-rate hike and a 64.7% probability of a rate hike by the end of the year. Over the weekend and today, I read several articles that seemed to relay the basic idea that the Fed is confused and the outlook for rate hikes is muddied. Probably not. I don’t think it’s a done deal but Yellen was pretty straightforward. They haven’t made a decision yet.

If Yellen really wanted to say something straightforward, I think the best thing would be to say the Fed won’t be doing anything right now; they’ve done all they can, and now the politicians in Washington need to do something for the economy.

Americans increased spending by 0.3% in July, buying more new cars and trucks and devoting more money to utilities such as cooling their homes. What’s helped consumers has been a gradual increase in incomes and lower gasoline prices. Personal income rose 0.4% last month. Since incomes rose faster than spending, the personal savings rate climbed to 5.7% from 5.5%.

Inflation as measured by the PCE index was unchanged in July. The core rate of inflation that strips out the volatile food and energy categories rose 0.1%. The PCE index, the Federal Reserve’s preferred inflation barometer, increased 0.8% in the 12 months ended in July, a tick lower than in June. The annual rate of core inflation was flat at 1.6%.

Japan’s Nikkei climbed 2.3% overnight as the yen weakened against the resurgent dollar following Yellen’s comments. Adding to pressure on the currency, BOJ Governor Haruhiko Kuroda said at Jackson Hole on Saturday that there was ample space for further easing of monetary policy via QE or by cutting interest rates deeper into negative territory.

Hackers have breached databases for election systems in Illinois and Arizona. The FBI has been investigating. In late May, Arizona officials took the statewide voting registration system offline after the FBI alerted the Arizona Department of Administration that there was a credible cyber threat to the voter registration system. When they took the system offline to review any vulnerabilities, they discovered that a county election official’s username and password had been posted online publicly.

It’s believed that a worker may have inadvertently downloaded a virus which exposed the username and password. In this instance, the username and password information posted would only give individuals access to a localized, county version of the voting registration system, and not the entire state-wide system. There is no evidence that any data within the system was compromised and there was no evidence of malware present in the database.

The Illinois database included voters’ names, addresses, sex and birthdays in addition to other information. Some of the records include either last four digits of a voter’s social security number or drivers’ license numbers. Illinois officials say they are confident the hackers did not change the data, although the investigation is still underway.

Brazil’s suspended President Dilma Rousseff testified in her impeachment trial this morning.  Rousseff urged senators to vote against her impeachment, saying it would put at risk the country’s democracy. In a speech during her trial in the Senate, Rousseff recalled her fight against dictatorship, highlighted her social welfare policies, and said the charges against her were manufactured by the country’s elite to take power after losing the 2014 presidential election.

She warned of more inequality and poverty if her successor, Michel Temer, were to be confirmed in office. Rousseff again denied any wrongdoing and accused the opposition of sabotaging her administration to gain power, without consideration to the collateral damage the political maneuvering has caused the Brazilian people.

Turkish forces are intensifying their military campaign in Syria, seizing territory held by ISIS and Kurdish militants. The clashes underscore the complexity of the U.S.-led coalition against Islamic State. American special operations forces are embedded with Kurdish rebels, but also have close contact with their Turkish counterparts and rely on the country for their rear supply lines.

Free trade talks between the European Union and the United States have failed, at least according to Germany’s economy minister, Sigmar Gabriel, citing a lack of progress on any of the major sections of the long-running negotiations. Both Washington and Brussels have pushed for a deal by the end of the year, despite strong misgivings among some EU member states over the Trans-Atlantic Trade and Investment Partnership, or TTIP. Over the weekend, Gabriel, who is also Germany’s vice chancellor, said: “In my opinion, the negotiations with the United States have de facto failed, even though nobody is really admitting it.”

Apple has sent out invitations for September 7th. A big deal, likely the unveiling of the new iPhone 7, which will look a lot like the iPhone 6. Apple also likely has marked tomorrow for a big event in Europe.

The European Commission started to look into Apple’s Irish tax rate in 2014, and tomorrow they will issue a ruling on the three-year investigation. Today, the EU’s competition commissioner published a 130-page judgement which says that Apple received “illegal state aid” from Ireland – essentially a sweetheart deal that allowed the computer maker to unfairly reduce its tax bill in a way not available to other companies.

The commission focused on how and where Apple lists its intellectual property for tax purposes, which is one of the major loopholes that critics claim tech companies use to funnel assets to low-tax countries. The decision does not have a specific fine attached, but it is expected to be Europe’s largest tax penalty ever, according to the Financial Times, which pegs the amount at “billions of euro.” We’ll learn more tomorrow.

GCL-Poly Energy Holdings, the world’s biggest maker of polysilicon for solar cells, has agreed to purchase the solar-material business of SunEdison for $150 million. SunEdison filed for Chapter 11 bankruptcy protection in April with $16 billion in liabilities.

Separately, D.E. Shaw & Co is weighing a bid for SunEdison’s controlling stake in TerraForm Power, the bankrupt renewable energy producer’s most valuable asset. The hedge fund and its affiliates already own some TerraForm Power common shares after receiving them in an agreement announced last year upon forgiving debt owed by SunEdison. Appaloosa Management and Brookfield Asset Management have also announced plans to jointly bid on “Class B” shares of TerraForm Power.

The saga over the control of the Viacom media empire may finally be completely done. Keryn Redstone, granddaughter of Sumner Redstone, has agreed not to oppose her grandfather’s decision to resolve lawsuits over the removal of Viacom CEO Philippe Dauman, removing a key obstacle to a settlement. In return, Redstone said he will meet with his granddaughter, who has challenged his competency in a Massachusetts court fight.

The FDA has issued an Emergency Use Authorization for Roche’s “Lightmix Zika” test, a quick diagnostic check that allows healthcare professionals to quickly detect the virus. Zika has been associated with microcephaly, a birth defect characterized by an unusually small head and potential developmental problems.

Amid a wave of criticism over the rapid escalation in EpiPen costs, Mylan said it would launch a generic alternative to its allergy auto-injector at a discount of more than 50% to the branded product’s list price. Mylan expects to release the $300 two-pack carton in several weeks, pending completion of labeling revisions. That would still represent about a 300% increase over the past 9 years; and the actual drugs used only cost a few cents per dose. So, it still looks like price gouging.  The House Oversight and Reform Committee has decided to look into the matter.

New rules by the FAA go into effect today, clarifying what is acceptable commercial usage of small unmanned aerial vehicles. Drones must weigh less than 55 pounds, fly up to a maximum of 400 feet in altitude, at a speed of no more than 100 miles per hour, only operated within line of sight and can only be operated during the day (although there are some exemptions for night flights).

According to industry estimates, the rules could generate more than $82 billion for the U.S. economy and create more than 100,000 new jobs over the next decade. The Federal Aviation Administration says there will be 600,000 commercial drone aircraft operating in the US within the year as a result of the new safety rules.

We’ve all heard about the problems with Takata airbags; the air bags have been linked to the deaths of at least 14 people and more than 100 million vehicles worldwide have been slated for recall to replace the inflators. The company is looking for a financial sponsor to help overhaul its business. Now comes word a truck transporting Takata air bag inflators and propellants exploded in Texas earlier this month, resulting in one death and four injuries, and incinerating a nearby home.

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