Morning in Arizona

Morning in Arizona

The Headline Animator

Monday, August 22, 2016

Let’s Do the Limbo

Financial Review

Let’s Do the Limbo


DOW – 23 = 18,529
SPX – 1 = 2182
NAS + 6 = 5244
10 Y – .04 = 1.54%
OIL – 1.71 = 46.81
GOLD – 2.50 = 1339.60

At the open this morning, the S&P 500 dipped and the VIX spiked, which had many market observers hoping that we’d finally see some volatility, some sign of movement. Of course that didn’t happen. For the past 32 days of trading, the S&P 500 index has not had a day where prices moved more than 1% up or down.  Back in 2007 we reached 38 days, then in July 2014 we reached a 20-year record of 62 days. A little bit of a pause in the market can be a good thing, and the markets respond positively; the market catches its breath and keeps on running.

However, when this kind of tight trading range extends beyond 20 days, (typically a month’s worth of trading sessions) the subsequent returns get worse; and after two months’ worth of trading, the following month is likely to show a decline. An extended tight trading range might indicate that the bulls just don’t have the power to push the market higher. We’re not there yet, but eventually this market is going to have to make a move; until then the markets are in limbo. One thing that might move the markets is the Fed.

Federal Reserve Vice Chairman Stanley Fischer helped the dollar to begin the week trading stronger against all of its major peers, after he said US economic conditions are close to hitting the central bank’s targets in a speech in Aspen on Sunday. This upbeat assessment pushed the currency to a one-week high, as traders beef up bets that a rate hike may happen this year. The Federal Reserve’s annual Jackson Hole symposium begins on Thursday. This year’s theme is “designing resilient monetary policy frameworks for the future.” Janet Yellen speaks there on Friday.

What she says will be combed for clues about whether the Federal Open Market Committee will raise interest rates at its next meeting, in September. Goldman Sachs economists, writing in a research note to clients, said: “We currently see a subjective 30 percent probability that the next move is a hike at the September meeting, and a 45 percent probability that it is a hike in December, for a 75 percent cumulative probability of at least one rate increase this year.”

Pfizer has agreed to acquire Medivation for $14 billion, Pfizer, which is the second-largest bio-pharmaceutical company with a market cap of $212 billion, would pay about a one-third premium to the drug maker’s Friday closing price of $67.16. This is a notable premium to the $9.3 billion offer the pharma giant Sanofi had made earlier this year. By acquiring Medivation, Pfizer would gain a blockbuster prostate-cancer treatment that’s already approved for sale in the U.S. and elsewhere, and that analysts project will generate $1.33 billion in annual sales by 2020.

Medivation also comes with two experimental products: a drug for breast cancer and another for the blood cancer lymphoma. Still, it seems like a larger price to pay for a company with only one approved drug. Of course Medivation charges a high price for that one drug, Xtandi costs $129,000 – 4 times more than in other countries. Xtandi was developed at the University of California, Los Angeles, through taxpayer-supported research grants from the U.S. Army and the National Institute for Health. Reuters had reported that several other players, including Gilead and Merck considered buying Medivation, so presumably, these suitors will seek other targets now that Pfizer has sealed the deal here.

The global gas-station operator that controls Circle K outlets reached a deal to acquire San Antonio, Texas-based gas station and convenience store chain CST Brands for about $4.4 billion. Quebec-based Alimentation Couche-Tard said it would pay $48.53 per share for CST, which operates more than 2,000 stores in North America; that represents a 42% premium above the price at which CST shares were trading before the company announced March 3 that it was considering a sale. Couche-Tard’s approximately 12,000 stores worldwide includes nearly 7,900 in North America operating under the Couche-Tard, Circle K and Ingo brands. It has about 80,000 employees at its stores, fuel businesses and administrative offices in North America.

One of the country’s largest newspaper chains is offering buyouts to its employees and said most of those workers would have their last day in mid-September. GateHouse Media, which is based near Rochester, N.Y., and publishes 125 daily newspapers and more than 600 weekly and business papers in 35 states, made the announcement last week in a memo to employees. In Arizona, GateHouse publishes the Arizona Capitol Times – no immediate word on the fate of that publication.

Meanwhile, the Arizona Capitol Times reports a judge has thrown out a bid to keep voters from deciding whether to legalize the recreational use of marijuana. The measure would permit any adult to have up to one ounce of the drug or six plants without fear of prosecution under state law. It also sets up a new state agency to regulate sales, imposes new taxes and enacts various provisions.

In a ruling Friday, Maricopa County Superior Court Judge Jo Lynn Gentry said when state lawmakers altered the election code last year they eliminated — perhaps inadvertently — the ability of individual citizens to sue to keep initiative measures off the ballot. And she said lawmakers failed to restore that right anywhere else. Gentry wrote, “whether wittingly or not, the legislatures eliminated a means by which initiative petitions can be challenged.”

The parent company for Arizona Public Service, Pinnacle West Capital, in its latest filing with the SEC, reported it had received two subpoenas over the summer as part of federal investigations into the 2014 elections. The FBI and federal prosecutors are investigating campaign donations and financing of the 2014 Arizona Secretary of State’s race and Arizona Corporation Commission contests. The subpoenas related to those campaigns and Arizona and Pinnacle West/APS executives’ communications. APS has been at the center of debates over solar energy policies, and critics contend the utility has funneled undisclosed, so-called “dark money” to some Corporation Commission candidates.

You’ve heard the stories about high rents in Silicon Valley, well it might be good news for Arizona. The New York Times reports at the end of last year in the Bay Area mega-region — including both the San Francisco and San Jose metropolitan areas — there were 530,000 tech and engineering jobs, a 7 percent increase from a year earlier. Phoenix has about one-fifth as many tech jobs, but the total grew 8 percent from a year ago, and many of those jobs are coming from the Bay area.

Wages, taxes and energy cost about 25 percent less in Phoenix than they do in San Francisco. Housing is much cheaper. The median home price in the Phoenix metropolitan area is $221,000, according to Zillow. In San Francisco, it is $812,000. A few examples of recent transplants include Weebly, Double Dutch, Allbound and Gainsight.

Of course, these aren’t the first companies to migrate from San Francisco to the desert; Intel has been here for quite some time. Still, it bodes well for the local economy. Chris Camacho, chief executive of the Greater Phoenix Economic Council, says better-paying jobs will follow, since companies prefer to expand in cities where they already have offices.

The leaders of Germany, France and Italy were due to meet on an island off the coast of Naples today to discuss how to keep the European project together in the second set of talks between the Eurozone’s three largest economies since Britain’s vote to leave the EU. Merkel wants to cement “a better Europe” rather than forge ahead with “more Europe,” Renzi wants Italy to have a strong voice in how the bloc’s future is shaped post-Brexit, and Hollande wants an EU-wide investment plan to be doubled.

The Bank of Japan will not rule out lowering negative interest rates even lower. The BOJ introduced negative rates in February and the controversial policy has failed to spur inflation or economic growth. “The degree of negative rates introduced by European central banks is bigger than Japan. Technically there definitely is room for a further cut,” Governor Haruhiko Kuroda told the Sankei newspaper.

Iraq, OPEC’s second-largest oil producer, plans to boost exports 5%, or 150,000 barrels a day, in the next few days following a deal to restart shipments from three fields in Kirkuk. Exports were suspended in March due to a payment dispute with Kurdistan, which controls the relevant pipeline. The news doesn’t quite square with speculation that OPEC is set for discussions about freezing output. Crude prices were lower today.

It’s like the Hatfields swapping recipes with the McCoys. Or ASU and the University of Arizona drawing up plays together. Starting next year, the Chevrolet Camaro will share a transmission with the Ford Mustang. Crosstown collaboration between General Motors and Ford was once unfathomable. But cost-cutting, engineer shortages and increasing regulations made it inevitable.

Last Thursday the Federal Reserve launched its own Facebook page. The Fed said the idea was to increase the accessibility and availability of the Fed. What could go wrong? Even though the Fed Facebook page picked up almost 10,000 likes, hundreds upon hundreds of rants piled up over the weekend, and perhaps in the spirit of transparency, the Fed has allowed them to remain. For now.

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