Take the Overs
DOW – 45 = 18,552
SPX – 3 = 2183
NAS – 1 = 5238
10 Y + .04 = 1.58%
OIL + .27 = 48.49
GOLD – 12.50 = 1340.60
Oil has entered bull-market territory, as both WTI and Brent benchmarks extended their gains past 20 percent over the past three weeks, and up over 8% for the week. The rally has been fueled by speculation OPEC is poised to freeze production, divisions between major powers over output targets remain ahead of next month’s meeting in Algiers.
Saudi Arabia reported yesterday that it hiked its oil and refined-product exports to the highest level for June ever recorded, at 8.8 million barrels a day, as the kingdom seeks to grow market share and address its budget deficit. The S&P GSCI Crude Oil Total Return is up 15.2%, its biggest six-day gain, ending Aug. 18, 2016, since the six-day gain of 16.1%, ending on Apr. 13, 2016.
A side note: yesterday we got state-by-state reports on July Jobs figures (the national report comes out on the first Friday of each month and about 10 days later we get the breakdown by individual states). As we reported yesterday, Arizona’s unemployment rate rose 0.2% to 6%. You might think the oil producing states have suffered huge job losses; well, yes, but not so bad. Louisiana has a 6.3% unemployment rate, but about half the state is under water. South Dakota’s unemployment rate is still the lowest in the country at 2.8%; North Dakota at 3.1%; Texas 4.6%; and Oklahoma 5%.
Aiming to drill for crude in Mexico’s deep-water oil areas, Exxon Mobil, Chevron and Hess have reached an agreement to bid on producing oil in 10 areas up for auction on Dec. 5. Mexico hopes to raise $44 billion in its first-ever sale of deep-water drilling rights in the Gulf of Mexico, located in the Perdido area near the maritime border with the U.S.
The dollar trimmed its losses, rising against all 16 of its major counterparts, but that wasn’t enough to stem its second weekly decline as markets continue to waver on whether the Federal Reserve will hike rates this year. The dollar’s losing streak against this year’s best-performing G10 currency, the yen, is even longer at a fourth consecutive week of losses: The Japanese currency is trading near its strongest levels in almost three years.
San Francisco Federal Reserve Bank President John Williams joined a growing chorus of his colleagues signaling support for a U.S. interest rate hike in coming months, saying that waiting too long could be costly for the economy. Saying he is in no hurry to raise rates, Williams nevertheless warned that the economy could overheat if rates are kept low for too long, like a party at which the host fails to remove the punch bowl. The next signal of the Fed’s intent is likely to arrive next week at the Jackson Hole monetary symposium on August 26; Fed chair Janet Yellen is scheduled to speak and there is growing anticipation that she will take a hawkish stance on September rate hikes.
In a letter to investors, Elliott Management’s Paul Singer wrote that we are experiencing the “biggest bond bubble in world history” as investors continue to rush in despite low and negative yields. The man, known best for suing Argentina over its debt restructuring, called the global bond market “broken” and warned that the end of the current environment will be “surprising, sudden, intense and large.” Singer brings up a valid concern, even if he is a bit dramatic in the presentation.
About $12 trillion of the government bond market currently trades at a negative yield; that’s basically a guarantee of losses. The average yield on the 10-year Treasury note over the past 145 years is about 4.55%; the current yield is 1.58%. If that difference, or deviation, was the only thing you considered, then we might call it a bubble. But about one-third of outstanding bonds are held by central banks around the globe.
And that means that if inflation starts running wild or if liquidity dries up, the anticipated response is another round of bond buying. Central bankers have deep pockets. Singer’s latest assessment of the market is stark and bold. He said that “Everyone is in the dark, experience doesn’t count much, and extreme confidence may be fatal.” Yeah, maybe, but not today.
British Prime Minister Theresa May will not begin formal divorce talks on leaving the European Union before the end of the year. Bloomberg cited unidentified officials as saying that May is sympathetic to the case for acting by April at the latest. Earlier media reports had suggested May would wait until later in 2017 to kick off the talks. The report suggests invoking Article 50 by April, ending speculation that the U.K. would have several years to prepare to leave the EU. The less time the U.K. has to get things in order, the greater the market fears the fallout. The British pound sterling moved sharply lower today.
Meanwhile, The City of London has relinquished hopes the U.K. will retain full access to the European single market for goods and services, according to the FT. Officials from the financial sector have concluded that a Norway-style deal is untenable, and are now looking to imitate and build on Switzerland’s deal with the EU, where only some industries have full access to the single market.
Wall Street is no longer New York’s biggest jobs engine. William Dudley, the New York Federal Reserve president, said in a Thursday speech that growth in the city’s tech sector was “picking up much of the slack created by the softness of the securities industry.” Dudley pointed specifically to jobs in the internet publishing, online shopping, and scientific research and development industries.
The battle over Sumner Redstone’s $40 billion media empire is over, according to media reports, bringing to a close a legal fight over whether the 93-year-old had the mental capacity to make decisions and if he was being manipulated by his daughter Shari. Terms of the settlement include the dismissal of Viacom CEO Philippe Dauman (with a $72M severance package), appointment of COO Thomas Dooley as interim chief executive and the expansion of Viacom’s board (based on the five choices of National Amusements).
A Deutsche Bank whistleblower won’t be accepting his award. Eric Ben-Artzi, a former Deutsche Bank risk officer, said in a Financial Times op-ed article that he would not accept his $8.25 million reward for blowing the whistle on Deutsche Bank because the firm’s executives should be the ones paying the award.
Two major institutional investors are suing Valeant Pharmaceuticals and six current and former top executives for allegedly engaging in “a fraudulent scheme” that cost shareholders billions of dollars. Mutual fund giant T. Rowe Price and insurance company Alleghany Corp. filed the lawsuit this week in a New Jersey court. The court filings allege that Valeant resorted to deceptive practices such as refilling patients’ prescriptions without permission and pushing sales of its high-priced medications through a secret channel of pharmacies across the US.
Once the scheme was unmasked the fallout was severe and investors were left holding the bag. Valeant shares collapsed by about 90% after its relationship with Philidor, a now-defunct mail-order pharmacy based in Pennsylvania, came to light and its practice of aggressively increasing the prices of its drugs faced more scrutiny. Valeant also faces a separate class action suit, and is the subject of a criminal investigation.
Now, emails from employees of Philidor and Valeant (one and the same really) ..., emails have been published and it paints a very sleazy picture of price gouging. And it is now looking like Valeant is the pharmaceutical industries equivalent of Enron.
The FCC has put together a “Robocall Strike Force,” it’s really just a group of tech companies getting together to try to stop people from annoying you with spam phone calls. The group – which includes Apple, Comcast, Google, Microsoft, Nokia, Qualcomm, Samsung, T-Mobile, Verizon, and dozens more – held its first meeting today. The strike force is expected to report back to the Commission by Oct. 19 with concrete plans for the development and adoption of new tools, as well as recommendations on the government’s role.
Robocalls span a wide range, from those that are legal but unwanted – telemarketers and public opinion surveyors – to the blatantly illegal – those violating the Do Not Call registry or trying to steal your money or identity. All 33 members of the strike force have already committed to five things: conforming to caller ID standards, adopting SS7 solutions, evaluating the feasibility of a “Do Not Originate” list, developing and implementing new solutions, and adopting call-blocking tech.
Today is Google’s anniversary; August 19, 2004 was the first day Google was publicly traded. The stock didn’t even survive to its tenth birthday. In 2014 it changed its name to Alphabet; still, it has been a pretty good run. Since the first day of trading, Google alphabet shares are up 1,500%.
The political betting site PredictIt has a market in how many totally false statements the two major presidential candidates will make. Yep, you can bet on politicians lying. PredictIt uses the analysis of the site PolitiFact, and statements rated “totally false.” The current odds suggest that Clinton is the more truthful – there’s a 65% probability Clinton will make just one totally false statement in August, according to the betting odds. The least amount of lies to bet on for Trump is four, and the market is split between five and six lies, with 26% odds on each.
That shouldn’t come as a surprise. In an analysis made in June, PolitiFact said Trump had more statements rated “pants on fire” than the 21 other candidates for president combined. That said, Americans don’t think either candidate is particularly honest, only 28% think Clinton is honest and trustworthy, and 27% think Trump is. And while I would never endorse gambling, if you feel compelled to place a wager, I would go with the overs.