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Friday, October 07, 2016

Waiting for the Storm

Financial Review

Waiting for the Storm

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

DOW – 12 = 18,268
SPX + 1 = 2160
NAS – 9 = 5306
10 Y + .03 = 1.74%
OIL + .73 = 50.56
GOLD – 11.30 = 1256.20

The number of people who applied for unemployment benefits fell by 5,000 to 249,000 at the end of September. This marks 83 consecutive weeks of initial claims below 300,000, the longest streak since 1970. Tomorrow the Labor Department reports on how many people found jobs in September; the consensus estimate is calling for about 170,000 new jobs in the last month.

With unemployment near the lowest level since before the last recession, employers are having to offer more incentives to attract skilled workers to blue-collar truck driving and construction jobs.

Tomorrow’s jobs report could provide clues to the timing of the Fed’s next interest rate rise. If the tight jobs market means average hourly earnings rose more than the projected 0.3 percent, the chances of a hike this year could easily increase beyond the current market-implied 61 percent.

Traders are taking the Fed’s November meeting off the table for two reasons: its closeness to the elections could have aggravated political and market consequences, and the Fed may want to avoid raising rates at meetings without scheduled press conferences. There will be two more jobs reports before the Fed’s December meeting. And so, reading the Fed tea leaves based on this report may be premature, unless we get a very dramatic number tomorrow.

Now, when we see the report that weekly claims for jobless benefits are at the lowest levels in 46 years, you might think that is a sure sign that the labor market is very strong. Not necessarily. The labor market is certainly much stronger than it was 5 or 6 years ago, but one reason why claims for unemployment benefits are so low is because fewer people are eligible to make claims, with just over one in four jobless workers (27 percent) receiving unemployment insurance benefits in 2015. Just since 2011, the proportion of jobless workers receiving unemployment insurance plunged from 67% to a measly 27%. From two-thirds to just one in four.

Global outplacement consultancy Challenger, Gray & Christmas reports employers announced plans to cut 44,324 jobs last month; that’s a 38% increase from August, but 25% less than September a year ago.

A fresh report from the Freelancers Union now shows that nearly 55 million Americans are freelancing. If you tally this up against the Labor Department data, it means that 35% of the work force is made up of freelancers. The view is that the number of freelancers is growing and that the freelance economy has added 2 million workers since 2014. The report also shows that these independent workers are “emerging as a powerful economic and political force” and that freelancers contributed $1 trillion dollars to the economy this year.

Consumer loan delinquencies fell to the lowest on record in the second quarter of the year. The American Bankers Association’s index, which tracks late payments in eight categories, fell 3 basis points to 1.35, a record low. Delinquency rates held below the 15-year average of 2.21% for the third year.

Hurricane Matthew, the fiercest Caribbean storm in nearly a decade, slammed into the Bahamas this morning. Haiti now reports more than 100 dead. Now, it is gathering strength and is expected to slam into Florida in the next 4 to 6 hours as a Category 4 hurricane with sustained winds of about 140 miles per hour and a storm surge up to 11 feet. It might even grow into a Category 5.

The National Hurricane Center extended its hurricane warning area farther north into Georgia and more than 12 million US residents are under hurricane watches and warnings. More than 1.5 million Floridians have been told to evacuate.   Efforts to prepare for the deadly storm have resulted in massive gas lines and empty store shelves as residents either get out of town or bulk up on supplies to ride out the storm.

Airlines have cancelled flights from Florida to the Carolinas. Airlines have cancelled more than 3,000 flights. Expect delays everywhere. Twelve U.S. power generators, including two nuclear plants, are in the storm’s path. The risk to Florida’s orange crop is “minimal” because the worst weather will be along the coast.

Evacuations could push storm damage to $10 billion to $15 billion in losses related to economic disruption, and total losses could top out around $50 billion. Shares of publicly-traded property and causality companies are taking it on the chin as Hurricane Matthew bears down on the Florida, Georgia, and South Carolina coasts.

Shares in Twitter fell hard this morning after technology news site Recode reported that Google doesn’t currently plan to make a bid for the company. Recode also said Disney and Apple are unlikely to bid. That leaves as a possible suitor, although some analysts say an acquisition could hurt Salesforce more than it helps.

Snapchat has begun preparing filings for an initial public offering and is aiming to sell shares in the first quarter of next year. The Wall Street Journal estimates the social media site known for its disappearing texts and photos could fetch a market value of at least $25 billion.

Looking to gain an even more dominant position in retail, Wal-Mart is accelerating its investment in e-commerce. The company is on track to double the number of warehouses dedicated to online sales by the end of 2016 and has installed technology that for the first time puts them on par with Amazon’s robot-staffed facilities.

Wal-Mart tempered its profit forecast for the next two fiscal years due to investments in its online business. Wal-Mart said it expected flat earnings for the year ending on Jan. 31, 2018, with capital expenditures of about $11 billion. It had previously forecast profit growth. New store growth will slow significantly. The retailer expects to build 35 new supercenters in fiscal 2018, down from 69 last year. Even growth of the company’s smaller format Neighborhood Markets will slow, down to 20 new stores in fiscal 2018 from 161 built last year.

Mylan overcharged the government for the EpiPenThe drug company classified the EpiPen allergy treatment as a generic, allowing it to have inflation protections with Medicaid that are not available to branded drugs. Makers of brand-name drugs have to pay higher rebates to states than generics — 23.1% versus 13%. Also, they have to pay additional rebates if their price increases rise more than inflation. So by having EpiPen classified as a generic Mylan saved itself a bunch of money.

Back in 2009, Mylan paid a $124 million fine for misclassifying its drugs and under-paying rebates this way. It is the responsibility of the manufacturer to maintain accurate information of its drug’s status. From 2011 to 2015, government spending on EpiPen increased 463%, from $86 million to $487 million. As of now, the Centers for Medicare & Medicaid Services are unsure exactly how much they were overcharged.

Theranos fired 40% of its workforce. Life sciences company Theranos will close its clinical labs and fire 340 people, founder Elizabeth Holmes said in an open letter. The company said it is no longer focusing on blood-testing after serious questions were raised about the effectiveness of its novel method, but will develop products for outside labs.

One of Deutsche Bank’s problems might have gone away. German financial regulators say they found no evidence to date that the lender violated rules on money laundering in Russia. The stakes are still high for Deutsche Bank as German government officials quietly meet with U.S. regulators in Washington to broker a deal that would reduce the Justice Department’s $14 billion proposed settlement for mortgage backed securities mis-deeds dating back to the financial crisis. Last week, there was a rumor that the DOJ might accept a $5.4 billion fine. With talks ongoing, it looks like the two sides have not come up with a mutually acceptable resolution.

Southwest Airlines Flight 994 was scheduled to depart Louisville for Baltimore yesterday. The flight was cancelled and the plane was evacuated after a passenger’s Samsung smartphone caught fire. And we have all heard the stories of Samsung phones catching fire. The company, which is announced last month that it would replace 2.5 million of the Galaxy Note 7 phones because of a flaw in the battery’s cell that could result in the devices bursting into flames or exploding…, but this phone was a replacement. The passenger sent his old phone in to be replaced with a new battery, and it still caught fire.

The United Nations has organized the first international pact to reduce the airline industry’s carbon emissions. And the airline industry supported the deal. But there’s some fine print. The restrictions won’t even be set for several more years, and emissions will be capped at 2020 levels, and may indeed rise before then, and the standards won’t become mandatory until 2027. And airlines won’t necessarily have to burn less fuel; emissions beyond the 2020 levels could be offset with investments in renewable energy projects and environmental programs. Aviation contributes about 2% of the world’s carbon emissions.

The town of Summit, New Jersey has hired UBER to provide free rides for commuters to and from its train station under a new six-month pilot aimed at solving its downtown parking crisis. Uber is looking at similar arrangements with “another half dozen” towns along the NJ Transit rail line, and that the model could extend to other states in time.

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