Financial Review

1Q in the Can

Sinclair Noe — March 31, 2017

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DOW – 65 = 20,663
SPX – 5 = 2362
NAS – 2 = 5911
RUT + 3 = 1385
10 Y – .02 = 2.40%
OIL + .40 = 50.75
GOLD + 6.70 = 1250.20

The Dow Industrial Average posted a 4.9% gain since the start of the year, its sixth straight quarterly gain, its longest streak since 2006. Over the past 6 quarters, the Dow is up 30%.

Apple and Boeing were the biggest gainers in the Dow for the first quarter – those 2 stocks accounted for more than one-third of the Dow’s gain for the quarter. Rounding out the Top 5: 3M, Home Depot, and Visa. The big Dow losers were Chevron and Goldman Sachs.

The S&P 500 gained 5.5% in first quarter, best since 2015.

The Nasdaq Composite has registered 29 all-time closing highs since November. The Nasdaq has gained about 530 points in the first 3 months of the year – about a 10% gain, the strongest quarter since the fourth quarter of 2013.

It has been a solid quarter but tame, almost quiet. On average, the S&P 500 and the Dow are on track to average an 0.3% daily gain during the first quarter, the smallest average daily move since the mid- to late-1960s, per Dow Jones data.

Despite those moves, or perhaps because of them, some investors seem more hazy than usual about the direction the market takes from here, especially since by at least one measure stocks are trading at their most expensive levels since 2004.  Momentum seems to be cooling, at least slightly in March, with the Dow down 0.7%, the S&P flat, and the Nasdaq up 1.4%.

European stocks have also enjoyed a strong first quarter, with the Stoxx Europe 600 posting a 5.5% gain, its biggest quarterly advance since March 2015, and the third quarter of gains.

A 3-day oil rally ran out of steam. Oil started the year at $53.92 a barrel and traded flat through the first 2 months. For the first quarter and the month, oil is down 5.8%.  But this past week saw the biggest weekly gains of the year. This would indicate that oil is trading in a range, with resistance around $54.

The personal consumption expenditures (PCE) price index gained 0.1 percent last month after jumping 0.4 percent in January. That lifted the year-on-year rate of increase in the PCE price index to 2.1 percent, the biggest gain since April 2012.

The Fed has long targeted 2% inflation. However, the Fed tends to prefer the core PCE, which strips out volatile food and energy; and the core PCE price index increased 0.2 percent last month after rising 0.3 percent in January.

In the 12 months through February, the core PCE price index increased 1.8 percent after a similar gain in January. Still, today’s report shows inflation is gathering momentum and is close enough to target for the Fed to continue with rate hikes in June.

The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent. That was the smallest gain since August and followed an unrevised 0.2 percent rise in January.

Rising price pressures are also eating into consumer spending. When adjusted for inflation, consumer spending fell 0.1 percent in February after declining 0.2 percent in January. That was the first back-to-back monthly decline in real consumer spending since April 2009.

Personal income rose 0.4 percent last month after advancing 0.5 percent in January. Wages increased 0.5 percent, the biggest gain in five months.

Americans spent more on drugs, health care and travel, but less on new cars and utilities during the second warmest February in 123 years. The slowdown in spending for the second straight month — abetted by tardier than usual tax refunds — is another chink in official scorecard for the economy, or gross domestic product.

The University of Michigan’s final reading of sentiment in March came in at 96.9, better than February’s 96.3 reading and near the strongest level for the measure in decades. This followed Tuesday’s report from The Conference Board, which by its measure had consumer confidence at its best level since 2000.

Richard Curtin, chief economist for the U of M survey said, “The continued strength in consumer sentiment has been due to optimistic views on three critical components: higher incomes and wealth, more favorable job prospects, and low inflation expectations.” A long-standing partisan divide in the sentiment survey widened after the election.

Comcast, Verizon and AT&T said today they would not sell customers’ individual internet browsing information, even after Congress approved legislation earlier this week to gut internet privacy rules. The bill would repeal regulations adopted in October by the Federal Communications Commission requiring internet service providers to do more to protect customers’ privacy than websites like Alphabet, Google or Facebook.

But customer blow back has been intense. Social media opposition to the repeal included the release of campaign contributions from telecom companies to politicians, plus crowdfunding campaigns to buy and publish the browsing history of politicians who voted for the repeal.

An even bigger internet battle could be in the works. Net neutrality has been the premier issue of internet policy wonks for years. Broadly speaking, it refers to regulations keeping internet providers from treating traffic differently based on its source. So, with net neutrality in place, Comcast Corp. couldn’t tell Netflix Inc. that the streaming provider will have to pay to keep its videos from slowing down.

In 2015, the FCC pushed through the most stringent net neutrality rules to date. this week’s legislation on the privacy rules is a precursor to arguments that the FCC shouldn’t regulate internet service providers at all. Net neutrality protections aren’t dead yet, but they’re effectively dormant.

The FCC is unlikely to open any new net neutrality investigations. And legislation could be introduced over the summer. But the pro net neutrality crowd believe they have a good populist issue to work with, as the fierce reaction to the privacy rules showed.

Airbus and Boeing both debuted new airliners this morning. The Boeing 787-10 took off for the first time from the company’s North Charleston, South Carolina, facility for a four-hour test flight. The Airbus A319neo also made its maiden test flight from the company’s factory in Hamburg, Germany, to its headquarters in France.

The newest 787 is the largest member of Boeing’s state-of-the-art Dreamliner family with room for 330 passengers in a two-class layout. With a range of 7,400 miles, the 787-10 is designed to make ultra-long-haul flights while delivering 25% better fuel economy than existing airliners of its size. Currently, Boeing has taken 149 orders for aircraft which carries a list price of $312.8 million per plane.

The Airbus A319neo is the smallest member of Airbus’ next generation neo or new engine option series of airliners. The A319neo has room for up to 160 passengers and is designed for short or medium range flights. Airbus has 55 orders for the $99.5 million jet. Its largest customers are Frontier Airlines and Colombia’s Avianca. Earlier this week, Embraer’s new E195-E2 airliner also made its maiden flight in Brazil.

SpaceX just made history by launching the same rocket into orbital space for a second time. Traditionally, rockets have been used just once, and are left to burn up in the atmosphere after a mission. But SpaceX has been working for years to change that and lower the cost of spaceflight.

Reusing pieces of spacecraft is the cornerstone of SpaceX’s business plan. Thursday’s launch marked a huge step toward that goal. It proved not only that the first stage of SpaceX’s $62 million Falcon 9 rocket can be re-launched to orbit, but that it can be successfully recovered a second time. (SpaceX says the first-stage rocket is by far the most expensive part of the rocket, accounting for about 70% of the overall cost.)

The rocket also made history the two times it landed on a platform — called a droneship — about the size of a football field in the middle of the Atlantic Ocean.

Late yesterday, firefighters were called to a fire burning along the I-85 highway in Atlanta. The fire was burning near an elevated portion of the highway, close to downtown Atlanta. Traffic was detoured. And then something strange happened – the highway collapsed. North and south-bound lanes, 5 lanes in each direction were damaged and are closed, possibly for several weeks or even months.

Three sections of northbound I-85 — including the section that collapsed — and three sections of southbound I-85 will have to be replaced. That’s 350 feet of highway – about the length of a football field – in each direction. The I-85 is one of the busiest highways in the country; the section that collapsed typically carries 220,000 cars per day.

In today’s edition of Banks Behaving Badly: Swiss bank Credit Suisse has been dragged into yet more tax evasion and money laundering investigations, after a tip-off to Dutch prosecutors about 55,000 suspect accounts triggered raids in five countries.

Coordinated raids began on Thursday in the Netherlands, Britain, Germany, France and Australia, resulted in at least 2 arrests. Dutch prosecutors said they are “investigating dozens of people who are suspected of tax fraud and money laundering”, adding that suspects had deposited money in a Swiss bank without disclosing that to authorities.

British tax authorities said they had opened a criminal investigation into suspected tax evasion and money laundering by “a global financial institution” and would be focusing initially on “senior employees”, along with an unspecified number of customers.

Credit Suisse has paid more than $2 billion since 2011 in the United States, Germany and Italy to settle allegations it helped clients dodge taxes. So, Credit Suisse apparently did not learn their lesson. Or after a while, you might just conclude that this is their business model.

Financial Review

The Wall

Sinclair Noe — December 28, 2016

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

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DOW – 111 = 19,833
SPX – 18 = 2249
NAS – 48 = 5438
RUT – 16 = 1360
10 Y – .05 – 2.51%
OIL – .21 = 53.69
GOLD + 4.20 = 1142.50

The Dow Industrial Average is flirting with 20,000 but today it hit a wall. Stocks fell the most in two weeks in light holiday trading. Trading has been thin across the globe during the last week of the year, with volumes in crude oil, equities and currencies all below average. We have 2 trading days left in the year.

A jump in consumer spending in the final stretch of December significantly offset a slow start to the holiday shopping season, and is likely to help many retailers beat sales forecasts. The December spending boost contrasts with a muted November, when early holiday promotions and expectations among consumers that deals would always be available took a toll.

Spending over the Thanksgiving weekend in November fell 3.5 percent from a year ago, despite a strong jump in online sales, according to the National Retail Federation. Brick-and-mortar sales in the week ending Dec. 24 rose 6.5 percent year-over-year after having fallen for the rest of the month, according to data from analytics firm RetailNext.

Strong demand for furniture, home furnishings and men’s apparel from the start of November through Christmas Eve pushed U.S. retail sales up 4 percent, higher than the previously expected 3.8 percent, according to data from MasterCard’s holiday spending report. Official government data and results from retailers will not be available until next month.

Contracts to buy previously owned U.S. homes fell in November to their lowest level in nearly a year. The National Association of Realtors said its pending home sales index, based on contracts signed in November, dropped 2.5 percent to 107.3. The biggest slowdown was in the West, where pending contracts dropped by 6.7%. The NAR blamed the slowdown on higher mortgage rates and tight inventory.

The White House is getting ready to announce a package of sanctions and diplomatic censure to punish Russia for its attempts to meddle in the 2016 presidential election. The Washington Post reports several punitive measures were on the table, including “economic sanctions and diplomatic censure.” Other methods may include covert cyber-operations. An announcement describing the public portions of the response could come as early as this week.

Lloyds Banking Group is planning to establish a subsidiary in Germany or the Netherlands if the U.K. leaves the European Union without retaining access to its single market. The EU is in the process of tightening rules for subsidiaries of non-EU banks.

Britain looks likely to lose its financial passport in Brexit negotiations due to start next year. London’s 328-year old insurance market, Lloyd’s of London, is also planning to move some of its operations to the continent in reaction to the UK’s Brexit vote.

Barclays is refusing to settle with the US Department of Justice over allegations it deliberately sold mortgage bonds to investors that it knew were backed by loans “made to borrowers who were not creditworthy and which were supported by house appraisals it knew were inflated”.

By refusing to settle, Barclays is borrowing a page from the Deutsche Bank Playbook; Deutsche also refused to pay a $14 billion settlement for similar wrongdoing, and then eventually settled for $7.2 billion, but only about $3.1 billion of that is actual cash; the rest is loan forgiveness and credit relief.

If Barclays took the settlement as offered it would mean a hit to capital reserve ratios. So, Barclays is likely holding out for a better deal, but it could be a risky play – this is not their first offense.

Airbus is delaying the delivery of 12 double-decker A380 aircraft to Emirates Airline. This comes after the company warned this year that it would scale back production of the super jumbo because of weak demand. Meanwhile, Delta announced it has canceled a $4 billion order for 18 Boeing 787 Dreamliners that was inherited as part of its merger with Northwest Airlines.

Qualcomm is facing an $865 million fine in South Korea. Qualcomm said the Korea Fair Trade Commission issued the penalty after finding it had violated the country’s competition law. The country’s antitrust regulator has accused the chipset designer of imposing unfair licensing fees on mobile device makers using its patents.

The company has faced similar hurdles in China and Europe, but South Korea is an important market: Samsung is Qualcomm’s second-biggest customer. The fine is the largest ever levied in South Korea.

Toshiba shares tumbled 20% overnight,  hitting the Tokyo exchange’s daily downward limit, wiping out about $5 billion in market capitalization over the past 2 days after the company said it could face a multi-billion-dollar charge on the nuclear power unit it acquired last year from Chicago Bridge & Iron. Toshiba executives declined to provide further details about the write-down, adding that the sum would be finalized by mid-February.

Japan’s Takata could be close to settlement with the US Department of Justice over its massive exploding-airbag recall. The Wall Street Journal reports Takata is expected to pay up to $1 billion to resolve allegations of criminal wrongdoing in handling its faulty airbags. At least 184 people have been injured in the United States in incidents involving potentially deadly Takata air bags. Worldwide, approximately 100 million vehicles have been recalled.

Kate Spade might be for sale. The Wall Street Journal reports the handbag and accessory retailer is working with investment bankers about a possible sale of the company; share price jumped nearly 20% on the report. Kate Spade reported lower-than-expected quarterly same-store sales last month and said pricing competition would likely dampen earnings during the holiday shopping quarter.

GNC, the chain of nutrition stores, has temporarily shuttered all 4,464 of its U.S. locations, as it rolls out its revamped pricing strategy. The one-day closures come two months after the retailer admitted that inconsistent prices on its website and in stores, as well as discrepancies over what it charged loyalty members versus casual buyers, were making its locations confusing to shoppers.

While GNC expects its new, simplified pricing structure will bring more shoppers into its stores, there will be repercussions — at least in the short term. When the company raised prices on its website to better align with what shoppers pay in stores, the changes sparked a 30 percent quarterly decline in same-store sales.

Germany is considering fining social networks such as Facebook up to €500,000-euro for each day the platform leaves a “fake news” story up without deleting it. The law would force the social networks to create offices focused on responding to takedown demands and would make the networks responsible for compensation if a post by individual users were found to slander someone.

Can Amazon Echo testify against you? In what may be the first case of its kind, Amazon has denied investigators voice data from an Echo owned by an Arkansas man who has been charged with murder, despite a police warrant. The tech giant refused to hand over the audio data on two separate occasions, although it did share suspect’s account information and purchase history.

Amazon’s Echo (and its main competitor, the Google Home) works by passively recording everything you say. When the Echo hears “Alexa” (or whatever your activation phrase is), it begins to actively record. That snippet of speech is then sent to Amazon’s cloud servers, where your recorded message is run through a speech-recognition neural network and a response is sent back to you, whether that’s playing a song or giving you the weather forecast.

Police in Arkansas think the Echo may have recorded audio of a murder, although that kind of audio probably did not end up in Amazon’s cloud memory.

Come the new year, millions of the lowest-wage workers across the country will get a raise. Some of those raises will be very minor — a cost of living adjustment amounting to an extra nickel or dime an hour. But in several places the jump will be between $1 and $2 an hour. The biggest minimum wage raises, percentage wise, will be in Arizona (up 24% to $10), Maine (up 20% to $9) and three Silicon Valley cities (up 20% to $12). All told, the minimum wage is set to rise in 21 states, at least 22 cities, four counties and one region.

Americans spent $2.1 trillion in 2013 on diagnosis and treatment of health problems, which amounts to more than 17 percent of the total U.S. economy. And spending on health care for 2015 is estimated to top $3.2 trillion; that means Americans pay more for health care than any other country.

A new study published in the Journal of the American Medical Association reveals what patients and their insurers are spending that money on, breaking it down by 155 diseases, patient age and category, such as pharmaceuticals or hospitalizations.

About half of all health-care spending in the US goes to treat a small group of diseases, and diabetes is leading the pack, costing $101 billion in diagnosis and treatment in 2013. Heart disease, the second-largest source of expenses, cost a total of $88 billion that year. Medical spending increases with age — except for newborns. About 38 percent of personal health spending was for people over age 65.

More and more Americans are retiring outside of the United States, according to the Social Security Administration. The number increased 17 percent from 2010 to 2015, and about 400,000 American retirees are now living outside the country. The countries they have chosen most often: Canada, Japan, Mexico, Germany and the United Kingdom.

Financial Review

Welcome to Earnings Reporting Season

Sinclair Noe — October 11, 2016

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DOW – 200 = 18,128
SPX – 26 = 2136
NAS – 81 = 5246
10 Y + .02 = 1.76%
OIL – .49 = 50.86
GOLD – 7.00 = 1253.40

Alcoa reported third quarter earnings before the bell today, in what has been traditionally known as the start of earnings season. The raw aluminum and specialty parts maker missed estimates on both top and bottom lines. S&P 500 companies are expected to post their sixth straight quarter of declining earnings, according to FactSet data. And while sales are expected to break their six-quarter streak of declines, that optimism may be overdone, based on the dozens of sales warnings to pop up in the last several weeks.

When you look at a chart of the S&P 500, you’ll see we’ve been in a sideways or consolidation pattern since mid-July. Earnings season could be the catalyst for a breakout or a breakdown; with the S&P 500 trading at an historical high valuation in terms of P/E and P/S, the pressure is towards the downside.

In fact, stocks must justify the current 12-month trailing P/E of 25 and the current CAPE ratio of 27 (cyclically adjusted price to earnings ratio) through positive earnings growth. Analysts are usually very conservative on their predictions. Actual earnings have beaten analyst’s estimates since 2014. As this is well known by investors, one should not get too optimistic over the possibility that earnings may beat estimates by a small margin.

In fact, be careful to buy on slightly better than expected earnings given that valuations are high. Now, the good news is that most of the bad news has already been baked into price; by that, I mean we are all aware of concerns with Brexit, China, the price of oil, the US election, and a possible Fed rate hike. The bad news is that the market is complacent. The VIX is low at around 15.

Except for a couple of weeks in September, where the S&P took a big hit and then bounced back, the tight range has been getting tighter, like a rubber band wound to the limit. A break above the September highs of 2180 would serve as a bullish sign that could lead to new all-time highs. Today’s close below 2140 exposes weakness and a break down below 2120 looks dangerous.

Long-term bond yields continued to rise. The yield on the 10-year Treasury note was slightly higher at 1.76%. Earlier Tuesday it hit 1.8% for the first time since early June, marking a four-month high. Futures markets are now pricing in roughly 70% odds of a rate hike at the Fed’s December meeting. We should learn more tomorrow, when the Fed releases minutes of its last policy meeting.

British cabinet ministers are being warned that the Treasury could lose up to £66-billion-pounds a year in tax revenues under a “hard Brexit,” according to leaked government papers seen by The Times. The document also cautions that leaving the single market and switching to WTO rules could cause GDP to fall between 5.4%-9.5%.

The British pound sterling slipped below $1.23 and €1.11 in morning trading to its lowest value since last week’s flash crash. The fall in the pound has boosted the FTSE 100 as many of the companies in the index generate most of their revenues abroad. The UK’s benchmark index broke through its previous record intra-day level to hit 7,129.83 before losing some ground.

Igor Sechin, Russia’s most influential oil executive and the head of state-controlled energy giant Rosneft, said his company will not cap oil production as part of a possible agreement with OPEC. Sechin told reporters that Rosneft planned this year to raise its oil production, already the world’s largest among listed producers. Sechin said he doubted some OPEC countries, such as Iran, Saudi Arabia and Venezuela, would cut their output. Yesterday, WTI pushed above $51 per barrel after Vladimir Putin said Russia was ready to join an output freeze, but not one world producer has willingly taken one solitary barrel off the table this fall.

Samsung’s Galaxy Note 7 has been permanently discontinued, following a problematic recall operation that replaced Note 7 phones with faulty batteries at risk of explosion… with new phones that have the same batteries. The replacement lithium ion batteries in the phone tend to catch fire. The cost to Samsung of the Galaxy Note 7 could be $17 billion, the amount the company was expected to bring in from the sales cycle of the phone.

That figure doesn’t include the damage to the Samsung brand, though. Samsung shares have lost $18 billion in market cap since the problems started. If you have a Galaxy Note 7, and it doesn’t matter if it was the original phone or a phone with a replacement battery, just turn it off and get a refund and buy a phone that doesn’t explode.

Although Salesforce was thought to be out of the mix as of this weekend, a new report suggests the company is still evaluating the benefits of a Twitter deal and what an appropriate valuation might be. Meanwhile, in an internal memo reportedly sent to Twitter employees last week, CEO Jack Dorsey made no mention of any deals, instead highlighting initiatives revolving around the company’s live strategy and other merits.

General Electric said it would buy LM Wind Power, a maker of rotor blades used in wind turbines, from private equity firm Doughty Hanson for $1.65 billion, as it looks to capture a bigger share of the fast-growing renewable energy market. GE separated its renewable energy business from its power unit last year, following the $13.6 billion acquisition of Alstom SA’s power business. Denmark-based LM Wind Power is the largest supplier of rotor blades to GE.

Fiat Chrysler has reached a tentative deal with unionized workers in Canada by agreeing to make more than $300 million in investments for local operations. The pact was announced just minutes ahead of a midnight strike deadline that could have sent more than 9,000 Fiat workers off the job. Union members will vote on the accord at ratification meetings on October 16.

Chicago’s schools and its teachers’ union agreed to a contract proposal late on Monday, averting a strike set for today in the third largest U.S. public school system. Teachers contribute 2 percent to their pension, with the school board chipping in an additional 7 percent. Under Monday’s deal, new hires will not get the 7-percent “pension pickup,” but will get a salary adjustment to compensate for that.

Airbus plans to slow the assembly rate of its A380 to one aircraft per month from 2018 as the European plane maker struggles to revive sales of the world’s largest passenger jet.  Airbus’ assembly rate for the superjumbo currently stands at 2.5 aircraft per month.

Theranos has been sued by one of the blood testing start-up’s biggest backers, Partner Fund Management, for attracting $96 million in investment “through a series of lies, material misstatements, and omissions.” The suit accuses Elizabeth Holmes of deceiving the hedge fund by claiming Theranos had developed “proprietary technologies that worked” and was close to getting regulatory approvals. The suit comes less than a week after Theranos stopped all of its clinical operations, cutting 340 positions and closing its Wellness Centers where blood tests were performed.

A recent update from the Arizona Multiple Listing Service shows Phoenix real estate sales in September were up 6.3% year-over-year. Active inventory was up 3.4% year-over-year, marking the seventh consecutive month of increases in inventory. Cash sales declined to 20.2% of total sales. Meanwhile, foreclosure inventory continues to plunge across the nation, with the foreclosure inventory rate at 0.9% in August, down 29.6% compared to last year. Arizona has one of the lowest levels of foreclosure inventory, at just 0.3%.

Americans are increasingly shopping online and we have been spending less at the malls; overall, we just got tighter with money following the financial crisis. According to a new report from Morningstar, we have a shopping mall problem. The US has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada and 11.1 square feet in Australia – the next two countries with the highest retail space per capita.

Department stores like Sears, Macy’s, and JCPenney have been closing stores to try and get rid of unprofitable stores, and that’s had a devastating effect on malls. When an anchor stores closes, it often triggers a downward spiral in performance for shopping malls that in some cases has led to massive losses on loans.

When an anchor store closes, shopping malls don’t only lose the income and shopper traffic from that store’s business. It often triggers “co-tenancy clauses” that allow the remaining mall tenants to exercise the right to terminate their leases or renegotiate the terms, typically with a period of lower rents, until another retailer moves into the vacant anchor space. The Morningstar report supports a recent analysis from Credit Suisse that said about 200 shopping malls are at risk of shutting down if Sears continues to close stores.

Financial Review

New Ways to Hail a Taxi

Sinclair Noe — August 18, 2016

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

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DOW + 23 = 18,579
SPX + 4 = 2187
NAS + 11 = 5240
10 Y – .02 = 1.53%
OIL + 1.44 = 48.23
GOLD + 3.70 = 1353.10

The US stock market hit all-time highs this week despite the second quarter of 2016 being another quarter with negative earnings growth. While there are still a few more earnings announcements to be released before the quarter is closed out, it looks as if earnings were down approximately 5% from the same quarter a year ago. This will be the sixth consecutive quarter with declining earnings – not the stuff of which record high stock prices are made.

The stock market continues to sleep walk. The S&P 500 finished up 0.2% today at 2187, making today our 29^th straight day without a 1% move. Energy stocks led the way. The Russell 2000 outperformed by a significant margin, and transports also impressed.

On August 3^rd, oil hit a low of $39.96 per barrel; since then it has gained more than 20% – technically a bull market in oil. Although it should be noted that bull and bear markets in oil are becoming the norm; we’ve seen 20%-plus swings in January, April and June this year. We have seen an oil glut push prices lower, pushing some producers out of business, shutting down rigs in the oil patch; we have heard OPEC jawbone about freezing output.

When we hear about production cuts we also hear that Saudia Arabia has increased output to an all-time high to gain leverage in those OPEC talks. You might be forgiven if you believe the wild swings in oil are a result of supply-demand changes, but the fundamentals haven’t changed enough to justify the dramatic price changes.

It seems like everyone forgot that OPEC disappointed at the June meeting, when many market observers were looking for a production freeze. Traders remain encouraged by the Fed’s dovish twist yesterday, which is pushing down the dollar. But at the heart of the big price moves in oil, is pure speculation – gambling.

Still, the price of oil is approximately half what it was 2 years ago, and that is having some very real repercussions. During the second-quarter earnings season, several companies that aren’t in the energy sector continued to mention declines in their businesses in oil-producing areas.

Harley Davidson saw a jump in the number of people in oil-heavy regions who were defaulting on loan payments. Caesars Entertainment said a lot of weakness was in the southeastern US. And Popeyes demonstrates that it’s not only consumer spending on big-ticket items that has fallen. Seems workers in the oil patch are less likely to buy fried chicken and biscuits. It’s a pretty good excuse anyway.

The Fed is worried about a couple of things. The minutes from the July FOMC meeting had a little bit of everything, suggesting the Fed still wasn’t sure when the next rate hike would occur. While there were numerous positives, the Fed suggested it was particularly worried about banks in Italy and stretched valuations in the US commercial real estate market. That left Fed fund futures implying balanced odds that there’ll be a rate hike by the end of 2016 — a probability that’s not much changed from before the minutes.

Jobless claims last week fell by 4,000 to 262,000, representing a one-month low, marking the 76th straight week that claims have been below 300,000 – that hasn’t happened since 1970, when the economy and the population was much smaller.

Employment figures for Arizona for the month of July showed the state lost 14,800 jobs and the unemployment rate increased two-tenths of a percentage point from 5.8% in June to 6.0% in July; the national rate is at 4.9%. Still, Arizona Nonfarm employment grew by 3.0% (76,100 jobs) over the year in July.

Meanwhile, the Federal Reserve Bank of Philadelphia’s barometer of regional manufacturing activity rebounded slightly into positive territory in August.

Five years after the housing recovery began, 5.9 million borrowers still owe more on their mortgages than their homes are worth. The negative equity rate is falling, now at 12 percent of all mortgaged homeowners, according to Zillow, down from more than 14 percent a year ago and more than 30 percent at the worst of the crisis. The numbers, however, are still well above normal levels and equally spread across urban and suburban communities.

Walmart got even bigger during the second quarter, as the company’s revenue and earnings topped Wall Street forecasts, and it reported its biggest same-store sales gain in four years. Walmart raised its full-year outlook in wake of the strong results after reporting earnings of $1.07 a share in the fiscal second quarter, slightly lower than last year’s $1.08 a share. Revenue grew 0.5 percent to $120.85 billion.

Cisco is cutting jobs. The company announced adjusted earnings of $0.63 a share on a 2% jump in revenue to $12.64 billion. Both numbers were ahead of estimates. Additionally, Cisco said it would eliminate 5,500 jobs, or 7% of its workforce, well below the job cuts of 14,000 job that were reported on Tuesday.

Nestlé had a distinctly average first half. The Switzerland-based maker of Kit-Kat candy and DiGiorno frozen pizza reported first-half revenue of $45 billion, and 3.5% organic growth. Net profit fell to $4.2 billion, missing estimates despite healthy sales in North America.

Lenovo had a stellar first quarter. The world’s biggest PC maker enjoyed a 64% leap in profit from the same time a year ago, boosted by $132 million from the sale of some Beijing real estate. It’s not all sunshine: Lenovo reported a 30% slowdown in global smartphone sales, and doesn’t expect its mobile division, which includes Motorola handsets, to make a profit before October 2017.

Just six months after it emerged from Chapter 11 bankruptcy, American Apparel has hired investment bank Houlihan Lokey to explore a sale. At least eight teen apparel retailers filed for bankruptcy this year amid fierce competition and stagnating sales, including Aeropostale, PacSun and the Wet Seal.

As earnings season winds down, you may have noticed that earnings reports are almost impossible to decipher. The Securities and Exchange Commission also noticed and they are cracking down on made-up numbers and vague language in U.S. companies’ earnings filings, sending the first of what is expected to become a steady flow of letters to finance heads requesting more information for investors.

The new letters also address issues regarding how metrics are defined by individual companies, as well as violations of rules about the kind of metrics allowed. The SEC updated its guidelines after becoming concerned that the proliferation of non-GAAP metrics and difficult-to-follow releases was confusing investors.

Shares of private-prison providers plunged in trading on Thursday following news that the Department of Justice plans to end the use of such facilities. Corrections Corporation of America, the largest publicly traded prison provider, fell 50% before trading was halted. Geo Group, a Florida-based provider of corrections facilities, also tanked by as much as 40% and was halted.

Deputy Attorney General Sally Yates instructed officials in a memo to withdraw or not renew contracts for private-prison operators when they expire. The goal is to scrap their use completely because the Justice Department found them to be less safe than those run by the Federal Bureau of Prisons and the private prisons are not cost effective.

The move won’t dislodge private prisons altogether from the American criminal justice system because they can still contract with states. Also, the Department of Homeland Security runs more than 100 immigration detention centers around the country, many of which are owned and operated by the same companies that run private prisons.

Sixteen banks, including JPMorgan, Citigroup and Morgan Stanley, are being sued by funds in the U.S. for allegedly manipulating a key Australian interest rate benchmark to generate hundreds of millions of dollars in illicit profits. The class action claims they sought to fix the bank bill swap rate, the local equivalent of Libor, which is used to price floating-rate bonds and syndicated loans.

The Department of Justice and the Environmental Protection Agency announced that motorcycle manufacturer Harley-Davidson has agreed to pay a $12 million civil fine after selling illegal after-market devices, called super tuners, that increased vehicles’ emissions. The settlement also requires that Harley-Davidson pay $3 million in a deal with the EPA to help mitigate air pollution caused by the super tuners, buy them back from its dealers, and destroy them.

Starting later this month, Uber will allow customers in downtown Pittsburgh to summon self-driving cars from their phones, crossing an important milestone that no automotive or technology company has yet achieved. Uber’s Pittsburgh fleet, which will be supervised by humans in the driver’s seat for the time being, consists of specially modified Volvo XC90 sport-utility vehicles outfitted with dozens of sensors that use cameras, lasers, radar, and GPS receivers.

Aerospace giant Airbus is designing a flying driver-less taxi that you can summon via an app on your smartphone. Airbus believes the global demand for the “flying cars” will run in to millions of vehicles and that demand will help reduce development costs. Airbus chief executive Tom Enders says, “In a not too distant future, we’ll use our smartphones to book a fully automated flying taxi that will land outside our front door – without any pilot.”

The vertical-takeoff-and-landing (VTOL) air taxi would use electric propulsion and multiple-ducted propellers, and would be piloted initially, before transitioning to fully autonomous operations. The prototype is scheduled to take flight sometime next year. Meanwhile, Airbus said it was also developing a drone-like helicopter which could ferry multiple passengers around a city. CityAirbus is slated to have a pilot on board at first but would switch to full autonomous operations when the technology developed.

Financial Review

We Can Be Patient

Sinclair Noe — August 8, 2016

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DOW – 14 = 18,529
SPX – 1 = 2180
NAS – 7 = 5213
10 Y un 1.59%
OIL + 1.22 = 43.02
GOLD – .40 = 1336.00

The S&P 500 hit an intraday record high this morning at 2185, as oil prices rose. On Friday, stocks surged, with the Dow jumping nearly 200 points and the S&P and the Nasdaq closing at record highs after a strong July jobs report showed the economy added 255,000 new jobs in July.

Federal Reserve policymaker Jerome Powell says the US economy is at increasing risk of becoming trapped in a prolonged phase of slow growth that points to the need for lower interest rates than previously expected. Powell told the Financial Times he favored a “very gradual” path for any rate hikes as the US economic outlook was dogged by global risks. Powell said, “With inflation below target, I think we can be patient.” Next week, we get the monthly CPI report on July inflation at the retail level; my guess is that anything under 10% inflation and the Fed will continue to remain patient.

Oil rose 2.5% after a report that some OPEC members had called for a freeze in production. Members of the Organization of Petroleum Exporting Countries are planning to hold talks next month on the sidelines of the International Energy Forum in Algeria. But the same obstacles that prevented an agreement on proposals to freeze output in April or fix a new production target in June are still there. Efforts by some OPEC members over the past two years to limit the group’s output have come to nothing. But the threat of a production freeze can help to turn sentiment, at least short-term.

It may feel like earnings season is coming to a close, but one important sector is just getting started. Many of the country’s largest retailers report quarterly earnings this week including: Macy's, Nordstrom, Kohl’s, J.C. Penney, and Ralph Lauren.

Wal-Mart will buy online retailer Jet.com for $3.3 billion in what appears to be the largest-ever acquisition of an e-commerce company. Walmart hopes the acquisition will help jump-start its struggling online business, which is just a fraction of the size of Amazon’s. Walmart generates about $14 billion in annual e-commerce sales, compared with about $99 billion from Amazon. Under the terms of the deal, Jet co-founder and chief executive Marc Lore will remain at his post and run Wal-Mart’s U.S. e-commerce operations. Wal-Mart has been working to scale its online selection to better compete with Amazon, whose vast assortment dominates e-commerce. Jet.com scaled up to 12 million different products in just one year and reached a run-rate of $1 billion in gross merchandise value. Not bad for a relatively young startup.

The side story is there is a guy named Eric Martin, lives in Pennsylvania and works at bathroom refurbishing shop. Last year, Jet.com held a contest to see who could make the most referrals to the new site. Martin took it very seriously, and spent about $18,000 hustling up online referrals. Martin was awarded 100,000 shares in the startup – now worth somewhere around $20 million. Ten other people were runners-up in the contest and they each were awarded 10,000 shares of Jet.com – still a nice reward.

Creating the world’s “largest mattress distribution network,” Steinhoff International Holdings has agreed to buy Mattress Firm for $3.8 billion, including debt. The $64 per share in cash offer represents a 115% premium to Mattress Firm’s closing price of $29.74 on Friday and has been unanimously approved by the boards of both companies. Mattress Firm, founded in 1986, has about 3,500 stores across 48 states with 80 distribution centers. Steinhoff is a German-listed $22 billion furniture conglomerate led by the South African retail mogul Christoffel Wiese. The Mattress Firm deal would give Steinhoff access to the growing American market.

The mountain resort operator Vail Resorts is buying Canada’s Whistler Blackcomb in a deal worth about $1.1 billion. Whistler, which is about 75 miles from Vancouver, was the location of the Nordic events during the 2010 Winter Olympic Games.

TIAA has reached a deal to buy EverBank Financial for $2.5 billion in cash, an agreement that comes about two weeks after the Florida-based lender said it was in talks to be acquired. The bid, worth $19.50 a share, matches the terms EverBank outlined late last month and marks a 26% premium over where shares traded ahead of media reports about the buyout talks. Buying EverBank would give TIAA $27.4 billion in assets and $18.8 billion in deposits. EverBank focuses on online and mobile banking but also has some offices.

Aeropostale has been negotiating a potential sale to private equity firm Versa Capital Management that might save thousands of jobs at the company and see it take over 500 of the teen retailer chain’s leases. Versa’s offer would be a potential stalking horse bid in a bankruptcy auction for Aeropostale scheduled for later this month, setting the minimum price for other potential buyers. Additional bids are due Aug. 18.

Comcast’s NBCUniversal has acquired the rights to J.K. Rowling’s “Harry Potter” and “Fantastic Beasts” franchises from Warner Brothers, in a deal valued at around $200 million. The seven-year deal, which begins in July 2018, will make all eight “Harry Potter” films and the forthcoming “Fantastic Beasts” movies available on NBC’s portfolio of cable networks, which include USA and Syfy. It also lets NBC’s theme parks host fan events, movie screenings and promotional activities tied to both franchises.

Meanwhile, for all the muggles who don’t fly on a broom, Delta Air Lines has resumed flight operations following a massive computer outage that crippled the airline for more than six hours today. According to Delta, a “major system-wide network outage” on Monday had delayed flights worldwide. The widespread computer problem was caused by a power outage at its headquarters in Atlanta. The outage meant flights worldwide were being delayed and airport screens and Delta’s website were not showing updated flight status information. About 450 flights were scrapped and delays and cancellations continued even as systems came back online.

China’s exports and imports fell more than expected in July, making a rocky start for the third quarter and suggesting global demand remains weak in the aftermath of Britain’s decision to leave the EU. Exports fell 4.4% on-year, while imports fell 12.5% in U.S. dollar terms, resulting in a trade surplus of $52.31B. The trade figures will again steer attention to China’s economy, which slowed to a 25-year low in 2015.

Japan’s antitrust regulator has raided the office of Amazon Japan on suspicion of pressuring retailers to offer products with more favorable conditions than rival sites. Amazon Japan’s website booked net sales of $8.3 billion last year, equivalent to 7.7 percent of Amazon.com’s worldwide net sales. Amazon’s practices toward retailers and e-commerce partners have also come under scrutiny in Europe.

Britain’s Serious Fraud Office has launched a formal investigation into suspected fraud, bribery and corruption in connection with commercial plane sales by Airbus. The move comes after U.K. Export Finance suspended the issue of export credits to the French plane maker, citing discrepancies over the number of agents’ fees disclosed in applications for export support, or missing names of third parties, in some cases dating back years.

Apple is preparing to unveil successors to the iPhone 6S and iPhone 6S Plus as early as next month with more advanced photography capabilities and upgraded hardware in a design similar to that of last year’s models. They will also remove the headphone jack, in favor of Bluetooth connectivity and the chance to sell a boatload of wireless headphones. iPhone demand has waned in recent quarters, partly due to the lull between product launches, so the new models will be critical, coming just before the holiday season.

This October, the US Supreme Court is scheduled to take on a case with major implications for designers of all sorts. It centers on how much Samsung should pay Apple for infringing on iPhone design patents. The legal battle between the two smartphone makers is over how much money Samsung should pay Apple, after a US jury ruled in 2012 that Samsung had infringed on Apple patents and copied the design of the iPhone, specifically the rounded corners of the face, its bezel, and the grid in which icons are arranged.

The judgment ordered Samsung to pay Apple $930 million, but on appeal Samsung successfully got the part of the ruling on trademark liability reversed, reducing the amount to $548 million. Samsung believes the amount is still excessive, and wants a cut in the $399 million of that figure attributed to design patents. But designers are concerned that if the court reduces the damages, it reduces the worth we attribute to design and could encourage copying in fashion and other industries.

Currently the relevant section of US law covering design patents states that the infringer is liable for the total profit made on the infringing product. US courts have typically taken this to mean that the party holding the patent is entitled to all profits attributed to the design, even if the infringement is on just one part of the design. Samsung argues the law goes too far. In theory, designers could become something like involuntary licensees, where the copier could still turn a profit off an infringing product and just pay for the portion that it copied.

S&P Closes At Highest Level In 3 Weeks, Oil Jumps

Financial Review

Close Calls

Sinclair Noe — October 7, 2015

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DOW + 122 = 16,912
SPX + 15 = 1995
NAS + 42 = 4791
10 YR YLD + .03 = 2.06%
OIL – .47 = 48.06
GOLD – 1.80 = 1146.80
SILV + .17 = 16.15

The S&P 500 closed at its highest level in three weeks. The S&P 500 has been up for 6 out of the past 7 sessions.  The S&P is down 3.09 percent for the year and the Dow is off by 5.11 percent ytd.

Yesterday, oil prices jumped nearly 5% as the American Petroleum Institute reported a 1.2 million barrel decrease in crude stocks last week. The International Energy Agency has said it expects world oil demand to increase by around 1.7 million barrels per day this year, one of the fastest rates for years as consumers respond to much lower fuel prices. The tightening market balance comes as U.S. production starts to decline. This morning, the Energy Information Administration reports global oil demand should increase by its fastest rate in six years in 2016, suggesting a surplus of crude is easing more quickly than expected. The EIA forecasts U.S. oil output will fall to 8.8 million barrels per day from an average of 9.25 million in 2015. But the EIA report also showed U.S. crude inventories rose by 3.1 million barrels in the last week, compared with analysts’ expectations for an increase of 2.2 million barrels.

The Bank of Japan has held off on expanding its record stimulus, signaling a belief that inflation will hit a 2% target despite troubling signs in the economy. Although the central bank left its annual asset purchases at ¥80-trillion-yen, they could still announce additional easing at a policy meeting on October 30, when the Bank of Japan is expected to cut its long-term economic and price forecasts.

China’s foreign exchange reserves posted their largest quarterly decline on record in July-September, as the central bank intervened to stabilize the yuan after its unexpected devaluation jolted global markets. The country’s foreign reserves, the world’s largest, dropped $43 billion to $3.5 trillion last month (the lowest since July 2013), and were down by about $180 billion for the third quarter.

The International Monetary Fund has published its Global Financial Stability Report and they are warning emerging market economies to protect their financial systems from possible instability as the U.S. Federal Reserve prepares to raise interest rates, saying shocks or policy missteps risk derailing the global economy and triggering equity market sell-offs. Meanwhile, problems lingering from the financial crisis still pose risks to advanced nations, including elevated public and private debt, and the risk of insufficient liquidity in the bond market when interest rates rise.

Tomorrow afternoon the Fed will release the minutes of their September FOMC meeting where the Fed did not raise interest rates. That decision has been described as a close call. Tomorrow we’ll get a better idea just how close.

One more day until Alcoa’s third-quarter results; marking the unofficial start of earnings reporting season. They could kick off the weakest set of earnings reports in six years. S&P 500 companies are now expected to report a 4.4 percent fall in third-quarter profit, according to Thomson Reuters data. The index is trading around 15.5 times expected earnings.

The world’s biggest smartphone maker by shipments, Samsung, handed out some positive guidance, suggesting its earnings may have bottomed out. While the mobile phone business isn’t likely to see a significant rebound as growth in global demand for smartphones cool amid saturated markets, Samsung’s earnings are being powered by strong growth in its chip business due to tight supply and firm pricing.

Monsanto, one of the world’s largest seed and agrichemical companies, said it will cut 2,600 jobs and restructure operations to cut costs in a slumping commodity market that it expects to squeeze results well into 2016. At the same time the company announced a $3 billion accelerated share repurchase program.

Volkswagen’s supervisory board held crisis talks today, facing deadlines from German regulators to explain its rigging of diesel emissions tests and what it is doing to tackle the scandal. The U.S. congress has launched its own investigation. The company has said it may have to refit up to 11 million cars and vans worldwide. Recalls are expected to start in January and would be completed by the end of 2016.

United Auto Workers members are planning a strike at U.S. manufacturing plants of Fiat Chrysler Automobiles ahead of the current four-year contract extension expiration at midnight.

Anheuser-Busch InBev  is raising its bid for SABMiller to $104 billion. This marks the third takeover proposal to combine the two biggest beer brewers in the world. And it looks like SABMiller will reject this latest offer.

Ahead of its annual Adobe MAX conference yesterday, Adobe issued an outlook for its coming fiscal year that was way lower than Wall Street expected.

Twitter and Alphabet have launched an open source code that allows faster loading of content-heavy Web pages on smartphones and tablets. The code, called accelerated mobile pages, or AMP, will help load content with heavy content such as video, animations and graphics faster.

Pure Storage made its trading debut today on Wall Street. Ticker symbol is PSTG. The flash storage company’s initial public offering price was $17 a share, but it actually opened around $16.74 then slipped lower throughout the session.

American Apparel is planning to revamp its struggling fashion business under a restructuring plan that would give ownership to Standard General, the same hedge fund involved in the RadioShack bankruptcy earlier this year. Shares in American Apparel, the country’s largest “Made in the U.S.A” brand, were suspended from trading on Tuesday ahead of their delisting from the NYSE.

Deutsche Bank expects to report a third-quarter net loss of $7 billion and may eliminate its dividend for the year after writing down the value of its two biggest divisions and boosting its reserve for legal costs. The German bank reports earnings October 29.

Pharmacy benefits manager Express Scripts has settled an investor debate about which pricey cholesterol drug it will cover – by saying it will cover both of them. Regeneron and Sanofi’s Praluent and Amgen’s Repatha will now both be included on Express Scripts’ formulary. Each of the PCSK9 inhibitors is at least $14,000/year, significantly higher than the cost of generic statins.

In theory, 3D printing offers a future where you could easily print just about anything you want. In reality, we’re not there yet. Eric Sprunk, Nike’s COO, recently attended a summit held by tech news site GeekWire, and based on what Nike is already doing Sprunk says the ability for consumers to 3D print a pair of sneakers is close at hand. The way it might work goes something like this: You could head to Nike’s website, customize a sneaker to your specifications, and buy a file containing the instructions for the 3D printer. If you have a printer at home, you could print it yourself and have a new pair of sneakers in a matter of hours. If you don’t, you could take the file to a Nike store and have them print it for you.

Airbus has called off talks with Bombardier over supporting the troubled CSeries jet, leaving the Canadian plane maker with few options to break into the 100-160 seat airplane market. Under a proposed tie-up, Airbus would have helped Bombardier complete development of the troubled CSeries in exchange for a controlling stake in the program. Bombardier, which has so far received a total of 243 firm orders for the jet, was unable to win a single order for the plane at the Paris airshow in June.

American Airlines Group is joining the Dow Jones Transportation Average effective October 15. The Dow Transports will then include 6 airline companies: United, Southwest, Delta, JetBlue, and Alaska Air. American Airlines replaces Con-way, the trucking firm being acquired by XPO Logistics.

Headed out of town for the holidays? Better book now. Whether you’re taking to the skies for Thanksgiving, Christmas or New Year’s, one week is better than any other to purchase your airfares – and according to Orbitz.com – this is the week. The online airfare booking site suggests that flights booked this week are 5 percent cheaper than regular fares. Using data from past holidays, the report also projects that Christmas fares should be purchased on Oct. 9 for the best price and flights for a New Year’s holiday are cheapest on Oct. 10.

DuPont was found liable for a woman’s kidney cancer in the first of 3,500 lawsuits over a toxic Teflon ingredient found in Ohio and West Virginia water. A federal jury in Ohio found that DuPont was liable for negligence and infliction of emotional distress and should pay $1.6 million in damages. The jury found the company didn’t act with actual malice in the way it handled C-8, the toxic chemical used to make Teflon at the company’s plant in West Virginia, which eventually was dumped into the Ohio River. Dupont won’t actually pay damages; they spun off the Teflon business and associated liabilities, to a company they call Chemours.

Last week we learned T-Mobile had been hacked and 15 million customers’ data had been breached. Cue the lawyers; at least five lawsuits are under way against T-Mobile and Experian, all seeking class-action status to represent everyone affected by the breach. A sixth lawsuit named only Experian. Experian Information Solutions held the data on its servers to perform credit checks on current and potential T-Mobile customers. The hackers stole names, addresses and Social Security numbers. People who submitted credit applications from Sept. 1, 2013, to Sept. 16, 2015, were affected. The great irony here is that Experian holds itself out as an expert in the field of data protection; they took in $4 billion in revenue last year to protect customers’ data.

Financial Review

Confidently Waiting

Sinclair Noe — September 14, 2015

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

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DOW – 62 = 16,370
SPX – 8 = 1953
NAS + 26 = 4822
10 YR YLD un = 2.18%
OIL – .49 = 44.14
GOLD – .30 = 1109.40
SILV – .21 = 14.51

The story that will be leading markets throughout this week will be Thursday’s Federal Reserve interest rate decision. While market expectations of an increase in rates have fallen to 28 percent, down from over 50 percent a few weeks ago, economists insist the decision is still too close to call. The Fed has been saying they will hike interest rates; this may be one of the most telegraphed rate hikes in the Fed’s history, but circumstances keep changing.

Since the last Fed meeting, oil prices have dropped by 15%, the dollar has strengthened, China has slowed, emerging markets have softened, and there is little to no sign of inflation despite a Fed target of 2%. By the way, we’ll get one more report on inflation Wednesday, with the release of the CPI, or consumer price index. So, there are many reasons why the Fed might not raise rates, but then if they do stand pat, they risk coming across as timid, or worried that the recovery is in trouble.

If they hike rates they can give the impression they are confident, and confidence begets confidence. And so some clever folks think the Fed might try and split hairs by announcing one small increase and then saying they are done for a while.

We don’t know what the Fed will do, and whatever they do, raising the target for interest rates is not the only tool in the tool box. Keep in mind that there are several ways to influence interest rates, including interest paid on reserves banks hold with the Fed in the overnight repo market. If the Fed wants to reign in speculation, or slow the velocity of money – it’s an easy step. And it is a safe bet that whatever the Fed does with the headline announcement on Thursday, they will have a counteracting Plan B to go along with it.

The more difficult dance step is to try to raise rates only to have to turn around and cut them again. This has happened: central banks in the Eurozone, Sweden, Israel, Canada, South Korea, Australia, Chile and beyond have tried to raise rates in recent years, only to reduce them again as their economies stumbled – not exactly a confidence booster. The lesson is clear; there needs to be a really, really strong case for raising rates.

China’s investment and factory output missed forecasts in August, raising the chances that China’s third-quarter economic growth may dip below 7 percent for the first time since the global crisis.

Germany announced on Sunday night that the country could no longer cope with the unending flow of asylum seekers coming into the country, and would re-instate border controls with Austria. The move particularly surprised Austria, as just last week the two countries had worked together to freely let refugees enter their countries as tens of thousands have been arriving through Hungary and other Balkan countries.

After a long summer of financial and political upheaval, Greeks will vote next Sunday in the second general election this year. The snap elections were called last month after the resignation of Prime Minister Alexis Tsipras, who came to power in January on a pledge to stop austerity, but capitulated to creditors’ demands after months of negotiations that destabilized the economy and led to the imposition of capital controls on Greek banks.

The worst wildfire in a devastating season in California has destroyed more than 400 homes and businesses and forced 10,000 people to flee — some with only minutes to escape. At least one person was known dead and four firefighters were taken to the hospital after battling the Valley Fire, which has scorched about 62,000 acres, about 50 miles west  of Sacramento. The blaze broke out Saturday, and as of this morning, it was declared zero percent contained.

Whole blocks were destroyed in the town of Middletown. Governor Jerry Brown declared a state of emergency in areas ravaged by the blaze, and officials expanded mandatory evacuations. There are actually 3 major blazes that have consumed a combined 270,000 acres, and they remain largely out of control.

One reason why this wildfire season has been so difficult is because the state is still in an extreme drought. A new study published online says the Sierra Nevada mountain range is experiencing the lowest snowpack in 500 years.  The shrinking snow levels, linked to the state’s devastating drought, will likely take a toll on the water supplies of farms and cities, reduce the amount of hydroelectric power available, in addition to making wildfires more likely and extreme. California gets 80% of its precipitation during winter, and the Sierra Nevada snowpack plays a vital role, providing 30% of the state’s water supply. At the start of April, the snowpack was just 5% of normal.

Sales of Apple’s new iPhones were on pace to beat the 10 million unit sales it logged during the first weekend of sales last year. Apple did not disclose the specific number of preorders it received. Analysts had expected the company to log about 4.5 million preorders during the first 24 hours, in comparison with 4 million during the first day last year. The iPhone 6S and iPhone 6S Plus will begin shipping Sept. 25.

Airbus, the European airplane maker, formally opened a jet assembly plant in Mobile, Alabama today; its first such factory in the United States. The move into the heart of Boeing’s home turf is part of a long-term strategy by Airbus aimed at doubling its share of the American market for 150-seat airplanes, which is currently dominated by Boeing’s top-selling 737. Airbus plans to build as many as 36 of its competing A320 and A321 models a year by 2018 and says the Mobile plant has the capacity to double that production.

Mylan NV  said it launched a tender offer to acquire fellow generic drugmaker Perrigo for about $27 billion – an offer Perrigo has rejected so far. Perrigo urged shareholders to take no action, pending a board review.

Solera Holdings, which provides technology services and software to insurance companies, said it agreed to be acquired by an affiliate of private-equity firm Vista Equity Partners for $3.74 billion in cash.

Deutsche Bank aims to cut roughly 23,000 jobs, or about one quarter of total staff, through layoffs mainly in technology activities and by spinning off its PostBank division.

Large banks are preparing to pay $1.8 billion to settle accusations that they conspired unfairly to control credit default swaps derivatives market; CDS is a type of financial contract that allows investors to speculate and hedge against losses and that figured prominently in the crisis. Lawyers for several large investors, including a Los Angeles pension fund, argued in a suit filed in 2013 that the 12 banks — essentially all the largest ones in the world — conspired to keep competitors out of the market, allowing the banks to charge higher prices.

According to a new study by three academics at the University of Notre Dame, there is a correlation between generous stock option grants for executive pay and the incidence of serious product recalls. The study looked at the size of stock options in proportion to a chief executive’s total pay and calculated a two-year average, finding that recalls tended to be more prevalent at companies with higher option payouts. Stock options carry little downside risk if the company’s underlying shares fall but outsized upside if the underlying shares rise; so, an options package can lead to extra risk taking among executives.

Fiat Chrysler CEO Sergio Marchionne has canceled plans to attend the Frankfurt International Motor Show in Germany tomorrow, possibly an indication that the company may be getting close to a contract agreement with the United Auto Workers union. The company says Marchionne is staying in the U.S. to deal with business matters but gave no further details. The union said Sunday that it had picked Fiat Chrysler as its target company in the contract talks. Deals with Fiat Chrysler, Ford and General Motors expire at midnight.

The average price of a gallon of gasoline in the United States fell 27 cents in the past three weeks as refiners and retailers gave up some of their profits margins to sell more fuel. According to the Lundberg survey, regular grade gasoline fell to $2.44 per gallon in the Sept. 11 survey from $2.71 on Aug. 21. Part of the reason for the

The Organization of the Petroleum Exporting Countries, OPEC, has given the clearest signal yet that it believes it is winning its oil price war with the US shale industry. The oil cartel says that output from outside the cartel in 2016 will be over 100,000 barrels per day lower than it had previously predicted, as lower prices shut down more production. In its closely-watched monthly market report, OPEC said: “There are signs that US production has started to respond to reduced investment and activity. Indeed, all eyes are on how quickly US production falls.”

The report said that the number of oil drilling rigs in the US declined in the week ending September 4, down by 13 units to 662 rigs. The overall rig count in the US – which is seen as a key barometer for the industry – is now down 864 units year-on-year. But OPEC did not go as far as the International Energy Agency, which on Friday said lower oil prices would force non-OPEC to cut output by the steepest rate in more than two decades next year.

US shale oil producers could also be more resilient than they appear despite high levels of indebtedness. Around 4,000 untapped wells have been drilled in the country waiting to be fracked, and are able to start producing in a matter of weeks if conditions improve. If prices go up, they’ll get back in the field and start pumping. The price decline certainly has an impact but the demise of US oil producers might be a stretch.