Financial Review

Irrational Spending

Sinclair Noe — October 9, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW – 12 = 22,761
SPX – 4 = 2544
NAS – 10 = 6579
RUT  – 6 = 1503
10 Y bond market closed
OIL + .23 = 49.52
GOLD + 7.50 = 1284.60

Cryptocurrency

• Number of Currencies: 874
• Total Market Cap: $151,863,387,347
• 24H Volume: $4,534,543,782

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	4,806.8	$79.83B	$2.03B	44.84%	1	+0.51%	+9.44%
	Ethereum	ETH	296.82	$28.13B	$568.20M	12.53%	0.0616514	-0.25%	-0.42%
	Ripple	XRP	0.24363	$9.48B	$569.19M	12.55%	0.00005098	-2.73%	+20.91%
	Bitcoin Cash	BCH	338.00	$5.58B	$325.35M	7.17%	0.069749	+8.16%	-19.29%
	Litecoin	LTC	50.090	$2.68B	$151.21M	3.33%	0.0104295	+0.10%	-5.41%
	Dash	DASH	279.60	$2.14B	$43.95M	0.97%	0.058268	-0.66%	-8.79%
	NEM	XEM	0.19678	$1.79B	$5.60M	0.12%	0.00004123	+0.89%	-13.87%
	NEO	NEO	28.800	$1.44B	$97.08M	2.14%	0.00600043	-1.07%	-19.44%
	IOTA	MIOTA	0.46480	$1.29B	$17.54M	0.39%	0.00009686	-0.94%	-18.17%
	Monero	XMR	85.14	$1.28B	$39.69M	0.88%	0.0175418	-0.03%	-6.84%

Third quarter earnings season kicks into high gear this week with 8% of the S&P 500 slated to report results. And while companies are forecast to reveal a healthy pace of earnings growth, expectations are already very high. A solid earnings season may not be enough to move the market higher.

Even though the S&P 500 Index climbs to new heights on an almost daily basis, analysts have been quietly reducing their third-quarter profit forecasts, seeing an earnings gain of just 4%, after two quarters of over 10% growth. Analysts also see sales growth of 4% year-over-year, a slight deceleration for the second quarter’s 5% growth.

Earnings estimates tend to start out muted as company executives guide analysts lower only to beat the forecasts in a phenomenon known as under-promise and over-deliver. The expected gain in earnings is less than the estimated 5 percent jump in revenue, implying negative earnings leverage.

If companies can’t beat estimates, then there is no justification for near record prices. And more than just beating estimates, looking forward, Wall Street will expect strong fourth quarter and 2018 guidance.

As central bankers, finance ministers and money managers descend on Washington this week for the fall meetings of the International Monetary Fund, they will confront an unusual reality: global markets and economies rising in unison. Global economic growth came in at 2.6% in 2016. In its last update in July, the IMF kept its 2017 estimate of economic growth unchanged at 3.5 percent, which would be higher than the 3.2 percent recorded in 2016.

The IMF tends to issue rosy projections and then trim their forecast. In Japan, a reform-minded government and aggressive action by the central bank have pushed growth to 1.5 percent — up from 0.3 percent three years ago. In Europe, strong domestic demand in Germany and robust recoveries in countries like Spain, Portugal and Italy are expected to spur 2.2 percent growth in the eurozone. That would be more than double its average annual growth in the previous five years.

Aggressive infrastructure spending by China; bold economic reforms by countries including Brazil, Indonesia and India; and rising commodities prices (helping countries such as Russia) have spurred growth in emerging markets. And in the United States, despite doubts about President Trump’s ability to pass a major tax bill, the economy and financial markets chug along. But the big question is what happens when global central bankers stop their easy money policies?

Environmental Protection Agency Administrator Scott Pruitt said he will sign a new rule overriding the Clean Power Plan, an Obama-era effort to limit carbon emissions from coal-fired power plants. For Pruitt, getting rid of the Clean Power Plan will mark the culmination of a long fight he began as the attorney general of Oklahoma.

Pruitt was among about two-dozen attorney generals who sued to stop President Barack Obama’s push to limit carbon emissions. Closely tied to the oil and gas industry in his home state, Pruitt rejects the consensus of scientists that man-man emissions from burning fossil fuels are the primary driver of global climate change.

The Clean Power Plan was designed to cut U.S. carbon dioxide emissions to 32 percent below 2005 levels by 2030. The rule dictated specific emission targets for states based on power-plant emissions and gave officials broad latitude to decide how to achieve reductions.

Still no word on a split in Spain. Catalonia’s secessionist leader faced increased pressure to abandon plans to declare independence from Spain, with France and Germany expressing support for the country’s unity. The Madrid government said it would respond immediately to any such unilateral declaration.

A week after a vote on independence which the government did its utmost to thwart, the tension also took its toll on the business climate of Spain’s wealthiest region. Three more Catalonia-based companies joined a business exodus from the region that has gathered steam since the Oct. 1.

Google has discovered Russian operatives spent tens of thousands of dollars on ads on its YouTube, Gmail and Google Search products to meddle in the 2016 U.S. presidential election. The ads do not appear to be from the same Kremlin-affiliated entity that bought ads on Facebook, but may indicate a broader Russian online disinformation effort.

Both Twitter and Facebook recently detected and disclosed that suspected Russian operatives, working for a content farm known as the Internet Research Agency in St. Petersburg, Russia, used their platforms to purchase ads and post content that was politically divisive in a bid to influence Americans before and after the November 2016 presidential election.

The Internet Research Agency employs hundreds of so-called “trolls” who post pro-Kremlin content, much of it fake or discredited. Congressional committees have launched multiple investigations into Russian interference, but concern about Silicon Valley’s role has surged over the past month.

Harvey Weinstein was fired by the Weinstein Company. The move follows a New York Times exposé  that revealed one of Hollywood’s most powerful film producers faces accusations of sexual harassment spanning decades. Now, the company Weinstein formed will change its name. Weinstein is expected to seek therapy.

The White House tied a new “Dreamer” deal to immigration reforms. It sent Congress a list of demands, including faster deportations and funding for the Mexican Border wall, “as part of any legislation addressing the status of Deferred Action for Childhood Arrivals recipients.”

Trump scrapped the program last month; it expires Mar. 2018. Polls show voters side with Democrats on shielding the immigrants, known as Dreamers. By adopting a hard line, Trump is setting the stage for a prolonged fight in Congress.

Trump traded Twitter insults with a major Republican critic. Trump attacked Tennessee senator Bob Corker, claiming the lawmaker was retiring because Trump had refused to endorse him. Corker, who is chair of the foreign relations committee, retorted that the White House had become an “adult day care center,” and he described Trump as irrational, ill-informed, impulsive, unfit for command, and increasingly a danger to the country and the world.

The war of words could have implications for tax reform legislation, which is still in the early stages. Due to a process known as budget reconciliation, the Republicans can write and pass tax measures without any support from Democrats but first they must reach agreement within their own ranks.

With Republicans holding 52 seats in the 100-member Senate, only a few defections could sink a bill – as happened to their failed efforts to repeal Obamacare. Some of the sticking points that could divide Republicans include if the tax plan will add to the deficit, how the cuts will be paid for, and whether the benefit of cuts will go the wealthy or the middle class. And that is just the framework, not the finishing trim.

California Governor Jerry Brown has signed state legislation requiring drug companies to report certain price hikes for prescription medicines in a move that could set a model for other states to follow. The law aims to provide more transparency around pharmaceutical and biotech company pricing methods for their medicines, and requires drug manufacturers to give a 60-day notice if prices are raised more than 16 percent over a two-year period.

The law also requires health plans and insurers to file annual reports outlining how drug costs affect healthcare premiums in California. At least 176 bills on pharmaceutical pricing and payment have been introduced this year in 36 states.

A new exchange-traded fund, slated to begin trading before the end of the year, is dedicated to only holding companies that are seen as supportive to veterans and their families. the InsightShares Military Veterans ETF will only hold companies “determined to be military friendly,” a term the filing uses as a registered trademark. The term “refers to a standard created by Victory Media that measures a company’s commitment, effort and success in creating sustainable and meaningful employment opportunities for our nation’s military veterans”.

Richard Thaler, a University of Chicago economist, was today announced as this year’s recipient of the Nobel Prize for Economics. Prof Thaler’s central insight is that we are not the rational beings beloved of more traditional economic theory. Given two options, we are likely to pick the wrong one even if that means making ourselves less well off.

Lack of thinking time, habit and poor decision-making mean that even when presented with a factual analysis (for example on healthy eating) we are still likely to pick burger and chips. We’re hungry, we’re in a hurry and burger and chips is what we always buy.

Nudge theory takes account of this, based as it is on the simple premise that people will often choose what is easiest over what is wisest. Thaler didn’t contend that humans were randomly irrational. More importantly, he observed that people are predictably irrational. If irrational human behavior can be predicted, then it can be incited, or nudged.

Thaler coined the term “nudging” to describe cheap and easy interventions that change people’s decision-making. Tests have shown that putting healthier foods on a higher shelf increases sales. The food is more likely to be in someone’s eye line and therefore “nudge” that person towards the purchase – whether they had any idea about the health benefits or the obesity argument or not.

Such theories, which sit in a big bucket of academic study called “behavioral economics”, are what Prof Thaler is famous for. When asked how he would like to spend the Nobel prize money, Thaler answered: “I will try to spend it as irrationally as possible.”

Financial Review

Cleaning Up

Sinclair Noe — March 28, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 150 = 20,701
SPX + 16 = 2358
NAS + 34 = 5875
RUT + 9 = 1367
10Y + .04 = 2.41%
OIL + .71 = 48.44
GOLD – 2.50 = 1252.30

Yesterday, we noted that the Dow Industrial Average had been down for 8 straight sessions – the longest losing streak since 2011. We also noted that the market seemed to be taking a break or a pause; the losses during that time were not big enough to reverse the uptrend.

Sure enough, the uptrend resumed today. Even though stocks wobbled out of the opening gate, they gained their footing with the help of some good economic reports.

Consumer confidence surged to a more than 16-year high in March. The Conference Board said its consumer confidence index jumped 9.5 points to 125.6 this month, the highest reading since December 2000.

Consumers’ assessment of both current business and labor market conditions improved sharply in March. They also anticipated an increase in their incomes. The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001.

When consumers feel good about their jobs or job prospects, their confidence goes up. And then the hope is that the confidence translates into increased spending, especially for a retail sector that has been underperforming in the first quarter.

Separately, the Commerce Department said in its advance economic indicators report the goods deficit fell 5.9 percent to $64.8 billion last month as imports and exports fell. It also said inventories at retailers and wholesalers both rose 0.4 percent last month.

And another report showed the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5.7 percent in January on a year-over-year basis after increasing 5.5 percent in December. The 10-City Composite posted a 5.1% annual increase, up from 4.8% the previous month. The National Index was up 5.9% year-over-year in January, setting a 31-month high.

House prices are being driven by tight inventories. The recent interest rate hikes from the Fed didn’t seem to affect home buyers – at least not yet; 2 or 3 more hikes this year could pinch affordability.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last 12 months. In January, Seattle led the way with an 11.3% year-over-year price increase. In Phoenix, home prices were flat in January, but up 5.1% over the past 12 months.

Hospital stocks dropped today as Republicans in the House of Representatives said they were considering a renewed push to repeal and replace Obamacare, after the effort failed last week. Shares of Community Health Systems dropped 7.6 percent and Tenet Healthcare shares fell 4.8 percent. HCA Holdings, Universal Health Services and Envision Healthcare were all down around 2 percent.

A full-blown push at the repeal and replace is going to be extremely difficult to pull off, but there are other ways to attack the ACA. Health and Human Services Secretary Tom Price already stalled the rollout of mandatory Medicare payment reform programs for heart attack treatment, bypass surgery and joint replacements.

Hospitals and physician groups have been counting on support from Medicare – the federal insurance program for the elderly and disabled – to continue driving payment reform policies built into the ACA that reward doctors and hospitals for providing high quality care at a lower cost. Repeal may be difficult but death by a thousand cuts, that’s another story.

After failing to repeal and replace the Affordable Care Act, President Trump said it was time to move on; and he is. Yesterday, behind closed doors and without his typical fanfare, Trump signed Congress’s repeal of Obama’s Fair Pay, Safe Workplaces executive order that would have mandated that companies with substantial federal contracts be required to disclose past violations of federal labor laws – such as wage and hour laws and workplace safety standards.

The rule aimed at raising standards across the economy by leveraging the federal government’s purchasing power; companies with federal contracts employ roughly one in five American workers.

President Trump has signed an executive order to undo a slew of Obama-era climate change regulations. The decree’s main target is the Clean Power Plan that required states to cut carbon emissions from power plants – a critical element in helping the United States meet its commitments to a global climate change accord reached by nearly 200 countries in Paris in 2015.

The so-called “Energy Independence” order does not directly address the Paris accord, but it reverses a ban on coal leasing on federal lands, undoes rules to curb methane emissions from oil and gas production, and reduces the weight of climate change and carbon emissions in policy and infrastructure permitting decisions.

Trump has denied climate change, calling it a Chinese hoax. While Trump’s administration has said reducing environmental regulation will create jobs, some green groups have countered that rules supporting clean energy have done the same. The number of jobs in the US wind power industry rose 32 percent last year while solar power jobs rose by 25 percent, per a Department of Energy study.

The benefits of energy-efficiency rules and clean-power programs are passed to workers, too; clean-energy jobs surpassed oil and gas-drilling jobs in the US for the first time last year, and job growth in the solar energy sector was 12 times faster than that of overall economy. Several groups have already announced plans to challenge the order in the courts, so there will be a few jobs for attorneys.

The Clean Power Plan required states to collectively cut carbon emissions from power plants by 32 percent below 2005 levels by 2030. Some 85 percent of US states are on track to meet the targets despite the fact the rule has not been implemented.

Wind and solar accounted for more than half of the new capacity added to U.S. grids in the past two years, thanks to two economic trends. The first is low natural gas prices, which have driven down the price of electricity and forced record numbers of aging coal-fired generators to close. The second is that wind and solar farms have become much cheaper to build, making them an attractive replacement for shuttered fossil-fuel plants.

Power prices have already dipped to historic lows, forcing conventional power-plant owners including FirstEnergy and NRG Energy to write down billions in assets. Utilities know that coal and nuclear just aren’t competitive in this era of low gas prices and increasing renewables, absent special treatment to keep them running. And even then, it is not enough to build any new coal powered plants.

State laws requiring utilities to source a portion of their electricity from renewables play an important role. So do federal tax credits for wind and solar farms that were extended in 2015 with support from Republican lawmakers. And these policies remain intact, at least for now. Today’s executive order will probably have little impact on the US wind and solar industries.

After years of being supported by subsidies, prices have plunged so much that renewables can compete with fossil fuels. That’s why energy companies are pushing forward with long-term plans to generate power with clean alternatives, even as Trump vows to breathe life back into coal country. Nobody believes that coal is the future of energy.

Elon Musk has managed to start up an electric car company, Tesla. Then he bought into a solar power company and he’s building a gigantic battery factory, so he can capture power from the sun and store it. Then he started Space X, a re-usable rocket company to launch satellites, with eventual plans to colonize Mars.

And while all that is mildly entertaining, you are probably asking if he can come up with something new and innovative. How about this: Neuralink – what Musk calls “neural lace” technology, implanting tiny brain electrodes that may one day upload and download thoughts. In other words, hook your brain into a computer.

Business filings suggest that Neuralink would build devices designed to treat or diagnose neurological conditions, and conceivably augment human cognitive powers, maybe a way to alleviate brain disorders like epilepsy. In a Vanity Fair article published online today, Musk discussed the idea of merging biological intelligence with machine intelligence, saying: “For a meaningful partial-brain interface, I think we’re roughly four or five years away.”

Compared to neural lace, the debut of yet another new smartphone seems downright pedestrian, but it is still kind of a big deal for Samsung. Tomorrow they are expected to unveil the new Galaxy S8. Look for two different sizes; big and bigger; curved screens, fingerprint scanner, faster processor, and better camera. And a new AI assistant called Bixby. And while it is cool new technology, the most important thing is that the battery does not explode.

The Scottish independence referendum, could be facing a re-run as a direct result of Brexit. By a 69-59 vote, members of Scottish Parliament backed First Minister Nicola Sturgeon’s pursuit of a new independence referendum.

Sturgeon wants to hold a vote between fall 2018 and spring 2019, which she says would give enough time for Brexit negotiations (set to start Wednesday and likely to last for two years) to make substantial progress, but would also leave time for Scotland to leave the UK and still remain in the EU

Tomorrow, a letter personally signed by UK Prime Minister Theresa May will be deliver to European Union President Donald Tusk. The instant the letter exchanges hands marks the moment the UK has officially served its partner of four decades with divorce papers.

The invocation of Article 50 of the EU’s Lisbon Treaty triggers two years of negotiations to secure Britain’s departure from the bloc. May herself considers it “one of the most important documents” in Britain’s recent history. Exactly what is in the letter remains a mystery, at least until tomorrow.

Financial Review

Mars Looks Pretty Good

Sinclair Noe — September 27, 2016

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

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DOW + 133 = 18,228
SPX + 13 = 2159
NAS + 48 = 5305
10 Y – .03 = 1.56%
OIL – 1.00 = 44.93
GOLD – 10.90 = 1328.00

A CNN poll showed that 62 percent of voters who watched last night’s presidential candidate’s debate felt that Democratic nominee, Hillary Clinton, won. In markets, the Mexican peso seems to agree, with the currency rallying as much as 2 percent after the head-to-head concluded, any other correlations to the markets are hypothetical.

Last night’s debate was all over the place. That’s not a commentary on the candidates, rather on the broadcast itself. Unlike the primaries, the networks do not take turns running the general election debates. Instead, the non-partisan, non-profit Commission on Presidential Debates runs the show and hands out sets of keys to whoever wants them.

That means in addition to every major network, other platforms like Facebook, Twitter, and Yahoo were able to broadcast their own streams. The early estimates are that 81 million people watched the debate on one of the 12 TV networks and about 2.5 million watched live streaming. Although about 90% of the people probably tuned in just to see if the roof would collapse.

Top social media platforms steered hundreds of thousands of users to voter registration websites over the weekend in an effort several states said set new records for registration activity. Facebook, Instagram, Snapchat and other social media networks began reminding users over the age of 18 to register to vote. Users on Facebook were directed to a federal website that would then direct them to sites in their home states.

Today is National Voter Registration Day; it is not the last day you can register to vote, just a day to encourage everyone to register. In Arizona, you have until October 8 to register by mail, or October 10 to register online.

Before we get to the actual election, the government might shut down. The federal budget runs through Friday. We need a new budget to keep running; that is not going to happen. Typically, the politicians come up with a continuing resolution, an extension on the deadline for a budget; that might not happen either. The stopgap funding bill under consideration would keep the federal government running through Dec. 9, as well as provide funds to combat the Zika virus. It also includes disaster-relief aid for flooding in Louisiana and other states.

Senate Democrats are demanding federal aid for residents of Flint, Michigan to deal with their poisonous water problem. Senate majority leader Mitch McConnell is talking about removing aid to flood victims in Louisiana in exchange for aid to Flint.

That deal may or may not fly. But then there is another rider on the stop gap budget, the inclusion of a poison pill policy rider to keep political money from big corporations a secret. The rider would block the Securities and Exchange Commission (SEC) from working on a rule to require publicly traded companies to disclose their political spending. This rider is one of the main sticking points standing in the way of a deal to keep the government open. The deadline for a budget deal is Friday.

Iran is unwilling to freeze its oil production at current levels. The nation’s oil minister also said the country doesn’t intend to strike an agreement with other crude producers in Algiers this week. Iran will increase output from 3.6 million barrels per day to 4 million.

OPEC’s decision to hold informal talks this week has fanned speculation that it might be about to deviate from a two-year-old policy of pumping without limits, which succeeded in hurting rival suppliers but also sent prices into free-fall. Energy Ministers are now calling the gathering a “consultative meeting,” saying “it wasn’t time for decision-making.” A formal OPEC meeting will take place in Vienna on Nov. 30, when a supply agreement may be reached.

The World Trade Organization has cut its forecast for global trade growth this year by more than a third. The new figure of 1.7%, down from its April estimate of 2.8%, would be the slowest pace of trade and output growth since the 2009 financial crisis. It is also the first time in 15 years that international commerce has been left trailing behind the world economy.

The downturn reflects the slowdown in countries such as China and Brazil and lower levels of imports into the US. Trade has grown 1.5 times faster than gross domestic product over the long term – but the WTO say it will only grow 80% as fast this year. That would be the first reversal of globalization since 2001 and only the second time this has happened since 1982.

Global bonds moved higher as renewed concerns over Europe’s banks spur demand for safe assets. Germany’s 10-year yield fell to the lowest since July and Finland’s dropped below zero for the first time. Spain’s 10-year yield dropped to a record low. The outlook may be different for Treasuries, as Blackrock, the world’s biggest money manager, warned of the risks of holding Treasuries as the Federal Reserve moves towards raising rates.

Single-family home prices rose slightly less than expected on an annual basis in July, and the year-over-year gain was smaller than in the prior month. The S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5 percent in July on a year-over-year basis, down from 5.1% in June. In Phoenix, existing home prices were up 0.8% from June to July, and up 5.2% over the past 12 months.

A key measure of consumers’ attitudes increased in September, to its highest level since the recession. The Consumer Confidence Index hit 104.1 in September, up from August’s revised reading of 101.8. The survey measures confidence toward business conditions, short-term outlook, personal finances and jobs.

A federal appeals court has ruled that American Express could stop merchants that accept its cards from encouraging customers to use rival payment cards that charge the stores lower transaction fees. The decision reversed a lower court’s 2015 ruling that such restrictions violated federal antitrust law. The decision is a major victory for American Express, which wants to ensure that its customers, who pay higher-than-average membership fees, do not encounter any barriers to use.

The ruling means that American Express can continue to enforce provisions in its contracts with merchants that prohibit them from steering customers toward other forms of payment. Credit card costs are largely invisible to consumers, but retailers pay a fee each time a credit or debit card is used. Amex charges higher so-called swipe fees, or interchange fees, than Visa or MasterCard, and some consumer advocates argue that those costs can get unfairly passed on to shoppers in the form of higher prices.

Samsung Electronics has recovered more than 60% of all recalled Galaxy Note 7 smartphones sold in South Korea and the US. Samsung announced on Sept. 2 a global recall of at least 2.5 million Note 7s in 10 markets due to faulty batteries causing some phones to catch fire.

Caesars and its creditors have agreed on a restructuring to get the casino’s operating unit out of bankruptcy. Creditors will receive about 70% of the fully diluted equity in the new structure, while second lien noteholders and unsecured creditors will get paid $0.66 on the dollar.

Walt Disney is working with a financial adviser to evaluate a possible bid for Twitter. Twitter has started a process to evaluate a potential sale. Salesforce.com is also considering a bid and is working with Bank of America on the process. No deal yet, just speculation.

Last year, the Environmental Protection Agency finalized a far-reaching rule that would, for the first time ever, regulate carbon dioxide emissions from America’s existing coal- and gas-fired power plants, which are a major source of pollution. The Clean Power Plan set specific emissions targets for each state and gives them plenty of flexibility in deciding on how to meet the goals. If all goes as intended, the plan would reduce power plant emissions roughly 30 percent below 2005 levels by 2030.

Various oil and coal companies, along with 27 states led by West Virginia, have sued to overturn the Clean Power Plan. Many of these states could meet the plan’s targets fairly easily, but they are opposed to any expansion of EPA powers. In response, the Supreme Court halted implementation of the Clean Power Plan until the court challenges were finished.

Today the litigants presented oral arguments to the DC Circuit Court. A ruling is expected in either late 2016 or early 2017. Whatever the outcome, the next stop for this case is the Supreme Court, which has been split 4-4 between conservatives and liberals ever since Justice Antonin Scalia’s death this year. If there’s a 4-4 SCOTUS split on this case, then whatever the DC Circuit Court rules will stand.

SpaceX has successfully tested a new rocket engine it plans to use to take people to Mars within the next 10 years. CEO Elon Musk tweeted about the successful first firing of the Raptor engine and included photos. Musk said he expects SpaceX to make an unmanned mission to Mars by 2018, using existing technology. He plans to use the Raptor engine for a manned Mars mission by 2025.

SpaceX has yet to carry humans into outer space, but it has won a contract from NASA to carry U.S. astronauts to the International Space Station as soon as next year. Today Musk laid out his plans for Mars colonization. The idea is reusable rockets, somehow making fuel on Mars, refueling stations in space, spaceships carrying about 100 passengers per flight to Mars to inhabit a city of 1 million. All this within the next 10 years.

Financial Review

Earth Day

Sinclair Noe — April 22, 2016

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

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DOW + 21 = 18,003
SPX + 0.10 = 2091
NAS – 39 = 4906
10 Y + .02 = 1.89%
OIL + .55 = 43.75
GOLD – 15.80 = 1233.20

Most of the session, stocks were in negative territory, and as expected, Alphabet and Microsoft kept the Nasdaq in the red. The stock market hit a wall today. After a rally that pushed the Dow above 18,000 and the S&P 500 above 2100 – close to record high, we have now hit resistance.

And we are about to move into May. Remember the old wisdom: sell in May and go away. For the week, the Dow added 0.6 percent, the S&P 500 gained 0.5 percent and the Nasdaq lost 0.6 percent. Oil gained about 11% on the week.

Investors withdrew $7.3 billion from stocks in the week to April 20, the largest outflows in nine weeks, while continuing to shovel money into corporate and emerging market debt. The equity redemptions were led by $4.2 billion of outflows from U.S. stocks and $2.6 billion from Japan.

Caterpillar reported first-quarter earnings that were weaker than forecast, and lowered its expectations for the rest of the year. The company warned in March that its sales and earnings would drop amid low commodity prices, weak demand and the strong dollar.

McDonald’s reported first-quarter earnings of $1.23 per share on $5.90 billion in revenue; beating top line and bottom line estimates. McDonald’s introduced all-day breakfast at its U.S. restaurants in October. The move boosted sales last quarter and appears to be a factor in the Golden Arches’ earnings beat.

General Electric posted an operating profit and higher revenue in the first quarter, compared to a year earlier, but profit fell short of Wall Street’s expectations. GE technically posted a net loss of $98 million in the first quarter, up from a loss of $13.6 billion, although it recorded a profit of $210 million from continuing operations. The company is selling off a substantial portion of its GE Capital unit as it refocuses its efforts on its industrial businesses.

American Airlines said it was disappointed with its first-quarter revenue. Passenger revenue for each seat flown a mile, a benchmark gauge for airlines, will continue falling all year. Still, first-quarter profit topped analysts’ expectations as tumbling jet fuel prices helped reduce operating costs.

The first tech IPO of 2016 is already a disappointment. Dell’s spinoff SecureWorks priced its initial public offering at $14 per share. This was below the $15.50 to $17.50 range that the company was hoping for. The pricing gives the cyber-security firm a market cap of about $1.13 billion. SecureWorks will trade on the Nasdaq under the ticker ‘SCWX.’ Opened at $14, closed at $14.

Looking to return to profitability, Sears Holdings is closing 68 Kmart stores and 10 Sears stores in late July. The company says that, together with $1.2 billion in debt financing raised earlier this month – to provide capital to execute its transformation and meet its financial obligations – it believes it has taken important steps toward its 2016 objectives. Liquidation sales are expected to start in the coming days.

SunEdison is vowing to press ahead with plans to build solar projects across India, despite filing for Chapter 11 on Thursday. The bankruptcy excluded India, the clean-power giant’s largest market outside the US.

Volkswagen has struck an agreement with the Justice Department to either repair or repurchase approximately 500,000 cars in the US, as part of the reparations for its emissions-cheating scandal. Lawyers in the case are still negotiating details. Volkswagen estimates the cost of the scandal has escalated to more than $18 billion, more than double the amount the company had previously set aside

More emissions trouble… Daimler reported net profit dropped 32% in the quarter, but that was overshadowed by news that the German automaker was reviewing its emissions certification process.

Leaders from 170 nations gathered today in New York for the formal signing of the climate change accord reached in Paris four months ago. The event, at the United Nations headquarters, coincided with Earth Day and marked the largest number of countries ever to sign an international agreement in a single day.

The goal of the climate accord is to keep global temperatures “well below” 2-degrees Celsius increase and “to pursue efforts to limit the temperature increase to 1.5-degrees Celsius above preindustrial levels”. By signing the accord today, leaders from China, Brazil, France, Congo, Italy, Morocco and other nations affirmed that climate change is indeed real and vowed to address it.

Signing the accord is not the same as “joining” it. For it to become law, at least 55 countries representing at least 55% of global emissions have to formally join it by ratifying or approving it within their national governments. There is no fixed timeline for this to happen, but at a minimum it is expected to take several months.

The United States and China, which represent about 40% of all emissions, have said they intend to join this year. Different countries have different ways of approving the accord. The United States is among the countries that will enter it through executive action. China’s centralized government is expected to approve it quickly. The European Union, which accounts for about 12%, has met delays in its effort.

The stated goal of the accord is to keep global temperatures well below 2 degrees Celsius, or 3.6 degrees Fahrenheit, above preindustrial levels. That is a level scientists have said could avert the most damaging effects of climate change. Yet other scientists say 2 degrees is too much, prompting a continuing effort to strengthen the goal to 1.5 degrees. But that climate accord might not be enough. The US has said it will reduce its greenhouse gas emissions by 26% to 28% below its 2005 level by 2025, but the plans currently in place fall short of that target. Still, things are starting to change.

The growth in demand for coal has been dropping. Several countries are suspending coal production, or have announced their intention to go coal-free, including China, as have several US states. President Obama announced in January that he would end most new coal leasing on public lands, but his Clean Power Plan to reduce emissions from power plants was temporarily stayed by the Supreme Court in February while a lower court considers a challenge by some states and industries that say the Environmental Protection Agency lacks the authority to enforce it.

Still, the Paris climate accord has accelerated some of the trends that were evident going in. Last year the world spent a record high of $329 billion investing in renewable energy, with more than half coming from developing countries; keep in mind the increase in investment happened while oil prices were crashing, and also as prices for solar photovoltaics were dropping.

Moreover, 40 countries have adopted or are planning carbon pricing, and 28 countries are undertaking energy subsidy reforms, helped by lower oil prices. Also, more than 1,000 major companies and investors have indicated they support the carbon pricing approach. The issuance of “green bonds” for sustainable infrastructure has tripled to $37 billion during the past year.

Countries, companies, academic institutions, and others have begun divesting from fossil fuels, and turning to clean energy.  JPMorgan, for example, has decided against further financing coal mining projects, and the Rockefeller Family Fund with a long and profitable history of fossil fuel investments, announced last month that it was getting out. Valuation procedures often now include reviewing a company’s environmental impact, including its investment in clean energy.

More than 200 religious leaders gathered in New York this week to say they support the climate change accord negotiated in Paris last week and they want it to be put into effect quickly. They released a statement to the General Assembly of the UN, basically stating that the Earth is a gift, not just a commodity; that we need to consider the long-term protection of life, not just short-term economic gain; and environmental stewardship is a fundamental moral and religious value shared by traditions across the world.

The Paris agreement spurs countries to increase their goals over time. The next target is in 2018. The response to climate change is happening, and that is an irrefutable fact. In the very near future the marketplace for energy will change. The Bank of England and World Bank have warned of the risks to the global economy of climate change and the G20 has asked the international Financial Stability Board to investigate the issue.

In January, the World Economic Forum said a catastrophe caused by climate change was the biggest potential threat to the global economy in 2016. A new study, published in the peer-reviewed journal Nature Climate Change, used economic modelling to estimate the impact of unchecked climate change. It found that in that scenario, the assets were effectively overvalued today by $2.5 trillion, but that there was a 1% chance that the overvaluation could be as high as $24 trillion.

If action is taken to tackle climate change, the study found the financial losses would be reduced overall, but that other assets such as fossil fuel companies would lose value. Scientists have shown that most of the coal, oil and gas reserves such companies own will have to stay in the ground if the global rise in temperature is to be kept under 2C. The total stock market capitalization of fossil fuel companies today is about $5 trillion.

In other words, there is no scenario in which the risk to financial assets are unaffected by climate change. There will be winners and losers. Fortunes will be lost; fortunes will be made. And while climate change is a huge story for science, and nature, and religion. This is, quite simply, the biggest financial story in the world.

Financial Review

Stormy Weather

Sinclair Noe — October 23, 2015

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

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DOW + 157 = 17,646
SPX + 22 = 2075
NAS + 111 = 5031
10 YR YLD + .05 = 2.08%
OIL – .65 = 44.73
GOLD – 1.90 = 1165.00
SILV – .03 = 15.91

After Thursday’s closing bell Microsoft, Amazon, and Alphabet all reported very strong third quarter earnings, and these companies are big enough to lift the entire market; today they added $80 billion in market cap. Amazon and Alphabet hit all-time highs, and Microsoft moved to its highest levels since 2000. Toss in a little central bank easy money and you’ve got one of the best two day rallies in a long time.

The S&P 500 gained 2.1% for the week; its fourth straight weekly gain; moving into positive territory year to date. For the week, the Dow rose 2.5 percent and the Nasdaq gained 3 percent. Oil capped its biggest weekly decline since August as expanding U.S. crude stockpiles exacerbated a global glut, and the dollar moved higher, especially against the euro.

China’s central bank cut interest rates today for the sixth time in less than a year (down 25 basis points to 4.35 percent) , and it again lowered the amount of cash that banks must hold as reserves. Monetary policy easing in the world’s second-largest economy is at its most aggressive since the 2008/09 financial crisis. The People’s Bank of China said it was freeing the interest rate market by scrapping a ceiling on deposit rates; which will, in theory, allow banks to price loans according to their risk, and remove a distortion to the price of credit that analysts say fuels wasteful investment in China.

At a rate review next week, the Bank of Japan will cut its growth and inflation outlook for this fiscal year but only slightly tweak its projections for 2016. The BOJ can still maintain it’s on course to meet its inflation goal of 2% next year without needing to step up its massive asset purchase scheme.

While the Eurozone’s composite PMI unexpectedly increased to 54 in October from 53.6 in September, signaling a pickup in activity, forward-looking indicators point to a risk of a slowdown, according to Markit Economics. Service-sector expectations for the year ahead fell to a 10-month low.

Stocks across the globe extended a rally from the previous session, as central banks exert their dominance on markets. Yesterday, ECB President Mario Draghi signaled his willingness to add more stimulus to the Eurozone’s flagging economies, possibly at the next ECB meeting in December. The euro dropped for a second day versus the dollar, down 2.8% for the week. The euro is down more than 8 percent against the dollar year-to-date, and has fallen by 12 percent over the past year. Call it an accidental devaluation of the euro. The ECB claims it is not their intention to devalue the euro, but there simply doesn’t seem to be much evidence that QE and zero rates have done much to drive inflation higher. Still, the market salivates and sells euros when Draghi says QE.

Against a backdrop of ongoing stimulus in Japan, a big burst of new stimulus in China, and anticipated extension of stimulus in Europe, it becomes increasingly difficult to imagine the Fed will be able to go against the grain and hike interest rates any time soon. Fed funds futures rates show almost no chance next week when the FOMC meets, and less than a 50% chance when they meet in March.

This has implications across the board. The Federal Reserve’s decisions about interest rates will affect every single person and company in the United States. Walmart will like having cheap imports. Boeing won’t like that its planes cost more to foreign buyers. Family farmers won’t like it; big agribusinesses, like Cargill, will. For banks, a Fed rate increase can be good and bad news: In a recent report on the subject, Goldman Sachs argued that some banks, like M&T and Wells Fargo, are going to be in a bit of trouble, while others will make more money from interest rates on loans. On an individual level, Fed rate increases are better for older people who live on savings and worse for younger people who tend to borrow more.

If the Fed added up all the ways a rate increase helped people in the short term and subtracted all the ways it hurt them, they would never raise rates. While there are winners and losers, on balance a Fed rate increase means the economy will slow down, which on average is worse for everybody. Of course Wall Street loves easy money from the Fed. Global markets are as well trained as Pavlov’s dogs.

This week the People’s Bank of China announced easy money, although most of that stays in China, and the European Central Bank announced it would continue with its QE asset purchases; currently the ECB is buying a little over $90 billion in government bonds each month, and Draghi hinted there might be more coming in December. And the funny part is that all this extra money being pumped into the system should result in inflation, but the opposite is happening. Rates in the Eurozone are near zero, and this week the Italian 2 year government note went negative, as did the US Treasury 30-day bill. So where is all that money going?

Well, it’s going into government bonds. And where are the government bonds going? Well, they are being used as collateral for the $700 trillion dollar derivatives market where they are tucked away as collateral. And the lower the central banks pegs interest rates, the more the banks are forced into taking risks to generate returns, and that means risk, and risk is mitigated (at least in theory) with derivatives, backed (again theoretically) by the collateral of government debt.

And so, some off the biggest news of the week that nobody noticed was a new ruling from a couple of regulators, which will greatly reduce the collateral requirements the big banks must set aside in derivatives deals. The rules are still in draft form, but they would cut in half what the companies must post in transactions between their own divisions. The proposed rules are coming from the FDIC and the Commodities Futures Trading Commission, backed by the financial industry and the rules are apparently being drafted by the financial institutions as well.

It’s difficult to estimate how much is at stake for banks, but the derivatives market is estimated at $700 trillion nominal value; the collateral involved is likely in the hundreds of billions in non-cleared swap trades. The banks think this might free up collateral for other purposes. I’m guessing riskier purposes, but time will tell. What this also might address is the remarkable lack of supply of government debt – how else to explain Italian notes going negative?

Best guess is that we will see continued growth in structured financial assets that made synthetic swaps where the casino banks sold protection based upon bonds, rather than actually investing in bonds, and then called it collateral that could be sold as insurance to guarantee payment on insurance contracts. Sure – what could go wrong?

Analyst sentiment on overall third-quarter earnings has improved following the string of strong results from blue chips. S&P 500 earnings for the period are now expected to have declined a more modest 2.8 percent, compared with a decline of 5.5 percent forecast at the start of the reporting season.

American Airlines reported earnings of $1.9 billion, or $2.77 a share; beating estimates. American realized big savings from lower fuel costs. American’s board authorized a new $2 billion share repurchase program to be completed by year-end 2016. They still face an air fare war. American said it will discount tickets in a bid to win market share.

The Environmental Protection Agency regulatory package known as the Clean Power Plan officially became law today. It was immediately challenged by 24 states, led by West Virginia, in a U.S. appeals court filing in Washington. The states are asking for a court order blocking the measure until the lawsuit is resolved. It’s at least the third time the initiative has come under legal fire. Earlier challenges were rejected by federal judges as premature because the measure hadn’t been published.

The U.S. government no longer has that defense, leaving the regulations open to attack. The Clean Power Plan aims by 2030 to reduce power plant carbon emissions 32 percent below where they were in 2005. The rules require states and utilities to use less coal and more solar power, wind power and natural gas. States are required to submit their initial plans for meeting those objectives by Sept. 6 of next year. Final plans must be submitted two years later. EPA Administrator Gina McCarthy, issued a statement saying the Clean Power Plan is based upon “strong scientific and legal foundations” and is within the authority granted to the agency under the Clean Air Act.

Hurricane Patricia is moving onshore right now around Manzanillo on the Pacific Coast Mexico. It is being called the most powerful storm in recorded history, with winds clocked at 200 miles per hour, which makes it a Category 5. The only good news is that this area of Mexico is not heavily populated. Evacuations have been ordered along the coast. The US National Hurricane Center said Patricia was on track to make a “potentially catastrophic landfall.” Storm surge could top 30 feet. The storm is also expected to bring about 20 inches of rain.

So the storm surge will hit the coast, and then a couple of hours later, the rains will wash down from the mountains. The hurricane is expected to head northeast over Guadalajara, then dissipate as it hits the Sierra Madres, and over the next 2 or 3 days, it should make its way to Texas with heavy rains, and that’s on top of flooding in Texas happening now as the result of another storm system.

Financial Review

Because it’s Friday

Sinclair Noe — August 14, 2015

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DOW + 69 = 17,477
SPX + 8 = 2091
NAS + 14 = 5048
10 YR YLD + .01 = 2.20%
OIL – .10 = 42.13
GOLD + .10 = 1115.80
SILV – .18 = 15.34

For the week, the Dow rose 0.6 percent, the S&P 500 added 0.7 percent and the Nasdaq gained 0.1 percent.

Wholesale prices climbed at a slower pace in July, as energy prices dropped. The 0.2 percent increase in the producer-price index followed a 0.4 percent gain in June. Even with the recent increases, producer prices dropped 0.8 percent over the past 12 months. Wholesale prices excluding food and energy rose 0.3 percent for a second month, and those costs were up 0.6 percent from July 2014.

Industrial production climbed 0.6% in July; there were also upward revisions of 0.1% each in February, May and June. Capacity utilization for the industrial sector increased 0.3 percentage point to 78%. The auto sector posted a 10.6% surge in production.

Looking to capitalize on rising demand, General Motors has increased its rate of production on larger trucks and SUVs, and added Saturday overtime shifts at a Texas plant. The move could see 48,000 to 60,000 additional vehicles for the 2016 model year. Make hay while the sun shines.

The University of Michigan’s consumer sentiment index edged slightly lower to a reading of 92.9 in August from 93.1 in July.

Secretary of State John Kerry is in Havana, where he helped raise the flag over the US embassy in Cuba for the first time in 54 years. The flag was raised by three men who as US Marines lowered it when the US embassy closed 54 years ago.

The Eurozone’s economic recovery unexpectedly slowed in the second quarter, as expansion in its three largest economies fell short of estimates. First quarter gross domestic product in the 19-nation region rose 0.3%, which was just short of estimates. On an annualized rate, the Eurozone grew at a 1.3% pace. For the quarter Germany’s economy grew 0.4%, Italy’s 0.2%, while France stagnated. With oil prices sharply lower, the euro at multiyear lows and the European Central Bank on a $1.3 trillion bond-buying spree to keep market interest rates low, there were hopes that the Eurozone had turned a corner after years of crisis. You can’t really blame the weakness on Greece. The Greek economy grew 3.1 percent, from only 0.1 percent at the beginning of the year. They are not out of the woods just yet.

Greek legislators have approved a new €86 billion-euro bailout agreement, which is said to include sweeping economic reforms and budget cuts mandated by the country’s creditors. The deal is expected to be cleared by Eurozone finance ministers today, but may face a harder challenge when Germany votes on it next week.

Ukraine and a group of its largest creditors have agreed to continue debt discussions after holding two days of negotiations in San Francisco.

The yuan halted a three-day slide after China’s central bank raised its reference rate for the first time since Tuesday’s devaluation and said it will intervene to prevent excessive swings.

Fifteen US states, led by coal-producing West Virginia, are seeking a stay order, or injunction, against President Obama’s Clean Power Plan, which calls for power plants to cut carbon emissions 32% (from 2005 levels) by 2030.

Earnings season marches on. JC Penney posted a smaller than expected second-quarter loss.

Nordstrom reported a better than expected second-quarter profit.

Chip equipment maker Applied Materials fell short of Wall Street expectation on both profit and revenue.

Restaurant chain El Pollo Loco missed Wall Street estimates on revenue for the quarter and same-store sales.

King Digital Entertainment posted a sharp slowdown in sales and bookings.

Aflac is increasing its stock repurchase program by 40 million shares, or about $2.5 billion.

Tesla Motors has boosted its stock offering to about 2.7 million shares, hoping to raise more than $640 million as it prepares to start selling its Model X sport-utility vehicle.

Nelson Peltz’s Trian Partners has taken a more than 7 percent stake in the food service company Sysco, worth around $1.6 billion, or about 42 million shares.

German prosecutors charged seven current and one former Deutsche Bank employees over a scheme to help the lender and clients evade taxes on carbon-emissions trades. The bankers are charged with being part of a group that tricked the authorities about value-added tax refunds on carbon-emissions trading in 2009 and 2010. If it’s not one thing it’s another; Bloomberg calculates Deutsche Bank’s bill for fines and legal settlements surpassed 11 billion euros in the second quarter.

The company said last month that the cost of litigation will “remain a burden in the coming quarters.” The lender has yet to resolve investigations into its role in attempts to manipulate foreign exchange markets as well as a probe of whether it broke US laws on processing payments for countries subject to trade sanctions. It also faces lawsuits that claim the company didn’t make adequate disclosures about US mortgage-backed securities. The bank said last month that it is cooperating with regulators in these matters.

After previously aiming for a fall launch, Apple is now looking to bring its Web TV service to market in 2016. The delay is blamed on slow-moving licensing talks with TV networks and the need for capacity upgrades. Sources suggest Apple wants to charge about $40/month for its service, in comparison to Dish’s Sling TV (which provides a limited number of channels) for $20/month and Sony’s more expansive PlayStation Vue service for $50-$70/month.

A US administrative judge has ruled that BP manipulated the Texas natural gas market in 2008 and then conducted an inadequate internal investigation, opening the possibility of more fines against the company.

US crude futures have lost 30 percent since the start of June, set for the biggest drop since the West Texas Intermediate crude contract started trading in 1983. That beats the summer plunges during the global financial crisis of 2008, the Asian economic slump in 1998 and the global supply glut of 1986. It even surpasses the decline of 2011, when prices fell as much as 21 percent over the summer as the US and other large oil-importing nations released 60 million barrels of oil from emergency stockpiles to make up for the disruption of Libyan exports during the uprising against Muammar Qaddafi. It looks even worse when you consider that summer is supposed to be peak season for oil. Total gasoline supplied to the US market rose to an eight-year high of 9.7 million barrels a day last month.

So, why is the price at the pump so high? One reason is that we export gasoline. In January 2010 the US exported 6.8 million barrels of gasoline. By January 2011 it had doubled. In January 2015 the US exported 16 million barrels of finished motor gasoline. Still, in 2004, the average price of oil was $37.66 a barrel.  In 2004, the average price of gasoline was $1.85 a gallon. So, if you think the price at the pump should be a bit lower, you are probably right.

Domestic equity funds surrendered $20.4 billion in July alone and have seen $158.6 billion in redemptions over the past 12 months. Meanwhile, international equity funds have attracted $179.3 billion. Don’t confuse international funds with emerging market funds. Depositors may be looking forward to an increase in Federal Reserve interest rates and the commodity bulls may be fearing it, but what about all those emerging markets that are heavily exposed to commodities as their principal export and heavily exposed to overseas borrowings in US dollars.

For them, the fall in commodity prices has been dramatic and damaging while the rise in the US dollar has started to increase debt repayments just when they can least afford it. The emerging markets have been clobbered over the last month. In July, China dropped 11.2%, Brazil tumbled 12.2%; South Africa, Colombia, Chile, Thailand, Taiwan, Turkey, Peru, and Korea all dropped by more than 5% on the month.

You might not have noticed but the junk bond market is looking a bit dicey. Average yields for low-rated companies have jumped to 7.3 percent and spreads between such debt and comparable duration Treasuries have widened dramatically. The average yield is the highest since mid-December and has risen 120 basis points, or 1.2 percentage points, just since June. Spreads are at 580 basis points, a level hit only twice in the last three years. Since the most recent lows in June, spreads have widened a full percentage point. Then again, maybe you have noticed; retail investors have been pulling money from US focused mutual funds – $155 billion in outflows over the past 12 months, and high yield corporate funds have watched billions walk out the door.

And it’s not just the junk; investors yanked $1.1 billion from US investment-grade bond funds last week, the biggest withdrawal since 2013. Dollar-denominated company bonds of all ratings have lost 2.3 percent since the end of January.

Once upon a time, Treasuries paid a high yield; 30 years ago to be precise. The last Treasury bond with a coupon above 10 percent was issued on August 15, 1985.

Social Security turns 80 today. President Franklin Delano Roosevelt signed the Social Security Act on Aug. 14, 1935. Last year, Social Security paid benefits of nearly $850 billion— about a quarter of all federal spending. The average monthly payment is $1,221. That comes to about $14,700 a year. For most retirees, Social Security accounts for the majority of their income.

Two Cows, because it’s Friday.

Financial Review

Cleaning Up

Sinclair Noe — August 3, 2015

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

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DOW – 91 = 17,598
SPX – 5 = 2098
NAS – 12 = 5115
10 YR YLD – .05 = 2.15%
OIL – 1.95 = 45.17
GOLD – 9.10 = 1087.10
SILV – .30 = 14.59

This is going to be an extremely busy week. We still have a third of S&P 500 companies to report earnings. There’s also going to be a plethora of economic activity culminating in the Friday jobs report for July. Oil prices hit a six month low. It’s not just oil. Commodities prices across the board are falling thanks to slowing global demand and a rising dollar. All of this makes it very unlikely we’ll see a big pickup in inflation any time soon.

The Athens Stock Exchange reopened today and it was ugly. The ASE Stock Index dropped 23% after being closed for five weeks, with banking shares down by as much as 30%. The index managed to recover from session lows but still closed down 16%. While local traders are able to buy stocks, bonds, derivatives and warrants under certain conditions, international investors don’t face any restrictions, as long as they were active in the markets before they were shuttered.

The selloff shows the scale of the crisis still facing Prime Minister Alexis Tsipras as he negotiates a third bailout with creditors after six months that have put unprecedented strain on the Greek economy and its financial system.

As expected, Puerto Rico missed a $58 million debt payment due over the weekend. Because the deadline was Saturday, the PFC technically has until the end of Tuesday to make its missed payment, but it appears unlikely to make a difference. Puerto Rico does not have the money to pay. Puerto Rico faces a grim future. It’s operating with a $703 million budget deficit for the fiscal year that began last month. And the commonwealth faces $635 million in debt-service payments this month. Many investors are already focusing on broader questions around how Puerto Rico will restructure its $72 billion in debt, what kind of a “haircut” bondholders will need to take and what reverberations will spread to the U.S. municipal bond market.

A default is imminent and it will be the largest government debt restructuring in US history, and maybe the messiest. Puerto Rico’s indebted central government, municipalities and public corporations cannot file for bankruptcy protection without the OK of the U.S. Congress, which leaves them at the mercy of what could be hundreds of lawsuits filed by creditors. Without a referee in the form of a bankruptcy court, it’s going to be a mess.

Over the years, mutual-fund managers have had an incentive to buy Puerto Rican bonds, because their returns are tax-free. And many well-known mutual funds have significant exposure to Puerto Rico, including Oppenheimer, Franklin, Eaton Vance, and others. So on one side you have Main Street America, Mom and Pop investors who may or may not have known what they were buying in those mutual funds. On the other side you have Puerto Rican citizens, facing severe cutbacks and added costs for everything from driving on their roads to healthcare. Meanwhile, hedge funds have been swooping in like vultures on a carcass, buying bonds at steep discounts and hoping to force repayment through the courts. The hedge funds issued a report demanding huge budget cuts and privatization; even that is unlikely to get the island out of debt.

Chinese regulators restricted short selling of stocks, freezing out day traders, in their latest step aimed at stabilizing the world’s second-largest equity market. Investors who borrow shares must now wait one day to pay back the loans. This prevents investors from selling and buying back stocks on the same day.  Under the old T+0 rule, you could go short in the morning and cover your shorts before market close the same day and lock in your profit, if your bet is right. Now with T+1, you can’t cover your short position in the same day, and have to wait till next day at the earliest. That makes shorting a much more risky venture.

Pacific Rim trade officials failed to clinch a final deal for the Trans-Pacific Partnership on Friday following several days of intense talks in Hawaii. Key sticking points: Auto trade between Japan and North America, New Zealand’s dairy exports and monopoly periods for next-generation drugs. The deadlock may also sink U.S.-led plans, which aimed to finalize the trade deal by the end of 2015.

President Barack Obama has officially revealed a finalized version of a plan to reduce the amount of carbon dioxide emissions that power plants across the country can emit. Obama called the plan “the single most important step that America has ever taken in the fight against climate change.” Adding that “there is such a thing as being too late on climate change.”

While US power plants have limits on other air-born pollutants — like nitrogen and sulfur oxides that cause acid rain — there haven’t been limits, until now, on the levels of carbon dioxide emissions that power plants can emit. Power plants that burn fossil fuels, both coal and natural gas, emit carbon dioxide and in turn these greenhouse gases contribute significantly to the warming of the planet.

The Obama administration has turned to the Environmental Protection Agency to use the Clean Air Act to regulate carbon dioxide emissions from the power industry through the Clean Power Plan. The White House has used the EPA because politically a national carbon emissions reduction plan wouldn’t be able to pass through Congress.

States will be allowed to create their own plans to meet the requirements and will have to submit initial versions of their plans by 2016 and final versions by 2018. The most aggressive of the regulations requires that by 2030, the nation’s existing power plants must cut emissions by 32 percent from 2005 levels, which is an increase from the 30 percent target proposed in the draft regulation. Electric power generation from coal and natural gas plants is responsible for 40% of U.S. carbon emissions.

Clearly, the clean power industries, including solar, wind and even smaller sectors like geothermal, will benefit greatly from the plan. States that opt to meet their requirements by investing in clean power projects could be a major boon to these technologies. Solar and wind project developers include SunPower, First Solar, NRG Energy, and SunEdison. The natural gas industry will also be a major beneficiary of the plan. The coal industry, of course, is one of the major losers in the plan. One of the leading and most economical ways to reduce carbon emissions from coal plants is to simply shut them down, particularly aging plants. At least one fifth of the coal plants in the U.S. have been closed, or are in the process of closing.

The Obama administration says the plan could lead to “30 percent more renewable energy generation in 2030″ and “create tens of thousands of jobs.” Consumers will collectively be able to save “$155 billion from 2020-2030″ on energy bills, and $85 a year on an individual energy bill by 2030.

The Institute for Supply Management’s manufacturing index fell to 52.7% in July from 53.5% in June. Readings greater than 50 indicate expansion. ISM reported that 11 out of 18 industries reported growth with five reported contractions. The group’s employment measure declined from a month earlier and order backlogs slumped. And for some reason, the data was released just a bit earlier than the scheduled 7:00 AM time.

Spending on U.S. construction projects rose just 0.1% in June, well below forecast. Spending advanced 0.4% for new houses, condos, apartment buildings and other residential properties. Outlays on nonresidential and commercial projects was flat.

Consumer spending edged up 0.2 percent in June, the poorest showing since a similar increase in February; and the government revised the spending gain in May to 0.7% from 0.9%.The largest drop in spending involved big-ticket items such as new cars and trucks, according to the Commerce Department; now a quick note here, we also had a report from the car companies saying auto sales were strong in July – more on that in a moment. Even as spending tapered off, incomes continued to rise steadily. Personal income climbed 0.4% in June for the third straight month.

U.S. auto sales were stronger than expected in July and kept the industry on pace for its best performance since the turn of the century. Auto sales rose 5.3 percent to 1.51 million vehicles, above the 3 percent rise expected by analysts, according to Autodata Corp. The figures translate to an annualized sales rate for July of 17.55 million vehicles and keeps the auto industry on a pace for its best year since 2000. High-margin pickup trucks helped sales of the two market leaders, GM and Ford. GM had record sales of the Colorado pickup. Ford’s F-Series sales alone topped those of all Ford and Lincoln brand sedans.

Alpha Natural Resources has filed for bankruptcy in Virginia. The second-largest US coal company has lost almost all its market value since 2011, when it bought Massey Energy Co. for about $7 billion. The deal made it the biggest U.S. producer of metallurgical coal, used in steelmaking; it also saddled the company with debt, right before prices began their plunge.

Former UBS and Citigroup trader Tom Hayes, the first person to stand trial for manipulating Libor, was found guilty of eight counts of conspiracy to rig the benchmark rate. Hayes has been sentenced to 14 years. Jurors in London found that Hayes conspired with traders and brokers to manipulate the London interbank offered rate to benefit his own trading positions. After initially cooperating and being admitted into a whistle-blower program, Hayes had a change of heart and pleaded not guilty. Throughout the trial Hayes insisted his managers at UBS and Citigroup had known of his attempts to manipulate Libor and at no point told him he was doing anything wrong.  Apparently the defense of “everybody else was doing it, too” is not a particularly strong defense. Now it will be interesting to see if prosecutors will go back and revisit Hayes’ earlier claims that rate rigging was systemic. Having followed the trial, it is hard to imagine Hayes was a mastermind.