Financial Review

Focus on Earnings

Sinclair Noe — July 21, 2017

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DOW – 31 = 21,580
SPX – 0.91 = 2472
NAS – 2 = 6387
RUT – 6 = 1435
10 Y – .03 2.23%
OIL – 1.25 = 45.67
GOLD + 10.50 = 1255.50
BITCOIN + 1.33% = 2703.19 USD
ETHEREUM + 3.41% = 221.94

Stocks pulled back from record highs earlier this week.  For the week, the Dow fell 0.3% but the S&P 500 is up 0.5% and the Nasdaq added 1.2%. The Nasdaq is coming off a 10-day string of gains, matching its longest streak since Feb. 24, 2015 – so a pullback today was overdue.

At long last, tech stocks have finally recovered all the losses they suffered during the bursting of the dotcom bubble in 2000. It only took 17 years. The S&P 500 Information Technology Index closed Wednesday at an all-time high of 992.3. In doing so, it broke the previous record of 988.5, which was set back in March 2000.

In the intervening years, tech shares had lost as much as 80% of their value before beginning the slow ascent back to the top of the market. That ultra-slow recovery highlights how long it can take stocks to come back from bubbles. Tech stocks in the S&P 500 index now trade at a price/earnings ratio of 18.4, according to FactSet, based on projected sector profits in the coming 12 months.

That means tech is now trading at a 28% premium to tech companies’ valuations over the past decade. To be sure, that’s nothing compared to the triple digit P/Es seen in the late 1990s.

The FANG stocks, (Facebook Apple, Amazon, Netflix, and Alphabet-Google) have rocketed up this year, rising nearly 40 percent, four times the gain of the S&P 500. And the trend doesn’t seem to be ending. The technology heavy Nasdaq Composite Index raced ahead of the broader S&P 500 again this week.

And yet as investors pile into the FANG stocks, one measure of the return investors can expect from those stocks has shrunk to a new low. As of the end of the second quarter, the average free cash-flow yield of the FANG stocks, based on the past 12 months, slid to just 1.4 percent. That’s less than half of what that measure was just two years ago and now nearly a full percentage point below the yield on a 10-year Treasury.

Tech is back to being the biggest sector in the market, representing about a quarter of the S&P 500. That’s still well below the one-third share of the market that tech stocks occupied in the late 1990s. But remember that this figure does not include several big stocks that the public regards as “tech” but that S&P classifies as “consumer discretionary” stocks — a list that includes Amazon, Priceline, and Netflix. Moreover, Tesla isn’t even in the S&P 500, despite being valued at more than $53 billion.

If you want to make money in the stock market, you’d better nail earnings season. The reason is simple: Quarterly results are exerting unprecedented influence over stock returns and, by extension, portfolio performance. In recent quarters, reporting companies have seen their shares move four times the normal daily average, the most in the past 18 years, according to data compiled by Goldman Sachs.

The punishment for missing earnings is also the harshest in almost two years. In the first quarter of this year, companies that fell short dropped more than 2.5% in a single day, on average, according to Wells Fargo data.

One possible explanation is the rise of passive investment vehicles such as exchange-traded funds and quant funds. By trading large swaths of the equity market, rather than individual stocks, participating investors are diluting the effects of specific company fundamentals during non-earnings periods. Then, once earnings season rolls around, stock prices are spring-loaded to react more sharply to any new information.

This ETF effect is compounded by how price-insensitive the traders who use them can be — buying and selling based on what their models tell them and ignoring valuations that might otherwise raise red flags. Goldman finds that the FAAMG group that has led the stock market’s latest rally to new highs — consisting of Facebook, Amazon, Apple, Microsoft, and Google — has been realizing more than 50% of its quarterly return during earnings week.

In addition, the tech, materials, and consumer discretionary sectors are also seeing more than 30% of their quarterly returns generated in the five days surrounding releases.

General Electric reported quarterly profits fell 57% to $1.2 billion, as sales in its oil and gas, transportation and lighting divisions fell. Outgoing GE boss Jeffrey Immelt said the company was working in a “slow-growth, volatile environment”. He said a cost-cutting plan and other measures should put the firm on track to hit profit targets for the year. GE is down about 19% year to date.

Honeywell reported a better-than-expected quarterly profit. Net income attributable to Honeywell increased 5.5 percent to $1.3 billion, or $1.80 per share, above expectations of $1.78 per share. Revenue rose about 1 percent to $10 billion, topping expectations of $9.8 billion.

Honeywell also raised the low end of its 2017 earnings per share forecast by 10 cents. Sales in Honeywell’s aerospace business, which activist investor Daniel Loeb wants to be spun off, fell about 3 percent to $3.67 billion in the quarter, but the drop was much smaller than forecast.

The Department of Labor ordered Wells Fargo to pay $575,000 and to rehire a whistleblower the bank had dismissed in September 2011 after the former employee raised concerns over the opening of customer accounts without their knowledge. Despite news reports and lawsuits claiming the bank had retaliated against whistle-blowers, an investigative report by the bank’s board of directors released in April found no pattern of retaliation.

The U.K. cabinet will accept the free movement of EU citizens for up to four years after Brexit as part of a transitional deal. The news comes after a meeting between Prime Minister Theresa May and British businesses, in which companies stepped up pressure to avoid a so-called hard Brexit.

Bank of America has chosen Dublin as its future European Union hub, the latest major financial services firm to outline its plans to deal with Brexit, Britain’s departure from the 28-nation bloc.

Many banks and financial firms have concentrated their European operations in London, taking advantage of deep and liquid markets as well as the wide variety of support industries that have built up in the British capital, including accountants and lawyers. But those companies now face the distinct possibility that they may no longer be able to serve European clients from London after Britain leaves the Euro Union.

With Britain as a member of the EU, companies based in the country have been able to sell financial products across the Continent under “passporting” rules, which allow a lender licensed in one member state to work throughout the European Union. That is no longer guaranteed when Britain leaves in 2019, so financial companies have been moving forward with contingency strategies, and Bank of America is the latest lender to announce its plans.

American and European authorities have shut down two of the largest online black markets, AlphaBay and Hansa Market, and arrested their operators. AlphaBay, the largest so-called dark net market, was taken down in early July at the same time the authorities arrested the reported founder of the site, Alexandre Cazes, a Canadian man who was living in Bangkok.

Cazes committed suicide in his jail cell shortly after he was arrested. After AlphaBay went down, users streamed to one of its largest competitors, Hansa Market. But on Thursday, the Dutch national police announced that they had taken control of Hansa Market in June and had been operating the site since then, monitoring the vendors and customers and gathering identifying details on those involved in the 50,000 transactions that took place.

AlphaBay and Hansa Market were successors to the first and most famous market operating on the so-called dark net, Silk Road, which the authorities took down in October 2013.

You’ve undoubtedly heard that, in reaction to the hiring of Anthony Scaramucci as communications director, Sean Spicer has resigned as White House Spokesperson (leaving the White House to find someone else to not give press briefings).

Sarah Huckabee Sanders will replace Spicer. Given the nature of Trump coverage—and Spicer’s outsized role in it—you probably heard about the resignation within ten seconds of it happening. Scaramucci said he hopes that press secretary Sean Spicer will go on “to make a tremendous amount of money.”

Financial Review

Worst Ever

Sinclair Noe — January 7, 2016

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DOW – 392 = 16,514
SPX – 47 = 1943
NAS – 146 = 4689
10 Y – .02 = 2.15
OIL – .74 = 33.23
GOLD + 15.40 = 1110.20

The Chinese stock market was open for about 15 minutes; stocks dropped 5%, triggering circuit breakers, or rules that suspended trading. When trading resumed, it was all downhill and that triggered another level of circuit breakers, shutting down trading for the day; 29 minutes in total, the shortest session in Chinese market history.

Circuit breakers are a new idea for Chinese markets; they have only been used since Monday, the start of the New Year. Trading was halted on Monday for 30 minutes. We have circuit breakers in place on Wall Street, and the idea is to allow a cooling off period when stocks are in freefall. In the US, trading is halted temporarily after declines of 7% and 13% in the Standard & Poor’s 500 Index, and only suspended for the rest of the day if losses reach 20%.

In China, it only seems to make investors more nervous and they scramble to sell before getting locked out. After the trading halt, Chinese regulators decided to scrap the circuit breaker rule for the foreseeable future.

The Shanghai Composite Index finished down 7% at 3,125, bringing its losses over just four trading days to 11.7%. It is on track for the largest weekly loss since the week ended Aug. 21. Stock markets fell across the region: Hong Kong’s Hang Seng Index was down 3.1%, the Nikkei Stock Average lost 2.3%, Australia’s S&P/ASX 200 dropped 2.2% and South Korea’s Kospi was down 1.1%.

What’s triggering the panic selling?   The selloff was sparked after the central bank cuts its yuan reference rate by the most since August. China’s foreign reserves dropped by a record $108 billion in December as its defense of the yuan becomes costlier. The economy is decelerating to its slowest annual pace since 1990, but that’s been known for some time.

Analysts are predicting a 6.5% economic expansion this year, but the continued slide in the yuan is weighing heavily on investor sentiment, as it suggests all the government’s stimulus efforts aren’t working. A currency devaluation is seen as a last-ditch effort to boost exports, and the fear is China won’t be able to maintain its growth targets. Global equities have lost $2.5 trillion in value in the first three trading days of the year. It’s the worst start of a New Year for stocks since 2008, and we all remember that year.

Actually, with today’s losses, this is the worst start ever for the S&P 500 – ever.  Earlier today, George Soros compared the current market to 2008, and said the market is now “facing a crisis and investors need to be very cautious.” And then he went on to describe all the things we’ve been telling you about for some time here on the Review.

Of course the big question is where stocks go from here. Stocks are in a downtrend. The S&P 500 is down over 8% from its May high, but the average stock in the larger S&P 1500 was down 24% from its high as of yesterday’s close, according to new research from Bespoke Investment Group.

A bear market is defined as a decline of 20% or more, meaning the average stock has already reached. The S&P 600 Small Cap Index is down 27.6% from its 52-week high. In the midcap S&P 400, the average decline is 23.6%. The S&P 500, the benchmark for US stocks, hit a record high close of 2130 on May 21^st, or about 8%. But the stocks in the S&P 500 have seen an average decline of just over 20%.

Now the reason for the discrepancy between the index and the average stock in the index, is that the indexes are weighted to give greater importance to the larger stocks, and a few of the larger stocks have performed very well; specifically, the FANG stocks: Facebook, Amazon, Netflix, and Google/Alphabet.

The S&P 500 is trading below its 200 day moving average and the 50 day moving average. The next significant levels of support at 1867, the lows set back in August. Likewise, the Dow Industrials are below the 50 and 200 day moving averages. And we are heading into earnings reporting season with expectations for a 4.7% decline in fourth quarter earnings, which would be the third consecutive quarter of declining earnings.

And while any single day of trading isn’t likely to tell you where stocks are headed, trading in the month of January can give you a pretty good clue about the rest of the year. The idea is called the January Barometer, devised by Yale Hirsch, the founder of the Stock Trader’s Almanac, in 1972.

Simply put, if the Standard & Poor’s 500 index ends January with a gain, the odds favor a rising stock market for the year. But if stocks end January in the red for the month, there is a very strong probability the year will finish negative. According to Jeffrey Hirsch, the son of Yale and the current editor of the Almanac, “The January barometer has registered eight major errors since 1950 for an 87.7% accuracy ratio.”

The January Barometer is not a guarantee of performance for the year, just a look at probabilities. And it is still too early to say whether January will be positive or negative. And even if January shows losses, it doesn’t mean you should sell everything; it would just be an alert telling you to be cautious, make sure you have an exit strategy, and make certain you know just how much risk you’re willing to take.

Oil futures in New York slid to the lowest in 12 years with West Texas Intermediate dropping as much as 5.5 percent in overnight trading. Volatility in the oil market may increase today as tensions in the Middle East rise following Iran’s accusation that Saudi Arabia was responsible for a missile attack on its embassy in Yemen. Oil closed down 2.2% at $33.23. By the way, I paid $1.80 a gallon the other day to fill up the tank. When oil was trading at $100 a barrel, (in other words 3 times more than today) the price for a gallon was not $5.40. The oil companies are still ripping us off at the pump.

According to the World Bank, the global economy will sputter along this year as China’s slowdown prolongs a commodity slump and contractions endure in Brazil and Russia. As a result, the international institution cut its forecasts for the third straight year, predicting 2016 growth to fall by 0.4 percentage point to 2.9%. With regards to the U.S., the World Bank decreased its 2016 prospects to 2.7%, down from 2.8 percent from June, citing the dampening effect on exports from the surging dollar.

Late yesterday, the Federal Reserve released the minutes from the last FOMC meeting. Today, Richmond Federal Reserve President Jeffrey Lacker today said the Federal Reserve might need to raise interest rates more than four times this year if oil prices stabilize, the dollar stops appreciating and inflation surges toward the U.S. central bank’s 2 percent target. Lacker’s comments are in-line with Fed vice-chair Stanley Fischer, which would indicate fed funds rates at just over 1% by the end of the year.

So, on one hand we have markets in China dragging down markets around the globe, even though the economy in the US is decent. Nobody thinks the U.S. or European economies are in high gear, and bears point to weakening corporate profits and tighter monetary policy by the Federal Reserve, but this doesn’t look like 2008 in the broader economy.

The number of Americans who applied for new unemployment benefits in 2015 fell to the lowest level in 42 years. This week’s figures show 277,000 people filed initial jobless claims in the seven days running from Dec. 27 to Jan 2. That is down 10,000 from an unrevised 287,000 in the prior week.

In a separate report, global outplacement consultancy Challenger, Gray & Christmas said U.S.-based employers announced plans to cut 23,622 jobs in December, the fewest since June 2000. That was down 24% from November and the lowest December job-cut total on record.

The Department of Labor will report on December payrolls tomorrow morning; the consensus estimate is for somewhere around 205,000 to 215,000. This should be a major tell on whether the Federal Reserve is on the right track or whether their forecasts are nothing more than hooey.

Yahoo is working on a plan to cut its workforce by at least 10% and it could start the process as early as this month. The layoffs, which would result in more than 1,000 people leaving the tech giant, are set to affect the company’s media business, European operations, and platforms-technology group. The move also follows Starboard Value’s letter to Yahoo yesterday, which took aim at CEO Marissa Mayer, her leadership team, and raised the prospect that a proxy battle may be on the way.

Macy’s had a tough Christmas. The department store chain says it will eliminate about 4,500 jobs, or about 3 percent of its work force, in a major restructuring drive designed to save about $400 million.  Macy’s said sales at its Macy’s and Bloomingdale’s stores fell 4.7% in November and December.

Here’s the latest Consumer Electronics Show news: BlackBerry has unveiled plans for building autonomous car software to capture a piece of the ballooning industry. The company wants to extend its QNX software (already used by automakers to build in-car entertainment systems) to self-driving technology, and plans to launch the product in the second quarter of 2016.

CES attendees also saw General Motors show off its Chevrolet Bolt, the automaker’s newest electric vehicle that has a range of 200 miles. The Bolt is likely to be priced at $38,000 and cost around $30,000 after the federal $7,500 income-tax rebate for electric car purchases.

 Meanwhile, Volkswagen assumes it will have to buy back about 115,000, cars in the United States as a result of its emissions crisis. The rest of VW’s 500,000 U.S. vehicles will need major refits, incurring significant costs for parts and a long stay at the garage as sections of the exhaust must be reconstructed and approved.

Financial Review

2015 Financial Review

Sinclair Noe — December 31, 2015

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DOW – 178 = 17,425
SPX – 19 = 2043
NAS – 58 = 5007
10 Y – .03 = 2.27%
OIL + .45 = 37.05
GOLD + .40 = 1060.20
SILV – .03 = 13.81

This is the final day of the year, and so it is appropriate to review where the markets stand; generally, it was ugly. We’ll take a look at stocks, bonds, the dollar and commodities. It was not an easy year for investors. Nearly 70% of investors lost money this year, according to Openfolio, an app that allows people to track their investment performance and compare their portfolio with other users.

Warren Buffett is seeing his worst year since 2008, with Berkshire Hathaway shares down more than 11% year to date. Bill Ackman of Pershing Square Capital sent a letter to investors in December that said 2015 may be the fund’s worst year since it was founded in 2004. 2008 was a terrible year in the stock market, but bonds were up 22%. But this year, not one major asset class had a good year.

If you went to sleep on December 31, 2014 and you just woke up today, you might think nothing happened in 2015. The S&P 500 index started the year at 2058, and closed at 2043, for a loss of 15 points or about 0.7%; with dividends reinvested the S&P 500 is up just about 2%. This follows three straight years of double digit gains for the S&P.

The best performing sector in the S&P was Consumer Discretionary with a gain of 9.5%. The worst performing S&P sector was Energy (no surprise there) down 23.8%, and materials down almost 10%. Netflix was the top performing stock in the S&P 500 with a gain of 139%; Amazon + 122%. Add in Google (now called Alphabet) + 49%, and Facebook + 36%. The big losers in the S&P were Chesapeake Energy, CONSOL Energy, and Southwestern Energy; all three down right at 77%.

So, if you avoided energy and went with the simple idea of the FANG stocks: Facebook, Amazon, Netflix, and Google; that simple formula makes you a stock picking genius. That doesn’t mean the FANG stocks will deliver in 2016. After all a trade can get crowded; case in point, Apple, the most widely held stock, lost 4% on the year.

The Dow Industrial Average started the year at 17,823 and closed at 17,425, for a loss of 398 points, or about 2.2%. Just a reminder, the Dow hit a record high of 18351 back in May and we did enjoy some milk and cookies this year; but it’s a long way from May to December.

The top performers in the Dow include Nike + 31% YTD, McDonald’s + 26%, Home Depot + 26%, and GE + 22%. The big losers on the Dow were Walmart – 28%, Caterpillar – 25%, American Express – 25%, and Chevron – 20%.

The Nasdaq Composite started the year at 4736 and closed the year at 5007 for a gain of 271 points or about 5.7%.

The Russell 2000 index started the year at 1204 and finished the year at 1135, down 69 points, or just under 6% negative for the year.

There are approximately 3,700 publicly traded companies on the US exchanges, and filtering out the S&P 500 stocks and the OTC stocks, the top performers included Eagle Pharmaceutical + 462%, Exelixis + 300%, Galapagos + 239%, and Prothena + 242%; all four are basically biotech companies. Great returns but long odds.

European markets ended the year mixed. Germany’s DAX gained 10%, while Italy’s MIB was the top performer, up 13%. On the downside, Britain’s FTSE lost 5% and Spain’s IBEX fell 7%. The major Asian indexes were mostly higher. Hong Kong’s Hang Seng lagged, losing 7%. Japan’s Nikkei gained 9%. And I’m sure you remember when China devalued the yuan in August and their stock market suffered massive losses; when all was said and done China’s Shanghai Composite finished the year with a 9% gain.

Jamaican stocks were a pretty good place to invest this year; the island nation’s index rose more than 80%. As for losers, political woes and lower oil prices have hurt the Ukrainian equities index, which has tumbled 56% year-to-date.

Morgan Stanley Institutional Growth is the top performing mutual fund of 2015, returning 11% so far this year; pretty good, but it is still below the fund’s own five-year average return of 14.6%.

The year’s best performing ETF position was VelocityShares 3x Inv Natural Gas ETN, a triple-leveraged ETF meant to track the inverse price movement of natural gas. Because natural gas prices fell 33% in the past year, this ETF climbed more than 200%.

Excluding leveraged ETFs, and those that track the inverse of a commodity or index, the best-performing ETF of 2015 is the Market Vectors ChinaAMC SME-ChiNext ETF, which emulates bonds issued by China.

As 2015 comes to an end, so does Q4. And that means corporate America will announce the financial results of their fourth quarter in a few weeks. According to FactSet, earnings for the S&P 500 are expected to have fallen 4.7% during the final three months of the year. If so, it would mark three consecutive quarters of year-over-year declines in earnings; something that hasn’t happened since 2009.

US Treasuries lost ground in 2015. Treasury yields put in their lows for the year in January.

The yield on the two-year surged to fresh six-year highs after the Federal Reserve announced an interest-rate increase in December. For the year, the two-year rallied 60 basis points to 1.07%. The 10-year yield put in its 2015 high of 2.48% in June before ending the year up 41 basis points at 2.27%. Selling at the long end caused the 30-year yield to rise 28 basis points to 3.03%. The yield on the long bond put in its 2015 peak of 3.24% in June. For the year the long bond lost 2%.  The 3-month Treasury bill returned 0.11%.

As for corporate bonds, high-yield debt sold by companies with more fragile balance sheets had a tough 2015. In particular, it was not a good year to hold bonds from Arch Coal, which took three of the bottom spots ahead of a potential bankruptcy filing.  Investment-grade corporate bonds sold by companies with relatively strong balance sheets fared better, but not by much. People are still avoiding high-yield debt from the energy sector, but elsewhere you’re seeing some stability. In a world where the 10-year Treasury is yielding 2.25%, 8% or 9% will still attract attention for someone willing to chase yield.

The US dollar rallied in 2015. The US Dollar Index climbed 9% in 2015. The Canadian dollar was the worst-performing major currency versus the greenback, plunging 16.4% to 1.38 per dollar as a result of the weakness in oil prices. The euro was also hit hard, falling 10% to 1.09 as the European Central Bank announced a policy of negative interest rates. The Swiss franc could be the lone major currency to gain versus the dollar.

In January, the Swiss National Bank removed its euro-franc floor, causing the Swiss franc to skyrocket. The currency hit a high of .83 per dollar, up 16%. By the middle of March, however, virtually the entire move had been erased. The franc is up 0.2% at .99 per dollar. The Brazilian real lost almost half its value and is looking like it has hit bottom, or at least it should within the next 6 months.

Commodities had a really ugly 2015. Precious metals saw some early strength in 2015 but sold off throughout the year after their January gains. Gold sank 10% to $1,060 an ounce and silver lost 12% to $13.80 an ounce. On the industrial side, copper plunged 25% to $2.13 a pound.

2015 has been the year of the double dip for crude oil. Prices were recovering until Greece voted to leave the Eurozone for a few minutes. Then after their banks were drained, they decided to stay just a little bit longer.

You also had the China stock market crash and OPEC started an old fashioned price war against US shale players, plus the supposed return of Iranian oil as sanctions are supposed to be lifted. But hold on, is it a done deal? The Wall Street Journal is reporting that the US is going to put more sanctions on Iran which may cause some problems for the return of Iranian oil back to the market.

For the year crude oil tumbled 31% to $37.05 a barrel as oil inventories swelled. An unseasonably warm fourth quarter pushed natural gas down to $1.75 per million British thermal units, but a late rally saw the energy component end 2015 down 19% at $2.37.

The Thomson Reuters CRB commodities index fell 24% to six-year lows. While coffee slumped 25 percent, cotton and sugar are in positive territory for 2015. Cocoa prices were up more than 18% on the year.

Next week’s economic calendar includes a couple of reports from the ISM and then next Friday we get the monthly jobs report for December. Also, we’ll start seeing some fourth quarter earnings reports trickle in.

Just because we can look back on 2015 doesn’t mean we can see the future. The only thing we know with any degree of certainty is that 2016 will be different. So good luck to you in the New Year.

Financial Review

Fluctuating Between Ugly and Ugly

Sinclair Noe — August 20, 2015

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DOW – 358 = 16,990
SPX – 43 = 2035
NAS – 141 = 4877
10 YR YLD – .05 = 2.08%
OIL + .34 = 41.14
GOLD + 19.00 = 1154.10
SILV + .27 = 15.68

Well, it was just ugly.

Yesterday, the Federal Reserve released the minutes of the July FOMC meeting. Many investors and traders interpreted the policymakers’ discussions as dovish, with the probability of a rate boost next month sliding to 36 percent from about 50 percent earlier in the day. The matter is still open to debate, and the bottom line is that we have to wait about 4 weeks to find out what the Fed will do.

Today, stocks closed near session lows, off about 2%; and it smacks of a rate tantrum, traders expressing their dis-satisfaction to let the Fed know they are opposed to rate hikes. The other reading is that a dovish Fed might mean that the global economy really is weak; the drop in commodities is hurting emerging markets; the strength of the dollar is hurting US exporters; we are now facing currency wars; and global growth (or the lack thereof) will weigh on the US economy. If the Fed doesn’t raise rates, it’s because the market is too fragile.

The S&P 500 fell into negative territory for the year, with consumer discretionary the greatest decliner on the day. Energy is the greatest laggard for the year, down 17 percent. The Dow Industrial Average is now down about 4.5% for the year, and down 7.2% from its peak. After today’s stock market selloff: Russell 2000 off 9.5% from peak; Nasdaq off 6.5%; S&P 500 -4.5%.

Bearish sentiment toward stocks is getting worse, at least according to the options market. Based on the number of puts trading compared with calls on single stocks, pessimism is higher now than any time since 2012. It’s mostly the result of a decrease in bullish calls, whose volume has declined 36 percent since January. Investor skepticism is growing as the Standard & Poor’s 500 Index meanders in its tightest range in nine decades. In August, speculators have neglected calls, which give holders the right to buy shares at a certain price. They’ve instead focused more on puts, which convey the right to sell shares at a specific level.

Of course markets tend to fluctuate; that is the only thing we can say with certainty. Mohammed El-Erian described it as “a classic overshoot that starts in the emerging markets world and it starts spreading. What that causes is heightened risk aversion.”  The outflows of funds hits emerging markets the hardest first, with the capacity to send shock waves to other markets “and at the end is the equity market in the U.S.” The fundamentals of the economy are a bit weak, but risk assets have not adjusted to reflect that weakness, and the difference is central banks boosting the financial markets. If the central banks, or specifically the Fed, steps away from supporting the markets, the valuations could come down to fundamentals. Makes sense.

China’s stocks slumped to a two-week low. The Shanghai Composite Index dropped 3.4 percent, the lowest level since Aug. 6. About 17 percent of mainland-listed shares remain halted. The Hang Seng China Enterprises Index sank 2.3 percent to a 10-month low.

We are seeing waves of currency devaluations. Kazakhstan’s currency plunged a record 23% at the start of trading today, following a surprise announcement the government would allow the currency to float freely. Kazakhstan is central Asia’s biggest oil exporter. The move continues a currency war being fought in the emerging markets. Vietnam devalued its currency on Wednesday for the third time this year after a similar move in China, while Russia is allowing the ruble to track the drop in crude, which has tumbled 58% over the past year.

Perfect timing. Greece has made a €3.2 billion-euro payment to the ECB, shortly after receiving the initial disbursement of funds from its new bailout. The first tranche amounts to €13 billion-euro, of which about €12 billion-euro will be used to pay down debt. Meanwhile, Greek PM Alexis Tsipras has called for the European Parliament to join the so-called quartet of creditor institutions overseeing the country’s new rescue. Now, if you look at the numbers you see that the bailout is not so much for the Greek government or even the Greek people; the creditors offer the bailout with one hand and then take the money right back with the other hand. And so this afternoon, Tsipras, faced with a revolt in his party over his acceptance of unpopular bailout measures, said he will resign and call early elections in September. Tsipras said on national television that his ruling mandate has “exhausted its limit and now people must decide anew.”

And just to add a little violence into the mix, North and South Korea exchanged fire today across the demilitarized zone between the two countries. The incident started when North Korea fired a rocket at a South Korean border area, prompting Seoul’s forces to reply with an artillery barrage. So far, no reports of casualties. Tensions have flared in recent weeks across the DMZ that bisects the Korean peninsula.

Two South Korean soldiers were maimed on Aug. 4 by land mines that the Seoul government says were recently laid by North Korea. Relations deteriorated further when South Korea started blaring propaganda at the North through loudspeakers along the DMZ. After today’s exchange, North Korea threatened to “start a military action” unless South Korea stops all propaganda broadcasts and withdraws the loudspeakers within 48 hours.

Purchases of previously owned homes unexpectedly rose in July to the highest level since February 2007. The National Association of Realtors reports contract closings increased 2 percent to a 5.59 million annualized rate from the prior month’s revised 5.48 million pace. The median price of an existing home climbed 5.6 percent from July 2014 to reach $234,000.

The number of Americans filing for unemployment benefits last week remained historically low. Jobless claims increased by 4,000 to 277,000 in the week ended Aug. 15. Applications have been lower than 300,000, a level typically associated with an improving job market, since early March.

The leading economic index fell 0.2% in July after four straight strong gains, largely because of a decline in permits to build new homes. The Conference Board says the LEI is still pointing to moderate economic growth through the remainder of the year.

The Philadelphia Fed’s index of business conditions increased to a reading of 8.3 in August, above the 5.7 reading in July.

Valeant Pharmaceuticals is nearing a deal to pay $1 billion for Sprout Pharmaceuticals, just a day after the company won approval to sell the first drug which boosts libido in women. Under the terms, Valeant would pay all cash, one $500M installment upfront and one next year, for privately-held Sprout and its pink pills that will be sold under the brand name Addyi.

McDonald’s has announced plans to launch all-day breakfast nationwide as soon as October. According to an internal corporate estimate, McDonald’s could see a 2.5% lift in sales at stores that introduce all-day Egg McMuffins. Breakfast is a hot commodity not only at McDonald’s but also at many restaurants nationwide. Breakfast sales rose over 5% to $27.4 billion in 2013 at quick-service and fast casual restaurants.

Yesterday was the 11th anniversary since Google’s initial public offering, and there’s no doubt the company has had a remarkable run (Class A shares +1,277%). Although the online advertising giant has given a massive return to investors, there are still 13 stocks that outperformed Google since 8/19/2004: Alexion Pharmaceuticals; Amazon; Apple; Celgene; Gilead Sciences; Intuitive Surgical; Keurig Green Mountain; Monster Beverage; Netflix; Priceline; Regeneron Pharmaceuticals; salesforce.com; Vertex Pharmaceuticals. Or, if you want to keep it simple, you could limit it to the FANGs: Facebook, Apple, Netflix, and Google – by the way, they were some of the biggest losers today.

A new report from NASA shows California is sinking; specifically the Central Valley. The prolonged drought means domestic wells have run dry and growers are drawing down portions of the valley’s vast aquifer to historic lows. As the aquifers shrink the land drops. Some areas have seen the land sink by 10 to 14 inches since the start of the year. The sinking is so subtle that it is imperceptible on the ground, save for the effect on infrastructure. Aqueducts and irrigation canals buckle. Roads crack, causing millions of dollars in damage.

Another month, another record high for global temperatures. The National Oceanic and Atmospheric Administration reports that July was the hottest month since meteorologists began keeping track way back in 1880. Earth’s average surface temperature for the month of July was 61.86 degrees Fahrenheit (or 16.61 degrees Celsius). July’s average temperature was 1.46 degrees F higher than the average for the 20th century and 0.14 degrees F above the previously hottest month, which occurred in 1998.

The new record was fueled by the oceans. Across the globe, the average sea surface temperature in July was 62.85 degrees F, 0.13 degrees higher than the previous monthly record (set in July 2014) and 1.35 degrees higher than the average for the 20th century. All 10 of the hottest months for sea surface temperatures have occurred since April 2014. Temperatures on land contributed too, coming in 1.73 degrees F above the 20th century average. The report bolstered predictions from NOAA’s Climate Prediction Center that an El Niño is likely later this year.