FINANCIAL REVIEW

Up, Down – Take Your Pick

Sinclair Noe — February 4, 2015

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

DOW + 6 = 17,673
SPX – 8 = 2041
NAS – 11 = 4716
10 YR YLD + .02 = 1.80%
OIL – 4.49 = 48.56
GOLD + 8.80 = 1269.90
SILV + .06 = 17.43

ADP reports private-sector employment gains slowed in January as employers added 213,000 jobs. ADP revised December’s gain to 253,000 from a prior estimate of 241,000. The non-farm payroll report (that’s the government’s big monthly jobs report) comes out Friday morning; it is expected the economy added about 245,000 jobs in January, down from 252,000 in December.

The Institute for Supply Management said its nonmanufacturing index edged up to 56.7% in January from 56.5% in December. Readings over 50% signal that more businesses are expanding instead of contracting. The good news is that new orders remained very healthy. The index measuring fresh demand rose a few ticks to 59.5% and remained close to a post-recession high. On the downside, the employment gauge fell 4.1 points to 51.6%, marking the lowest level in 11 months. It was also the second worst reading in 20 months. So, on the jobs front, we should still see gains, just not as strong as the past few months.

Gallup’s Job Creation Index came in at plus 28 for the month of January. This is nearly identical to the plus 27 found in December, and just below the seven-year high of plus 30 reached in September. The index has experienced six years of incremental progress after bottoming out at minus 5 in February and April 2009. Gallup says workers’ perceptions of hiring at their places of employment are the most positive Gallup has recorded in any January since Gallup began tracking this in 2008. Americans’ confidence in the economy has improved significantly since early December, and over the same period, Americans have become much more optimistic when asked if it is a good time to find a quality job. Whether these sentiments prove to be advance indicators of hiring that is more visible across U.S. workplaces may partly depend on whether they help fuel more consumer spending.

Oil prices were down today following a rally that pushed up prices by about 22% over the past four sessions (which would technically qualify as a bull market). Drilling activity plunged in the US and oil companies deepened spending cuts to more than $40 billion since Nov. 1. US crude stockpiles increased last week from the highest level in three decades, adding an extra 6 million barrels to inventory. And prices dropped 8% today. So, the question is where are prices headed? I’ve been reading stories all day about the direction of oil prices. Some say the past few days are nothing more than a dead cat bounce or a short squeeze; others claim this is the start of a “V” shaped recovery and prices are going back to triple digits. Up, down – take your pick. I don’t know, the people writing the stories don’t know.

One reason oil prices have dropped is because the dollar has been getting stronger and oil is purchased in dollars; a strong dollar means it requires fewer dollars to purchase the same amount of oil. The Dollar Index is up about 20% since last summer. Oil prices are down about 50% over the same time. It doesn’t quite match. Another thing that doesn’t quite match is all the other stuff we buy that is imported. We’re buying imports with strong dollars.  Why isn’t all that stuff, not made in America, lower in price?

The thing is, the dollar index is measured against a basket of six currencies including the euro and the Japanese yen. If you look at the stuff Americans buy, they’re from countries that aren’t represented in the dollar index; such as: China, Mexico, India, Vietnam and Israel. Almost 80% of U.S. consumer-goods imports, excluding autos, come from countries that aren’t in the dollar index. Comparing against those countries, the dollar is up about 7% and import prices are down about 5.5% So, a strong dollar is just a small part of the reason for lower oil prices.

Even if prices went up from here it might not be enough to save some of the producers and their creditors. And if prices go lower, it might not affect production as you might imagine. Two weeks ago, Baker Hughes announced it was cutting 12% of its workforce and 15% of its output, but previous downturns have resulted in 40% to 60% cuts. At the same time BHP Billiton announced it was cutting the number of rigs it operates in US shale oilfields from 26 to 16, but it would take a few months to cut back, and even after the cutbacks “the company does not expect the slowdown to have an immediate effect on its oil and gas production, which it still expects to average about 700,000 barrels of oil equivalent per day.”

Yes, over time, lower prices will affect production, but over the intermediate term, creditors will demand payments and that means the pumps keep pumping, even at little to no profit. Revenues will have to cover obligations. Debt must be serviced.

Over the last five years, oil and gas companies have issued bonds and taken out loans that are together worth $1.2 trillion, according to data from Dealogic. Back in the 1980s oil crash about 700 banks failed, mainly smaller, regional banks in Texas. Now, there are some smaller Canadian banks and a few Texas-based regional banks with concentrated exposure to the oil patch, but losses are not expected to approach the 80s, and the other creditors are the mega banks that can withstand a few billion in losses.

Still, the sharks are already smelling blood. Several private equity firms such as Carlyle, Blackstone, and KKR are taking on large positions in indebted oil companies. There are already examples of these firms providing emergency loans at very high rates plus an ownership stake. At the recent Davos World Economic Forum, David Rubenstein, co-founder of the Carlyle Group said “The single best opportunity to invest is distressed debt in energy.”

But the energy companies are not going to give up easily. The squeeze is tightest when companies face a deadline to pay back money they have borrowed. And they may be forced to maintain or increase production.

And moving beyond the supply demand equation, yesterday, the New York Times reported that Saudi Arabia has been trying to pressure Russian President Putin to abandon his support for Syrian President Bashar al-Assad, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices. A Saudi diplomat was quoted saying, “If oil can serve to bring peace in Syria, I don’t see how Saudi Arabia would back away from trying to reach a deal.” None of this is a revelation; we talked about oil as a financial weapon back when Russia was first posturing in Ukraine. Any weakening of Russian support for Assad could be one of the first signs that the recent tumult in the oil market is having an impact on global statecraft.

Here’s the point: if anyone says they know what oil prices are going to be, they are wrong.

A funny thing happened today with Greece. The Athens General Stock Index closed up today by about 7%. Then this afternoon in New York, right before the close, the ETF that is based on Greece, the GREK, suddenly plunged about 11%. The European Central Bank announced that it will no longer accept Greek government debt as collateral starting next week. The ECB said it is presently impossible to assume a successful conclusion of the current Greek program. In other words, the ECB doesn’t see Greece complying with existing bailout rules.

But the governing council also approved the Greek central bank issuing Emergency Liquidity Assistance to the Greek banking system to cover any liquidity shortfall caused by today’s move. This means Greece could still get money, but they will pay more for it, and it is just a temporary Band-Aid. This also means that the money spigot could be turned off if Greece’s new government doesn’t behave the way the ECB wants. Unless the 15 billion-euro limit on short-term borrowing set by Greece’s troika of official creditors is raised, the government may run out of cash on Feb. 25. With Greeks yanking their cash from banks and withholding tax payments, it is thought the new Greek government would only be able to survive for a few more weeks by tapping social-security funds and withholding payments to vendors.

The Greeks may be able to survive this, provided there is not a run on their banks. It basically boils down to political hardball. The Greeks were hoping to rewrite their debt. The Troika has now slapped down that plan.

General Motors reported a 91% jump in its fourth-quarter profit, beating analyst expectations. GM said it plans to boost its dividend starting in the second quarter. Later this month, GM will pay about 48,000 U.S. hourly workers profit sharing checks of $9,000 based on its 2014 financial performance. Fourth-quarter profit earnings before dividends rose to $1.99 billion compared with $1.04 billion a year earlier. Excluding some charges, the company earned $1.19 a share, handily beating analyst estimates of 83 cents a share.

Ford is adding 1,500 workers across four plants to build the new F-150 pickup truck and plans on shifting hundreds of union-represented workers from entry-level wages to the pay veteran plant workers make, in the coming weeks.

Staples has agreed to buy Office Depot for $6.3 billion. The deal values Office Depot at $11 a share, a premium of 44% over the closing price of Office Depot shares as of Monday. Together, the two companies have roughly 4,000 stores and annual sales of more than $35 billion. A merger would almost certainly reduce competition, result in some store closings, and mean higher prices for consumers. A combination of the two likely would get a close look from antitrust regulators, who in 1997 sued successfully to block the same proposed merger.

FINANCIAL REVIEW

Columbo Fed

Sinclair Noe — January 7, 2015

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

DOW + 212 = 17,584
SPX + 23 = 2025
NAS + 57 = 4650
10 YR YLD – .01 = 1.95%
OIL + .59 = 48.52
GOLD – 8.20 = 1212.10
SILV – .02 = 16.63

After the holidays we are finally starting to get back to economic data. Let’s start with the ADP payroll report, which shows 241,000 net new private sector jobs for December. Breaking down that number, private-sector service providers added 194,000 jobs, while goods producers added 46,000 jobs. By company size, small businesses added 106,000 private-sector jobs, large businesses added 54,000 and medium businesses added 70,000. The Labor Department reports on jobs Friday morning and we tend to look to the ADP report as a precursor to the government’s monthly report, but it isn’t a real accurate predictor. Last month the government reported 321,000 new jobs and ADP initially showed 208,000 for November. Still, we are probably looking for around 220,000 to 240,000 new jobs on Friday and today’s report was in line with that estimate.

Meanwhile, Gallup has its own Job Creation Index which ended 2014 at plus 27 in December, eight points higher than where it started in January. The index has remained between plus 27 and plus 28 since May; essentially it has remained at the same level for the past eight months, suggesting the job market plateaued in the latter half of 2014.

In a separate report from Gallup, the number of Americans who are positive about the US economy outweighs those who negative about it; but just slightly, 49% to 45%. And everyone, it seems, is bullish about America’s job creation capabilities in 2015. From small businesses to CEOs to regular Americans, optimism is increasing for jobs growth in 2015. There is a good reason for that – for six straight months in 2014, growth exceeded 200,000 jobs a month. Last year, the unemployment rate dipped down to 5.8%, a rate not seen since July 2008. Yet those numbers don’t tell the full story. There is more to an economic recovery than optimism and a low unemployment rate. Americans are still struggling with low wages, with paychecks at roughly 1995 levels.

A large portion of those jobs are low-wage, part-time jobs that do little to help the families that struggle to make ends meet. In November, 6.7 million Americans worked part-time; 2.3 million of them wanted full-time work but couldn’t find it. Almost 4 million of them had only part-time work due to unfavorable business conditions and decline in seasonal demand.

The trend is likely to continue. According to a survey by Careerbuilder, one in four employers plan to hire more part-time workers in 2015, a 6% increase from 2014. But American workers don’t need part-time jobs – they need full-time ones. According to Gallup’s survey of over 600 small business owners, more than a quarter of them will be hiring someone in the next year. Just 8% say they will have to let people go. Additionally, 71% of business owners expect that 2015 will be kind to them and that their financial situation in 2015 will be “very good or somewhat good”. Yet pessimism persists in the top echelon of corporate America. American CEOs predict that 2015 will see weak economic growth, and according to the most recent Business Roundtable CEO outlook survey, gross domestic product will grow by 2.4% this year. Investments will drop by 5.8% and sales by 1.3%.

But Americans remain optimistic about jobs; according to Gallup, 36% think now is a good time to find a quality job. One of the ways to judge if the optimism about the job market is having a practical effect is to look at the number of people leaving their jobs in hopes of finding a better one. In November of this year, about 838,000 people left their jobs; a year ago that number was 890,000. More people are staying put at the jobs they have. And this means employers don’t have to offer big wage increases to get and keep the workers they need. And this remains true even as a jobs recovery has consistently forged ahead in recent years. The turning point in the labor market will be when we see wage growth of 3.5% to 4%. Until then we’re just taking baby steps.

The trade deficit shrank by 7.7% in November to $39 billion, which is the smallest deficit in 11 months. This goes directly to lower prices for imported oil, which more than offset a drop in exports of aircraft, heavy machinery, and computer related equipment.

The Eurozone has slipped into deflation. Consumer prices in Europe dropped 0.2% in December. ECB officials are working on a plan to purchase sovereign debt to prevent a deflationary spiral of falling prices. It is widely expected that ECB President Mario Draghi will announce some sort of quantitative easing scheme on January 25; the fly in the soup is Greece, which holds a snap election on January 22nd, and is likely to vote for an anti-austerity, anti-bailout political party that is calling to repudiate Greek debt. Draghi would like to talk down deflation, but today’s numbers make that argument moot. Come January 22nd the market will no longer hope or even expect a clear plan on QE, it will demand it.

In a separate report, Eurozone unemployment remained at 11.5% in November. Joblessness in Italy rose to a record 13.4%. German unemployment fell to 6.5% in December, the lowest in more than two decades. And, as we noted yesterday, Greece’s unemployment rate is still around 25%.

Bond investors are now hanging on European policy makers doing more; but even a big bond-buying program in Europe, and continued stimulus in Japan, might not be enough to make bond markets optimistic about global economic growth. Some bond investors say the stimulus from the central banks has a decreasing effect because, each time the stimulus occurs, it increases indebtedness and stokes speculation in financial markets that fails to translate into growth in the real economy.

So, Wall Street was moving higher today, a triple digit gain for the Dow despite news off a terrorist attack in Paris that left 12 people dead because apparently terrorists really hate French cartoonists. Also, barely making headlines, a suicide car bomber killed 37 people in Yemen today. The gain in stocks probably had less to do with any economic news or any reaction to geopolitical events and more to do with the simple idea that stocks had been on a 5 day losing streak and were due for a bounce. And then we got the minutes of the December FOMC meeting.

The Federal Open Market Committee consists of the Federal Reserve policymakers and they have previously indicated that there is a likelihood they will start to tighten monetary policy maybe in 2015. The key passage from December’s policy statement was: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” The Fed added that this guidance is “consistent” with its previous language that indicated the Fed would wait a “considerable time” before normalizing policy.

So, let’s try to translate the Fedspeak. The Fed says they will be patient, which means we probably won’t see any rate increases before April, at least. The Fed says there are downside risks from global weakness, which means we might not see any rate increase for quite a while longer. The policymakers think cheaper energy prices are a net positive for GDP growth and job gains, but they don’t see wages accelerating, and cheap oil and a strong dollar is pushing inflation lower; which sounds like they haven’t seen enough data to make a move. It all sounds a little like the old TV show Columbo. Remember how Peter Falk played the role of a befuddled detective with a wrinkled raincoat and he seemed to be completely lost and bumbling his way along, and then he solved the crime. The Fed is a lot like Columbo, they just haven’t solved the crime yet.

And a note on those lower oil prices; based on the Federal Reserve’s economic model, a $20-a-barrel drop in crude oil prices translates to a quarter percentage-point increase in GDP. That’s good but a lot of the benefits from higher consumer spending are front-loaded. Unless energy prices continue declining, there is only a one-time positive impact on the annualized growth of real incomes and real consumption. And it is uncertain if lower fuel prices will help the jobs picture, after all it’s just shifting spending from the gas station to some other retail outlet.

Still, lower gas prices are like a gift for transport-heavy companies like railroads, trucking companies, and the petrochemical industry. If they are smart they should be locking in as much of this downturn as possible. That is a huge benefit on this pullback. But the gift may be temporary. So says President Obama; he says consumers should use the savings wisely. The president also told The Detroit News that demand for oil from emerging markets like China and India would continue to grow “over the long term,” adding that the US needed to remain “smart” about its energy policy.

Right now, it is hard to see the floor for oil prices. Some things need to happen before we see a sustained rebound in prices. It’s an old story of supply and demand. On the supply side, oil prices need to fall below operating cash costs before companies start shutting down existing wells. Next, OPEC (and specifically Saudi Arabia) would need to impose some control over production, and the Saudis seem to be waiting for US oil companies to shut down some wells before they will shut down their own production. Right now, global oil producers are looking at a glut and responding by increasing drilling. Iraq, Russia, Latin America, West Africa, the United States, and Canada – all may increase production this year.

Next, demand would need to increase; lower prices will ultimately lead to a pickup in global oil demand, and cheap oil results in complacent conservation; but it won’t happen right away, you could reasonably expect a 6 month lag. Or we might see a longer lag because the global economy is fairly weak. One other way to put a floor under prices, is if we see traders get a little greedy and try to squeeze the shorts, and there are a lot of producers that have taken net short positions in the energy market as a hedge against lower prices. What could trigger a short squeeze? I’m thinking weakness, or even a couple of flashy defaults in the high yield debt markets.

Tuesday, July 01, 2014 - The Good, the Bad, and the Depressing

Financial Review with Sinclair Noe

DOW + 129 = 16,956
SPX + 13 = 1973
NAS + 50 = 4458
10 YR YLD + .05 = 2.56%
OIL - .13 = 105.24
GOLD - .80 = 1327.10
SILV + .02 = 21.08

 

Record high closes for the Dow and the S&P.

The record setting bull market run refuses to stumble. The S&P 500 has not seen a correction, a drop of 10%, for 1,002 days, and counting. This marks the fifth longest stretch without a correction since 1928. The average time between corrections is about 18 months; we’ve now gone 33 months without a 10% pullback.  

The Institute for Supply Management said its manufacturing index registered 55.3% in June, down slightly from May’s reading of 55.4%. Any number above 50% signals expansion. Separately, the research firm Markit said its final reading of US manufacturing conditions in June totaled 57.3, compared with a preliminary reading of 57.5; still the highest reading since May 2010. So the manufacturing sector has expanded for 13 consecutive months, but it wasn’t a month over month increase, and we have to remember that manufacturing was expanding in the first quarter as the broader economy was contracting by 2.9%. Today’s reports were decent news for manufacturing, but hardly great.

The Commerce Department reports construction spending increased 0.1% in May, following a 0.8% increase in April. Construction activity totaled $958 billion at a seasonally adjusted annual rate in May, up 6.6% from a year ago. Single-family home construction was down 1.4% while apartment construction dropped 0.6%. The hotspot for construction was a 4.3% rise in construction of power generating facilities.

The upshot is that the economy is continuing to improve from the deep freeze of old man winter, even if the recovery is tepid. Most economists and analysts had called for 3% growth in the first quarter, not a 2.9% contraction. Now that the weather and the economy have thawed, we’re hearing talk of 3% growth going forward.

The strongest S&P 500 sector this year has been Utilities, up 17%. The S&P 500 Energy sector is up 13%, with the following subsectors: Oil & Gas Equipment and Services rising 28%, Oil & Gas Storage and Transportation up 25% and Oil & Gas Exploration up 22%.The weakest S&P 500 sector so far this year has been Retailing.

June auto sales beat expectations with Chrysler, Nissan, Toyota and Hyundai all posting healthy gains compared with the same month a year earlier. General Motors had a small increase and Ford’s sales declined. June new car sales approached 1.4 million, about the same as a year earlier. Most analysts were forecasting a 2% to 3% decline for the month. GM recalled an additional 8.5 million cars yesterday, which means that GM has now recalled 29 million cars since the start of the year, more than the total number of vehicles it sold in 2011, 2012, and 2013 combined. It’s also more than the 22 million vehicles recalled by all automakers last year.

AAA predicts that nearly 35 million Americans will take a road trip of 50 miles or more on the Independence Day weekend. The current national average price for a gallon of regular gasoline is $3.68, compared with $3.48 a year ago. According to AAA, gasoline prices are 20 cents a gallon higher due to “market fear about Iraq”.

Sunnis and Kurds walked out of the first session of Iraq's new parliament after Shi'ites failed to name a prime minister to replace Nuri al-Maliki; so, the prospects are poor for a new unity government that might prevent Iraq from collapsing. Meanwhile, the ISIS rebels continue fighting; they control suburbs  just west of Baghdad; they have been waging fierce battles in Tikrit, north of Baghdad, and there have been clashes to the south of the capital, leaving the city surrounded on three sides. The United Nations says more than 2,400 Iraqis had been killed in June alone, making the month by far the deadliest since the US "surge" offensive in 2007.

Geopoltical hotspots continue to flare up. Ukrainian forces struck pro-Russian separatists bases in eastern Ukraine with air and artillery strikes. The ceasefire came and went, and won’t be renewed. Russian president Putin accused the Ukrainian prime minister of shunning the road to peace; while Russian foreign minister Lavrov warned of a “new round of bloodshed”.

 A follow-up on yesterday’s Supreme Court ruling in the Hobby Lobby case, which dealt with a closely held corporation’s objection to paying for contraceptives in employees’ health care under the Affordable Care Act mandate. The Supremes said corporations are people, my friend, and they have religious beliefs, and so they are exempt from the mandate. There had already been exemptions for churches and non-profit organizations; in those situations the government determined that contraceptives would be paid by the government. This was the solution put forth in 2012, and revised in 2013, whereby taxpayers could pick up the tab for contraceptive coverage, instead of religious employers, as a solution to the First Amendment issues in question.

Writing for the majority in the Hobby Lobby case, Justice Alito wrote: “[the White House] could extend the accommodation that HHS has already established for religious nonprofit organizations to non-profit employers with religious objections to the contraceptive mandate. That accommodation does not impinge on the plaintiffs’ religious beliefs that providing insurance coverage for the contraceptives at issue here violates their religion and it still serves HHS’s stated interests.”

In other words, while the government can’t compel Hobby Lobby to finance contraceptives, it can compel taxpayers to do so. Another name for taxpayer funded healthcare is “single payer”. I’m not sure if the Supremes intended this, but they just justified the government to establish a single payer health plan, at least for contraceptives.

There was a time when a majority of Americans were confident in the Supreme Court, but according to a new Gallup poll just 30% say they are confident in the highest court. That’s the good news; people have more confidence in the Supremes than in any other arm of government, but that may not be saying that much when confidence in the presidency stands at 29% and in the Congress at 7%. Which means Congress is even less popular than head lice, or T-Mobile, or Facebook.

The Federal Trade Commission says T-Mobile made money the old fashioned way, by charging customers hundreds of millions of dollars in bogus charges. The practice is often referred to as "cramming"; businesses stuff a customer's bill with bogus charges associated with a third party. In its complaint filed in federal court, the Federal Trade Commission claimed that T-Mobile billed consumers for subscriptions to premium text services such as $10-per-month horoscopes that were never authorized by the account holder. The FTC alleges that T-Mobile collected as much as 40% of the charges, even after being alerted by other customers that the subscriptions were scams.

Facebook has its own little scam. It modified hundreds of thousands of users' accounts by prioritizing 'positive emotional content' to see if it could make them happier or sadder, without telling them what it was doing.

Researchers from Cornell University and the University of California filtered information going into the news feeds of 689,000 users; that includes the constant flow of links, videos, pictures, and comments by friends. When positive emotional content from friends was reduced, users would post more negative content themselves, essentially becoming unhappier. The opposite happened when negative emotional content was reduced. The process has been dubbed “emotional contagion”.

The study, published in the journal “Proceedings of the National Academy of Sciences of the USA”, concluded: “Emotions expressed by friends, via online social networks, influence our own moods, constituting, to our knowledge, the first experimental evidence for massive-scale emotional contagion via social networks.”

A spokesman for Facebook said the research was conducted over a single week and none of the data was associated with a specific person's account. Instead, they said the site wanted to make its content more “relevant and engaging”.

Just to be clear, another name for emotional contagion is empathy, something that is in short supply at Facebook. What we really learned from this experiment is that the people at Facebook have spent so much time staring at a computer screen that they have become disconnected from emotional reality, and have to rely on scientists to run secret experiments on hundreds of thousands of lab rats, I mean customers, to discover that people get upset when their friends are unhappy. Even worse, the experiment confirms that social networks now have the power to change the emotional well-being of millions of lab rats, I mean customers, on a whim; just to see what happens; devoid of empathy.

Now that’s depressing.

Tuesday, June 24, 2014 - A Funny Thing Happened

Financial Review with Sinclair Noe

DOW – 119 – 16,818
SPX – 12 = 1949
NAS – 18 = 4350
10 YR YLD - .04 = 2.58%
OIL + .81 = 106. 84
GOLD + .70 = 1320.00
SILV + .03 = 21.03

Let’s start with a couple of reports on housing; the Commerce Department says new home sales increased 18.6% to a seasonally adjusted annual rate of 504,000 units, the highest level since May 2008. The increase in sales was the biggest since January 1992. Compared to May of last year, sales were up 16.9%.

Meanwhile, the S&P/Case-Shiller index of existing home prices rose 0.2% in April; the smallest gain since March of last year, with the year-on-year increase slowing to 10.8%.

Today’s reports seem to indicate a strong new home market and a weak existing home market, but that’s probably not quite accurate. Homebuilders are working through inventory, while existing home inventories are low and starting to rise; for existing homes that means we’ve mainly worked through most of the distressed sales that were out there. The housing market is moving forward modestly, but also in fits and starts.

The Conference Board said its index of consumer confidence rose to 85.2 from 82.2 in May, with optimism about the labor market. June's reading was the highest since January 2008. Consumers think jobs are more widely available. The survey found 14.7% of consumers think jobs are “plentiful,” the best reading since May 2008, while the share characterizing jobs as “hard to get” fell to a three-month low of 31.8%.

While government data showed confidence at January 08 highs, Gallup's latest survey shows, only one in five Americans (22%) say the economy is excellent or good, while 34% say it is poor; and worse still, Americans continue to be less optimistic about the economy's future:  38% say the economy is getting better, while 58% say it is getting worse; the worst differential since 2013. Gallup's US Economic Confidence Index lost another point last week, the third week in a row, dropping to its lowest in over 2 months.

Not much confidence in the equity markets today. I haven’t seen anything earth shattering that would explain why stocks moved from positive to negative territory, and even with the rollover, the major indices still didn’t drop a full percentage point; 119 points ain’t what it used to be. The S&P 500 closed down more than half a percent for its sharpest loss since June 12, after setting a fourth record high in five sessions. Maybe its concern about Iraq, maybe the high frequency traders ran out of shorts to squeeze.

A funny thing happened in Russia today; President Putin appeared to back away from the fight with Ukraine; Putin asked Russia’s upper house to revoke the right it had granted him to order military intervention in Ukraine. At the same time, pro-Russian insurgents in eastern Ukraine shot down a Ukrainian helicopter killing 9 servicemen.

There is no backing off the fighting in Iraq, where a dire situation has gone from bad dream to nightmare in two weeks of fighting that have seen Sunni Muslim gunmen assert control over a growing area, including at least two towns that lie on a crucial supply route linking Baghdad, the capital, with the mostly Shiite Muslim south.

Secretary of State John Kerry urged Kurdish leaders to remain part of Iraq, as fighters from local Sunni tribes wrested control of at least part of Iraq’s largest oil refinery after battling for days with government troops over the key facility. Armed tribal factions from the Baiji area breached the refinery complex 140 miles northwest of Baghdad.  Kerry flew to the Kurdish region on a trip through the Middle East to rescue Iraq following a lightning advance by the Sunni fighters led by jihadis of the Islamic State in Iraq and the Levant. U.S. officials believe that persuading the Kurds to stick with the political process in Baghdad is vital to keep Iraq from splitting apart. Washington has placed its hopes in forming a new, more inclusive government in Baghdad that would undermine the insurgency. Kerry aims to convince Kurdish leaders to join it. Something will likely tip one way or the other in the next week or two.

The spike in instability in several oil producing regions around the world is threatening to knock some production offline, but it is also boosting profits for drillers operating in trouble-free zones. Oil prices have hit their highest levels in almost 9 months as places like Iraq, Syria, Ukraine and Libya continue to experience violence and political upheaval. For companies with heavy investments in these regions, the situation is perilous, but for oil companies elsewhere, the higher price is good news.

Oil markets could be looking at an extended period of elevated prices, which is bad news for companies with billions invested in Iraq. ExxonMobil and BP already started evacuating some of their workers from southern Iraq, despite the fact that militants remain north of Baghdad. But for companies drilling far from the violence – in Texas for example – a $5 per barrel increase in prices can be the difference between whether or not an oil project is economically viable. Oil companies are using the opportunity to step up drilling. The Eagle Ford shale in southern Texas, for example, saw four more oil rigs and one gas rig come into operation over the past week. Across the U.S., the number of oil rigs in use reached 1,545 -- the highest level since record keeping began in 1987.

The Supreme Court has ruled on the case of Halliburton v. Erica P. John Fund. Halliburton is trying to block a class-action lawsuit claiming the company inflated its stock price. A group of investors claims they lost money when Halliburton's stock price dropped after revelations the company misrepresented revenues, understated its liability in asbestos litigation and overstated the benefits of a merger.

Writing for the court, Chief Justice John Roberts said companies should have a chance in the early stages of a lawsuit to show that any alleged fraud was not responsible for a drop in the company's stock price. The Supremes did not overturn a precedent setting case that might have ended class action suits completely. The old case is Basic v.  Levinson, and it established the theory of “fraud on the market”, or the idea that shareholders who claim fraud don’t need to show they relied on specific false statements. The theory presumes a company’s false statements inflated its stock price. This seems to make sense; if a company lies about its revenue, lies about its liabilities, lies about the benefits of a merger that will inflate the stock price; but I suppose you could also argue the stock price might be inflated because the economy improves or because algorithmic traders inflated the price or maybe the moon and stars were aligned in a particular way.

The truth is that it is nearly impossible to pinpoint exactly why stock prices go up; but it is possible to identify when a corporation lies about revenues, liabilities, and benefits. The Supreme Court seems to be saying that it’s O.K. for corporations to lie, so long as nobody can prove a direct link between the lies and the share price.

The case now goes back to the lower courts, where Halliburton will have another chance to block the investors from joining together as a class.

Just a reminder, the Sabanes Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act, was supposed set a new standard for all public companies, and top management to certify the accuracy of financial information or face possible punishment of up to 20 years in prison. When President Bush signed it into law he said: “The era of low standards and false profits is over; no boardroom in America above or beyond the law.”

A funny thing happened over the past 14 years: nobody has been convicted of criminal wrongdoing under Sarbanes Oxley, at least as best we can tell. There may have been some civil charges, but the “Justice Department doesn’t directly track Sarbanes-Oxley prosecutions, so there may be another case here or there. Even four or five SOX criminal cases in 10 years, though, makes them as rare as a blue moon.” (see Reuters)

There’s a new report on climate change predicting serious consequences, especially for American businesses. The funny thing about this report is that it comes from a panel chaired by former New York City Mayor Michael Bloomberg, former Treasury Secretary Hank Paulson and hedge fund manager turned climate activist Tom Steyer. It includes devastating forecasts for American companies, including dramatic declines in agricultural yields, loss of productivity due to intense heat and up to $35 billion spent dealing with coastal storms.

Bloomberg said “Climate change is costing governments and businesses billions of dollars,” and he hopes it "will mobilize the business community and forge a consensus for leadership across the aisle." Paulson says he now believes that “climate change is the existential issue of our age." Paulson also penned an op-ed in the New York Times last weekend warning of a "climate bubble" that poses risks to the economy just like the credit bubble did in 2008.

Steyer, a billionaire who has pledged to spend millions electing pro-climate-action politicians, said he hopes that the report will help "change the spreadsheet for American business" as companies calculate risks and opportunities. The business community, he said, should "get to a point where calculation of the value of a company includes how they are responding to this problem."