Financial Review

Corporate Clout

Sinclair Noe — April 1, 2015

 

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DOW – 77 = 17,698
SPX – 8 = 2059
NAS – 20 = 4880
10 YR YLD – .06 = 1.87%
OIL + 2.49 = 50.09
GOLD + 20.40 = 1204.10
SILV + .30 = 17.04

The first quarter is done; Among the winners: the S&P 500 pulled out a modest gain for the ninth consecutive winning quarter; healthcare was the best performing sector in the S&P 500, up 7.4%; utilities were the biggest decliners in the index, down 5.8%. The Nasdaq Composite posted its ninth consecutive quarterly gain (the first time ever). The Dow Industrials posted a small loss year to date. Oil dropped just over 14% for the quarter. The first quarter’s best-performing exchange-traded products include China, Japan, and solar. The first quarter’s worst-performing exchange-traded products include plays on Brazilian stocks, coffee and volatility.

In many ways, the dollar set the tone across markets in the first three months of the year. The dollar index, hit a 12-year high during the quarter. The strong dollar, or at least the pace of its rise, played havoc with earnings of large multinationals who rely heavily on foreign sales. Meanwhile, commodity markets also saw pressure from a stronger dollar.

Treasuries saw price gains in the first quarter. The yield on the 10 year note dropped from 2.17% to 1.93%. The total return in the Treasury market overall, including price increases and interest payments, was 1.48% in the first quarter of 2015, compared with 1.93% in the fourth quarter of 2014, according to the Barclays U.S. Treasury index. The total return for the whole of 2014 was 5.05%. Treasuries have seen the longest stretch of quarterly gains since 2003.

ADP reports private sector employment increased by 189,000 last month. The ADP report is often considered an indicator of the monthly government jobs report due Friday; that report is expected to show the economy added 255,000 new jobs.

The Commerce Department reports construction spending dipped 0.1 percent to an annual rate of $967.2 billion. January’s outlays were revised to show a 1.7 percent decline instead of the previously reported 1.1 percent drop.

Auto sales were up less than 1 percent in March compared with the same month a year ago. U.S. consumers bought 1.5 million new cars and trucks in March. Hyundai’s U.S. sales jumped 12 percent over last March after a big boost in incentives. Subaru’s sales were up 10 percent. Toyota’s sales were up 5 percent; and FCA, the parent of Chrysler and Fiat, said its sales rose 2 percent. But those gains were nearly offset by lower sales at other major automakers. General Motors’ sales fell 2 percent and Ford and Nissan both saw 3 percent declines. Honda’s sales were down 5 percent. Volkswagen’s sales plummeted 18 percent.

Growth in the U.S. manufacturing sector rose to a five-month high in March as output and employment gained, according to an industry report released on Wednesday. Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers’ Index rose to 55.7 in March from 55.1 in February and to its highest since October.

The Institute for Supply Management’s manufacturing index dropped for the fifth consecutive month to 51.5% in March from 52.9% in February. Any reading above 50 indicates expansion in the manufacturing sector. Only 10 of the 18 industries tracked by ISM, for example, reported growth last month, down from 14 in January and 17 last August. Also, companies continued to scale back on hiring. The index measuring employment fell to 50%, the worst reading also since May 2013. The ISM’s new-orders index, meanwhile, dropped to a nearly two-year low of 51.8%.

Simon Property Group has withdrawn its $16.8B proposal to acquire Macerich after the smaller mall owner rejected the sweetened takeover offer as too low. CEO Arthur Coppola said in a letter: “The board unanimously concluded that your proposal (of $95.50-a-share) continues to substantially undervalue Macerich.” Macerich took steps to thwart a hostile takeover following Simon’s first public offer by adopting a poison pill on March 17.

Web hosting company GoDaddy  priced its initial public offering at $20 per share, above its previously indicated $17-$19 range, valuing it at around $4.5 billion, including debt. The company raised $460 million from the IPO. GoDaddy shares are trading on the New York Stock Exchange under the symbol “GDDY.” (+ 6.15 = 26.15)

Thousands of Walmart workers are about to get a raise. Earlier this year, the retailing giant announced it would pay its hourly employees a minimum of $9 per hour starting this month and plans to up the minimum to $10 per hour in 2016 for all workers who complete a six-month training period. Wal-Mart is increasing pressure on suppliers to cut the cost of their products, in an effort to reclaim the crown of low-price leader and turn around its sluggish U.S. sales. The retailer has been telling suppliers to forgo investments in joint marketing, such as eye-catching product displays or online advertisements, and plow the savings into lower prices instead.

Arkansas lawmakers passed a Religious Freedom Restoration Act yesterday that critics said would allow businesses to deny service to gays and lesbians. Arkansas followed Indiana, which passed a similar act last week. Corporations have criticized the measures; 39 tech companies wrote an open letter to Indiana Governor Mike Pence in opposition to the law. By Tuesday, a long list of companies were on the record against Indiana’s law, including Nike, The Gap, Levi Strauss, Marriott, and PayPal. Big Pharma companies Eli Lilly and Co. and Roche Diagnostics are opposed, as is insurer Anthem. Indiana based Angie’s List said it would hold off on expansion plans in the state. Indiana based NCAA voiced opposition just ahead of the Final Four matchups this weekend. The state’s largest newspaper, the Indianapolis Star devoted its entire front page to a huge banner that read: “Fix This Now.” Gov. Mike Pence said that he would seek to amend the law to ensure that businesses can’t discriminate against anyone.

The world’s biggest retailer, Wal-Mart, based in Bentonville, Ark., issued a statement saying the Arkansas bill threatened to undermine “the spirit of inclusion” in the state and “does not reflect the values we proudly uphold.” And today, Governor Asa Hutchison called on state lawmakers to either recall or amend legislation billed as a religious freedom measure.

That the business community was able to act so swiftly and decisively against the legislation is a sign of just how far Corporate America has evolved on gay rights; it is also an indicator of just how much clout Corporate America has with politicians. Corporate America’s transformation on gay rights happened slowly, beginning in board rooms and trickling down to workers, who now get better rights and protections from their employers than they do from their government. Eighty-nine percent of Fortune 500 companies have policies that specifically prohibit discrimination based on sexual orientation, according to a recent report from the Human Rights Campaign. In contrast, there is no federal law prohibiting discrimination.

Snowpack in the Sierra Nevada Mountains of California shows just 6% of the long-term average for this time of year; it’s the lowest level on record. The previous low was 25 percent, set in 1977 and again in 2014. Today, California Governor Jerry Brown issued new water restrictions. The State Water Resources Control Board will enforce a 25 percent water use reduction in every city, conserving about 1.5 million acre-feet of water throughout the next nine months. The mandatory cutbacks come a little over a year Brown asked Californians to voluntarily reduce their water use by 20 percent.

The state will also partner with local governments to rid California of 50 million square feet of lawns and replace the water-intensive greenery with drought-tolerant landscaping. Campuses, golf courses, cemeteries and other large landscapes often covered in sprawling lawns will be required to make significant cuts, the announcement notes. Watering ornamental lawns on public street medians will be banned. Residents will also be able to take advantage of a new temporary, statewide consumer rebate program that rewards them for replacing appliances with more water-efficient ones. All new residences and developments will be prohibited from irrigating with potable water unless they use water-efficient drip irrigation systems. Cease-and-desist orders and fines could be issued to those who fail to comply with new restrictions.

Today, of course is April Fools’ Day. And this should serve as a reminder that not everything you read on the internet is absolute truth. In fact, many of the tech companies seem to enjoy spoofing. A quick rundown: Amazon introduced the Dash button; it’s a little plastic button that you can stick on the side of a box of Dash or Tide or cat food or whatever – push the button and a drone will deliver it to your door. Maybe someday, but not today. The real joke from Amazon was turning back the clock on their website, so it looked like 1999; the early version of online shopping looks archaic, but it wasn’t that long ago. The Dash button might be a look into the future and the retro-website was a stroll down memory lane.

Samsung came out with the Galaxy Blade, a smartphone so thin you can use it to cut stuff; it’s even accessorized with a knife handle. No you can’t cut your steak with your smartphone. Motorola offered up hand crafted, artisanal selfie sticks. Google was a bit more kind; they came up with a way to play Pac-man on Google maps; pull up a map of Paris or New York or your hometown and waka waka waka your way along city streets. And then they had backward Google; just type in com.Google, and it’s like looking at Google in a mirror.

Not all April Fools stories are silly or nasty. A car dealership in New Zealand put an ad in the paper claiming that the first person to come in and “ask for Tom” would be able to swap their old car for a new BMW. Tiaana Marsh did just that, and … you can guess what happened from there. They gave her a new BMW. That’s even better than Burger King’s Left handed hamburger.

Of course the techies the car dealers and everybody else has to recognize that the all-time best April Fools’ prank came from radio, compliments of the Mercury Theater. (War of the Worlds)

Financial Review

Milk and Cookies. Enjoy While You Can.

Sinclair Noe — February 25, 2015       

 

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DOW + 15 = 18,224
SPX – 1 = 2113
NAS – 0.98 = 4967
10 YR YLD – .02 = 1.97%
OIL + 1.75 = 51.03
GOLD + 2.90 = 1205.20
SILV + .22 = 16.64

Another record high for the Dow Industrial Average. These are the days of milk and cookies.

Federal Reserve Chairwoman Janet Yellen continued her semi-annual Humphrey-Hawkins testimony today in front of the House Financial Services Committee. The prepared opening remarks were identical to the testimony yesterday in the Senate. The Q&A session became a bit testy today as Yellen was accused of political bias. Republicans questioned Yellen about an October speech on inequality, just before the midterm elections, as evidence she was leaning toward the Obama administration and Democrats. Methinks they doth protest too much. There were also calls for an audit of the Fed, historically a nonstarter with Federal Reserve Chairs. It made for generally poor political theater.

The important part of the testimony was fairly easy to find. Keep in mind the Fed has a dual mandate of maximum employment and price stability. So the key statement from Yellen was when she said: “Provided that labor market conditions continue to improve and further improvement is expected, the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2% objective.”

So, higher rates will come with higher inflation, indicating that disinflation and deflation are still a concern for now. The Fed believes that inflation is going to move lower before it moves higher because of oil prices and import prices. As for the timing of when we will see inflation and possible interest rate hikes, Yellen said: “We expect inflation over the medium term — the next two or three years — to move up to our 2% target.”

Greek stocks and bonds surged yesterday, with Athens’ main stock exchange closing almost 10% higher on the day after Eurozone financial ministers approved a four-month extension to the country’s bailout program. Although the list of proposals were accepted, the ministers warned that the reforms must be expanded in detail before new bailout funding would be released.

The German government is now selling five-year bonds with a negative yield. That means investors will pay to lend money to the country for five years. Germany auctioned 3.28 billion euros ($3.72 billion) of bonds due in April 2020 at an average yield of negative 0.08%.

Today the Senate moved to avert a shutdown of the Department of Homeland Security. The upper chamber voted 98-2 on a procedural hurdle that would pave the way for a “clean” funding bill to be brought to the floor. It remains unclear when the Senate will vote on final passage on the funding bill. If the Senate passes a clean bill, it would then move over to the House, and it is uncertain if House Speaker John Boehner would allow a vote on such a bill. DHS funding runs out in 2 days.

The White House says President Obama would veto a House Republican effort to rewrite the federal “No Child Left Behind” law. The House bill is expected to pass the chamber later this week. Senate Republicans are working on their own version of No Child Left Behind, which expired in 2007.

New homes sold at annual rate of 481,000 last month, essentially unchanged from December. The Commerce Department reports sales were 5.3% higher in January compared to a year earlier; this despite a drop of 51% in the Northeast, where bad weather kept buyers away. The median price for a new home was up 9% from a year ago.

For all the talk about how lower oil prices would reduce supplies, it hasn’t happened yet. Just the opposite. According to EIA weekly data released today, crude oil in storage in the US jumped 2%, or 8.4 million barrels, to 434 million barrels. Oil storage is bursting at the seams and inventories remain at their highest levels in at least 80 years. The rate of growth of production is slowing slightly but production continues at the highest rate since 1972, for now.

Southwest Airlines took 128 of its jets out of service late Tuesday, or roughly one-fifth of its fleet, after informing federal regulators that it “inadvertently omitted” required maintenance checks on the planes’ backup hydraulic systems. Dozens of flights were immediately canceled as a result, while officials from Southwest and the FAA discussed plans to complete the maintenance checks and return the planes to service.

American Express will raise interest rates on about one million customers. Annual rates will climb by an average of 2.5 percentage points to at least 12.99%. The firm sent letters saying it’s making adjustments after finding their rates were below those for rival cards held by borrowers “with similar credit profiles.” Typically banks make large scale changes in response to broader shifts in interest rates or risk.

Anthem, which earlier this month reported that it was hit by a massive cyberbreach, has concluded that the personal information of 78.8M customers was exposed in the attack, including 8.8M-18.8M people who were members of independently run Blue Cross Blue Shield plans. Anthem still believes the hacked data was restricted to birthdays and Social Security numbers, among other data, but doesn’t appear to have involved medical information or financial details.

Another company that had problems with cybersecurity is Target, but it doesn’t seem to have hurt their most recent results.  Target saw a higher-than-expected jump in its fourth-quarter earnings and is forecasting modest growth for the first quarter of 2015. Exiting Canada, as the company recently announced it will do, will cost it $5.1 billion.

Earlier this month Wal-mart announced they would be paying workers at least $9 an hour, increasing to $10 an hour next year. Wal-Mart is of course the largest retailer, and we thought this might ripple out through other retailers. Sure enough. T.J. Maxx, Marshalls and other chains owned by TJX Cos. will be increasing the pay of US workers to at least $9 an hour beginning in June, increasing to $10 an hour next year.

Now for today’s edition of “Banks Behaving Badly”; yet another foreign currency scandal, Reuters reports that BNY Mellon is in settlement talks with the DOJ and New York AG over claims that it defrauded clients in foreign exchange transactions. The bank faces several lawsuits, including class actions, stemming from allegations that it misled clients about how it determined currency exchange rates for certain transactions.

HSBC has a “terrible list of problems,” so says the chairman of HSBC, Douglas Flint. And he admits that he couldn’t rule out further scandals emerging at the bank along the same lines as the tax evasion schemes at HSBC’s Swiss private bank, but he said: “I sincerely hope there are no more skeletons.”

A British parliamentary committee questioned Flint and CEO Stuart Gulliver after the tax evasion schemes were revealed by several news organizations. The news story only came to light 4 years after a former HSBC employee turned over bank files. Some of the clients whose details HSBC’s Swiss operations were sheltering included arms dealers and politicians who were part of discredited regimes, like that of Bashir-al-Assad in Syria. Earlier, when asked why some HSBC clients reportedly came to Switzerland with wads of cash, Flint was lost for words. Still to be determined is why the bank should not be broken up.

Move over Alibaba, you could have company next year. Postal Savings Bank of China, the country’s sixth largest lender by assets, is seeking an initial public offering in 2016 that could make history by bringing in some $25 billion .

In a new S-1, GoDaddy declared plans to list on the NYSE under the symbol “GDDY” and announced IPO underwriters including Morgan Stanley, JPMorgan, Citi and others. GoDaddy is a fast-growing company which posted revenue of $1.4 billion in 2014, up 23% from 2013 levels, according to the filing. But it’s also a big money loser. The company posted a loss of $143.3 million in 2014, which is the fourth annual loss in a row.