Friday, June 27, 2014 - Biscuits on the Table

Financial Review with Sinclair Noe

DOW + 5 = 16,851
SPX + 3 = 1960
NAS + 18 = 4397
10 YR YLD  + .01 = 2.53%
OIL - .10 = 105.74
GOLD – 1.80 = 1316.10
SILV - .25 = 20.97

The major stock indices traded lower for most of the day, and only in the final minutes turned to positive territory. For the week, the Dow slipped 0.6 percent and the S&P 500 declined 0.1 percent, while the Nasdaq gained 0.7 percent. Volume spike today as the Russell Indices were reconstituted.

The Russell Indices are compiled by Russell Investments. The Russell 3000 is an index of the 3000 largest stocks in the US. The Russell 2000 is the 2000 smallest stocks in the Russell 3000. Once a year, the Russell indices are reconstituted, to reflect changes such as acquisitions, bankruptcies, or just changes in the size of the companies listed in the index. The reconstitution probably explains the increase in volume and the last minute increase in prices today.

Some things we need to know heading into the weekend; including Ukraine, Iraq, and Argentina. We’ll start with the situation in Ukraine. The European Union signed a free-trade pact with Ukraine today and warned it could impose more sanctions on Moscow unless pro-Russian rebels act to wind down the crisis in the east of the country by Monday. Georgia and Moldova signed similar deals, holding out the prospect of deep economic integration and unfettered access to the EU's 500 million citizens, but alarming Moscow which is concerned about losing influence over former Soviet republics.

EU leaders meeting in Brussels demanded that, by Monday, Ukrainian rebels agree to ceasefire verification arrangements, return border checkpoints to Kiev authorities, free hostages and launch serious talks on implementing Ukrainian president Poroshenko's peace plan.

EU leaders said they were ready to meet again at any time to adopt significant sanctions on Russia. Diplomats said they could target new people and companies with asset freezes as early as next week. More than 60 names are already on the list. Although it has drawn up a list of hard-hitting economic sanctions against Russia, the EU is still hesitating over deploying them because of fears among some member states of antagonizing their major energy supplier.

Meanwhile, leaders of the European Union's 28 member states voted on the next president of the European Commission, which serves as the EU's executive branch. The president sets the policy agenda, enforces rules and represents Europe abroad. They elected Jean Claude Junker on a 26-2 vote. The losing votes belonged to the United Kingdom and Hungary, and they really have a strong dislike for Junker; so much so that they may try to exit the EU. That probably won’t happen, but there is talk of an “in or out” referendum for the Brits.

A funny thing is happening in Iraq. The US is lining up support for Iraq from Iran and Syria. And the bombing has apparently started, but we’re still trying to figure out who is throwing the bombs. The first aerial bombing took place Monday or Tuesday, apparently carried out by the Syrian Air Force, acting at the behest of the Iranian government in support of the Iraqi government, which the US government supports, but only if the Iraqi’s purge the government of all the goofs who messed up over the past 10 years or so.

Which is to say, the war in Iraq is escalating. Already, the war involves Iraq, Syria, Iran, Turkey, Saudi Arabia, Qatar, ISIS or ISIL if you prefer, Israel, Lebanon, and of course the US. The Pentagon denied reports of US drone strikes along the Iraq-Syria border after reports by BBC of drone bombings. The Murdoch Street Journal reports Syrian airstrikes. Unidentified bombers have reportedly launched an air strike on ISIS positions in northern Iraq. Iraqi television has claimed they are US planes, but the Pentagon has denied responsibility.

US planes were identified by Iraqi television, but the Saudi Al-Arabiya network claims that the raid was carried out by Syria. Meanwhile, Iranian Special Forces sent in to help protect Baghdad and a few select holy sites, along with surveillance drones. And Israel has bombed Syria in retaliation for an attack from Syria that killed Israeli civilians in the Golan Heights.

And so with all this going on, the Pentagon admitted yesterday that armed US drones are now flying over Iraq, equipped with Hellfire missiles, deployed from a base in Kuwait, in addition to unarmed surveillance flights by drones and manned aircraft, and supplemented by US military advisers on the ground.

Meanwhile, the Pentagon says the United States has opened a "joint operations center" in Baghdad, boosting the total number of US service members to 500. And the New York Times reports that Iraqi government officials are saying that the US is planning to send more than 1,000 private security guards to Iraq to protect US troops, which amounts to far more than the US government has previous acknowledged.

For years Iraq has been a major oil producer; it kept Saddam in business all those years; back then Iraq produced about 2.5 million barrels a day; recently output has increased to more than 3 million barrels, and it’s estimated that production could easily top 6 million barrels. In a country of about 30 million, there should be enough natural resources for profound prosperity, but that is not the case. In recent years, none of this oil wealth trickled down to the grassroots, especially in Sunni areas of the country where signs of reconstruction, economic development, restored services, or jobs were hard to find. Instead, the vast new revenues disappeared into the recesses of a corrupt government, and from there – who knows?

So here’s where Iraqi oil, or the lack of its revenues at least, comes into play. Communities across Iraq, especially in embittered Sunni areas, began demanding funding for reconstruction, often backed by local and provincial governments. In response, the Maliki government relentlessly refused to allocate any oil revenues for such projects, choosing instead to denounce such demands as efforts to divert funds from more urgent budgetary imperatives. That included tens of billions of dollars needed to purchase military supplies including, in 2011, 18 F-16 jets from the United States for $4 billion. In a rare moment of ironic insight, Time magazine concluded its coverage of the F-16 purchase with this comment: “The good news is the deal will likely keep Lockheed’s F-16 plant in Fort Worth running perhaps a year longer. The bad news is that only 70% of Iraqis have access to clean water, and only 25% have clean sanitation.”

My grandmother used say, as long as we’ve got biscuits on the table, nobody should go hungry. I guess they never heard that saying in Iraq.

Nothing in today's complex world has a single cause, but you have to think that a major reason for all this is the oil.

Argentina is in trouble. They have until Monday to pay a group of hedge fund managers over $1.3 billion on defaulted bonds. If they don’t pay, they risk default. If it goes into default, investors lose faith in Argentina’s capacity to pay, interest rates on its bonds surge, and the country is forced to print money to pay creditors, the economy could collapse.

Then again, if Argentina does pay this group of hedge fund managers over $1.3 billion worth of bonds by July 30, it opens itself up to lawsuits from other investors who also own those bonds, lawsuits that could cost the country up to $15 billion. That's over half the money it has in its central bank.

The story goes back to 2001, when Argentina was going through a financial crisis. Argentina issued bonds, and they defaulted on those bonds. After the default, hedge fund manager Paul Singer and some other hedge funds swooped in to buy the defaulted bonds for pennies on the peso. They knew they were buying defaulted bonds, but the idea was that things might improve or there might be a deal negotiated; that’s what usually happens, debt issuers restructure debt, and negotiate with creditors to pay less. Creditors usually take the deal because it is better to get something rather than nothing. Most of Argentina’s creditors have decided to accept 70 cents on the dollar.

But Paul Singer is demanding 100% face value of the bonds. And if he is not paid, there is a clause that says no other creditors can be paid. And if Argentina pays the full amount to Singer, the other creditors will likely not be satisfied with a 70% haircut. And the reason Argentina is in this jam is because Singer sued, and it went all the way to the US Supreme Court, and the Supremes sided with the hedge funds, and let stand a district court ruling.

The Supreme Court has been busy handing down decisions this week; and we will likely get a couple more decisions on Monday; I guess they don’t hand down decisions on Friday, and opt instead for an early happy hour. Anyway, the decisions of the past week were downright strange for one reason; several were unanimous. Wednesday, the court decided Riley v. California, which unanimously held that police cannot search the cellphones of people they arrest without a warrant. On Thursday, the court handed down two of its major opinions of this year: National Labor Relations Board v. Noel Canning, about the president's recess appointment power and McCullen v. Coakley, about abortion clinic buffer zones.

You will recall that the court is split ideologically, with 5 justices leaning right and 4 justices leaning left, so it’s a little surprising to see the twain meet. Unanimity is rare; a fractured court is the norm, and yet, we had three unanimous decisions among people who are inclined to disagree; and at a time when the House of Representatives is suing the president and people from one side can’t have a civil conversation with someone from the other side. Maybe this is an example of the rule of law being more important than politics. Before we declare a victory for compromise, maybe there’s a little more to how the court arrived at unanimity.

Even when the court agrees on a ruling, it can divide over the reasoning and even how the rule should be applied. In other words they take very different paths to arrive at the same place. It is possible that a 5-4 decision is not an indication of a polarized court. You have to read the decisions behind the vote. And conversely, a unanimous decision can mask deep divisions that appear down the road.

Wednesday, May 14, 2013 - Crumbs and Curds

Financial Review with Sinclair Noe

DOW – 101 = 16,613
SPX – 8 = 1888
NAS – 29 = 4100
10 YR YLD - .07 = 2.54%
OIL + .37 = 102.07
GOLD + 11.00 = 1306.70
SILV + .22 = 19.85

The days of milk and cookies can be fleeting; one day the world seems sweet and creamy, and the next day you’re left with nothing but crumbs and curds. The Russell 2000 index of small and mid-caps, dropped 1.6% falling below the 200 day moving average; since hitting a high in March the Russell is down 8.7%. The Dow Jones Internet Index has plunged 17% from a 13-year high in March.

There is a strong tendency among the Wall Street hype-sters to “buy the dip”, with the pitch being that if stocks plunge, it’s really just a buying opportunity if you are patient. What they don’t say is that it is almost impossible to be patient if you run out of capital, but putting that aside, the stocks will all come roaring back someday. Yea, I’m not going to tell you that. Some stocks will recover. Some stocks don’t come back.

Here’s a quote from a Citigroup analyst’s note to clients: “We believe the recent pullback represents a particular opportunity among large cap Internet stocks, with multiples having retraced to levels not seen for more than two years, with no/little change in fundamentals, and with investment profiles that sync well with what portfolio managers are seeking in today’s market.”

Among the favorite downtrodden internet stocks: Facebook, down 18% from its high; LinkedIn, down 43%; and AOL, down 31%, seriously I was surprised to learn that AOL still trades. I would have thought that anybody who lived through 1999 would have shunned AOL permanently. Did we learn nothing from the dot.com days? Certainly the Wall Street analysts learned nothing; they rode the market all the way down back in the day, all the time screaming “buy, buy, buy.” I’ll say the same thing I said back then, you can’t go broke taking a profit.

Treasury bonds rallied. The yield on the 10-year Treasury note touched 2.523% at one point, its lowest level since Oct. 31. While today’s move had all the markings of a short squeeze, the storyline is that the European Central Bank will pump more liquidity into the economy next month. Bank of England Governor Mark Carney signaled there is no rush to raise interest rates after the bank left its growth and inflation forecasts broadly steady in its latest inflation report. And Federal Reserve Chairwoman Janet Yellen said last week that the Fed would continue to keep interest rates near zero for a considerable period to support the economy and inflation remains low. Yellen is scheduled to speak tomorrow.

Today we had a report on inflation at the wholesale level. The Labor Department’s Producer Price Index, or PPI, increased 0.5% in March. The PPI was overhauled in January for the first time since 1978, largely to include services such as retail, health care and financial advice. Previously the index only looked at the price of goods: food, energy, housing and the like. That makes sense, but it has also lead to some wicked wild spikes and dips in the PPI. More likely the CPI, prices at the retail level, are more accurate, running in the range of 1.5% annualized rate.

There’s just something about the bond market that doesn’t feel right. Rates should not be dropping if the economic recovery is really underway. If the first quarter was a weather related aberration, and the second quarter is bouncing back, rates should not be dropping.

After ending 2013 at 3.03%, 10-year Treasury yields have declined 50 basis points year to date. Sovereign yields have collapsed throughout Europe and have generally fallen around the globe. What's behind the decline? Are there potential ramifications for stocks and the global economy? These are critical questions, especially considering the bullish consensus view of accelerating US and global growth.

The Ukraine crisis likely marks an unfortunate end to an era of global cooperation (of a sort) and a return to Cold War tensions and risks. Geopolitical risks exacerbate the vulnerabilities of financial market excesses. And the global central bankers’ response to the collapse of 2008 has resulted in trillions upon trillions of dollars of mispriced financial assets and ever greater leveraged speculation. When the Fed was pumping $85 billion a month into the markets - that was not de-leveraging. With QE winding down, there is impetus for the leveraged speculators to take more risk averse positions; toss in a geopolitical flare-up and greed transforms to fear.

Former Fed Chairman Alan Greenspan was speaking at a financial summit in Washington today and he said that current calculations of the federal government's budget deficit and fiscal outlook understate the risk of long-term trouble, because they do not take into account such "contingent liabilities" as the risk of a major Wall Street bank collapsing. Typically, deficit hawks invoke the phrase "contingent liabilities" to call for cuts to Social Security and Medicare, arguing that official government accounting understates the long-term taxpayer costs of such programs. But Greenspan didn't make a hard pitch on entitlement cuts, focusing instead on the risk of bank bailouts.  

Bond prices are going up nonetheless because the big money is seeking a safe haven in a gathering storm.

Europe’s highest court Tuesday gave people the means to scrub their reputations online, issuing a ruling that could force Google and other search engines to delete references to old debts, long-ago arrests and other unflattering episodes. Embracing what has come to be called “the right to be forgotten,” the Court of Justice of the European Union said people should have some say over what information comes up when someone Googles them.

The decision was celebrated by some as a victory for privacy rights in an age when just about everything, good or bad, leaves a permanent electronic trace. Others warned it could interfere with the celebrated free flow of information online and lead to censorship. The ruling stemmed from a case out of Spain involving Google, but it applies to the entire 28-nation bloc of over 500 million people and all search engines in Europe, including Yahoo and Microsoft’s Bing.

Google is already getting requests to remove objectionable personal information from its search engine. Europeans can submit take-down requests directly to Internet companies rather than to local authorities or publishers under the ruling. If a search engine elects not to remove the link, a person can seek redress from the courts.

The criteria for determining which take-down requests are legitimate is not completely clear from the decision. The ruling seems to give search engines more leeway to dismiss take-down requests for links to webpages about public figures, in which the information is deemed to be of public interest. But search engines may err on the side of caution and remove more links than necessary to avoid liability. Google has said it is disappointed with the ruling, which it noted differed dramatically from a non-binding opinion by the ECJ's court adviser last year. That opinion said deleting information from search results would interfere with freedom of expression.

Some limited forms of a “right to be forgotten” exist in the US and elsewhere, for example, in regard to crimes committed by minors or bankruptcy regulations, both of which usually require that records be expunged in some way.  And some things probably are better off forgotten.

In 1897 silver and gold dealers-slash-bankers in London began gathering each day to post their metals prices. They would meet in a basement and compare prices and then average prices and come up with something called the “fix”. There was a morning fix and an afternoon fix for both gold and silver. This became the price for precious metals. There has long been speculation that the bankers who set the fix might occasionally alter the prices to suit their own trades, in other words the fix was rigged and manipulated.

The basic price setting formula worked well for the bankers and it was adopted by the Libor and the Forex and the ISDA and others who liked the idea of controlling prices for a major market. Turns out the Libor and the Forex and other markets were indeed manipulated, and investigations are ongoing. And then the regulators got the bright idea that if all those markets were rigged, maybe the original, the gold and silver fix, maybe they were rigged. Investigations are underway. 

And so Deutsche Bank has decided they don’t want to be part of the London silver fix. They have announced they are resigning their post effective as of August 14, 2014. That leaves just two primary dealers to set prices for silver, HSBC and Bank of Nova Scotia; not enough to matter; and so the London Silver Fix will close down. The London Gold Fix will continue for now, but by the middle of August there will be no more London Silver Fix. And all of the banks that continue to trade in silver will have to find new ways to rig the market.

People used to think price manipulation in major markets never occurred. More evidence today, Bloomberg reports on a research paper that uncovered evidence that some traders got early news of Federal Reserve rate announcements and then traded on it during the Fed’s media lockup. The paper, covering September 1997 through June 2013, detected abnormally large price movements and imbalances in buy and sell orders that were “statistically significant and in the direction of the subsequent policy surprise.” The moves occurred during the window between when Fed announcements were supplied to the news media and when they were permitted to be released to the public.

The researchers calculate that the traders made off with somewhere between $14 million and $250 million in aggregate profits. A spokesperson says the Fed “enhanced its media release security procedures” last October “to better protect the information against premature release.”

Tuesday, May 13, 2014 - Record Highs and Dow Theory

Financial Review with Sinclair Noe

DOW + 19 = 16,715
SPX + 0.8 = 1897
NAS – 13 = 4130
10 YR YLD - .03 = 2.62%
OIL + 1.38 = 101.97
GOLD – 1.00 = 1295.70
SILV + .03 = 19.63

Record highs are seldom pretty; they tend to be sloppy affairs, much like our celebrations. You would like a nice neat procession, but people are marching in different directions, candles blow out, hot wax is spilled.

It doesn’t seem like we should be having record highs in the first place, but there it is:  the S&P 500 hits 1900 for the first time ever; the Dow Industrials at record highs; the Dow Transportation Average confirms with record highs. This is important because it goes back to one of the more important technical indicators in the US stock market, the Dow Theory.

The Dow Theory is based on the writings of Charles Dow, the founder and editor of the Wall Street Journal, and dates back more than 100 years. There are actually several tenets of the theory that examine the major trends in the market and posit that the market is efficient, that it incorporates and discounts all news with greater accuracy than any individual. Once a trend is in place it is likely to continue until there is definitive evidence of a reversal; in this light, the slog through the first quarter might be considered as nothing more than market noise. Dow Theory also holds that volume confirms price trends.

And the theory also holds that the Dow Transports should confirm the Dow Industrials. The idea was that the Industrial average reflected the factories scattered around the country and the transportation average consisted of the companies that hauled the goods from the manufacturer to the market. If manufacturers are producing more, they have to ship goods to consumers, so if you want to know about the health of manufacturers, look to the performance of the companies that ship the goods. The two averages should be moving in the same direction; that is, they should confirm. So, if the Transportation average hits record highs, which it did, the Industrials should also hit new highs, which happened yesterday.

In mid-March, the transports broke above prior 2014 highs while the Industrials still lagged below their corresponding 2014 high. This could have been interpreted as a divergence, and even a signal to sell the industrials. However, Dow Theory tells us that industrials lag transports. It makes sense, because goods need to be transported before they can be sold.

Now, if you want to try and front-run Dow Theory, you want to pay attention to sales. Today, the Commerce Department released April sales figures, and they were flat, up just 0.1%, but this follows a revised 1.5% increase in March; that was the largest increase since March 2010 and reflected pent-up demand after a brutally cold winter. So, March sales were spectacular, and that was reflected in the Dow Transportation Average, and eventually the Dow Industrial Average confirmed the Transports. And now, the April numbers look weak despite data like employment, as well as manufacturing and services industries surveys, suggesting the economy regained strength early in the second quarter.

A second report from the Commerce Department showed that retail inventories excluding automobile stocks barely rose in March. The government had assumed a big increase in these stocks when it made its advance growth estimates last month for gross domestic product at 0.1% growth. March trade, construction spending and factory inventory data, which the government did not have in hand for the GDP estimate, suggest downward revisions to output; likely showing the economy contracting slightly. Core sales were down 0.1% in April; core sales strip out automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of the GDP.

Meanwhile, the Fed reported today that Americans racked up more debt in the first quarter, the third straight quarterly increase, thanks in large part to heftier mortgages. The report on household debt and credit showed however that mortgage originations dropped to their lowest level since the third quarter of last year. Outstanding household debt rose by $129 billion from the previous quarter, boosted by a $116 billion jump in mortgage debt and smaller rises in student and auto loans.

And in the sometimes twisted logic of Wall Street, this might be considered good news, the economy isn’t collapsing but it certainly isn’t growing enough to warrant a change in interest rate policy from the Fed. Any increase in interest rates could hobble consumers, businesses, and even the government.

Prices and wages been have sluggish since the 2007-2009 recession, and especially so in the past couple of years. Inflation remains low, and it undershot the Fed’s 2% target for the 23^rd consecutive month in March, based upon the personal consumption expenditures price index. Stubbornly elevated unemployment puts downward pressure on inflation. We still have slack in the labor market, so we’ll likely have very low interest rate targets for quite some time.

Meanwhile, we’re wrapping up earnings reporting season and according to Bloomberg research, almost 76% of the 453 companies in the S&P 500 that have reported earnings had results that were higher than analysts' estimates and approximately 53% of them exceeded revenue estimates. I know this is a rigged game between corporations and analysts, but companies are making money and sitting on piles of cash.

The corporate cash pile reached $2.02 trillion in the latest quarterly filings of 2,300 non-financial companies in the Russell 3000 Index. According to Bloomberg, the total rose about 13% from a year earlier in each of the two latest quarters, the fastest six-month gain since mid-2011.  If investors aren't applying some sort of haircut to the valuations of companies with hefty amounts of cash overseas, perhaps they should be; that is the mantra of activist shareholders. And so companies are beginning to pick up M&A activity as well as share buybacks and dividend increases. Capital spending on structures, equipment and intellectual property by all US companies in 2013 increased 3.9%, the slowest pace in three years. Eventually there will be value in reinvesting in the company to grow revenue; we’re not there yet, but we’re getting closer.

Again, one of the tenets of Dow Theory is that a trend in place is likely to continue until there is definitive evidence of a reversal; we’re not there yet. The trend is bullish; the supporting data is only mildly positive. In this instance, you stay in the market and remain alert to possible reversals. The level of support for the Dow, now moves up to the 16,550 range. On the upper end, there really is no level of resistance when you hit new highs, with the possible exception of Fibonacci expansion levels, which could put a ceiling around 16,800.

Meanwhile, if you’re looking for a negative divergence, you need look no further than the Russell 2000 Index of small and mid-cap stocks. The Russell has been persistently below its 50 day moving average since early April, and last week it dipped below the 200 day moving average; yesterday it bounced up above the 200 day and remained above the average today, despite losing 12 points. So, if you are looking for an early warning, this is a good place to look. If the Russell can move above the 200 day average here, it would have to be considered positive and also confirmation of the blue chips. If there is a breakdown from here, it might drag the blue chips lower.

Now, even if the market moves lower from here, it doesn’t mean we’re crashing back down to the 2009 levels; there is no definitive evidence for that kind of a move; there is plenty of fear mongering; there are plenty of perma-bears and they are about as accurate as a broken clock. The world is not coming to an end, at least not today; the market is not crashing, at least not today. In fact, we’ve been going through one of the best five year bull runs in market history. The VIX, the volatility index is at its lowest levels in more than a year. The major trend is bullish but this is no time for complacency. One of the tricks to profitable trading is knowing when to let winners run, and when to lock in profits.

These are the days of milk and cookies. Enjoy it while you can.

Friday, May 09, 2014 - Happy Mothers' Day

Financial Review with Sinclair Noe

DOW + 32 = 16,583
SPX + 2 = 1878
NAS + 20 = 4071
10 YR YLD + .02 = 2.62%
OIL - .23 – 100.03
GOLD + .30 = 1291.10
SILV un = 19.26

Another up and down session on Wall Street but at the close it was a record high for the Dow Industrial Average. Whenever the Dow hits a record high close, we have a celebration with milk and cookies.

For the week, the Dow rose 0.4%, while the S&P 500 fell 0.1% and the Nasdaq lost 1.3%, for its worst weekly loss in a month. Small cap stocks moved higher today, but were still down on the week. The Russell 200 Index managed to close the week just a smidge above the 200-day moving average, and still well below the 50-day. According to SentimenTrader, Tuesday was only the third time in 35 years of market history that the NYSE Composite was sitting at a 52-week high one day before the Russell 2000 dropped below both its 50- and 200-day moving averages the next day. The last two occurrences were March 1999 and November 2007.

Fed Chairwoman Janet Yellen delivered testimony on Capitol Hill this week followed by questions from the lawmakers; she was even asked about the possible overvaluation in small caps. We covered Yellen’s testimony pretty extensively, but there were a few tidbits that didn’t make most newscasts, so we’ll put a wrap on this story with a couple of questions from lawmakers.

First, Joint Economic Committee Chairman Representative Kevin Brady(R-Texas) pushed Yellen for more clarity on when the FOMC would raise interest rates but Yellen would not pinpoint a date. Brady also displayed a slide showing the change in the S&P 500 total return since the end of the recession compared to the change in real disposable income per capita. Since the official end of the recession Main Street families have seen income increase 4.2% compared to Wall Street gains of 108.2%.

The other really interesting question came from Senator Bernie Sanders (I-Vermont). The senator began with the facts: “In the US today, the top 1 percent own about 38 percent of the financial wealth of America. The bottom 60 percent own 2.3 percent. One family, the Walton family, is worth over $140 billion; that’s more wealth than the bottom 40 percent of the American people. In recent years, we have seen a huge increase in the number of millionaires and billionaires, while we continue to have the highest rate of childhood poverty in the industrialized world. Despite, as many of my Republican friends talk about ‘the oppressive Obama economic policies,’ in the last year Charles and David Koch struggled under these policies and their wealth increased by $12 billion in one year. In terms of income, 95 percent of new income generated in this country in the last year went to the top 1 percent. “

Sanders then introduced an academic study that concludes, “The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on US government policy, while mass-based interest groups and average citizens have little or no independent influence.”

That sounds like an oligarchy. So Sanders asked Yellen: “In your judgment, given the enormous power held by the billionaire class and their political representatives, are we still a capitalist democracy or have we gone over to an oligarchic form of society in which incredible enormous economic and political power now rests with the billionaire class?”

Yellen did not answer “yes.” But she did say, “There’s no question that we’ve had a trend toward growing inequality and I personally find it a very worrisome trend that deserves the attention of policy makers.” She also expressed concern that trends toward growing inequality “can shape [and] determine the ability of different groups to participate equally in a democracy and have grave effects on social stability over time.”

Also this week we had the White House released a report on climate change, the National Climate Assessment. The report basically says we need to make big changes. Today, speaking in California, President Obama said that he had ordered $2 billion in upgrades to federal buildings to increase their energy efficiency, adding that the Department of Energy would also be adopting new standards that would be the equivalent of taking 80 million cars off the road. Obama was speaking at a Wal-Mart, and it may be the first time a sitting president has visited a Wal-Mart; this after a multi-stop fundraising lalapalooza through the Golden State, and with a deaf ear to his own efforts to get a minimum wage deal past Congress. Meanwhile, the White House installed solar panels today.

There will undoubtedly be massive investments to combat climate change, but it isn’t always easy to spot the opportunities. According to a Bloomberg article, Wall Street’s idea of investing in climate change is to load up on natural gas, because it’s less dirty than other forms of fossil fuels. On the day the National Climate Assessment report was issued, the 44-company Standard & Poor’s Energy Index reached a record, and $322 million of cash flowed into exchange-traded funds that specialize in energy.

Here’s how Wall Street deals with climate change. The potential for hotter summers and colder winters will raise energy demand, and that suggests higher gas prices. Weather extremes are good for the energy business. More energy use, better for the earnings.

I can’t make this stuff up.

Next week’s economic calendar includes a Tuesday report on retail sales. Tuesday also brings a Commerce Department report on inventories, which was a major drag on first quarter GDP estimates. Also the CPI, or Consumer Price Index, which is expected to show tame inflation at the retail level with the possible exception of food prices. Next Friday we’ll get the April housing report and a chance to see if homebuilders are coming out of winter hibernation; an interesting subset will be whether starts on apartments are outpacing starts on single family residential; that reflects the shift toward renting rather than owning one’s home.

Over the weekend, we’ll follow the vote in Ukraine. There will be a referendum, I’m not sure what it will mean but it seems like a tipping point – maybe. The economic fallout from Ukraine moves at a slower pace but it apparently is having an effect as the slump in Russia's economy is taking its toll on sales and profits at businesses in the rest of Europe. The International Monetary Fund says Russia has already been dragged into a recession as investors flee the emerging market for fear of being caught up in the escalating conflict in eastern Ukraine. Trade and investment between Russia and Europe is worth about $500 billion a year. French bank Societe Generale cut first quarter net profit as they wrote down the value of their Russian banking activities. German factory orders in March fell by 2.8% compared to February, although it’s tough to say how much of that was related to tensions with Russia.

Meanwhile, Gazprom is threatening to cut off gas supplies to Ukraine. High quality global journalism requires investment. Russia’s energy minister said the state-controlled enterprise would move to a system of pre-payment for supplies to Ukraine from next month, bringing the simmering gas dispute between the countries a step closer to crisis.

One more thing this weekend. It’s Mothers’ Day. Don’t forget, and maybe take a little time to show your respect; respect for the work moms do, which is extremely undervalued, whether in the workplace or in the home. Acknowledge that the work moms do is what really makes everything else in the economy function. Admit it, society would collapse without the hard work of moms. I’m not saying you should forget the chocolates and flowers this weekend, which would be a mistake; just be sure they’re delivered with a heartfelt “thank you” and love.