Stocks Rally as Bulls Come Charging Back

Charles Schwab: On the Market

Posted: 11/16/2017 4:15 PM EST

Stocks Rally as Bulls Come Charging Back

 

U.S. stocks rallied during Thursday's trading session, bouncing back from a two-day slide as European shares also snapped a string of losses. Favorable earnings reports from Dow members Wal-Mart and Cisco Systems, along with upbeat industrial production and homebuilder sentiment reads aided in boosting equity gains. Treasury yields rebounded and the U.S. dollar ticked slightly higher, along with gold, while crude oil prices were lower. 

The Dow Jones Industrial Average (DJIA) advanced 187 points (0.8%) to 23,458, the S&P 500 Index jumped 21 points (0.8%) at 2,586, and the Nasdaq Composite rallied 87 points (1.3%) to 6,793. In moderate volume, 776 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.19 to $55.14 per barrel and wholesale gasoline was $0.03 lower at $1.71 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.59 higher to $1,278.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.1% to 93.93.

Dow member Wal-Mart Stores Inc. (WMT $100) reported Q3 earnings-per-share (EPS) of $0.58, or $1.00 ex-items, versus the $0.97 FactSet estimate, as revenues rose 4.2% year-over-year (y/y) to $123.2 billion, above the projected $121.1 billion. Q3 same-store sales at Walmart grew 2.7% y/y, topping the expected 1.9% gain. The company raised its Q4 EPS outlook and issued same-store sales guidance that was slightly above expectations. Shares traded sharply higher.

Dow component Cisco Systems Inc. (CSCO $36) posted fiscal Q1 earnings of $0.48 per share, or $0.61 ex-items, with revenues decreasing 2.0% y/y to $12.1 billion, roughly in line with expectations. CSCO issued Q2 guidance that exceeded forecasts. Shares rallied.

Best Buy Co. Inc. (BBY $55) announced Q3 EPS of $0.78, matching projections, as revenues rose 4.2% y/y to $9.3 billion, below the expected $9.4 billion. Q3 same-store sales increased 4.4% y/y, below the forecasted 4.9%. BBY issued Q4 earnings guidance that was below estimates, while its sales outlook was mostly in line with expectations. The company raised its full-year guidance. Shares fell.

Homebuilder sentiment and industrial production top forecasts

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month unexpectedly improved to an eight-month high of 70, versus the Bloomberg forecast calling for a dip to 67 from October's unrevised 68 level. The index sits decisively above the 50 mark, the point of separation for good versus poor conditions. The NAHB said builder confidence is close to a post-recession high—a strong indicator that the housing market continues to grow steadily—but its members still face supply-side constraints, such as lot and labor shortages and ongoing building material price increases.

Tomorrow, the economic calendar will bring a look at housing construction activity in the form of housing starts and building permits, with starts projected to rise 5.6% month-over-month (m/m) to an annual rate of 1,190,000 units and permits expected to increase 2.0% to a 1,250,000 unit rate. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, mortgage demand appears to be healthy, while interest rates continue to be relatively low and the high rental rates in some areas of the country provide incentive for home buying.

Industrial production (chart) rose 0.9% month-over-month (m/m) in October, above estimates of a 0.5% gain, after September's upwardly revised 0.4% increase. Manufacturing and utilities production both grew solidly, while mining output dropped. Capacity utilization rose to 77.0% from the prior month's upwardly revised 76.4% rate, and compared to forecasts of 76.3%. Capacity utilization is 2.9 percentage points below its long-run average. Industrial production has gained 2.9% over the past 12 months, and Schwab's Chief Investment Strategist Liz Ann Sonders notes that capex may be in for an even sharper recovery in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. 

Weekly initial jobless claims (chart) surprisingly rose by 10,000 to 249,000 last week, versus the Bloomberg forecast of a decrease to 235,000, with the prior week’s figure being unrevised at 239,000. The four-week moving average grew by 6,500 to 237,750, while continuing claims fell 44,000 to 1,860,000, south of estimates of 1,900,000.

The Philly Fed Manufacturing Index (chart) in November declined more than expected to 22.7 from 27.9 in October, but a reading above zero indicates expansion. This compared to estimates of a decline to 24.6.

The Import Price Index (chart) rose 0.2% m/m for October, below projections of a 0.4% gain, following September's upwardly revised 0.8% rise. Compared to last year, prices were up by 2.5%, in line with forecasts and compared to September's unrevised 2.7% increase.

Treasuries finished lower, with the yield on the 2-year note gaining 3 basis points (bps) to 1.71%, the yield on the 10-year note increasing 5 bps to 2.37%, and the 30-year bond rate advancing 6 bps to 2.82%.

Treasury yields and the U.S. dollar rebounded somewhat from recent pressure that came from a flare-up in global risk aversion on the heels of the world stock market rally as of late. Festering U.S. tax reform uncertainty—today the House passed its bill to overhaul the tax code, which has some significant differences from the Senate's version—has fostered the change in conviction. This has countered a relatively positive economic landscape, while recent soft Chinese economic data and market skittishness as the yield curve has flattened have exacerbated sentiment. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Tomorrow's domestic docket will also yield the November Kansas City Fed Manufacturing Index, forecasted to dip to 21 from 23 in October, though a reading above 0 indicates growth in activity.

Europe recovers on data, Asia rebounds from recent slide

European equity markets traded higher, rebounding from the recent string of losses that has come from an apparent change in global sentiment to de-risking, while disappointing Chinese economic data as of late has weighed on commodity-related stocks. Some upbeat earnings data in the region teamed up with a rebound in eurozone new car registrations to support the recovery in the markets, while the energy sector remained under pressure as crude oil prices extended a recent selloff. Eurozone consumer price inflation rose in line with forecasts. The euro declined versus the U.S. dollar and the British pound rose following a better-than-expected U.K. retail sales report, while bond yields in the region finished mixed. Gains for Italian stocks and Europe's financial sector were limited by a drop in shares of Italy's banks. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, momentum favors the bulls for the foreseeable future, but elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

Asian stocks mostly rebounded from the recent pullback, with the yen giving back some of its gains seen as of late as the global markets have stumbled amid a flare-up in risk aversion, while overnight stabilization in crude oil prices helped the energy sector recover somewhat. Japanese equities rallied, while Australian securities were also higher, with a softer-than-expected read on the nation's employment growth limiting gains. Mainland Chinese shares dipped and stocks trading in Hong Kong advanced with the recent soft economic data being met with some upbeat earnings results. Indian equities gained ground and South Korean shares advanced. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade in his latest article, 5 Reasons Investors Should Give Thanks.

International economic releases for tomorrow will be light, with new vehicle sales from Australia and the current account and construction output from the Eurozone.

Markets Back to Winning Ways

Charles Schwab: On the Market

Posted: 10/10/2017 4:15 PM EDT

Markets Back to Winning Ways

 

The U.S. equity markets finished higher, despite continued domestic and global political uncertainties, and a slight cooling in small business sentiment. Dow member Wal-Mart's $20 billion share buyback plan and upbeat sales outlook gave the consumer staples sector a boost, and the hotly-contested proxy fight surrounding Dow component Procter & Gamble was also in focus. Treasury yields and the U.S. dollar were lower after recent rallies, while gold and crude oil prices were higher. 

The Dow Jones Industrial Average (DJIA) increased 70 points (0.3%) to 22,831, the S&P 500 Index gained 6 points (0.2%) to 2,551, and the Nasdaq Composite added 7 points (0.1%) to 6,587. In moderate volume, 709 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.34 to $50.92 per barrel and wholesale gasoline was $0.03 higher at $1.59 per gallon. Elsewhere, the Bloomberg gold spot price was up $4.42 to $1,288.47 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 93.24.

Dow member Wal-Mart Stores Inc. (WMT $84) announced at its analyst day a new $20.0 billion share repurchase program and reiterated its earnings guidance for the current year. The company issued a profit outlook for the following year that had a midpoint that was below forecasts, but said it expects sales growth at or above 3.0%, driven by same-store sales and eCommerce growth. Shares rallied.

Dow component Pfizer Inc. (PFE $36) reported that it is reviewing strategic alternatives for its consumer healthcare business, with options ranging from a full or partial separation through a spin-off, as well as a sale or other transaction, but it may ultimately determine to retain the business. Shares were little changed.

Honeywell International Inc. (HON $143) announced that it plans to separately spin off its homes product portfolio and ADI global distribution business, as well as its transportation systems business, into two stand-alone, publicly-traded companies. Shares were slightly lower.

Dow member Procter & Gamble Co. (PG $92) was in focus today as the company held a highly-anticipated and hotly-contested shareholder vote. PG said after the vote that activist investor Nelson Peltz, who runs Trian Fund Management, was not elected to the company's Board. Peltz told CNBC that the vote was too close to call and Trian is awaiting certification by an independent inspector, adding that no matter how the vote goes, PG should add him to the Board. PG said it is encouraged that shareholders recognize it is a profoundly different, much stronger, more profitable company than just a few years ago. Shares finished lower.

Small business optimism declines

The National Federation of Independent Business (NFIB) Small Business Optimism Index for September fell to 103.0, from August's unrevised 105.3 level, versus the Bloomberg expectation of a dip to 105.0.

Treasuries were slightly higher, as the yield on the 2-year note was flat at 1.50%, while the yields on the 10-year note and the 30-year bond declined 1 basis point to 2.35% and 2.88%, respectively.
Bond yields and the U.S. dollar have given back some of recent rallies to multi-month highs. Uncertainty appears to be ramping up regarding if the tax-reform framework can avoid being derailed as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend, in his article, Tax Reform Framework Released, But The Road Ahead Is Long.

Interest rates and the greenback have received a boost from elevated December Fed rate hike expectations and the Central Bank's plan to begin to shrink its massive balance sheet this month, as well as an upbeat global economic backdrop, which has also seen signs that inflation may be nudging higher. Global market attention on inflation is ramping up and Schwab's Chief Investment Strategist Liz Ann Sonders notes that with wage growth picking up and the labor market even tighter, it’s time to put even traditional measures of inflation back on the radar screen in her article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?.

Also, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, points out in his commentary, Inflation May Be The Biggest Question For Investors In 2018, that central banks are behaving as if wages and inflation will revive in the year ahead. If they don’t, and central banks don’t alter their policy path, the global stock markets could be in for a rough 2018. Read these articles and other timely commentary from our Schwab experts on the Market Commentary page at www.schwab.com. Follow Liz Ann, Jeff and Schwab on Twitter: @lizannsonders, @jeffreykleintop, and @schwabresearch.

Tomorrow's economic calendar will provide investors a look at the job market via the Job Openings and Labor Turnover Survey (JOLTS), with the measure of unmet demand for labor forecasted to show 6.1 million jobs were available to be filled in August, a slight downtick from the 6.2 million posted in July, as well as MBA Mortgage Applications. In afternoon action, the Fed will release the minutes from its September monetary policy meeting.

Europe mostly lower despite data, Asia mostly higher as markets return to action
European equity markets finished mostly lower, despite stronger-than-expected manufacturing and industrial production reports out of the U.K. and a larger-than-projected rise in German exports, which likely preserved the positive global economic sentiment. However, political uncertainty continued to hamper the Spanish markets, with a speech by the Catalan leader later today being highly anticipated to see if he declares independence following last week's referendum that was deemed illegal by national authorities. After the close of the markets, the Catalan President treaded cautiously in his remarks, looking to initiate talks with the government in Madrid as opposed to an outright declaration of independence. Also, Brexit and political uncertainty in the U.K. festered as Prime Minister Theresa May's speech yesterday afternoon detailing a two-year transition period after exiting the European Union as digested as the fifth round of negotiations continue.

For analysis, see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick. The British pound and the euro traded higher versus the U.S. dollar and bond yields in the region finished mixed. Fed leadership uncertainty remains, along with hawkish sentiment toward the European Central Bank and the Bank of England. As such, Schwab's Jeffrey Kleintop, CFA, offers analysis in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com.

Stocks in Asia finished mostly higher despite the slip in the U.S. yesterday, with global economic optimism continuing to buoy sentiment, while Japanese markets returned to action following yesterday's holiday and South Korean markets coming back after more than a week-long break. Japanese equities advanced, and South Korean securities rallied sharply to catch up to the global markets' run over the past week. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discussion in the video, Are Investors Underestimating the Stock Market Rally?, on the Insights & Ideas page at www.schwab.com. Meanwhile, mainland Chinese stocks and those traded in Hong Kong and India all traded higher, though markets in Australia finished flat.

The international economic calendar for tomorrow will hold consumer sentiment from Australia, core machinery orders from Japan, and CPI from Spain.

Financial Review

Relatively Soon

Sinclair Noe — October 12, 2016

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

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DOW + 15 = 18,144
SPX + 2 = 2139
NAS – 7 = 5239
10 Y + .02 = 1.79%
OIL – .24 = 49.94
GOLD + 2.50 = 1255.90

September’s Federal Open Market Committee meeting featured something not often seen since Janet Yellen took over as chair: honest-to-goodness dissent. Three of the FOMC’s 10 voting members opposed the final statement, even as the majority of central bank officials voted to keep its interest rate target anchored at 0.25 percent to 0.5 percent.

The Fed said in a statement after its September meeting that the case for a rate increase had “strengthened.” Today we saw the minutes of the FOMC meeting and it looks like a rate hike could come “relatively soon” if the economy continues to advance at a reasonable pace.

The account, released after a standard three-week delay, said some of the officials who voted to wait viewed the decision as a “close call.” Here’s a key quote from the minutes:
“It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.

A couple of members emphasized that a cautious approach to removing accommodation was warranted given the proximity of policy rates to the effective lower bound, as the committee had more scope to increase policy rates, if necessary, than to reduce them.”

Today, New York Fed President William Dudley said, “I think we can be quite gentle as we go in terms of gradually removing monetary policy accommodation.” So, not much urgency there, but really it looks like rates will move higher.

Wells Fargo CEO John Stumpf will retire, effective immediately; which sounds more like he was fired than retired; or at least the writing was on the wall. The problem – Wells Fargo set up 2 million fake accounts to meet sales targets.

Predictably, Wells Fargo directors deflected the blame from themselves and instead blamed rampaging hordes of renegade junior staff for opening up the unauthorized accounts to meet cross selling sales goals. Stumpf claimed 5,300 unscrupulous employees were fired for opening false accounts and he encouraged the good remaining employees to call an Ethics Hotline to report problems.

One problem is that when employees called the hotline – they were fired. Wells Fargo got hit with a $185 million fine but more significantly investors are now worried that its business model is broken. WFC has pledged to the regulator that it will now scrap all product sales goals for its retail banking staff. The bank reports its third-quarter results on Friday.

The Bureau of Labor Stats monthly JOLT survey shows monthly jobs openings decreased in August to 5.4 million. The number of quits was essentially unchanged at 3.0 million in August. The quits rate was 2.1%. The numbers of hires was 5.2 million in August, also little changed from July. The hiring rate was 3.6%, unchanged from the prior month.

Total mortgage application volume fell 6 percent for the week ended Oct. 7. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 3.68 percent, from 3.62 percent.

Many Americans are dangerously at risk of being victims of credit card fraud and as many as 41 million U.S. adults have already had their identity stolen, according to a Bankrate survey. Another 49 million know someone who has been affected. Hacked credit card fraud will reach a record $4 billion this year.

A U.S. Navy destroyer was targeted on Wednesday in a failed missile attack from territory in Yemen controlled by Iran-aligned Houthi rebels, the second such incident in four days. The USS Mason fired defensive salvos in response to at least one missile which did not hit the ship.

The White House recently allowed the sale of F-15 fighter jets to Qatar; it’s a 36 jet deal valued at up to $4 billion, with options for up to 72 fighters. Now comes word Qatar Airways will buy 100 Boeing Jetliners in a deal worth $18.6 billion. The airliner deal includes the purchase of 30 787-9 Dreamliners and 10 777-ER aircraft, valued at $11.7 billion. Boeing builds the F-15 in St. Louis. Boeing builds commercial aircraft in Seattle. The deal could affect 104,000 jobs across America.

OPEC reported an increase in its oil production in September to the highest in at least eight years and raised its forecast for 2017 non-OPEC supply growth, pointing to a larger surplus next year despite the group’s deal to cut output.

Steel demand will improve in 2017. The World Steel Association says stronger-than-expected demand from China and emerging markets will boost global demand by 0.5% in 2017.

U.K. Prime Minister Theresa May accepted that Parliament should be allowed to vote on her strategy for taking Britain out of the European Union as lawmakers who want to keep closer ties to the bloc began to assert themselves. The pound climbed against all of its 31 major peers as May’s move was seen as a conciliatory gesture, calming investor concern that she was taking a gung-ho approach to negotiations with the EU.

The growing product safety crisis at Samsung prompted the company to cut its third quarter operating guidance by 33% to $4.6 billion. The South Korean company is also contending with a new report on an exploding washing machine in the US. So, if you were wondering how much the exploding Galaxy Note 7 problem was going to cost Samsung, the answer is $2.3 billion. But that’s just a starting point. The company’s market capitalization has plunged recently, and then there is the reputational damage.

Apple had a rough back-to-school season in personal-computer sales, while Alphabet’s low-price Chromebooks were a big hit for students. International Data Corp. and Gartner reported tabulations of PC sales for the third quarter, and both analyses showed huge drops for Apple’s Mac sales in the important back-to-school quarter – down about 13%. While Lenovo maintained its crown as the top PC manufacturer, its lead over HP narrowed in the third quarter, both studies found.

IDC reported a near-tie between the two companies, with Lenovo holding 21.3% of the market and HP at 21.2%, up from 19.7% in the same quarter last year. Both studies also showed continuing consolidation of the PC market as those top manufacturers grow more dominant. IDC said the top three vendors controlled 58% of the market in the third quarter, up from 55% a year ago and 51% in 2014; Gartner noted the top six vendors in its survey enjoyed a record 78% of the market.

Deutsche Bank is raising more cash. Yesterday, the bank raised $1.5 billion through the sale of five-year notes. That comes after Friday’s offering that raised $3 billion. It sold the debt at a premium of 290 basis points, or slightly lower than the 300 bps seen at the Oct. 7 sale, but still twice that demanded in a public issue of similar notes back in August 2015. Elsewhere in the world of embattled European financials, Lloyds Banking Group is cutting 1,340 jobs.

Stanley Black & Decker announced a deal to buy Newell Brands’ tools business for $1.95 billion in cash. Stanley said it expects the acquisition, which is expected to close in first half of 2017, to add an adjusted 15 cents a share to earnings in the first year.

Wal-mart, the country’s biggest private employer hiked its minimum salary for store managers in anticipation of the Labor Department’s overtime rule, set to take effect December 1. The rule will double (to $47,476) the salary threshold under which virtually all workers are guaranteed time-and-a-half pay whenever they work more than 40 hours in a given week. Entry-level managers at Walmart were making $45,000 when the rule came out in May, but starting in September they made $48,500.

Jack Ma has ambitious plans to create a group trading platform for small businesses and farmers. The Alibaba chairman envisions an open e-commerce system that would include cross-nation agricultural trading. Ma says the long-term goal for Alibaba is to quintuple its user base to 2 billion by 2036.

For 4 days in September, Facebook posted a 17-word reminder for users to register to vote. It worked. In California, 123,279 people registered to vote or updated their registrations on Friday, Sept. 23, the first day that Facebook users were presented with the reminder. That was the fourth-highest daily total in the history of the state’s online registration site.

Indiana recorded its third-highest daily online registration total ever. Minnesota broke its record for the most online voter registrations in a single week. In Connecticut, 14,883 people registered to vote in the first three days of the Facebook campaign, a more than 12-fold increase over the same period a week earlier.

Now, let’s play a little game? We’ll try to guess your age and sex. Did you see the reminder from Facebook? If you answer “no”, you are probably an older male. If you answer “yes” you are probably between probably younger (ages 18-35) and female.

Financial Review

Waiting for the Storm

Sinclair Noe — October 6, 2016

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

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DOW – 12 = 18,268
SPX + 1 = 2160
NAS – 9 = 5306
10 Y + .03 = 1.74%
OIL + .73 = 50.56
GOLD – 11.30 = 1256.20

The number of people who applied for unemployment benefits fell by 5,000 to 249,000 at the end of September. This marks 83 consecutive weeks of initial claims below 300,000, the longest streak since 1970. Tomorrow the Labor Department reports on how many people found jobs in September; the consensus estimate is calling for about 170,000 new jobs in the last month.

With unemployment near the lowest level since before the last recession, employers are having to offer more incentives to attract skilled workers to blue-collar truck driving and construction jobs.

Tomorrow’s jobs report could provide clues to the timing of the Fed’s next interest rate rise. If the tight jobs market means average hourly earnings rose more than the projected 0.3 percent, the chances of a hike this year could easily increase beyond the current market-implied 61 percent.

Traders are taking the Fed’s November meeting off the table for two reasons: its closeness to the elections could have aggravated political and market consequences, and the Fed may want to avoid raising rates at meetings without scheduled press conferences. There will be two more jobs reports before the Fed’s December meeting. And so, reading the Fed tea leaves based on this report may be premature, unless we get a very dramatic number tomorrow.

Now, when we see the report that weekly claims for jobless benefits are at the lowest levels in 46 years, you might think that is a sure sign that the labor market is very strong. Not necessarily. The labor market is certainly much stronger than it was 5 or 6 years ago, but one reason why claims for unemployment benefits are so low is because fewer people are eligible to make claims, with just over one in four jobless workers (27 percent) receiving unemployment insurance benefits in 2015. Just since 2011, the proportion of jobless workers receiving unemployment insurance plunged from 67% to a measly 27%. From two-thirds to just one in four.

Global outplacement consultancy Challenger, Gray & Christmas reports employers announced plans to cut 44,324 jobs last month; that’s a 38% increase from August, but 25% less than September a year ago.

A fresh report from the Freelancers Union now shows that nearly 55 million Americans are freelancing. If you tally this up against the Labor Department data, it means that 35% of the work force is made up of freelancers. The view is that the number of freelancers is growing and that the freelance economy has added 2 million workers since 2014. The report also shows that these independent workers are “emerging as a powerful economic and political force” and that freelancers contributed $1 trillion dollars to the economy this year.

Consumer loan delinquencies fell to the lowest on record in the second quarter of the year. The American Bankers Association’s index, which tracks late payments in eight categories, fell 3 basis points to 1.35, a record low. Delinquency rates held below the 15-year average of 2.21% for the third year.

Hurricane Matthew, the fiercest Caribbean storm in nearly a decade, slammed into the Bahamas this morning. Haiti now reports more than 100 dead. Now, it is gathering strength and is expected to slam into Florida in the next 4 to 6 hours as a Category 4 hurricane with sustained winds of about 140 miles per hour and a storm surge up to 11 feet. It might even grow into a Category 5.

The National Hurricane Center extended its hurricane warning area farther north into Georgia and more than 12 million US residents are under hurricane watches and warnings. More than 1.5 million Floridians have been told to evacuate.   Efforts to prepare for the deadly storm have resulted in massive gas lines and empty store shelves as residents either get out of town or bulk up on supplies to ride out the storm.

Airlines have cancelled flights from Florida to the Carolinas. Airlines have cancelled more than 3,000 flights. Expect delays everywhere. Twelve U.S. power generators, including two nuclear plants, are in the storm’s path. The risk to Florida’s orange crop is “minimal” because the worst weather will be along the coast.

Evacuations could push storm damage to $10 billion to $15 billion in losses related to economic disruption, and total losses could top out around $50 billion. Shares of publicly-traded property and causality companies are taking it on the chin as Hurricane Matthew bears down on the Florida, Georgia, and South Carolina coasts.

Shares in Twitter fell hard this morning after technology news site Recode reported that Google doesn’t currently plan to make a bid for the company. Recode also said Disney and Apple are unlikely to bid. That leaves Salesforce.com as a possible suitor, although some analysts say an acquisition could hurt Salesforce more than it helps.

Snapchat has begun preparing filings for an initial public offering and is aiming to sell shares in the first quarter of next year. The Wall Street Journal estimates the social media site known for its disappearing texts and photos could fetch a market value of at least $25 billion.

Looking to gain an even more dominant position in retail, Wal-Mart is accelerating its investment in e-commerce. The company is on track to double the number of warehouses dedicated to online sales by the end of 2016 and has installed technology that for the first time puts them on par with Amazon’s robot-staffed facilities.

Wal-Mart tempered its profit forecast for the next two fiscal years due to investments in its online business. Wal-Mart said it expected flat earnings for the year ending on Jan. 31, 2018, with capital expenditures of about $11 billion. It had previously forecast profit growth. New store growth will slow significantly. The retailer expects to build 35 new supercenters in fiscal 2018, down from 69 last year. Even growth of the company’s smaller format Neighborhood Markets will slow, down to 20 new stores in fiscal 2018 from 161 built last year.

Mylan overcharged the government for the EpiPen. The drug company classified the EpiPen allergy treatment as a generic, allowing it to have inflation protections with Medicaid that are not available to branded drugs. Makers of brand-name drugs have to pay higher rebates to states than generics — 23.1% versus 13%. Also, they have to pay additional rebates if their price increases rise more than inflation. So by having EpiPen classified as a generic Mylan saved itself a bunch of money.

Back in 2009, Mylan paid a $124 million fine for misclassifying its drugs and under-paying rebates this way. It is the responsibility of the manufacturer to maintain accurate information of its drug’s status. From 2011 to 2015, government spending on EpiPen increased 463%, from $86 million to $487 million. As of now, the Centers for Medicare & Medicaid Services are unsure exactly how much they were overcharged.

Theranos fired 40% of its workforce. Life sciences company Theranos will close its clinical labs and fire 340 people, founder Elizabeth Holmes said in an open letter. The company said it is no longer focusing on blood-testing after serious questions were raised about the effectiveness of its novel method, but will develop products for outside labs.

One of Deutsche Bank’s problems might have gone away. German financial regulators say they found no evidence to date that the lender violated rules on money laundering in Russia. The stakes are still high for Deutsche Bank as German government officials quietly meet with U.S. regulators in Washington to broker a deal that would reduce the Justice Department’s $14 billion proposed settlement for mortgage backed securities mis-deeds dating back to the financial crisis. Last week, there was a rumor that the DOJ might accept a $5.4 billion fine. With talks ongoing, it looks like the two sides have not come up with a mutually acceptable resolution.

Southwest Airlines Flight 994 was scheduled to depart Louisville for Baltimore yesterday. The flight was cancelled and the plane was evacuated after a passenger’s Samsung smartphone caught fire. And we have all heard the stories of Samsung phones catching fire. The company, which is announced last month that it would replace 2.5 million of the Galaxy Note 7 phones because of a flaw in the battery’s cell that could result in the devices bursting into flames or exploding…, but this phone was a replacement. The passenger sent his old phone in to be replaced with a new battery, and it still caught fire.

The United Nations has organized the first international pact to reduce the airline industry’s carbon emissions. And the airline industry supported the deal. But there’s some fine print. The restrictions won’t even be set for several more years, and emissions will be capped at 2020 levels, and may indeed rise before then, and the standards won’t become mandatory until 2027. And airlines won’t necessarily have to burn less fuel; emissions beyond the 2020 levels could be offset with investments in renewable energy projects and environmental programs. Aviation contributes about 2% of the world’s carbon emissions.

The town of Summit, New Jersey has hired UBER to provide free rides for commuters to and from its train station under a new six-month pilot aimed at solving its downtown parking crisis. Uber is looking at similar arrangements with “another half dozen” towns along the NJ Transit rail line, and that the model could extend to other states in time.

Financial Review

Blue Light Special

Sinclair Noe — February 19, 2015

 

Podcast: Play in new window | Download (Duration: 13:17 — 6.1MB)

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DOW – 44 = 17,985
SPX – 2 = 2097
NAS + 18 = 4924
10 YR YLD + .04 = 2.11%
OIL – .77 = 51.37
GOLD – 6.10 = 1208.20
SILV – .12 = 16.48

The S&P 500 is up 5.2 percent in February, rebounding from a January slump. If the index holds those gains it will be the best monthly performance since October 2011.

Crude-oil futures fell to the lowest level in a week, after data showed inventories have built up much faster than expected. According to a report from the American Petroleum Institute late yesterday, US crude stocks rose by 14.3 million barrels last week vs. expectations of a 3.2 million. The today the US Energy Information Administration released a report showing crude inventories rose 7.7 million barrels for the week ended Feb. 13; that was about double expectations, but far less than the API report. And prices bounced back.

The latest EIA data peg total commercial crude inventories at 425 million barrels, with the government referring to the total as “the highest level for this time of year in at least the last 80 years.” One possible reason for the rising inventories is that there has been a United Steelworkers strike at 11 refineries that account for 13% of US output capacity.  A slowdown in refining would lessen the demand for crude oil. Another possible reason why inventories continue to rise is that most domestic oil drillers have taken on debt, and they have to keep pumping oil to service that debt, at least for now.

The number of Americans filing new claims for unemployment benefits fell more than expected last week, offering fresh evidence that the labor market was gathering steam. Initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 283,000 for the week ended Feb. 14.

Leading U.S. economic indicators edged up 0.2% in January, and the December index was revised lower to 0.4%. The Conference Board said the lack of strong momentum in residential construction, along with a weak outlook for new orders in manufacturing, poses a downside risk for the US economy.

The Arizona Regional Multiple Listing Service (ARMLS) reports that for the second consecutive month, inventory in the Phoenix residential real estate market was down year-over-year. Active inventory is now down 4.9% year-over-year. Housing prices bottomed in Phoenix is 2011 at about the current level of inventory. Overall sales in January were down 0.3% year-over-year. And cash sales were down 12% to 32% of total sales. Now, with tighter inventory, we might see a little more price appreciation in 2015.

Greece has submitted a formal request for a six-month loan extension, and it looks like the new Greek government blinked; they pledged to abide by all its previous commitments and recognize the bailout as legally binding. However, the wording of its first point implied that Greece wants to haggle over implementing reforms demanded by the original bailout agreement. Even so, the request is still a major climbdown for the new government, led by Tsipras’ radical left-wing Syriza party, which swept to power on a pledge to overthrow the bailout agreement in January and subsequently declared it “dead”. It pledges to honor all of Greece’s debts and, just as importantly, to continue accepting monitoring visits from the three institutions that have overseen Athens’ implementation of the bailout to date, the hated “troika” of European Central Bank, the International Monetary Fund and the European Commission.

And this morning, Germany rejected the request for bridge financing. The Germans called the proposal a Trojan Horse, that looks to end the current bailout program and acquire bridge financing. Greece’s current €240 billion ($273 billion) financing arrangement expires as the end of this month. After that, the country would find itself cut off from European and International Monetary Fund loans that have kept it afloat for five years. A Greek government spokesman insisted that the eurogroup had only two options: either to accept or reject the Greek request. “It will then be clear who wants to find a solution and who doesn’t.”

Euro-region finance ministers will make a “detailed assessment” of the request and formulate a response later today.

Japanese exports surged in January, providing more evidence that the world’s third largest economy is slowly climbing out of recession. Exports rose by 17% on year last month, their biggest jump since late 2013, while imports in January contracted 9% Y/Y. Helped by gains in financial and shipping companies, Tokyo’s Nikkei touched its highest level since May 2000, that’s a 15 year high. The GDP numbers out yesterday showed the world’s third-largest economy emerging from a brief recession—if you use the conventional definition of two straight quarters of contracting GDP.

True, that was about half the 3.7% analysts had forecasted. But it’s a welcome development, especially given that export growth was a key driver of the quarter. The weak yen engineered by the Bank of Japan seems to be giving a spark to Japan’s important exporting sector.

The key question for the future of Japanese growth is how consumer demand responds. For the moment, Japanese consumers, like consumers worldwide, are getting a real wage raise thanks to declining energy prices. But to create sustainable consumer growth, corporations have to be convinced to give workers a larger cut of profits. It just might be possible. The largest employer in the US, Wal-Mart, signaled today that it was going to begin raising wages for its workforce, in a nod to both rising political pressure and tightening labor markets. Similar dynamics are in place in Japan.

Wal-Mart reported fourth-quarter profit rose to $4.97 billion, or $1.53 a share, from $4.43 billion, or $1.36 a share, a year ago.  Sales rose to $131.6 billion from $129.7 billion. Wal-Mart missed on both the top and bottom line. But the big news from Wal-mart is that the company said it will give raises to about 500,000 full-time and part time employees and ensure hourly employees earn at least $9 an hour, $1.75 above federal minimum wage. By Feb. 1, 2016, current employees will earn at least $10 an hour.

The company also said it would strengthen a “department manager” role, giving it a minimum wage of $13 per hour this year and $15 next, thus offering low-wage hourly workers a clearer path to advancement. Including similar bumps at Walmart-owned Sam’s Clubs, the company expects 500,000 workers to receive a raise at a cost of $1 billion a year.

That all sounds good and magnanimous, but Wal-Mart was more or less dragged, kicking and screaming to this moment. Over the past three years, Wal-Mart has faced a wave of union-backed attacks: legal, political, media, and consumer pressure, anchored by the first coordinated store walkouts in the company’s history.

Back in its 2007 fiscal year, before the recession, Walmart reported $183,500 in revenue per employee and $5,938 in profit. Not bad, but by 2014 those numbers had risen 18 percent and 22 percent. The company’s sales and profits rose nicely in that time while the company kept a lid on its payroll. Gains went to Walmart shareholders, not Walmart workers. Of course, it takes a lot of people to run a Wal-Mart store, and the unemployment rate has dropped down to 5.7%, meaning Wal-Mart now faces competition for workers.

The decision is likely to ripple across the economy and will undoubtedly lead to similar moves by other companies. Indeed, Wal-Mart is not the first to raise wages, just the biggest; and as the biggest, it sets a standard for the entire retail industry. Walmart CEO Doug McMillon told analysts higher wages lead to a better experience for workers and customers, “which can drive higher sales and returns for our shareholders.” In Walmart’s case, many of the 1.3 million US workers are also customers that can spend their extra dollars at Wal-Mart. And most Wal-Mart workers will spend their paychecks as soon as they are cashed. It still is just about $1 billion in wage increases, and so don’t look for a big change in economic numbers on a nationwide level. All things equal, that amounts to a gain of 0.097% in average hourly earnings for retail workers. For all workers, that translates into a rise of 0.01% — basically, nothing. But it is a step in the right direction.

We’ve all heard the stories of cybersecurity breaches and hack attacks. Maybe you wonder how hackers manage to hack what should be secure computers. Well, in the case of Lenovo, the world’s largest PC maker, they pre-installed a virus-like software on laptops that makes the devices more vulnerable to hacking. Users reported as early as last June that a program called Superfish pre-installed by Lenovo on consumer laptops was ‘adware’, or software that automatically displays adverts. Superfish was malicious software that hijacks and throws open encrypted connections, paving the way for hackers to also commandeer these connections and eavesdrop, in what is known as a man-in-the-middle attack.

The Los Angeles Times reports that two medical scopes used at UCLA’s Ronald Reagan Medical Center may have been contaminated with the potentially deadly, antibiotic-resistant bacteria known as CRE. Two patients have died from complications that may be connected to the bacteria, and authorities believe that 179 more patients have been exposed. The really scary part of this is that infections occurred even though the instruments had been cleaned according to the manufacturer’s instructions.

Most healthy people aren’t at risk of catching a CRE infection, but in hospitals this bacteria can be quite dangerous: CRE kills as many as half of all people in whom the infection has spread to the bloodstream. The Centers for Disease Control and Prevention (CDC) are working with the California Department of Public Health to investigate the situation, which is expected to result in more infections.

The problem isn’t just in Los Angeles, though. Last month, USA Today reported that hospitals around the country struggle with transmissions of bacteria on these scopes—medical devices commonly used to treat digestive-system problems—and there have been several other under-the-radar outbreaks of CRE.

Samsung Electronics has acquired mobile wallet startup LoopPay, indicating its intention to launch a smartphone payments service to compete with Apple Pay and others. Despite strong backing, mobile payments have been slow to catch on, as many retailers have been reluctant to adopt the infrastructure required for the mobile payment options to work. LoopPay, however, works off existing magnetic-stripe card readers by transmitting a magnetic signal similar to that of a swiped card, putting Samsung at an advantage.

FINANCIAL REVIEW

War, Pay Phones, Small Business and Big Banks

Sinclair Noe — September 24, 2014

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Financial Review

Podcast: Play in new window | Download (Duration: 13:15 — 6.1MB)

DOW + 154 = 17,210
SPX + 15 = 1998
NAS + 46 = 4555
10 YR YLD + .03 = 2.57%
OIL + 1.18 = 92.80
GOLD – 6.30 = 1217.60
SILV – .11 = 17.78

President Obama addressed the United Nations General Assembly today. He condemned ISIS, and said there was no reasoning and no negotiation with their brand of evil. He said the US “will work with a broad coalition to dismantle this network of death”; that coalition is now up to 40 countries. He urged Muslims to reject the ideology of ISIS and al-Qaeda. He also announced a US warplanes hit ISIS vehicles and arms dumps in new air strikes in Iraq and Syria. ISIS continues to advance in Syria and aid agencies report some 130,000 Kurdish refugees have crossed into Turkey in the past few days. An Algerian jihadist group linked to ISIS has released a video which it says shows militants beheading a French tourist.

The president’s speech also criticized Russia for the recent invasion of Ukraine. Today, NATO reports Russia has withdrawn a sizable number of its troops from eastern Ukraine, although some remain. Russian backed rebels in the region said they had begun pulling back their heavy artillery after Ukrainian troops did the same. For now, the cease fire appears to be holding.

The stock market recovered after three days of losses; for the Dow Industrials it was two days of triple digit declines. Not much in the way of economic news today. New home sales were up 18% in August. In a separate report, the Mortgage Bankers Association said applications for loans to purchase homes fell last week as mortgage rates crept up. New loan applications are well off peaks seen early last year. Yesterday, the NAR reported existing home sales had flat lined, with both “cash sales” and “sales to investors” dropping, or rather plunging since late 2013. Every month since late last year, existing home sales have been below their year-ago levels. Bad news for flippers. Looking at the bigger picture it might give some hints to family formation, or lack thereof. For economists, it might serve as a lesson that rising home prices are a symptom of economic strength, not a cause; and you can’t sustain rising home prices without rising wages.

European Central Bank President Mario Draghi renewed a pledge to keep monetary policy loose for an extended period. The euro dropped below $1.28. The dollar has now posted gains for 10 straight weeks, pushing the dollar index above 85 for the first time since July 2010. A stronger dollar likely means lower prices on basic commodities; it also serves as stimulus for the Eurozone and Japan, making their exports cheaper; and a strong dollar might even fuel another round of M&A activity; also, this might be a great time to take a European vacation.

You’ve heard the stories of data breaches at Target, and then the big one at Home Depot, potentially affecting some 56 million customers; now add Jimmy John’s to the list; 216 stores of the restaurant chain were involved in a security breach on July 30. There has to be a more secure way to buy a sandwich. The security breach at Home Depot is now resulting in fraudulent transactions that may be draining cash from some customer bank accounts as criminals use stolen card information to buy prepaid cards, electronics, groceries, or whatever. Financial institutions are also stepping up efforts to block the transactions by rejecting them if they appear unusual. Best advice is to keep a close eye on your own accounts.

Some people think the next big thing is Apple Pay; it doesn’t store credit card data and Apple fingerprint reading technology could provide an extra layer of security, but it’s a long way from being ubiquitous. It is estimated Apple could end up taking in around $90 million in transaction fees from Apple Pay next year, climbing to more than $300 million by 2016. That should make payments absolutely, super-duper safe and secure.

Meanwhile, Apple announced it is pulling its latest update of the new iOS 8 operating system, which they sent out to fix the glitches in its new HealthKit app. The problem with the update is that people who installed it lost the fingerprinting ID capability and phone calls kept getting dropped. Other than that, how did you enjoy the play Mrs. Lincoln?

Remember Blackberry. Once upon a time Blackberry was the cool mobile phone, and then Apple became the cool mobile phone and Blackberry was so square. Well, they’ve embraced that. Blackberry introduced a new phone today, it’s called the Passport, and the screen is square, not rectangular, so it won’t fit in any pocket.

Wal-Mart thinks the next big thing is a Wal-Mart checking account; they will partner with Green Dot to offer checking accounts accessible by mobile phones, and it comes with a debit card, and monthly fees are waived if you use direct deposit, and it doesn’t rely on credit scores or credit bureau ratings. Wal-Mart is trying to tap into the vast “unbanked” market, which now gets raked over the coals at check cashing stores.

Earlier today, it was reported that the Securities and Exchange Commission has been investigating whether bond fund manager Pimco inflated the returns of its Total Return Exchange Traded Fund run by founder Bill Gross. The probe is said to have sped up in recent weeks but has been going on for “at least a year.” Which means that it was happening when Mohamed El-Erian announced he was leaving the firm.

Investigators from the SEC’s enforcement division are examining whether the $3.6 billion Pimco Total Return ETF bought investments at discounted prices but relied on higher valuations for the investments when the fund calculated the value of its holdings shortly thereafter. Such a maneuver could make it seem as though the ETF had scored quick gains when it was in fact taking advantage of variations in the way some investments are valued in the bond market; which is another way of saying Pimco may have provided inaccurate information about the fund’s performance.

Do you remember where you were in 1988? Do you remember where you worked? Do you remember what you were paid? If you can’t remember what you were paid 26 years ago, don’t worry, there’s a good chance it is the same as today. The economic recovery has yet to translate into higher incomes for the typical American family. After adjusting for inflation, US median household income is still 8% lower than it was before the recession, 9% lower than at its peak in 1999, and essentially unchanged since the end of the Reagan administration. And the income of the median US household is just under $52,000; the same as it was in 1988. Now granted, that number, reported last week in the latest income and poverty data, is based on median income; also, it refers to households, and the typical household has changed over the years. Still…

Six years ago the financial crisis hit Wall Street, turning a housing crisis that was already hammering Main Street into the worst recession since the Great Depression. Job losses averaged nearly 800,000 per month between November 2008 and April 2009 as the unemployment rate climbed. The economy contracted at a rate of 8.3% between the fourth quarter of 2008 and the first quarter of 2009. The crisis hit businesses big and small, but it hit small business harder.

Jobs at small businesses fell 60% from the pre-crisis peak in December 2007 until the private sector started adding jobs again in February 2010. That represents a decline that is 40% larger than the fall in jobs among larger businesses. This is especially problematic because small businesses employ half of the private sector workforce, and since 1995 small businesses have created about two out of every three net new jobs, or 65% of total net job creation. Small businesses have created jobs in every quarter since 2010, and are back to creating two out of every three net new jobs, but still remain well below the job creation levels that we need to see to fill the “jobs gap” left in the wake the recession.

Part of the decline in job creation has also been due to anemic new business formation. Over the past 20 years, businesses less than two years-old accounted for one-quarter of gross job creation even though they employed less than 10% of workers. But, during the crisis new business formation fell sharply. In the decade prior to the crisis, more than 620,000 firms were started every year. But, starts have averaged just about 550,000 annually since 2009, a decline of about 11%. And small business just keeps getting smaller; in 2000, the average new firm had 7.7 employees; by 2010, that number had declined to 5.5.

The formation and growth of small businesses depends on well-functioning credit markets, but throughout the recession and even during the recovery today critical parts of our credit markets are shut for small firms. Small business loans on the balance sheets of banks are down about 20% since the financial crisis; meanwhile, loans to larger businesses have risen by about 4% over the same period. The Federal Reserve Bank of New York reports that 37% of all small businesses applied for credit in the fall of 2013. About 45% did not apply, presumably because they did not need credit, but about 20% did not apply because they were discouraged from doing so. Of businesses that did apply, over 40% either received no capital at all or received less than the amount that they requested.

Part of the problem is that many small community banks closed in the crisis, and they haven’t been replaced; just one new community bank charter was granted in 2010, just 3 new charters in 2011. There were 6,840 banks and 1,173 thrifts last year, down from 14,507 banks and 3,566 thrifts in 1984. And of course the big banks just consolidated and got even bigger, and the Federal Reserve Bank of Atlanta reports that big banks are less likely to extend credit to a small business than a small regional bank.

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.

US Autos: Those Were the Days My Friend

In subsequent years, when Wal-Mart Automobile Works sells more cars in America than Ford, we shall have forgotten the pain felt in 2009 that the bankruptcies General Motors and Chrysler caused.

The giant automakers demise were a common affliction at the turn of the 20^th century; 20^th century debt servicing overwhelming 21^st century balance sheets.  The two cash flows were incompatible and destroyed many companies that crossed over into the new millennium without restructuring.  Wal-Mart, from the outset of its international ambitions in the later part of the 20^th century, however, harnessed non-union labor, market share, pricing, and nurtured a strategic relationship with China, the future of global production and consumption, to its fullest advantage. 

General Motors and Chrysler were dinosaurs that limped into the new century awaiting death.  Their hubris to ignore its customers, its competition, the marketplace and demographics, and new technologies, all played a part in their financial cardiac arrest.  In addition, their commitment to paying union wages, and the legacy benefits to retirees was quant and noble and unsustainable post NAFTA. 

Equity shareholders lost, unsecured creditors lost, taxpayers lost, municipalities dependent on the auto industry lost as the brutal realities of international capitalism displaced traditional domestic capitalism; so who won?  It depends on whom you ask.  Nevertheless, the larger point was this foreclosure on the American automobile industry signaled the end to America’s unchallengeable leadership in international business.

Great Britain passed the economic baton to America after World War I for many of the same reasons America relinquished control to the People’s Republic this century.  The Obama administration presided over the liquidation of the American automobile manufacturing industry with little opposition in the country from organized labor, congress, consumers groups, or domestic manufactures.  Oddly, only the mainstream media and the financial services industry applauded this sobering event as it unfolded.

The next few years saw more manufacturing jobs evaporate, service sector wages stagnate, GDP growth flat line, while interest rates and inflation accelerated and the national debt swell.  The prosperity of the average American receded.  The magnificent and historically unequalled American century eventually was no more.  Emotionless international capitalism had defeated once more a particular unique domestic capitalism as their workers and societies watched their standard of living fade.  Perhaps, the decline of America’s love affair with its own automobiles was another black swan that was too obvious for anyone to see.