Financial Review

20K

Sinclair Noe — January 25, 2017

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DOW + 155 = 20,068
SPX + 18 = 2298
NAS + 55 = 5656
RUT + 13 = 1382
10 Y + .05 = 2.52%
OIL – .36 = 52.82
GOLD – 7.90 = 1201.60

The Dow Industrials topped 20,000 for the first time ever. The S&P 500 and the Nasdaq Composite closed at record highs yesterday. European markets traded higher, with many indexes up by about 1%. Most Asian markets ended the day with gains.

The Dow Industrials first hit 10,000 back in 1999 and for the next 10 years, the Dow went up and down multiple times before finally breaking out in 2009. The Dow topped 15,000 in 2013. It only took 43 days to go from 19,000 to 20k. Can it go higher? Sure, a trend in place is more likely to continue than it is to reverse – until it reverses.

The Dow Industrial Average first started in 1896 – only one company on that original list is still on the list: General Electric. And the 120-year old Dow hit 1,000 for the first time in 1972; then it crashed 40% and didn’t make it back to 1,000 until 1980. Go figure.

President Trump signed an executive action today directing federal resources toward building a border wall with Mexico. Trump said construction of the wall would begin within months, with planning starting immediately. Initially the US will pay for the wall, but Trump insists that Mexico will reimburse the costs later. Mexico’s President Enrique Peña Nieto is scheduled to visit Trump in Washington on Jan. 31.

The border wall is included in an executive action titled Border Security and Immigration Enforcement Improvements, which calls for hiring more Border Patrol agents, stricter enforcement, and expanding detention capacity, possibly with more private prisons. A second executive action, titled Enhancing Public Safety in the Interior of the United States calls for withholding federal funds from sanctuary cities.

Today’s executive actions also seek to force other nations to take back criminal aliens by using leverage such as withholding U.S. visas. And it will allow Immigration and Customs Enforcement to more aggressively arrest, detain and remove people from the US.

President Trump said today he would seek a major investigation of alleged voter fraud in the November election. Trump said on Twitter: “I will be asking for a major investigation into VOTER FRAUD, including those registered to vote in two states, those who are illegal and…even, those registered to vote who are dead (and many for a long time). Depending on results, we will strengthen up voting procedures!”

And it didn’t take long to find someone registered to vote in 2 states – Steve Mnuchin, Trump’s nominee for Treasury Secretary is registered in New York and California – which is legal – although he can only vote once. And Steve Bannon, Trump’s senior counselor was registered in New York and Florida – not that there’s anything wrong with that.

Trump also said he wants to “fight fire with fire” when it comes to stopping terrorism, suggesting that he could be open to bringing back torture because he “absolutely” believes it works. The Trump administration is also considering a 120-day suspension of refugee admissions and cutting the total number allowed into the U.S. in the current fiscal year from 110,000 to 50,000, actions that could be announced as soon as Thursday.

When will the gavel drop? According to WSJ, President Trump has culled the candidates to fill a vacancy on the Supreme Court to a handful of federal appellate judges. The list includes Neil Gorsuch, Thomas Hardiman, Raymond Kethledge and William Pryor. Trump said he would make his nomination next week, replacing the late Justice Antonin Scalia.

Trump on Tuesday signed executive actions to advance the approval of two controversial oil pipelines — Dakota Access and Keystone XL. Trump’s administration has instructed the Environmental Protection Agency to remove the climate change page from its website.

The Trump administration has also instituted a temporary gag order against government scientists at the Environmental Protection Agency and Department of Agriculture, barring the agencies from publishing any news releases, blog or social-media posts or otherwise communicating with the public about taxpayer-funded research.

The Twitter account of Badlands National Park posted a series of climate-change factoids on Tuesday, apparently, an act of defiance against President Trump, who has said he believes climate change is a hoax. The tweets were removed hours later.

Heavy pollution enveloping much of Europe has prompted emergency measures across the continent, as extreme cold, no wind and heavy burning of coal and wood for heating left many regions shrouded in smog. In several countries, including Britain, France and Belgium, officials have cautioned against physical exertion for children and the elderly. Hundreds of flights have also been canceled and heavy polluting vehicles have been ordered off the road.

Puerto Rico’s new governor wants to replace a law that allows the U.S. territory to redirect revenues earmarked for bondholders to pay for essential services. The government planned to introduce legislation on the so-called debt moratorium law today.

It’s another busy day for earnings reports. Before the opening bell, Boeing beat analysts’ profit estimates despite another charge for its military tanker aircraft and said it expects to deliver more planes and higher earnings in 2017, though revenue likely will fall. Boeing profit rose as the 787 Dreamliner emerged from a decade of losses.

United Technologies posted a fourth-quarter profit, compared with a year-ago loss, and reiterated its 2017 profit and sales forecasts. The company reported Wednesday income from continuing operations of $1.024 billion and net income, which includes results from discontinued operations, of $1.013 billion.

Under the diluted earnings (loss) per share of common stock heading, the line item for continuing operations showed $1.26, but the line for discontinued operations just showed a loss of 1 cent. For investors to get net earnings per share, they are required to subtract a penny from $1.26, to get $1.25. It’s simple math but not necessarily easy. The SEC is supposed to keep an eye on this kind of garbage accounting.

Freeport-McMoRan reported a lower-than-expected profit before the opening bell but said it would double gold sales to 2.2 million ounces this year, while selling less copper. Freeport is being helped by higher prices for both metals but its copper business has been dented recently by a ban on exports of copper concentrates in Indonesia. Since November 8, Phoenix-based Freeport has experienced an increase of just over 50%.

Alcoa Corporation logged a net loss of $125 million or 68 cents per share for the fourth quarter of 2016. Barring one-time items, adjusted earnings came in at 14 cents per share for the reported quarter, missing. Revenue topped estimates. This is the company’s first quarterly report as a standalone, publicly traded company.

Qualcomm slid after the chip maker issued a weak second-quarter outlook amid ongoing legal and regulatory challenges. Apple earlier this month filed a suit against Qualcomm for allegedly leveraging its monopoly position to demand onerous royalty rates. The Federal Trade Commission last week also filed a complaint against the company for anti-competitive practices.

AT&T reported fourth-quarter earnings in line with expectations and sales slightly below forecasts.

Cisco Systems has agreed to buy software maker AppDynamics for $3.7 billion. AppDynamics had been planning to price its IPO tonight.

Following activist investor pressure for a split, Bob Evans Farms has agreed to sell its restaurant business to PE firm Golden Gate Capital for $565 million. Bob Evans will now focus on packaged foods.

Amazon.com now has a market cap of $390 billion, and per research from Credit Suisse, the retail giant is now worth more than the top eight traditional brick-and-mortar retailers combined. For the record, that roster includes Best Buy, Macy’s, Target, JCPenney, Nordstrom, Walmart, Kohl’s and Sears.

Bottled water – not soda – is taking center stage in PepsiCo’s war against Coca-Cola. Pepsi has bought a 30-second Super Bowl ad to debut the company’s new premium bottled water brand, “LIFEWTR,” that is positioned to compete with its archrival’s “smartwater.” The product will be priced at around $2.70 for a 1-liter bottle.

Financial Review

Thoughts on Oil

Sinclair Noe — December 7, 2015

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DOW -117 = 17,730
SPX – 14 = 2077
NAS – 40 = 5101
10 YR YLD – .07 = 2.20%
OIL – 2.37 = 37.60
GOLD – 15.10 = 1072.20

Crude prices fell again in the first trading session after OPEC said over the weekend that it would maintain production at the current levels and made no decision on a new target ceiling. An oil glut has cut prices by more than 60% since June 2014. Abandoning an official output ceiling effectively codifies what OPEC has already done for the past year: ignore its previous target of 30 million barrels a day. The cartel produced 31.4 million barrels per day in October. Indonesia also rejoined OPEC on Friday (after being inactive since 2008), boosting the group’s participants to 13 members. Oil prices today dropped to levels last seen in 2009.

There has been an ongoing battle between OPEC and US shale producers with each side pumping massive amounts of oil in the hopes the other would cut production once crude became too cheap. The world isn’t going quite the way Saudi Arabia expected when it led OPEC to declare a pricing war against US shale drillers last year by flooding the market with crude oil. Far from being a quick kill, shale drillers have stubbornly held on, and OPEC has suffered along with them.

Cheap oil has already affected global markets and economies in countless ways, from disrupting Venezuelan politics to sinking the Russian ruble and introducing the world to “low-flation.” In a note to clients, Citi suggested that one of the only things propping up oil prices has been ETF holders thinking that they’ve gotten in at the bottom, even as larger money managers have increasingly given up on forecasting longer-term prices amid greater volatility.

The Labor Department last Friday said U.S. created 211,000 jobs in November after a nearly 300,000 gain in October, keeping the unemployment rate at an eight-year low of 5%. Against the backdrop of a steadily improving labor market the Federal Reserve is gearing up to raise its benchmark short-term interest rate, now near zero, for the first time since 2006. The Fed is expected to pull the trigger after its Dec. 15-16 meeting.

Federal funds futures imply a 76 percent probability of liftoff in December, and the U.S. two-year Treasury has risen by more than 30 basis points over the past two months. The dollar index moved higher following on the heels of its largest one-week loss since May. In the wake of November’s solid non-farm payrolls report, the conversation has now shifted towards how fast the Fed will have to raise rates and to what eventual level.

Venezuelan voters on Sunday delivered a heavy blow to the socialist party of President Nicolas Maduro by granting the opposition a considerable majority in the national assembly. Venezuela’s opposition leaders say they captured two thirds of the seats in congress in Sunday’s election, a super-majority that offers them a powerful mandate for profound change, including the ability to fire ministers, change the constitution, reshape the judiciary and electoral commission and start a process to recall the president. Nicolas Maduro. The official tally has the opposition far ahead but not yet with the crucial two-thirds margin.

Meanwhile, in France, the right-wing National Front party led by Marine Le Pen performed well in the regional elections held on Sunday. The party, which opposes immigration and the country’s membership in the euro currency union, more than doubled its share of the national vote compared to the 2010 election.

Germany is on pace to take in one million asylum-seekers this year. In the last 11 months, the country has taken in 964,574 new migrants, including more than 200,000 just in November; about 484,000 migrants came from Syria. Germany has accepted the largest number of asylum-seekers of all European countries, according to the UN High Commissioner for Refugees. Chancellor Angela Merkel said in September, “Germany is doing what is morally and legally obliged. Not more, and not less.”

It’s extraordinary also because it’s larger than the total number of refugees that the US—with a population of 320 million to Germany’s 80 million—has accepted in the last 10 years. Since 2005, the US has accepted a total of 675,982 refugees from regions all over the world, according to data from the Refugee Processing Center, an arm of the US Department of Justice’s Bureau of Population, Refugees and Migration.

Beijing issued its most severe smog warning for the next 3 days – the first time the municipal government has issued a so-called red pollution alert. Local authorities upgraded the air pollution alert to red from orange. Some industrial companies must stop or limit production, outdoor construction work will be banned and primary schools and kindergartens are advised to cancel classes. Even healthy people should try to avoid outdoor activity and choose public transportation. The particulates, which reached “very unhealthy” or “hazardous” levels in 28 cities in northern China in November, are caused to a large extent by man-made pollution, including the burning of fossil fuels.

China is the biggest consumer of coal in the world, by a long way. As for the coal-fired power stations? They’re still running, with thousands more planned to be built in the coming years. At a climate conference in Paris, where China is negotiating with the rest of the world on emissions, that strategy is getting harder to argue for. After this week, the idea may be harder to sell in Beijing, too.

Keurig Green Mountain said it has agreed to be acquired by an investor group led by JAB Holding in a deal with an equity value of about $13.9 billion. As part of the deal, JAB will pay $92 in cash for each Keurig share outstanding, which represents a 78% premium to Friday’s closing price of $51.70. The deal is expected to close during the first quarter of 2016. The Coca-Cola Co. which is Keurig’s largest shareholder with a 17% stake, is supportive of the deal. JAB Holding is the investment arm of the secretive Reimann family.

JAB owns a stake in Reckitt Benckiser. It also has a luxury arm which houses investments in Jimmy Choo, Belstaff and Bally, and owns perfume maker Coty. JAB struck a deal in 2013 to buy D.E. Master Blenders 1753, and later agreed a deal with Mondelez International to combine their respective coffee businesses. That created Jacobs Douwe Egberts, which describes itself as the biggest pure-play coffee company in the world; they also control Caribou Coffee and Peet’s. Overall, the company’s retail value would lag behind Nestlé’s which controls about 23% of the coffee market.

General Electric has abandoned plans to sell its appliance business to Electrolux. Both companies were being sued by the Justice Department to stop the deal, which would have combined the number two and three domestic appliance makers in the U.S.

We may be seeing a bidding war for Pep Boys. Carl Icahn has offered $15.50 a share. That bid was 3.3 percent more than the $15-a-share proposal from Bridgestone Corp. that Pep Boys agreed to in October. Philadelphia-based Pep Boys closed at $16.06. Investors are betting that Icahn, Bridgestone or someone else will be willing to pony up for a well-known brand with 800 locations in 35 states.

Yahoo shareholders still do not know how – or if – the company’s board plans to restructure the technology giant. The firm’s directors ended three days of deliberations on Friday without announcing whether they will proceed with plans to spin off its stake in Alibaba, sell its core business, shake up management, or do something else entirely. The big question on the Alibaba spinoff is the tax implications. The big question if Yahoo sells off its core business – what would be left?

Chipotle Mexican Grill is struggling to contain the damage from an E. coli outbreak at its restaurants. Chipotle fell in early trading after rescinding its 2016 forecast and projecting its first quarterly same-store sales decline as a public company. Sales at locations open at least 13 months plunged as much as 20 percent in the days after the illnesses were reported and may fall 8 percent to 11 percent for the fourth quarter as a whole. That would be the first drop since Chipotle went public in 2006.

The Arizona Regional Multiple Listing Service reports overall sales in Phoenix in November were up 6.5% year-over-year. Cash Sales (frequently investors) were up slightly at 29.1% of total sales. Active inventory is now down 8.8% year-over-year. After sluggish price increases off 2.4% in 2014, prices are already up 4% through September.

Last summer I went to Hawaii and visited Pearl Harbor and the Arizona Memorial. Oil still leaks from the tanks of the sunken Arizona. They don’t try to drain the tanks because they are in a precarious way and also because the Arizona is considered hallowed ground. They say the tanks will empty the last drops of oil when the last veteran of Pearl Harbor passes away.

To Hike Or Not To Hike-Is That Really The Question To Ask?

Financial Review

To Hike or Not To Hike

Sinclair Noe — September 11, 2015

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DOW + 102 = 16,433
SPX + 8 = 1961
NAS + 26 = 4822
10 YR YLD – .04 = 2.18%
OIL – 1.12 = 44.80
GOLD – 3.70 – 1108.20
SILV – .13 = 14.68

The S&P 500 index was up 2.1% for the week, the best weekly gains since July.  The Dow was up 2.1% for the week, and the Nasdaq gained 3%.

The Senate has blocked an anti-Iran deal resolution. Senate Democrats successfully fended off an effort by the Republican-led Congress to dismantle the Iran deal with a disapproval resolution. While the Senate killing the resolution should mean that Congress’s bid to undo the deal is over, the House is fighting on with several bills aimed at expressing their disapproval. There’s even talk of filing lawsuits against the president.

Russia is calling for Washington to restart direct military-to-military cooperation to avert “unintended incidents” near Syria, at a time when U.S. officials say Moscow is building up forces to protect President Bashar al-Assad’s government. The U.S. is leading a campaign of air strikes against ISIS fighters in Syrian air space, and a greater Russian presence would raise the prospect of the Cold War superpower foes encountering each other on the battlefield. Both Moscow and Washington say their enemy is ISIS, but Russia supports the government of Assad, while the U.S. says his presence makes the situation worse.

The White House has announced that the U.S. is preparing to accept 10,000 Syrian refugees for the 2016 fiscal year. The Syrian Civil War is now in its fifth year and more than 4 million people have become refugees. Syria’s neighbors currently host the majority of the country’s refugees. As conditions deteriorated, many refugees made the dangerous trip to Europe. European Union governments are likely to agree in principle to shelter 160,000 refugees from crisis zones. To date, the U.S. has resettled less than 1,500 Syrian refugees out of 18,000 referred by the United Nations.

A week before the Federal Reserve’s most critical policy decision in years, Wall Street opinion makers can’t agree on anything. Not only is there no consensus about whether the Fed will end its seven-year-old policy of zero interest rates, but views on the fallout from such a move are wildly disparate.  We’ll all find out more on Wednesday, when the FOMC issues its statement. As divided as the market is on that decision, it’s the aftermath that stirs the real split. Many say the economy is too weak for a rate hike, and fear the markets could tank. Others say the rate hike is warranted, even necessary, and would signal the economy is strong.

The real question is what will happen when interest rates rise? First up, a rate hike would strengthen the dollar, particularly if the hike is part of a long-term cycle. A stronger dollar would likely result in money flowing into the US. A stronger dollar means assets priced in dollars would go down in price; so we might anticipate weakness in commodities such as oil, industrial metals, and precious metals – pretty much all commodities except agriculture. In this way, a rate rise would be deflationary.

A stronger dollar would put even more pressure on emerging market currencies, which have already experienced pressure; there is still plenty of dollar denominated debt in emerging markets. Countries with current account deficits could expect to feel the pressure, led probably by Brazil.

For real estate, there is no question that lower interest rates spurred real estate purchasing activity. So, it stands to reason that an increase in rates will have the opposite effect, by reducing demand due to higher costs of money. Some say that a slight rise will cause a short-term increased demand for purchasing real estate; people think that rates will continue to rise, potentially keeping them out of the market in the future, and so they act. The longer-term effect is to tap the brakes on real estate.

For stocks on Wall Street, the impact of higher rates is tougher to call. Historically, there is no direct correlation between the start of a rate-rising cycle and a drop in stock prices. The reasoning is that rates are hiked when the economy is strong and the economy is humming along, perhaps humming along a bit too fast. Historically, Wall Street reacts negatively to surprise moves by the Fed (think 1987) but the Fed has been warning they will hike rates and they will do so slowly and incrementally – no surprises, just some guessing about the exact date. Most investors aren’t confident that the economy is strong right now; earnings growth has been flat, stocks have suffered a correction, and there is still slack in the labor market.

Ultimately, the stock market will respond to the fixed income and credit markets, and this is pretty straightforward; higher target rates set by the Fed will send bond yields higher, which means bond prices must go down.

With yields already low, the proportionate falls in prices need to be that much greater and the biggest price drops will come for the assets with the greatest duration. The twist here is that long duration assets are widely perceived as less risky, because they carry a lower risk of default; for example: corporate bonds, or municipal bonds. Junk bonds carry greater credit risk, and are considered less sensitive to a rise in interest rates.

The biggest risk is that markets get panicked. People who think they have a low risk asset suddenly realize they are exposed, and they hit the sell button, which can lead to a herd or mob mentality. If prices go too far south too fast, credit markets can freeze, and when that happens, everything freezes. The gears grind to a halt and the markets crash. There really is no reason to expect a crash. The economy can withstand a little quarter point rate increase. We don’t know what the Fed will announce on Wednesday, but we should not be surprised by a hike.

Of course, if you don’t like volatility, you could just stop playing the game for a while. Investors pulled another $19 billion from equity funds over the past week. The exodus from emerging markets also continued, with losses extending into their ninth week. Emerging equity funds shed $4.5 billion, while U.S. equities saw outflows of $15.9 billion and European stocks lost $800 million. Japanese funds were the only category to post inflows. The data also that global equity funds had shed $46 billion over the past four weeks. Year-to-date outflows from emerging stocks total $58 billion.

Consumer sentiment declined in September to the lowest level in year as Americans anticipated a weaker economy in face of a global slowdown and turbulent financial markets. The University of Michigan’s preliminary index dropped to 85.7 from 91.9 in August, the largest one-month decline since the end of 2012. Households were less upbeat about future growth in employment and wages than a few months earlier as 73 percent of respondents reported hearing news of negative economic developments.

Wholesale prices were flat in August, held down by a sharp decline in gasoline prices. The producer price index was unchanged last month on a seasonally adjusted basis. Excluding the volatile categories of food, energy and trade margins, core producer prices edged up 0.1%. Over the past year overall producer prices have fallen an unadjusted 0.8%, unchanged from July. The core rate has risen 0.7% in the same span.

How low can oil go? Goldman Sachs has cut its 2016 forecast to $45 a barrel from $57—and it’s leaving open the possibility that prices could go much lower than that. Goldman says the global surplus of oil is even bigger than previously thought and that could drive prices as low as $20 a barrel. Goldman said in a report e-mailed this morning that it is cutting its Brent and WTI crude forecasts through 2016, in part because a failure to reduce production fast enough may require prices near the $20 level to clear the oversupply.

The Goldman report stands in contrast to a report yesterday from the International Energy Agency, estimating that crude stockpiles will diminish in the second half of next year as supply outside OPEC declines by the most since 1992, with drops in U.S. shale production accounting for 80 percent of the decline. The IEA thinks lower supply will support prices. Twenty bucks isn’t Goldman’s most likely scenario but it’s a nice dramatic number that generates lots of tweets, as were the forecasts by Goldman and others in the not-so-distant past that oil would hit $150-$200 a barrel.

Copper prices dropped today, ending the metal’s longest rally since June. Copper prices have fallen 15 percent this year amid concerns that slower growth in emerging markets will reduce demand. Tighter U.S. monetary policy could further damp consumption as foreign currencies weaken and make the metal more expensive for overseas buyers. Copper for delivery in three months sank 0.5 percent to settle at $2.43 per pound. Prices climbed in the previous four sessions, rising 5.4 percent on concern that supplies would tighten as miners including Glencore took steps to cut production.

Nate Silver from FiveThirtyEight has run the numbers on the 2015 NFL Football season. He figures the season will come down to the Patriots and the Seahawks, and Seattle will win the Super Bowl, even though the Patriots will have win more games – 11.3 to be precise. Silver predicts the Cards will win 8.2 games – not enough to win the division, but more than San Francisco.

Arizona state troopers took two people into custody today who they believe might be connected to a string of 11 recent highway shootings. One detainee was described as a “person of interest.” So far, eight vehicles have been hit by bullets while police haven’t specified what hit the other three. This doesn’t mean the cops have caught the shooter or shooters, just that they have someone in custody. Be careful out there.

Financial Review

Walk On

Sinclair Noe — September 9, 2015

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

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DOW – 239 = 16,253

SPX – 27 = 1942
NAS – 55 = 4756
10 YR YLD – .01 = 2.18%
OIL – 1.79 = 44.15
GOLD – 15.60 = 1106.80
SILV – .19 = 14.71

Wall Street opened higher; part of a global rally for stocks. Japan’s Nikkei index was up 7.7%, bouncing off 11 month lows. Equities in China rose as the finance ministry pledged to accelerate construction of some major projects. European stocks moved higher this morning, with France leading the way. But it didn’t last. The S&P energy sector led declines among the S&P 500 sectors, falling 1.3 percent, as oil prices dropped.

The World Bank’s chief economist is warning that the Federal Reserve risks triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing. Kaushik Basu told the Financial Times that rising uncertainty over growth in China and its impact on the global economy meant a Fed decision to raise its policy rate next week, for the first time since 2006, would have negative consequences.

His warning highlights the mounting concern outside the US over the Fed’s potential “lift-off”. It follows similar advice from the International Monetary Fund. That means that if the Fed’s policymakers were to decide next week to raise rates they would be doing so against the counsel of both of the institutions created at Bretton Woods as guardians of global economic stability.

This moment for the Fed is somewhat reminiscent of September 2013. Officials had been signaling plans to end a bond-purchase program, hesitated after an episode of market turbulence, and then started winding it down that December. You could also draw parallels to the situation in 1997, when the unemployment rate dropped through 5 percent. The Fed did raise rates a quarter point, but then stopped, waiting for inflation to become a problem – which it never did, even though unemployment continued to fall, eventually to 4 percent.

The lesson is that the Fed really doesn’t know what level of U3 constitutes full employment, and should be very cautious about acting preemptively absent any signs of inflation problems. By the way, the Fed still hasn’t reached its inflation goal of 2%.The markets tend to get caught up in the debate. And when the markets rally, it seems like a green light to hike rates; then when the markets think rates might be going up, the markets fall. You could also make the argument that if people are so frantic about a minor interest rate hike they need a reality check.

Puerto Rico said it faces a $13 billion funding shortfall for debt payments over the next five years even after taking into account proposed spending cuts and revenue enhancement measures outlined in a long-awaited fiscal and economic growth plan. The report, released today, said Puerto Rico will seek a consensual compromise with creditors to restructure its debt. No estimates were provided of potential losses for the owners of Puerto Rico’s $72 billion in debt.

Job openings in the US surged in July, even as the pace of hiring cooled. The latest Jobs Openings and Labor Turnover, or JOLT report, shows the number of positions waiting to be filled jumped by 430,000 to 5.75 million from a revised 5.32 million in June. The quits rate came in at 1.9% for a fourth straight month. Quits typically indicate a healthy labor market in which workers feel confident enough to leave one job for another.

Apple has unveiled the latest versions of the iPhone, the 6S and 6S+, at a big, glitzy event in San Francisco. Here is everything you need to know about the new Apple phones…Um, the big change is something called 3D Touch; if you press down hard on the screen you can do different stuff; however, this does not work if you press down with a hammer.  The phone will cost the same as the iPhone 5. The phone has a faster chip and a better camera. It has a new optional case color called rose gold – don’t call it pink. And the phones are gluten free.

Netflix intends to launch its TV and movie streaming services in South Korea, Singapore, Hong Kong and Taiwan early next year as the company continues its plans for world domination. The news comes after Netflix entered Asia last week by opening in Japan and as it explores its options in China. By the end of 2016, Netflix wants to be in 200 countries.

United Airlines Chairman and CEO Jeff Smisek has stepped down from both roles amid a federal investigation into whether the company traded favors with the chairman of the Port Authority of New York & New Jersey. The United States attorney for New Jersey has been investigating whether United, the nation’s third-largest airline, agreed to reinstate money-losing flights to the airport nearest the weekend home of the authority’s chairman, David Samson, in return for improvements the airline wanted at Newark Liberty International Airport, where it is the biggest carrier.

Toyota has introduced a revamped Prius in the first major redesign of the pioneering hybrid car in seven years. Toyota says it has given the vehicle a more sporty look with the addition of a spoiler and has improved fuel economy by 10% to 55 miles a gallon. Although the company is looking to boost flagging Prius sales, the timing of the launch isn’t great – competition has heated up in the alternative-fuels sector while low oil prices have reduced demand for fuel-efficient cars.

European Commission President Jean-Claude Juncker has announced plans that he says will offer a “swift, determined and comprehensive” response to Europe’s migrant crisis. Under the proposals, 120,000 additional asylum seekers will be distributed among EU nations, with binding quotas. It comes after a surge of thousands of mainly Syrian refugees pushed north through Europe in recent days. In a State of the Union address, Juncker told the European Parliament it was “not a time to take fright”. Germany, the main destination for many refugees, supports quotas, but some EU countries oppose a compulsory system. He opened his speech by admitting the European Union was “not in a good situation. There is a lack of Europe in this union, and a lack of union in this union”.

Denmark has suspended all rail links with Germany and shut a section of motorway after refugees crossed the border and began walking north, apparently trying to reach Sweden. In southern Hungary, refugees on the border with Serbia broke through police lines at a refugee camp, forcing the closure of a major highway. The new plans would relocate 60% of those now in Italy, Greece and Hungary to Germany, France and Spain. The numbers allocated to each country would depend on GDP, population, unemployment rate and asylum applications already processed. Countries refusing to take in refugees could face financial penalties.

The United States has vowed to help its European allies with the influx of migrants and refugees coming in from Middle Eastern and African countries ravaged by war, famine, and poverty. Secretary of State John Kerry met today with congressional lawmakers behind closed doors to discuss how many refugees the US government is willing to take in.

After the meeting, Kerry said the US wants to increase the number of refugees it takes in, but he did not announce a specific number. Many of the new European arrivals are coming from Syria, where a lengthy civil war has forced more than 4 million people to flee the country. According to the International Rescue Committee, a humanitarian organization that helps to resettle refugees, the US has been slow to help, only resettling about 1,400 Syrian refugees during the nearly five-year-long war.

The Surgeon General of the US, Vivek Murthy (who knew?) has issued a radical 72-page call to action: we should walk more. That doesn’t sound radical, but these days it is. Regular physical activity reduces the risk of heart disease, diabetes, obesity and a list of other health problems, and can ease symptoms and improve quality of life for people already living with chronic diseases.

Guidelines issued in 2008 recommend that adults get at least 2 1/2 hours a week of moderately intense physical activity. Children should be active at least 60 minutes every day. Most Americans don’t get anywhere near enough physical activity. And one of the easiest ways to get that physical activity is to walk; it is simple, affordable, and it works.

The problem is that most cities aren’t set up for walking; they are designed around cars. In many places, schools, restaurants and shops are located too far from home for people to walk. Busy streets may lack sidewalks, or there may not be adequate time to cross multiple lanes of traffic.

The Surgeon General’s new report offers a few specifics on how to revive to the culture of walking. He wants communities to make it easier and safer for people to walk; that will require efforts from transportation officials and city planners, parks and schools, businesses and health officials, and the public. Options range from zoning decisions and building sidewalks, to promoting worksite activity.

More powerful than any of these specifics, though, is the simple fact that the federal government just acknowledged, even if it didn’t use quite these words, that we need to design lives that have been modeled for decades around driving around our own feet instead.

Financial Review

Sooner Rather Than Later

Sinclair Noe — June 18, 2015

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DOW + 180 = 18,115
SPX + 20 = 2121
NAS + 68 = 5132
10 YR YLD + .04 = 2.35%
OIL + .53 = 60.45
GOLD + 16.90 = 1203.00
SILV + .04 = 16.26

Three straight days of gains on Wall Street.  The Nasdaq finished up 68 points, or 1.3%, to 5132.95 and hit a new intraday record high of 5143.32. That tops its previous all-time intraday high of 5132.52, set back in March 10, 2000. The Nasdaq’s previous closing high of 5,106.59 was notched much more recently, on May 27. The rally was broad-based as all 10 S&P sectors rose with health care leading the way and all 30 stocks of the Dow posted gains.

We start with economic data. The consumer price index rose a seasonally adjusted 0.4% last month, almost entirely because of a surge in gasoline prices ahead of the summer driving season. Gas prices shot up 10.4% to mark the largest gain in six years. The overall cost of food, meanwhile, was unchanged for the second month in a row. Stripping out the volatile food and energy categories, so-called core consumer prices rose a much milder 0.1% in May. The cost of housing, airline tickets and medical care all rose while clothing prices declined.

The Conference Board’s leading economic index rose 0.7% in May for the second month in a row. The Board says the sharp increase confirms the outlook for more economic expansion in the second half of the year after what looks to be a much weaker first half.

The number of jobless workers seeking U.S. unemployment benefits fell again in mid-June and stood near a 15-year low. Initial jobless claims in the period running from June 7 to June 13 fell by 12,000 to a seasonally adjusted 267,000. New claims are 15% lower compared to one year ago.

The Philadelphia Fed’s manufacturing index increased to a reading of 15.2 in June, above the 6.7 in May. This is the highest reading since December; still, down from November’s reading of 40.2

Eurozone finance officials met in Luxembourg today. After 4 hours they did not come to an agreement about Greece, so they will hold an emergency meeting in Brussels on Monday. It is difficult to get a straight story on the Greek situation. Bloomberg ran a story today including a picture of protestors in Athens, it looked like a large crowd; the caption said the protestors were, “against the government and in support of the country’s membership in the euro area.” The Guardian ran a story showing protestors described as, “pro-government” and demanding an end to austerity measures.

Maybe it was two different rallies or maybe the protestors are just as confused as the negotiators. As best I can tell, Greece doesn’t have the money to pay the Troika at the end of the month; the negotiations are whether the Troika will lend Greece money to pay back to the Troika, along with another pound of flesh of course. Meanwhile, the German newspaper says Greek PM Alexis Tsipras and Finance Minister Yanis Varoufakis might not be radical hot-heads after all, rather the foot dragging and brinksmanship may turn out to be brilliant negotiating. Time will tell, and sooner rather than later.

Hong Kong’s legislature has vetoed a China-vetted electoral reform package that had been criticized by pro-democracy lawmakers as flawed and undemocratic. Although the new system would allow the next leader to be directly chosen by voters, Beijing would retain the right to choose the candidates on the ballot. Prior to the vote, Hong Kong’s government made it clear that if the package was defeated, the status quo would prevail and the chief executive would continue to be chosen by a committee of 1,200 members.

General Motors and Fiat Chrysler Automobiles have turned to investment banks for help to deal with a stand-off as Fiat-Chrysler seeks to force a merger with GM. Earlier this year, GM’s board rebuffed a merger proposal from the Italian-American carmaker and Chief Executive Mary Barra said last week she had no interest in a combination. Barra’s rejection has not stopped Fiat Chrysler’s boss Sergio Marchionne, who is lobbying GM investors to support his case.

AT&T Mobility has been fined $100 million for offering consumers “unlimited” data, but then slowing their Internet speeds after they reached a certain amount. The Federal Communications Commission said that the company misled consumers into buying plans they believed would give them unlimited ability to send and receive data, including Web browsing, GPS navigation and streaming videos. But once the consumer hit a certain level, the data on unlimited plans would be slowed down significantly. It’s not unusual for phone companies to slow, or “throttle,” speeds on a network as a way to manage congestion, but the FCC says AT&T was slowing speeds until the customer’s next billing cycle, even when there was no congestion.

Two new IPOs hit the New York Stock Exchange this morning. Fitbit priced 36-million shares at an offer price of $20 per share. At that level, the company will raise $732 million, at a valuation of $4.1 billion. Univar, a chemical distributor, priced at $22 per share, raising $770 million with a valuation of $3 billion.

FIT + 9.68 = 29.68
UNVR + 3.40 = 25.40

A driver for Uber is an employee, not an independent contractor; so says the California Labor Commission. And while the ruling applies only in California, it could have potential implications for other “crowdsourced” services such as Uber rival Lyft, chore service TaskRabbit, and cleaning service Homejoy. Classifying Uber drivers as employees could mean considerably higher costs for the company, including Social Security, workers’ compensation and unemployment insurance. That in turn could affect its valuation, currently above $40 billion, and the valuation of other companies that rely on large networks of individuals working as contractors.

A report from Americans for Tax Fairness claims that Walmart has $76 billion stashed away in foreign tax havens where they escape U.S. taxation. The report claims that Walmart operates 78 subsidiaries and branches in 15 tax haven countries, especially Luxembourg where the company has 22 subsidiaries but no retail stores.

Thomas Hayes, a former trader on trial over charges he manipulated benchmark interest rates, told prosecutors in 2013 that UBS Group distributed “an instruction manual on fixing Libor” to suit their trading positions. Hayes is the first person to stand trial for rigging Libor. Today, prosecutors showed jurors the instruction manual, entitled, “Guide to Publishing Libor Rates”. Hayes told prosecutors the document was evidence that Libor-rigging was standard operating procedure during his time at UBS.

Remember when banks engaged in fraud and deceptive lending and predatory lending practices? And then after the bailouts and the housing market collapse, the banks botched the foreclosures? And robo-signing? And losing paperwork? And it got so bad that in 2011 a dozen major mortgage companies struck a deal with the Office of the Comptroller of the Currency to bring in independent auditors to review foreclosures documents of aggrieved borrowers. And then that was scrapped because the bankers interfered with the auditors and there were cost overruns. Anyway, part of the 2011 deal was that the banks would clean up their mortgage and servicing departments. The OCC now says 6 banks did not live up to their end of the deal: HSBC, JPMorgan Chase, Santander, US Bank, and Wells Fargo. So, the OCC says it will impose new restrictions and pay closer attention.

The Securities and Exchange Commission charged 36 firms for violating federal securities laws by selling municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with continuing disclosure obligations. The offending firms included familiar names such as Merrill Lynch, JPMorgan, Citigroup, and Goldman Sachs.

The UN has published a report on refugees, showing nearly 60 million people displaced from their homes, 14 million of them in 2014 alone, and half of them children; and more than 230 million children currently live in conflict-affected areas.  Not only is the number of refugees and asylum seekers today the largest since World War II, but the report also shows the fewest number are able to return home under current conditions. The largest toll stems from the four-year civil war in Syria: 7.6 million Syrians are internally displaced and 3.9 million are outside the country.

The National Oceanic and Atmospheric Administration reports that last month was the hottest May on record, and the past five months were the warmest start to a year on record. And that jibes with earlier reports that 2014 was the hottest year for the planet in records going back to 1880. The stifling start to 2015 may be just the beginning. The National Weather Service predicts that a pattern of unusually warm waters in the Pacific Ocean, known as El Nino, has an 85 percent chance of persisting through the 2015-2016 winter. And this El Nino could be a big one. A strong El Nino doesn’t guarantee record-breaking heat, but combined with the general trend of global warming, that possibility is looking increasingly likely.

In his much-awaited encyclical on the environment, Pope Francis offered a broad and uncompromising indictment of the global market economy, accusing it of plundering the earth at the expense of the poor and of future generations. The 183-page document, which Pope Francis addresses not only to Catholics but to “every person living on this planet,” includes pointed critiques of globalization and consumerism, which he says lead to environmental degradation. The pope lays out a moral case for supporting sustainable economic and population growth as part of the church’s mission and humanity’s responsibility to protect God’s creation for future generations.

The pope will visit the United States in late September, during which he’s scheduled to address a joint session of Congress and, separately, the United Nations General Assembly. The highlight of the pope’s trip will be the World Meeting of Families in Philadelphia, where the city is preparing for millions of pilgrims to visit. The letter’s release gives it several months of lead time on a major United Nations climate change conference that will take place in late November and early December in Paris.

Here is the link to read the encyclical.