The Moral and Economic Issue of Our Time
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DOW + 88 = 18,038
SPX + 10 = 2107
NAS + 21 = 5035
10 YR YLD + .06 = 1.98%
OIL – .45 = 56.16
GOLD – 15.00 = 1187.80
SILV – .22 = 15.86
The National Association of Realtors reports existing home sales increased 6.1% in March, the fastest pace of sales in 18 months. The jump in March sales follows a couple of slow months due, at least in part, to bad winter weather. But the latest figures suggest the mix of low mortgage rates, steady job creation and pent-up demand could push full-year sales to prerecession levels. Mortgage rates also are still near their lows for the year. The average interest rate on a fixed, 30-year mortgage was 3.67% last week, down from 4.27% a year ago, according to Freddie Mac’s latest weekly survey.
Greece will not present a list of economic reforms to Eurozone finance ministers on Friday; the deadlines don’t really help and they might even hurt because they lead to brinksmanship in negotiations on what reforms the Syriza government in Greece needs to do to secure more funding. There are signs Greece’s creditors are curbing demands for far-reaching reforms as part of current talks, perhaps a realization that they can’t get blood from a turnip, but the softening stance comes on condition Greece stays co-operative on fiscal targets. The liquidity situation in Greece is already a little tight, but it should be sufficient into June. The European Central Bank’s Governing Council raised the cap on Emergency Liquidity Assistance by about $1.6 billion; this is emergency cash to prevent a run on the Greek banks.
There are really only limited options for Greece; they can’t pay back what they owe because they just don’t have the money; they have already made huge cuts, and it has only pushed the economy into depression; voters made it clear that they did not want further cuts. And even if Greece pays back what they owe and they qualify for a new round of bailout funds, the money would go to banks and almost nothing would go to the Greek economy. So, the only option is for some sort of compromise.
And maybe the ECB and the IMF and the Euro-bankers are starting to realize that a Greek collapse and exit from the European Union would be more expensive than a compromise. While Greece is not a very large economy, the risk of a default and exit has far reaching implications because it would hurt the Euro-banks; not just the default, but the side bets, or derivatives on debt, and the implications for other struggling countries such as Spain and Italy, which might result in recalculation of their debt. The threat is that a couple of hundred billion in bad debt could cascade into much more; just as we saw the collapse of a relatively minor investment bank like Lehman Brothers back in 2008, turn into a major financial meltdown. Beyond that, if Greek leaves or is kicked out of the Euro Union it casts doubt on the whole idea of a European free trade zone, and that economic integration is beneficial to all members of the EU. The consequences of free trade are not always positive. The consequences of a Greek collapse are significant for all of Europe, and by extension the global economy.
Earnings season is in high gear with several big names reporting:
This morning, McDonald’s stock moved higher after the company announced a new turnaround plan to be revealed early next month. Results, though nothing to brag about, were better than expected.
Coca-Cola posted its first quarterly sales gain in two years after higher drink prices helped make up for sluggish demand.
Tesco, the British grocer, reported an annual loss of $9.6 billion, one of the biggest in British corporate history, and warned investors there could be more pain to come. The 96-year-old group, which dominated the British retail landscape for decades, wrote down the value of its business by 7 billion pound. After two decades of uninterrupted growth, Tesco lost its way when it was distracted by expensive overseas expansion and failed to spot the threat from discounters at home.
Boeing said its first-quarter profit rose 38% on growth in its commercial-airlines segment, but its revenue growth didn’t keep pace and costs tied to its flagship 787 program continued to mount.
Chip maker Qualcomm beat earnings estimates but reduced the 2015 outlook for its semiconductor business due to reduced sales in integrated processors.
EBay reported stronger-than-expected first-quarter earnings and sales, led by an 18% improvement in total payment volume and a 26% increase in merchant services volume.
Facebook reported a big jump in revenue, from about $2.5 billion to more than $3.5 billion, but they plowed more money back into the company for data centers and long term initiatives, and net income dropped slightly. Facebook generates more than half its revenue overseas and a stronger dollar hurt results.
AT&T reported slightly lower first quarter profit, just short of analysts’ estimates. Revenue edged slightly higher but also missed estimates. AT&T added more than 400,000 new wireless phone customers even as they faced greater competition from smaller rivals such as T-Mobile and Sprint.
And the competition is about to heat up big time. Google rolled out its wireless phone service today. Google’s service will run on the networks of Sprint and T-Mobile, switching between them depending on the stronger signal, and it will use Wi-Fi nets to route phone calls and data. Here’s the kicker: you only pay for the data you use. No other major US phone carriers do that. You pay $20 per month for unlimited calls, texting, mobile hotspot usage, and international coverage. Then you pay $10 for every gigabyte of data you want to use in a month. If you don’t use all the data you buy, Google refunds you the difference. So, if you buy a 3 gigabyte per month plan and you only use 1.4 gig, you get a $16 refund. If you watch a lot of videos on your phone it could get expensive. If you use basic service it will be a bargain. Either way, it is a radical departure in wireless phone pricing.
Today is Earth Day, celebrated on April 22 to build support for environmental protection around the world. First celebrated in 1970, Earth Day is observed in more than 192 countries with festivals, rallies and environmental activities. More than one billion people participate in Earth Day campaigns every year and it is the largest civic event in the world. Today, President Obama delivered a speech on climate change in the Everglades in Florida. I’m not really sure how to celebrate Earth Day, most of the numbers about the Earth and the climate are nothing to celebrate.
The World Wildlife Fund’s Living Planet Report estimates that there has been a decline by 40% in wildlife populations around the world since 1970; almost a third of global fisheries have collapsed since the 1960s; The Keeling Curve, which tracks atmospheric CO2 since 1958, shows we are heading towards catastrophic climate change; and a group of experts say that out of nine safe operating boundaries for Earth, four of them are in the red zone.
Maybe you forgot about Earth Day, maybe you never cared about it, but environmental issues will likely be front and center this year like never before. And the reason is Pope Francis. This summer, Pope Francis will deliver the first major encyclical of his papacy. It will be on climate change and the environment. Encyclicals are a big deal.
Later this month, the Vatican will host a climate change-themed conference, entitled “Protect the Earth, Dignify Humanity. The Moral Dimensions of Climate Change and Sustainable Development.” 2015 is a pivotal year for efforts to jumpstart a transformation of the energy system from a carbon-intensive one that is threatening to destabilize the planet to a low-carbon one that can slow the rise of the planet’s temperature. World leaders are committing to long-term efforts to slow the use of carbon-intensive energy, and the Vatican wants to influence those deliberations that conclude in Paris at the end of the year. The Pope will publish his encyclical in July; he will visit the US in September and address a joint session of Congress. It could be an uncomfortable moment for many lawmakers: 169 members of the 114th Congress have expressed doubts about the science behind climate change, 35 of whom identify as Catholic. Beyond politics, the Pope recognizes that climate change is becoming the moral issue of our time.
The Pope is likely to use his encyclical, or his letter to more than 1 billion Catholics to explain the basics of what climate change is in plainspoken language that makes the issue available and relevant to everyone, rich and poor, and explain why we need to care about it. And the Pope will explain that people of faith are called to love their neighbors; because climate change harms our neighbors, we must solve climate change if we want to protect the people we love. Christians are also called to remember our rightful place within creation. That rightful place is one that respects a vast web of life, and honors our responsibility to protect and defend the creation. Pope Francis told a crowd in Rome last May that mistreating the environment is a sin, insisting that believers “safeguard Creation … Because if we destroy Creation, Creation will destroy us! Never forget this!” Christians are also called to care for the poorest and most vulnerable among us, a theme that this particular pope embodies better than any in recent history. The poorest people are least responsible for climate change and most affected by it.
Changing the way we use energy will have an impact on the economy, and many people are fearful of added energy costs, without recognizing the economic opportunities that will be created by the transition. The truth is that climate change itself is the greater economic threat. The natural world underpins everything we do. Climate change will disrupt every sector of the economy, from agriculture and transportation to energy. Beyond the science and the policies and the biblical rationale beneath it, the most important aspect of the pope’s encyclical will be his call to the church to take up the moral cause. The church will hear it, understand it and advocate for it. When a billion people heed their religious leader’s call to reflect and then advocate and act on it, business and political leaders will have no choice but to pay attention.
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