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Thursday, June 18, 2015

Sooner Rather Than Later

Financial Review

Sooner Rather Than Later

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.

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