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Rainbows over Canyonlands - Dave Stoker

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Wednesday, September 30, 2015

Times Change

Financial Review

Times Change

DOW + 235 = 16,284
SPX + 35 = 1920
NAS + 102 = 4620
10 YR YLD + .01 = 2.06%
OIL – .14 = 45.09
GOLD – 12.40 = 1116.30
SILV – .13 = 14.62

This is the last trading day of the third quarter. China’s main stock market posted its worst quarter since 2008 and its smaller Shenzhen index, posted its worst quarter in at least two decades. Markets in Singapore and Indonesia are set to post their worst quarters since the financial crisis. The MSCI Asia ex-Japan Index fell 19.1% from the beginning of the quarter. The Nikkei closed out its worst quarter since 2010 and the ASX its worst since 2011.

European stocks moved higher today, but not enough to recover from the worst quarter in 4 years. The Stoxx Europe 600 index is down about 9.5% for the quarter. Germany’s DAX index down 12% for the quarter. France’s CAC index posted a quarterly loss of 7.3%, and the UK’s FTSE 100 down 7.7%. The Eurozone is back in deflation. Consumer prices slipped 0.1% year-over-year in September.

The major U.S. averages had a rough third quarter. Concerns about spillover from slowdown in China and the timing of a Federal Reserve rate hike sent markets into correction territory, or more than 10 percent below their 52-week highs, in late August. The major U.S. averages recently fell back into correction mode and were close to retesting the August lows Tuesday.

The Russell 2000 held below its Aug. 24 low Tuesday. For the quarter, the Dow fell 7.6 percent, the S&P lost 6.9 percent and Nasdaq fell 7.4 percent. For September, the Dow fell 1.5 percent while the S&P dropped 2.6 percent and Nasdaq fell 3.3 percent. The Nasdaq biotech index lost 19.8% for the quarter.

West Texas Intermediate and Brent crude oil were down 24% for the quarter, for their sharpest decline since the end of 2014. The LMEX Metals Index is set for its longest streak of monthly declines since January 2009, down 11% for the quarter. Based on the most-active contracts, gold prices lost 1.5% for the month and 4.8% for the quarter. Year to date, gold is down 5.8%.Rice, cocoa, and cotton are the only commodities to post gains year-to-date.

Everything else is down. The worst performers are coffee down 28.8%, and lumber down 34.6%. Brazil and Columbia have flooded the coffee markets to boost exports to customers buying with U.S. dollars, in an effort to help offset losses from weakness in their local currencies. The selloff in lumber tells us something about the construction market, not just domestically but more so in China.

The MSCI Emerging Markets Index is down 19% for the quarter; investors pulled $40 billion out of developing economies in the third quarter, the biggest outflows since the fourth quarter of 2008. About $11 trillion has been erased from global shares in the third quarter.

The head of the International Monetary Fund says there is reason to be concerned about the global economy. In a speech today, IMF Director Christine Lagarde said that her organization sees troubling signs in the world’s finances, and that it is unclear if the current situation is cyclical or if it represents a fundamental downturn. “The simple answer is that there is no simple answer. Certainly, we are at a difficult and complex juncture,” Lagarde said, explaining she is worried about recent global affairs and international economics are similarly distressing.

Interfax reports Russian warplanes have started air strikes against ISIS targets in Syria; this marks Russia’s first use of force in the Middle East since the 1980s. In a speech at the United Nations on Monday, Putin called for a mandate for a broad coalition to fight ISIS that would include Syrian government forces and Iran. The U.S. and a coalition of countries is also carrying out limited airstrikes in Syria against ISIS, but they also say a future Syria must not have Assad at its helm because of his brutal actions against his own people.

Russian strikes will be in support of operations by the Syrian army and won’t target opposition forces other than those of ISIS. At least that’s one story; the other story is that the Russians bombed the Free Syrian Army, the anti-Assad rebel group that is backed by the West. Speaking at the U.N. on Wednesday, Secretary of State John Kerry said the U.S. would have “grave concerns” if Russia targeted other groups. If Putin really wants to jump into Syria with both feet, I suppose the best thing is that nobody tells him he’s jumping into quicksand.

The government will be open tomorrow. The Senate and the House just passed a short-term spending bill that will extend federal funding until December 11 and avoid a government shutdown by tonight’s midnight deadline. Following the votes, Republican leaders plan to start talks with President Obama about a two-year budget, although it’s unclear whether any successor to outgoing House Speaker John Boehner would be interested in such a deal.

Payroll processor ADP says the private sector added 200,000 new jobs in September. The Labor Department will issue its report on Friday; estimates are calling for 190,000 to 200,000 new jobs in the government report. ADP reports about half of the new jobs were created by large companies with 1,000 employees or more. Small and midsize firms were less aggressive in hiring. Only the energy and manufacturing sector reported job losses.

The Securities and Exchange Commission charged twenty-two municipal underwriting firms with selling municipal bonds using materially false statements or omitting required disclosures to investors. They will pay penalties based on the number and size of the fraudulent offerings identified, with a maximum penalty imposed on PNC Capital Markets of $500,000. Mesirow Financial, and Edward Jones also failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers. The firms did not admit or deny the findings, but agreed to cease and desist from such violations in the future.

Tesla last night launched its long-awaited Model X sports-utility vehicle, which features two electric motors, a range of around 250 miles and seating for seven people, as well as “falcon wing” rear doors that can open differently depending on conditions. Tesla CEO, Elon Musk, said around 25,000 people had ordered the SUV, but they’ll have to wait 8-12 months to receive their cars. The basic theme here is: they can sell them as fast as they make them.

Considering that the founder of Tesla Motors is also into rocket ships, and solar arrays, and cargo carrying pneumatic tubes, and planetary colonization, the car offers some unusual features, including Bioweapon Defense Mode. Elon Musk says it should be useful “if there’s ever and apocalyptic scenario of some kind.” We don’t know how well this might work in the event of thermonuclear war; it is, after all just a slightly more aggressive version of an air filtration system, but it might come in handy if there’s a dead skunk in the middle of the road.

There are some other Easter eggs built into the Model X computer programs. There is “Ludicrous Mode”, a button you can push if you want to go from 0-60 in 3.5 seconds, and then if you keep pushing the button you can see a clip from the movie Space Balls. Or, if you want to know more about the people that built your car, on the computer screen press the Tesla logo and then press the lower right corner of the screen and up pops a photo of the development team. And for audiophiles, a premium sound system where you can turn the volume to eleven.

Meanwhile, the only software Volkswagen can come up with is to cheat on emissions, and General Motors is still trying to make the ignition switch work.

The times are changing, and it’s not just computerized electric cars. The biggest coal companies in the U.S. are in trouble. Twenty-six percent of U.S. coal companies have gone out of business in the last three years, and the value of the companies that have managed to survive has dropped 76% in five years, according to a report from the energy finance research group Carbon Tracker.

As of 2001, just 17.1% of U.S. electricity came from natural gas generation. By 2014, gas’ share had increased to 27.4%. The entire U.S. coal industry made a big, expensive, debt-laden bet that China’s thirst for coal, particularly the kind used to make steel, would never slow down, and they were wrong. And now, New York City’s five pension funds, worth a collective $160 billion, announce they will divest their investments in coal.

In America’s long, dangerous history of mining, not once has a coal mine owner been charged criminally for a worker’s death. Coal miner fatalities, in some ways, have been considered a business expense. All of that changed with the indictment of Donald Blankenship. The former CEO of Massey Energy will stand trial starting tomorrow at a federal court in Charleston, W.Va. He faces up to 31 years in prison for allegedly conspiring to violate safety laws and lying to regulators about safety practices at the Upper Big Branch mine in Montcoal, W.Va., where a 2010 explosion killed 29 workers, the nation’s deadliest mining accident in 40 years.

Blankenship is facing criminal charges when other mining executives have not, in large part, because federal prosecutors say he was intimately involved in Upper Big Branch’s output to an extraordinary degree. He demanded reports every half hour on its production—they were sent to his home by fax on nights and weekends. Blankenship’s trial won’t do anything to resolve the disasters the coal industry has left. His conviction might bring closure to the families of the dead miners (if that’s possible). But in the long term, it might end up being a mere footnote in the tortured history of the Appalachian coalfields.

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