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Monday, October 05, 2015

The Courage to Act, or Not

Financial Review

The Courage to Act, or Not

DOW + 304 = 16,776
SPX + 35 = 1987
NAS + 73 = 4781
10 YR YLD + .07 = 2.06%
OIL + .72 = 46.26
GOLD – 2.50 = 1136.90
SILV + .40 = 15.77

The Dow Industrial Average has gone from a low of 16,013 Friday morning after the jobs report to an intraday high today of 16,798, or a swing of 785 points. The S&P 500 rose for a fifth session in a row, its longest winning streak this year

The US, Japan and 10 other Pacific Rim economies have reached agreement to strike the largest trade pact seen anywhere in two decades. The Trans-Pacific Partnership covers some 40% of the global economy and will create a new Pacific economic bloc with reduced trade barriers relating to the flow of everything from beef and dairy products to textiles and data as well as new standards and rules for investment, the environment and labor.

Former Fed Chairman Ben Bernanke has published a new book, entitled “The Courage to Act” and so he’s making the rounds. In a CNBC interview, Bernanke said that slow productivity growth is weighing on the economy, and there’s too much reliance on the central bank. He said other policymakers in the government need to step up. He refused to second guess current Fed Chair Janet Yellen on her decision not to increase rates at the Fed’s September meeting.

In an interview with USA Today, Bernanke said that more corporate executives should have gone to jail for their misdeeds. Bernanke explained that the Fed did not have the authority to jail anyone. Rather, it was the Department of Justice’s responsibility to do that. And while a few folks here and there went to prison for various violations, it’s largely been the financial entities that have paid the penalties.

“A financial firm, of course, is a legal fiction,” Bernanke explained. “It’s not a person. You can’t put a financial firm in jail.”

“It would’ve been my preference to have more investigation of individual actions because obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm,” he continued. “In that respect, there should’ve been more accountability at the individual level.”

So, on the one hand you have the former Federal Reserve chairman saying, after the fact, that people should have gone to jail but the financial firms are abstractions. Then on the other hand you have the former attorney general Eric Holder’s infamous quote that some financial institutions became so big, “that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.” And on the other hand we have the Supreme Court, which has determined that corporations are people, even if Ben Bernanke says they’re fictitious and he can’t figure out how to lock them up.

The U.S. Supreme Court this morning rejected a U.S. Justice Department bid to restore the insider trading convictions of two hedge fund managers and reverse a lower court’s ruling that prosecutors contend will make it harder to bring such cases. The justices left in place a December ruling by the 2nd U.S. Circuit Court of Appeals in New York that threw out the 2012 convictions of hedge fund managers Todd Newman and Anthony Chiasson for engaging in a scheme involving tips about Dell and Nvidia.

In overturning the convictions, the appeals court said prosecutors needed to show that the person disclosing the information received a clear benefit, something more than the nurturing of a friendship. The appeals court also said the person being prosecuted had to know about the benefit. That issue wasn’t before the Supreme Court.

Yes, the Supremes are back in session, and they have some important cases on the docket, including: Evenwel v. Abbott, which will dig into the concept of one-person, one vote; also, Friedrichs v. California Teachers Association, which pits the practical needs of collective bargaining against the First Amendment and could have huge political consequences by crippling public employee unions and possibly all unions; and waiting in the wings at the high court are two politically incendiary cases: one involving abortion, the other birth control under Obamacare.

Saudi Arabia cut prices on oil sales over the weekend as it plays catch-up with OPEC and other producers in the region. State-run Saudi Aramco reduced prices significantly on oil sent to Asia and the U.S. The Saudi strategy is to keep producing oil at high levels in anticipation of improved demand at lower price points. Meanwhile, Russia is ready to meet with members of the Organization of Petroleum-Exporting Countries (OPEC) — as well as non-member oil producers — to discuss the situation facing global oil markets.

The Institute for Supply Management said its services index fell to 56.9% from 59% in August. New orders and prices paid were down, but any reading above 50 indicates growth, and this report marks the 68 consecutive month of growth in the services sector of the economy.

General Electric has drawn a big investment from activist shareholder Nelson Peltz. Peltz’s Trian Fund Management has accumulated $2.5 billion in GE shares since the middle of May —a roughly 1% stake —making it one of the company’s top 10 shareholders. While Trian has some criticism of the company, both sides say they are in agreement on most aspects of GE’s current direction, which includes the sale of the majority of its giant financing arm. Trian hasn’t requested a GE board seat.

Twitter has announced that co-founder and interim CEO Jack Dorsey will stay on as permanent chief executive. As Dorsey formally takes on the Twitter CEO job — after more than three months of drama and speculation — investors are bound to wonder which of Dorsey’s two companies will get short shrift. As Dorsey is reprising his role as Twitter CEO, he is also going to be taking his second company, mobile payments startup Square, public.

American Apparel filed for Chapter 11 bankruptcy in Delaware. The company plans to keep stores open while it seeks approval for its restructuring plan with lenders through the bankruptcy court.

Shares in Google have stopped trading, and have in fact ceased to exist. Instead, you can now trade Alphabet, the parent company for Google. Alphabet is a group of companies, many of which were acquired or developed internally by what used to be Google Labs. The biggest part of Alphabet stock that investors need to watch is the now-focused subsidiary of Google internet businesses.

All those advertising dollars that drove GOOG stock before will still do so, and they will come from this unit. Both GOOG stock and GOOGL stock will continue to trade separately, and at the same previous prices. They are ownership stakes in the parent company, Alphabet. GOOG stock will represent Class C shares of Alphabet, but with no voting rights, while GOOGL stock represents Class A shares with one vote each.

If you trade stocks on Scottrade you might want to be a bit more vigilant. Hackers had access to Scottrade’s network for “a period of several months” in late 2013 and early 2014. The retail brokerage posted a notice on its website. The company said it believes that contact information, names and addresses were the focus of the breach, although “sensitive data” such as Social Security numbers and email addresses were also in the system that was breached. The information of 4.6 million clients was contained in the targeted database, and Scottrade is providing a year of identity protection services to those clients. Scottrade said it is directly notifying clients who had an account before February 2014 that their data may have been accessed.

The FTSE 100 was up about 2.5% and almost the entire move can be attributed to Glencore. The commodities giant Glencore was briefly up 21% in London, and it had jumped by as much as 70% in Hong Kong trade after rumors circulated that management would listen to takeover offers. The company’s board disputed those claims in a press release, however, saying, “It is not aware of any reasons for these price and volume movements or of any information which must be announced to avoid a false market.”

Canadian fertilizer company Potash has backed out of its $8.8 billion takeover attempt of its German rival K+S. According to Potash, it’s dropping the bid because of market conditions and a lack of commitment from K+S management. Back in August, K+S said Potash’s bid undervalued the company and would eliminate jobs

Ford reached a key agreement with a union representing workers at an F-150 plant in Missouri. The UAW workers still need to vote on the deal which covers employment conditions, not the wage levels being negotiated on a national level. The development is crucial for Ford as the Kansas City-area plant is a major producer of the new F-150. Any slowdown in production would create a ripple of worry with F-150 sales continuing to gain momentum in the U.S.

Volkswagen will hold a special board meeting to review n internal investigation on the emissions cheating crisis. One of the biggest challenges for the VW board is how deeply to cut into Volkswagen’s investment budget in order to try to stave off credit agency downgrades.

Air France said last week it was planning cuts to jobs, jets, and routes in the absence of a deal with pilots, who had been asked to work more hours for the same pay to help end annual losses that began in 2011. Air France workers “stormed” the company’s headquarters at Charles de Gaulle Airport near Paris after it threatened to cut 2,900 jobs, interrupting a meeting with union representatives and ripping executives’ clothes off.

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