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Rainbows over Canyonlands - Dave Stoker

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Thursday, November 12, 2015

Financial Review

Show Me the Data

DOW – 254 = 17,448
SPX – 29 = 2045
NAS – 61 = 5005
10 YR YLD – .02 = 2.32%
OIL – 1.28 = 41.65
GOLD – 1.70 = 1085.50
SILV – .11 = 14.34

Crude oil fell below $42 a barrel, its lowest price since August, while copper, gold and silver reached six-year lows. Energy, mining and metals companies fell. Caterpillar, Exxon Mobil and Chevron had the biggest losses in the Dow Jones Industrial average. The Dow and the Standard & Poor’s 500-stock index are now negative for the year.

The Energy Information Administration just released its latest weekly look at the US oil market, and it shows that US crude stockpiles are just 3 million barrels off the record 490 million barrel record in April.  Crude stockpiles grew by 4.2 million barrels last week. A private report released Wednesday had shown an even larger increase. The biggest factors have been a slowdown in demand, and China’s slowdown is a big part of that equation. Meanwhile, oil producers just keep pumping; US shale production has slowed and will likely slow more, even though it remains stubbornly high; OPEC refuses to cut production and the more oil prices fall, the faster they pump.

Prices for copper and other commodities were slumping as investors anticipated that the dollar would become even stronger. The price of silver has fallen for nine consecutive days and is down 10 percent since late October. The price of copper fell 2 percent to $2.17 a pound. It is down 22 percent this year, hitting six-year lows. The copper producer Freeport-McMoRan dropped 4.5 percent.

We had a couple of reports on the labor market this morning. First up, initial claims for state unemployment benefits were unchanged at a seasonally adjusted 276,000 for the week ended Nov. 7. Claims are not too far from levels last seen in the early 1970s. They have now held below the 300,000 threshold for 36 consecutive weeks, the longest stretch in years. Claims below this level are usually associated with a healthy jobs market.

Next on deck, the JOLT survey, Job Openings and Labor Turnover, showed job openings rose in September to the second-highest level in the history of the series, going back to 2000. Job openings rose to a seasonally adjusted 5.53 million from 5.38 million in August, though that’s short of the 5.67 million peak reached this summer. The quits rate was 1.9% for the sixth consecutive month, which is slightly below the 2.1% rate before the downturn in 2007.

The quits rate is important because someone who is working, needs to quit their current job to take a new job, which in theory anyway is a better job. So, why aren’t we seeing a higher quits rate in light of more job openings? One reason is that employers aren’t offering high enough pay to fill these spots. Another possible reason is that employers can’t find skilled workers to fill the job openings. The hiring rate ticked down a notch to 3.6%.

Recent jobs data gives the Federal Reserve a reason to boost interest rates from near zero, where they have been since 2008.Today we heard speeches from Janet Yellen and four regional Fed presidents, as well as Vice Chairman Stanley Fischer this afternoon. St. Louis Fed President James Bullard said this morning that he is still concerned about inflation. Bullard is a known hawk. The most important thing Bullard said in his speech titled “Permazero” is that the US may be entering a permanent period of lower inflation and interest rates. But he still wants to raise rates. Welcome to Fedspeak 2015.

But most of the communication was straightforward, even if the arguments were, at times convoluted. Federal Reserve officials generally said that rates will go up, probably in December and they stressed that policy should be tightened only gradually after interest rates are increased. They have now done everything short of ringing bells and handing out engraved invitations.

Still, the International Monetary Fund published a paper today saying not so fast. In a report prepared for the upcoming Group of 20 meeting, the IMF said spare economic capacity and very low inflation justified keeping monetary policy loose in most major advanced economies. The IMF wrote: “The FOMC decision should remain data-dependent, with the first increase in the federal funds rate waiting until continued strength in the labor market is accompanied by firm signs of inflation rising steadily toward the Federal Reserve’s 2 percent medium-term inflation objective.” And the IMF has a point. The Fed may be anxious to raise rates but for all their talk they haven’t rolled out the data to back that position.

Meanwhile, ECB President Draghi told members of the European Parliament in Brussels that signs of a turnaround in low inflation “have somewhat weakened.” Low annual inflation – currently zero in the 19 countries that use the euro currency – points to weak demand and makes it harder for indebted companies and countries to recover. The ECB is purchasing $1.2 trillion in bonds with newly printed money through September, but inflation remains low. Draghi said at the ECB’s last policy meeting on Oct. 22 that the bank would review whether more stimulus was needed. The euro dropped on Draghi’s remarks.

Angry Greeks, fed up after six years of austerity, are taking to the streets again. The country came to a halt today after employees in both the public and private sector walked off their jobs to protest against yet more spending cuts and tax rises. Earlier this week, Eurozone finance ministers denied Athens the first $2.2 billion tranche of a third foreign aid package, stating the country had not gone far enough on the issue of home foreclosures.

According to Moody’s Investor Service, Puerto Rico is likely to default on at least some of its $355 million in debt payments due Dec. 1. The U.S. commonwealth, facing around $70 billion in total debt, is struggling to breathe life into a stalled economy with a roughly 45% poverty rate. Moody’s, which has Puerto Rico rated at Caa3 negative, said the island “continues to operate with extremely limited internal liquidity and no access to external sources of financing.”

VW has set a November 30 deadline for staff with knowledge about its diesel emissions test cheating to come forward. Workers who get in touch with internal investigators by then will be exempt from dismissal, although whistleblowers might be re-assigned to different jobs. The offer does not apply to managers. So if it turns out that deception was authorized at a high level, those responsible can still expect to be punished.

Government access to personal data from Web companies is still on the rise, building on a contentious privacy issue being debated across the globe. In its biannual report, Facebook said government requests for data jumped 18% in the first half of 2015 to 41,214 accounts, up from 35,051 requests in the second half of 2014.

A new plan from T-Mobile USA to allow unlimited streaming of some video services may become the first test of the federal government’s rules to prevent favoritism on the Internet. T-Mobile, the nation’s third-largest wireless carrier, said customers could stream as many videos as they want, regardless of their data plan limits, from more than two dozen video providers, including Hulu and Netflix. Now if you like streaming videos, you likely cheered, but it also raises some challenges to net neutrality rules and some people are now asking the FCC to consider taking up the issue.

The new rules leave open the possibility for wireless carriers to offer services that do not count against their data limits, a practice known as “zero rating.” The FCC has said that was intentional, to encourage Internet service providers to experiment with new business models. However, the FCC has also warned that it will investigate zero rating of data caps that appeared to harm consumers and hamper competition, leaving it somewhat vague where it would step in. T-Mobile said its new plan did not play favorites. Any video provider can join the program after meeting certain technical requirements.

Alibaba’s astronomical Singles Day sales failed to boost its stock price. Alibaba chief Jack Ma made some cautionary comments about growth expectations in China and the impact on Alibaba. A broad economic slowdown is worrisome in the longer term and offsets any short-term boost from Singles Day revenue. The e-commerce giant handled $14.3 billion in sales over the 24-hour shopping period, a 60% increase compared to 2014. And just to put that in perspective, the Single Day sales are more than the annual revenue of Facebook, or Viacom, or the GDP of Laos.

Walmart is remaking Black Friday by ditching doorbusters as part of a strategy to make holiday shopping easier for customers. The retailer will once again open its doors at 6 p.m. on Thanksgiving, but it won’t be rolling out hourly deals on different items. Instead, it plans to simplify the crazed shopping period by providing nearly all of its deals both online and in stores at once.  Online deals will start at 12:01 a.m. Pacific time on Thanksgiving, while all in-store deals will be available once stores open that evening.

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