Financial Review

Heading into the Holiday

Sinclair Noe — June 29, 2017

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DOW – 167 = 21,287
SPX – 20 = 2419
NAS – 90 = 6144
RUT – 9 = 1416
10 Y + .05 = 2.27%
OIL + .12 = 44.86
GOLD – 3.40 = 1246.40
BITCOIN – 0.21% = 2556.09 USD
ETHEREUM – 4.42% = 289.77

We had a nice trend so far, this year. The stock market has been moving forward in small, steady gains. Volatility has been low, almost imperceptible. The markets just kept moving higher. When we have had a pullback, it was followed the next day by a rally, even if there was no conviction.

That was the case this week. Down on Tuesday, back up on Wednesday. Today throws a wrench in the pattern, with the S&P 500 and the Dow industrials suffering their worst daily percentage drops in about six weeks. The tech sector was the worst performing group today. There’s a lot more volatility in tech this month and that’s in part due to stretched P/Es.

At this point, it’s just a couple of down days, and we are heading into a long holiday weekend, a good time to take profits off the table and enjoy a barbeque without worries. Still, valuations are high and it’s one of the longest bull markets in history. Bull markets don’t last forever.

June has not been kind to the FAANG stocks, – Facebook, Apple, Amazon, Netflix, and Google, which were market leaders and then hit a down draft. There is no question the FAANGs have become pricey. The market caps are so huge they dominate the indexes. But markets can stay exuberant and irrational for a very long time. And this is not the first time we have seen a sell-off in the FAANGs, only to watch them move higher.

Today, money was rotating from tech and into the financials after the big banks passed the Fed stress tests and now can offer bigger dividends and buybacks. JPMorgan, the nation’s largest lender, said it’s boosting its quarterly dividend 12 percent and may increase share repurchases to $19.4 billion over the next 12 months — roughly 90 percent more than in the prior year.

Citigroup plans to double its dividend and may purchase up to $15.6 billion. Bank of America hiked its dividend 60 percent and will buy back up to $12 billion. Shares of all three rose at least 2 percent in early trading in New York. They, along with Wells Fargo and Morgan Stanley, may collectively buy as much as $64 billion in stock. Goldman Sachs has yet to make an announcement.

The Commerce Department posted its third and sort of final revision to first quarter Gross Domestic Product, and the revision came in higher; up 0.2% to 1.4%, instead of the 1.2% reported last month. The government had pegged first-quarter growth at a paltry 0.7% in its first estimate in April.

First-quarter economic growth was boosted by an upward revision to consumer spending, which accounts for more than two-thirds of U.S. economic activity. Consumer spending rose at a 1.1 percent pace, the weakest reading since the second quarter of 2013 but almost double the 0.6 percent reported last month. A sustained average growth rate of 3 percent has not been achieved in the United States since the 1990s.

The U.S. economy has grown an average 2 percent since 2000 and it expanded only 1.6 percent in 2016, which was the weakest growth in five years. Initial signs that economic growth re-accelerated sharply in the second quarter have also faltered in the face of recent disappointing data on retail sales, manufacturing production and inflation. Housing data has also been mixed.

Exports for the period were revised to show a 7.0 percent rate of growth from the previously reported 5.8 percent. Exports in the fourth quarter fell at a rate of 4.5 percent. Business spending on equipment was revised to show it increasing at a rate of 7.8 percent in the January-March period rather than the 7.2 percent previously estimated.

The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments fell at an annual rate of 2.7 percent in the first quarter after rising at a 2.3 percent pace in the prior three months.

The Bank of International Settlements, or BIS, is the central bank for the central bankers of the world. According the BIS’s annual report, the global economy faces four risks, “(i) financial cycle risks for financial stability; (ii) risks to consumption growth from household debt; (iii) risks to investment from weak productivity growth and high corporate debt; and (iv) risks from rising protectionism.”

From the report:
“These risks may appear independent, but they are not. For instance, policy tightening to contain an inflation spurt could trigger, or amplify, a financial bust in the more vulnerable countries… Indeed, an overarching issue is the global economy’s sensitivity to higher interest rates given the continued accumulation of debt in relation to GDP, complicating the policy normalization process.

“As another example, a withdrawal into trade protectionism could spark financial strains and make higher inflation more likely. And the emergence of systemic financial strains yet again, or simply much slower growth, could heighten the protectionist threat beyond critical levels.”

Of all those risks, protectionism is the only one a government can fully control. A government can choose to engage in global free market capitalism, or it can aggressively try to distort the market by blocking competing goods and services. It can either work amicably with neighbors and allies, or it can create tension felt across the globe.

A revised version of President Trump’s travel ban approved by the Supreme Court is set to take effect at 8:00 p.m. ET on Thursday. The justices implemented an exemption for travelers from six-Muslim majority countries with a “bona fide relationship” to people or entities in the US.

The Trump administration has adopted a narrow definition of “bona fide relationship.” According to guidelines the Trump administration has sent to US embassies and consulates, only a family member who is a parent, spouse, child, adult son or daughter, son-in-law, daughter-in-law, or sibling of US residents will be allowed to enter the country.

Fiancées, grandparents, grandchildren, aunts, uncles, nieces, nephews, cousins, and other extended family members are not considered to have “close familial ties”. And if you think this might lead to mass confusion, well…

The Congressional Budget Office has come out with a long-term analysis of Senate Republicans’ health-care legislation found that the bill would slash spending on Medicaid by about 35 percent over the next 20 years. The analysis follows a 10-year look by the agency released earlier this week.

The new CBO estimate doesn’t include a projection of how many people would be covered under the Republican bill. The CBO estimate shows that states would be forced to make trade-offs in how to allocate their far more limited funds.

Drugstore chain Walgreens Boots Alliance scrapped its deal to buy Rite Aid after failing to win antitrust approval, but said it would instead buy nearly half of the smaller rival’s U.S. stores for $5.18 billion. Rite Aid’s shares plunged about 28 percent to $2.85, while Walgreens shares were up 1 percent at $77.97.

Walgreens also ended a related deal to sell as many as 1,200 Rite Aid stores to Fred’s, sending Fred’s shares down 19 percent. Walgreens’ plan to buy 2,186 Rite Aid stores accomplishes many of the same goals as the merger – including eliminating Rite Aid as a rival – but does so in a way that makes it harder for the FTC to take the companies to court to stop the transaction.

The FTC will review the new deal. Walgreens also reported better-than-expected profit and sales for the third quarter, helped by a rise in prescription volumes in its U.S. pharmacy business. The company also authorized a $5 billion buyback program and raised the lower end of its full-year profit forecast.

Nike reported quarterly revenue and profit that topped Street estimates as the company kept a lid on costs and saw greater demand in Western Europe, China and emerging markets. Shares of the Dow component were up nearly 3 percent.

Britain intends to subject Rupert Murdoch’s takeover of European pay-TV group Sky to a lengthy in-depth investigation after finding that Twenty-First Century Fox’s $15 billion deal risks giving the media mogul too much power over the news agenda.

The proposed entity would have the third largest total reach of any news provider – lower only than the BBC and ITN – and would, uniquely, span news coverage on television, radio, in newspapers and online. Regulators will make a final decision on July 14, giving Fox two weeks to address concerns.

Blue Apron shares debuted today. The IPO stumbled but did not fall. Blue Apron’s 30-million share offering was priced at $10 per share late on Wednesday, after the company slashed its valuation expectations by a third. Shares gained 1% in the first day of trading.

Blue Apron spent roughly 18 percent of its $795 million revenue in 2016 on marketing, posting a net loss of $54 million. It has also faced steep costs of building out delivery infrastructure for fresh food. The biggest problem for Blue Apron might be Amazon-Whole Foods, which looks well-positioned to offer competition.

This should be a very interesting Fourth of July celebration in Las Vegas. Recreational marijuana becomes legal to buy Saturday in Nevada. That doesn’t mean it can be smoked everywhere only in private homes, yards or porches.

It’s prohibited in casinos, bars, restaurants, parks, concerts and on any federal property. You can’t walk down the street, or the Strip, smoking a joint. Also, prohibited in all forms at airports. No driving while stoned. And what’s smoked in Vegas stays in Vegas.

Financial Review

Mind the Gap

Sinclair Noe — January 18, 2017

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DOW – 22 = 19,804
SPX + 4 = 2271
NAS + 16 = 5555
RUT + 6 = 1358
10 Y + .06 = 2.39%
OIL – 1.09 = 51.39
GOLD – 12.70 = 1205.00

The Dow Industrials spent most of the day in slightly negative territory. The S&P 500 traded in a tight range between negative and positive. If it seems like the stock market’s crawl to nowhere over the past month has been particularly strange, that’s because it has been. It turns out the gap between the Dow’s high and low prices over the past month is a tiny 1.4 percent — the narrowest gap in data going back to 1957.

On December 13, the Dow crossed 19,900 and pushed toward 20,000 – getting within a fraction of a point, then falling to a low of 19719, or a 1.4 percent range. So, something has to give – the question is whether we will see a break out or a break down. The long-term trend is still higher, but we really must wait and let the market show us.

Consumer prices rose in December as households paid more for gasoline and rent.  Consumer Price Index rose 0.3 percent last month after gaining 0.2 percent in November. In the 12 months through December, the CPI increased 2.1 percent, the biggest year-on-year gain since June 2014.

The so-called core CPI, which strips out food and energy costs, rose 0.2 percent last month after the same increase in November. As a result, the core CPI was up 2.2 percent in the 12 months through December. Rents rose 4% compared to a year ago, in December, the Labor Department said Wednesday.

That’s the strongest yearly gain since December 2007, the month the Great Recession began. Rising inflation comes against the backdrop of a strengthening economy and tightening labor market, which raises the prospects for more, and faster interest rate hikes from the Federal Reserve.

Fed Chair Janet Yellen delivered a speech today and said the economy is close to the Fed’s objective of full employment and stable prices and she’s confident it will continue to improve. That, in turn, means “it makes sense to gradually reduce the level of monetary policy support,” although Yellen said the timing of the next interest-rate increase “will depend on how the economy actually evolves over coming months.” Yellen said, “Right now our foot is still pressing on the gas pedal.”

Meanwhile, Fed Governor Lael Brainard said fiscal policies that boost demand when the economy is already around full employment and 2 percent inflation are “relatively more likely to be accompanied by increases in interest rates.”

Meanwhile, Minneapolis Fed President Neel Kashkari is launching a research institute to generate ideas elected officials might use to help more Americans benefit from a growing economy and address issues such as racial disparity and income inequality.

Meanwhile, the Fed published its Beige Book, reports from all 12 Fed districts which is released 2 weeks before FOMC policy meetings. Manufacturers in “most” of the Federal Reserve System’s 12 regions reported increased sales.

Companies reported uncertainty surrounding the change of administrations in Washington but remained generally optimistic about growth prospects for 2017. Labor markets were reported to be tight or tightening and pricing pressure intensified.

Central bank policy might have a problem, according to the central banks’ bank. A working paper by the Bank for International Settlements found cuts in interest rates and asset purchase programs can help reduce volatility in stocks and bonds, but it also found lower rates, or lower term-premium, doesn’t appear to spark economic growth.

Industrial production rebounded in December due to the biggest jump in utilities since 1989 as temperatures cooled across the country. The Federal Reserve said industrial output rose 0.8 percent last month. The bulk of December’s increase was due to the 6.6 percent rise in the utilities index. Overall industrial production, however, fell at an annual rate of 0.6 percent in the fourth quarter.

The oil market got a stark reminder that rising oil production in the U.S. could upend efforts by major producers to bring global supply and demand for crude back in to balance. The Energy Information Administration released a report on drilling productivity—forecasting a monthly rise of 41,000 barrels a day in February oil production to 4.75 million barrels a day.

Citigroup reported a 7 percent rise in quarterly profit, beating estimates. However, adjusted revenue fell 9 percent to $17 billion due to divestitures and missed the average estimate.

Goldman Sachs Group reported net income of $2.2 billion, a nearly fourfold rise in quarterly profit.  The fifth largest U.S. bank by assets, which relies more on revenue from trading stocks and bonds than other Wall Street companies, posted a 25 percent jump in trading in the fourth quarter compared with the prior year. Goldman beat on the top and bottom lines.

HSBC became the first major bank to detail plans to move jobs out of London after Brexit, saying it will relocate staff responsible for generating around a fifth of its UK-based trading revenue to Paris after Britain leaves the EU.

The United States sued JPMorgan Chase, accusing the bank of discriminating against minority borrowers by charging them higher rates and fees on home mortgage loans between 2006 and at least 2009. Separately, the Labor Department claimed the bank “systematically discriminated” against 93 women technology workers in its investment bank by paying them lower wages since at least 2012.

The Labor Department asked an internal administrative judge to cancel all government contracts and prevent JPMorgan from entering future federal contracts if it fails to provide relief.

United Continental’s fourth quarter profit tumbled. The airline announced fourth-quarter earnings of $1.78 a share on revenue of $9.1 billion but said its profit fell 51% to $397 million because of its tax bill.

American Airlines is introducing its Basic Economy fares, because Economy fares weren’t basic enough. The new fares, also known as Sub-Cattle Class, mean you can’t store carry-ons in the overhead compartments, no assigned seating, last to board, and no changes at all, no upgrades, and no soup for you.

Meanwhile, American’s flight attendants have a problem with their new uniforms – they claim it is causing skin rashes, itchy eyes, sore throat and blisters. The airline spent $1 million on tests and still don’t know what is wrong.

Target cut its quarterly earnings forecast after sales for the holiday season came in lower than expected due to weak demand for electronics, food and other products. Sales at Target stores open at least a year declined 1.3 percent in the November-December period, while total sales fell 4.9 percent. Target follows rivals Macy’s and Kohl’s, which also cut their profit forecasts after reporting disappointing holiday sales.

J.C. Penney shares sank about 2% after announcing a new partnership with Nike to add Nike shops in 600 of its stores. I’m not sure why that would be bad news.

After the closing bell, Netflix report earnings of 15-cents per share, beating estimates by 2-cents. The company said it added 7.05 million subscribers during the quarter, well above its own expectations of 5.2 million. Its stock has risen by a dazzling 35% in the past six months and is tacking on 8% in after-hours trade.

Essilor of France said it would merge with Luxottica Group of Italy, owner of the Ray-Ban and Oakley brands in a $49 billion deal. The combined company would be known as EssilorLuxottica, and would be the largest player in the eyewear market. The new company would have more than 140,000 employees in 150 countries with 2016 revenue of $16 billion.

Navient, the nation’s largest student loan servicer was hit with a Consumer Financial Protection Bureau lawsuit over allegations that it has “systematically and illegally” failed borrowers. Navient, formerly part of Sallie Mae, created repayment obstacles for tens of thousands of student borrowers by providing incorrect payment information, processing payments incorrectly and failing to act when borrowers complained.

British bookies will bet on almost anything, including specific words or phrases Donald Trump might say in his inaugural address on Friday. Ladbrokes, for example, is offering odds of 1/50 for “Make American Great Again”, indicating there’s a good chance Trump will repeat his campaign slogan in Friday’s speech.

That means a $1 bet would only yield 2 cents in case of a win. With slightly longer odds, “Reagan” comes in at 1/5, followed by “tremendous”, “ISIS” and “China” at 1/2. Further down the list sit “fake news” at 3/1 and “totally false” at 5/1. Aside from the buzzword betting, gamblers can also try their luck with Trump’s tie color and speech length.

It’s official, according to the National Oceanic and Atmospheric Administration (NOAA) 2016 was the hottest year on record, again. The planet sizzled to its third straight record warm year in 2016, and 16 of the 17 warmest years have occurred since 2001. The average temperature across the Earth’s land and ocean surfaces in 2016 was 58.69 degrees, a whopping 1.69 degrees above average.

It was the largest margin by which an annual global temperature record has ever been broken. Record high temperatures were set in 2016 on nearly every continent. No land areas were cooler than average for the year. Eight straight months (January through August) were also each the warmest since records began 15 years after the Civil War ended.

Financial Review

Days of Wine and Neurosis

Sinclair Noe — January 20, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW – 249 = 15,766
SPX – 22 = 1859
NAS – 5 = 4471
10 Y – .05 = 1.98%
OIL – 1.91 = 26.55
GOLD + 13.70 = 1102.20

I remember a time, long ago and far away, where the stock market soared to record highs and we had celebrations and enjoyed milk and cookies. Today there are no celebrations, and the reward for merely surviving is more like wine and valium, or maybe just a Pepto Bismol smoothie.

Global markets were in full retreat as a relentless slide in oil prices and a weaker world growth outlook from the IMF dealt another blow to investor appetite. Hong Kong shares tumbled to their lowest levels since the depths of the global financial crisis, Japan’s Nikkei entered a bear market and equities everywhere else are deep in the red.

Investors have been looking for safe havens. Yields on U.S. 10-year Treasuries fell below 2.00%, down 29 basis points since the New Year began.

Here’s a quick rundown of global markets: China’s Shanghai Composite down 1%, The Hang Seng in Hong Kong down 4%, Japan’s Nikkei lost 3.7%; in Europe the FTSE 100 down 2.5%, The CAC in France down 2.5%, The Euro Stoxx 50 down 2.3%.

Wall Street looked more like Mr. Toad’s Wild Ride; the Dow Industrials dropped to 15,450, a drop of 565 points intraday; the S&P 500 broke support levels from August – actually a double bottom going back to October 2014 – and that leaves minor support at 1815 and the next major level of support at the 2014 lows of 1741. We might see attempts at a rally but the charts just look broken down and nasty. Even though the markets pared losses late in the session, it felt more like short covering than a real rally to the close.

Crude futures were slammed again, with U.S. oil falling to its lowest since September 2003 on worries about a global glut. The drop comes after the International Energy Agency, which advises industrialized countries on energy policy, warned on Tuesday that oil markets could “drown in oversupply”. Oil has fallen more than 25 percent so far this year, the steepest such slide since the financial crisis, piling more pain on oil drillers and producing nations alike. Yet they keep pumping more oil into an oversupplied market.

Two currency pegs have come under increasing pressure in recent days. Authorities in Saudi Arabia moved this morning to stem the tide of traders betting against the riyal’s peg to the U.S. dollar by banning local riyal forward options. Those forwards had jumped to their highest in at least two decades. In Hong Kong, local dollar forwards sunk to the weakest since 1999, forcing interbank lending rates to their highest in seven years.

The semiconductor consolidation continues…Microchip Technology has finally sealed a deal to buy Atmel, which stated last week that the former’s unsolicited bid was superior to an offer from Dialog Semiconductor. The $8.15/share cash-and-stock bid will value Atmel at $3.4 billion. Microchip also said it expects to report fiscal third quarter revenue of $552 million and .62 to .63- cents per share in earnings, slightly above consensus estimates.

Consumer prices fell again in December. The consumer price index declined by seasonally adjusted 0.1% last month. For all of 2015 inflation rose just 0.7%, the second slowest rate in 50 years. The low rate was largely the result of the biggest drop in gasoline prices in more than a decade. The cost of food also tapered off toward the end of the year because of falling prices for agricultural goods.

In December, energy prices dropped 2.4% and food costs retreated 0.2%.  Stripping out food and energy, so-called core prices rose 0.1% in December. Core consumer prices have climbed at a much faster 2.1% annual rate, marking the biggest 12-month change since 2012. Higher costs of shelter, medical care and other services have driven the increase.

Home builders cut back slightly on new construction in the final month of 2015, though they built the most homes last year since 2007. Housing starts fell 2.5% last month to an annual rate of 1.15 million, slightly below expectations. For the full year, home builders started work on 1.11 million new houses, the largest number since the Great Recession.

So, some of the economic data looks good but the markets aren’t responding to the domestic economic data. All the concerns go back to China and oil. We’re already seeing a big impact in the lack of trade across the world.

Bloomberg reports that China’s slowing growth has crushed shipping rates to such an extent that hiring a 1,100-foot merchant vessel would set you back less than the price of renting a Ferrari for a day. The Baltic Dry Index is an indicator of the cost of shipping dry bulk goods such as coal, iron ore, grains, and finished goods such as steel, but it is feted for its apparent ability to predict the world’s financial fortunes. It has now dropped to its lowest level since records began in 1985.

So why does this all matter? Well, if cargo ships aren’t shipping cargo containers, then it might be an indication that the oxygen is being sucked out of global commerce. Think of the index as the canary in the coal mine, and right now the canary is lying on the bottom of the cage. The most recent time the Baltic Dry Index crashed was just before the 2008 global financial crisis.

In 1999 the Baltic Dry slumped to 12-year lows, very soon before the dot-com bubble burst. It slumped again to another massive low in 2001, around the same time the US economy fell into a recession that lasted until 2003.

The Telegraph’s Ambrose Evans-Pritchard interviewed William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements, and he offered one of the better explanations of how a collapse might play out. White says that easy money policy settings from the Fed, and others such as the European Central Bank and Bank of Japan, simply brought spending forward from the future, creating dangerous cycle that is now losing its potency to spur demand, which “By definition, … means you cannot spend the money tomorrow.”

Aside from pushing demand forward in developed economies, another consequence was to exacerbate asset bubbles in emerging markets such as Asia, pushing asset prices higher on the back of what was, at the time, cheap US dollar denominated debt; this pushed combined public and private debt in emerging markets surge to 185% of GDP. In OECD nations a debt boom of a similar scale also occurred, taking the overall debt-to-GDP ratio for 34-member group to 265%. China, at the epicenter of market concerns in recent months, has seen its debt loading climb from 158% of GDP to over 282%.

“It was always dangerous to rely on central banks to sort out a solvency problem when all they can do is tackle liquidity problems. It is a recipe for disorder, and now we are hitting the limit.” The problem, according to White is that macroeconomic ammunition to fight further economic downturns is essentially “all used up”. The central bankers have run out of dry powder. “Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief.”

Mr. White says, “It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.”

Instead of pondering whether or not bankruptcies will occur, White suggests the only question that needs to be answered is “whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly”.

Now the article didn’t explain why White thinks things could get disorderly, so let me try to fill in a few blanks. And it’s not just zombie cargo ships. Much of the debt is related to the energy sector, which is the major source of income for many nations; think of the 19 nations in OPEC and then add in a few extra’s like Brazil, which is very dependent on its state owned oil company Petrobras.

And while the debt defaults might wipe out some of the weaker banks and financial institutions, the big banks are actually bigger than they were in 2008, and they are required to hold more reserves. The problem is that they also hold more derivatives. Essentially, they have placed side bets on all this new debt, in an attempt to slough off risk.

Now, we don’t’ really know the exact size off the derivatives markets, but the most widely referenced guesstimate is around $700 trillion, or about 10 time more than global GDP; although the BIS says it has come down in the past year to just $555 trillion. And we are told that we shouldn’t really count all that because that is the notional amount, in other words, many of the bets would cancel out other bets.

But that is also the problem; when the side bets start cancelling out other bets, nobody really knows which bets will pay off, and the entire credit markets freeze up. And if we look at the actual exposure to market value of outstanding derivatives, the BIS says it is around $15.5 trillion, which is enough to create a major meltdown in its own right.

Financial Review

Times Change

Sinclair Noe — March 19, 2015

 

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DOW – 117 = 17,959
SPX – 10 = 2089
NAS + 9 = 4992
10 YR YLD + .02 = 1.97%
OIL – .81 = 43.85
GOLD + 4.10 = 1172.00
SILV+ .22 = 16.21

The Federal Reserve wrapped up a two-day FOMC meeting yesterday; and the stock market responded with a rally; the dollar dropped initially. After a day of consideration, stocks slipped and the dollar clawed back gains.  Oil prices rose yesterday and dropped again today. You could make the case that the Fed has maintained an overly accommodative monetary policy for too long, or you could argue that the economy will take a hit if the Fed hikes interest rates too soon. The Fed removed its pledge to be patient in tightening policy, while also cutting its forecast for the economy. Go figure.

Initial jobless claims edged up by 1,000 to a seasonally adjusted 291,000 in the period stretching from March 8 to March 14.  New claims have tracked below 300,000 for the second straight week after spiking to a 10-month high of 325,000 at the end of February in what now appears to have been weather-related quirk.

The Commerce Department said the current account gap, which measures the flow of goods, services and investments into and out of the country, increased to $113 billion from a $98 billion deficit in the third quarter. That was the largest shortfall since the second quarter of 2012.

The Conference Board’s  leading economic index rose 0.2% in February in a sign the U.S. economy should expand at a moderate rate in the months ahead.

If the Dollar Index finishes higher in March, it will be up 9 consecutive months, extending what is already the longest streak in history; so far racking up just over 25% in gains. So, it’s not a surprise that commodities prices are trading at 12-year lows. Yesterday the dollar dropped 3% following the Fed announcement; that was the biggest daily move since March 2009. I read today that the strong dollar might be the next Black Swan event. I grant that the move has been surprisingly strong but I’m not sure it really qualifies for outlier status; or does my doubt qualify it.

Another EU Economic Summit is underway. The two-day meeting in Brussels is attended by leaders from across the eurozone.  The Greek debt crisis and the possibility of extending sanctions against Russia and energy are the key issues up for discussion. The Greek parliament adopted a “humanitarian crisis” bill yesterday, the first package of social measures put forward by the radical left-wing Syriza government. The bill is basically an anti-poverty law, designed to allow people opportunity to stay in housing and providing emergency food aid for the poorest Greeks.  The European Commission warned that Greece should not act unilaterally. This on the same day the European Central Bank opened its plush new €1.4 billion office headquarters in Brussels. The price tag for the Greek humanitarian crisis law to help its poorest: €200 million. At the opening ceremony, the ECB announced that the new HQ was “an example of what Europe is capable of.” Well, apparently so.

Brazilian President Dilma Rousseff has launched an anti-corruption offensive to counter rising discontent over the kickback scandal that took place at Petrobras during the years she was chairwoman of the state-run oil company. Her proposals include the criminalization of campaign slush funds, seizure of assets from government officials convicted of corruption and implementing an anti-bribery law passed more than a year ago. On Sunday, over 1 million people took to Brazil’s streets in anti-government protests. A small minority of the protesters called for a military takeover of the government.
 
Apple is moving to the Dow Industrial Average, replacing AT&T. The Dow is a price-weighted index, which means the price is determined by the price changes of its components, rather than percentage changes. A 1% move in Apple’s stock–about $1.28 at Wednesday’s closing price–would move the Dow by about 8.54 points. In contrast, the S&P 500 is a market-capitalization weighted index. Since Apple has a $748 billion market cap, its stock has more than twice the influence on the S&P as that of Exxon Mobil which is the second-most heavily-weighted component with a $361 billion market cap.

Starbucks declared a 2-for-1 stock split set for April 9 at its Annual Meeting yesterday, saying it sees enough growth on the horizon to help push the company to a $100 billion market capitalization. Starbucks also announced a new delivery service, for people who don’t want to walk to the corner.

Sony has launched its PlayStation Vue streaming video service in three cities, with a starting price of $50/month, after testing the service since November. The lineup features content from three of the big four (CBS, Fox, NBC), but popular content from Disney – ABC, ESPN and Disney cable – is still a glaring omission. Sony’s price is raising eyebrows, as it’s competing with Sling TV’s $20/month price point. This whole idea of paying for cable TV service is about to change, we just don’t know yet who the big winner will be.

Times change. The Recording Industry Association of America reports that streaming services accounted for $1.87 billion in revenue last year, while sales of CDs represented $1.85 billion in sales. Apparently the sales on 8-track tapes has not been doing well either.

Another sign of the times. There are now more Uber cars in New York City than there are taxis. According to the city’s Taxi and Limousine Commission: 14,088 registered Uber cars compared with 13,587 yellow cabs.

Target has agreed to pay a $10 million settlement related to its 2013 data breach, which compromised the personal information of as many as 110 million people. Under the proposal, Target would pay individual victims up to $10,000 in damages and implement additional data security measures, such as appointing a chief information security officer and maintaining a written information security program. Target also raised the minimum wage for all of its workers to $9 an hour yesterday, matching moves made by rivals Wal-Mart, GAP and T.J. Maxx.

Bank of New York Mellon is reportedly nearing an agreement to pay just over $700 million to settle allegations that the bank overcharged pension funds and other clients for foreign exchange services. The bank told clients it would provide them with the best possible execution, but instead gave them the worst rates of the day. Meantime, BNY Mellon obtained better spot prices for itself and profited on the spread. The New York AG’s office claims the bank earned $2 billion over ten years through the alleged deception. So, that worked out quite well for the bank. And now you know why pension funds are in trouble.

Teslas can once again be legally sold in New Jersey after Governor Chris Christie signed a bill to allow the company to sell directly to consumers. The step comes after fighting efforts in nearly every state to halt its direct sales method, which doesn’t use independent dealers. Tesla also presented a software update to its Model S vehicle at a news conference this morning. It was widely expected the update would improve the range of the electric car between charges. Instead, Elon Musk announced a safety feature. The car will also warn drivers if battery power is low before they drive beyond an area where they can charge. Musk said drivers were concerned about “range anxiety,” and he says it will now be impossible to run out of charge unless you do so intentionally, or you are driving on the George Washington bridge in New Jersey.

Transocean expects to book an after-tax charge of between $300 million -$325 million as it moves to dispose of four rigs. According to Baker Hughes, U.S. oil-rig count fell to 866 last week, the 14th straight week of declines, as plunging oil prices wreak havoc on the industry. Transocean also logged a $992 million charge to correct the value of its contract drilling business in February, and saw the departure of CEO Steven Newman.

The Bank of International Settlements Quarterly Review shows debt in the global oil and gas industry reached $2.5 trillion in 2014, or 2 ½ times what it was eight years earlier. Cheap financing made it easier for exploration and production companies to finance operations and expand rapidly as the fracking kicked into high gear.  The debt boom is now magnifying the slump in prices; the most immediate effect is a sharp cutback in capital spending plans, and we’ve already seen many rigs shutdown. At the same time, production continues to climb higher because deteriorating balance sheets encourage companies to keep pumping from existing wells to service the debt even as oil prices drop.

The BIS authors warn: “A sell-off of oil company debt could spill over to corporate bond markets more broadly if investors try to reduce the riskiness of their portfolios. The fact that debt of oil and gas firms represents a substantial portion of future redemptions underlines the potential system-wide relevance of developments in the sector.”

And it is not just domestic oil producers. Today, Kuwait’s oil minister said OPEC had no choice but to keep producing in an oversupplied market or risk losing market share.

The National Snow and Ice Data Center at the University of Colorado has been measuring Arctic ice for the past 35 years, and this winter was the smallest winter size on record, by about 130,000 square kilometers, an area about the size of Mississippi.

This winter has been hot. Global temperatures from December to February were the highest on record. If that comes as a surprise to many Americans after an agonizingly cold winter, it’s because the eastern United States and Canada was one of the only regions on earth with lower-than-average temperatures. Globally, the average temperature from December to February was 1.42 degrees Fahrenheit higher than the 20th-century average, according to the National Oceanic and Atmospheric Administration. The average temperature was the highest since tracking began in 1880, surpassing the previous high in 2007 by .05 degrees.