Financial Review

Happy Day

Sinclair Noe — March 20, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW – 8 = 20,905
SPX – 4 = 2373
NAS + 0.53 = 5901
RUT – 7 = 1384
10 Y – .03 = 2.47%
OIL – .55 = 48,23
GOLD + 5.10 = 1234.90

The directors of the FBI and NSA appeared before a rare open congressional intelligence committee hearing today.

FBI Director James Comey confirmed the FBI is investigating Russia’s interference in the US election and investigating possible links between the Trump campaign and the Russian government. Comey said the FBI has “no information” to support President Trump’s allegation that Barack Obama wiretapped him.

NSA chief, Admiral Mike Rogers, weighed in as well, saying that he had no knowledge of anyone asking the British or any other ally to wiretap Trump. That seemed to refute another claim made by the White House.

Confirmation hearings for Trump’s Supreme Court nominee kicked off today. Trump nominated Neil Gorsuch, 49, to replace conservative Justice Antonin Scalia, who died in February 2016.

Meanwhile, Wall Street also braced for a contentious House vote on the GOP health care bill slated for Thursday. The bill’s passage is considered a first step toward enacting tax reform, but it has faced criticism from both sides of the aisle.

The Trump administration appealed Friday a temporary restraining order against its revised travel ban policy. The reworked executive order (which halts the issuance of visas to six majority-Muslim countries for 90 days and suspends the refugee resettlement program for 120 days) was set to go into effect on March 16, but federal judges and Hawaii and Maryland blocked it from going forward.

The Justice Department filed an appeal in the Maryland case, which will take that fight to the Fourth Circuit, based in Richmond, Va. Meanwhile, a federal judge in Hawaii declined a request from the Justice Department to narrow the injunction. That ruling clears the way for the Trump administration to appeal the judge’s initial decision to the 9th Circuit Court of Appeals.

Bill Gates met with Donald Trump today.  An agenda wasn’t released, but a statement from the Gates Foundation said it has “a long history of working with officials” on issues like domestic education and global health and development. Gates and Trump also met in December to discuss innovation.

On March 16, the Gates Foundation said that it was “deeply troubled” by the president’s 2018 budget request, released that morning. The proposal included deep cuts to both the EPA and non-military overseas aid. The next day, Gates responded with an article on the Gates Notes blog, “How Foreign Aid Helps Americans.”

The meeting of the Group of 20 in Germany over the weekend featured an apparent win for the US after the communique produced by the talks omitted warnings about protectionism. One thing that was repeated was the pledge to overhaul bank-capital rules, with the statement urging the Basel Committee on Banking Supervision to finalize the Basel III reforms.

Away from the G-20, German Chancellor Angela Merkel joined Japanese Prime Minister Shinzo Abe in calling for a concerted effort to defend free trade.

Nine months after Britain voted to leave the European Union, Prime Minister Theresa May is planning to open divorce proceedings on March 29.  May will trigger Article 50 of the Lisbon Treaty, the EU’s guiding document, which details how a country leaves the bloc. It’s never been activated and is only about 260 words long. It gives the departing country up to two years to negotiate “its future relationship with the Union.” If May has her way, the actual split will occur around April 2019.

Greece missed another deadline for unlocking bailout funds today, edging closer to a repeat of the 2015 drama that pushed Europe’s most indebted nation to the edge of economic collapse. Prime Minister Alexis Tsipras had promised the latest bailout’s long delayed review would be completed by March 20, but many see that reaching an agreement even in April is now considered a long shot.

Deutsche Bank will issue 687 million new shares at a 35 percent discount to Friday’s closing price — to raise €8-billion-euros of fresh capital. In its annual report published today the bank said it expected revenue to remain broadly unchanged this year, while revealing that the bonus pool was slashed to €500-million-euros in 2016.

Britain’s Vodafone Group and Idea Cellular agreed to merge their Indian operations in a $23 billion deal. The combined entity would have almost 400 million customers, accounting for 35% of the market share.

Albertsons, the grocery-chain operator backed by Cerberus Capital Management, has held preliminary talks to merge with Sprouts Farmers Market. Bloomberg reports the discussions, which took place in recent weeks, are at an early stage and may not lead to a deal. The talks have involved a plan to take organic grocer Sprouts private and add it to Albertsons’ portfolio, which includes the Safeway store brand.

Unilever is preparing a $7.4 billion sale of some of its food brands, British newspapers reported on Saturday. The British-Dutch company is planning to sell Flora margarine and Stork butter brands. Unilever rebuffed a surprise $143 billion takeover offer from Kraft Heinz last month, saying the bid undervalued the company.

Pressure is growing on Twitter CEO Jack Dorsey to step down, per the Sunday Times, after a report from the University of Southern California and the University of Indiana alleged that up to 48 million of its accounts – equal to 15% of its users – were robots not people (that’s nearly twice the company’s own estimate).

The number of executive departures from Uber is growing. President Jeff Jones is quitting the company, citing “incompatibility with leadership,” while Brian McClendon, a VP responsible for the company’s mapping program, is leaving to return to his home town in Kansas. Uber has been recently plagued by allegations of sexual harassment and the combative behavior of CEO Travis Kalanick.

Bullish bets on West Texas Intermediate crude prices fell by a record amount in the week ending March 14, with wagers on further price falls doubling. Energy lender Arab Petroleum Investment Corp. sees oil prices remaining below $60 a barrel for the rest of the year.

Bank of America Merrill Lynch has published a giant list of asset class returns for the year so far. Here’s a quick rundown. Looking at global asset classes, the Pacific Rim, excluding Japan is up 9.6%, matched by Emerging Market equities, Industrial metals up 7.6%, US equites (7.2%), global equities (up 6.7%) And Euro stocks (up 4.9%).

By country; Russia’s stock market is the laggard this year after being one of the best performers in the world in 2016. India is the leader, year-to-date, up 14.5%, followed by South Korea (up 13.3%) and Brazil (up 12.8%). China and Hong Kong round out the Top Five. Russia is down 9%.

By sector, Biotech is the leader (up 11.9%), followed by information technology (up 11.6%), healthcare (up 9.3%), banks (up 7%), with consumer discretionary and financials both up 6%.

The strongest currencies against the US dollar are the Mexican peso, which took a hit following the US election in November, but has gained 7.8% against the dollar since the start of the year; followed by the South African rand, and the Australian dollar.

Natural gas prices have tumbled amid unseasonably warm weather, which implies weaker demand for heating. The US had its second-warmest February ever on record, per to the National Centers for Environmental Information.

Crude oil is also a big loser, likely to the dismay of the Organization of Petroleum Exporting Countries. The top gainers among commodities include iron ore (up 15.3%), lead (up 12%), aluminum (up 11.1%) and cotton (up 10.5%). Nat gas is down 20% and WTI crude is down 9%.

Or, if you want to keep it simple, Apple hit a record high today, and it is up about 23% from the start of the year. Of course, you still must decide if you want to run with the bulls or buy the dips.

Italy is ranked the healthiest country on Earth in the Bloomberg Global Health Index of 163 countries. A baby born in Italy can expect to live to be an octogenarian.

Even though economic growth in Italy has stagnated for decades, and almost 40 percent of its youngsters are out of jobs and it’s saddled with one of the world’s highest debt loads relative to the size of its economy; Italians are in way better shape than Americans, Canadians and Brits, who all suffer from higher blood pressure and cholesterol and poorer mental health.

Italy also has “an excess of doctors.” Then there is the diet, rich in vegetables and drizzled with extra virgin olive oil. Each country in the index was graded based on variables such as life expectancy, causes of death and health risks ranging from high blood pressure and tobacco use to malnutrition and the availability of clean water.

Iceland, Switzerland, Singapore and Australia rounded out the top five most-healthy countries in the index. The U.S. placed No. 34 with a health grade of 73.05 out of 100. It’s ranking for prevalence of overweight people is 67.3 — tipping the scale as one of the world’s heaviest nations.

Norway is now the world’s happiest country, per the 2017 World Happiness Report. The Central African Republic was the least happy of 155 countries. The report was prepared by the Sustainable Development Solutions Network, an international panel of social scientists convened by the United Nations.

Researchers used a scale of zero to 10, covering six areas: gross domestic product per capita, life expectancy, support from relatives or friends, charitable giving, freedom to make life choices, and perceived levels of government and corporate corruption. Norway and several other Nordic countries dominated the top of the list.

America’s rank on the happiness scale is falling.

Even as the country pulled off an economic turnaround, with increases in income and unemployment falling to historic lows, Americans are becoming less happy. When it comes to happiness, the US ranked 19th among the 34 countries in the Organization for Economic Cooperation & Development in 2016, down from third among 24 countries on a similar measure in 2007.

And today is the first day of Spring. Enjoy.

Financial Review

No Sense in Wasting Our Time

Sinclair Noe — February 23, 2016

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

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DOW – 188 = 16,431
SPX – 24 = 1921
NAS – 67 = 4503
10 Y – .02 = 1.75
OIL – 2.09 = 31.30
GOLD + 17.10 = 1226.40

The G20 is meeting this weekend in Shanghai. The US will call on G20 countries later to use fiscal policy in order to boost global demand.  American officials will also urge all members to refrain from manipulating exchange rates for competitive purposes, in line with existing G20 commitments.

The world’s oil giants were meeting today. At a conference in Houston, Saudi oil minister Ali Al-Naimi, considered the world’s most powerful energy policymaker, said production cuts will not happen. Last week, Saudi Arabia, Russia, Qatar and Venezuela proposed a freeze that would cap production at January levels.

But Naimi said: “Freeze is the beginning of a process, and that means if we can get all the major producers to agree not to add additional balance, then this high inventory we have now will probably decline in due time. It’s going to take time. It is not like cutting production. That is not going to happen because not many countries are going to deliver even if they say they will cut production, they will not deliver. So there is no sense in wasting our time seeking production cuts.”

Global production is projected to be 95 million barrels a day in the first quarter of 2016, and consumption around 94 million, according to the EIA.

JP Morgan will set aside an additional half a billion dollars to cover potential bad loans to oil and gas companies in the first quarter. According to a study by Deloitte, thousands of jobs have been cut in the U.S. energy sector and roughly a third of oil producers, or 175 companies, are at high risk of slipping into bankruptcy this year, increasing the risk that bank loans will not be repaid.

JP Morgan expects to set aside an additional $500 million for oil and gas loans in the first quarter, on top of the $815 million it had at the end of 2015; they will also increase reserves for metals and mining loan exposure by $100 million to $350 million.

What worries Wall Street types? A hedge fund called Two Sigma surveyed Wall Street analysts, and here’s what has them losing sleep: a market liquidity event, or a rapid draw-down with losses of more than 20% in one or more assets as market participants try to liquidate positions simultaneously; a hard landing for China, with GDP growth dipping below 3%; sustained global deflation, which would be the big 3 economies experiencing consecutive CPI readings below zero; emerging market sovereign debt crisis with one or more emerging markets defaulting on public debt leading to the risk of contagion; and US corporate credit liquidity crisis, which you probably remember from 2008.

BHP Biliton posted a $5.6 billion first half loss, due in part to a massive write-down of US energy assets. The world’s largest mining company by market value cut its midyear dividend by 74% to 16 cents a share.

Other leading miners and energy giants, including Rio Tinto, Glencore and ConocoPhillips, have cut shareholder payouts in recent months. BHP’s first half loss included an $858 million charge against the Samarco iron-ore mine in Brazil, where a wastewater dam collapsed in November, killing 19 people and polluting 400 miles of rivers.

Home Depot reported a profit of $1.4 billion, up from $1.3 billion a year earlier. Revenue grew to $20.9 billion from $19.1 billion. And Home Depot raised guidance for 2016.

Toll Brothers reported first-quarter net income of $73 million. That was down from its year-ago result of $81 million. The results matched analyst estimates. Revenue increased about 10% and came in better than estimates.

European earnings roundup: Standard Chartered shares plunged after full-year underlying operating income fell 15% to $15.4 billion. Swiss Re posted a 31% rise in 2015 net income, announced the retirement of CEO Michel Lies, and declared a dividend hike and €1-billion-euro buyback. Danone reported a rise in sales for the fourth quarter, boosted by a resurgent performance in its fresh dairy unit in the U.S.

Puerto Rico’s much-delayed audited financial statements for 2014 are expected to be finished and issued by April, Governor Alejandro Garcia Padilla said in a letter to House Speaker Paul Ryan, attributing the tardy submission to “complexities posed by our current financial crisis.”

The S&P Case-Shiller 20-city composite was steady in December, with 10 of 20 cities showing increases in prices for existing homes. After seasonal adjustment, prices rose 0.8%. Over the last 12 months, home prices increased 5.7%, with Portland, San Francisco and Denver each posting double-digit gains. Home prices in Phoenix were up 0.5% in December and up 6.3% for the past 12 months.

In a separate report, the National Association of Realtors reported home resales rose 0.4% to an annual 5.47 million rate in January; that topped expectations of 5.3 million. It was higher than year-ago levels by 11%. Tight supplies pushed prices higher. The median price was up 8.2% from a year earlier in January, the fourth straight month of accelerating yearly price gains.

According to the New York Fed’s quarterly report on household debt, mortgage debt outstanding nearly doubled in the period from 2000 and 2006, but has risen only about 1% since 2012. In 2008 Americans had $12.6 trillion in debt outstanding, of which housing debt made up $10 trillion, or 79% of the total. In the fourth quarter of 2015, there was $12.1 trillion in total debt, and housing’s share had dwindled to 72%, or $8.7 trillion.

One reason is that cash-out refinancing has dropped from around $300 billion a year down to around $30 billion a year, and the small amount of cash-out refi going on is almost completely offset by people repaying second mortgages and HELOCs. Also, the pace of home buying has slowed even as Americans are paying down their home loans.

Another reason is that homeowners are paying down mortgage debt much faster than in previous years, and the reason is that more people are holding their mortgages for longer; people aren’t moving as much as in the past and that means that mortgages are getting older; so payments are further along in their amortization process and principal, rather than interest, is being paid down.

Consumers' confidence fell in February to the lowest level in seven months, as American became a bit more pessimistic about job prospects and business conditions. Stock market losses also added to the anxiety. The Conference Board’s consumer confidence index dropped to 92.2 from a revised 97.8 in January. Consumers’ short-term outlook grew more pessimistic, with consumers expressing greater apprehension about business conditions, their personal financial situation, and to a lesser degree, labor market prospects.

Western Digital will buy SanDisk for $15.8 billion, sticking with plans to combine the makers of memory chips after a potential Chinese investor backed out of another deal amid a national security probe. Western Digital will pay $78.50 a share in cash and stock for SanDisk, 16 percent more than Monday’s closing price.

United Technologies has rejected another merger offer from Honeywell International on concerns it will not be approved by antitrust regulators. Honeywell is said to have offered $108 per share for United Technologies last week, a more than 20% premium to the share price at the time.

United Technologies said the two firms only held “preliminary” conversations. A tie up would have created one of the aerospace industry’s largest companies worth more than $160 billion. However, United Technologies broke off talks because a deal “would face insurmountable regulatory obstacles and strong customer opposition”.

Boeing has won an order from United Continental for 25 current-generation 737 aircraft in a transaction that could be worth over $2 billion at list prices. The follow-on deal comes just weeks after United agreed to buy 40 737-700 jets.

Alphabet is shuttering Google Compare, its U.S. comparison-shopping site for auto insurance, credit cards and mortgages after one year. The quick reversal is a setback to the company’s efforts to provide consumers with niche shopping and financial-services tools, and follows the demise of a similar website called Google Advisor that was shuttered in 2011.

Bill Gates weighs in on Apple’s battle with US government. The world’s richest person shared his thoughts on Apple versus the FBI, and says there should be a debate about whether or not the phone of one of the San Bernardino shooters should be unlocked.

Meanwhile, in the latest edition of their annual letter published today, Bill and Melinda Gates argue that the world needs “an energy miracle,” and are willing to bet that such a breakthrough will arrive within 15 years. In the letter, Gates outlines the environmental and economic quandary that the world faces: a growing population, growing demand for services, and increased energy use.

Each of these factors contributes to rising carbon dioxide emissions, a major driver behind climate change, and there’s no sign that their upward trends will reverse. But Gates argues that we could still avert environmental disaster by focusing on the carbon dioxide produced by energy – specifically, by reducing it to zero.

And even though the energy represents a multi-trillion-dollar market, Gates says the normal venture capitalist model that has worked for biotech and worked for software is not quite right here.” He cited the Breakthrough Energy Coalition – a fund he launched late last year with Facebook CEO Mark Zuckerberg – as a promising new model.

FINANCIAL REVIEW

Friday Wrap

Sinclair Noe — January 23, 2015

Podcast: Play in new window | Download (Duration: 20:25 — 9.3MB)

DOW – 141 = 17,672
SPX – 11 = 2051
NAS + 7 = 4757
10 YR YLD – .08 = 1.82%
OIL – .95 = 45.36
GOLD – 8.00 = 1295.10
SILV – .02 = 18.40

For the week, the Dow rose 0.9 percent, the S&P gained 1.6 percent and the Nasdaq added 2.7 percent.

The ECB announced plans yesterday to expand asset purchases by €60B per month until at least September 2016. ECB President Mario Draghi says the new stimulus plan “should strengthen demand, increase capacity utilization and support money and credit growth.” Well, it will make somebody rich, but the benefits to the broader Euro economy are still very much up in the air. Bonds in the region rallied, with the yields on 10-year notes of Germany, Italy, Spain and France falling to all-time lows. Stocks in the region on track for their best week since 2011 but the euro currency has dropped below $1.12.

Greece’s leftist Syriza party leads the opinion polls heading into an election on Sunday. The ECB’s debt-purchasing program will not include Greece, at least not until July, and only then if a continuing review of the country’s bailout program is successfully completed. The basic bond buying plan wasn’t kind to Greece, even with the exclusion built in. The way, the ECB put together their QE scheme, rather than purchase government bonds from the most troubled economies, the ECB will buy bonds from each country in proportion to the amount of capital they hold at the central bank. The upshot is that it will be buying a lot of German debt, with its already low interest rates, and may simply convince banks to look for alternative investments in Germany rather than, say, Italy or Greece.

It’s not clear how much good bond-buying can do for Europe at this point. The idea seems to be to stimulate the Euro economy and lift it out of disinflation, but Draghi himself rejects the idea that ECB QE will result in inflation, in what must be the quote of the day he said: “There must be a statute of limitations for those who say there will be inflation.”

The United States Federal Reserve and the Bank of England both resorted to quantitative easing, or QE, back in 2009 (the Fed just finished its third and final round in November). And while the policy is often credited as one reason the US recovery has been far stronger than Europe’s, nobody knows for sure exactly how much good it did. On the one hand, our economy managed to continue expanding despite cuts to state spending and sequestration. On the other hand the recovery was really slow, and by many accounts incomplete; far better for Wall Street than Main Street.

The leading economic index rose 0.5% in December pointing to steady growth for 2015. The coincident index, which measures current conditions, edged up 0.2% in December. The lagging index increased 0.3%. The LEI is a weighted gauge of 10 indicators designed to signal business-cycle peaks and valleys.

Existing home sales rose 2.4% to 5.04 million units in December. The National Association of Realtors also revised November’s sales pace to 4.92 million. The median sales price of used homes hit $209,500 in December, up 6.0% from the year-earlier period. December’s inventory was 1.85 million existing homes for sale, a 4.4-month supply at the current sales pace. For all of 2014, existing-home sales slipped to 4.93 million units, down 3.1% from 2013, and the first annual decline in 4 years. Meanwhile, the median price reached $208,500 in 2014, the highest since 2007 and up 5.8% from the prior year.

The US economy grew at a below-trend rate in December. The Chicago Fed’s national activity index slipped to negative 0.05 from positive 0.92 in November. The three-month average stayed in positive territory but slowed to 0.39 from 0.54 in November. The index is a weighted average of 85 different economic indicators.

The flash reading of the Markit manufacturing purchasing managers’ index edged lower in January to a 53.7 from 53.9 in December, to mark the lowest reading in 12 months. While the rate of output growth moved up slightly, new business growth fell to a one-year low.

Arizona’s unemployment rate for December was 6.7%, that’s down from 6.8% in both October and November and 6.9% in September. The national unemployment rate decreased two-tenths of a percentage point to 5.6% in December. Six of the 11 major sectors in Arizona added jobs and five reported losses over the month. Arizona added 7,000 nonfarm jobs in December. Losses were primarily in state and local education, which shed 3,900 jobs but was typical in December as schools prepared for winter break. Trade, transportation and utilities added 7,600 jobs last month while professional and business services added 1,100 jobs.

Despite testing the nation’s booming energy sector, a collapse in oil prices is leaving more money in consumers’ pockets with one of gasoline’s swiftest price declines on record. Gas prices appear headed below a nationwide average of $2 a gallon in the coming days, with average pump prices at $2.04 a gallon nationwide, down more than 40% since last June. Pump prices have declined for 16 straight weeks, breaking the last record set in 2008.

The Saudi royal court announced the death of King Abdullah, who died at about the age of 90 late last night, after nearly 2 decades in power. Abdullah’s half-brother, Crown Prince Salman, has been declared king. King Salman promised in a nationally televised speech to continue the policies of his predecessors. However, Salman is 79 years old and in poor health, suffering from Alzheimer’s. He has already named his heirs. So, expect changes in the near future.

Meanwhile, a political earthquake was underway in Saudi Arabia’s backyard, Yemen. President Hadi, his prime minister and government resigned after days of virtual house arrest by Houthi militia. Hadi’s resignation leaves two forces in control of the country both of them armed to the teeth: an Iranian backed militia which gets its training from Hezbollah, and al Qaeda, posing as the defender of Sunni muslims. The US embassy in Yemen has been reduced to a bare bones staff. For now, there is a power vacuum in Yemen.

It’s earnings reporting season and with 18% of S&P 500 companies having reported, 72% have topped earnings expectations, while 54%have beaten revenue forecasts.

GE reported a 9% increase in industrial profit; that’s the business unit that sells power-generating turbines and jet engines. Fourth-quarter net income rose 61% to $5.15 billion, or 51 cents per share, from a year earlier, when results suffered from GE’s move to resolve financial obligations to Japan’s Shinsei Bank. Excluding pension-related costs, earnings of 56 cents per share were 1 cent ahead of the analysts’ average estimate. Revenue rose 4 percent to $42 billion.

McDonald’s posts smaller-than-expected drop in comparable sales and announced its lowest capital spending budget in more than five years, saying it expected to open fewer restaurants this year. Sales at US restaurants open at least 13 months fell 1.7% in the fourth quarter. McDonald’s quarterly net income fell to $1.1 billion, or $1.13 per share, from $1.40 billion, or $1.40 per share, a year earlier. Revenue fell 7.3% to $6.57 billion.

UPS had a bad Christmas in 2013 when a crush of late online orders caused it to miss thousands of deliveries. They hired 95,000 workers in 2014, or 73% more than the previous year, and spent $500 million on network improvements including software to aid drivers and building temporary sorting facilities. The good news is that customer service improved; the bad news is UPS didn’t make as much money. Preliminary earnings per share will be $4.75 in 2014, compared with previous forecasts of $4.90 to $5.00. Fourth quarter earnings per share will be $1.25. That compares with analysts’ estimates of $1.47. Going forward, UPS will reduce operating costs and implement new pricing strategies during peak season. UPS today dropped 10%.

Expedia is buying Travelocity for $280 million, increasing its share of the North American airfare and hospitality market. Travelocity Europe, meanwhile, will go to a Swiss company called Bravofly for $120 million. In other travel news, SkyMall filed for bankruptcy, sad news for those looking to buy a wine glass holder necklace or a toilet roll iPod docking station or a Siamese Slanket; you’ll have to find your tchochtkes elsewhere.

Sony will delay the official submission of its third-quarter results due to the massive cyber-attack on Sony Pictures, and has asked financial regulators to extend the filing of its report to March 31 from Feb. 16.

The first batch of GlaxoSmithKline’s experimental Ebola vaccine has been shipped to West Africa and is expected to arrive in Liberia later today. While it is currently being tested in five small Phase I safety trials in Britain, the US, Switzerland and Mali, Glaxo’s vaccine will be used in the first large-scale trials in the coming weeks. The World Health Organization said on Thursday that the Ebola outbreak in West Africa appears to be waning but still is a big problem.

You remember the famous opening lines from Dicken’s Tale of Two Cities: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

That was first published in 1859; and it stands up well today.

The time is now 11:57. It is now three minutes to midnight, according to the Bulletin of Atomic Scientists. The group behind the symbolic “Doomsday Clock” announced at a news conference that the countdown to the End of it All is now just 3 minutes away; that’s 2 minutes closer than last year. It is the closest the clock has been to Doomsday since 1984.

In 1947, the specter of nuclear holocaust prompted the Bulletin of the Atomic Scientists to come up with a “Doomsday Clock.” Over the years the clock has been adjusted annually between 11:43 and 11:58. And now, the scientists that set the time on the Doomsday Clock say that “unchecked climate change, global nuclear weapons modernizations, and outsized nuclear weapons arsenals pose extraordinary and undeniable threats to the continued existence of humanity.”

They might be right. Just last week, the National Oceanic and Atmospheric Administration announced that 2014 was the hottest year ever. The Atomic Scientists say: World leaders have failed to act with the speed or on the scale required to protect citizens from catastrophe,” and “Stunning governmental failures have imperiled civilization on a global scale.” Yesterday the US Senate voted to acknowledge that climate change is real, bringing it up to speed with every major world scientific body. The vote was 98 to 1 to proclaim: “To express the sense of the Senate that climate change is real and not a hoax.” But the Senate declined to acknowledge that human activity plays any role, which means that they refuse to do anything about it. Maybe we should vote on whether the Senate is a hoax.

It isn’t only climate change that has us 3 minutes shy of Armageddon. It’s the combination of climate change and some discouraging recent developments on the nuclear-proliferation front. The real point of the Doomsday Clock is to remind us that we have the power to wind it back, or hammer a nail in the clock face just before the 12:00.

Bill Gates is the richest man in the world, and you know the story of Microsoft. Forty years ago, Bill Gates and Microsoft co-founder Paul Allen made a bet, just a friendly wager between friends, that personal computers would transform the way people worked and played around the world.

About 15 years ago, Gates realized that not everyone needs a new, fast computer. In Africa, for example people needed a malaria vaccine and mosquito nets, just to stay alive. Another bet was made. They predicted they could dramatically reduce inequality “by backing innovative work in health and education.” Since forming the Bill & Melinda Gates Foundation—and especially since leaving Microsoft in 2008 to dedicate himself full-time to the foundation’s work—Gates and his wife Melinda have emerged as two of history’s most powerful philanthropists. The Gates Foundation publishes an annual letter, summarizing the foundation’s progress and laying out its priorities for the coming year.

The Gateses think things might get better. The lives of people in poor countries will improve faster in the next 15 years than at any other time in history. And their lives will improve more than anyone else’s. In 1990, one in ten children around the world died before they turned 5. That’s down to one in twenty. They expect the rate of infant mortality to halve by 2030, from one child in 20 dying before turning five to one in 40.

Africa will be able to feed itself. Africa imports $50 billion of food on an annual basis. By improving yields and introducing innovations in farming, they hope to achieve food security for the continent by 2030.

With the Gates Foundation’s help, a devastating disease called guinea worm has been nearly eradicated. They also forecast the eradication of polio and perhaps three other deadly diseases. Improvements in agriculture will mean that Africa will be able to feed itself. Financial security will improve as the 2 billion people who do not have a bank account start storing money and making payments using mobile phones. The Gates letter also points out that an increase in digital schooling will help pull those in poor countries up the economic ladder, as hundreds of millions of people will be able to access online education in the coming years.

Bill and Melinda Gates conclude their annual letter by urging people to sign up to the “Global Citizen” initiative. They write: “The more global citizens there are, and the more active and effective they are, the more progress the world will make. We hope you will show your support by signing up, because we believe that people can and must work together more to make the world a more equitable place. In fact, we’re betting on it.”

Thursday, July 10, 2014 - If It’s Not One Thing…

Financial Review with Sinclair Noe

DOW – 70 – 16,915
SPX – 8 = 1964
NAS – 22 = 4396
10 YR YLD - .01 = 2.53%
OIL + .59 = 102.88
GOLD + 8.70 = 1336.30
SILV + .32 = 21.52

 

We start today with the hottest stock in the world: CYNK Technology, ticker CYNK.  It is a one person company, which has something to do with a website, with headquarters in Belize, maybe. There is no indication of revenue, possibly about a million in losses. It had been trading for a couple of pennies, and then for no apparent reason it started trading higher. After closing at 6 cents on May 15 it began its surge with a 3,650% jump to $2.25 on June 17. The stock climbed as much as 49% to $21.95 earlier today in over-the-counter trading on volume of more than 380,000 shares before erasing its gain to close down 5.5% to $13.90, and a market cap of a little more than $4 billion. How and why did this happen? Nobody seems to have an answer, but I think it would be a very, very bad idea to do anything with this stock, just to be clear.

Se nao e uma coisa e outra coisa.

Which is Portuguese for “if it’s not one thing, it’s another thing.”

I’m sure somebody in Lisbon was fully aware of what was going on, and they were waving their arms and screaming about the bank that was ready to implode; and nobody paid any attention because there was so much else happening around the world. Iraq is fractured, bombs are flying in Israel, Germany is expelling a US spy, the Italian economy looks wobbly, Libya, Ukraine, Nigeria, Thailand, China. Pick a global hot spot, pick ten global hotspots, and I bet Portugal is not on the list.

Here’s the story: Espirito Santo International is a big conglomerate in Portugal; they missed a payment on some short-term debt this week. So, a couple of subsidiaries got clobbered, Espirito Santo Financial Group shares down 9%, and Banco Espirito Santo shares down 17%. Trading was halted.  The credit rating agency, Moody’s, cut the corporate credit rating to junk status, which is basically closing the barn gate after the cow gets out.

While I make no claim to any particular knowledge of the Portuguese banking system, the consensus is that this problem should not create a meltdown scenario; however, there has been a singe factor. Borrowing costs for Greece, Spain, and Italy bounced a bit higher. Again, this is not earth shaking, but it did cause a brief flash of realization that the banking problems of the past few years have not been corrected.

A couple of years ago the European Central Bank developed a plan for dealing with sovereign debt crises, the OMT or Outright Monetary Transactions program, but it has never been used and it probably wouldn’t apply even if the situation in Portugal started to create a meltdown scenario. So the fear out of Portugal is something called the “doom loop”; that’s the cycle in which weak banks lean on governments for support, draining public finances, which in turn drags down the banks with them.

A couple of years ago,ECB President Mario Draghi bought some time when he declared the central bank would do “whatever it takes”, and then they did nothing. So it was like a whiff of smoke that reminds you that never bought fire extinguishers, even after that little explosion in 2008, and the Greece fire in 2011.

And so, European stocks took a hit today, and that spread over to Wall Street, where the Dow Industrials started the day with a 180 point dip, until traders remembered – it’s Portugal. And then they decided that a little pullback following a 6 week rally was to be expected and Banco Espirito Santo is nothing to fear, even if you don’t have a fire extinguisher.

So, with the long-term memory of a dog chasing a squirrel, we move on to our next topic. After all, we live in a mobile-first and cloud-first world. So says Satya Nadella, the CEO of Microsoft; no he’s not the guy trying to buy the LA Clippers, he’s the guy who replaced Steve Ballmer. Nadella has sent out a really long email to all Microsoft employees outlining his vision for Microsoft. Over the years, Microsoft made a very large amount of money serving the PC world. Its Windows operating system and Office software generated the vast majority of its sales and profits, but now the personal computer is going the way of the typewriter. Microsoft used to talk about “a computer on every desk and in every home,” a vision it clearly succeeded in delivering. But what do you do when you’ve delivered that vision?

So Nadella writes: “Computing is ubiquitous and experiences span devices and exhibit ambient intelligence. Billions of sensors, screens and devices – in conference rooms, living rooms, cities, cars, phones, PCs – are forming a vast network and streams of data that simply disappear into the background of our lives. This computing power will digitize nearly everything around us and will derive insights from all of the data being generated by interactions among people and between people and machines. We are moving from a world where computing power was scarce to a place where it now is almost limitless, and where the true scarce commodity is increasingly human attention.”

There are a couple of interesting phrases in the mission statement from Nadella; he writes, “computing is ubiquitous” and also “ambient intelligence”. The idea that computers are ubiquitous is fairly easy to understand; just look around you; you probably have a smart phone close at hand; if you are in an office, you still have PCs, and don’t forget the computers in the printers and telephones, and thermostat, and electric meter. If you are driving right now, your car is a computing marvel. And if you are at home, check out the computer in your refrigerator, and dishwasher, and a dozen other gadgets and appliances. Another name for ubiquitous computing is the “internet of things”.

And the idea here is to connect machine to machine, and machine to human, and then human to human. We’ve been talking about that for a long time. The computers would be embedded in almost everything and everything would communicate seamlessly with everything else. We’re not there yet, but if you have questions about the internet of things, just ask Siri or Cortana.

All that computing power means we are surrounded by an ocean of data. The exploration of that data constitutes what Microsoft researchers call the “fourth paradigm”, exploration of data to discover new and interesting results to power a new generation of artificial intelligences. Microsoft Research head Peter Lee recently talked about some of the AI breakthroughs that were powering the new tools. Discussing the concept of “transfer learning,” he revealed that by training a speech recognition neural net on multiple languages, its performance improved with each new language, even on previously trained languages.

There are already apps that can infer context from our emails and documents and then deliver information we need, or might need, when we need it. We’ve already seen this in marketing and advertising; based upon your searches, the data programs can figure out whether you are getting married, pregnant, planning a vacation, or looking for a job; and then they deliver advertising that should grab your fancy and even calculate the probability of a purchase, putting the supply chain in motion, ready to send out drones to deliver your package with same day delivery, or even within the hour. It’s a little like the waiter anticipating when you want a coffee refill; that sounds like a simple task but it is incredibly complex and requires understanding the differences between correlation and causation. Computers are not good at that, but they’re getting better, or maybe they’re getting smarter.

As computing becomes more and more ubiquitous all those little computers, embedded in almost everything, are gathering data; and the neural networks are analyzing the data – watching and learning, and the data eventually becomes information, and the information becomes knowledge. And we end up with collective wisdom. At least that’s the idea.

We’re closer than you think. We already know that computing power grows exponentially. Moore’s Law basically says that technology performance indicators double every 18 months, which leads to incredible innovative applications only slightly bogged down by social acceptance. Not every innovation makes it into common usage because of concerns about privacy, lack of trust, reliability, or just information overload. Somewhere there is a huge scrapyard of abandoned apps.

There is an even larger ocean of smaller and more powerful embedded computers monitoring our actions and data and trying to figure out where we want to go, and then trying to figure out how to help us get stuff done. That’s the benign version. The version will a little less sugar coating involves a complete loss of privacy and subjugation before the robot overlords. Then again, in a world of CYNK Technology and Portuguese doom loops, maybe we deserve robot overlords.

Microsoft will have an earnings call next week, and we’ll likely learn more then. Today’s six page memo was big on building productivity, but that might also mean pink slips for many Microsoft employees; after all there are bound to be some redundancies following the Nokia acquisition. Nadella writes that "We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more." But for all the talk of a brave new mobile first, cloud first world, don’t expect Microsoft to abandon the Xbox game console; it’s a money maker. Still, it is a fairly bold new direction for Microsoft, maybe the biggest vision change since Bill Gates ran the place.