Financial Review

Up and Down the Chain

Sinclair Noe — June 23, 2017

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DOW – 2 = 21,394
SPX + 3 = 2438
NAS + 28 = 6265
RUT + 10 = 1414
10 Y – .01 = 2.14%
OIL + .43 = 43.17
GOLD + 6.60 = 1257.60
BITCOIN + 0.27% = 2745.66 USD
ETHEREUM – 3.55 % = 329.50

Energy stocks led the S&P 500 higher, posting its only positive session of the week. Overall, U.S. stocks closed little changed for the week, with the Dow and S&P posting small gains in the period.

The Nasdaq posted a 1.8% gain for the week. Health care stocks pulled back about 0.1 percent today, but the sector still notched a weekly gain of 3.7 percent to outperform the other spaces.

Today is a Russell Rebalancing Day. That is the annual reconstitution of the Russell Indexes, where the index provider makes rule-based changes to composition of its indexes, to ensure that changes in market value or investment styles, like shares of companies deemed value or growth, for example, are properly accounted.

Total market capitalization for Russell components increased more than 10% to around $27 trillion since last year. Rebalancing day typically results in a little extra trading volume but not much effect on price action for the overall market.

Yesterday, the Senate unveiled its version of Trumpcare, or the Better Care Reconciliation Act. Four GOP senators announced they would not support the bill. Rand Paul, Ted Cruz, Mike Lee, and Ron Johnson said the legislation did not go far enough in its repeal of Obamacare.

Today, Nevada Senator Dean Heller said he would not support the legislation. Heller is up for reelection in 2018 in a state won by Hillary Clinton in last year’s presidential election. Nevada also expanded the Medicaid program under the Affordable Care Act, or Obamacare, and the Senate bill would phase out that expansion starting in 2020. Heller said he can’t support a bill “that takes insurance away from tens of millions of Americans and hundreds of thousands of Nevadans.”

Several other senators are leaning toward opposition, including Portman of Ohio, Murkowski of Alaska, and Collins from Maine. Look for lots of deal making and arm twisting.

Sales of newly-constructed homes rebounded in May, and government data was revised to show a stronger spring selling season than had been previously reported. New-home sales ran at a seasonally adjusted annual rate of 610,000. That was 2.9% higher than in April and 8.9% higher than a year ago.

So far in 2017, 271,000 new homes have been sold, which is 12% higher than during the same period last year. The median sales price in May was $345,800, up from $310,200 in April and $296,000 in May 2016. At the current pace of sales, it would take 4.6 months to exhaust available supply.

About a week ago, Amazon it would acquire Whole Foods, then followed that with news it will start selling Nike products directly online. Once again, Amazon is shaking up the retail universe. Amazon stock has been on a nice run the past week, adding $18 billion in market capitalization.

In contrast, $31 billion in competitor market cap has been wiped out in the same period. Walmart and Costco have been hit the hardest, both losing more than $8 billion in value since the Whole Foods deal was announced on June 16. Whole Foods stock has been trading above Amazon’s offer of $42 a share, however, signaling that investors believe a bidding war could emerge and drive up the final price for Whole Foods.

Competitors like Target, Costco, and Kroger have been rumored as potential suitors, and they would do anything to make this deal harder for Amazon. Walmart is probably the only retailer that can truly compete with Amazon, but today they said they will not bid.

At the same time, Morgan Stanley said in a research note that the retail drug space could experience a wave of M&A action as companies try to outflank Amazon. Basically, any link in the supply chain is now subject to the influence of Amazon.

Meanwhile, outdoor gear retailer Eddie Bauer has hired investment banks to explore strategic alternatives, including a potential sale of the company. Also, today, Sears Holdings is closing an additional 20 money-losing stores. The move includes 18 Sears stores and two Kmart stores. Sears is hardly the only retailer shuttering locations.

There have been about 5,300 store closing announcements so far, this year, according to Fung Global Retail & Technology, a retail think tank.

Meanwhile, Amazon has filed for a patent for beehive-like towers that would serve as multi-level fulfillment centers for its delivery drones to take off and land. The facilities would be built vertically to blend in with high rises in urban areas. Amazon envisions each city would have one. The patent application features several drawings of these buildings, such as the beehive, a cylinder-shaped center and one that looks like a UFO.

The Brexit vote happened one year ago. Britain’s stock market, the FTSE 100, has gained nearly 17% since the UK’s June 23, 2016, vote to leave the European Union. The divorce talks between Brussels and Britain finally kicked off this week, but the outcome of the final agreement remains extremely uncertain.

The government will be working against the clock to hammer out a deal before the deadline of March 29, 2019, two years after UK Prime Minister Theresa May triggered the so-called Article 50 that officially set off the Brexit process. Little progress has been made in the three months since the Brexit clock started ticking. The UK is in a weak negotiating position.

And nobody is sure what Brexit means or what it will ultimately look like.

Qatar has 10 days to meet 13 demands from the Gulf states. Qatar is being ordered to reduce diplomatic ties with Iran, sever ties with terrorist organizations, and shut down Al Jazeera and affiliated networks, among other things, before the Gulf states will lift their blockade on the country.

Another day of Fedspeak. Cleveland Federal Reserve Bank President Loretta Mester said that recent inflation weakness was likely temporary and it should not delay another interest-rate hike this year, even though there is no “immediate need” to tighten policy. Mester is considered one of the more hawkish policymakers.

St. Louis Fed president James Bullard says the Fed can afford to stop raising short-term interest rates and wait and see how economic developments and Washington policy debates play out in coming quarters. Bullard says optimism about the economy has faded since March with economic data surprising to the downside. Bullard is considered one of the more dovish policymakers, calling for rates to remain flat through 2019.

By raising interest rates for the second time this year, Federal Reserve officials doubled down on their long-held belief that inflation will level out at their 2% target, even though the numbers hint at another story.

The Fed has been singing the same tune on inflation for nearly the entirety of this decade, and one could be forgiven for wondering how much inflation is really playing into the Fed’s decision-making process at this point. Yellen and friends made the move to lift rates to between 1% and 1.25% even though most inflation readings have drifted away from its long-run target of 2% in recent months.

Instead, it seems that a marginally improved labor market, and a desire for more wiggle room to cut rates for a slowdown that is becoming increasingly mathematically inevitable, are motivating the push to tighten policy. That includes the Fed’s outline for reducing its balance sheet, the manner of which but not the timing, was unveiled alongside the rate hike.

Treasury yields have fallen from their 2017 highs recently, with the benchmark 10-year yield trading around 2.15 percent. In March, it traded around 2.6 percent. The bond market doesn’t see inflation coming in the near term, and so far, it’s been right.

Adding to the deflationary ledger – oil prices dropped about 4% this week.

Today, SpaceX successfully fired up a Falcon 9 rocket for the eighth time this year, matching its flight total for all of last year. Its next launch is scheduled just two days later, with the ramped-up cadence putting the company on track to achieve the 20 to 24 total missions it’s targeting for the year.

The launch used a “flight proven” Falcon 9 rocket booster, which means it’s flown to space previously and been returned and refurbished. The rocket carried a Bulgarian communications satellite destined for geostationary orbit.

It launched from the historic 39A pad at NASA Kennedy Space Center in Florida, where Neil Armstrong left from before landing on the moon in 1969. On Sunday, SpaceX will launch 10 satellites for Iridium Communications from Vandenberg Air Force Base on California’s central coast.

Remember Blackberry? Once upon a time, about 8 to 10 years ago, Blackberry was the mobile phone of choice. The company reported earnings of $0.02 per share, compared to an estimated zero, but revenue fell to $235 million from $400 million from the year before. The company outsourced the manufacturing of Blackberry hardware in late 2016 in order to focus on software and services. Shares were up about 50% this year, until today – down 12%.

If you use Google’s Gmail, you may have noticed a that anything in your emails is likely to pop up as an ad. It’s not just a coincidence. Gmail scans and analyzes emails – or at least they did. They will stop the practice, due to privacy concerns and the general creepiness.

But this doesn’t mean you won’t see targeted ads in Gmail. Instead, they’ll be personalized with information gleaned from other sources. For example, Google collects data about you based on the YouTube videos you watch or the searches you make.

Financial Review

How Low Can It Go?

Sinclair Noe — July 5, 2016

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DOW – 108 = 17,840
SPX – 14 = 2088
NAS – 39 = 4822
10 Y – .09 = 1.36
OIL – 2.39 = 46.60
GOLD + 5.70 = 1357.20

Longer-end Treasury yields traded near record lows, with the 30-year yield around 2.15 percent. The 10-year yield dropped to an all-time low of 1.367 percent.

The U.S. dollar index posted another gain to 96.28, with the euro around $1.11 and the pound sterling traded near $1.30, levels not seen in more than 30 years. European stocks were mostly lower, with the German DAX off more than 1.5 percent. The STOXX Europe 600 Banks index under-performed, trading about 2 percent lower.

Factory orders in the U.S. fell 1% in May after two straight gains. So far this year, orders for manufactured goods have dropped 1.9 percent to $2.2 trillion compared to the same period in 2015.

Demand in a category that serves as a proxy for business investment – non-military goods that exclude the volatile aircraft category – slipped 0.4 percent in May. The Commerce Department also reports durable goods orders declined 2.3%.

Demand for mining and energy-related equipment slid 5.8% following a 20.8% plunge in the prior month. Orders for computers were also weaker. Bookings for nondurable goods rose 0.3%.

Corelogic reports home prices nationwide, including distressed sales, increased year over year by 5.9 percent in May 2016 compared with May 2015 and increased month over month by 1.3 percent in May 2016 compared with April 2016.

The CoreLogic HPI Forecast indicates that home prices will increase by 5.3 percent on a year-over-year basis from May 2016 to May 2017 – so more of the same. Twenty-two states reached new highs for the month; Arizona was not one of them; we remain 23.9% below peak prices, but the state did record a 5.8% year-over-year price increase.

Tomorrow we get the minutes from the Fed’s June FOMC meeting. If the minutes show real concerns about the durability of the economy, it could be friendly to the dovish market, which now only has fully priced in the next rate hike in 2018. Alternatively, the minutes could suggest the Fed was fairly confident that the labor market would come back. This would be less friendly for the market.

Federal Reserve Bank of San Francisco President John Williams held a couple of interviews today and said Britain’s vote to exit the European Union probably won’t derail the U.S. economy, leaving the Fed scope to raise interest rates this year if his growth and inflation expectations are met.

The Bank of England takes action. The BOE’s Financial Policy Committee cut its counter-cyclical capital buffer for UK banks to zero from 0.50%, according to the latest Financial Stability Report. The committee says the buffer will remain in place for at least the next year as the UK economy deals with “uncertainty” following the vote for a British exit from the European Union, or Brexit.

Australia’s central bank held its cash rate today at a record low of 1.75%, a widely expected decision given political uncertainty and a lack of timely information on domestic inflation. The country still doesn’t know who won Saturday’s general election and final results may not be known for another week.

Euro zone business growth held steady in June, but the modest pace suggested economic growth in the second quarter was half the rate of January-March, even as a rebound in Italy and rapid acceleration in Spain brightened the outlook. In France, data showed both services and manufacturing contracting. The majority of the surveys were completed before Britain voted on June 23 to leave the European Union.

In the past 24 hours, three different UK property funds have frozen withdrawals, citing a rush by investors to pull out their money in the wake of the UK’s Brexit vote. In 2007, Bear Stearns banned withdrawals from one of its hedge funds after investors were spooked by rising defaults and bankruptcies. The British property funds are very different beasts from the exotic, derivative-laced vehicles that presaged the global financial meltdown. These funds are open to regular retail investors and invest in things like office parks and malls.

But forget about Brexit for a moment; the new worry of the day is Italian banks. A big feature from The Wall Street Journal  captures most of the concerns with Italy’s banking system and the political turmoil it appears liable to set off.

In short, Italian banks are loaded with bad debts; 17% of bank loans in Italy are “sour,” a level much greater even than that of the US banking system at the height of the financial crisis (5%).Of course, issues surrounding the Italian banking system are not strictly new, and in the past year shares of UniCredit — Italy’s only bank considered globally significant — and Banca Monte dei Paschi di Siena, the oldest bank in the world, are down over 60%.

Reports surfaced in April that the government could step in to shore up the banking system; days later the government got executives, insurers, and investors to put 5 billion euros into a rescue fund for Italy’s weakest banks. This morning, a report from Bloomberg said Italy was looking to inject up to 3 billion euros into Monte dei Paschi; this would be the bank’s third bailout since the financial crisis.

The U.S. holds more oil reserves (264 billion barrels) than Saudi Arabia (212 billion) and Russia (256 billion), the first time it has surpassed those held by the world’s biggest exporting nations, according to a new study by Rystad Energy.

The analysis of 60,000 fields worldwide, conducted over a three-year period, shows total global oil reserves at 2.1 trillion barrels. That is 70-times the current production rate of about 30 billion barrels of crude per year. For the U.S. more than 50 percent of the remaining oil reserves is in unconventional shale oil. Today, oil prices dropped nearly 5%.

NASA’s Juno spacecraft, built by Lockheed Martin, ended a five-year, 1.8 billion-mile journey to Jupiter, with a do-or-die engine burn to sling itself into the planet’s orbit. No small trick. At the time of its arrival, Juno was flying through the solar system at over 150,000 miles per hour—making it one of the fastest man-made objects ever.

Juno will spend the next 20 months studying what lies beneath the gas giant’s thick clouds and measure its gravity, magnetic fields and water content. Juno is the ninth spacecraft to see Jupiter up close, but only the second to ever go into orbit around it, and Juno promises to provide the most intimate peek into the far-off Jovian system yet.

Poland has made significant progress in its talks with Raytheon over a Patriot missile system valued at an estimated €5-billion-euro. According to the Polish Defense Ministry, the country is ready to move ahead with the plan because Raytheon pledged that 50% of the missile system spending would be “done in Poland by Polish arms firms.”

BlackBerry will stop making its Classic smartphone. The Classic was launched early last year, with a physical keyboard and powered by the company’s overhauled BlackBerry 10 operating system. BlackBerry has since launched a phone powered by Alphabet’s Android software and plans several more.

Google DeepMind, the London-based artificial intelligence unit owned by Alphabet, announced a research partnership today with the British National Health Service to gain access to a million anonymous eye scans. DeepMind specializes in machine learning, the increasingly important area of technology where algorithms allow computers to learn and figure things out on their own.

DeepMind will use the eye scan data to train its computers to identify eye defects. The aim is to give doctors a digital tool that can read an eye-scan test and recognize problems faster. Earlier detection of eye disorders related to diabetes and age-related macular degeneration could allow doctors to prevent loss of vision in many people

A bidding war with Salesforce.com forced Microsoft to pay nearly $6 billion extra last month to seal its planned takeover of LinkedIn. Details of the frenzied bidding were revealed in a filing with the SEC ahead of a shareholder vote to approve the transaction. A month-long back-and-forth between the two rivals pushed the value of the all-cash deal to $26.2 billion, making it the third-largest acquisition in the tech industry.

Three former Barclays traders have been found guilty of Libor manipulation almost four years after the bank paid out hundreds of millions of dollars in fines for fixing the key benchmark rate. Days after the British firm became the first to settle, its Chief Executive Officer, Bob Diamond, lost his job and regulators eventually imposed roughly $9 billion in penalties on the financial industry.

The convictions bring the total number of bankers Britain has convicted over the long-running Libor-rigging scandal to five. That is still a better fines to conviction ratio by far than the US had for mortgage abuses by big banks.

London Stock Exchange shareholders approved a $27 billion merger with Deutsche Boerse yesterday despite renewed uncertainty following the Brexit vote. The two exchanges insisted that their all-share merger to create the world’s biggest bourse by revenue was essentially “Brexit proof”.

Financial Review

The Lights Are On

Sinclair Noe — March 3, 2015      

 

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DOW – 85 = 18,203
SPX – 9 = 2107
NAS – 28 = 4979
10 YR YLD + .04 = 2.12%
OIL + 1.00 = 50.59
GOLD – 2.40 = 1204.50
SILV – .13 = 16.33

Just a few economic reports today.

Corelogic reports home prices jumped 1.1% in January to take the year-over-year gain to 5.7%. CoreLogic said 27 states and the District of Columbia are at or within 10% of their peak.

The Thomson Reuters/PayNet Small Business Lending Index fell to 120.9 from an upwardly revised December reading of 133.5.  Small businesses cut back on borrowing. Cold weather may be part of the reason.

Car companies reported February sales figures. Ford Motor sales dropped 2%. Ford was projected to report a 5.8% increase in sales but deliveries of F-Series pickups, Escape sport-utility vehicles and Fusion family cars all declined last month. General Motors sales rose 4.2 percent but they still fell short of estimates as sales of light trucks rose and sedans fell. Toyota, Fiat Chrysler, Honda and Nissan all reported deliveries that increased less than analysts had estimated. Industry-wide, the annualized selling rate, adjusted for seasonal trends, rose to 16.2 million cars and light trucks, from a 15.4 million pace a year earlier.

Chief executives of large U.S. companies see the economy accelerating modestly in 2015. According the Business Roundtable’s first-quarter survey the CEOs expect gross domestic product to advance 2.8% this year; just slightly more optimistic than most estimates. Among the CEOs, 40% said their firms would increase hiring over the next six months, while 23% expect to cut staff; while 80% expect their company’s sales to increase in the next six months.

The House of Representatives has approved funding for the Department of Homeland Security through Sept. 30 without any immigration restrictions, ending a standoff that had threatened a partial shutdown for the agency.

Israeli Prime Minister Benjamin Netanyahu delivered a speech before a joint session of Congress today. He warned the United States was negotiating a bad deal with Iran that paved the way to a “nuclear nightmare.” Delivering dueling messages within hours of each other, Netanyahu made his case against Obama’s Iran diplomacy in a speech to Congress that aligned himself with the president’s Republican foes. Obama responded in the Oval Office, that Netanyahu offered “nothing new.”

As Netanyahu spoke, the price of oil increased $1 per barrel. For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing US supplies to their highest point in at least 80 years. US crude stocks rose 8.4 million barrels last week to a record 434 million. Gasoline stocks fell by 3.1 million barrels. The national average price of gasoline is $2.44 a gallon. That’s $1.02 cheaper than last year at this time, but up 37 cents over the past month.

We’ve talked about the European Central Bank’s $1.2 trillion bond-buying plan to try and stimulate the economies of the Eurozone. The ECB is expected to announce further details of its asset-purchase program after it meets in Cyprus Thursday. Standard & Poors thinks there might be a problem with Euro QE; S&P estimates that the anticipation of quantitative easing in Europe squashed bond yields so much that the liabilities of defined-benefit pension plans rose by up to 18% last year.

Meanwhile, we check in on Greece. The Euro deal done six days ago was supposed to stabilize the Greek debt crisis. In return for a bit of fiscal autonomy the Syriza government recognized its debts as legitimate and gave its lenders a running veto on any measures taken that might impact on the economy, the banks or the budget balance. But the situation in Greece is still critical. First because Greece gets no new loans from the deal, because it is pledged to run a budget surplus it has to finance the state from tax receipts, but these have reportedly slumped by 22% since December. Normally the government could bridge the gap by issuing short term bonds but the ECB has capped that move. And now Greece faces some imminent debt repayments.

It appears the Euro Monetary Union has thrown a lifeline to Greece, with bricks attached. Greece does not want default, nor an exit from the Euro Union; and so they have not embraced the lifeline. Greek Finance Minister Yanis Varoufakis perceives that the Eurozone will tolerate the “creative ambiguity” in the deal; that there is scope for a long-term settlement in June; and that he can keep both the Greek state and its banks solvent until then. The hope is that the rest of the Eurozone will soften on its insistence on austerity, become more tolerant of debt forgiveness, and give growth a chance. The longer they can drag it out, the better their chances.

Hoping to secure a fresh bailout from the IMF, Ukraine lawmakers passed a raft of austerity measures, including pension cuts and tax increases, during a lengthy parliament session yesterday that lasted late into the evening. The $17 billion bailout package, aimed at averting the country from financial collapse, will be considered by the IMF’s executive board on March 11. Russia and Ukraine have a temporary gas deal in place. The overnight agreement will supply Ukraine with gas for the month of March. “Under the deal sealed in Brussels, Ukraine’s Naftogaz will pre-pay and order sufficient quantities of gas to ensure all domestic consumption for March and guarantee undisrupted supplies to the EU.” Ukraine’s central bank raised its benchmark interest rate to 30% from 19% to “stabilize lending markets.”

 Citigroup said it has agreed to sell its consumer finance unit OneMain Financial Holdings to subprime lender Springleaf Holdings for $4.25 billion in cash. Springleaf is a former subprime lending division of American International Group, AIG. OneMain is part of Citi Holdings, which Citigroup created during the financial crisis to park assets that it wanted to eventually divest or wind down. OneMain had filed for an initial public offering in October, but an outright sale was always Citigroup’s preferred choice. Springleaf was apparently able to get OneMain at an attractive price because it was the most logical strategic buyer and Citi was a highly motivated seller.

The resulting company will now be, by far, the biggest lender to consumers with lower credit scores in the country. It will have nearly 2,000 branches in 43 states, through which it provides personal and auto loans at high interest rates to customers with little access to other forms of credit. A recent investor presentation by Springleaf showed that the average interest rate on its outstanding loans has been around 26% to 27%. Losses for bad loans have been trending below 5%, leaving an effective yield earned by Springleaf near 22%. Springleaf personal loans average $4,000 to $5,000 in size and 40 months in term. Typical uses are for debt consolidation, home or car repair or medical bills.

There is certainly plenty of irony in these companies coming together six years after a credit meltdown rooted in subprime lending – the same meltdown that resulted in the near failure of their former parent companies, AIG and Citi, which combined required more than $100 billion of US government bailout money to survive.

Barclays, the British bank, reported a pretax profit of $8.5 billion for 2014, up 12% from a year earlier and better than expected. That includes setting aside an extra $1.2 billion for potential fines relating to allegations of foreign exchange manipulation—even though the bank could face up to $8 billion in fines over the next two years. If you put the legal reserves back in the mix, Barclays reported a loss in the most recent quarter.

Barclays has not yet settled any currency-rigging cases, which is why its reserves continue to pop up in earnings reports. If you look at the other banks’ FX-rigging settlements so far, they seem to cover behavior dating from 2008 through 2013, more or less. That is, mostly post-crisis behavior. We all know the banks behaved badly leading up to the financial crisis, and we hear about settlements covering the pre-crisis acts, and we think the banks are being punished and must surely be conducting current business with some slight measure of probity, even if the facts do not bear out any substantive change in behavior.

Google has confirmed its plans to offer wireless phone service “in the coming months”, promising the service will be small-scale and not intended to compete with the four big U.S. national carriers. Earlier media reports suggested that Google’s service would sift through cellular connections from Sprint, T-Mobile  and Wi-Fi “hot spots” to pick the best signal for routing calls, texts and data.

Apple sold the most smartphones globally in the fourth quarter, overtaking Samsung for the first time since 2011. According to research firm Gartner, Apple sold 74,832 smartphones to end users worldwide, ahead of the 73,032 phones sold by Samsung.

Once upon a time, Blackberry was the big name in mobile phones; half the phones sold in the US were Blackberrys. Within a matter of about 6 years, the company has gone from leader to has-been; they changed their business model to focus on mobile phone software management, and now they are trying to get back in the phone business again. A few months ago they introduced a square smart phone, and today they introduced a 5-inch touchscreen phone that will retail for $275.

About 8 years ago NASA launched the Dawn spacecraft, that’s D-A-W-N; and over the past 8 years the solar powered craft has traveled about 260 million miles; it is now closing in on a far-flung asteroid belt and it has been focusing on a little dwarf planet called Ceres. The dwarf planet looks like a big cratered rock, with one exception; in one of the craters, 57 miles wide, there is a light, a bright light.

The Dawn spacecraft is still too far away to determine the source of the light. It could be the reflection of water vapor or reflective salts, which would be interesting, or it could be something else, which would be even more interesting. With any luck, the spacecraft will fly closer over the next few months and we will learn if the bright lights of Ceres are a natural phenomenon, or if someone left the light on for us.

FINANCIAL REVIEW

War, Pay Phones, Small Business and Big Banks

Sinclair Noe — September 24, 2014

0 0 

   

Financial Review

Podcast: Play in new window | Download (Duration: 13:15 — 6.1MB)

DOW + 154 = 17,210
SPX + 15 = 1998
NAS + 46 = 4555
10 YR YLD + .03 = 2.57%
OIL + 1.18 = 92.80
GOLD – 6.30 = 1217.60
SILV – .11 = 17.78

President Obama addressed the United Nations General Assembly today. He condemned ISIS, and said there was no reasoning and no negotiation with their brand of evil. He said the US “will work with a broad coalition to dismantle this network of death”; that coalition is now up to 40 countries. He urged Muslims to reject the ideology of ISIS and al-Qaeda. He also announced a US warplanes hit ISIS vehicles and arms dumps in new air strikes in Iraq and Syria. ISIS continues to advance in Syria and aid agencies report some 130,000 Kurdish refugees have crossed into Turkey in the past few days. An Algerian jihadist group linked to ISIS has released a video which it says shows militants beheading a French tourist.

The president’s speech also criticized Russia for the recent invasion of Ukraine. Today, NATO reports Russia has withdrawn a sizable number of its troops from eastern Ukraine, although some remain. Russian backed rebels in the region said they had begun pulling back their heavy artillery after Ukrainian troops did the same. For now, the cease fire appears to be holding.

The stock market recovered after three days of losses; for the Dow Industrials it was two days of triple digit declines. Not much in the way of economic news today. New home sales were up 18% in August. In a separate report, the Mortgage Bankers Association said applications for loans to purchase homes fell last week as mortgage rates crept up. New loan applications are well off peaks seen early last year. Yesterday, the NAR reported existing home sales had flat lined, with both “cash sales” and “sales to investors” dropping, or rather plunging since late 2013. Every month since late last year, existing home sales have been below their year-ago levels. Bad news for flippers. Looking at the bigger picture it might give some hints to family formation, or lack thereof. For economists, it might serve as a lesson that rising home prices are a symptom of economic strength, not a cause; and you can’t sustain rising home prices without rising wages.

European Central Bank President Mario Draghi renewed a pledge to keep monetary policy loose for an extended period. The euro dropped below $1.28. The dollar has now posted gains for 10 straight weeks, pushing the dollar index above 85 for the first time since July 2010. A stronger dollar likely means lower prices on basic commodities; it also serves as stimulus for the Eurozone and Japan, making their exports cheaper; and a strong dollar might even fuel another round of M&A activity; also, this might be a great time to take a European vacation.

You’ve heard the stories of data breaches at Target, and then the big one at Home Depot, potentially affecting some 56 million customers; now add Jimmy John’s to the list; 216 stores of the restaurant chain were involved in a security breach on July 30. There has to be a more secure way to buy a sandwich. The security breach at Home Depot is now resulting in fraudulent transactions that may be draining cash from some customer bank accounts as criminals use stolen card information to buy prepaid cards, electronics, groceries, or whatever. Financial institutions are also stepping up efforts to block the transactions by rejecting them if they appear unusual. Best advice is to keep a close eye on your own accounts.

Some people think the next big thing is Apple Pay; it doesn’t store credit card data and Apple fingerprint reading technology could provide an extra layer of security, but it’s a long way from being ubiquitous. It is estimated Apple could end up taking in around $90 million in transaction fees from Apple Pay next year, climbing to more than $300 million by 2016. That should make payments absolutely, super-duper safe and secure.

Meanwhile, Apple announced it is pulling its latest update of the new iOS 8 operating system, which they sent out to fix the glitches in its new HealthKit app. The problem with the update is that people who installed it lost the fingerprinting ID capability and phone calls kept getting dropped. Other than that, how did you enjoy the play Mrs. Lincoln?

Remember Blackberry. Once upon a time Blackberry was the cool mobile phone, and then Apple became the cool mobile phone and Blackberry was so square. Well, they’ve embraced that. Blackberry introduced a new phone today, it’s called the Passport, and the screen is square, not rectangular, so it won’t fit in any pocket.

Wal-Mart thinks the next big thing is a Wal-Mart checking account; they will partner with Green Dot to offer checking accounts accessible by mobile phones, and it comes with a debit card, and monthly fees are waived if you use direct deposit, and it doesn’t rely on credit scores or credit bureau ratings. Wal-Mart is trying to tap into the vast “unbanked” market, which now gets raked over the coals at check cashing stores.

Earlier today, it was reported that the Securities and Exchange Commission has been investigating whether bond fund manager Pimco inflated the returns of its Total Return Exchange Traded Fund run by founder Bill Gross. The probe is said to have sped up in recent weeks but has been going on for “at least a year.” Which means that it was happening when Mohamed El-Erian announced he was leaving the firm.

Investigators from the SEC’s enforcement division are examining whether the $3.6 billion Pimco Total Return ETF bought investments at discounted prices but relied on higher valuations for the investments when the fund calculated the value of its holdings shortly thereafter. Such a maneuver could make it seem as though the ETF had scored quick gains when it was in fact taking advantage of variations in the way some investments are valued in the bond market; which is another way of saying Pimco may have provided inaccurate information about the fund’s performance.

Do you remember where you were in 1988? Do you remember where you worked? Do you remember what you were paid? If you can’t remember what you were paid 26 years ago, don’t worry, there’s a good chance it is the same as today. The economic recovery has yet to translate into higher incomes for the typical American family. After adjusting for inflation, US median household income is still 8% lower than it was before the recession, 9% lower than at its peak in 1999, and essentially unchanged since the end of the Reagan administration. And the income of the median US household is just under $52,000; the same as it was in 1988. Now granted, that number, reported last week in the latest income and poverty data, is based on median income; also, it refers to households, and the typical household has changed over the years. Still…

Six years ago the financial crisis hit Wall Street, turning a housing crisis that was already hammering Main Street into the worst recession since the Great Depression. Job losses averaged nearly 800,000 per month between November 2008 and April 2009 as the unemployment rate climbed. The economy contracted at a rate of 8.3% between the fourth quarter of 2008 and the first quarter of 2009. The crisis hit businesses big and small, but it hit small business harder.

Jobs at small businesses fell 60% from the pre-crisis peak in December 2007 until the private sector started adding jobs again in February 2010. That represents a decline that is 40% larger than the fall in jobs among larger businesses. This is especially problematic because small businesses employ half of the private sector workforce, and since 1995 small businesses have created about two out of every three net new jobs, or 65% of total net job creation. Small businesses have created jobs in every quarter since 2010, and are back to creating two out of every three net new jobs, but still remain well below the job creation levels that we need to see to fill the “jobs gap” left in the wake the recession.

Part of the decline in job creation has also been due to anemic new business formation. Over the past 20 years, businesses less than two years-old accounted for one-quarter of gross job creation even though they employed less than 10% of workers. But, during the crisis new business formation fell sharply. In the decade prior to the crisis, more than 620,000 firms were started every year. But, starts have averaged just about 550,000 annually since 2009, a decline of about 11%. And small business just keeps getting smaller; in 2000, the average new firm had 7.7 employees; by 2010, that number had declined to 5.5.

The formation and growth of small businesses depends on well-functioning credit markets, but throughout the recession and even during the recovery today critical parts of our credit markets are shut for small firms. Small business loans on the balance sheets of banks are down about 20% since the financial crisis; meanwhile, loans to larger businesses have risen by about 4% over the same period. The Federal Reserve Bank of New York reports that 37% of all small businesses applied for credit in the fall of 2013. About 45% did not apply, presumably because they did not need credit, but about 20% did not apply because they were discouraged from doing so. Of businesses that did apply, over 40% either received no capital at all or received less than the amount that they requested.

Part of the problem is that many small community banks closed in the crisis, and they haven’t been replaced; just one new community bank charter was granted in 2010, just 3 new charters in 2011. There were 6,840 banks and 1,173 thrifts last year, down from 14,507 banks and 3,566 thrifts in 1984. And of course the big banks just consolidated and got even bigger, and the Federal Reserve Bank of Atlanta reports that big banks are less likely to extend credit to a small business than a small regional bank.