Financial Review

Double Hat Trick

Sinclair Noe — February 10, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 96 = 20,269
SPX + 8 = 2316
NAS + 18 = 5734
RUT + 10 = 1388
10 Y + .01 = 2.41%
OIL + .81 = 53.81
GOLD + 5.70 = 1234.50

Reckitt Benckiser has agreed to buy Mead Johnson Nutrition for $90 a share, or $16.6 billion, taking the UK consumer-products group into the infant food market. Including debt, the deal is valued at $17.9 billion. The transaction will add to Reckitt’s per-share earnings in the first full year.

Blackstone has agreed to acquire insurance broker AON’s employee benefits outsourcing unit for $4.3 billion in cash, giving Blackstone ownership of a business that processes work benefits for 15% of the U.S. population. It will also allow Aon to exit the capital-intensive business, allowing it to invest in growth areas beyond its core insurance brokerage operations.

The University of Michigan preliminary February consumer sentiment index fell to 95.7 from January’s final reading of 98.5. The most marked decline was in a forward-looking part of the survey, down 5.1% from January.

Oil is rallying on OPEC. West Texas Intermediate crude oil is higher after data released by the International Energy Agency showed a record-high 90% compliance to the OPEC output deal in the first month.

The IEA, which advises industrial nations on energy policy, said that if current compliance levels are maintained, the global oil stocks overhang that has weighed on prices should fall by about 600,000 barrels per day in the next six months.

But this may be as good as it gets for OPEC; participation in production cuts has been uneven among OPEC members, with Saudi Arabia shouldering the cuts to compensate for other countries which continue to pump – a situation that won’t continue indefinitely.

The Labor Department says import prices increased 0.4 % last month after an upwardly revised 0.5 % rise in December. In the 12 months through January, import prices jumped 3.7 %, the largest gain since February 2012, after advancing 2.0 % in December.

Import prices are rising as firming global demand lifts prices for oil and other commodities, but the spillover to a broader increase in inflation is being limited by dollar strength. Prices for imported fuels increased 5.8 % last month. Import prices excluding fuels fell 0.2 %. The report also showed export prices edged up 0.1 % in January.

Iron ore futures surged past $100 a ton, while spot ore rose to $83.84 a dry ton, the highest since October 2014. The rise came after official data showed that China’s exports surged 7.9% from a year earlier in dollar terms, leaving the country with a trade surplus of $51.4 billion.

In a shift, President Trump agreed to honor the “one China” policy during a phone call with China’s leader Xi Jinping. Trump angered Beijing in December by talking to the president of Taiwan and saying that the United States did not have to stick to the policy.

Trump held a news conference today with Japanese Prime Minister Shinzo Abe at the White House. The US and Japan account for nearly a third of the global economy. Trade in goods and services between the world’s No.1 and No. 3 economies was worth nearly $268 billion in 2015.

Trump vowed that the currencies of the US, China and Japan would soon be on “a level playing field.” Trump did not explain how the three countries would reach a level playing field, or what he meant by the phrase. Trump also said he will make a fresh policy announcement next week in response to the court ruling blocking his travel ban. Again, no details.

$21.6 billion. That’s how much an internal Department of Homeland Security report says Trump’s “wall” along the U.S.-Mexico border would cost. The report’s estimated price tag is much higher than a $12 billion figure cited by Trump during his campaign and the $15 billion estimate from top Republican leaders in Congress.

Meanwhile, the European Union is struggling with a familiar problem – Greece. The country could soon run out of cash and would not be able to make crucial debt repayments. Greece is currently on a third bailout program worth €86 billion euros ($92 billion); that bailout program still has more than a year to go, but the IMF is worried that Greece’s debt is not sustainable.

If indeed European creditors recognize next week that Greece has completed all the agreed measures for the second bailout review, then this would pave the way for new disbursements. With fresh funds, Greece should be in condition to meet deadline payments next summer and avoid a financial collapse.

But the view among creditors is that such a deal next week is “unlikely”. Even as Greece has shown some economic growth, 0.4% last year with 2.7% forecast for 2017, and the Greeks have managed to build a small budget surplus; the Greeks debt load continues to increase, yields on government bonds has climbed into double digits and debt has increased to an expected 183% of the country’s total economy from 159%.

And the main reason is that the Greeks are not eligible to participate in the European Central Bank’s Quantitative Easing program. And right now, the ECB is the only buyer of Euro bonds.

The IMF weighed in this week, publishing its analysis of the challenges to the Greek economy. The IMF says that in addition to needed reforms, European governments need to provide debt relief to Greece. The IMF analysis is that Greece represents a real problem without debt relief; Euro creditors believe they can present a unified front to break the deadlock. Eurozone governments, and especially Germany, are opposed to debt relief.

Today, Greece’s creditors called for more reforms in the form of more austerity measures. The additional austerity dose would hardly be accepted by the government led by Alexis Tsipras. The leftwing Greek leader promised not to impose further cuts or tax raises after almost seven years of painful measures adopted in exchange for the lenders’ money.

The Greeks have also opposed further pension adjustments, as it has adopted 11 cuts since 2010. There is a possibility of snap elections, which would add a new layer of uncertainty. And if things go wrong with Greece, Italy is next in line, with the second highest debt burden among Eurozone nations, plus a dangerously weakened banking system.

The Greek debt crisis seems like the never-ending economic story but that doesn’t mean the problem has been resolved. It doesn’t mean there is an imminent collapse, but consider this – Germany has been repatriating its gold. Germany has been bringing gold home from New York and Paris since 2013.

So far, 642 tons has been transferred. They just expedited a transfer of 330 tons stored with the New York Federal Reserve. They still have about 100 tons in a vault in Paris. Why the rush? The German central bank says it is bringing the gold home to help build public “trust and confidence.”

Sears Holdings reported a 10.3% drop in comparable store sales for the holiday quarter, and said it would cut debt and pension obligations by at least $1.5 billion this year. Sears also announced a new plan to cut costs by at least $1 billion in 2017 by reducing overhead, improving merchandise at its stores and through better inventory management.

Renault peddled SUVs to Europeans and it worked. The French car company’s 2016 profit surged 38% to $3.4 billion from the year before thanks to the popularity of its new SUVs among Europeans. CEO Carlos Ghosn said the automaker would be open to a merger with Nissan if the French government would sell its stake in Renault.

Sweden’s SAAB  has offered to build the world’s most modern fighter aircraft factory in India, it said on Friday, as it goes head-to-head with US rival Lockheed Martin to supply hundreds of locally produced planes to India’s military.

Danish wind turbine maker Vestas Wind Systems has jumped to the top of the U.S. wind market, overtaking General Electric in new capacity installed last year. Vestas, the world’s biggest wind turbine maker, supplied 43% of the 8.2 gigawatts of wind power capacity connected to the US power grid last year; GE supplied 42%.

The Galaxy S8 will be unveiled in New York next month, per the Wall Street Journal, and Samsung is ready to display a whole host of new features. While the physical home button will be stripped away and the fingerprint scanner moved to the back of the device, and only curved-screen versions will be released. The company will also showcase its new virtual assistant called Bixby, and possibly its recently trademarked “Samsung Hello.” And yes, it will have a headphone jack.

For many liquors, aging is the key to their distinct flavors. Brandy is no exception, with top-shelf labels spending years in casks. But chemists think they have discovered a shortcut—ultrasound. Spanish researchers blasted ultrasound through a barrel of brandy for 3 days and the results were close to 2 years of aging.

Now, if they can just figure out a way to reverse the aging process. Still, something to keep in mind as we head into the weekend –  if you are clever, you can get a lot done in just a couple of days.

Financial Review

No Rhyme nor Reason

Sinclair Noe — September 8, 2015

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

Subscribe: iTunes | Android | RSS

DOW + 390 = 16,492
SPX + 48 = 1969
NAS + 128 = 4811
10 YR YLD + .06 = 2.19%
OIL – .11 = 45.94
GOLD – 1.40 = 1122.40
SILV + .22 = 14.90

There is no particular rhyme nor reason to explain today’s rally on Wall Street, or for that matter, last week’s declines. Last Friday’s jobs report did little to provide clarity about whether the Fed would raise rates at next week’s FOMC meeting.

The economy added 173,000 jobs in August, which was below expectations; and the unemployment rate dropped to 5.1%. Following Friday’s employment data, futures market traders predicted about a 20 percent chance a rate hike will come this month, down from around 30 percent before the jobs report. I think the Fed might act next week, just to clear the air. If you remember back to the “taper tantrum” of 2013, when the markets became jittery about the prospect of the end of Quantitative Easing, the anticipation was worse than the actual event. So, the easiest thing might just be to do it and be done.

Of course, it is easy to argue against a rate hike. The U-6 unemployment rate is still around 10.3%; some people consider this the “real” unemployment rate because it includes part-time employees seeking full-time jobs and marginally employed workers. The Fed has a dual mandate: to promote full employment and price stability. Prices have been stable for the most part, inflation is not a problem; the usual argument for raising interest rates is to dampen an overheating economy in which inflationary pressures have become too high.

As for full employment, the Fed has said that 5.2% is full employment, but wages have been stagnant and there is still plenty of slack in the labor market. For many, many people there has been no recovery. The argument for raising rates really does nothing to help Main Street, but it might help the bankers on Wall Street, and faced with that option the Fed has always erred on the side of Wall Street.

China’s imports shrank far more than expected in August, falling for the 10th straight month. Imports fell 13.8 percent from a year earlier; that follows a drop of 8.1% in July.  Exports were down 5.5%. The trade is calculated in US dollars, and research firm Capital Economics reckons that “trade has actually been quite healthy recently in volume terms.”

China’s government has spent $236 billion trying to shore up its stock market since a rout began three months ago, according to Goldman Sachs. At the G20, China was all about talking stability. A governor of the People’s Bank of China said the rout in the stock market was near its end, noting that leverage had declined and that the real economy went relatively unscathed.

Despite the Chinese economy’s visible slowdown and dramatic action over the past month officials maintained that the economy would continue to grow at 7% annually. Yes, the country’s economy will close this year the same way it did last year; 7% growth, despite all the market turmoil and the yuan devaluation and industrial slowdown; 7% growth. China’s major stock indexes moved higher: the Shanghai was up 2.9% and the Shenzen advanced 3.8%.

Japanese Prime Minister Shinzo Abe has won a second three-year term as the President of his Liberal Democratic Party. Japan’s economy contracted at an annualized of 1.2% rate in the second quarter, which was a little better than estimates. However, capital expenditure fell 0.9%, more than the original estimate of 0.1%, clouding growth prospects.

German exports recovered to climb 2.4%  in July after dropping 1.1% in June. Eurozone Q2 GDP growth has been revised up to 0.4% on quarter from an initial estimate of 0.3%. The Stoxx Europe 600 index had its best gains in more than a month.

U.S. small business confidence rose modestly in August, suggesting the economy continued to grow at a steady clip halfway through the third quarter. The NFIB optimism index improved from 95.4 to 95.9 – and still not above the 42 year average of 98. Small business owners did not seem to be very concerned about the antics of the stock market or China’s currency devaluation.

Maybe it was too late in the month to be fully captured by the survey so more might be revealed in September, but most small business owners have their capital primarily invested in their own firm, not other people’s firms. And a side note, thirty-three percent of small business owners reported all credit needs met, and 49 percent explicitly said they did not want a loan. For most of the recovery, record numbers of firms have been on the “credit sidelines”, seeing no good reason to borrow.

The American Medical Association says two proposed mergers of U.S. health insurers worth tens of billions of dollars would hurt competition in commercial health plans in as many as 17 states. Aetna announced plans to buy smaller rival Humana in early July and Anthem agreed to buy Cigna later that month. Both mergers are being reviewed by federal antitrust regulators as well as state insurance officials. The American Hospital Association also recently made public its analysis of the two deals, also saying they would hurt competition.

European Union antitrust regulators have approved GE’s $13.9 billion acquisition of the power business of French peer Alstom. GE will have to sell some of Alstom’s assets.

A federal appeals court is set to decide whether judges can tear up corporate prosecution agreements they deem too lenient. In February, a federal district judge in Washington, D.C., rejected a Deferred Prosecution Agreement, or DPA, he considered weak in a case involving Fokker Services BV, a Dutch aerospace firm accused of making more than 1,000 illegal shipments of parts and components to Iran and other sanctioned countries from 2005 to 2010. The U.S. Court of Appeals for the D.C. Circuit is now reviewing the judge’s decision, with arguments scheduled for this week and a ruling expected in coming months.

DPAs have been the favored tool of the Department of Justice in dealing with banksters. The DOJ sets up a deal to allow banksters or other corporate criminals to promise not to break the law in the future in exchange for a fine; in essence, cash for leniency. In the case of Fokker, the DOJ made a big splash about a $10.5 million fine for selling aircraft parts and services to customers in Iran, Burma and Sudan. There was a parallel civil settlement with the Treasury Department’s Office of Foreign Assets Control to pay an additional $10.5 million. If you go down the press release, you find that Fokker received $21 million in gross revenue for these 1,153 illegal transactions, so the penalty was simply to give back what they received.

It is supposed to be a probationary period for the offenders. If they can stay out of trouble, they can stay out of legal trouble. The problem is that many corporations, especially the bankers, are repeat offenders, serial offenders. In the case of Fokker, the probationary period was only 18 months, and a judge considered that overly lenient. It really doesn’t matter because the DOJ never goes back on repeat offenders.

The major banks, JPMorgan, BofA, Citi, and Goldman Sachs; along with international cohorts, UBS, RBS, HSBC, Barclays, and Deutsche Bank have all been repeat offenders; everything from rigging Libor to forex to muni bond markets to money laundering to bribery to sanctions violations to forgery…, well the list goes on and on. The result is that even after a long history of offenses, JPMorgan can pay a $550 million dollar fine for rigging the foreign exchange markets, sign a DPA, and Jamie Dimon gets a $20 million pay package.

Media General said it would buy media company Meredith Corp for about $2.3 billion to create the third-largest local TV station owner in the United States. The combined company, to be named Meredith Media General, will initially have 88 TV stations that reach 30 percent of TV households.

Blackstone Group’s real estate fund will buy U.S. luxury hotel owner Strategic Hotels & Resorts and a unit of Strategic Hotels Funding LLC in a deal valued at $6 billion, including debt. Strategic Hotels & Resorts is a real estate investment trust that owns hotels operated by top hospitality chains such as Hyatt Hotels Corp, InterContinental Hotels Group and Marriott International.

United Continental has fired CEO Jeff Smisek because of a probe into improprieties at Port Authority of New York and New Jersey. Smisek, who served as chairman, president and CEO, will receive about $4.9 million as separation payment.

Amazon plans to release a $50 tablet in time for the holiday season, with a 6-inch screen tablet and a mono speaker, priced at half the cost of its cheapest Fire device.

MasterCard starts testing a program today to allow cardholders to verify their online purchases with a selfie. The credit card company is also testing fingerprint and voice recognition for verification. (So, if someone steals your card and takes your picture, you are in real trouble.)

This Wednesday, Apple has a big event planned in San Francisco, where they are expected to announce a new iPhone, because that new phone you just bought is already obsolete; they will almost certainly introduce a faster, slimmer phone because – well, because  Apple is a phone company. They are also expected to introduce a redesigned Apple TV set-top box with new capabilities for apps and games, plus recognition of Siri voice commands to search for shows; so now you can ask your TV where you left the remote control.

And they are also expected to announce a new, smarter version of Siri; so you could tell Siri to set the alarm for 6 AM tomorrow morning, and it could wake you up and also turn on the lights, open the curtain and start the coffee machine, if you were really a geek about it.

Financial Review

While the Getting is Good

Sinclair Noe — April 9, 2015

 

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

Subscribe: iTunes | RSS

DOW + 56 = 17958
SPX + 9 = 2091
NAS + 23 = 4974
10 YR YLD + .06 = 1.96%
OIL + .37 = 50.79
GOLD – 8.70 = 1194.50
SILV – .36 = 16.25

Initial claims for unemployment benefits increased 14,000 to 281,000 in the week ending April 4^th.  Over the past 4 weeks, jobless claims have averaged 282,500 a week; the lowest level in 15 years. While companies are maintaining headcounts, job listings also have climbed. Openings rose to 5.1 million in February, the most since January 2001, according to the JOLTS report on Tuesday.

Wholesale inventories rose 0.3% in February as wholesale sales fell 0.2%, perhaps a sign that companies experienced less demand in late winter that could cause them to temporarily scale back production.

In a televised speech today, Iran’s  supreme leader, the Ayatollah Ali Khamenei said Tehran would agree to a final nuclear accord with the US and five other nations only if all sanctions over its disputed nuclear work were lifted.  In remarks apparently meant to keep hardline loyalists on side, he warned about the “devilish” intentions of the United States. Meanwhile, Iran’s oil minister, speaking today in China said that OPEC would “coordinate” to accommodate Iran’s return to oil markets without causing a price crash.

Samsung Electronics expects to ship record numbers of its new Galaxy S6 smartphone after it goes on sale tomorrow, but will have problems fulfilling demand for the curved-edged version due to difficulties in manufacturing the screens. The hope is that the launch of the flagship device will help spark a turnaround at Samsung following a slump in earnings over the past year or so.

American Airlines and US Airways received their single operating certificate from the Federal Aviation Administration on Wednesday, an important step in the integration of the two airlines. The merger between the airlines closed in December 2013, but the carrier still operated separate American and US Airways flights. Passengers will not see much change. Flights will still be operated under the American and US Airways brands until the carriers merge their reservation and passenger ticketing systems this year. Once that is done, the US Airways brand, ticket counters and website will change to American.

Walgreens will close 200 of its 8,232 US drugstores. The company will also reorganize corporate and field operations and revamp its technology, which along with the store closings will help cut an additional $500 million in costs by the end of fiscal 2017. That would extend a $1 billion cost-cutting initiative announced in August.

Yesterday we talked about the idea that the prospect of higher rates has been pushing consumers away from revolving debt, like credit cards, even as they take on more non-revolving debt, such as car loans; it might also be leading to more borrowers locking in low rates of floating rate mortgages. And mergers and acquisitions are back in a big way. Yesterday was a $100 billion dollar day for M&A.  It started with a big deal in the energy sector; Royal Dutch Shell’s $70 billion acquisition of BG Group of Britain signals that the kinds of mega-energy-mergers that reshaped the industry in the late 1990s may be due for a revival. Mylan’s $29 billion approach to Perrigo, meanwhile, underscores just how red-hot consolidation in health care continues to be. Both of the generic drug makers had done their own deals in just the last two years.

This afternoon, news that Blackstone Group and Wells Fargo are nearing a deal to buy a real estate portfolio from General Electric worth as much as $30 billion. It could be one of the largest real estate deals since Blackstone acquired Equity Office Properties Trust for $39 billion in 2007 at the height of the last property boom. Commercial values in the US have since reached records as investors from around the globe seek places to put money at a time of near-zero interest rates. Unloading the assets would further Chief Executive Officer Jeffrey Immelt’s goal of shrinking GE Capital, whose lack of access to credit during the 2008 financial crisis put the parent company at risk. GE Capital has been disposing billions of dollars in holdings, including foreign bank stakes, while Immelt works to bulk up the industrial side of GE’s business.

Bankers and hedge fund managers are licking their chops as a spree of M&A, fueled by the expectation that a multi-year run of cheap money may be coming to an end is expected to push transactions that could top record value amounts.  Deal value has already surged to $1 trillion for 2015. A projected $3.7 trillion worth of deals this year would be second only to 2007, when all M&A surpassed the $4 trillion mark. Part of that comes on growing sentiment that, whenever the Federal Reserve finally decides to increase rates, this won’t be coming until after summer; so get the deals done while the getting is good. Data housed by S&P Capital IQ says seven of the 10 biggest M&A transactions in the wake of the financial crisis have all been announced within the last 16 months. What’s more, S&P Capital data shows, the year-to-date announced deal value is, right now, as high as it has ever been, including the bellwether year 2007. That also means that deals are attracting a premium.

It does not mean that every deal will work out. Altera stock dropped after reports that talks to be bought by chipmaker Intel Corp. have fallen apart. Intel has been on the hunt for growth as it faces a slowdown in the market for PCs that forced a $1 billion cut in its first-quarter sales forecast last month. Altera shares had jumped 28 percent on March 27 after reports of the talks.

In his annual letter to shareholders, Jamie Dimon, the chief of JPMorgan Chase, warns “there will be another crisis” – and the market reaction could be even more volatile, because regulations are now tougher; but the next crisis won’t be caused by the banks because there are so many regulations in place that they would not be the likely cause of a meltdown.  He argued the crackdown on the financial sector, added to more-stringent requirements for capital and liquidity, will hamper banks’ capacity to act as a buffer against shocks in financial markets. Of course, not having enough funds set aside for an emergency didn’t work out so well in 2008. Then he goes on to say the bank is in a better position than before and is much more prepared to handle a downturn. If it all sounds a bit confused; not really; Dimon doesn’t like regulations; JPMorgan share price has not been great and Dimon blames regulations.

Remember that this was an annual letter to shareholders, which means it is basically a 39 page sales brochure. There were plenty of nice charts and graphs, and everything seemed to move from the bottom left side of the page to the upper right side of the page. There is some revisionist history when it came to the acquisitions of Bear Stearns and WaMu, see page 19 of the letter.

Dimon also blamed legal and regulatory costs for weighing on the firm’s share price, writing: “While we acknowledge that our P/E ratio is lower than many of our competitors’ ratio, one must ask why. I believe our stock price has been hurt by higher legal and regulatory costs and continues to be depressed due to future uncertainty regarding both.” The letter mentions continuing foreign-exchange settlement negotiations as an area of uncertainty. Dimon calls for some serious policy discussion about the way regulators regulate, and he thinks the legal costs will “diminish” over time; and they would probably diminish faster if he can change the regulatory policies. He didn’t provide a chart on legal costs, but if he did, the numbers for the past five years would have been about $32 billion; which is bigger than all the credit they extended to small business in 2014, and bigger than the bank’s net income last year. Dimon said he expects the firm’s legal costs to “normalize” in 2016. Deep in the footnotes you can find that the bank is still looking at nearly $6 billion in legal expenses. Which is actually about the average paid for legal expenses in the past few years, but I don’t know if that means it is normal.

The European Central Bank bolstered its emergency funding for Greece’s stricken banks, as Athens made good on its promise to pay back the International Monetary Fund, averting an unprecedented default. Having threatened to deliberately miss a €448m loan repayment to the Fund without a guarantee of fresh bail-out cash, Athens sent its latest payment this morning. Christine Lagarde, the director of the IMF confirmed the payment while speaking in Washington, saying: “Yes, I got my money back.”

The Greek government has warned its paymasters it would run out of funds to make its loan obligations and continue to pay out a €1.7bn monthly social security bill without a release of bail-out cash. A two-month stalemate in Greece’s bail-out negotiations has seen capital flee the country’s banks, which have repeatedly hit the limit on the emergency cash. The ECB’s latest move will just cover the €1.1bn that was withdrawn from banks from March 30 to April 8.

Greece is currently negotiating a short-term bailout extension that it doesn’t really want, offered by European institutions which don’t trust the Greek government and approved by other governments that are running out of patience. That’s the bottom line. Athens currently has until about April 15 to present a completed reform list to its creditors.

But even if Greece gets the bailout deal when European finance ministers meet on April 24 (which isn’t assured), we’ll be back in the same place in about two months. Then, the government isn’t going to want another extension. It’s going to want the major debt deal it promised to deliver when it won the election. A deal to reduce debt is actually a good idea, even if Germany doesn’t want it. Greece’s far-left government is correct about the country’s debt burden; it’s completely unsustainable under the current plans. Greece is about to get some relief for a few months. After that, Athens, Frankfurt and Brussels go back to the brutal negotiations.

FINANCIAL REVIEW

Up, Down – Take Your Pick

Sinclair Noe — February 4, 2015

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

DOW + 6 = 17,673
SPX – 8 = 2041
NAS – 11 = 4716
10 YR YLD + .02 = 1.80%
OIL – 4.49 = 48.56
GOLD + 8.80 = 1269.90
SILV + .06 = 17.43

ADP reports private-sector employment gains slowed in January as employers added 213,000 jobs. ADP revised December’s gain to 253,000 from a prior estimate of 241,000. The non-farm payroll report (that’s the government’s big monthly jobs report) comes out Friday morning; it is expected the economy added about 245,000 jobs in January, down from 252,000 in December.

The Institute for Supply Management said its nonmanufacturing index edged up to 56.7% in January from 56.5% in December. Readings over 50% signal that more businesses are expanding instead of contracting. The good news is that new orders remained very healthy. The index measuring fresh demand rose a few ticks to 59.5% and remained close to a post-recession high. On the downside, the employment gauge fell 4.1 points to 51.6%, marking the lowest level in 11 months. It was also the second worst reading in 20 months. So, on the jobs front, we should still see gains, just not as strong as the past few months.

Gallup’s Job Creation Index came in at plus 28 for the month of January. This is nearly identical to the plus 27 found in December, and just below the seven-year high of plus 30 reached in September. The index has experienced six years of incremental progress after bottoming out at minus 5 in February and April 2009. Gallup says workers’ perceptions of hiring at their places of employment are the most positive Gallup has recorded in any January since Gallup began tracking this in 2008. Americans’ confidence in the economy has improved significantly since early December, and over the same period, Americans have become much more optimistic when asked if it is a good time to find a quality job. Whether these sentiments prove to be advance indicators of hiring that is more visible across U.S. workplaces may partly depend on whether they help fuel more consumer spending.

Oil prices were down today following a rally that pushed up prices by about 22% over the past four sessions (which would technically qualify as a bull market). Drilling activity plunged in the US and oil companies deepened spending cuts to more than $40 billion since Nov. 1. US crude stockpiles increased last week from the highest level in three decades, adding an extra 6 million barrels to inventory. And prices dropped 8% today. So, the question is where are prices headed? I’ve been reading stories all day about the direction of oil prices. Some say the past few days are nothing more than a dead cat bounce or a short squeeze; others claim this is the start of a “V” shaped recovery and prices are going back to triple digits. Up, down – take your pick. I don’t know, the people writing the stories don’t know.

One reason oil prices have dropped is because the dollar has been getting stronger and oil is purchased in dollars; a strong dollar means it requires fewer dollars to purchase the same amount of oil. The Dollar Index is up about 20% since last summer. Oil prices are down about 50% over the same time. It doesn’t quite match. Another thing that doesn’t quite match is all the other stuff we buy that is imported. We’re buying imports with strong dollars.  Why isn’t all that stuff, not made in America, lower in price?

The thing is, the dollar index is measured against a basket of six currencies including the euro and the Japanese yen. If you look at the stuff Americans buy, they’re from countries that aren’t represented in the dollar index; such as: China, Mexico, India, Vietnam and Israel. Almost 80% of U.S. consumer-goods imports, excluding autos, come from countries that aren’t in the dollar index. Comparing against those countries, the dollar is up about 7% and import prices are down about 5.5% So, a strong dollar is just a small part of the reason for lower oil prices.

Even if prices went up from here it might not be enough to save some of the producers and their creditors. And if prices go lower, it might not affect production as you might imagine. Two weeks ago, Baker Hughes announced it was cutting 12% of its workforce and 15% of its output, but previous downturns have resulted in 40% to 60% cuts. At the same time BHP Billiton announced it was cutting the number of rigs it operates in US shale oilfields from 26 to 16, but it would take a few months to cut back, and even after the cutbacks “the company does not expect the slowdown to have an immediate effect on its oil and gas production, which it still expects to average about 700,000 barrels of oil equivalent per day.”

Yes, over time, lower prices will affect production, but over the intermediate term, creditors will demand payments and that means the pumps keep pumping, even at little to no profit. Revenues will have to cover obligations. Debt must be serviced.

Over the last five years, oil and gas companies have issued bonds and taken out loans that are together worth $1.2 trillion, according to data from Dealogic. Back in the 1980s oil crash about 700 banks failed, mainly smaller, regional banks in Texas. Now, there are some smaller Canadian banks and a few Texas-based regional banks with concentrated exposure to the oil patch, but losses are not expected to approach the 80s, and the other creditors are the mega banks that can withstand a few billion in losses.

Still, the sharks are already smelling blood. Several private equity firms such as Carlyle, Blackstone, and KKR are taking on large positions in indebted oil companies. There are already examples of these firms providing emergency loans at very high rates plus an ownership stake. At the recent Davos World Economic Forum, David Rubenstein, co-founder of the Carlyle Group said “The single best opportunity to invest is distressed debt in energy.”

But the energy companies are not going to give up easily. The squeeze is tightest when companies face a deadline to pay back money they have borrowed. And they may be forced to maintain or increase production.

And moving beyond the supply demand equation, yesterday, the New York Times reported that Saudi Arabia has been trying to pressure Russian President Putin to abandon his support for Syrian President Bashar al-Assad, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices. A Saudi diplomat was quoted saying, “If oil can serve to bring peace in Syria, I don’t see how Saudi Arabia would back away from trying to reach a deal.” None of this is a revelation; we talked about oil as a financial weapon back when Russia was first posturing in Ukraine. Any weakening of Russian support for Assad could be one of the first signs that the recent tumult in the oil market is having an impact on global statecraft.

Here’s the point: if anyone says they know what oil prices are going to be, they are wrong.

A funny thing happened today with Greece. The Athens General Stock Index closed up today by about 7%. Then this afternoon in New York, right before the close, the ETF that is based on Greece, the GREK, suddenly plunged about 11%. The European Central Bank announced that it will no longer accept Greek government debt as collateral starting next week. The ECB said it is presently impossible to assume a successful conclusion of the current Greek program. In other words, the ECB doesn’t see Greece complying with existing bailout rules.

But the governing council also approved the Greek central bank issuing Emergency Liquidity Assistance to the Greek banking system to cover any liquidity shortfall caused by today’s move. This means Greece could still get money, but they will pay more for it, and it is just a temporary Band-Aid. This also means that the money spigot could be turned off if Greece’s new government doesn’t behave the way the ECB wants. Unless the 15 billion-euro limit on short-term borrowing set by Greece’s troika of official creditors is raised, the government may run out of cash on Feb. 25. With Greeks yanking their cash from banks and withholding tax payments, it is thought the new Greek government would only be able to survive for a few more weeks by tapping social-security funds and withholding payments to vendors.

The Greeks may be able to survive this, provided there is not a run on their banks. It basically boils down to political hardball. The Greeks were hoping to rewrite their debt. The Troika has now slapped down that plan.

General Motors reported a 91% jump in its fourth-quarter profit, beating analyst expectations. GM said it plans to boost its dividend starting in the second quarter. Later this month, GM will pay about 48,000 U.S. hourly workers profit sharing checks of $9,000 based on its 2014 financial performance. Fourth-quarter profit earnings before dividends rose to $1.99 billion compared with $1.04 billion a year earlier. Excluding some charges, the company earned $1.19 a share, handily beating analyst estimates of 83 cents a share.

Ford is adding 1,500 workers across four plants to build the new F-150 pickup truck and plans on shifting hundreds of union-represented workers from entry-level wages to the pay veteran plant workers make, in the coming weeks.

Staples has agreed to buy Office Depot for $6.3 billion. The deal values Office Depot at $11 a share, a premium of 44% over the closing price of Office Depot shares as of Monday. Together, the two companies have roughly 4,000 stores and annual sales of more than $35 billion. A merger would almost certainly reduce competition, result in some store closings, and mean higher prices for consumers. A combination of the two likely would get a close look from antitrust regulators, who in 1997 sued successfully to block the same proposed merger.