Financial Review

When Issued

Sinclair Noe — May 2, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 36 = 20,949
SPX + 2 = 2391
NAS + 3 = 6095 (record)
RUT – 8 = 1399
10 Y – .03 = 2.29%
OIL – .76 = 48.08
GOLD + .80 = 1257.90

Markets have been a bit squirrely of late. Stocks and bonds have been rising in tandem. Oil is lower, even as the dollar has been weaker since the start of the year. And the VIX, the volatility index has been hugging the 10 range, which represents a state of somnambulance.

Typically, assets considered risky like stocks shouldn’t climb at the same time as havens like Treasuries are being bid higher. But that is exactly what has happened in recent trade.  And this is happening as the Fed is in the process of raising rates.

The Federal Reserve’s policy-making committee holds a meeting today and tomorrow. While trading on Fed funds futures contracts implies less than 5% probability of a rate hike tomorrow, the language in the FOMC statement could be crucial for investors in assessing the June meeting.

The tweaking of words by the Fed will hold even more weight since Fed Chair Janet Yellen is not scheduled to hold a press conference following the two-day meeting. So far, it looks like the Fed is still on track to hike rates 2 more times this year.

Today’s big earnings news came from Apple, after the closing bell. Apple reported iPhone sales dropped in the quarter, indicating that customers had held back purchases in anticipation of the 10th-anniversary edition launch this fall. Apple sold 50.7 million iPhones in its fiscal second quarter ended April 1, down from 51.2 million a year earlier. However, revenue from the smartphones rose 1.2 percent in the quarter.

The company’s net income rose to $11 billion, or $2.10 per share, in the second quarter, from $10.5 billion, or $1.90 per share, a year earlier. They beat estimates by about 8 cents per share. Revenue rose 4.6 percent to $52.90 billion in the quarter, missing estimates. Apple boosted its capital return program by $50 billion, increasing its share repurchase authorization by $35 billion and raising its quarterly dividend by 10.5 percent.

Apple shares dropped about 2% in after-hours trade.

Microsoft just unveiled the Surface Laptop, aimed squarely at stealing customers away from Apple’s newest MacBooks. The one thing to know is that the Surface Laptop is the poster child for Windows 10 S, a new version of the operating system that Microsoft says is more streamlined and secure.

In other earnings news:

Mondelez International reported first-quarter net income of $630 million. The Deerfield, Illinois-based company said it had profit of 41 cents per share. Earnings, adjusted for non-recurring costs, were 53 cents per share. The results exceeded Wall Street expectations. The maker of Oreo cookies, Cadbury chocolate and Trident gum posted revenue of $6.4 billion in the period, also beating estimates.

Etsy, the arts and crafts online retailer posted revenues of $96.9 million, missing estimates. First-quarter earnings per share was $0. CEO Chad Dickerson will step down from the role tomorrow. John Allspaw, the chief technology officer, is leaving the company. Etsy also announced that it expects to eliminate about 80 jobs, or 8% of its workforce. Etsy shares slammed by 14% today.

Gilead Sciences reported first-quarter profit of $2.7 billion, or $2.05 per share. The HIV and hepatitis C drug-maker posted revenue of $6.5 billion; missing top and bottom line estimates.

Archer Daniels Midland cautioned that massive global grain stocks are making it difficult to turn a profit trading grain internationally, sending its shares plummeting despite reporting a higher first-quarter profit. The outlook for its agricultural services segment, its largest in terms of revenue, appeared weaker than it did at the beginning of the year.

The segment makes money buying, selling, storing, shipping and trading grains and oilseeds. It includes ADM’s global trading desk, which turned in another weak quarter with lower year-on-year earnings. Net profit attributable to ADM rose to $339 million, or 59 cents per share, in the quarter ended March 31, from $230 million, or 39 cents a share, a year earlier.

ADM missed estimates. Shares dropped 7.5%.

ConocoPhillips reported a quarterly loss as operating costs came in higher than expected. However, the largest U.S. independent oil producer’s results reflected a slow but steady improvement across the industry bolstered by improved pricing for its oil and natural gas. Crude prices are up more than 50 percent from a year ago. Net profit was $800 million, or 62 cents per share, in the first quarter ended March 31, compared with a net loss of $1.5 billion, or $1.18 per share, a year earlier.

Conoco beat earnings estimates.

Home prices nationwide, including distressed sales, increased year over year by 7.1 percent in March 2017 compared with March 2016 and increased month over month by 1.6 percent in March 2017 compared with February 2017, according to the CoreLogic Home Price Index.

Corelogic forecasts national home prices for single family homes will rise by 0.6 percent in April. Year-over-year, national home prices are forecasted to rise by 4.9 percent by March 2018. Arizona home prices were up 0.8 percent month-over-month and up 7.3% year-over-year. Arizona home prices remained 19.4% below peak values.

Major automakers posted declines in U.S. new vehicle sales for April in a sign the long boom cycle that lifted the American auto industry to record sales last year is losing steam, sending carmaker stocks down. The drop in sales versus April 2016 came on the heels of a disappointing March, which automakers had shrugged off as just a bad month.

Auto sales were a drag on U.S. first-quarter gross domestic product, with the economy growing at an annual rate of just 0.7 percent. Excluding the auto sector the GDP growth rate would have been 1.2 percent. GM said April sales fell 6 percent, but crossovers and trucks continued to see strong growth. Sales at Ford, the No. 2 U.S. automaker by sales after GM, fell 7.2 percent in April, while Toyota recorded a drop of 4.4 percent and FCA sales were off 7 percent.

New vehicle sales hit a record 17.55 million units in 2016. But as the consumer appetite for new cars has waned, automakers have leaned more heavily on discounts. GM said its consumer discounts were equivalent to 11.7 percent of the transaction price.

The automaker also said its inventory level rose to 100 days of supply at the end of April versus around 70 days at the end of 2016. Kelley Blue Book’s forecast for 2017 calls for auto sales in the range of 16.8-17.3 million units, which represents a 1% to 4% decline from last year.

The House of Representatives transportation committee held a hearing for top airline executives to testify, and to determine how Congress might respond to policies that can adversely affect passengers. At the hearing, United Chief Executive Oscar Munoz repeatedly apologized for the removal of a passenger who was dragged off an overbooked plane last month. We have all seen the video of the bloodied and barley conscious man.

Munoz was joined at the hearing by United President Scott Kirby and executives from American Airlines, Southwest and Alaska Airlines. American Airlines experienced its own public relations fiasco last month when a passenger video went viral, showing a woman on a plane in tears holding a child in her arms and another at her side after an encounter with a flight attendant over a baby stroller.

Federal prosecutors have subpoenaed several banks as part of a criminal investigation into possible manipulation of the US Treasuries market. UBS Group, BNP Paribas, Royal Bank of Scotland and Morgan Stanley received subpoenas last month seeking information on the $14 trillion market.

The Justice Department has been examining the U.S. Treasuries market for roughly two years. The Justice Department in late 2015 asked about when-issued securities as part of broader requests for documents it sent to most or all the roughly two dozen primary dealers in US Treasuries. The banks have not been accused of wrongdoing by the DOJ.

When-issued securities have been a government-debt market fixture since the U.S. Treasury Department effectively authorized their use in 1975. Investors can buy them from a Wall Street bond dealer to guarantee they will be able to get their hands on a bond, bill or note once it’s auctioned by the government.

Because they give a preview of auction demand, when-issued securities are an important indicator for primary dealers, which are essentially required to backstop U.S. government debt auctions by making “reasonable” bids for their share of each sale.

Trading of these when-issued securities is also the subject of several lawsuits against primary dealers filed since July 2015. In them investors allege that traders at global banks colluded to artificially inflate the price of the when-issued securities, which allow the banks to sell US debt before they own it. Then they bought the debt at auctions for an artificially suppressed price, unfairly profiting at investors’ expense.

Trader-to-trader communication is at the heart of recent federal antitrust probes into whether banks coordinated to manipulate interbank interest rates and align foreign-exchange trades. Those cases have resulted in billions of dollars in penalties, and in some cases guilty pleas. The investigation of the Treasuries market grew out those cases.

As always, the banksters remain innocent until proven guilty, but I think we are seeing a pattern of wrongdoing.

Financial Review

Who Blinks First?

Sinclair Noe — February 4, 2016

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

Subscribe: iTunes | Android | RSS

DOW + 79 = 16,416
SPX + 2 = 1915
NAS + 5 = 4509
10 Y – .02 = 1.86%
OIL – .52 = 31.76
GOLD + 13.00 = 1156.40

Equity markets were all over the place once again today as crude oil popped and then dropped.

Initial jobless claims rose in the last week of January but remained at a very low level. New claims rose by 8,000 a seasonally adjusted 285,000 in the seven days stretching from Jan. 24 to Jan 30. Any number below 300,000 is historically considered a sign of a robust labor market, but claims are no longer falling rapidly. In the last two weeks of January, for example, the number of new claims was slightly higher compared with the same two weeks in 2014. It’s the first time in three years that has happened for two weeks in a row.

The productivity of U.S. businesses fell at a 3% annual pace in the fourth quarter, marking the biggest decline in almost two years. Weak productivity growth has been a hallmark of the near-seven-year economic recovery. Productivity increased just 0.6% in 2015, less than one-third the average since the end of World War II. In the fourth quarter, employees put in more time on the job but output of goods and services barely rose. Output edged up a scant 0.1% while hours worked jumped 3.3%.

The European Commission trimmed its 2016 growth forecast for the euro area to 1.7 percent from 1.8 percent previously. At the same time, it slashed its 2016 inflation forecast, dropping it to 0.5 percent for the year, from 1.0 percent. In a speech at Germany’s Bundesbank this morning ECB president Mario Draghi said that weak global inflation would not stop the central bank from adding more stimulus at its March meeting. The euro currency did not seem impressed by his dovishness, rising to a three-month high versus the dollar.

Bank of England policymakers voted unanimously to keep interest rates on hold at 0.5%, raising the prospect that the UK’s record low rates will continue for at least another year.

The US Dollar Index was down again, for the fourth straight session; part of the recent dollar decline is due to soft economic data; part might be due to comments by Robert Kaplan, the new head of the Dallas Fed, who said the central bank should be “patient” on rate increases.

The recent weakness in the greenback has provided investors the incentive to take profits in successful trades against commodities and emerging markets, which had suffered after a run higher by the dollar. New York Federal Reserve Bank President William Dudley said that financial conditions have tightened since late last year and policy makers will take this into account when they meet next month to decide whether to raise rates again.

Analysts and strategists in a Bloomberg survey cut their forecasts for the Fed’s peak policy rate at the end of this tightening cycle, known as the terminal rate, to a median of 2.875 percent from 3.375 percent in a July poll. That compares with the Fed’s latest forecast of 3.5 percent published in December, down from 3.75 percent in June. That means the Fed’s rate outlook is out of sync with the markets. The question is who blinks first?

Small businesses stepped up hiring in January after taking a pause in December and many continued to point to difficulty finding qualified workers. The monthly survey of the National Federation of Independent Business showed that 52 percent of respondents said they were hiring or trying to hire, but a large share of those reported few or no qualified applicants for the jobs they were trying to fill. The average employment gain per firm was 0.11 workers compared with -0.7 workers in December.

The latest monthly report from the staffing firm Challenger, Gray and Christmas on planned layoffs showed that US employers in January reported 75,114 planned job cuts, up 42% year-on-year. Retailers moved the needle on this data point the most, particularly Walmart, which announced plans to close 269 stores across America. The staffing firm also said energy-sector layoffs continued to be a problem.

We see that in the latest earnings report from Royal Dutch Shell. They announced a near 60% slump in fourth-quarter profit, hit by sliding production and plunging global oil prices. Shell also announced it was cutting 10,000 jobs. Fourth-quarter profit dropped to $1.8 billion down from $4.2 billion a year earlier. Shell’s exploration and production business lost $5.7 billion last year, hit by write-offs, falling prices and lower volumes.

ConocoPhillips missed fourth-quarter profit expectations and lowered its dividend. The company reported a net loss of $3.5 billion, wider than a net loss of $39 million, or a loss of 3 cents per share, in the year-earlier period. The company lowered its 2016 capital expenditures and said: “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time.”

Weatherford has announced in its fourth quarter earnings report that it’ll lay off another 6,000 employees and close nine manufacturing/service facilities before the end of the year. The latest round of cuts brings to 20,000 the number of workers who have been or will be released by the world’s fourth largest oilfield services supplier. Weatherford also set a capital expenditure target of $300 million for this year, about 56% lower than its 2015 spending.

Statoil slashed its capital spending budget but said it would keep its dividend steady after topping fourth quarter expectations.

Credit Suisse reported its first annual loss since 2008 as it wrote off billions of dollars in goodwill, set aside litigation provisions and suffered a trading downturn.

ING posted a better-than-expected Q4 and announced a full-year dividend.

AstraZeneca expects low to mid-single digit percentage drops in earnings this year, in part due to a flood of generic cholesterol drugs.

Vodafone met expectations with a 1.4% rise in revenue, its sixth consecutive quarter of growth.

Buffalo Wild Wings reporting light revenue. But the bigger problem, with Super Bowl Sunday just days away, the restaurant chain was blitzed with a potential crisis as 10 customers became ill after eating at one of its restaurants in Kansas.

GoPro’s quarter was ugly. The digital-camera maker announced an adjusted loss of $0.08 a share, worse than the $0.02 loss that was expected. Revenue for the crucial holiday quarter crashed 31.1%.

And Metlife reported earnings of $1.23 per share, missing analysts’ forecasts for earnings of $1.36 per share. Earnings during the fourth quarter were negatively impacted by lower variable investment income and a stronger dollar.

Philip Morris missed fourth-quarter revenue expectations and provided a downbeat profit outlook for 2016.

Yum Brands reported an 11 percent increase in adjusted earnings that topped analyst expectations, but its revenue came in just under Wall Street estimates.

Dunkin’ Brands posted better-than-expected results in its fourth quarter, despite declines in same-store sales, which dropped 0.8%. During the quarter the company opened 172 net new restaurants world-wide. Dunkin posted a loss of $8.9 million, or 10 cents a share, down from a profit of $52.5 million, or 50 cents a share, a year prior. You have to wonder if Dunkin is feeling pressure from McDonalds going to an all-day breakfast menu.

Sports Authority is preparing to file for bankruptcy. The retailer, once the biggest sporting-goods chain in the US, is in talks with lenders on a deal to reorganize in Chapter 11 bankruptcy proceedings. It’s also mapping out a plan to close as many as 200 of its more than 450 stores. Sports Authority skipped a $20 million dollar interest payment last month, and another $10 million payment is due in the next 10 days.

New tech acquisitions:  Cisco is purchasing “Internet of Things” service provider Jasper for $1.4 billion in cash, plus assumed equity awards and retention-based incentives.

Microsoft is buying iOS/Android keyboard developer SwiftKey for a reported $250 million. The company’s keyboard apps have over 300 million users and are declared to have “saved nearly 10 trillion keystrokes, across 100 languages” with the help of A.I. that learns a user’s typing tendencies to predict his/her next word.

There is a side story here. SwiftKey was started in 2008 by three young British guys: Jon Reynolds, Ben Medlock, and Chris Hill-Scott. It is tough to build a startup, and Hill-Scott grew weary of the long hours and low pay. He sold his stake to the other guys for a bicycle in 2008 and went to work for the British government. Reynolds and Medlock just pocketed about $35 million each for their shares.

Twenty-four hours after facing fraud charges in a federal court in Brooklyn, Martin Shkreli turned up in Washington after being subpoenaed by the House of Representatives oversight committee. Shkreli created and ran a firm called Turing Pharmaceutical, which is known for acquiring the rights to a drug called Daraprim, and then hiking the price 5,000% overnight, from $13.50 to $750 a pill.

The reason behind the hearing was to find out about the drug pricing. Shkreli did not provide answers; he invoked his Fifth Amendment rights, while smirking and smiling. Afterwards he tweeted “Hard to accept that these imbeciles represent the people in our government.”

Before invoking the Fifth today, Shkreli had said that he wasn’t alone in taking big price hikes on drugs. And that is true. A survey of about 3,000 brand-name prescription drugs found that prices more than doubled for 60 and at least quadrupled for 20 since December 2014.

Also at the hearing, Howard Shiller, interim CEO of Valeant Pharmaceuticals. Valeant has increased the price of numerous old drugs, but the House committee has focused on two heart drugs, Isuprel and Nitropress. Valeant acquired both a year ago and immediately raised the price of Isuprel by more than 500 percent and of Nitropress by more than 200 percent, provoking protest from the hospitals that buy these drugs.

Financial Review

Carry On

Sinclair Noe — September 2, 2015

Podcast: Play in new window | Download (Duration: 13:14 — 12.1MB)

Subscribe: iTunes | Android | RSS

DOW + 293 = 16351
SPX + 35 = 1948
NAS + 113 = 4749
10 YR YLD + .02 = 2.19%
OIL + .59 = 46.00
GOLD – 6.10 = 1134.70
SILV + .08 = 14.80

For the first 8 ½ months of the year, stocks traded in a very tight range, for the most part. We had an occasional triple digit move on the Dow, but that was the exception – now it looks like the norm. Investors have weathered over two weeks of unusually wide-swinging trade that has left the S&P 500 with its worst monthly drop in three years and a loss of 8.5 percent from an all-time high in May. There really isn’t anything that would tell you today marks some kind of recovery, rather it is just volatility and turbulence. Get used to it. Keep calm and carry on.

World markets were a bit more sanguine today; the Shanghai Composite stabilized, but still closed just slightly lower. Nine Chinese brokerages pledged additional funds to purchase shares, answering fresh government calls to support equities. Investors may see the trend continue. Shanghai’s stock market will be closed Thursday and Friday as China commemorates the 70th anniversary of the end of World War II.

U.S. index provider MSCI has declared the market gyrations in China, and a barrage of interventions by the authorities to stop the rout, not to be a factor in deciding whether to include China A-shares in its Emerging Markets Index. Just before the massive selloff began in mid-June, MSCI announced it would temporarily hold off on the move, but said it expected the shares to be incorporated once outstanding issues relating to Chinese market accessibility were resolved.

The Federal Reserve released its Beige Book this afternoon; this is a look at economic conditions around the country, not hard data but just observations and interviews. Manufacturers are starting to feel the effects of China’s economic slowdown and a strong dollar; the oil industry is starting to feel pressure from lower energy prices; housing and auto sales are strong. Economic activity has not slowed since July; keep in mind that the Beige Book runs through August 24, just before the recent volatility on Wall Street. The Fed uses the Beige Book as a guide heading into the FOMC meeting next week to determine monetary policy.

Now, here’s an interesting twist on whether the Fed might hike interest rates next week; it comes from Torsten Slok Deutsche Bank’s chief U.S. economist. The thinking is that if the Fed hikes rates, investors would see it as a policy error, in which case they would pressure yields at the long end of the US Treasury curve; in other words, long-term rates could drop and the dollar could get weaker. A flattening curve is generally considered an easing of financial conditions. He asserts that the central bank ought to “do the first hike exactly when there is a bearish narrative in markets” to ensure it doesn’t prompt yields further out along the curve to jump, as was the case in the infamous bond selloff sparked by 1994’s rate rise. So, if the Fed raises its interest rate target for Fed Funds Futures, don’t be surprised if interest rates and the dollar actually decline. At least that’s one theory.

Last week, as the stock market took a dive, interest rates dropped briefly; and mortgage applications increased dramatically. Jumbo loan borrowers were especially enticed by the potential savings. An index of application volume jumped 11.3 percent. Volume is now up 30 percent from a year ago. Refinance applications, which are most rate-sensitive, increased 17 percent from the previous week to the highest level since April, 2015. Loan applications to purchase a home, which have been less responsive to rates, rose 4 percent for the week and are now 25 percent higher than one year ago.  The average contract interest rate for 30-year fixed-rate mortgages remained unchanged at 4.08 percent.

Private-sector employment gains continued in August at a slightly faster pace than in the prior month. Payroll processing firm ADP reports employers added 190,000 jobs last month. The Labor Department’s employment report will be released Friday, and the consensus estimate calls for a gain of about 215,000 new jobs. A significantly more robust number might nudge the Fed to move, but global market volatility recently has prompted some analysts to predict a December rate increase. One wild card: In seven of the last 10 years, the August number for payrolls has come in 48,000 below the consensus, only to be revised upward later, according to RBS. In other words, the Friday Jobs Report is going to be a cliffhanger for nervous investors.

 The productivity of U.S. workers in the spring was stronger than initially reported, reflecting a pickup in economic growth after a poor start to the year. Productivity rose at a 3.3% annual pace in the second quarter, up from a preliminary 1.3% estimate.

Entrepreneurship in the United States is at its highest rate in at least 16 years. According to a study by Babson College and Baruch College, 14% of the United States working age population, about 24 million people, reported being entrepreneurs in 2014. The high entrepreneurship rate could be good news for non-entrepreneurs as well: 24% of entrepreneurs said they expect to hire 20 or more people in the next five years.

President Obama has 34 Senate votes in favor of an Iran Nuclear deal, and that means it is a done deal. With 34 senators favoring the accord between Iran and six world powers limiting the country’s nuclear program, opponents may still be able to pass a resolution disapproving the deal later this month, but they do not have the votes to override Obama’s promised veto. In most cases, support for the deal has not been enthusiastic, but enough Democrats have come to the conclusion that killing the accord would be far worse than approving it. The White House and Senate Democrats hope to find seven more votes next week to filibuster the Republican resolution of disapproval. That would ensure the resolution would never leave the Senate, and Obama would not be forced to use a veto.

ConocoPhillips is cutting about 10% of its global workforce, with the largest percentage of layoffs occurring in North America. News of the cuts came on the same day ConocoPhillips announced first oil at its new Surmont 2 thermal project in northern Alberta.

McDonald’s U.S. franchisees have voted to begin offering all-day breakfast on Oct. 6, a widely expected decision that the company and investors hope will help end a sales slump that began nearly three years ago. The move – the company’s biggest menu change in years – follows months of testing the idea at various locations. According to McDonald’s sales reports, breakfast currently accounts for about 25% of its U.S. sales.

A Federal Judge in San Francisco has granted class-action status to a lawsuit claiming that Uber misclassifies its drivers as independent contractors instead of employees. As many as 160,000 Uber drivers in California could now join the case as a group, seeking to require the company to pay payroll taxes, overtime pay, or possibly mileage. The case, filed in 2013, presents challenges to Uber’s business model. Classifying workers as contractors lets the company keep its labor costs low while recruiting scores of people who use their own cars to ferry passengers. The results of the high-profile legal battle may also reshape the sharing economy, setting a precedent for dozens of startups whose futures rely on independent contractors. Well, so much for those valuations.

Federal safety regulators have sharply lowered the number of vehicles likely affected by faulty Takata airbag inflators, cutting the figure by about 40% to 19 million from more than 30 million. New information shows that some of the vehicles were originally thought to be in the U.S. (instead of overseas) and that some cars were counted twice due to driver and passenger side air bags. The recall still remains the largest and most complex automotive recall in history – involving 11 different automakers.

CBS is planning a record amount of live-streaming NFL coverage this season, with all streams available to the public for free. The games will include two regular-season match-ups, four playoff events and Super Bowl 50. CBS’s streams will be available through its website for laptops, desktops, tablets, and on TV via some connected devices (Xbox One, Apple TV, Chromecast and Roku products).

Intel introduced its new generation of processors today – they call it Skylake.  The new chips will power the full range of PCs from entry-level laptops to Xeon workstations. Here’s what you need to know: the chips are really fast, the graphics are much better, and it uses less power which will extend battery life. The new graphics deliver a better picture than 4k ultra HD. The new chip was built to work with Windows 10 and the processors can wake up a computer in sleep mode in less than a half second; no more waiting around. Intel is also making a big deal about facial recognition; no more messing around with passwords; your computer will know who you are.

Notebooks and other devices equipped with Intel’s R200 RealSense camera will 3D-scan both your face and other objects, with lots of fun potential applications; including the ability to scan objects and send it to your 3D printer; finally we are getting to the Star Trek replicator. And finally, hassle-free wireless charging of laptops, tablets and notebooks. Using magnetic resonance coupling. Actually, they haven’t got that figured out just yet, but they are working on it and think they’ll have something ready to go in about a year.

And an extra note here. In the next 24 to 48 hours you will like see a very disturbing picture. It is a photo of a three year old child from the north Syrian town of Kobani near the Turkish border, scene of heavy fighting between Islamic State insurgents and Kurdish forces a few months ago. Like so many, his family tried to migrate to Europe; taking the treacherous path to sea, headed for the Greek island of Kos. Something went horribly wrong; the boat sank. Seven people were rescued and two reached the shore in life jackets.

The official said hopes were fading of saving the two people still missing. The confirmed dead included five children and one woman; the youngest child was 3 year old Aylan Kurdi. The picture you will see showed the little boy wearing a bright red t-shirt and shorts lying face-down in the surf on a beach near the resort town of Bodrum. It is all over the Twitterverse and will undoubtedly make the main stream media. Hashtag #humanity washed ashore. You should look at the picture. It will disturb you.

FINANCIAL REVIEW

Good Luck With That

Sinclair Noe — January 29, 2015

Podcast: Play in new window | Download (Duration: 13:17 — 6.1MB)

DOW + 225 = 17,416
SPX + 19 = 2021
NAS + 45 = 4683
10 YR YLD + .02 = 1.75%
OIL + .09 = 44.54
GOLD – 25.20 = 1259.10
SILV – 1.04 = 17.02

Yesterday, the Federal Reserve said it would remain “patient” on raising rates, but indicated it saw the U.S. economy getting stronger. The Fed also said it has seen inflation decline, and it may decline further, but that low oil prices are probably temporary. The FOMC statement said that economic activity has expanded “at a solid pace” and that labor market conditions have improved.

That was certainly the case last week. The fewest Americans in almost 15 years filed applications for unemployment benefits during a holiday-shortened week that typically makes the data more volatile. Jobless claims dropped by 43,000 to 265,000 in the week ended Jan. 24, the lowest since April 2000. No state reported an increase of more than 1,000 in claims for the week ended Jan. 17.

The National Association of Realtors reports its index of pending home sales fell 3.7% in December, though the year-on-year gain was 11.7%, the highest since June 2013. Pending sales measures contracts signed but not yet closed.

The Census Bureau reports the number of owner-occupied households fell by 354,000 from a year earlier as the homeownership rate dropped to its lowest level since 1994. The ownership rate for people under age 35 fell to 35.3%, down 1.5 percentage points from a year earlier and the lowest level in Census data going back to 1982. The number of renter-occupied residences grew by 2 million last year. Vacancy rates for rentals fell to 7% in the fourth quarter, the lowest since 1993. Total households increased 1.66 million. This means that younger people are finally entering the housing market, even if it is as renters rather than owners. That’s good news for landlords, better news for parents.

Denmark’s central bank cut interest rates today to negative 0.5%. Denmark’s rates were already negative, now more so. Denmark operates a currency peg with the euro, which has come under increasing pressure as the single currency has weakened with the recently announce quantitative easing plan.

The German economy has slipped into deflation for the first time in more than five years, and may not see inflation again before the year is out. Prices dropped by 0.3% in the year to January. Eurostat is due to publish inflation figures for the euro area as a whole on Friday. Economists expect these will show prices have fallen faster still, at 0.5% in the year to January.

The Bloomberg Commodity index, which tracks the global prices of 22 different commodities such as gold and oil, dropped to the lowest level since August 2002. The strength of the US dollar has hit commodity prices hard. Because most commodities traded in international markets are quoted in US dollars. When the dollar rises they become more expensive and this hits demand. The US dollar index, which tracks the price of the US dollar against the world’s currencies, has increased by more than 18% within the past six months.

Oil is near a 6-year low as stockpiles surge. The Energy Information Administration reported record-high inventories in the U.S. and raised more anxieties about the global oil glut. Domestic crude inventories rose by almost 9M barrels last week to reach nearly 407M, the highest level since the government began keeping records in 1982.

At the same time that oil price has been declining, we’ve also observed big drops in the price of other commodities like copper, the yield on 10-year US Treasuries, and the value of other currencies relative to the dollar. Certainly part of the reason for the decline in oil is because global demand has dropped, even as supplies remain high, but that isn’t a full explanation for the other commodities dropping.

Markets have been volatile in January. The S&P 500 dropped 1.4 percent Wednesday, bringing its slide this month to 2.8 percent, the most since January 2014. The Chicago Board Options Exchange Volatility Index jumped 32 percent in the previous two days, its biggest gain in almost seven weeks. Earnings season is in high gear as 52 of the S&P 500 companies post results today. Of those that have reported profit so far, 76 percent have exceeded estimates, while 57 percent topped sales projections.

Google posted fourth quarter numbers after the close of trade. They missed on the top line and the bottom line. Revenue (minus traffic acquisition costs) was $14.4 billion versus $14.6 billion estimates. Adjusted EPS was $6.88 vs $7.08 expected. Google’s share of the online-ad market is coming under pressure as more users spend time on smartphones and tablets. The average price of ads fell 3% in the quarter, following a decline of 2 percent in the previous period.

Also after the close, Amazon reported fourth quarter profits. That’s right, a profit not a loss of $214 million, or 45 cents per share, beating estimates of 18 cents. Revenue came in at $29.3 billion, missing estimates of $29.6 billion. Amazon forecast first-quarter sales of $20.9 billion to $22.9 billion, falling short of analysts’ average projection of $23 billion.

Alibaba Group’s quarterly revenue fell short of analysts’ expectations, showing signs of a slowdown in the Chinese e-commerce company’s growth during the holiday shopping season. Revenue rose 40% to $4.2 billion in the December quarter, missing the average analyst estimate of $4.4 billion. But margins increased to 58% from 50% in the prior quarter.

ConocoPhillips, the largest independent oil and gas company, reported a quarterly loss and again slashed its 2015 capital expenditures, citing lower crude prices. ConocoPhillips said its fourth-quarter loss was $39 million or 3 cents per share; excluding one-time items related, ConocoPhillips had a profit of 60 cents. In December, ConocoPhillips announced plans to cut spending 20% including eliminating a $6.5 billion plant in Qatar; now they say they expect to spend $11.5 billion, down from a prior projection of $13.5 billion.

Royal Dutch Shell posted Q4 profit of $4.2 billion, compared with $2.2 billion for same quarter a year earlier, although it said it would lower capex in 2015 and curtail overall spending by a total of $15 billion over the next 3 years.

More than 30,000 job cuts have been announced across the oil industry as companies shrink budgets. Exploration and production spending is expected to fall by more than $116 billion, or 17%.

Qualcomm reduced its outlook for fiscal 2015, saying it expects its newest Snapdragon mobile chip to not be used in a “major customer’s” flagship smartphone. The company also blamed increased competition in China for the reduced guidance. Still showing surprising growth for its latest quarter, Qualcomm reported that first-quarter net income rose 5% from a year ago to $2 billion.

Nokia reported stronger-than-expected quarterly profits this morning lifted by robust sales of latest-generation wireless telecom equipment in North America. Net profit in the three months to end-December quarter was €443M. However, the company stuck to a forecast for weakening profitability.

Confirming the firm’s first annual earnings decline in three years, Samsung Electronics said that October-December profit fell 28% from a year earlier, as strong chip earnings failed to make up for weakness in its mobile division (its fifth consecutive quarter of decline). Samsung issued a statement saying: “Uncertainties for global business conditions will likely grow further in 2015 due to the slowing Eurozone economy and financial risks in emerging countries.”

Deutsche Bank, has a boatload of legal problems and even more investigations but they posted a surprise Q4 net profit today after cutting the reserves it set aside to cover upcoming legal action and on higher investment banking revenue. Net profit of €438M beat expectations of a €289M loss forecast by analysts.

One of those legal investigations involves rigging the $5.3 trillion-a-day foreign exchange markets. Deutsche Bank and 11 other major banks are under investigation. A judge in Manhattan says investors can proceed with their anti-trust lawsuit accusing the big banks of a long running manipulation of closing spot prices, also known as the Fix. According to the 2013 lawsuit, these banks have held an 84 percent global market share in currency trading, and were counterparties in 98 percent of U.S. spot volume. The lawsuit is separate from criminal and civil probes worldwide into whether banks rigged currency rates to boost profit at the expense of customers and investors.

If you go to a restaurant today, chances are the food came from either Sysco or US Foods. The approval for an $8.2 billion Sysco-US Foods deal is being delayed again after the FTC sent a subpoena to a third-party food distributor this week asking for more information. Antitrust concerns are focused on whether the Sysco deal will drive up costs, as the two are the only ones with geographic reach to offer nationwide contracts for a wide variety of goods.

The FCC voted today to classify broadband internet as connections that provide download speeds of at least 25 megabits per second (Mbps) and upload speeds of 3 Mbps. That’s a good move. Those speeds are a lot faster than many people probably get from their internet provider (ISP). By definition, ISPs won’t be able to say they provide broadband unless they can give you at least those speeds.