Financial Review

No Deal in Doha, Dilma Doomed

Sinclair Noe — April 18, 2016

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DOW + 106 = 18,004
SPX + 13 = 2094
NAS + 21 = 4960
10 Y + .02 = 1.77%
OIL – .42 = 39.94
GOLD – 2.00 = 1233.10

The Dow topped 18,000 for the first time since July. At the year’s low in mid-February, the Dow had fallen to nearly 15,500.

There was no oil deal at Doha. Talks concluded without a deal as Saudi Arabia demanded that Iran take part in any production freeze.  Iran urged other oil producers to continue efforts to prop up prices, but insisted it was justified in not yet freezing its own output following the lifting of sanctions in January. Iran’s oil minister said over the weekend that other producers had to deal with the reality that Iran has returned to the oil market.

The reality for many oil producing nations is that low oil prices have left their national budgets on the brink of disaster. Meanwhile, oil workers in Kuwait went on strike to protest government cutbacks; the net effect of the work stoppage is like a production freeze, but it isn’t expected to last a long time.

The Nikkei stock index in Japan fell 3.4 percent after a series of earthquakes measuring up to 7.3 magnitude struck a southern manufacturing hub, killing at least 42 people and forcing major companies to close factories. About 30,000 rescue workers were scouring the rubble for survivors and handing out food to those unable to return to their homes following the quakes.  Japanese exporters like Toyota and Sony suspended production in the aftermath of a major earthquake. Meanwhile, Ecuador over the weekend was hit with its biggest quake in decades,7.8 magnitude, which killed at least 350 people (at last count) and injured over 2,000.

Saudi Arabia says that it will sell up to $750 billion in treasuries and other American assets if Congress passes a bill that would allow the Kingdom to be held responsible in US courts for any role in 9/11. Families of the Sept. 11 victims have used the courts to try to hold members of the Saudi royal family, Saudi banks and charities liable because of what the plaintiffs charged was Saudi financial support for terrorism.

These efforts have largely been stymied, in part because of a 1976 law that gives foreign nations some immunity from lawsuits in American courts. The Senate bill is intended to make clear that the immunity given to foreign nations under the law should not apply in cases where nations are found culpable for terrorist attacks that kill Americans on United States soil. The argument against wiping out Saudi immunity is that Americans might be in legal jeopardy if other nations decide to retaliate and strip Americans of immunity abroad.

Brazilian President Dilma Rousseff lost a decisive impeachment vote in the lower house of Congress on Sunday and appeared almost certain to be forced from office in a move that would end 13 years of Workers’ Party rule. The opposition counted more than the two-thirds majority it needed to send the impeachment motion to the Senate.

If the Senate agrees to go ahead with the impeachment, as seems likely, Rousseff would be suspended from her post and be replaced by Vice President Michel Temer as acting president pending her trial. Temer would serve out Rousseff’s term until 2018 if she is found guilty. While Rousseff herself has not been personally charged with corruption, many of the lawmakers who decided her fate on Sunday have been. Both the vice president and speaker of the House are under investigation.

Confidence among US homebuilders was little changed in April, indicating the housing market lacked momentum as the spring selling season got under way. The National Association of Home Builders/Wells Fargo builder sentiment gauge held at 58 this month, where it’s been since February. Readings greater than 50 mean more respondents report good market conditions. Better buyer traffic and growing optimism about the outlook for the next six months made up for a drop in current sales of single-family homes

For the S&P 500 index, as of this morning, we have Q1 results from 41 index members that represent 11.1% of the index’s total market capitalization. Total earnings for these 41 index members are down -9.4% from the same period last year on -0.7% lower revenues, with 75.6% beating EPS estimates and 53.7% beating revenue estimates. Once the bar is set so low, it’s easy to step over it.

Morgan Stanley’s quarterly profit fell by more than half as the Wall Street bank’s fixed-income trading and investment banking businesses took a hit from market volatility early in the year. But the earnings still beat expectations as the bank cut employee compensation. Morgan Stanley’s stock fell about 21 percent in the quarter – the sharpest decline of any big US bank.

PepsiCo reported a better-than-expected quarterly profit as it trimmed costs and demand rose in North America for its snacks. Global beverage volumes rose 3 percent. Cost of sales fell 6.4 percent as raw material prices declined. PepsiCo maintained its 2016 forecast of a profit of $4.66 per share and a growth of 4 percent in revenue.

Hasbro, the No. 2 US toymaker, reported better-than-expected quarterly profit and revenue. Hasbro holds a number of lucrative licensing deals for making toys based on blockbuster franchises such as “Jurassic Park”, “Star Wars”, “Avengers”, and Disney Princess dolls.

After the close, IBM reported a 4.6 percent fall in quarterly revenue, hurt by a strong dollar and muted IT spending amid global economic uncertainty. Revenue declined for the 16th straight quarter. Net income fell to $2.01 billion, or $2.09 per share, from $2.33 billion, or $2.35 per share, a year earlier.

Also, right after the closing bell, Netflix posted earnings. First-quarter net income rose to $27.7 million, or 6 cents a share, from $23.7 million, or 5 cents. Sales grew 24 percent to $1.96 billion. But it’s really more about their subscriptions; Netflix expects to add 2 million new international customers. That’s fewer than the 3.5 million. Shares dropped like a rock.

Sport Chalet’s parent company, Vestis Retail Group, has filed for Chapter 11 bankruptcy protection. The news comes two days after Sport Chalet initiated store-closing sales at its 47 locations and stopped all online sales operations. Sport Chalet has 40 stores in California. It also operates five stores in Arizona and two in Las Vegas. Sport Chalet said it will continue to honor gift cards and loyalty rewards; an internal memo obtained by the Los Angeles Times set a cutoff date of April 29. No closing date for the stores was given.

Corporate borrowers across the world have defaulted on $50 billion of debt so far this year as the number of delinquent companies accelerates at its fastest pace since the financial crisis in 2009. Nearly half of the defaults have occurred in the oil/gas and mining industries, spurred by the sharp decline in commodity prices, slowing global growth and lackluster demand for base metals and crude. Latest defaults: Peabody Energy, Energy XXI, and Goodrich Petroleum.

Today is the due date for potential bidders to submit bids to buy Yahoo’s core internet business. Verizon might be a front runner. We aren’t sure if Time, Alphabet, Comcast and AT&T will submit bids. Verizon may still face competition from private equity companies including Bain Capital, Advent International, and TPG. Cerberus Capital is considering a deal for YP Holdings to acquire Yahoo. YP as in Yellow Pages. It has a certain old school charm about it.

It looks like Europe is preparing for another legal showdown with Google, this time over its Android mobile operating system. Euro-regulators are concerned that phone makers and operators are required to preload a set of Google apps, rather than letting them decide for themselves which apps to load.

Twelve years ago, Google started digitizing about 20 million books. The Authors Guild and several writers sued Google in 2005, saying the digital library was a commercial venture that drove down sales of their work. Today, the Supreme Court refused to revive a challenge to Google Books, turning down an appeal from the authors, meaning a lower court decision stands; the digital books are “fair use” of the authors’ work. The justices gave no reasons for declining to hear the case.

The Supreme Court today heard arguments in the case of the United States v. Texas. At issue are the president’s executive actions on immigration, which have been on hold for more than a year as a result of a challenge from Texas and 25 other states. At the heart of the case are two constitutional questions: Whether the states have legal “standing” to sue over how the federal government administers immigration policy, and whether the policy itself complies with the mandate that the president “take care” that the laws be faithfully executed.

The Fifth Circuit Court of Appeals sided with Texas in 2015, issuing a nationwide injunction to prevent the immigration actions from taking effect. If the Supreme Court reaches a 4-4 stalemate, it will affirm that lower court decision without setting precedent for other circuits. That means a different Circuit Court of Appeals might reach an opposite outcome, upholding Obama’s actions, and that’s where everything really goes haywire.

Or the Supremes might just punt; they could make a very narrow ruling by determining that Texas lacks standing, meaning the state can’t sue because it hasn’t been harmed. States aren’t usually allowed to sue just because some federal action requires them to spend a marginal amount of new money. If they could, states would challenge everything the federal government does.

Financial Review

More Exciting Than Soccer

Sinclair Noe — April 15, 2016

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

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DOW – 28 = 17,897
SPX – 2 = 2080
NAS – 7 = 4938
10 Y – .03 = 1.75%
OIL – 1.07 = 40.43
GOLD + 6.50 = 1235.10

It was a pretty good week on Wall Street, even though it feels like some of the recent gains were the result of a short squeeze. On Thursday, the Dow and S&P 500 closed at their highest levels of the year so far. The S&P 500 has recovered about 14% from the February lows. The S&P has posted gains in 7 of the past 9 weeks. The Dow posted a 1.8% gain for the week, its best since the week ended March 18. The S&P 500 added 1.5% for the week.

The world’s second-largest economy grew 6.7% in Q1, the slowest pace of expansion since the financial crisis. But the figure suggested China’s target range of 6.5%-7% growth for 2016 is possible as long as it continues using its vast stimulus toolbox. Other data also reinforced previous signs the country may be finding traction with better-than-expected growth in retail sales, industrial output, fixed asset investment, export figures, and capital outflows.

The biggest oil meeting in decades takes place on Sunday. Major oil producers will gather in Doha, Qatar on Sunday to discuss a potential oil production freeze. Expectations for a deal are low.  Notably, Iran has said it won’t send its oil minister to the meeting, which could pose a problem as Saudi Arabia has suggested it won’t agree to a deal unless Iran is involved. Russia’s finance minister has said that even if a deal is reached to freeze production, it might not result in higher prices. The 18 nations set to gather in Doha on Sunday to discuss a production freeze have spent $315 billion of their foreign-exchange reserves, about a fifth of their total, since the oil slump started in November 2014.

The other big event for investors to watch this weekend will be political developments in Brazil, where a last minute attempt to block an impeachment vote against President Dilma Rousseff in the Supreme Court has failed. The vote will now go ahead on Sunday, with markets viewing the removal of Rousseff as a positive development for the country and the global economy. The vote is so important in Brazil that soccer matches are being rescheduled and huge outdoor screens to broadcast proceedings have been set up.

One big problem is that some of the most vocal lawmakers pushing to impeach Rousseff are facing serious charges of graft, electoral fraud and human rights abuses. If Rousseff is impeached, the vice president Michel Temer is not expected to take over because he has been accused of involvement in an illegal ethanol-purchasing scheme. The House Speaker Eduardo Cunha, the third in the line of succession, has been charged with accepting millions in bribes. Altogether, 60 percent of the 594 members of Brazil’s Congress face serious charges like bribery, electoral fraud, illegal deforestation, kidnapping and homicide. I would have to agree – this is more exciting than soccer.

In the wake of the Panama Papers scandal, the EU’s five biggest economies have struck a deal to crack down on tax avoidance, agreeing to exchange information on the beneficial owners of companies and trusts. The IMF says tax avoidance is a global risk. At the annual IMF meeting in Washington, Britain’s George Osborne said, “Today we deal another hammer blow against those who hide their illegal tax evasion in the dark corners of the financial system.” The UK, Germany, France, Italy and Spain are now pushing for the rest of the G20 to follow suit.

US manufacturing output declined in March by the most since February 2015. The 0.3 percent drop at factories, which make up 75 percent of production, followed a revised 0.1 percent decrease the prior month. Utility output decreased 1.2 percent after a 3.6 percent slump the previous month. Mining production, which includes oil drilling, decreased 2.9 percent. The Federal Reserve reports total industrial production, including mines and utilities, slumped by a weaker-than-estimated 0.6 percent for a second month.

The University of Michigan’s preliminary consumer sentiment index for this month fell to 89.7, the lowest since September, from 91 in March. Steady employment gains haven’t yet translated into solid wage increases. About a fifth of those surveyed mentioned the election or government policy as likely to have negative implications for future economic growth.

Earnings season kicks into high gear next week; it’s shaping up to be the worst quarter for earnings since 2009. The first quarter, should it come in as expected, would mark a third straight quarterly decline in earnings and a fifth straight fall in revenue. This week saw earnings reports from the big banks, and the results were bad but they could have been worse.

Citigroup reported a big drop in earnings this morning. Citi’s revenue fell 11% year-over-year to $17.6 billion. Meanwhile, net income plunged 27% to $3.5 billion or $1.10 per share. That bottom line beat the $1.05 expected by analysts. Citi’s trading revenue fell to $3.79 billion, the fourth straight year that fixed-income and equities trading operations declined in what is typically the industry’s strongest quarter. This has been a common theme among the big banks (JPMorgan, BofA, and Wells Fargo) that reported earnings this week.

Other common themes include cost cutting to prop up profits (Citi really added to the bottom line by firing a whole lot of people), also all the banks have big problems with energy loans. Citi set aside about $455 million for energy loans in the first quarter; in all, the bank said provisions were $2.05 billion.

One more thing we learned this week is that the big banks are still too big to fail; five of the 8 biggest banks flunked the Federal Reserve test; seven out of 8 did not have “credible” plans for how they would wind themselves down in a crisis without sowing panic or requiring bailouts. Citi passed the test, barely; regulators said their plan had shortcomings.

The Dodd-Frank Act of 2010 told large financial institutions to draw up “living wills”, or plans for dismantling the enterprises if they go bust. The big banks are struggling to comply. Part of the plan calls for the banks to have cash and liquid assets to keep operations operating. That might not be enough to avoid a meltdown. Ultimately, the only way to be sure a bank is not too big to fail, and melt down the economy, is to make the big banks smaller. It’s the difference between eating a bite size piece of steak and trying to swallow the entire cow.

The Federal Communications Commission is working on a new rule that would forbid cable companies from requiring customers rent their set-up boxes directly from their providers. Renting the boxes can run upwards of $240 a year per box, and consumers don’t have a choice between boxes. The price of buying a box outright could easily be less than the fees customers pay over the course of a year.

Among the supporters of the set-top box proposal are technology companies like Google, Amazon and Apple, which are eager to establish a broader foothold in the TV market. The cable industry is opposed, calling it a giveaway to wealthy tech companies. If you’re looking for precedent to breaking up the cable industries lock on set top boxes, look back to a time when Americans rented their phones from Ma Bell.

And set top boxes might not be the only industry facing a shakeup. The Council of Economic Advisers issued a report today saying that competition was declining in many industries and argued that the decrease was having a harmful effect on consumers and workers.

As Yahoo prepares to accept first-round bids for its core Internet division on Monday, potential buyers have found themselves facing one big problem: How do you value a firm with a declining business when the company appears reluctant to share vital financial details? According to the NYT, Yahoo executives have refused to discuss the outlook for 2017 or answer questions about crucial aspects of the business in meetings and phone calls with potential bidders.

General Motors is recalling more than one million newer pickup trucks for a seat belt flaw. GM said the recall of the 2014-15 Chevrolet Silverado and GMC Sierra 1500 pickups is not linked to any crashes or injuries.

Pre-orders for the Tesla Model 3 are approaching 400,000. Tesla plans to expand its lineup following the Model 3, likely including a Tesla pickup truck that’s been talked about before by CEO Elon Musk.

You know all those fees that airlines have added over the last several years? Delta is taking one away. Delta will drop the fee for U.S. consumers who buy tickets over the phone or at a ticket counter to make things simpler for customers. The phone fee was $25 and the fee for a ticket bought at an airport or other ticket counter was $35. So now Delta and Southwest are the only major airlines that do not charge these particular fees.

What has caused Delta to seemingly have a change of heart? Delta says that in-person ticketing gives them a chance to engage with their customers. Yea..., that’s not it. The simple fact is that everybody hates this fee; it made the airline look greedy, very greedy. But the real reason for cutting the fee: airlines are swimming in profits thanks to lower fuel prices.

And whether you fly or drive or find some other means of transportation, the next week might be a good time to get away. The U.S. National Park Service is celebrating its 100th birthday in 2016. And during National Park Week, April 16 through April 24, you can join in on the celebration by enjoying free admission to any of the 58 national parks in the country.

Financial Review

WWTD?

Sinclair Noe — April 14, 2016

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

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DOW + 18 = 17,926
SPX + 0.36 = 2082
NAS – 1 = 4945
10 Y + .02 = 1.78%
OIL – .33 = 41.43
GOLD – 14.80 = 1229.60

Consumer prices rose slightly in March, as the higher cost of filling up at the gas pump offset lower expenses for groceries and new clothes. The consumer price index rose by seasonally adjusted 0.1% last month after falling 0.2% in February. Energy prices climbed 0.9% to mark the first increase in four months. The price of food, on the other hand, fell 0.2%. Real or inflation-adjusted hourly wages, meanwhile, increased 0.2% in March. They are up 1.4% in the past 12 months.

The number of Americans who applied for unemployment benefits last week fell by 13,000 to 253,000, matching the lowest mark since the end of the Great Recession and sinking to a level last seen in 1973.

Arizona’s seasonally adjusted unemployment rate dropped one-tenth of a percentage point from 5.5% in February to 5.4% in March. The U.S. seasonally adjusted unemployment rate increased from 4.9% in February to 5.0% in March. A year ago, the Arizona seasonally adjusted rate was 6.2% and the U.S. rate was 5.5%. Arizona Nonfarm employment grew by 3.2% (84,300 jobs) over the year in March. The Private Sector accounted for all of the March gains, adding 86,000 jobs (3.9%). Government employment declined by 1,700 jobs.

A report from data firm RealtyTrac shows that there were 289,116 foreclosure filings in the first three months of the year, down 4% from the previous quarter and 8% lower than the same period a year ago. That was the lowest since the last quarter of 2006.

The IEA says the oil glut should ease. The International Energy Agency’s latest report says the oversupply of oil will shrink to 200,000 per day from 1.5 million. The IEA report says, “There are signs that the much-anticipated slide in production of light, tight oil in the U.S. is gathering pace.”

The International Energy Agency says a prospective deal to freeze oil output at a meeting of producers in Doha on Sunday won’t change oil markets which have already started to rebalance anyway. Saudi Arabia and Russia are already producing at or near record rates. And don’t forget that Saudi Arabia and Iran can’t agree on anything. Any production freeze by the Saudis is just an opportunity for the Iranians to take more market share.

The Bank of England kept policy on hold. In a unanimous vote, the central bank opted to keep its benchmark interest rate at 0.50% for the 85th consecutive month. The BOE also voted to keep its asset purchase program at £375 billion.

Europe has escaped deflation. The latest release from Eurostat showed Eurozone Final CPI for March ticked up to 0.0% from the previous look of negative -0.1%. While it’s good news that prices in the region are no longer falling, the European Central Bank’s 2% target remains a long way away. Sweden reported 1.2% inflation; Sweden has been experimenting with negative interest rates.

Bank of America, the No. 2 U.S. bank by assets, reported an 18 percent slide in quarterly profit. BofA, one of the biggest U.S. lenders to the oil and gas industry, also said it had set aside 30 percent more money to cover sour loans, mainly to the struggling energy industry. The bank saw a top line miss against analyst estimates, and a dip on the earnings front versus last year’s comparable quarter seeing net income decline 13% to $2.7 billion or $0.21 per share.

Last year, the company saw earnings per share of $0.25. However, it squeezed out a bottom-line number that met analyst estimates. Revenue was $19.7 billion, down 8% year-over-year. Due to the energy sector exposure, the provision for credit losses was increased to $997 million; let’s just call that a cool billion.

Wells Fargo’s quarterly profit fell 7 percent as the No.3 U.S. bank by assets set aside more than $1 billion to cover bad loans, saying its energy portfolio remained under “significant stress.” Income from all three businesses declined, with its largest business, community banking, reporting a 7 percent fall in the first quarter ended March 31.

Wells Fargo’s net income fell to $5.09 billion, or 99 cents per share, but total revenue rose 4.3 percent to $22.2 billion. Earlier in the week we reported that Wells had been dinged with a $1.2 billion fraud settlement related to selling bad mortgages, which sounds like a large amount, but it works out to about 3 weeks of profits; and that’s before the tax deductions. No indictments, so really it was a bargain.

Wells Fargo was among the five big banks failed by U.S. regulators on Wednesday on their plans for a bankruptcy that would not rely on taxpayer money. For now, the big banks are still too big to fail; they will have to come up with a better plan by October.

Yesterday, JPMorgan Chase reported earnings that were not as bad as expected, which is to say Jamie Dimon and company have become adept at “playing the market” in their ability to “deliver consistently” dismal earnings projections and then out performing expectations. Trading profits were weak, plus merger and acquisition activity is down across the board.

One common theme among the Big Three US Banks is they are setting aside much more for loan losses; and still the Federal Reserve and FDIC yesterday said they have not done enough and they failed their living will test. The banking sector is not showing signs of strength. As loans sour, we can expect a rocky road ahead.

Deutsche Bank has agreed to settle US lawsuits accusing it of conspiring with other banks to manipulate gold and silver prices at investors’ expense. The settlements were disclosed in letters filed in Manhattan federal court by lawyers representing investors and traders who accused Deutsche Bank of violating U.S. antitrust law. Terms were not disclosed, but both settlements will include monetary payments by the German bank. Deutsche Bank also agreed to help the plaintiffs pursue claims against other defendants.

The plaintiffs accused Deutsche Bank of conspiring with Bank of Nova Scotia, Barclays, HSBC and Societe Generale to manipulate prices of gold, gold futures and options, and gold derivatives through twice-a-day meetings to set the so-called London Gold Fixing; also manipulating silver prices on the Silver Fix. I’m shocked, shocked … that Deutsche Bank rolled over so quickly.

BlackRock, the world’s largest asset manager, posted a 20 percent drop in first-quarter profit.

Delta Air Lines reported a first-quarter profit above analysts’ estimates and indicated it could cut flight capacity in the fall if necessary to stop a months-long decline in unit revenue. The second most-traveled U.S. airline earned $946 million in the first quarter; profit was lifted by lower fuel costs.

It looks like the fight over Yahoo has boiled down to Verizon and SoftBank. According to NY Post sources, Verizon is considered the front-runner (interested in Yahoo’s core business and a 35.5% stake in Yahoo Japan), and appears to have the backing of key investors who like the idea of a simple cash deal. While a Softbank bid would likely be on the whole of Yahoo.

McDonald’s is targeting private equity firms, including Bain Capital, MBK Partners, TPG Capital Management and China Resources, for its planned sale of 2,800 restaurants in North Asia. McDonald’s is adopting a new business model in the region by planning to bring in partners to own the restaurants within a franchise operation.

Total spending on prescription drugs in the U.S. rose 12.2% to nearly $425 billion in 2015, continuing a steep climb fueled by the introduction of expensive new treatments for cancer and infections, as well as price hikes for older medicines. The annual report from IMS Health is likely to further fuel the fire of criticism from politicians, healthcare providers, and patients, stating drugs are out of reach and straining budgets.

Despite delays in the jets’ computer-based logistics system, the U.S. Air Force still expects to declare an initial squadron of Lockheed Martin F-35s ready for combat between August and December.

According to U.S. auto safety regulators, there are still about 85 million unrecalled Takata air bag inflators in American vehicles that would eventually need to be serviced unless the company can prove they are safe. The figure represents the first nationwide public accounting by the U.S. government regarding the total number of Takata inflators, which can explode with too much force and spray metal shards inside vehicles.

You know about the Cloud, which basically means you use someone else’s computers to store your data. Your email is stored in the cloud; all sorts of other documents as well, whether you know it or not. The government wants to look inside the cloud. Microsoft has sued the government for the right to tell its customers when a federal agency is looking at their stuff in the cloud.

They say the government’s actions contravene the Fourth Amendment, which establishes the right for people and businesses to know if the government searches or seizes their property, the suit argues, and Microsoft’s First Amendment right to free speech.

CEO’s of major corporations are busy people; they can’t be in two places at one time. But last week, Accenture CEO Pierre Nanterme was – at least digitally. On Monday, Nanterme went to an Accenture broadcast studio in Paris, where he is based, and had his image beamed to suburban Chicago, where 500 of the company’s top executives were meeting.

At the same time, the professional services firm’s human resources chief, Ellyn Shook, was beamed in from New York, and the resulting three-dimensional “holograms” of the two executives chatted with each other about things like the company’s new performance reviews and recent acquisitions, while answering questions from the audience. It’s still a bit on the extravagant side. Do you really need a hologram to explain recent acquisitions?

If you’re not sure, just ask yourself, what would Tupac do?

Financial Review

Breaking Up Is Hard To Do

Sinclair Noe — February 16, 2016

Podcast: Play in new window | Download (Duration: 20:26 — 9.4MB)

Subscribe: iTunes | Android | RSS

DOW + 222 = 16,196
SPX + 30 = 1895
NAS + 98 = 4435
10 Y + .03 = 1.78%
OIL – .36 = 29.08
GOLD – 8.50 = 1201.30

Top oil officials from Russia, Saudi Arabia, Qatar, and Venezuela met in Doha and have agreed to freeze crude output at January levels, targeting a supply glut that’s sent prices to 13-year-lows. According to the International Energy Agency, Saudi Arabia produced 10.2 million barrels per day last month, below its most recent peak of 10.5 million barrels per day set in June 2015. Russia produced nearly 10.9 million barrels per day in January, a post-Soviet record.

To be clear, the idea is to freeze production at those levels, not cut production. January levels of oil output would most likely keep global supplies running faster than demand for months to come, if not longer. There really wasn’t much incremental production expected from Russia, Qatar and Venezuela for the rest of this year, given these countries are already stretching their production limits.

Iran was absent from the Doha meeting, and no surprise why: The Islamic Republic is planning to ramp up shipments as it looks to regain market share lost after years of international sanctions. Over the weekend, Tehran sent its first cargo of oil to Europe since the end of sanctions last month, and announced plans to boost production and exports by 1 million barrels per day in 2016.

Oil prices jumped up at news of the meeting, which was seen as an effort to stem the oversupply that has been driving down crude oil prices and shaking world commodity and stock markets. But those gains were largely erased later after word that the four nations had agreed only to freeze output rather than cut it.

While the U.S. was on holiday yesterday stock markets across the globe rallied, with Japan’s Topix index soaring 8 percent and shares in Europe capping their biggest two-day gain in more than four years.

The Bank of Japan’s negative interest rates take effect today. The Bank of Japan, which announced the decision on Jan. 29, will now charge lenders 0.1% to park additional reserves, prompting banks to lend and businesses to spend and invest.

Bad loans at Chinese banks are at their highest level in nearly a decade. Nonperforming loans at Chinese banks surged 51% year-over-year to $1.2 trillion, hitting their highest level since June 2006. McKinsey Global Institute reports half of all loans are linked, directly or indirectly, to China’s overheated real-estate market; unregulated shadow banking accounts for nearly half of new lending; and the debt of many local governments is probably unsustainable.

The Bank of Korea kept policy on hold. South Korea’s central bank held its key interest rate at 1.50%, as expected. The Bank of Korea said the economies of both the US and the Eurozone appeared to have “weakened somewhat” and the Chinese economy continued to slow.

This was one of those days when bad news was good news. The thinking goes as follows. If the Japanese economy shrank by 0.4% in the final three months of 2015 and Chinese exports fell by more than 11%, policymakers will sit up and take notice. Central banks will stimulate activity by cutting interest rates, even when they are already negative, and by expanding their quantitative easing (QE) programs.

Right on cue, Mario Draghi popped up before the European parliament to administer a bit of his own soothing balm. ECB President Mario Draghi says the European Central Bank “will not hesitate to act” to boost its stimulus in March if it believes recent financial-market turmoil or lower oil prices could weigh further on consumer prices.

Most analysts now expect the ECB to cut its already-negative deposit rate — charged to banks for storing funds at the central bank — by at least another 0.1 percentage points in March, to minus 0.4%, and to accelerate its bond-purchase program, which is currently running at €60 billion a month.

The National Association of Home Builders reports homebuilder sentiment fell in February; the index was down 3 points to 58, from an upwardly-revised 61 in January. The sub-gauge that tracks current sales conditions also dropped three points, settling at 65 in February.

Royal Dutch Shell has surpassed Chevron as the world’s second-largest non-state oil company after completing its acquisition of the BG Group. Exxon Mobil remains the globe’s most valuable oil company with a market value of $337B, almost twice as big as Shell.

Moody’s Investors Service says Deutsche Bank will be able to make interest payments on its riskiest debt this year and in 2017, stating that the bank can make payments due in April and only “a major, unforeseen event” would prevent those due a year later.

How much did VW managers know about the company’s emissions scandal and when did they know it? Reuters reports that a high-ranking employee warned senior Volkswagen managers in May 2014 that U.S. regulators might examine car engine software as part of an investigation into pollution levels. The notice came in the form of a letter, which was sent more than a year before the German automaker’s public admission that its cars had been equipped with software to manipulate emission test results.

Freeport-McMoRan has agreed to sell an additional 13% stake in its Morenci mine to Sumitomo Metal Mining, Japan’s second-biggest copper producer, for $1 billion in cash. The deal will take Sumitomo’s share in the Arizona based open-pit copper mining complex to 28% from 15%.

Freeport expects to record a gain of about $550 million on the transaction and expects it to close in mid-2016. Morenci is Freeport’s biggest mine by production and the largest copper mine in North America. In short, Morenci is Freeport’s crown jewel asset with the biggest copper reserves and the longest mine life.

Mining companies have had a hard time lately, and copper prices have taken a big hit, but if you are trying to figure out what went wrong at Freeport McMoRan, look no further than the oil market. It wasn’t too long ago that Freeport was a miner. But in 2013, when oil prices were high, it bought McMoRan Exploration Co. and Plains Exploration for roughly $9 billion. In the end, the deal led to an explosion in Freeport’s debt, which stood at nearly $20 billion at the end of 2015.

Before the big oil deal, debt was only about $3.5 billion. Putting some perspective on those two numbers, debt as a percentage of the capital structure was 15% before the acquisitions and over 60% at the end last year.  The stock is down over 80% since the start of 2013. Rounding, to keep the math easy, Freeport went from a $40 billion-market-cap company to around a $7 billion cap. That’s more than $30 billion lost.

In the press release, Freeport-McMoRan stated: “This transaction represents an important initial step toward our objective to accelerate debt reduction and restore our balance sheet”. So, while most investors were thinking about whether Freeport-McMoRan will be able to sell its oil and gas assets, the company came up with a deal to sell a part of its key copper asset.

Freeport-McMoRan itself stated multiple times that good copper assets are very hard to find, but now the company is selling its copper assets to get rid of the debt created by the oil asset purchase. And what happens to Freeport McMoran if oil prices stay low for longer than expected? Will they end up selling off all of their valuable copper assets to pay for their bets on oil?

A slowdown in the Chinese economy has hit the mining industry hard. On Monday, ratings agency Moody’s cut Anglo American’s debt rating to junk, citing a deterioration in commodities market conditions; that follows a fourth quarter earnings report that showed a loss of $5.6 billion. Anglo outlined plans in December last year to restructure its portfolio to between 20 and 25 assets, down from 55 and cutting its workforce to about 50,000 people, an 85,000 reduction. Anglo American will streamline its asset portfolio to De Beers, platinum and copper, holding just 16 assets down from 55

Home security services company ADT Corp. has agreed to be purchased by affiliates of Apollo Global Management for about $6.9 billion. ADT shareholders are to receive $42 a share. That’s a 56% increase from Friday’s closing price of $26.87. The companies said ADT would be merged with Protection 1, which is also owned by Apollo, to create a business with nearly a third of North America’s electronic security products market. Apollo Global Management, which agreed last week to buy Apollo Education Group with other investors, acquired Protection 1 last year.

Apollo Global Management is part of a consortium of private equity investors who have bid on Apollo Education Group, the parent company of University of Phoenix, but it might not be a done deal. Schroders Plc, Apollo Education Group’s largest shareholder, plans to vote against a $1.1 billion takeover.

The U.K. firm, which spoke to Apollo Education’s management last week, said that based on the limited information it has access to, a price tag of $9.50 per share “significantly undervalued” the company’s assets. First Pacific Advisors LLC, the second-biggest investor in Apollo Education, with a holding of about 7 percent, told its clients that a deal valued at $1 billion “would be unquestionably rejected” by the firm.

According to a new 13F filing, Alibaba owned 33 million shares of Groupon at the end of the fourth quarter, a stake valued at $95 million. While the disclosure fuels speculation that Alibaba could try to acquire Groupon, it should be noted the company has taken stakes in many American firms without fully acquiring them.

HSBC has decided to keep its headquarters in Britain, rejecting the option of moving back to its main profit-generating hub in Hong Kong following a 10-month review. The unanimous decision by the bank’s board gives a boost to London’s status as a global financial center, which has faced challenges from tougher regulation since the financial crisis. Analysts had estimated the cost of moving out of London at up to $2.5 billion.

Stock repurchase plans have exploded over the last few years, thanks to cheap money following the Fed’s zero interest rate policy of the last few years. According to data from FactSet, over the 12-month period ending last September, $566 billion was spent on share repurchases, nearly 65% of net income.

In the trailing 12 months ending in the third quarter of 2015, 130 companies had a buyback to net income ratio that exceeded 100%. And that begs the question of how those companies are investing for future growth. It also begs the question of how individual investors can value earnings per share growth.

Buybacks can paint a deceptive picture of corporate growth because it shrinks share count and makes earnings per share look stronger than they really are. For example, if a company’s net income is $10 million and shrinks its outstanding shares by 5 percent to 19 million from 20 million shares, its reported EPS jumps to $0.53 from what would have been $0.50, yielding EPS that is 6 percent higher even though net income hasn’t changed at all.

Narayana Kocherlakota has resigned as President of the Minneapolis Federal Reserve Bank, and his successor is Neel Kashkari. Kashkari joined the Minneapolis Fed in January. Prior to joining the central bank, he was an executive at bond giant PIMCO and then lost a bid to become the governor of California. Kashkari worked at the Treasury Department under Henry Paulson before and during the financial crisis. Kashkari oversaw the Treasury’s Troubled Asset Relief Program; and before that he worked for Goldman Sachs.

Today, Kashkari made his debut speech as Minneapolis Fed President and he said: “While significant progress has been made to strengthen our financial system, I believe the [Dodd-Frank] Act did not go far enough,” adding that the nation’s biggest banks remain too big to fail and pose significant risk to the economy. Kashkari said that policymakers must give serious consideration to breaking up banks. Another idea is to turn large banks into public utilities “by forcing them to hold so much capital that they virtually can’t fail.”

Another idea is to tax leverage throughout the financial system “to reduce systemic risks wherever they lie,” he said. “Large banks must…be able to make mistakes —even very big mistakes— without requiring taxpayer bailouts and without triggering widespread economic damage.” Kashkari says the Minneapolis Fed will develop a plan to end too-big-to-fail banks and make it public by the end of the year.

Goldman Sachs Asset Management says the worst of the credit-market selloff is probably over and it’s now waiting for a sign that the situation has stabilized so it can plow cash back into U.S. junk bonds and other corporate debt. Credit went into meltdown this year as questions mounted around the efficacy of central bank policies and the ability of China’s government to stem capital outflows while maintaining economic growth.

The selloff pushed spreads on high-grade and junk-rated company bonds in the U.S. to levels unseen in at least 3 1/2 years. Goldman’s research suggests that once sentiment becomes less negative, the “magnetism” of the yields on offer will draw investors back. We’ve been through the worst of the adjustment and you should start looking for things to buy.

They’re not quite sure when you should start buying, maybe a month, maybe a little longer. Given that they’ve gotten 5 of their 6 beginning of year calls wrong so far, Goldman‘s credibility isn’t great. But in 2007, there was a bounce in subprime from March to May, and in 2008, the self-congratulatory “Mission Accomplished” post-Bear phase, which lasted till about July. So near-term moves are anyone’s guess. What we do know is that Goldman is happy to sell, so their message is buy.

The fourth-quarter earnings reporting season is winding down and it is shaping up as the worst quarter for earnings growth since the financial crisis. With 87% of companies in the S&P 500 having reported results for the last three months of 2015, overall earnings per share are slated to show a drop of 4% from a year earlier, making it the worst quarter for growth since the third quarter of 2009.

Per-share earnings have now fallen for three straight quarters; and even though estimates had been ratcheted lower, total per-share earnings beat expectations by the smallest amount since the second quarter of 2011.