Financial Review

When Issued

Sinclair Noe — May 2, 2017

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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

Anticipation of Consequences

Sinclair Noe — October 8, 2015

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DOW + 138 = 17,050
SPX + 17 = 2013
NAS + 19 = 4810
10 YR YLD + .05 = 2.11%
OIL + 1.86 = 49.67
GOLD – 6.80 – 1140.00
SILV – .39 = 15.77

This morning was full of anticipation: earnings season scheduled to kick off after the closing bell, the FOMC scheduled to release minutes from their September policy meeting, the House of Representatives scheduled to select a new Speaker of the House. Wisdom consists of the anticipation of consequences.

Earnings season is underway; the unofficial start is when Alcoa reports; ticker symbol AA, they lead the pack alphabetically, and then it just became tradition. The company reported adjusted third-quarter earnings of 7 cents a share on revenue of $5.57 billion. Analysts surveyed by FactSet had estimated earnings of 13 cents a share on revenue of $5.66 billion. Alcoa indicated that China’s industrial economy is slowing more rapidly than expected, as the aluminum producer slashed its production outlook for the country for cars, trucks and construction. And just like that, we have a trend.

Short interest has hit a peak. Short interest on companies listed on the New York Stock Exchange (NYSE) just hit a seven-year high, going back to the 2008 financial crisis. Short interest, or a bet that prices will drop, tends to increase as stocks are falling, and peak when they’ve bottomed; and so a peak in short interest is often seen as a contrarian indicator. Of course, short interest could still increase from these levels.

The Fed published the minutes of its September FOMC meeting. Most Federal Open Market Committee members still think an interest rate hike is possible this year. According to the Minutes from the September meeting, the Fed decided to wait on concerns about sluggish inflation and global economic growth, particularly in China. It also did not want to hike rates with inflation below its 2% target, as this could have hurt its credibility. The Fed remarked that the pullback in equities in August was likely because investors believed stocks were expensive.

Most thought that their goal of healthy labor market had been met or would be met by the end of the year. That view may be different now that the September jobs report, released after the Fed meeting, showed slowing growth. Fed officials decided it would be “prudent” to wait for more data to confirm the economy was growing at a moderate rate and labor market conditions had improved further.

House Republicans were scheduled to gather today to elect a new Speaker after John Boehner abruptly announced two weeks ago that he plans to retire from Congress at the end of October. House Majority Leader Kevin McCarthy was expected to be the front-runner for the Speaker’s job, but before the vote this morning, McCarthy dropped out of the race.

Yesterday  the Freedom Caucus, a group of about 40 of the House’s most conservative members announced it was throwing its support behind Rep. Daniel Webster, a Florida sophomore considered a longshot challenger to McCarthy. That comes three days after Jason Chaffetz, a three-term Utah Republican and Chair of the Oversight Committee announced he, too, was challenging McCarthy. A full House vote is scheduled for the end of the month. House Republicans tweeted that the leadership election would be postponed.

As the politicians sort through the chaos, there is still work to be done.  The Treasury Department has said it will exhaust its authority to borrow money to fund the government on Nov. 5. If Congress does not raise or suspend the government’s statutory borrowing limit, the government would default on its debt days later, risking economic chaos, soaring interest rates and plunging stock prices. Then, on Dec. 11, a stopgap spending bill expires. Without congressional action, much of the government will shut down. And don’t forget an October 29 deadline to replenish the Highway Trust Fund, which funds many construction projects across the country. With leadership elections occupying much attention, the window to get something done grows smaller.

Brazil is facing political and economic crisis; Brazil’s Federal Accounts Court has ruled President Dilma Rousseff manipulated government budget figures in 2014, and the nation’s highest court permitted a lawsuit to annul last year’s presidential election. The move paves the way for a possible impeachment, although any ouster would likely take months and has no guarantee of succeeding.

Jobless claims fell by 13,000 to 263,000 in the week ended Oct. 3, the fewest since July 18. The four-week average of claims, a less-volatile measure than the weekly figure, dropped to 267,500.

Revolving credit continues to show life, up a solid $4.0 billion in August for a sixth straight gain. Gains in this reading, which have been scarce this recovery, perhaps suggest that consumers are growing less reluctant to run up their credit cards.

The United Auto Workers union has reached a tentative deal with Fiat Chrysler Automobiles on a new four-year contract, averting a strike of the automaker’s U.S. operations. Local UAW leaders will gather in Detroit on Friday to hear details of the deal, while Fiat Chrysler’s 40,000 union workers will have to vote again to finalize the agreement. If the pact is ratified, the UAW will likely use it as a template for negotiations with General Motors and Ford.

A Congressional hearing into the Volkswagen emissions cheating scandal continued today. Volkswagen’s top U.S. executive, Michael Horn, repeatedly apologized but didn’t reveal details of who was behind the scam or who knew what, when.  Horn was grilled on questions he claimed to not have answers to and the lawmakers didn’t get the answers they were looking for. In Germany, police and prosecutors swooped in on Volkswagen factories and employees’ private homes in an early morning raid to gather evidence about who was behind the carmaker’s decision to cheat on diesel emissions tests.

Doubts have been raised over the level of Volkswagen reported death and injury claims in the U.S. over the last decade as the numbers have been so good as to make some industry experts question their validity. Already this year, Honda has been fined in the U.S. for underreporting claims and Volkswagen’s reported claims are significantly below the number Honda was fined for.

Dell, the world’s third largest PC maker, and the cloud storage company EMC Corp. are in discussions about a potential merger, for what could be one of the biggest technology deals in history. An agreement could be reached within a week, according to the New York Times. Of course, it’s also possible the talks won’t lead to any deal at all. It remains unclear if the two companies are discussing a full or partial takeover. EMC has a market capitalization of $50 billion, and it owns the software-development company Pivotal and enterprise-security firm RSA, as well as 80% of the virtualization company VMware.

After triggering a buy-sell clause in a deal with Michael Jackson’s estate, Sony appears ready to sell its half of the world’s biggest music publisher – Sony/ATV Music Publishing (a company worth about $2 billion). Sony and Jackson – and after his 2009 death, his estate – have jointly owned the company since 1995, each with a 50% stake. The publisher has a catalog that has copyrights to most of the Beatles’ songs, among many others including those by the Rolling Stones and Taylor Swift.

Just a few days after Google officially became a subsidiary of Alphabet, its new holding company, Alphabet has acquired the domain name abcdefghijklmnopqrstuvwxyz.com. Google announced its restructuring in August. At the time, Google unveiled its website with a URL of abc.xyz. A Google spokesperson said, “We realized we missed a few letters in abc.xyz, so we’re just being thorough.” The purpose of the new domain is unclear given that the page did not load on this morning.

Netflix is raising prices for the second time in two years. The company’s “standard” tier of service will increase by $1, to $9.99 a month, starting November 18. Prices for its “basic” and “premium” tiers remain the same.

Remember Etsy, the online site for handcrafted stuff? Amazon is looking to crush Etsy by announcing its own marketplace specifically targeted at factory free, handmade goods.

Urban Outfitters has asked salaried workers at the company’s home office to “volunteer” for extra weekend shifts at a new fulfillment center. The picking, packing and preparing that’s required of voluntary workers are, in fact, jobs that normally pay wages. Urban Outfitters says many wage employees offered to pitch in, but hourly-wage workers were excluded from the voluntary work because it might violate labor laws.

Bill Gross sued his former employer, Pimco, for improperly firing him. Gross says his ouster was driven by greed. Gross, a billionaire, is demanding a jury trial and damages of no less than $200 million.

Belarusian writer Svetlana Alexievich won the Nobel Prize in literature. Swedish scientist Tomas Lindahl, American Paul Modrich and U.S.-Turkish national Aziz Sancar won the Nobel Prize in chemistry on Wednesday for showing how cells repair damaged DNA, work that can be used to develop new cancer treatments. The Nobel Prize in medicine was awarded to Irish-born William Campbell, Satoshi Omura of Japan and Tu Youyou – the first-ever Chinese medicine laureate for discovering drugs against malaria and other parasitic diseases that affect hundreds of millions of people every year.

Takaaki Kajita of Japan and Arthur McDonald of Canada won the Nobel Prize in physics on Tuesday for discovering that tiny particles called neutrinos change identities as they whiz through the universe, proving that they have mass; by uncovering the “chameleon-like” nature of neutrinos, the laureates had solved a long-standing puzzle in particle physics that could alter our grasp of the cosmos. Tomorrow, the Nobel Peace Prize will be announced. Anticipation builds.

Financial Review

Summer Stall

Sinclair Noe — August 4, 2015

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DOW – 47 = 17,550
SPX – 4 = 2093
NAS – 9 = 5105
10 YR YLD + .06 = 2.21%
OIL + .80 = 45.97
GOLD + 1.40 = 1088.50
SILV + .08 = 14.68

Corelogic reports home prices rose 1.7% in June, and nationwide home prices including distressed sales, increased by 6.5% over the past 12 months. Fifteen states and the District of Columbia were the strongest since the series began in 1976. Only four states – Massachusetts, Connecticut, Louisiana and Mississippi – saw year-over-year declines.

Orders for goods produced in US factories rose 1.8% in June. Orders for durable goods, products meant to last at least three years, advanced 3.4% in June. Orders for nondurable goods edged up 0.4%.Factory activity has been stymied by a strong dollar and spending cuts in the energy sector after last year’s sharp plunge in crude oil prices. Tepid global demand also has weighed on manufacturing, which accounts for about 12 percent of the domestic economy.

Greece expects to wrap up its bailout deal with international creditors by Aug. 18, with the drafting of the agreement to begin Wednesday. The ongoing talks are reaching the end of the first phase, with the second phase to include the details of the final deal. The Greek stock market reopened yesterday, after being shut down for 5 weeks; yesterday the Athens Stock Exchange index closed down 16%.

Puerto Rico is in default. On Monday, the commonwealth paid just $628,000 of the $58 million it owed creditors, triggering the largest municipal default in US history. By a quirk of law, Puerto Rico is not allowed to seek protection through the bankruptcy courts, like we saw when Detroit failed to pay its debt. At the same time, it is unable to draw on support from the International Monetary Fund since it is not a sovereign country.

A group of 34 hedge funds is calling on Puerto Rico to shut down schools, saying it spends far too much money on education. Congress may help the territory through the passage of a bankruptcy bill, although that effort has faced opposition. The island has also floated the idea that the Treasury Department could guarantee its debt when it seeks to borrow in the market again – helping to lower the cost significantly.

A Pimco ETF that once tracked the performance of a much larger fund formerly managed by Bill Gross, may have violated federal securities laws. Pimco has disclosed that the SEC is considering filing an enforcement action over potential trading infractions that took place in the Total Return Fund. The fund may have improperly valued small stakes in non-agency Mortgage Backed Securities, leading to inaccurate disclosures about performance.

Investors pulled $2.5 billion from Pimco’s flagship fund in July, the 27th consecutive month of outflows from what used to be the world’s largest mutual fund. The July withdrawals from the Pimco Total Return Fund compare with $3 billion in redemptions in June, and $2.7 billion in May. The fund’s assets have plunged to $101 billion, from a high of $293 billion in April 2013. And the reason is probably not related to the SEC investigation, although that won’t help. Investors took out record amounts of money amid concerns about lackluster returns and rising interest rates; the whole bond sector has been weak and even though Pimco’s Total Return outperformed 93% of its peers, it still only managed to return 1.6% this year.

But there has been even more pain in the commodity sector. Since oil hit $107 a barrel last summer, energy companies have lost $1.3 trillion in valuation. State pension funds and insurance companies have also been hard hit. Investment advisers, who manage the mutual funds and exchange-traded products that are staples of many retirement plans, had $1.8 trillion tied to energy stocks in June 2014.

China represents a major source of commodity demand and China’s business cycle has been slowing. Meanwhile, the strong dollar exacerbates the declines in commodities, a trend that might continue if the Fed raises interest rate targets later this year.

China has unveiled more rules that make it harder for speculators to profit from hourly changes in stock prices. Under the new guidelines, short sellers must wait at least one day to cover their positions and repay loans used to buy shares. Chinese markets are up on the news. Shanghai +3.7%; Shenzhen +4.5%; Chinext +6.1%.

The DOJ is investigating billions of dollars’ worth of mirror trades made by Deutsche Bank on behalf of its Russian clients to move funds quietly out of the country, in violation of sanctions. Deutsche’s Russian clients bought stocks in rubles in Moscow, and then made simultaneous stock purchases in London in an attempt to launder money. The new inquiry adds to the wave of legal woes challenging the institution, which has been battered by multiple criminal investigations and resignations of top executives.

Shire Plc made an unsolicited offer to buy Baxalta for about $30 billion in stock to create a biotech company focused on rare diseases.  Baxalta was spun off by Baxter International last month. Shire said it hadn’t discussed the proposal with Baxter. Baxalta, based in Deerfield, Illinois, would benefit from a lower tax rate by being taken over by a U.K. company.

Microsoft now holds $108 billion offshore, a 17 percent increase over the past year. Microsoft crossed the $100 billion mark, making it just the second U.S. corporation, along with General Electric, to do so. Apple has more cash abroad than Microsoft, but it already has assumed for accounting purposes that it will pay tax on some of the stockpile and thus has less than $70 billion offshore that would affect earnings directly if repatriated.

Community Health  is planning to spin off 38 hospitals as well as its consulting unit into a separate company called Quorum Health. Community Health is the second largest publicly traded hospital operator in the U.S.

Apple’s stock dropped to a six-month low today, representing a 12% drop from February highs. Apple has traded lower for 10 of the past 11 sessions. Yesterday, Apple closed below its 200-day moving average, which many view as a dividing line between longer-term uptrends and downtrends. Today, the shares dropped 3.2% on the heaviest volume since January.

So, for now this looks like a technical correction for Apple. And there might not be a fundamental reason to lift Apple out of its slump. With 74.5 million iPhones sold in the December quarter and the iPhone so important to earnings, the worry is it will get tough for them to post year-over-year growth

AIG reported adjusted earnings that beat estimates by 17 cents; more than doubled its quarterly dividend; and announced a $5 billion addition to its stock buyback program. AIG’s results were aided by new investments in China.

Toyota reported record earnings, helped by lower expenses and currency gains. The Japanese automaker sales growth continued to be held back by a self-imposed production slowdown aimed at preventing quality problems.

Aetna’s second-quarter earnings jumped 33 percent and the health insurer raised its 2015 forecast again. Aetna gained members in both its Medicare and Medicaid businesses, and higher underwriting margins or improved profitability helped balance a jump in operating costs during the quarter. The nation’s third-largest health insurer easily topped Wall Street expectations.

Allstate was the biggest decliner in the S&P 500. The insurance company dropped 11.9 percent after reporting earnings that fell significantly short of analysts’ expectations. The company said its earnings dropped because of more frequent and more severe auto accidents.

After the close, Dow component Disney reported earnings rose a better-than-expected 11%, boosted in part because of the success of Marvel’s “Avengers: Age of Ultron” as well as the continued popularity of merchandise related to the “Frozen” film. Disney is up nearly 30 percent this year, and hit a new high this morning, but dropped about 1% in after-hours trade.

Arts and crafts site, Etsy said it had a net loss of $6.4 million, or 7 cents per share, wider than the loss of $3.2 million, or 8 cents per share, posted in the year-earlier period. Etsy dropped 13% in after-hours trade.

First Solar reported second-quarter earnings of $95 million, or 93 cents a share, compared with earnings of 4 cents a share a year ago. Revenue hit $896 million in the quarter, compared with $544 million a year ago. First Solar rallied 12% in after-hours trade.

A California company has produced a prototype car using 3-D printing technology. The 3D printed chassis is only 102 pounds and has the same strength and safety protection as a frame made out of steel. The car runs on natural gas powering a 700 horse power engine. They hope to have it on the road next year.

Last month, an Arizona company – Local Motors – announced plans for a 3D printed electric car; they also hope to go into production next year.

The Food and Drug Administration has approved the first prescription drug made through 3-D printing: a dissolvable tablet that treats seizures. Aprecia Pharmaceuticals said the FDA approved its drug Spritam for adults and children who suffer from certain types of seizures caused by epilepsy. The tablet is manufactured through a layered process using 3-D printing and dissolves when taken with liquid.

The lineup for the first 2016 Republican presidential debate was unveiled today. Actually there will be two debates on Thursday. The first debate. The first debate will be at 2PM Arizona time; it will feature candidates that didn’t make the cut, including: Rick Perry, Rick Santorum, Bobby Jindal, Carly Fiorina, Lindsey Graham, George Pataki, and Jim Gilmore. The main event will be at 6PM and it will feature the higher rated candidates, including: Donald Trump, Jeb Bush, Scott Walker, Mike Huckabee, Ben Carson, Ted Cruz, Marco Rubio, Rand Paul, Chris Christie, and John Kasich. In that order.

Financial Review

To Be Fair

Sinclair Noe — April 16, 2015

 

Podcast: Play in new window | Download (Duration: 13:19 — 6.1MB)

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DOW – 6 = 18,105
SPX – 1 = 2104
NAS – 3 = 5007
10 YR YLD – .02 = 1.88%
OIL + 12 = 56.51
GOLD – 3.70 = 1198.90
SILV – .04 – 16.37

Yesterday the ECB pledged to fulfill its €1 trillion-euro bond-buying program; today Eurozone government borrowing costs slid to new lows. Germany’s 10-year yield fell almost a basis point to 0.087% in early trade, while yields on all German government debt out to January 2024 were negative. Other notable levels include France’s 30-year yield, which fell below 1%, and the yield on two-year Portuguese bonds, which is on its way below zero.

The price of Greece’s three-year notes dropped the most since February and Greek corporate bonds also slumped. Credit-default swaps suggested there was a 79 percent chance of the country being unable to repay its debt in five years. Greece’s three-year yield is at a multiyear high, up 359 basis points at 27.7%. Expectations are low that Greece can reach a deal with its creditors at next week’s Eurogroup meeting. Standard & Poor’s has downgraded Greece’s credit rating to CCC+ with a negative outlook, citing a substantial risk of a default due to the country’s drawn out negotiations with its creditors.

Greece has been pushed a step closer to default and potential exit from the euro after one of its main lenders, the International Monetary Fund, all but ruled out allowing the cash-strapped country to delay repaying the €1 billion-euro due next month. Today, the head of the IMF, Christine Lagarde, said delaying the payments would be an unprecedented action that would only make the situation worse. Her comments followed a report that the Greek finance minister, Yanis Varoufakis, had sounded out the IMF over whether Athens could ask for a delay on the payments it is struggling to afford. Varoufakis denied asking for leniency. So Greece might default, that’s nothing new, but there are still plenty of options; some more realistic than others; we might not expect an enlightened solution to the Greek problem, but with any luck there will be something creative.

The Labor Department reports jobless claims increased by 12,000 to 294,000 in the week ended April 11. Fewer than 300,000 American workers filed applications for unemployment benefits for the sixth consecutive week. The total number of people currently receiving benefits was the lowest since 2000.

The pace of home construction rebounded slightly last month after being snowed out in February. Construction starts on new homes increased 2% in March at an annualized rate of 926,000.

Congressional leaders unveiled a bipartisan bill today that gives president Obama fast track authority to negotiate a trade deal with 11 other Pacific nations. The bill gives Congress the power to vote on the Trans-Pacific Partnership once it’s completed, but they could not amend the deal. It would essentially be an up or down vote. The legislation would also make any final trade agreement public for 60 days before the president signs it, and up to four months before Congress votes. If the agreement fails to meet the objectives laid out by Congress – on labor, environmental and human rights standards – a 60-vote majority in the Senate could shut off fast track trade rules and open the deal to amendments.

Former Fed Chairman Ben Bernanke has accepted an adviser role at a hedge fund. Bernanke will join Citadel Investment Group as a senior adviser.  Bernanke reportedly chose Citadel because it is not regulated by the Federal Reserve and he won’t be doing lobbying. So, in a way he’s gone from one hedge fund to another. And this is just another example of the revolving door between government and business, but in fairness, when Bernanke was Chairman of the Fed he couldn’t even refinance his mortgage.

Netflix  announced first quarter earnings late yesterday; net income fell to $24 million, or 38 cents a share, from $53.1 million, or 86 cents, as the strong dollar contributed to losses outside the U.S. But Wall Street isn’t paying attention to that, rather the focus is on subscriber growth; and Netflix added 4.8 million new subscribers worldwide.

Goldman Sachs posted the highest earnings per share in more than five years as all of its major businesses topped analysts’ estimates and the firm paid out a smaller portion of revenue to compensate employees. Net income surged 40 percent to $2.8 billion, and trading accounted for much of the increase. That means the improved returns come at a higher risk.

Citigroup reported its highest quarterly profit in nearly eight years. Citi has been slowly getting its house in order by cutting costs and shedding assets that are not critical to its main businesses. It has sold retail operations in many countries and shrunk its US branch network. Adjusted net income rose 16% to $4.8 billion, or $1.52 per share, beating average analyst estimates of $1.39 per share. Adjusted revenue fell 2% to $19.81 billion.

American Express reported a 6.3% rise in quarterly profit, helped by higher spending by card holders and an increase in net interest income.

UnitedHealth reported earnings and revenue that beat expectations. The company also raised its 2015 earnings forecast.

McDonald’s Japan forecast sharp losses. The 49%-owned subsidiary expects an operating loss of $210 million this year after a damaging series of food safety scandals, a costly french fry shortage, and fierce competition in the coffee sector. The operator of McDonald’s in Japan announced it would close 131 restaurants and renovate 2,000 more as part of its restructuring plan.

Yesterday more than 60,000 workers in 200 cities joined in what organizers claimed was the largest protest by low-wage workers in US history. The demonstrations, calling for a $15 per hour minimum wage, were the latest in a series of strikes that began with fast-food workers in New York in November 2012. The movement has since attracted groups outside the restaurant industry: Wednesday’s protesters included home-care assistants, Walmart workers, child-care aides, airport workers, adjunct professors and other low-wage workers. It also sparked international support, with people protesting low wages in Brazil, New Zealand and the UK.

Despite a slow start to IPO debuts so far this year, three big companies went public today. Etsy, the Brooklyn-based online marketplace for artisanal goods, opened for trading at $31 a share on the Nasdaq stock market. That is nearly double its initial offering price of $16 a share. Not bad for an e-commerce platform that so far hasn’t posted a profit and sells handmade items. Etsy is all about potential; it boasts more than 1 million active sellers, with access to 19.8 million active buyers on the site. And the company says it has achieved just shy of $2 billion in gross sales last year, with buyers or sellers in nearly every country.

Meanwhile, Virtu Financial, the big high-frequency trading firm, opened at $23 a share, about 21 percent higher than its $19 offering price. This is the second effort at going public in two years for Virtu. It postponed the stock sale last spring because of controversy about high-frequency trading prompted by the publication of Michael Lewis’s book “Flash Boys.” Virtu doesn’t help its case when they publish a chart showing one single day of losses in six years of trading activity; which is impossible unless you are gaming the trade.

The retailer Party City opened for trading at $20.40, above its offering price of $17 a share. Party City is going public three years after the private equity firm Thomas H. Lee Partners bought control of the nearly 70-year-old seller of party goods. So far this year, 38 companies have gone public in the US, about 60% fewer than at the same time last year.

Bombardier has hired UBS and Citigroup to advise on a potential IPO or sale of its rail unit, which could be valued at about $5 billion. Splitting off the rail unit would allow management to focus on turning around Bombardier’s aerospace division, which posted a 2014 loss of $995 million.

A New York federal bankruptcy judge has blocked most lawsuits against General Motors related to defective ignition switches. The judge ruled that plaintiffs could not sue the company for at least 84 deaths caused by an ignition fault because they predate GM’s 2009 bankruptcy.  The liability shield included in the 2009 agreement that lifted GM from bankruptcy should be allowed to remain in place, even though the company has acknowledged that many employees knew about the defective switch at the time but failed to alert owners of the cars that they might have a potential claim against the company.

The ruling shuts down not only lawsuits stemming from accidents that took place before July 10, 2009, but also most of the suits seeking economic damages for the loss in value of the defective cars. Lawyers had estimated that the economic loss claims potentially totaled $7 billion to $10 billion. Economic loss cases will be allowed to go forward, the judge ruled, only if they can be tied solely to actions by the post-bankruptcy company, known as New GM.

Last year the auto industry issued more recalls involving old models than ever before; more than 60 million vehicles have been recalled in the United States, double the previous annual record in 2004. In all, there were about 700 recall announcements last year, an average of two a day, affecting the equivalent of one in five vehicles on the road.

WikiLeaks has published 30,287 documents and 173,132 emails stemming from last winter’s cyber-attack on Sony Pictures Entertainment. The hack was reportedly initiated by North Korea in response to the studio’s decision to release “The Interview,” a comedy that centered on an assassination attempt on North Korean leader Kim Jong-un. That resulted in a series of embarrassing revelations, exposing correspondence between top executives and producers that ultimately led to the ouster of studio chief Amy Pascal. The correspondence released today exposes Sony’s political fundraising and its lobbying activities on behalf of anti-piracy. In particular, WikiLeaks cites emails detailing how members of the studio set up a “collective” in order to get around campaign donation limits and send money to New York Governor Andrew Cuomo, because of his support for state film and television tax incentives and work cracking down on piracy.