Financial Review

Consuming Oxygen

Sinclair Noe — May 10, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 32 = 20,943
SPX + 2 = 2399
NAS + 8 = 6129
RUT + 7 = 1399
10 Y + .01 = 2.41%
OIL + 1.45 = 47.33
GOLD – 2.30 = 1219.80

President Trump’s stunning firing of the FBI director, James Comey, injected another volatile ingredient into the partisanship already engulfing the capital and threatened to overwhelm Republican efforts to turn their government control into legislative success.

The abrupt decision has investors raising questions about whether the president’s pro-growth, tax-cutting reforms will stall as the focus shifts to why Comey was dismissed while the FBI was investigating possible Russian ties to Trump’s campaign. Every piece of Trump’s agenda just became harder to get through Congress. Wall Street is shallow that way.

Whoever Trump nominates as Comey’s replacement will face a brutal confirmation hearing before the Senate Judiciary Committee. It will get saturation-level media coverage. There are legal implications that will take time to fully unravel. The Comey dismissal is going to consume most of the oxygen in Washington for the foreseeable future.

As US equity markets continue to price to perfection a grab bag of promised corporate giveaways, a group of researchers at the International Monetary Fund (IMF) had the temerity to ask last month – what could possibly go wrong.

In their April 2017 “Global Financial Stability Report,” IMF researchers methodically pare back the rosy lenses of the stock market and focus on the warning signs in the U.S. corporate debt market. Two findings have the power to potentially jolt the equity markets out of their euphoric stupor. The researchers note:

“The [U.S.] corporate sector has tended to favor debt financing, with $7.8 trillion in debt and other liabilities added since 2010…”

“The number of [U.S.] firms with very low interest coverage ratios—a common signal of distress—is already high: currently, firms accounting for 10 percent of corporate assets appear unable to meet interest expenses out of current earnings.

This figure doubles to 20 percent of corporate assets when considering firms that have slightly higher earnings cover for interest payments, and rises to 22 percent under the assumed interest rate rise.

The stark rise in the number of challenged firms has been mostly concentrated in the energy sector, partly as a result of oil price volatility over the past few years. But the proportion of challenged firms has broadened across such other industries as real estate and utilities.

The report acknowledges that equity markets “have taken a relatively benign view” of the downside risks and warns that there could be a “swift repricing of risks in the event of policy disappointment.”

The Senate rejected efforts to roll back an Obama-era rule limiting methane emissions from energy production sites on federal land. The vote over the greenhouse gas was close — 49-51 — with Republican Sens. John McCain, Lindsey Graham and Susan Collins coming down against the resolution.

In a statement, McCain said he voted against the repeal because the effort made use of a legislative tool called the Congressional Review Act, which would have blocked similar regulations in the future. The greenhouse gas rule is intended to curb a practice called flaring, during which energy producers burn off natural gas that they can’t process or sell. That process releases methane into the atmosphere.

Oil prices rose more than 3 percent, as inventories suffered the biggest one-week drop this year. The US Energy Information Administration said crude inventories fell 5.2 million barrels last week. Gasoline and distillate stocks also fell. Production rose, however, and gasoline demand over the last four weeks was 2.5 percent lower than at the same time a year ago.

Prices also found support in comments by Algeria’s energy minister that Algeria and Iraq favor extending global supply cuts when OPEC meets this month. Saudi Arabia’s energy minister went public with his support not only for an extension of the OPEC cuts for another six months, but he also dangled the possibility of an extension into next year.

Per the just released Monthly Treasury Statement, in April the US Treasury collected $456 billion and spent $273 billion, resulting in a budget surplus of $182 billion, higher than the $179 billion expected, and well above last year’s $106.5 billion surplus.

In a surprising jump in government revenues, receipts rose 3.9% y/y in April while outlays plunged a whopping 17.7% y/y. The increase in the surplus is due entirely to calendar quirks and a shift in the timing of some corporate income tax payments.

On Friday, Treasury Secretary, Steven Mnuchin, will be on the world stage for the start of two days of meetings in Italy, with finance ministers from the G7: The United States and six other major economies — Canada, Germany, Japan, Britain, France and Italy. The talks come amid several geopolitical uncertainties.

The issue of trade was at the forefront in March, when Mnuchin and leaders of the world’s 20 largest economies met in Germany. The tough talks ended in the group deciding to drop longstanding pro-trade language from a joint agreement. Hoping to bypass another row this week, Italian officials said they would keep trade off the official agenda. Italy is the current president of the G7 and has the power to set the agenda of the finance ministers’ meetings.

Aetna, one of the major five public health insurers in the US, announced it will remove its products from the Obamacare exchanges in Nebraska and Delaware. The move comes after Aetna announced it was pulling out of Iowa and Virginia over the past few weeks, citing losses sustained in the Affordable Care Act’s individual insurance exchanges.

The moves mean Aetna has completely removed itself from every Obamacare exchange for now.

Tesla opened up orders and announced pricing information for its Solar Roof product. The company also launched a calculator to show people how much it would cost to replace their roof with a Tesla Solar Roof. It uses information like the size of the roof, the average local price of electricity, and how much sunlight a neighborhood receives during a year to calculate the price.

Tesla’s Solar Roof uses both solar and non-solar tiles, which allows consumers to choose how many solar tiles they need based on their home’s electricity consumption. Tesla’s estimate of $21.85 per square foot is based on a roof that’s 35% solar tiles.

To help put the cost into perspective, a Tesla Solar Roof for a home needing 3,000 square feet of roofing would cost more than $65,000 if 35% of the tiles were solar. Per Consumer Reports, a slate-tile roof for a home the same size would cost about $45,000, and an asphalt roof would be about $20,000. Tesla said the cost would be offset by the value of energy the tiles produce.

Sears Holdings Chief Executive Officer Edward Lampert blasted the media for “unfairly singling out” the company over the past decade and blamed “irresponsible” coverage for the retailer’s woes. Sears, once the largest US retailer, warned investors in March there was a chance it may not be able to continue as a going concern after years of losses and declining sales.

But sure, let’s say the reason is the media and not pathetic management that has not been able to capitalize on an iconic brand name, and failed to modernize. Lampert, a hedge fund investor who is rarely seen in public, kicked off his appearance at an annual shareholders’ meeting at Sears’ headquarters in Hoffman Estates with a slideshow of headlines about the company’s financial distress, dating back to 2008.

Sears has not reported a profit for six years, which Lampert compared to Amazon.com’s early unprofitable growth. There is a pretty big difference between Sears and Amazon. Sears has not reported a profit for six years. Sears has been closing stores, selling off assets like its Craftsman brand and borrowing money from Lampert to survive.

Amazon plowed profits back into the company as it created and dominated in e-book readers and voice assisted speakers, and state of the art distribution centers and logistics. Amazon also built a new division that handles cloud computing, one of its fastest growing divisions.

Sears never figured out how to turn its print catalogue into an online catalogue. Sears has almost no online presence. Earlier this year, because of new rules from the Securities and Exchange Commission, Sears was required to disclose that there is “substantial doubt” about the retailer’s “ability to continue as a going concern.”

So today Lampert ranted that the media is to blame for the problems with Sears and he predicted people will look back and wonder how they missed the Sears’ turnaround, which he said would be driven by the Shop Your Way loyalty program. Sure, that’s the ticket Eddie.

Snapchat’s user growth slowed to its lowest pace in years, as parent company Snap Inc. missed Wall Street expectations for its first quarterly earnings as a public company on Wednesday, sending its shares plunging more than 20% in after-hours trading. Snap added 8 million new daily users in the first three months of the year, representing year-on-year growth of 36%. Now last year, Snapchat was growing its DAUs by 52%.

Shares of Whole Foods Market rose by as much as 3.5 percent Wednesday after the company named five new board members and a CFO, and released fiscal second-quarter earnings that met expectations. The grocery store chain posted adjusted earnings of 37 cents per share on $3.74 billion in revenue. Whole Foods had been expected to report earnings of 37 cents per share on $3.73 billion in revenue.

Same-store sales were down 2.8 percent for the quarter — a shallower drop than Wall Street had expected. It was the seventh consecutive quarter of negative comparable store sales.

Financial Review

Java for All

Sinclair Noe — May 26, 2016

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

Subscribe: iTunes | Android | RSS

DOW – 23 = 17,828
SPX – 0.44 = 2090
NAS + 6 = 4901
10 Y – .05 = 1.82%
OIL – .23 = 49.33
GOLD – 4.50 = 1220.50

The National Association of Realtors said its pending home sales index, based on contracts signed last month, increased 5.1 percent to 116.3, a level not seen since February 2006. Contracts rose in three of the nation’s four regions, with the West reporting an 11.4 percent jump.

Orders for durable or long-lasting goods made in the U.S. jumped 3.4% in April but a key measure of business investment fell again. The increase in new orders last month was powered by a spike in demand for commercial planes. Those orders accounted for 85% of the increase in April bookings.

Typically, large planes are built or delivered five years after they are ordered. Orders for new autos and parts also rose nearly 3%. Stripping out transportation, durable-goods orders increased a modest 0.4% in April after a 0.1% advance in March.

In April, orders for a category known as core capital goods that’s viewed as a proxy for business investment declined 0.8%. They’ve fallen in five of the past six months. While much of the slowdown does seem limited to the oil and gas industry there isn’t much in today’s report that shows investment in other business sectors.

The number of Americans filing for unemployment benefits fell last week, moving back to near cycle lows. Initial claims for state unemployment benefits declined 10,000 to a seasonally adjusted 268,000 for the week ended May 21. Claims for the prior week were not revised. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 2,750 to 278,500 last week.

Claim levels are at 40 year lows, with the normal range around 350,000 weekly initial unemployment claims of levels seen historically during times of economic expansion. The rolling averages generally have been equal to or under 300,000 since August 2014.

WTI crude popped through the $50 a barrel level this morning. Prices are now up about 80% from February, when they hit a 12-year low. The latest bullish news was a greater-than-expected inventory build reported by the EIA yesterday. Producers inside of OPEC – Iran in particular – are set to increase output, and wildfire-related Canadian production declines are coming to an end.

St. Louis Fed president James Bullard says inflation could be on the rise. “In short, labor markets are relatively tight,” Bullard said while speaking in Singapore. “This may put upward pressure on inflation going forward.” Bullard noted that market expectations remained misaligned with the Fed’s projections.

Also today, Federal Reserve Governor Jerome Powell laid out a clear argument for raising interest rates while stressing that global risks, including the Brexit vote in the week following the next meeting of the U.S. central bank, meant there was no reason “to be in a hurry.” Powell said a rate hike might be appropriate fairly soon and any hikes should be gradual.

Federal Reserve Chair Janet Yellen is due to speak tomorrow, just a bit before the bond market closes for the holiday weekend. Yellen could use the appearance to signal that the Fed’s meeting next month is in play, or she might not mention rate hikes. Stay tuned.

Of course, the Fed has 2 mandates: maximum employment and price stability. On the employment front they are close, with the unemployment rate at 5%; there is still plenty of slack and much more room for wage growth – but close.

On the price stability mandate, the Fed’s biggest concern is likely oil prices, which are up significantly from February, and will impact almost all other parts of inflation throughout the economy. The Fed does not control oil prices, but they might not have to. Higher prices could encourage more producers to turn up output, particularly the more cost-sensitive U.S. shale producers, and present the world with another wave of oversupply.

Japan’s prime minister is warning of another “Lehman-scale crisis.” Speaking at the G-7, Japanese Prime Minister Shinzo Abe compared the current situation to the global financial crisis of 2008-2009. Abe noted the 55% drop in commodities prices since 2014 and said fiscal spending was necessary to combat a global slowdown. Abe presented data showing global commodities prices fell 55 percent from June 2014 to January 2016, the same margin as from July 2008 to February 2009, after the Lehman collapse. The summit is set to conclude Friday.

Bayer might receive financing from the ECB to help fund its possible takeover of Monsanto, according to a Reuters analysis of the terms of the ECB’s bond-buying program. The ECB can buy bonds issued by companies that are based in the euro area, have an investment-grade rating and are not banks, provided that they are denominated in euros and meet certain technical requirements. The ECB bond buying program is running out of sovereign debt and now they are looking around new sources. While the purpose for the bonds is not among the criteria set by the ECB, the bank will start buying corporate paper on the market and directly from issuers next month.

The jury is in and Google has won a $9 billion battle, killing Oracle’s claim to Google’s Android phone business. Oracle contended that Google needed a license to use its Java programming language to develop Android, the operating system in 80 percent of the world’s mobile devices. Jurors in San Francisco federal court rejected that argument and concluded Google made fair use of the code under copyright law.

A decision against Google had the potential to give significantly more weight to software copyrights, and could have resulted in lawsuits against any number of startups. Oracle started the trial at an advantage; Oracle won a 2012 verdict that Google infringed its copyrights, but that jury couldn’t agree whether it was justified under the fair use legal doctrine. Google claimed it was within its rights to use the organization and labeling of the Java code to develop Android because programmers were already familiar with them. Google’s message was that Oracle shouldn’t own programmers simply because they had taken the time to learn Java.

Microsoft and Facebook have announced plans to build the highest capacity data link between the US and Europe. The subsea cable will run 6,600 kilometers between Virginia in the US and Spain with an expected capacity of some 160 terabytes per second of data. The project will be managed by Spanish telecommunications firm Telefonica, which will sell any unused capacity on the cable to other customers.

Tech companies typically have to pay telecommunications firms to use their cables, which can be costly. And the large amounts of data moving across those lines can make them slower. It is not the first subsea cable to be sponsored by a tech company. In 2014 Google paired up with five telecommunications firms to build a subsea cable across the Pacific Ocean. Construction starts in August and will take over one year to complete.

French workers are protesting labor law reforms. The 35-hour week remains in place, but as an average. Firms can negotiate with local trade unions on more or fewer hours from week to week, up to a maximum of 46 hours. Firms are given greater freedom to reduce pay. The law eases conditions for laying off workers, strongly regulated in France. Employers given more leeway to negotiate holidays and special leave, such as maternity or for getting married. These are currently also heavily regulated.

So, French workers are protesting; it started with oil refinery workers; now one-third of France’s 12,000 gas stations are dry. Demand is three times normal levels because of panic buying. Electricity workers have joined in the strike. France’s largest power company has reduced nuclear power output by more than 5,000 megawatts, roughly 10% of demand. Flights at major French airports have been delayed or cancelled. Train service has been curtailed.

Here in the US we have our own problems with transportation. Airport screening delays have caused more than 70,000 American Airlines customers and 40,000 checked bags to miss their flights this year, and that’s just American Airlines. The delays have several causes, including cheaper airfare driving record numbers of travelers to the skies and a miscalculation on part of the TSA concerning the number of travelers who would sign up for a pre-clearance program.

The airlines, too, may have a hand in what’s happening, as travelers opt to carry their bags on flights rather than check them in order to avoid fees. Lawmakers have authorized the TSA to take steps to deal with the influx of flyers, but it remains to be seen if the agency can react quickly enough to accommodate what is expected to be a record number of passengers this summer.

The $34 million that Congress just sent over to the TSA to use for overtime to boost staffing wouldn’t cover the combined salaries of three major airline executives at Delta, United and American. The airlines say the problem is not baggage fees. But really, the only way to prove that is to drop the baggage fees and see what happens. At least then, if the lines are still long, the people in the lines might not be so cranky.

We’ve all heard the stories of the massive recalls of Takata air bag inflators, the largest-ever U.S. safety recall. You may be wondering how Takata can stay in business; it seems Takata is wondering the same thing. Takata named an outside committee in February to lead an overhaul and they hired investment bank Lazard to counsel on the financial restructuring. Takata is in bailout talks with a number of potential investors including private equity firm KKR, which might take a 60 percent stake. I don’t know why they would want a 60 percent stake in Takata.

Financial Review

The Last Century of Fossil Fuels

Sinclair Noe — June 8, 2015

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

Subscribe: iTunes | RSS

DOW – 82 = 17,766
SPX – 13 = 2079
NAS – 46 = 5021
10 YR YLD – .02 = 2.38%
OIL + .14 = 58.28
GOLD + 1.40 = 1174.70
SILV – .17 = 16.06

The Standard & Poor’s 500 closed out 2014 at 2,058, and since then it has been trading in a fairly tight range, from about 2050 to 2130. It’s been 3 1/2 years since the broad stock market suffered a 10% drop. At some point the market will either break out or breakdown, but we didn’t see any real indications today. Even though the major market indices have hit record highs this year, the Dow, with today’s loss, is in negative territory year to date.

In contrast, international markets have been anything but boring. Germany’s DAX entered correction territory, down 10%, as European stocks declined on continuation of Greek debt negotiations. And Wednesday could be a very interesting day for Chinese stock exchanges, where the Shenzen has been on a run; up 50% year to date. Index provider MSCI will announce tomorrow whether to include China’s domestic markets in its widely followed emerging-market and global indexes. Rival index provider FTSE Group has already inaugurated transitional indexes for emerging markets to include Chinese A-shares, while S&P Dow Jones Indices said it would likely add the shares to its indexes in September. The new step will add a piece of a market that has some of the world’s highest valuations and volatility to millions of foreign investors.

If you thought the bull market would fix pensions by now, you’d be wrong. Half a trillion dollars wrong. Pensions and other post-employment benefits of the giant companies in the Standard & Poor’s 500 are underfunded to the tune of $584 billion; that’s 44% worse than the $405 billion underfunding in 2013. According to a report released by S&P, just 75% of the total obligations are covered, down from 81% in 2013. And just 4.5% of pension and post-employment benefit plans are fully funded, down from the 8.4% that were in 2013.

Total assets set aside for pensions and post-employment benefits plans grew just 3.5% in 2014. The trouble is that obligations shot up 11.3% to a record $2.34 trillion. That’s a mess. Pensions are still reeling from the 37% hit they took amid the 2008 market meltdown. Most of the mess centers around the low growth of pension investment asset values compared to the skyrocketing of the obligations. The underfunding of corporate pensions hit $389 billion in 2014 – which is 9.7% worse than the shortfall in 2011 – even though the market has shot up by 10% those years. S&P says pensions are the most underfunded since the record high in 2012 at $452 billion.

Leaders from the G7 industrial nations met in the Bavarian Alps for a second day of a summit overshadowed by Greece’s debt crisis and ongoing violence in Ukraine. On Sunday, leaders focused on global growth. Today, German Chancellor Angela Merkel urged G7 leaders to commit to tough goals to cut greenhouse gases. The G-7 nations agreed to cut greenhouse gases by phasing out the use of fossil fuels by the end of the century. Merkel said the leaders had committed themselves to the need to “decarbonize the global economy in the course of this century”. They also agreed on a global target for limiting the rise in average global temperatures to a maximum of 2C over pre-industrial levels, but they did not actually sign off on immediate or binding agreements on emission targets.

In a 17-page communique, the G7 leaders agreed to back the recommendations of the IPCC, the United Nations’ climate change panel, to reduce global greenhouse gas emissions at the upper end of a range of 40% to 70% by 2050, using 2010 as the baseline. Reacting to the summit’s final declaration, the European Climate Foundation described the G7 leaders’ announcement as historic, saying it signaled “the end of the fossil fuel age” and was an “important milestone on the road to a new climate deal in Paris”. That may be a bit of an overstatement, but we are seeing a shift in thinking about fossil fuels, and there are some important implications.

The G-7 meeting is a small step with no binding agreements, it will be followed in a month or two by an encyclical published by Pope Francis dealing with climate change, and then the IPCC summit in Paris later this year, which might actually result in binding agreements.

There were other issues at the G-7 summit. Merkel warned that time is running out for a deal to keep Greece in the Eurozone; she said Europe would show solidarity but only if Greece “makes proposals and implements reforms”. The European Commission is asking for tax increases and cuts in civil servants’ salaries and pensions, before the next €7.2 billion-euro tranche of bailout money can be released. But Greece has robustly rejected these proposals without some form of debt restructuring agreement in return.

President Obama reportedly said that “the strong dollar posed a problem”. A senior White House official denied the report, saying the president was just reiterating his belief that global demand needs to strengthen and G-7 members need to step up use of policy to drive growth. Obama said at a news conference following the G-7 meeting in southern Germany. “Don’t believe unnamed quotes, I did not say that. I make a practice on not commenting on the daily fluctuations of the dollar or any other currency. ”

Apple is hosting its annual developers’ conference today. Apple introduced a streaming music service it developed with Beats Electronics, the company it acquired for $3 billion last year. The service, called Apple Music, allows users to search for songs and stream them over the Internet, similar to Spotify. It also makes recommendations for other playlists and albums for people to listen to. The service costs $10 a month or $15 a month for up to six family members. The new Apple Music service will be offered alongside an overhauled version of iTunes Radio, the Pandora-like radio service it introduced in 2013. The service will now include live stations.

The Apple developers’ conference is a big event but the streaming music service seemed to miss the “wow” factor. The conference also dealt with upgrades to the operating system, upgrades to the Apple watch and Apple pay, plus improvements to the mapping system. Apple is known for the next big thing, but it didn’t seem to happen today.

Google’s new mobile phone payment service, Android Pay, will not collect any transaction fees from credit card companies, possibly putting pressure on Apple to drop or lower its charges for Apple Pay. Visa  and MasterCard recently standardized their “tokenization” card-security service and made it free, preventing payment services, such as Google, from charging fees to issuers.

Samsung Electronics plans to offer a mobile payments function in a smartwatch to be launched in the second half of the year. Samsung Pay mobile payments service, which supports NFC technology, will become available for “select partners” in July.

Panasonic plans to send hundreds of its employees to Tesla’s Gigafactory in Nevada to prepare for production of lithium-ion batteries for electric cars, which it confirmed will start sometime next year. Panasonic also said it expects to invest nearly $500 million in the current fiscal year through March in its automotive business, which includes the Gigafactory and a joint development project with Spanish auto parts maker Ficosa International.

Deutsche Bank purged its leadership on Sunday, appointing John Cryan as chief executive to replace co-CEOs Jürgen Fitschen and Anshu Jain. Cryan has been on the bank’s supervisory board since 2013 and was a former chief financial officer of UBS. Deutsche Bank failed a U.S. stress test of large financial institutions in March and has been the subject of hefty penalties in recent months. Back in April, Deutsche Bank settled charges leveled by U.S. and British federal authorities, agreeing to pay $2.5 billion in fines and pleading guilty to U.S. charges that it manipulated a key interest rate. Deutsche Bank, which also is ensnared in a currency-rigging scandal, is awaiting penalties for its role in fixing prices in currency markets too.

General Electric is close to an agreement to sell its private-equity-lending unit to Canada’s largest pension fund, marking a major step in the industrial giant’s retreat from banking, in one of the biggest finance takeovers since the credit crisis. The deal, which would include assets of more than $10B, may be announced by GE and the Canada Pension Plan Investment Board as soon as today.

McDonald’s posted a smaller-than-expected decline in worldwide sales at established restaurants in May. Worldwide sales fell 0.3%, the 12th consecutive month of declines. Sales in the U.S. fell more than 2% as fewer customers and increased competition ate into demand.

Sears Holdings’ reported a narrower-than-expected adjusted loss of $2 per share in its first quarter. Revenue continued to disappoint with sales falling more than 25% from a year earlier. The big problem is that Sears is burning through cash; holding $286 million in cash at the end of the quarter, down from $4.4 billion at the start of 2006. The company has suffered more than $7 billion in net losses since 2012.

Wednesday, June 04, 2014 - An Airtight Defense

Financial Review with Sinclair Noe

DOW + 15 = 16,737
SPX + 3 = 1927 (record close)
NAS + 17 = 4251
10 YR YLD + .01 = 2.60%
OIL - .27 = 102.39
GOLD – 1.30 = 1244.60
SILV - .01 = 18.90

Eight times a year the Federal Reserve gathers economic updates from the 12 districts and publishes the information about two weeks before its FOMC meetings. The data is published in a beige folder, and that is why it is called the Beige Book, although it might actually refer to the writing style. Anyway, economic activity expanded all across the country, with most districts reporting moderate or modest growth. Consumer spending expanded across almost all districts. Tourism was another bright spot and manufacturing activity expanded across the country. Home sales were described as “mixed across the country” even as home prices continue to rise. Labor markets were described as steady. Inflation was tame, with a slight exception for higher food prices in some areas.

In other words, when the Fed meets in a couple of weeks, there won’t be any big changes in monetary policy.

The Institute for Supply Management said its services index rose to 56.3%, its highest level since August, from 55.2% in April. That’s the number and they’re sticking with it.

The US trade deficit grew to $47 billion in April, up from $44 billion in March. Exports slowed in April, down slightly to $193 billion. Imports, meanwhile, surged by nearly $3 billion to $237 billion, mainly driven by increased spending in consumer goods and cars.

A new survey from the MacArthur Foundation finds 70% of Americans still feel a housing crisis remains today and the worst is yet to come; that’s down from 77% a year ago, but still it doesn’t look like there’s much confidence in a housing recovery. Half the respondents think housing represents a good long term investment, while 43% says that’s not the case; two-thirds say it’s harder to build wealth through home ownership than 20 or 30 years ago. Over half of Americans, 52%, have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years.

In line with the survey on housing, a new poll from CNN and ORC International finds 59% of adults think the American Dream has become impossible for most to achieve, up from 54% in a poll conducted in 2006. What’s more, 63% of those surveyed believe most children in the US will grow up to be worse off than their parents. While most Americans say they’re better off than the prior generation, they also feel gains in living standards are grinding to a halt. One problem is that the survey didn’t define exactly what the American Dream is supposed to be.

ADP, the payroll processing firm, issues a monthly payroll report ahead of the Labor Department each month. The ADP report is not always an accurate predictor of the government report but it is still closely watched for any hints. ADP says the economy added 179,000 private sector jobs in May; that’s significantly below the consensus estimate of 200,000 to 215,000 jobs for the Friday jobs report.

According to the latest revisions from the Labor Department, productivity in the first quarter declined at a 3.2% annual rate, the worst in six years, as workers spent more time on the job producing fewer goods during an unusually stormy weather.

A new research study published today from the Economic Policy Institute shows a sharp disconnect in the late 1970s between the overall productivity of the US economy and wage gains for the average worker. Normally, when workers make more things during a work day, they get paid more for that day’s work. From 1948 to 1979, both hourly wages and productivity roughly doubled. But from 1979 to 2013, productivity rose 65% while average hourly compensation rose just 8%; those at the bottom and middle of the income ladder saw little of those gains.

Wages for everyone at or below the 30th percentile of the income distribution have essentially been flat, while wages for the poorest 10% of workers have fallen during that time period. At all income levels, women earn less on average than men do.  Most wage growth has flowed to the top 1% of earners, posting a 153% increase in wages. Since wages for the lowest income group have fallen while wages at the highest income group have grown, income inequality has also increased.  Piketty was right.

The S&P 500 index hit another record high close today, and even at that it’s just up about 5% year to date. The best performing market year to date is in Dubai; posting a 56% return since the start of the year and posting a 117% return for the past 12 months. The strongest S&P 500 subsectors this year include oil & gas equipment and services, which is up 17%; oil & gas exploration and production, up 15%; real estate investment trusts, up 15%; natural gas utilities, up 21%; and electric utilities, which have risen 14%, largely on the back of some big mergers.

The top performing stocks in the S&P year to date include: Forest Labs, up 60%, a takeover target; Nabors Industries, a contract oil driller based in Bermuda is up 54% year to date; Electronic Arts, the video game developer is up 51%; Keurig Green Mountain has returned 50% this year, this is the coffee company that makes those little single serve containers of coffee; Newfield Exploration, an oil and gas exploration and development company out of Texas is up 49% since the start of the year; Delta Airlines is up 47% after rejoining the S&P 500 index; and Pepco, the Washington DC based utility is up 47% YTD, after agreeing to be acquired by Exelon. Probably nobody picked those stocks as the top performers at the start of the year.

After the close of trade today, comes word that Sprint is nearing an agreement price to acquire T-Mobile for about $40 a share, or around $32 billion, a 17% premium to the closing price today. There will be regulators to deal with. An announcement and an actual deal are still down the road. If you are unhappy with the service and price you pay for your mobile phone, this won’t help.

A federal appeals court has overturned a decision by Judge Jed Rakoff to reject a federal settlement deal with Citigroup. Judge Rakoff had considered the Citigroup-SEC settlement to be little more than a slap on the wrist. The original case accused Citigroup of duping investors into buying tainted CDO’s, Collateralized Debt Obligations. The bank agreed to pay $285 million to settle the civil fraud case, without admitting wrongdoing.

Judge Rakoff called the fine “pocket change” for the bank and said the settlement deprived the public “of ever knowing the truth in a matter of obvious public importance.” And now the court of appeals decision is going to rein in judicial discretion even more. The ruling essentially says that a judges job is not to search for the truth.  One small victory for Judge Rakoff: the SEC last year reversed its longstanding yet unofficial policy of allowing companies to neither “admit nor deny wrongdoing,” signaling that it would force admissions in particularly egregious cases.

If only the SEC had the backbone to pursue a particularly egregious case.

The G-7 or Group of 7 is meeting today and tomorrow; it used to be the G8 until Putin invaded Crimea, and so Russia was kicked out of the clubhouse. A draft of the G7 communique calls on Russia to "accelerate withdrawal of military forces from the eastern border with Ukraine" and "exercise its influence among armed separatists to lay down their weapons".

More important is how Europe will deal with energy security as the continent relies on Russia for about a third of its oil and gas, a fact that gives Putin considerable leverage over the EU. The G7 draft communique says: "The use of energy supplies as a means of political coercion or as a threat to security is unacceptable." Euro leaders say they are committed to diversifying energy sources away from Russia, but it won’t happen overnight. Complacency on the energy front seems like a really big mistake.

As the G7 meeting wraps up, the various leaders will head to France on Friday to mark the 70^th anniversary of the D-Day invasion at Normandy. Putin will be there. No negotiations or diplomatic level talks are planned but it should make for some interesting photo ops.

And before the D-Day anniversary there will be an uncomfortable dinner between President Obama and French President Hollande, who will make the case that the French bank, BNP Paribas should not be fined $10 billion for money laundering. Naturally, this has BNP clients nervous about what all this means for business, and the upper echelons of BNP management nervous about how their employees might respond to questions about money laundering.

Once upon a time BNP thought they could beat the rap. BNP showed prosecutors a memo that the bank thought would explain and possibly mitigate the conduct. The memo, drafted around 2004 by an outside law firm, essentially authorized the bank to process certain transactions for Sudan, as long as BNP’s employees in New York were not involved in the arrangement. BNP argued that it lacked the intent to commit a crime, saying that it followed the law firm’s directive. That legal argument, known as the “advice of counsel” defense, prompted prosecutors to pore over the single-page memo and weigh the bank’s argument. Ultimately the prosecutors concluded that the memo alleviated only a small fraction of the wrongdoing. Apparently hiring lawyers to tell you that you can do whatever you want turns out to be a little bit less than an airtight legal strategy.