Financial Review

About Face

Sinclair Noe — August 15, 2017

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

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DOW + 5 = 21,998
SPX – 1 = 2464
NAS – 7 = 6333
RUT – 11 = 1383
10 Y + .05 = 2.27%
OIL + .13 = 47.72
GOLD – 10.50 = 1272.10
BITCOIN + 0.72% = 4174.04 USD
ETHEREUM – 1.28% = 286.10

Several members of President Trump’s manufacturing jobs council resigned following what was widely considered an inadequate response from the president to violence in Charlottesville, Va. over the weekend that led to three deaths.

The executives that have resigned include: Ken Frazier – CEO of Merck, Brian Krzanich of Intel, Kevin Plank of Under Armour, and Scott Paul – President of the Alliance for American Manufacturing. That makes 7 CEOs who have resigned from Trump’s councils this year.

The AFL-CIO, a federation of labor unions that represent 12.5 million workers, said it was considering pulling its representative on the committee. AFL-CIO President Richard Trumka said the council “has yet to hold any real meeting,” and “there are real questions” about its effectiveness.

Several other members of the council issued statements denouncing racism and bigotry. Walmart CEO Doug McMillon issued a statement saying the president “missed a critical opportunity to help bring out country together.” McMillon remains on the council for now.

Trump tweeted a response, “For every CEO that drops out of the Manufacturing Council, I have many to take their place.” Although so far there have been no new additions to the council. That was followed by a tone-deaf tweet storm and a press conference in New York, where Trump said, “I think there’s blame on both sides.” Prompting a thank you tweet from David Duke.

CEOs are loath to alienate customers through politics and never want to be the target of a tweet storm from Trump. But corporate leaders who were once eager for a seat at the Trump table are increasingly deciding the costs outweigh the benefits. There is a herd effect. With each CEO’s announcement, it becomes easier for the next CEO to take a stand — and the pressure goes up to do so.

The Congressional Budget Office says ending government payments that help low-income people afford to use their Obamacare plans would raise total federal spending by billions of dollars over the next decade.

Halting the payments to insurers, known as cost-sharing reductions, would boost Obamacare premiums for mid-level Obamacare plans by 20 percent next year, and by about 25 percent in 2020, as insurers raise their charges to make up for the lack of payment.

Since Obamacare provides separate subsidies to individuals to help them cover the cost of premiums, the overall effect would be to boost government spending, to the tune of $194 billion over the next decade. President Donald Trump has threatened to cut off the payments to force Democrats to negotiate changes to the program.

Without the payments, insurers have said they may drop out of the Affordable Care Act’s exchanges or substantially raise premiums. Already, insurers have said uncertainty over how the Trump administration plans to run the law is contributing to large requested premium increases for next year.

Retail sales recorded their biggest increase in seven months in July as consumers boosted purchases of motor vehicles and raised discretionary spending. Retail sales jumped 0.6 percent last month, the largest gain since December 2016. Retail sales for June and May also were revised higher. Retail sales increased 4.2 percent in July on a year-on-year basis.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.8 percent annualized rate in the second quarter after a tepid 1.9 percent pace in the January-March period. That boosted GDP growth to a 2.6 percent rate in the second quarter.

Sales were likely boosted by hefty discounts as auto dealerships try to reduce inventory. Prices for new motor vehicles recorded their biggest drop in nearly eight years in July and have decreased for six straight months.

The retail sales report prompted the Atlanta Fed to raise its third-quarter GDP estimate by two-tenths of a percentage point to a 3.7 percent rate.

Americans are spending more and saving less. The saving rate has dropped to 3.8 percent in the second quarter of this year from a rate of 6.2 percent in the second quarter of 2015. Persistently sluggish wage growth has pushed Americans to dip into their savings to fund spending.

Americans’ debt level notched another record high in the second quarter. According to a Federal Reserve Bank of New York report total U.S. household debt was $12.84 trillion in the three months to June, up $552 billion from a year ago.

The proportion of overall debt that was delinquent, at 4.8 percent, was on par with the previous quarter. However, credit card balances in delinquency “ticked up notably.” Total U.S. indebtedness is about 14 percent above the trough of household deleveraging brought on by the 2007 financial crisis.

Mortgage debt was $8.69 trillion in the second quarter, up $329 billion from last year. Student loan debt was $1.34 trillion, up $85 billion, while auto loan debt came in at $1.19 trillion, up $55 billion.

Analysts have been warning for years that subprime car loans pose a threat to lenders as delinquency rates have edged higher since reaching a post-recession low in 2012. But it wasn’t until last quarter that the least creditworthy borrowers started to show the kinds of late payment profiles that accompanied the start of the financial crisis.

Equifax data show that lenders are extending repayment periods and offering longer terms, with many starting to exceed seven years. There may also be loosening by all lenders on other factors, such as down-payment requirements, lack of third party validation of income and employment.

A second report from the New York Fed showed its Empire State general business conditions index climbed 15.4 points to 25.2 in August, the highest level in nearly three years. Manufacturers in the region reported a jump in new orders and said they were taking longer to deliver goods.

US import prices increased in July after two straight monthly declines, driven by rising costs for petroleum products and food, but underlying imported inflation remained muted. The Labor Department reports import prices edged up 0.1 percent last month after an unrevised 0.2 percent drop in June.

Last month’s increase was in line with economists’ expectations and left the 12-month increase at 1.5 percent. The year-on-year increase in import prices has slowed sharply since hitting 4.7 percent in February, which was the biggest advance in five years.

The report also showed export prices rebounded 0.4 percent in July, the biggest gain since December 2016, after falling 0.2 percent in June.

The Commerce Department that business inventories rose 0.5 percent in June after an unrevised 0.3 percent increase in May. Inventories are a key component of gross domestic product. Retail inventories gained 0.6 percent in June. Motor vehicle inventories increased 0.7 percent. Business sales rose 0.3 percent in June.

At June’s sales pace, it would take 1.38 months for businesses to clear shelves, up from 1.37 months in May.

Home Depot reported a better than expected profit, record quarterly sales and an improved outlook for the full year. This proves two things: The company is still Amazon-proof — and the housing market is still one of the brightest spots of the US economy.

Home Depot said that sales were up 6.6% at U.S. stores open at least a year. Net income jumped 9.5 percent to $2.6 billion, or $2.25 per share. Net sales rose 6.2 percent to $28.1 billion, the highest quarterly sales in company history. Home Depot raised its full-year forecasts but concerns over a looming slowdown in the U.S. housing market due to supply constraints pushed shares down 2.6%.

TJX reported better-than-expected quarterly profit and sales and raised its earnings forecast. As traditional retailers struggle in the face of changing consumer tastes and competition from Amazon, TJX has been posting strong sales for several quarters by offering sharp discounts. TJX said its comparable-store sales rose 3 percent in the second quarter.

Shares of General Electric were down 0.9 percent, at their lowest point since October 2015. While the S&P 500 returned more than 35% to investors over the past three years, GE returned less than 9%. A late Monday quarterly report from Berkshire Hathaway showed Warren Buffet sold his stake in GE.

Without the eye-popping returns of a few high-flying technology stocks, the performance of the market would look very different — and not in a good way; 45 days after the end of a quarter, hedge funds must file 13Fs to disclose their holdings. They are selling the FAANG stocks (Facebook, Amazon, Apple, Netflix, Google).

Between the end of 2016 and July 24, the FAANGs gained some 36 percent as a group, compared with 9.39 percent for the S&P 500 Index. Since then, the FAANGs have under-performed, losing 2.63 percent to the S&P 500’s 0.18 percent decline.

Bill Gates has donated $4.6 billion or 64 million Microsoft shares according to a US Securities & Exchange Commission filing. The recipient of the gift was not specified but it is expected that the money will be directed to the Bill and Melinda Gates Foundation he and his wife set up in 2000 with $5bn funding to improve global healthcare and reduce extreme poverty.

The shares donated represent about 5% of his current $90 billion fortune. The gift reduces Gates’s stake in Microsoft to just 1.3% from 24% in 1996. Bill and Melinda Gates have donated $35 billion since 1994. The Gates Foundation has grown to become the world’s largest private charity with $40.3 billion of funds, before the latest gift.

This latest donation is the biggest charitable gift made anywhere in the world so far, this year, overtaking a $3.2 billion contribution by investor Warren Buffett to the Gates foundation last month.

Financial Review

Believe Me

Sinclair Noe — April 12, 2017

DOW – 59 = 20,591
SPX – 8 = 2344
NAS – 30 = 5836
RUT – 17 = 1359
10 Y – .01 = 2.29%
OIL – .68 = 52.72
GOLD + 12.60 = 1287.60

The S&P 500 closed below its 50-day moving average for the first time since Nov. 8. The 50-day moving average is a good indicator of the intermediate-term trend.

The dollar slumped and Treasury bond yields dropped to the lowest level this year after President Donald Trump said he will not brand China a currency manipulator and added that the greenback was getting too strong.

Trump also told the Wall Street Journal that he would prefer the Federal Reserve keep interest rates low. Trump also told the Journal he’d consider re-nominating Yellen to chair the Fed’s board of governors, after attacking her during his campaign. “I like her. I respect her,” Trump said, “It’s very early.”

Trump also voiced support for the Export-Import Bank, which helps subsidize some U.S. exports, after opposing it during the campaign.

Finally, Trump said NATO is “no longer obsolete” during a press conference today with NATO Secretary General Jens Stoltenberg, backtracking on his past criticism of the alliance. During the campaign, he frequently called the organization “obsolete,” saying it did little to crack down on terrorism and that its other members don’t pay their “fair share.”

And that is all within the past 24 hours.

U.S. stocks declined for a second day as volatility climbed again across asset classes. Rising tensions with Russia, North Korea and Syria after U.S missile strikes in Syria last week and escalating posturing with North Korea, have kept investors cautious.

Today, Russia blocked a Western effort at the U.N. Security Council on Wednesday to condemn last week’s deadly gas attack in Syria and push Moscow’s ally President Bashar al-Assad to cooperate with international inquiries into the incident. It was the eighth time during Syria’s six-year-old civil war that Moscow has used its veto power on the Security Council to shield Assad’s government.

Secretary of State Rex Tillerson met Putin in the Kremlin after talking to the Russian foreign minister, Sergei Lavrov, for around three hours. The White House claims Russia tried to cover up the Syrian chemical attack. Putin said trust had eroded between the United States and Russia. Tillerson said relations with Russia are “at a low point”.

Meanwhile, a U.S. Navy strike group is steaming toward the western Pacific in a show of force, and North Korea is warning of a nuclear attack on the United States at any sign of American aggression.

Even if geopolitical hotspots do not boil over, they require attention that is not being put toward pro-business policies such as tax cuts, simpler regulations and higher infrastructure spending, promises that helped power Wall Street to record highs.

The S&P financial index (SPSY) was down 0.9 percent a day ahead of results from three major banks in what will mark the start of the corporate earnings season. Analysts are expecting earnings to have risen 10 percent for all S&P 500 companies in the first quarter. Wells Fargo, Citigroup and JPMorgan are due to report results on Thursday, the last trading day of the week ahead of the Good Friday holiday.

Berkshire Hathaway is dumping 9 million shares of Wells Fargo worth around $480 million, to get around possible Federal Reserve regulations. Warren Buffett’s company owned more than 10% of the bank after Wells repurchased a large chunk of its shares in 2016.

Any entity owning more than 10% of a bank like Wells is subject to increased regulation from the Fed. Berkshire consulted with the Fed regarding the additional regulations and decided it did not want to deal with the trouble. Additionally, the company said it has no plans to sell any more Wells shares “beyond the quantity required to provide a small safety margin below 10%.”

The Labor Department said import prices fell 0.2 percent last month, the largest drop since August, after a 0.4 percent increase in February. That lowered the year-on-year increase in import prices to 4.2 percent from 4.8 percent in February.

The cost of petroleum declined in March, but the underlying trend points to a moderate rise in imported inflation as the dollar’s rally fades. Prices for imported petroleum fell 3.6 percent last month, the biggest drop since August, after increasing 1.3 percent in February.

Import prices excluding petroleum increased 0.2 percent after rising 0.3 percent the prior month. Import prices excluding petroleum have now increased for three straight months, in part reflecting an ebb in the dollar’s rally.

Prices for imported capital goods edged up 0.1 percent in March after rising 0.2 percent in February.

The drop in import prices is unlikely to be sustained with oil prices pushing higher in recent days following last week’s U.S. missile strike on Syria and reports that Saudi Arabia wants to extend production cuts enacted in January for another six months.

Despite weak imported price pressures, domestic inflation is rising. Most consumer inflation measures have pushed above the Federal Reserve’s 2 percent target. A report on Thursday is expected to show producer prices unchanged in March, but rising 2.4 percent on a year-on-year basis.

The U.S. government had a $176 billion budget deficit in March as spending outstripped revenue. The budget deficit was $108 billion in March 2016, according to Treasury’s monthly budget statement. The fiscal 2017 year-to-date deficit was $527 billion compared with $459 billion in the same period of fiscal 2016.

President Trump is issuing a presidential memorandum that will call for a rethinking of the entire structure of the federal government, a move that could eventually lead to a downsizing of the overall workforce and changes to the basic functions and responsibilities of many agencies.

The order, which will go into effect Thursday, also will lift a blanket federal hiring freeze that has been in place since Trump’s first day in office almost three months ago and replace it with hiring targets in line with the spending priorities the administration laid out in March.

The move is a part of Trump’s campaign pledge to “drain the swamp” and it is expected to hit strong resistance in Congress. The budget already is facing opposition in Congress, and many programs the administration would like to target could only be eliminated through legislation.

Brazil’s President Michel Temer is trying to push ahead with business as usual, a day after a Supreme Court justice ordered corruption probes into 98 politicians, including leading legislators and a third of his cabinet.

Temer avoided commenting on the unprecedented wave of investigations triggered by plea bargain testimony from executives at engineering group Odebrecht, but he made clear the government was committed to implementing its ambitious reform agenda, which includes an overhaul of Brazil’s pension system. The investigation includes eight government ministers, the heads of both chambers of Congress and dozens of senior lawmakers.

Fewer Americans own homes than ever before, and rising consumer confidence does not appear to be changing that. The nation’s home-ownership rate dropped to a record low in 2016 from a record high in 2004, and even as home sales improve, first-time buyers are still missing out on much of the recovery.

Some renters are staying put by necessity and some by choice — it depends on who is asking them. The number of renters who said they don’t know when they expect to move rose to 37 percent in March compared with 30 percent in a survey conducted last September, according to a survey released this week by Freddie Mac, which helps finance the multifamily apartment market.

Survey respondents who said they expect to move during the next two years fell to 33 percent from 38 percent since September. In addition, 55 percent of all respondents, and 60 percent of 35- to 49-year olds, said they like where they live and don’t plan to move even if their rents rise.

A separate survey by Zillow, a real estate company which lists both rental and for-sale properties, found more than two-thirds of renters said that saving for a down payment was keeping them from buying a home. With home prices hitting new peaks in many markets, a 20 percent down payment on a typical home costs more than two-thirds of about $56,000, the national median annual household income, according to Zillow.

United Continental Holdings will compensate all passengers for the cost of the flight in which a man was forcibly removed by security officers. A spokeswoman for the airline, declined to say if the payment would be in cash, frequent-flier miles or some sort of weird voucher that nobody knows how to redeem.

After the blunder of the initial incident was compounded by a series of botched public responses, United is stepping up the effort to get back in consumers’ good graces. The passenger who was dragged from the plane was treated at a Chicago hospital and his lawyers sought a court order in Chicago to preserve evidence, including surveillance videos, crew lists and other information, that could be used in litigation. A lawsuit hasn’t been filed but it looks like it is on the way.

The city of St. Louis, Missouri — where the Rams were based for two decades before jilting it for Los Angeles last year — filed a lawsuit Wednesday claiming the team and the NFL failed to use proper protocol when the Rams were relocated.

The complaint also claims that moving the team “improperly” enriched Rams executives. It notes that Forbes estimated the value of the team more than doubled after it moved to Los Angeles. St. Louis is seeking $1 billion in damages.

I’ve seen the Rams play. No way the loss of that team is worth $1 billion.

Financial Review

Double Hat Trick

Sinclair Noe — February 10, 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Review

Cookies, Milk, Cannoli

Sinclair Noe — November 15, 2016

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

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DOW + 54 = 18,923
SPX + 16 = 2180
NAS + 57 = 5275
10 Y + .02 = 2.24%
OIL + 2.51 = 46.45
GOLD + 6.50 = 1228.50

Another record high for the Dow.

The dollar pulled back from close to 14-year highs, euro zone government bond yields fell and the price of copper tumbled as traders cashed in recent gains. US Treasury yields fell slightly; the carnage in bonds placed on temporary pause but it didn’t last.

Oil prices, which hit three-month lows on Monday, rose after the U.S. Energy Information Administration said U.S. shale oil production was expected to fall in December for the 12th month in 13. Still, the US has more gasoline than it knows what to do with.

Exports have risen above imports for three consecutive weeks as recurring pipeline outages and higher production levels by refiners caused Gulf Coast inventories to grow. The abundance of gasoline pushed Gulf Coast gasoline prices to an eight-month low last week and spurred the longest losing streak since 2012 in futures, making U.S. gasoline an affordable buy.

Valero Energy shipped excess supplies to Canada instead of Colombia and Phillips 66 sent the first gasoline shipment in 16 months to Egypt. Oil trader Mercuria Energy Group is said to be storing a 60,000-ton parcel of gasoline blending components produced in India at an offshore site in the Bahamas. U.S. gasoline exports reached 1.07 million barrels a day in the week ended Nov. 4, the first time the figure has topped 1 million in U.S. Energy Information Administration data going back to 2010.

Retail sales increased 0.8 percent last month, as households bought cars and a wide range of other goods, including building materials – as households cleaned up and made repairs in the wake of Hurricane Matthew. Adding to the report’s bullish tone, September retail sales were revised up to show a 1.0 percent increase instead of the previously reported 0.6 percent rise. The combined September and October sales gain was the largest two-month rise since early 2014.

Sales were up 4.3 percent from a year ago. The strong retail sales suggest that third quarter GDP estimates could be revised higher. It also reinforced views that the Federal Reserve will raise interest rates at its Dec. 13-14 policy meeting.

Manufacturing in New York State improved more than expected in November. The Empire manufacturing index came in at 1.50, above economists’ expectations of -2.50. This was the first time the headline number pulled out of negative territory in four months.

U.S. import prices rose for a second straight month in October as the cost of oil and automobiles increased, but a strong dollar continued to keep underlying imported inflation subdued. The Labor Department said import prices increased 0.5 percent last month after an upwardly revised 0.2 percent gain in September. It was the second straight month of gains.

In the 12 months through October, import prices fell 0.2 percent, the smallest decrease since July 2014, after declining 1.0 percent in September. The strong dollar has resulted in the country importing deflation, helping to hold inflation persistently below the Federal Reserve’s 2 percent target.

At a meeting of almost 200 nations in Morocco to work out ways to implement the 2015 Paris agreement to limit greenhouse gas emissions, U.N. Secretary-General Ban Ki-moon said action on climate change has become “unstoppable” and predicted that President-elect Donald Trump would drop plans to quit the global accord. China worked closely with the US to build momentum ahead of the 2015 Paris Agreement on climate change. The partnership of the two biggest greenhouse gas emitters helped get nearly 200 countries to support the pact at the historic meet in France’s capital.

Trump has called global warming a hoax created by China to give the country an economic advantage, and said he plans to remove the United States from the historic climate agreement; he has appointed noted climate change skeptic Myron Ebell to help lead transition planning for the Environmental Protection Agency.

Beijing is poised to cash in on the goodwill it could earn by taking on leadership in dealing with what for many other governments is one of the most urgent issues on their agenda. Zou Ji, deputy director of the National Centre for Climate Change Strategy and a senior Chinese climate talks negotiator, told Reuters: “China’s influence and voice are likely to increase in global climate governance, which will then spill over into other areas of global governance and increase China’s global standing, power and leadership.”

But before we deal with meaty issues such as the environment or the global supply chain, the Trump Transition team has to get through the actual transition. Former congressman Mike Rogers announced in a statement today he parted ways with President-elect Donald Trump’s transition team. Rogers, who had been working on the transition team for months under Chris Christie, was sidelined as the campaign and transitions merged into one presidential team.

Meanwhile, Paul Ryan unanimously won the nomination of his House Republican colleagues to continue as speaker. Ahead of the vote, Ryan told reporters, “Welcome to the dawn of a new unified Republican government.”

Britain has no overall plan for Brexit and the strategy for leaving the EU might not be agreed for six months due to divisions in Theresa May’s government, that per a leaked memo seen by BBC and The Times. The document, apparently, an internal report by the consultant firm Deloitte – not commissioned by the government, said government departments were discussing more than 500 Brexit-related projects and might require an additional 30,000 civil servants to cope with the immense workload.

The report detailed what is widely understood: The government has not yet finished its internal debate on what kind of relationship it wants with the European Union, nor has it set its priorities for any negotiation; and the cabinet remains divided between those favoring as clean a break with Brussels as possible and those who want to preserve duty-free access to the huge European market.

Alphabet’s Google and Facebook have announced measures aimed at halting the spread of “fake news” on the internet by targeting how some purveyors of phony content make money: advertising. Google said it is working on a policy change to prevent websites that misrepresent content from using its AdSense advertising network, while Facebook updated its advertising policies to spell out that its ban on deceptive and misleading content applies to fake news.

WhatsApp is finally launching video calling for all its one billion users (the service will be fully encrypted). It’s simple – just click the call icon to make a voice call then select “video call” to activate it. A major plus for WhatsApp’s video calling is cross-platform support, unlike FaceTime, which only works with Apple devices, and Google Duo, which isn’t compatible with older versions of iOS.

Close but no cigar… Reynolds American has rejected British American Tobacco’s $47 billion takeover bid, but B.A.T. may be willing to up its offer. More M&A? Estee Lauder is buying millennials-focused makeup brand Too Faced for $1.45 billion and Regency Centers has agreed to acquire Equity One for about $5 billion, creating the largest shopping center REIT by market cap.

General Electric said its software unit bought ServiceMax, a cloud-based provider of software used in inventory and workforce management, for $915 million. GE said the deal was part of GE Digital’s strategy to advance its “Industrial Internet” vision.

Warren Buffett is loading up on airlines. A 13-F filed on Monday showed Buffett’s Berkshire Hathaway amassed holdings in American Airlines, Delta Air Lines, Southwest, and United Continental. Buffett wouldn’t say why he’s now investing in a sector that in the past he’s labeled a “death trap” for investors. He’s been down on airlines since getting burned on a USAir Group investment in 1989. But Warren has always been a fan of buying at “stupid cheap” levels, and that probably explains the purchases.

George Soros’s hedge fund Soros Fund Management bought stakes in Google’s holding company Alphabet and Netflix in the third quarter, per a regulatory filing on Monday. The hedge fund also reported ownership of Biogen, Hewlett Packard Enterprise and Priceline Group at the end of September. During the same period, Soros liquidated its shares of Disney, General Motors, Hershey, Anthem, Delta Airlines, Monsanto, and Pandora.

David Einhorn’s Greenlight Capital bought Calpine and US Steel, and trimmed stakes in Apple and GM. David Tepper’s Appaloosa hedge fund took new stakes in Apple, Yahoo, Bank of America and Facebook, while dumping shares of 21^st Century Fox.

The head of the SEC is stepping down. Securities and Exchange Commission Chair Mary Jo White announced that she will leave her post at the end of the Obama administration.

Home Depot reported third-quarter profit and sales that beat analysts’ estimates. Home Depot said the number of customer transactions rose 2.4 percent in the third quarter. Customers also spent 3 percent more on average per transaction, which was the strongest in two years. The company also raised its full-year earnings forecast. Housing data for September had also suggested that overall residential construction may rise again in the current quarter.

Financial Review

Probably a Preview

Sinclair Noe — September 14, 2016

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

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DOW – 31 = 18,034
SPX – 1 = 2125
NAS + 18 = 5173
10 Y – .04 = 1.69%
OIL – 1.26 = 43.64
GOLD + 4.20 = 1323.60

Wall Street edged lower, and trading seemed calm compared to the past few days. The S&P 500 remains down almost 3 percent from before a steep selloff on Friday, even though interest rate futures indicate expectations for a rate hike at the Fed’s Sept. 20-21 meeting are still low. What we are seeing is probably a preview for what will happen when the Fed does raise rates.

Monsanto has finally agreed to a takeover offer from Bayer, valuing it at $128 per share or a total of more than $66 billion, ending months of wrangling after increasing its bid for a third time. The deal would be the largest all-cash transaction on record and put a quarter of the combined world market for seeds and pesticides under one roof. Bayer has also settled on a $2 billion break-up fee for the deal, which could close by the end of 2017.

The Monsanto-Bayer deal will face anti-trust scrutiny. Last year Monsanto tried to buy Syngenta, but the Swiss company fended off the attempt, only to agree later to a takeover by China’s state-owned ChemChina. Elsewhere in the industry, U.S. chemicals giants Dow Chemical and DuPont plan to merge and later spin off their respective seeds and crop chemicals operations into a major agribusiness.

Here’s why it matters to you: the consolidation of two big industry players into one of the world’s largest agrochemical firms may limit farmers’ choices and bargaining power, with increasing seed prices expected to be passed on to the grocery aisles. Regulators are likely to take a dim view of so many Big Ag deals happening at once.

If the 3 deals go through, it would result in just 3 companies selling 59% of all the globe’s seeds, with Monsanto/Bayer control 30% of the total; and 64% of the world’s pesticides. There will be strong opposition in the US and around the globe. Regulators will likely demand the sale of some soybeans, cotton and canola seed assets as a condition for approving the deal, at the very least. And it is possible that all three deals will be shot down.

Vitae Pharmaceuticals shares more than doubled to $20.85 after Allergan said it would buy the company for $639 million.

U.S. import prices fell for the first time in six months in August on declining petroleum and food costs. The Labor Department says import prices decreased 0.2 percent in August after an unrevised 0.1 percent gain in July. Last month’s drop was the first since February. Import prices have been constrained by a strong dollar and cheap oil.

That, together with sluggish wage growth have left inflation persistently running below the Fed’s 2 percent target. Imported petroleum prices declined 2.8 percent last month after decreasing 3.6 percent in July. Import prices excluding petroleum were unchanged after climbing 0.5 percent in July. The report also showed export prices fell 0.8 percent in August.

You’ve heard that old line “we fought a War on Poverty, and poverty won.” Well, maybe poverty hasn’t won, but it is still too high. New data from the Census Bureau shows median middle-class wages rose 5.2% between 2014 and 2015, the first annual increase since 2007. But the median household income was still lower than it was in 2007.

The official poverty rate decreased to 13.5 percent for last year, a drop of 1.2 percentage points. That represents 3.5 million people who are no longer in poverty and is the largest annual percentage point drop since 1999. And the uninsured rate continued to fall. The percentage of Americans without health insurance for the entire year dropped by 1.3 percentage points, to 9.1 percent.

Since 2013, the uninsured rate is down 4.3 percentage points. Still, the Census Bureau reports that 11.2 million individuals were pushed below the poverty line last year because of medical expenses. The latest data found that 29 million people went uninsured last year, including 3.7 million children, and that deductibles and other out-of-pocket costs have continued to rise well after the Affordable Care Act (ACA) went into law in 2010. The quickest path to the poor house is to get sick.

Americans all grew richer pretty much across the board last year, but they also stayed relatively unequal. The Gini coefficient, which the Census uses to track the gap between the rich and poor, was unchanged in the last year, despite all those wage gains and declining poverty. In fact, it’s up 5.5% since 1993, when the government first began tracking the data.

Women might be earning more today, but the gap between what they earn and what men expect to earn hasn’t narrowed significantly since 2007. Despite the many positive trends in the report, there are also still lingering signs of an uneven recovery. To date, only one income group is actually earning any more than they were in 2007: the top 5%.

In his annual State of the Union speech, European Commission President Jean-Claude Juncker warned the EU was facing an “existential threat,” but insisted that Brexit doesn’t mean “the disintegration of the European Union.” He also said the U.K. could not expect access to the EU’s internal market without the free movement of people.

European officials will unveil new technology rules today aimed at reining in many of the world’s largest tech firms. Under the proposals, which will take years to complete, European publishers may be given powers to charge internet companies whenever their content shows up in online results or other services. Chat apps will also be more heavily policed by extending rules which currently only cover telecoms providers.

With plans to launch by the end of October, Facebook and Twitter have joined a network of over 30 companies to tackle fake news and improve the quality of reporting from social media. Google-backed First Draft Coalition will create a voluntary code of practice, promote news literacy among social media users, and establish a platform where members can verify questionable stories.

Walmart is working on a self-driving shopping cart that customers would be able to hail like an Uber – possibly through a smartphone app. Not only has the retailer filed a patent for a cart that has a motor and video cameras, but it would be able to return itself from customers’ cars to the store. The system may also help Walmart manage inventory by scanning store shelves to ensure products are there.

Ford Motor CEO Mark Fields says that all of the company’s small-car production would be leaving U.S. plants and heading to lower-cost Mexico. Ford also rolled out plans today to expand into robo-taxi fleets and other autonomous-car services. Ford says the move into new business services will deliver 20% profit margins once rolled out — far higher than the low single-digit return typical for car manufacturers. Ford told investors that its 2017 financial performance would decline from this year’s levels.

Uber launched its self-driving pilot program in Pittsburgh today; the unveiling of the company’s secretive work in autonomous vehicles and the first time self-driving cars have been so freely available to the U.S. public. But it is not as if robots are taking over the Steel City. There will be only four self-driving vehicles available to passengers, to start, and two people will sit in the front to take over driving when the car cannot steer itself.

Uber’s Pittsburgh fleet consists of Ford Fusion cars outfitted with 3D cameras, global positioning systems (GPS) and a technology called lidar that uses lasers to assess the shape and distance of objects, mounted somewhat crudely to the vehicle’s roof. The company is also outfitting Volvo SUVs that will be added to the fleet.

SpaceX hopes to start launching its rockets again in November, a mere three months after the company’s Falcon 9 exploded on a launch pad at Cape Canaveral. But given the significant repairs needed for Launch Complex 40 – the site of the explosion – SpaceX’s next flight will likely take off from the Vandenberg Air Force Base or an alternate launch site at the Kennedy Space Center.

The Hanjin Shipping Co. terminal at South Korea’s largest port used to be one of the world’s busiest. Dozens of container carriers would line up to ferry boxes to and from the giant cranes that loaded and unloaded the world’s biggest ships. Last week the terminal, as big as 100 football fields, came to a virtual standstill. Whatever capital is tied up in those containers isn’t moving, any more than the container are. Hanjin is not alone. Of the biggest 12 shipping companies that have published results for the past quarter, 11 have announced huge losses. Several weaker outfits are teetering on the edge of bankruptcy.

Apple’s stock hit a 2016 high today, with its market value peaking above $600 billion for the first time since April. Reports of strong early orders for the iPhone 7 as well as arch-rival Samsung Electronics’ widely-publicized recall of potentially exploding Galaxy Note 7 smartphones, pushed shares of Apple up 10 percent in the past three days.

JPMorgan is now the biggest bank in the world by market capitalization. Shares of Wells Fargo slid 3.3% on Tuesday, giving the company a market capitalization of $239.7 billion, compared with JPMorgan’s $242.8 billion. Federal prosecutors are investigating Wells Fargo in connection with the bank’s sales practices after it agreed to pay $185 million in fines for opening more than 2 million unauthorized accounts. According to a report in the Wall Street Journal, the probe by U.S. Attorneys in New York and San Francisco is in its early stages and could lead to a criminal inquiry

Financial Review

Theresa May is Britain’s new prime minister, replacing David Cameron

Sinclair Noe — July 13, 2016

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

Subscribe: iTunes | Android | RSS

DOW + 24 = 18,372
SPX + 0.29 = 2152
NAS – 17 = 5005
10 Y – .03 = 1.47%
OIL – 1.37 = 45.43
GOLD + 9.60 = 1343.30

The cost of imported goods increased 0.2% in June, led again by the higher cost of fuel. Import prices have risen four straight months following five straight declines, largely because of the price of oil has climbed from multiyear lows. Excluding fuel, the cost of imports fell 0.3% in June. Over the past year, import prices are still 4.8% lower, reflecting a big drop in the oil prices in 2015.

That’s helped to keep overall U.S. inflation on the low side. Import prices minus fuel are down 1.8% in the past 12 months. U.S. export prices climbed 0.8% in June. Export prices are 3.5% lower in the past 12 months.

Corporations are paying less to the Treasury this fiscal year, and the government’s budget deficit is ballooning because of it. In its latest monthly budget report, the Treasury Department said the deficit through June was $401 billion, up 27% from the same period a year ago. In the month of June, the government managed to post a budget surplus of $6 billion, but that was down from a surplus of $50 billion in June of 2015.

While individual income tax collection has risen so far this fiscal year, it’s a far different story with corporate taxes: revenues are down 11%. The government’s budget year runs from October through September.  The nonpartisan Congressional Budget Office blamed the tax extenders, legislation that gives breaks for both businesses and individuals, for helping to blow up the federal debt in the long term; another possible culprit is that the decrease in corporate taxes may partly reflect lower taxable profits earned so far this calendar year.

The Federal Reserve published its Beige Book today, two weeks before the next FOMC policy meeting. The anecdotal assessment finds the economy chugging along through the end of June with little indication of inflation now or in the near future. Despite a strong rebound in U.S. job growth in June; pressure to raise wages at the end of the second quarter was centered on skilled workers and difficult-to-fill positions. Fed districts also reported some signs of softening in consumer spending but most retained an optimistic outlook, the report said. Manufacturing activity remained mixed while growth in the services sector was seen as “slight to modest.”

Oil industry hopes that markets are about return to balance, ending a global glut that pulled down prices by over 70 percent between 2014 and early 2016, might be abruptly dashed. Despite recent disruptions and output cuts, there is mounting evidence that plentiful supplies and brimming inventories will delay a much-quoted re-balancing of oil markets. Not just are supplies improving, now demand may be waning.

With the United States and Europe stagnating, Asia has been the main pillar of oil demand growth. But that too is now stuttering, with tanker flows into the region down for four straight months. So much oil is now stored that the world is running out of space, forcing traders to charter supertankers in which to keep unsold fuel. There is so much oil in storage that it could take well into 2018 for the glut to clear.

The latest American Petroleum Institute (API) showed crude oil supplies rose to their highest point in ten weeks. Meanwhile, the International Energy Agency said oil production from the Middle East has climbed to a record while U.S. output slumps. Middle Eastern output exceeded 31 million barrels a day for a third month in June amid near-record supply from Saudi Arabia, while U.S. oil production slid 140,000 barrels a day to 12.45 million. The IEA, which mostly kept forecasts for supply and demand unchanged, said that while the rebalancing of the oil market is progressing, brimming inventories remain “a threat to the recent stability of oil prices.”

Theresa May is Britain’s new prime minister, replacing David Cameron. The appointment was official today. May will face immediate pressure from EU leaders to serve formal notice of Britain’s withdrawal and set the clock ticking on a two-year countdown to its final departure. May has already started naming new members of her cabinet. She appointed former foreign minister Philip Hammond to take charge of the finance ministry. He replaces George Osborne, whose determination to balance Britain’s books made him synonymous with austerity.

May also named Boris Johnson, the former mayor of London and a leading Eurosceptic who had until recently been seen as her main rival for the prime minister’s job, to take over as foreign secretary. Meanwhile, the Bank of England holds a policy meeting tomorrow and they are expected to cut the key lending rate to 0.25% form 0.5%, to try to ward off a recession and to reassure markets.

PC sales in the US are growing again. Both Gartner and IDC data shows that PC shipments in the US have returned to growth for the first time in over a year. Gartner data, which includes Windows tablets, showed that PC shipments grew 1.4% in the second quarter. IDC data, which doesn’t include Windows tablets, showed growth of 4.9%.

A federal appeals court ruled General Motors’ 2009 bankruptcy does not shield it from lawsuits over a deadly ignition-switch defect that led to criminal charges against the automaker and prompted the recall of 2.6 million vehicles in 2014.  The 2nd Circuit’s decision affects some injury and death cases stemming from pre-bankruptcy crashes. It will also impact claims from customers who say their vehicles lost value as a result of the ignition switch and recalls involving other parts, which plaintiffs’ lawyers have estimated to be worth between $7 billion and $10 billion.

A bankruptcy judge ruled in 2015 that New GM was shielded from liability over Old GM’s pre-bankruptcy actions, but he allowed some “independent” claims based solely on New GM’s conduct to proceed. Lawyers for GM customers argued that New GM should not be protected because it knowingly concealed the switch defect for more than a decade before it recalled the vehicles in 2014. The ruling allows the cases to proceed but does not address the underlying merits of the claims.

Line Corp. shares are getting popular in the gray market ahead of this week’s trading debut, which will mark the largest initial public offering for a tech company in 2016. According to Cantor Fitzgerald, investors are willing to buy shares for $36, 15% higher than the IPO price. Line will debut in a dual listing in the U.S. tomorrow and Tokyo on Friday.

The FTC has requested additional information from Abbott Laboratories and St. Jude Medical, which are attempting to complete a $25 billion deal combining two of the leading makers of heart-related devices. The request extends the waiting period – the time frame before companies can close a transaction – by 30 days.

One year after hackers showed they could control a moving Jeep; Fiat Chrysler has a new solution to get computer whizzes to work more closely with the company: pay them. The automaker is launching a bug bounty program aimed at compensating hackers between $150 and $1,500 every time they uncover potential cyber-security flaws in vehicles and alert the company.

Elon Musk has no plans to disable Tesla’s Autopilot function in the wake of a fatal Model S crash in May that used the technology, and instead plans to redouble efforts to educate customers on how the system works. Tesla also confirmed that the weekend crash involving Autopilot in Montana, the third serious accident tied to the self-driving feature, resulted from the driver’s hands not being on the wheel ahead of the collision.

Seven years ago, chemistry researchers from Oregon State University were conducting an experiment testing materials for applications in circuit boards and semiconductors; they heated manganese oxide and other substances to 2000 degrees Fahrenheit, when one of their samples came out a vivid blue. They had accidentally created a new color and they named it YInMn, after the elements yttrium, indium and manganese that compose it. Some artists have already given the new color a nickname – Mas Blue. In about a month, the new color will be available as paint.

While the same shade could be created in other ways, what makes this pigment particularly special is its durability and color-fast properties as a chemical coloring agent. Most blue dyes tend to fade, but Mas Blue is resistant to water, oil or acid and non-toxic. The paint will be distributed by the Ohio-based color supplier Shepherd Color Company. Scientists are also exploring the use of Mas Blue as an energy-saving roofing material, since the compound has been found to reflect 40% of infrared light.

Financial Review

What Are the Odds?

Sinclair Noe — June 14, 2016

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

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DOW – 57 = 17,674
SPX – 3 = 2075
NAS – 4 = 4843
10 Y – .01 = 1.61%
OIL – .39 = 48.49
GOLD + 1.70 = 1286.50

The rally for sovereign debt has passed an important milestone, with the yield on Germany’s benchmark 10-year bonds hitting zero for the first time and closed slightly negative, -0.01%. And as German bond yields slide into negative territory, the European Central Bank is running out of German debt to buy for its asset-purchase program. The central bank may have to consider scrapping the minimum yield limit or dropping a rule that prevents it from holding more than a third of any bond issue.

The strong demand is standing out in cautious trade ahead of a series of policy meetings at major central banks and rising uncertainty over whether the UK will stay in the EU. Four polls put the “Leave” campaign ahead of “Remain”. The latest polls show as much as a 7-point lead for the exit camp. The polls might be wrong; they were wrong about the vote for Scottish independence.

While a significant numbers of voters say they want to leave the EU, when it comes time to actually cast their vote, fear over the potential political and economic impact might steer them to take the safer course. British betting parlors still have odds of a Brexit at just 40%.

One month ago, the odds makers were placing a 20% chance on the possibility of the UK leaving the EU. Betting doesn’t tell what the future will be, it tells us what the probable future will be. The bookies are usually right.

Reuters is reporting the ECB would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union. The preparations illustrate the heightened state of alert ahead of the June 23 referendum. An official announcement from the ECB would come on June 24 if an early-morning result showed that British voters had chosen to leave the EU.

The aim is to underpin investor confidence across Europe and contain further market jitters. Providing extra funds to banks after a Brexit vote would ease pressure on them and reduce the potential for panic as financial markets digest the result on Friday, June 24, shortly before closing for the weekend. The Bank of England has already sought to avert any liquidity squeeze by providing injections of cheap funding for banks ahead of the vote.

Investors have amassed their largest cash pile since 2001 and cut equity holdings to a four-year low. Even though world bond yields have never been lower and many bank deposit rates around the world are now negative, investors are willing to hold more cash in their portfolios than at any time since November 2001.

According to a Bank of America Merrill Lynch report, risk appetite fell to its lowest level in four years, consistent with recession, although growth and profit expectations hit a six-month high and inflation expectations a one-year high. Fund managers held an average 5.7 percent of their portfolio in cash, up from 5.5 percent in May. If you are looking for the pony, consider that there is a lot of cash that can come off the sidelines fast.

The cost of imported goods rose 1.4% in May, the biggest increase in four years, largely because of a rebound in oil prices, which jumped 17.4%. Although import prices are still 5% lower compared to a year ago, they are no longer falling. Excluding fuel, import prices rose a much smaller 0.3% in May. That was still the largest gain since March 2014. The price of goods exported by the US to other nations, meanwhile, climbed 1.1% in May.

Shoppers increased their spending in May. The Commerce Department reports retail sales rose a seasonally adjusted 0.5 percent last month, the second straight increase after a 1.3 percent gain in April. Online and non-store purchases climbed 1.3 percent in May. Sporting goods stores, restaurants, clothiers and auto dealers also enjoyed higher sales.

Rising gasoline costs fueled a 2.1 percent jump in spending at gas stations; we didn’t buy more gas, we just paid more. Sales declines hit building material stores, furnishers and department stores last month. Total retail sales have risen 2.5 percent from a year ago.

The Federal Open Market Committee meeting for June kicked off today, with the interest rate decision and press conference due tomorrow. Market implied odds of a rate hike at this meeting have dropped to zero in the aftermath of the latest jobs report. They were higher than 30 percent as recently as May 26. Of course, the FOMC could hike rates or take other action; not likely but not totally impossible. The more probable move is that the Fed continues jawboning.

Today’s retail sales report would probably be enough to justify a rate hike, were it not for the May jobs report, which came in at a very weak 38,000 jobs. Federal Reserve Chair Janet Yellen said in a June 6 speech in Philadelphia, “We are now close to eliminating the slack that has weighed on the labor market since the recession.”

And the unemployment rate now stands at 4.7%; if you think back 7 years ago, or even 2 years back, you would think that 4.7% unemployment would indicate full employment, but it doesn’t.

Payrolls have increased by an average of 116,000 per month over the past 3 months; well below last year’s 229,000 per month pace of job growth. The Labor Department reported on June 8 that job openings rose to 5.8 million in April from 5.7 million in March. Hires, meanwhile, fell to 5.1 million, from 5.3 million.

Businesses complain that there is a shortfall of qualified workers. Usually this might indicate that we are near an inflection point in the labor market. Business needs workers, even if that means paying up and even training candidates for the position; the scales might be tipping from employers to employees, but the transition is slow.

The National Federation of Independent Business’s optimism index rose 0.2 point to 93.8. Most of the index’s sub-gauges rose or stayed neutral. Fewer owners expect to invest in capital expenditures, and the number of job openings and earnings trends both declined.

Oil prices are down this morning, pushed lower for the fourth consecutive day, despite a bullish report from the International Energy Agency. The IEA revised its demand forecast upward for this year by 100,000 barrels a day, to 1.3 million barrels a day from 1.2 million barrels a day.

The possibility of a Brexit is also weighing on oil; if the UK leaves the EU, the British pound will likely take a hit and the greenback will appreciate. As oil trading is conducted in dollars, a stronger dollar would push down oil prices in the US.

Moody’s has placed Microsoft’s ‘AAA’ credit rating under review for downgrade following the software giant’s deal to buy LinkedIn for $26 billion, citing concerns that it would be funded through new debt. Why is Microsoft taking out such a big loan if it has enough cash to buy LinkedIn 4x over? Taxes. Microsoft can avoid paying a 35% tax rate to repatriate cash from overseas and could also deduct interest payments.

Marriott International is on track to win unconditional EU antitrust approval for its cash and share purchase of Starwood Hotels and Resorts Worldwide. The deal $12.5 billion deal will combine Marriott’s Ritz-Carlton and Starwood’s Sheraton and Westin chains together to create the world’s largest hotel company.

Zenefits announced another layoff today. It’s cutting about another 106 people, about 9% of its salesforce, and it is shutting down its Arizona sales office, though it is not pulling out of Arizona altogether.

Iran is preparing to unveil an agreement for Boeing jetliners within days that could be valued at about $25 billion. The transaction would be the first struck by the plane maker since sanctions were lifted in January and would require US government approval. An order listed at $27 billion announced by Europe’s Airbus Group SE also needs a US Treasury Department license before it can be finalized.

Boeing is poised to land a comparable deal if they can get the appropriate government permissions. Iranian officials say the country needs to invest about $50 billion to bolster its fleet with 400 mid- and long-range jetliners and 100 short-haul planes.

High-speed internet service can be defined as a utility, a federal court has ruled in a sweeping decision clearing the way for more rigorous policing of broadband providers and greater protections for web users. The decision affirmed the government’s view that broadband is as essential as the phone and power and should be available to all Americans, rather than a luxury that does not need close government supervision.

Today’s 2-to-1 decision from a three-judge panel at the United States Court of Appeals for the District of Columbia Circuit came in a case about rules applying to a doctrine known as net neutrality, which prohibit broadband companies from blocking or slowing the delivery of internet content to consumers.

The court’s decision upheld the FCC on the declaration of broadband as a utility, which was the most significant aspect of the rules. For now, the decision limits the ability of broadband providers like Comcast and Verizon to shape the experience of internet users. Without net neutrality rules, the broadband providers could be inclined to deliver certain content on the web at slower speeds, for example, making the streams on Netflix or YouTube buffer or shut down.

Such business decisions by broadband providers would have created fast and slow lanes on the internet, subjecting businesses and consumers to extra charges and limited access to content online. Cable and telecom companies say they will continue to fight the rule, and the next step would be to take the case to the Supreme Court; which you will recall is short one justice.

All the Ships at Sea

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

Financial Review by Sinclair Noe for 05-12-2016

DOW + 9 = 17,720
SPX – 0.35 = 2064
NAS – 23 = 4737
10 Y + .02 = 1.76%
OIL + .16 = 46.39
GOLD – 13.50 = 1264.20

Stocks were up, then down and then finished fairly flat. The S&P 500 closed a touch lower, as declines in health care, tech and industrials offset gains in most sectors led by telecommunications. The Dow held onto a minor gain as Boeing moved higher and Apple briefly fell under $90, hitting a fresh 52-week intraday low. After a big up day followed by a big down day this week, the market couldn’t figure out which way to go.

The number of Americans who applied for unemployment benefits in early May jumped for a third week in a row to 294,000, hitting a 14-month high.  There may be some statistical noise in the data as New York City Schools were off for spring break, and many non-teacher school employees (bus drivers, cafeteria workers, etc.) are somehow permitted to file for unemployment when schools are closed for a week or two. Initial claims have held below the key 300,000 level for 62 weeks, the longest streak since 1973. The average of new claims over the past four weeks shot up by more than 10,000 to 268,250.

Brazil’s Senate voted 55-22 to suspend President Dilma Rousseff from office and begin an impeachment trial. Rousseff is charged with illegally doctoring fiscal accounts to mask the size of the budget deficit. During the trial – which could last for up to six months – Vice President Michel Temer will assume the office. Today, Temer named a new cabinet, including a new finance minister, Henrique Meirelles, a former central bank president.

Resisting calls to resign, Rousseff has described the effort to remove her as a coup, but given the overwhelming majority of last night’s vote, analysts give her very little chance of winning the trial and being able to serve her final two-plus years in office. Whether Rousseff ever returns to power, Brazil faces big challenges, not the least is cleaning up corruption, and there are is a chance that the new acting president might be even more corrupt than the suspended president. Meet the new boss, same as the old boss.

Oil prices hit a six-month high, supported by data from the International Energy Agency showing tightening supply and a drop in US crude inventories. There have been disruptions in the oil supply due to wildfires in Canada and bombings in Nigeria. And while it is easy to think that the recent rally in oil is based on a supply-demand equation, it might not be so simple.

Since their February lows, WTI crude has rallied by about 75%; supply hasn’t been disrupted that much. In fact, the American Petroleum Institute report an inventory build of 3.4 million barrels in the past week, and inventories at Cushing, Oklahoma are at record highs; they are running out of room to store more.

To get around the lack of storage space, some commodity trading companies are now storing oil in tankers at sea, just floating around, keeping their product from market until prices rise. By some estimates, at least 30% of Brent crude inventory is in offshore storage. It’s one thing if a commodity trader holds oil in tankers at sea because there are no storage tanks on land; it is another matter if they are trying to manipulate prices. Typically, speculative schemes have a way of coming undone.

The oil rally has been great news for oil producers and investors, but the danger now is that prices rise so much that they actually prevent the market from rebalancing. Higher prices could postpone cuts in US shale output. And, if prices go even higher, they could possibly even inspire more production. The oil market has been extremely volatile but eventually the ships at sea will have to find safe harbor.

The cost the US paid for imported goods rose 0.3% in April, largely because of higher oil prices. Aside from oil, import prices for food and industrial supplies also rose and the cost of foreign autos edged higher. Consumer goods were somewhat cheaper, though. Stripping out fuel, import prices increased 0.1% to mark the first advance since July 2014. American exporters also saw the biggest increase in prices since May 2015. Export prices rose 0.5%. Over the past year, export prices are down 5% and import prices are 5.7% lower.

RealtyTrac reports the number of HELOCs, or home equity line of credit, rose 10% in the first quarter. But their size also grew: the dollar value was 34% higher than in the prior quarter, and 45% higher compared to a year ago. Meanwhile, purchase loan originations dropped 14%. People tend to stay in their homes rather than move, but at least some are finding they can tap equity.

Shares of Monsanto rallied on new reports that Bayer and BASF were interested in acquiring the world’s largest seed producer. Monsanto has long argued it needs to buy or team up with a large crop chemicals maker as farmers increasingly look for one-stop shopping for seeds, pesticides and digital services such as satellite-guided spraying and harvesting.

Nissan is buying a big stake in Mitsubishi. Nissan has agreed to buy a 34% stake in embattled automaker Mitsubishi for $2.2 billion. The deal will help Mitsubishi “regain trust” as it deals with its third scandal in two decades. In April, Mitsubishi admitted it overstated the fuel economy of at least four of its models; yesterday they admitted they had cheated on fuel economy on all models sold in Japan. With more than a third of the shares, Nissan will be able to take control under Japanese shareholder rules.

While last year set a record for the amount of money spent on corporate mergers — $4.7 trillion — this year is so far setting a very different record: the dollar amount of deals that have come undone. More than $400 billion worth of corporate mergers have been withdrawn in the United States since the beginning of January – almost three times the previous record for the same period. On Tuesday, the Staples and Office Depot called off their $6.3 billion deal. A week earlier, the $35 billion Baker Hughes-Halliburton deal collapsed. And last month Pfizer’s proposed $152 billion merger with Allergan fell apart — all canceled because regulators raised concerns.

The Bank of England lowers its growth forecast. The central bank held its key interest rate at 0.50% for an 86th straight month. In the accompanying Inflation Report, the BOE lowered its second quarter growth estimate to 0.3% from 0.5%, and its 2016 GDP forecast to 2% from 2.2%.

Nordstrom‘s stock tanked after hours when the retailer posted disappointing quarterly earnings. It also slashed its earnings outlook for the rest of the year. The Nordstrom’s report followed a slew of disappointing reports from competitors Macy’s and Kohl’s.

Rival Dillard’s also fell after reporting earnings per share of $2.17 on revenues of $1.54 billion. That compares to estimates of $2.52 per share on revenues of $1.56 billion.

Shares of Shake Shack spiked in extended trading after the fast-casual chain reported better than expected earnings and sales. The company saw a nearly 10 percent increase in sales at existing stores.

Semiconductor company Nvidia saw shares pop after its earnings surprised to the upside. Nvidia specializes in graphics-processing units.

The FTC might be reopening its antitrust case against Google. Senior antitrust officials are collecting information, and are considering reopening their case against Google. The original case was closed in 2013 without finding any wrongdoing. The report may not mean a full new investigation; a majority of commissioners would have to vote to go forward in a closed-door session. Currently, Google is fighting antitrust claims against its Android operating system in Europe.

Google already maps the world; next up, they want to digitally map the interiors of buildings in 3-D down to a resolution of a few inches, and make money in virtual reality along the way, through a project named Tango.  Tango packs cameras and depth sensors along with other software into Android smartphones and tablets. Fire up the application and point the device at a space and it sucks in images and depth information to re-create the environment on the screen and locates itself within that new digital realm.

Linn Energy and LinnCo filed for bankruptcy and say they have reached agreement with creditors to support a new plan of reorganization to include a new $2.2 billion reserve-based and term loan credit facility. Linn expects to maintain sufficient liquidity to support the business during the restructuring process, so it does not expect to seek debtor-in-possession financing.

The Bee Informed Partnership released its annual report on total losses of managed honeybees across the country. The survey asked beekeepers about bee losses between April 2015 and April 2016; the results are bad; US beekeepers lost 44 percent of their colonies in that timeframe. Crops like almonds, cherries, and blueberries are heavily dependent on honeybees, and the pollination services the insects provide come to $10 to $15 billion in total per year. The value of pollination is even more valuable.

A variety of factors are likely contributing to losses overall. Scientists think pesticides could be playing a role in these bee losses but that’s just a theory. Poor nutrition may also be part of the problem; in some regions, there aren’t as many flower-rich meadows as there used to be.  The varroa mite is a tiny parasite that’s been ravaging bee colonies over the last several years. One theory is that pesticides and poor nutrition leave the bees susceptible to parasites.

This summer, if all goes according to plan, the second reactor at Watts Bar Nuclear Power Plant will begin supplying power to the US electrical grid. Construction on the reactor in Spring City, Tennessee, has proceeded in fits and starts since the project began in 1973. It will be the first new nuclear reactor to come online in the US since the first Watts Bar reactor was completed 20 years ago.

And there might be more nuclear plants in the future. The state of Arizona has approached the city of Sedona and the property owners of the Sedona Cultural Park on the construction of a small nuclear power plant at the site. The Sedona Red Rock Verde Valley Nuclear Generating Station would consist of one reactor. If approved, the plant would take three to four years to construct, and cost roughly $8 billion.