Financial Review

Lava Jato

Sinclair Noe — March 11, 2016

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

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DOW + 218 = 17,213
SPX + 32 = 2022
NAS + 86 = 4748
10 Y + .05 = 1.98%
OIL + .69 = 38.53
GOLD

Today’s rally pushed stocks to the highest levels of 2016. The Dow and the S&P 500 have now posted 4 straight weeks of gains. For the week, the Dow gained 207 points or 1.2%, The S&P 500 gained 23 point, or 1.1%, and the Nasdaq added 31 points since last Friday. Oil prices are up 7.5% in the past week.

Yesterday the European Central Bank announced additional stimulus measures. Next week the Fed FOMC meets to determine monetary policy.  Expectations have been reduced to nearly zero for a Fed rate hike this month. This Fed has shown a tendency to err on the side of caution. How the Fed shapes expectations about its next move will be the big story when the meeting concludes on March 16.

With recent financial turmoil and inflation still low, the Fed has an incentive to wait and no real incentive to act now. Add in the ECB’s move yesterday, and the Fed is faced with questions about how far they can diverge from the accommodative policies of their central banking peers.

An unqualified tilt toward further rate increases this year could power the dollar higher against major currencies, delivering a blow to exports and manufacturing jobs while also causing some disinflation through lower import prices, specifically for raw materials and energy.

In addition to the ECB’s additional new stimulus measures announced yesterday, the Bank of Japan meets on Tuesday; they recently increased stimulus and pushed interest rates into negative territory; the BOJ is not expected to announce new measures next week, but they might ease further by July. This means the Fed is alone in its call for tightening.

So, what is the Fed looking at now? The Fed’s mandate requires them to manipulate monetary policy for maximum employment and stable prices. The employment side of the mandate looks fairly good. The economy has been adding jobs at a steady pace for 6 straight years, with 242,000 new jobs created in February and the unemployment rate at 4.9%. The labor force participation rate has inched up, indicating discouraged workers are dipping a toe in the labor pool, but plenty of discouraged and under-utilized workers would take a job if they can find anything worthwhile. There is still a lot of slack in the labor market.

On the inflation front, the Commerce Department’s Personal Consumption Expenditures (PCE) index shows inflation didn’t budge last year and December’s 1.4 percent reading, the latest available, was well below the Fed’s 2 percent target. The Consumer Price Index is also up just 1.4% through January, but if you knock out energy and food, the core rate came in at 2.2% annualized rate; of course, in the real world, eating food and consuming energy are important.

And if the Fed tightens monetary policy while the rest of the world is easing, the result would likely be disinflationary. Yesterday’s move by the ECB tells us that the Eurozone is having significant problems; after all, this is not the first round of QE from Draghi and so far, 60 billion euro failed to serve as a catalyst for economic growth.

So, what you will likely hear next week is that a recent string of positive economic news has dragged markets back closer to the Fed’s overall outlook, allaying recession fears and further rate hikes this year remain firmly on the table. Go figure.

The U.S. budget deficit was little changed in February, leaving the gap between government spending and revenue near a seven-and-a-half-year low. The government recorded a $193 billion shortfall last month, a period in which expenditures typically exceed revenue as tax refunds are mailed. According to the Treasury Department, that was up only slightly from a $192 billion deficit last February. For the fiscal year to date, the budget deficit is down 9%.

The prices the U.S. paid for imported goods dropped 0.3% in February, and lower energy prices were once more the cause. Excluding fuel, import prices slipped 0.1%. The price of U.S.-made goods exported to other nations declined by 0.2% last month. In the past 12 months, import prices have dropped 6.1%. Lower import prices have contributed to falling U.S. inflation in the past year, though some upward pressure does appear to be building.

The IEA thinks oil prices could’ve bottomed. The International Energy Agency says there are signs energy prices might have put in their lows, as output is falling faster than expected and the supply from Iran is having a smaller impact than expected.

In its latest forecast, the IEA projects that non-OPEC output will fall by 750,000 barrels a day in 2016; it previously forecast a drop of 600,000 barrels a day. The US alone will see a drop in production of 530,000 barrels a day. The agency’s view on prices is a shift from last month’s report, in which it said that crude could sink further as the market remained “awash in oil.”

An important ruling this week in the bankruptcy case of Sabine Oil & Gas; where a New York judge ruled that bankruptcy allows Sabine to cancel contracts it holds with midstream firms on the company’s petroleum licenses in Texas. Sabine held three separate contracts with pipeline firms in Texas, for the transport and sale of oil and gas that the company produced.

These contracts came with clauses like “deliver or pay” features – where Sabine was obligated to send minimum volumes of production through the pipeline, or pay financial penalties to the pipeline operators. Such contracts could have been a stumbling block in bankruptcy – requiring the company to deliver production or cash at a time when its operations have slowed or stopped.

And so Sabine had challenged in bankruptcy court to have the agreements nixed. And the judge agreed. The decision opens the door for Sabine to sever the contracts as it restructures in bankruptcy. With the case giving producers a greater financial incentive to declare bankruptcy, we could see such filings increase.

The political crisis in Brazil caused by the vast corruption probe known as Operation Carwash is moving closer to the country’s president. Dilma Rousseff’s government risks losing an ally in parliament this weekend as the Brazilian Democratic Movement Party seems set to declare its independence from the government at its national convention tomorrow, meaning its members could vote for impeachment proceedings.

The political crisis hit a new high with former president Lula da Silva’s brief detention March 4, deteriorating even further this week as state prosecutors sought a court order for his temporary arrest. Brazilian stocks are at their highest level since August as pressure increases on Rousseff.

The corruption probe centers around Petrobras, the state run oil company in Brazil. It appears that more than $2 billion was siphoned off the books by way of kickbacks and cancelled promissory notes in exchange for contracts with Petrobras, along with outright bribes.

Now, if you’ve been listening to me for any length of time, your next question should be: which banks were involved? And it looks like the ringleader was HSBC, with some assists from Deutsche Bank, Itau Unibanco, Royal Bank of Canada, Citibank, and Banco Bradesco.

The Office of the Attorney General of Switzerland is investigating “over 30 banking institutions in Switzerland that were apparently used to process the bribery payments under investigation in Brazil.” The investigation is looking into the possibility of money laundering, among other possible charges. It is difficult to think about investing in Brazil these days; which might mean that it is time to pay attention. National protests are planned for Sunday, that are expected to draw massive turnout in cities across Brazil.

Germans go to the polls in three states on Sunday, in what is widely being seen as a litmus test for Chancellor Angela Merkel and her refugee policies. But regardless of the results and despite suggestions to the contrary in some media, it seems highly unlikely that Merkel will leave office before her third term as chancellor is up in 2017.

Apple is planning to “loop” the media in on its latest plans at a March 21 invitation-only event at its headquarters in Cupertino. Apple plans to unveil a 4-inch iPhone (expected to be called the SE) at the event, with specs that are much improved from those of the iPhone 5S. The company is also expected to reveal a 9.7-inch iPad Pro and new Apple Watch accessories and software.

Gatorade, the sports drink pioneer which taught the world about electrolytes, is making a major play for the Fitbit crowd. PepsiCo is developing a microchip-fitted “smart cap” bottle and sweat patch that communicate digitally and provide athletes and fitness buffs constant updates on how much they should drink. Gatorade will give an early peek of the prototypes today with a four-room interactive display at the South by Southwest festival in Austin.

Volkswagen plans to cut thousands of administrative jobs in Germany to trim costs as it reported a 4.7% drop in February brand sales to 394,000 vehicles. The cuts would come largely through attrition and early retirement schemes, but not through layoffs.

California lawmakers have voted to make the nation’s most populous state the second to raise the smoking age from 18 to 21 as part of a sweeping package of measures cracking down on tobacco products and electronic cigarettes. “With California having such a huge population, it’s going to be very impactful nationwide,” said Cathy Callaway, associate director of state and local campaigns for the American Cancer Society. Hawaii became the first state to lift the smoking age limit to 21 in January.

Daylight Saving Time rolls around again at 2 a.m. Sunday – but not for Arizona; we have enough daylight. Even so, it could affect your travel or communications with the rest of the country.  It’s also a good reminder to check your smoke alarms.

Financial Review

A Far, Far Better Thing

Sinclair Noe — December 3, 2015

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

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DOW – 252 = 17,477
SPX – 29 = 2049
NAS – 85 = 5037
10 YR YLD + .15 = 2.33%
OIL + 1.33 = 41.27
GOLD + 8.40 = 1062.60

The S&P 500 suffered its biggest drop since late September.

The European Central Bank cut its deposit rate commercial banks must pay to store money overnight to minus 0.3% from minus 0.2%. The ECB left its key lending rate unchanged at 0.05% and the rate on its marginal lending facility at 0.3%. They also announced they will extend their bond buying program until March 2017. But the central bank did not increase the monthly spending on bonds beyond the current monthly level of 60 billion euros, or $63 billion.

With inflation at just 0.1%, unemployment still over 10% and bank lending disappointing, many analysts were expecting more aggressive moves. Now, here’s where it got interesting; the dollar index dropped over 2%, at one point the euro was up about 3% but finished trade with modest gains. Early this morning the Financial Times tweeted and reported the ECB was leaving rates unchanged. Oops. But even after the correction, the euro held on to some of the gains.

Even as the ECB announced fresh stimulus, the Federal Reserve is considering tightening monetary policy. Actually, it is more than just a consideration – the Fed has now done everything they can to communicate that a rate hike is coming on December 16^th. Fed Chair Janet Yellen said yesterday she was “looking forward” to a US interest rate increase.

This morning Yellen spoke to the Joint Economic Council in Washington and repeated the idea that it is a far, far better thing to raise rates. Yellen said that a Fed move to start raising rates will be a sign of “how far our economy has come in recovering from the effects of the financial crisis and the Great Recession. In that sense, it is a day that I expect we all are looking forward to.”

More Americans applied for unemployment benefits in the last week of November. Initial jobless claims rose 9,000 to a seasonally adjusted 269,000 in the period from Nov. 22 to Nov. 28. Weekly claims dipped below the 300,000 mark in February and are now at the lowest levels in years. The government will issue the monthly employment report for November. Economists expect a gain of about 200,000 new jobs.

Global outplacement firm Challenger, Gray & Christmas reports layoffs fell to a 14-month low in November, but total job cuts for 2015 were on track to hit a six-year high. November payroll reductions fell 39 percent from the previous month to 30,953, the lowest level since September 2014. Still, the report brings year-to-date layoffs to 574,888, setting up 2015 to be the worst year for job cuts since 2009.  Reductions in the energy sector, the hardest hit industry in terms of layoffs this year, fell to a 5-month low of 1,355, so maybe the worst of the bloodletting has passed.

The Institute for Supply Management (ISM) said its index of non-manufacturing activity fell to 55.9 from 59.1 the month before. Any reading above 50 indicates expansion in the service side of the economy. Last month’s reading was extraordinarily strong, but this month’s drop was disappointing. New export orders, new orders, business activity, and employment all showed a big slowdown.

The Commerce Department said new orders for manufactured goods increased 1.5 percent on rising demand for transportation equipment and a range of other goods. Orders in September were revised to show them falling 0.8 percent instead of the previously reported 1.0 percent drop. Despite the increase in orders last month, manufacturing looks weak.

The Obama administration expects to start lifting sanctions on Iran as early as January, after the United Nations’ nuclear watchdog found no credible evidence that Tehran recently engaged in atomic-weapons activity. However, the International Atomic Energy Agency did find that the country had pursued a program in secret until 2009, longer than previously believed. The first batch of sanctions relief would end most U.S., European and U.N. financial and energy curbs and free up around $100 billion in Iranian oil revenue that’s being held overseas.

OPEC meets tomorrow in Vienna. Saudi Arabia has reportedly challenged the oil cartel to cut production by 1 million barrels per day, saying it would back output cuts as long as they were supported by countries both inside and outside the cartel. That will be tricky. Iran has already said it plans to hike its production next year, apparently they like the idea of getting paid for the oil they pump.  Iraq’s oil minister said nothing is decided. And remember that OPEC already has a production target of 30 million barrels a day but they have been pumping 32.2 million barrels a day. Oil prices dipped below $40 a barrel yesterday, but moved higher this morning.

Google is nearly doubling the amount of renewable energy used to power its massive data centers. The long-term commitments cover up to 842 megawatts of power that will flow from six different wind and solar power projects scheduled to be finished within the next two years in the U.S., Chile and Sweden. Google has now signed contracts covering 2 gigawatts of renewable energy, enough to power about 2 million homes; putting the company closer to its goal of having 3.6 gigawatts lined up by 2025. Google timed its announcement to coincide with the U.N. conference in Paris that is exploring ways to reduce the volume of carbon emissions.

Yea, that Paris conference is still going on. COP21, the 21^st conference of parties to the UN’s climate treaty-making body, the Framework Convention on Climate Change (FCCC) is still meeting in Paris, trying to save the world from global warming. One of the more interesting things revealed at the conference involves the role of energy in the inequality equation. The report, released yesterday, found that “the richest 1 per cent of the world’s population produces 175 times as much CO2 per person as the bottom 10 per cent” and the richest 10 per cent produce fully half of all carbon emissions.

The conference will produce some progress, but not enough. Nations are making pledges to reduce emissions but even the most ambitious emission pledges on the table would still result in catastrophic climate change, even assuming that all these pledges are fully implemented. Even best-case scenarios seem to point to an agreement that falls short of an action plan to keep the world under 2 C of warming, the threshold scientists overwhelmingly agree can’t be breached in order to avert catastrophic climate change. What’s more, individual countries’ emissions targets won’t be legally binding.

Eight of the biggest U.S. banks have been downgraded by Standard & Poor’s, following a rule approved by the Fed that will require large institutions to hold a stockpile of debt that can be converted into equity if they falter. The credit rating agency said they “now consider the likelihood that the U.S. government would provide extraordinary support to its banking system to be uncertain.” Firms affected include JPMorgan, BofA, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon and State Street.

Target has agreed to reimburse MasterCard and other U.S. financial institutions a total of about $39 million to settle claims in connection with its massive data breach – which exposed 40 million payment cards to fraud – during the 2013 holiday season. The settlement follows a $67 million agreement Target struck with Visa in August on behalf of banks and other firms that issue credit and debit cards.

Chipotle is tightening its supplier standards in the wake of an E. coli outbreak last month, putting its longstanding promise to buy food locally in jeopardy. The company has now updated its website by taking down that description and replacing it with a message on long-term supplier relationships. Chipotle began the prior program in 2008 in a bid to support local farms and sustainable agriculture.

European Union regulators confirmed they have opened a full-blown probe into McDonald’s tax affairs in Luxembourg. At the center of the dispute is McDonald’s Luxembourg franchise company, which the EU says has not paid tax since 2009. Yet the company receives hundreds of millions in royalty payments from across Europe and Russia for the right to use the brand and associated service. And it’s not just McDonald’s, other corporate giants figured out the tax dodge as well, including Starbucks, Fiat Chrysler, Amazon, Apple, Valeant, and of course Pfizer. And it’s not just Luxembourg, it is also Ireland and a few islands between France and Great Britain. At the core it is nothing but a tax dodge, a big scam.

Brazil, the largest economy in South America, and the seventh largest economy in the world is in complete disarray. A bid to impeach Brazilian President Dilma Rousseff has been launched by the Speaker of the country’s lower house of Congress, Eduardo Cunha. Despite her re-election last year, Rousseff’s second term has been marred by a corruption scandal involving her own Workers’ Party that has sent her approval rating plummeting and provoked mass protests.

A sweeping corruption investigation into a multimillion-dollar kickback scheme at the state-run oil company Petrobras has embroiled dozens of the country’s leading businessmen and politicians. The President was the chairwoman of Petrobras during many of the years that the alleged corruption took place. And the economy is falling apart: 3 quarters of negative GDP, a collapse of the currency, huge loses in stocks – with some of the biggest loses coming from the economic powerhouse of Brazil – Petrobras.

Financial Review

The Gravy Boat

Sinclair Noe — November 25, 2015

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

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DOW + 1 = 17,813
SPX – 0.27 = 2088
NAS + 13 = 5116
10 YR YLD – .01 = 2.23%
OIL + .25 = 43.12
GOLD – 4.50 = 1071.90
SILV – .05 = 14.26

We have a boatload, or at least a gravy boat full of economic data before we get into the holiday. Initial claims for state unemployment benefits declined 12,000 to a seasonally adjusted 260,000 for the week ended Nov. 21. Claims have now held below the 300,000 threshold for 38 consecutive weeks, the longest stretch in years, and remain close to levels last seen 42 years ago.

Orders for business equipment climbed more than forecast in October. Bookings for non-military capital goods excluding aircraft rose 1.3 percent, the most in three months, after an upwardly revised 0.4 percent increase in September; non-defense capital goods are considered a proxy for business investment.

So, today’s report shows businesses are spending more on business. It may be too early to call it a trend reversal but cap ex spending had been weak, in large part due to cuts in the energy sector, and also the tendency for companies to indulge in share buybacks rather than plowing money back into the business.

Orders for all durable goods, items meant to last at least three years, climbed 3 percent. Commercial aircraft orders surged 81 percent in October after dropping 32.2 percent a month earlier. Excluding transportation equipment demand, which is volatile from month to month, bookings increased 0.5 percent in October. Stronger demand for computers, heavy machinery, military hardware and jumbo jets offset a dip in auto sales.

Consumer spending edged up 0.1% in October after a similar increase in September. Personal income increased 0.4% last month. Savings increased to $761 billion last month, the highest level since December 2012, from $722 billion in September. A little extra money in the bank may just mean consumers are saving up for the holiday shopping season. If so, it would bode well for cleaning out some of the excess inventory reported in yesterday’s GDP report. This points to a labor market that continues to show signs of recovery even though consumers remain wary.

Still, inflation remains tame. The personal consumption expenditures index, the PCE, was up 0.2%. Year on year core PCE is holding at 1.3%, which is far short of the Federal Reserve’s target of 2% inflation. Still, we expect the Fed to raise interest rates at the December FOMC meeting, but this means that rate hikes will likely take a long and shallow trajectory.

The University of Michigan consumer sentiment index rose to 91.3 in November, up from 90 in October; and while that is a gain, it falls short of the preliminary reading of 93.1. Consumers are feeling decent but not giddy. This follows yesterday’s report from the Conference Board that showed a big drop in consumer confidence. Both reports show consumers are sanguine about current conditions but a bit nervous about future economic prospects.

New single family home sales increased 10.7% in October to a seasonally adjusted annual rate of 495,000. The median price of a new home fell 6% from a year ago to $281,500. New home sales are a bigger driver of economic activity than existing home sales. Today’s numbers show solid, steady, though unspectacular growth, which seems to be a theme in recent economic reports. Still, you have to think there is a cumulative positive impact.

Investors across the world are also watching rising geopolitical tensions between Russia and NATO member Turkey after a Russian SU-24 warplane was shot down by a Turkish F-16 fighter jet on Tuesday. Russia’s Foreign Minister Sergei Lavrov said Turkey may have planned to shoot down the Russian warplane near its border, calling the act “planned provocation.” Lavrov also said Russia will reexamine the entire spectrum of its relations with Turkey because “we can’t leave what happened without a response.”

Russia supplies about half of Turkey’s natural gas, for which Turkey pay’s about $10 billion a year. No doubt the incident will cool business relations between Russia and Turkey but Russia needs the cash; and remember that Russia still supplies oil and gas to Ukraine despite their differences. Beyond that it is important to remember that Turkey is a member of NATO.

In its twice-yearly Financial Stability Review, the European Central Bank has warned that chances of an “abrupt risk reversal” are increasing due to slowing growth in China and the withdrawal of monetary stimulus in the U.S.

European authorities are proposing a system to share the cost of protecting bank deposits, as the FDIC does in the United States, but the European Deposit Insurance Scheme, which would protect savings accounts of up to €100,000-euro, could face opposition from Germany, which has long resisted sharing fiscal risks with other Eurozone countries.

The ECB has additionally announced it will temporarily pause its asset purchase program over the holiday season (December 22-January 1) “to reduce possible market distortions” during a period of “lower market liquidity,” which is to say, they will be closing shop for the holidays.

Minutes from the Bank of Japan’s latest meeting show that some policymakers believe an output gap was one reason the country was taking longer to meet its 2% inflation target, highlighting a lingering worry that quantitative easing may not be working. An output gap is the difference between what an economy is producing and what it could produce if operating at its most efficient. Separately, Japan announced it will raise the minimum wage by 3% to try to stimulate growth.

Andre Esteves, CEO of Grupo BTG Pactual, the largest investment bank in Latin America, has been arrested in Brazil as part of a corruption probe of the state-run oil company, Petrobras; which has lost 80% of its market cap. The government’s leader in the Senate, Delcidio Amaral, was also arrested this morning. Esteves and Amaral are accused of trying to suppress testimony in the investigation into a bribery scheme between Petrobras and the nation’s biggest builders.

More than 100 people have already been arrested, including former top executives at Petrobras and Brazil’s biggest construction conglomerate. And then they started to cut deals with prosecutors by turning evidence on higher ups. Esteves is widely considered the most high-profile figure in Brazilian finance; he is quoted as saying that his company, BTG, stood for “Better than Goldman.” Now the question is whether Esteves can cut a deal by implicating someone even higher up – the president of Brazil.

A federal judge in Manhattan has ruled that General Motors and its law firm, King & Spalding, need not turn over privileged documents to drivers hoping to show that the automaker intended to commit a crime or fraud by concealing defective ignition switches in their vehicles. Most of the documents related to the law firm’s advice from 2010 to 2013 on three crashes involving Chevrolet Cobalts.

Vehicle owners said the deception justified a waiver of attorney-client privilege. The judge found probable cause to believe that GM committed a crime or fraud by hiding the defect from regulators and the public, but did not go the next step to say that communications between GM and the legal firm were made to further such misconduct.

The World Meteorological Organization announced today that 2015 is the hottest year on record, surpassing last year’s record heat. And we still have more than a month left in the year. They made the proclamation without waiting for the end of the year because it has been so extraordinarily hot, forecast to stay that way and unlikely to cool down enough to not set a record.

The World Meteorological Organization is the weather agency of the UN, and they are not alone in their forecast, the US National Oceanic and Atmospheric Administration, NASA, and Japan’s weather agency all say 2014 is the current record hot year with a global temperature of 14.57 degrees Celsius, 58.23 degrees Fahrenheit.

The years between 2011 and 2015 have been the hottest five-year period on record. The record probably won’t last long. Due to the influence of El Nino, which is set to last into the middle of 2016, and continually rising levels of heat-trapping greenhouse gases, which come from the burning of coal, oil and gas, 2016 will be even hotter. The report comes the week before world leaders assemble in Paris to try to negotiate an agreement to fight climate change.

There is some optimism that the Paris summit can move beyond diplomatic posturing. Significantly, investors are beginning to realize that action on climate presents enormous business opportunities. A briefing paper released through the We Mean Business coalition points out that 277 companies with $6 trillion in revenue, and 144 investors with $20 trillion in assets under management, have collectively now made nearly 700 ambitious climate commitments.

The briefing paper  calls for a series of proposals to be included in the text of the Paris agreement to help unlock further flows of finance. These include a goal of net zero greenhouse gas emissions well before the end of the century, strengthening national emissions reduction commitments every five years from 2020, carbon pricing, and improving public policy to scale up private climate finance.

Here’s one way to look at climate change; the internet has been around since the 60’s, and in the 80’s the idea expanded into the World Wide Web. In the 90’s there was talk about building the information superhighway, even though we weren’t quite sure where that road would take us.

There were debates about the cost of building out digital infrastructure and who would bear this huge expense, not who would make fortunes with the business opportunities. It basically boiled down to figuring out how to make money with the technology. Once we wrapped our brains around that, the money started to flow. The same thing is about to happen with Green technology.

Financial Review

A Slightly Older Mindset

Sinclair Noe — August 18, 2015

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

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DOW – 33 = 17,511
SPX – 5 = 2096
NAS – 32 = 5059
10 YR YLD + .05 = 2.20%
OIL + .51 = 42.39
GOLD + .10 = 1118.50
SILV – .45 = 14.97

When Chinese markets catch pneumonia, US markets sneeze. That seems to be the trend lately. And once again, Chinese markets were under the weather as the People’s Bank of China took fresh steps to offset capital outflows prompted by its weakened currency. China’s central bank placed $18 billion worth of seven-day reverse repos into the money market during the session – the largest single day injection in almost 19 months. The latest rout raises fresh concerns that the Chinese economy is in dire need of stimulus. Shanghai -6.1%; Shenzhen -6.6%.

Across the Atlantic, European stocks didn’t perform well either. The German DAX dropped 0.2% and the French CAC fell 0.3%. The devaluation in China probably does not have the dire repercussions some have suggested, but it does fit within the broader narrative of a slowing global economy, with less support from emerging markets. And that, in turn, would indicate rising market volatility. At its peak last week, the VIX Index, which measures volatility of the S&P 500 Index, was up 50% from the previous week’s low. There are bigger moves beneath the surface. During the recent earnings season, more than 5% of stocks in the S&P 500 had a move of three standard deviations or more, roughly double the percentage from a few years ago. Still, for now, volatility remains below long-term averages.

The Greek government appears likely to call a confidence vote in the next few days, casting a shadow over the country’s third bailout program. Although the majority of the Greek parliament backed the bailout deal last Friday, Prime Minister Alexis Tsipras had to rely on opposition parties’ support to get the reforms approved. As such, his position as leader would be in doubt if a confidence vote occurs. Meanwhile, Greece has agreed to sell to a German company the rights to operate 14 regional airports. The deal is the first in a wave of privatizations the government had until recently opposed but needs to make to qualify for bailout loans.

Housing starts edged up 0.2% last month to an annual rate of 1.21 million. That marks the highest level since October 2007 but still below the pre-recession peak of 2 million starts per year. Most of the new construction in July took place in the South. Construction tapered off in the Northeast and the West.

Meanwhile, building permits fell 16.3 percent in July to a 1.1 million-unit pace, that followed three straight months of hefty increases. Single-family building permits slipped 1.9 percent in July. Multi-family building permits tumbled 31.8 percent.

Since the housing market bottomed out in April 2009, construction on multi-unit projects has skyrocketed 466%. Work on single-family homes, which historically have accounted for the bulk of new housing, barely doubled over the same span. What’s more, the percentage of multi-unit buildings under construction has risen to a 29-year high of about 35%. Shortly before the onset of the last recession, they only accounted for about 20% of all new housing stock. The desire to rent can be seen through home-ownership rates collected by the U.S. Census Bureau. The percentage of Americans who owned their own homes at the end of the June fell to 63.5% — the lowest level since the government started to keep track in 1980.

Home Depot reported a better-than-expected rise in quarterly same-store sales. Net income rose about 9 percent; net sales rose 4.3 percent. The company also raised its full-year sales and profit forecast.

Walmart reported weaker-than-expected quarterly earnings and lowered its full-year forecast. Walmart said that reduced reimbursement rates from pharmacy benefit managers were hurting margins in its pharmacy business and cited an increase in “shrink,” an industry term for losses due to theft in the store. Profits have also been weighed down by a decision announced in February to invest $1 billion to lift workers’ pay, or as the company describes it, they are improving employee retention and improving customer service. Same store sales increased 1.5% in the last quarter. Walmart still claims more than 11% of all retail sales in the US.

TJX Cos, the owner of off-price retailers TJ Maxx and Marshalls, reported a better-than-expected rise in quarterly comparable store sales as more bargain-hungry shoppers visited its outlets.

A new survey from CorporateCounsel.net shows CFOs believe that in any given year 20% of companies intentionally misrepresent their earnings using discretion within GAAP. The magnitude of the typical misrepresentation is quite material — about 10 cents on every dollar. While most misrepresentation results in the overstatement of earnings, a full one-third of firms that are misrepresenting are intentionally lowballing their earnings.

Travel from the U.S. to Cuba has already increased 35% since the beginning of January, and the Obama administration is now working on a deal that would allow scheduled commercial flights by the end of 2015. Presently, Americans must take charter trips to Cuba, and their visit must fall into one of 12 authorized categories due to a congressional ban. The new move would loosen the terms of those categories, permitting direct commercial flight bookings between the two countries.

Federal regulators have granted Royal Dutch Shell the final permit it needed to drill in the Arctic off Alaska’s northwest coast. The permit was granted after the company brought in a vessel carrying a device needed to stop a potential well blowout. Shell has spent $2.1 billion on leases in the Arctic and up to $7B on exploration.

Petrobras is expected to face penalties of $1.6 billion or more as part of an investigation by U.S. authorities in a corporate corruption investigation. Petrobras’ settlement may still be a while away. The process is likely to take another 2-3 years.

The two explosions in the Chinese port of Tianjin last week could generate total insurance losses of $1.5 billion. Over 8,000 vehicles worth about $625M were destroyed in the blasts, including cars made by Volkswagen, Toyota, Renault, Hyundai and Mitsubishi, while damage is still being assessed in other sectors. Zurich Insurance, Allianz and other groups say they have already received insurance claims but could not provide an estimate of potential losses.

Petco is going public, again. According to The Wall Street Journal, Petco has filed for an initial public offering nearly one decade after it was taken private. The offering is expected to raise approximately $100 million and give the company a $4 billion valuation. The company previously went public in 1994 and 2002.

Target said it has reached an agreement with Visa card issuers to reimburse up to $67 million in costs related to a data breach at the retailer in 2013. The breach during the holiday shopping season compromised at least 40 million credit cards and may have resulted in the theft of personal information from as many as 110 million people. The agreement comes three months after a proposed $19 million settlement between Target and Mastercard fell through. Financial institutions have sued Target, saying they have spent billions of dollars to replace compromised cards and beef up customer service operations because of the data breach.

Google is getting into the router business. The cylinder-shaped router, named OnHub, can be pre-ordered for $199. The router comes with in-built antennas that will scan the airwaves to spot the fastest connection. With the router, users will be able to prioritize a device so that they can get the fastest Internet speeds for data-heavy activities

California’s worsening drought will cause the state’s economy to lose as much as $2.74 billion and nearly 21,000 total jobs this year-and ripple effects of the 4-year-old drought will likely continue through at least 2017. The $2.74 billion figure reflects the cost to all economic sectors and when multiple effects are considered. According to a new report by the University of California, Davis Center for Watershed Sciences, also revealed that direct costs to the state’s agriculture economy will total $1.84 billion and 10,100 direct seasonal jobs. The 2015 drought will result in the fallowing of 542,000 irrigated acres, mostly in the state’s Central Valley. Total crop revenue losses are projected to reach $902 million this year, and the study estimates that total gross revenue losses from crops under a continued drought will increase to nearly $940 million by 2017. Additionally, drought-related losses for the state’s dairy industry are expected to reach $250 million this year and another $100 million for the livestock sector. It doesn’t look like the report includes the costs of fighting wildfires.

Necessity may be the mother of invention but invention may be the red-headed stepchild of funding. We know that the drought in the Southwest, and especially California, has been a severe problem, but apparently not enough to attract venture capital. From 2010 to 2014, venture firms invested $1.4 billion worldwide in 405 companies working in the area of water technology, that according to data from CleanTech Group i3. Last year, $281 million was invested globally in 66 water technology startups, up 19% from in 2013. By comparison, $20 billion was invested in 1,812 software companies in the US alone in 2014, according to the PriceWaterhouseCoopers MoneyTree Survey.

Each year about this time college students head to campus, and each year about this time we look at the passage of time. According to the Beloit College “Mindset List”, most of the kids heading off to college this year were born in 1997. That was the same year the movie “Titanic” was released, Dolly the Sheep was born, Princess Diana was killed in a car crash in Paris, and the first Harry Potter book was published. Incoming college freshmen believe that Wi-Fi is an “entitlement” and that email is the “new formal communication,” while texts and tweets are considered casual. They have never licked a stamp. There has always been Google and cell phones. “Smartphone shuffles” have always slowed down traffic between classes. Hybrid automobiles have always been mass produced. Surgeons have always used “super glue” in the operating room. “The Lion King” has always been on Broadway. Good luck to the class of 2019 and their teachers.

Financial Review

Chips and Salsa

Sinclair Noe — April 23, 2015

 

Podcast: Play in new window | Download (Duration: 13:15 — 6.1MB)

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DOW + 20 = 18,058
SPX + 4 = 2112
NAS + 20 = 5056
10 YR YLD – .02 = 1.95%
OIL + 1.32 = 57.48
GOLD – 1.00 = 1193.40
SILV + .02 = 15.85

Record highs on Wall Street today. On March 10, 2000 the Nasdaq Composite Index reached an intraday high of 5,132 and closed at 5,048. It only took a little over 15 years to get back to those levels. The Nasdaq is now up 6.8% for 2015. The Nasdaq Composite now trades at 30 times earnings, versus a multiple of 190 in March 2000; not exactly a value play, but not dot-com frothiness. The S&P 500 hit a new intraday high but could not take out the 2117 record close from early March.

The number of people who applied for regular state unemployment-insurance benefits ticked up 1,000 to 295,000 in the week that ended April 18. Also, the government said continuing claims, which show the number of people already receiving weekly unemployment checks, rose 50,000 to 2.33 million in the week that ended April 11.

Sales of new single-family homes dropped 11.4% to 481,000 in March, hitting the slowest pace since November.  Sales of new single-family homes increased about 19% over the past year. However, sales still remain almost 40% below a long-term pace set over 20 years.

Financial data firm Markit said its preliminary U.S. Manufacturing Purchasing Managers’ Index fell to 54.2 in April from the final March read of 55.7. A reading above 50 indicates growth in the sector. And as the manufacturing sector in the US expands, it is contracting in China.

China’s factory activity declined at its fastest pace in a year, according to HSBC/Markit’s Purchasing Managers Index. China said it will open up bank card processing to foreign firms, sending shares of Visa and MasterCard higher. Morgan Stanley thinks the firms could begin operations in China in late 2016 or early 2017. China said Thursday it will scrap export duties on rare earths and some metal products, including molybdenum, tungsten and some aluminum products, effective May 1. Beijing is attempting to boost exports, which fell 15% year-over-year in March.

Tensions continue to escalate in the Middle East. Earlier in the week, Saudi Arabia announced a cease fire in Yemen; that lasted about one day and then the Saudis resumed their airstrikes. The Saudi escalation of its Yemen campaign is producing exactly the kind of geopolitical tensions that push oil prices higher. Toss in US aircraft carriers and a few destroyers in close proximity to Iranian Navy boats that look like they are trying to deliver arms to the Houti rebels in Yemen, and it makes for a volatile mix. Oil prices are near the highs for the year.

The world is still a crazy place. Reuters reports the Russian Defense Ministry claims US troops are now in the conflict zone of eastern Ukraine to train Ukrainian combat troops. And the Taliban has announced that it will launch its annual spring offensive in Afghanistan later in the week; like it’s a supermarket opening or something.

Meanwhile, five years ago to the day, Greece officially submitted a bailout request…Today, Tsipras chats with Merkel. The Greek and German leaders will meet in Brussels in an attempt to reach a deal on Greece’s debt. The longer these negotiations have dragged out, the closer the opposing sides get to some sort of resolution; they haven’t worked it out yet, but they are closer, maybe.

U.S. and British regulators fined Deutsche Bank $2.5 billion and its British subsidiary pleaded guilty to criminal wire fraud for its role in a scam to manipulate the London Interbank Offered Rate (Libor) and its Euribor cousin – together benchmarks for hundreds of trillions of dollars of financial products and loans worldwide.

Brazil’s state-controlled oil giant, Petrobras, reported its long-delayed quarterly and annual results, which have been stalled by a corruption investigation. The overall loss was $7.2 billion in 2014; Petrobras is writing off $15 billion in overvalued assets and $2 billion for bribery related costs. Federal prosecutors have accused the former executives of illegally “diverting” billions from the company’s accounts for their personal use or to pay off officials. More than 80 people have been charged with bribery and money laundering during the criminal investigation, dubbed “Operation Car Wash.”

Dozens of senior officials and politicians are still under investigation. Brazilian President Dilma Rousseff was chairwoman of Petrobras during many of the years when the alleged corruption took place. She denies any knowledge of the corruption. Her popularity has sunk to record lows because of the scandal and Brazi’s poor economic performance. Dozens of other companies including construction and transportation firms are implicated in the scandal, and over 750 projects are now under investigation. And there is a class action suit, of course.

The Comcast-Time Warner merger is in jeopardy. The FCC has called for a hearing on the Comcast-Time Warner merger. According to The Wall Street Journal, the hearing is a sign the FCC feels the $45 billion deal is not in the best interest of the public. The Department of Justice has also recently spoken out against the deal. And today, Bloomberg reported that Comcast will drop the deal.

Today is one of the busiest sessions for earnings reports, so let’s dig in:
After the close, Google reported weaker-than-expected first-quarter profits, hurt by slowing growth and the rising U.S. dollar. (note – this is becoming a common theme.) Google reported revenue of $17.2 billion, up 12% from $15.4 billion in the year-ago period. Profit of $3.6 billion, up from $3.4 billion. On a side note; today marks the tenth anniversary of the first YouTube video. YouTube’s co-founder, Jawed Karim, posted the video of his visit to the zoo. Google now owns YouTube.

Microsoft revenue rose 6.5% from a year earlier to  $21.7 billion, thanks to the inclusion of sales from Nokia’s mobile-phone business, which Microsoft didn’t own a year ago. Microsoft reported net income of $4.9 billion, or 61 cents a share – in line with estimates. That was down from net income of $5.6 billion, or 68 cents a share, a year earlier.

Amazon posted a sales jump of 15% to $22.7 billion, compared with $19.7 billion a year earlier. And they still managed to lose $57 million.

Starbucks reported same store sales were up 7% in the Americas. Earnings and revenue jumped 18%; profits matched estimates.

General Motors came up short on both the top and bottom line; the problems came from Russia, Europe and South America. Despite ongoing legal problems with deadly ignition switches, GM reported strong sales in North America. The big seller is the Tahoe, a big SUV; no rebates, no incentives, 18 MPG. How quickly we forget $100 a barrel oil.

Caterpillar earnings and revenue came in well above estimates thanks to cost cutting and improved sales in North America. CAT raised its earnings per share outlook for the year.

PepsiCo posted net income was flat at $1.2 billion. Revenue fell 3.2% to $12.2 billion. Earnings per share were 83 cents, missing estimates of 79 cents. PepsiCo says currency exchange rates cut its profit by 11 percentage points this year.

3M revenue and earnings missed estimates with sales down 3% from a year earlier. They blamed a stronger dollar.

Procter & Gamble posted quarterly earnings in line with expectations. But revenue came up short for the fifth straight quarter.  P& G blames the strong dollar and warns foreign exchange rates will continue to be a drag on both sales and profit this year.

Southwest Airlines said its first-quarter profit nearly tripled but forecast a decline in unit revenue for April.

Freeport-McMoRan reported a first-quarter loss of $2.5 billion as it recorded one-time charges of $2.4 billion, mainly for the reduction of the carrying value of its oil and gas properties.

A common theme in earnings reports is a strong dollar hurting sales and profits of US companies. Procter & Gamble, the world’s largest consumer-products maker gets the majority of its sales outside North America, leaving the company vulnerable to a dollar that has gained against a number of currencies. 3M, the maker of Post-it notes and Scotch tape earns almost two-thirds of its revenue outside the U.S. General Motors’ struggled with overseas sales. Freeport-McMoRan grappled with lower commodity prices, directly tied to a strong dollar.

You might think that a strong dollar is about to destroy corporate America, and yet the stock market is hanging out in record high territory. Even though we know that companies use a stronger dollar as a scapegoat, it really doesn’t tell us much about their earnings. It is extremely difficult for an individual investor to know if a company was really hurt or just a little hurt by currency exchanges. You don’t know how much a company actually buys in the local currency; for example, if McDonald’s buys its beef and makes its bread in the same country where they sell hamburgers, then it shouldn’t be a big hit to profits. For others, it might be a very big deal indeed. More often than not, it just muddies the earnings news.

Of the 169 Standard & Poor’s 500 companies that have reported so far, 71 percent beat earnings estimates, according to data from Thomson Reuters; and most estimates had been ratcheted lower. But they did so with help from share buybacks, cost-cutting and other measures, instead of strong sales growth. Despite those beats, analysts are now trimming their profit and sales expectations for the second quarter. Revenue in the first quarter has disappointed – just 44 percent of the early reporters topped analysts’ forecasts – and sales are expected to have dropped 3.3 percent from a year ago. Of the early reporting companies for the first quarter, 59 have beaten earnings estimates but missed on sales, with the trend seen in a wide range of sectors.

Second-quarter S&P 500 earnings could slide 1.6 percent from a year ago. That is down from an April 1 forecast for a decline of 0.5 percent. Sales are forecast to fall 3.9 percent in the second quarter, compared with an April 1 estimate for a 2.8 percent decline. Third- and fourth-quarter estimates are also down since the reporting season began. There could still be negative surprises ahead, and most S&P 500 energy companies have yet to post results, and it’s a safe bet that there will be some ugly numbers in the oil patch.  Stay tuned.

Financial Review

How Low Did We Go

Sinclair Noe — March 9, 2015

 

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

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DOW + 138 = 17,995
SPX +8 = 2079
NAS + 15 = 4942
10 YR YLD – .05 = 2.20%
OIL – 26 = 50.00
GOLD – 1.80 = 1167.90
SILV – .20 = 15.83

“How Low Can Stocks Go?” That was the headline in the Wall Street Journal 6 years ago. The Dow was still slogging through 4 straight weeks of losses to close at 6547. The S&P 500 was at a 12 year low of 676. The Nasdaq Composite closed at 1268.

Not many people called it at the time. A few did. John Bogle called it 2 weeks early. Barack Obama called it 5 days early. Mark Haines called it one day late. Of course, after all four tires go flat you might not make the prediction that there will be a fifth flat tire. Nobody was really confident about a bottom until about the end of the year. The current bull market is the fourth-longest on record; it’s also the fourth strongest. When will the bull market end? No idea. I could call the end of the bull market every day, and one day I would be right but that would be a waste off time for all of us.

For now, we have a nice bounce from the sell-off on Friday. Friday we learned the economy added 295,000 jobs last month and the unemployment rate dropped to 5.5%, which should be good news, but the market is perverse, and it clearly demonstrated that it is afraid of the Fed raising interest rates. Back in 2008, the fed took emergency actions including setting a Zero Interest Rate Policy, which pushed investors into riskier and riskier assets by making the alternatives look less attractive. Remember, cash earns virtually nothing in the bank and bond yields are extremely low, so investors flocked to stocks. If and when the Fed actually raises rates, we can expect a full-fledged tantrum, or at least an 80% probability of a 5% or greater pullback.

The New York Times editorial board wrote an op-ed asking the Fed to delay rate hikes. The article outlined several reasons why the Fed should remain on hold, noting “wages have barely budged throughout the nearly six-year-old recovery” and “the labor market is not as healthy as those figures might suggest.”

You could make the case that we have seen excess when the population is willing to pay up to $10,000 for a watch with an 18 hour battery life. Which means that they are going to sell a boatload of them. The watch is basically like a smartphone, shrunk down to fit on your wrist; it has a phone, and apps, and such. This is not the first smartwatch; there are already versions from LG, Pebblewatch, Motorola, and Samsung; and they are selling well. About 10 million smartwatches shipped last year; about 40 million will ship this year.

The other announcements coming out of the big Apple event today: a new, lighter, skinnier Macbook; HBO is joining the Apple TV line-up; Apple said the iPhone was now the top smartphone in the world, having sold 700 million; Apple has tripled locations accepting Apple Pay to 700,000, including vending machines; and yes, you can Apple Pay with your Apple Watch.

Looking to stimulate the eurozone economy and avert the threat of deflation, the ECB began its €60B per month QE program today by buying German government bonds. The goal of the program is to drive up inflation, which has slipped into negative territory and has raised the specter of deflation, a broad decline in consumer prices that can eventually undercut corporate revenue. The European Central Bank has said bonds will be purchased on the open market — not directly from bond issuers, in part to avoid accusations that it is violating a ban on central bank financing of Eurozone governments. And it will wait several days before buying newly issued bonds to give financial markets time to determine a price.

QE does not spread across all the Eurozone. Greece was not invited to the party. The ECB is providing emergency aid to Greek banks, as long a they remain solvent and capitalized; they could pull the emergency lending at almost any time, and they might. The Greek government has not come up with details of a bailout plan, mainly because any bailout plan that would be acceptable to Germany would be catastrophic for Greece. Greek ministers floated the prospect of a referendum if their reforms are rejected. And so, each day the Greeks come up with a new story for why they haven’t put together a concrete proposal for bailouts. Scheherazade would be proud.

Credit rating agencies are changing the way they calculate credit scores. The three largest credit rating agencies (Equifax, Experian, and TransUnion) will be more proactive in resolving disputes over information contained in credit reports — a process federal watchdogs and consumer advocates have long decried as being stacked against individuals. Most changes will be implemented nationally and will kick in over the next six to 39 months.

GM settles with activist investor, Harry Wilson. Wilson will give up his request for a seat on the automaker’s board, in exchange for the company agreeing to buy back $5 billion dollars’ worth of shares.

Also on the buyback bandwagon, Qualcomm announced $15 billion in buybacks. The company has about $31 billion in cash on hand, but might take on debt for the buyback, because debt is cheap these days. And apparently they have forgotten how to innovate.

Tesla has confirmed that it will cut jobs in China as it continues to grapple with slow sales in the world’s biggest car market. Tesla will eliminate 30% of its Chinese staff, or about 180 of its 600 employees. Tesla only sold 120 cars in China during January.

Documents released by a Brazilian court have now outlined the alleged use of Swiss bank accounts for the payment of bribes in the ever-widening Petrobras scandal. Brazilian prosecutors investigating the Petrobras scandal allege former company executives and politicians mostly from the ruling coalition government colluded with the energy group’s contractors to receive millions of dollars of bribes in exchange for business deals.

The Brazilian attorney-general’s office this week sought permission from the supreme court to investigate 54 people, most of them politicians. In Brazil, only the highest court can deal with criminal charges against sitting congressmen. The alleged use of Swiss bank accounts in the Petrobras case is fuelling efforts in Brasília to investigate accusations of tax avoidance by Brazilians at HSBC in Switzerland. This follows raids by prosecutors last month on HSBC’s offices in Geneva over allegations of tax evasion by wealthy clients of its Swiss private banking arm.

Gasoline rose 21 cents in the past two weeks, with the average hitting $2.54 a gallon, according to the Lundberg survey. Prices bottomed out Jan. 23, but they’re still nearly $1 lower than a year ago. Oil prices were up slightly today, 26 cents to $50 a barrel.  Goldman Sachs said it expected oil futures to stay low longer but noted that its earlier forecast for $40 oil may be too low.

OPEC’s top official said Sunday that the cartel’s decision to continue pumping crude in the face of collapsing prices is hurting the U.S. shale-oil industry and that a global pullback on investment could lead to a shortage that will push the market upward again. “Projects are being canceled. Investments are being revised. Costs are being squeezed.” Other top officials at the conference said they would maintain their response of continuing to pump in the face of collapsed prices caused in part by a glut of US shale oil.

Hedge funds cut bets on rising oil prices at the fastest pace since December 2012 as U.S. inventories expanded to the highest in more than three decades. Speculators pared their net-long position in West Texas Intermediate crude by 19 percent in the week ended March 3, U.S. Commodity Futures Trading Commission data show. Short wagers increased to a record for a second week. Oil producers are spending less, idling rigs and delaying wells to stem output that the government predicts will reach a four-decade high this year. That’s having little effect so far, with U.S. crude inventories expanding by 10.3 million barrels in the week ended Feb. 27, the most since 2001.The supply builds are astounding and we’re going to run out of places to put the stuff.

The United States has declared Venezuela a national security threat and ordered sanctions against seven officials from the oil-rich country in the worst bilateral diplomatic dispute since socialist President Nicolas Maduro took office in 2013. Declaring any country a threat to national security is the first step in starting a U.S. sanctions program.

Solar Impulse, an ultralight plane powered only by the sun’s rays, took off from Abu Dhabi this morning in an attempt to fly around the world without using fuel. The 21,000-mile flight is expected to take about 4 months.

Despite all thirty-one global banks passing the first round of the Fed’s stress test last Thursday, a tougher second round test this week, known as the Comprehensive Capital Analysis and Review (CCAR), will either approve or disapprove the lenders’ capital return plans. Last year, Citigroup became the only big U.S. bank to have its plans thrown out, with the Fed citing “insufficient” improvement in areas previously flagged. Other 2014 CCAR losers: Citizens, HSBC, and Santander.

Google has “assembled a team of engineers to build a version of the Android operating system to power virtual-reality applications,” sources told the WSJ.  Last year, Google launched Cardboard, a cheap prototype kit meant to get developers to start writing VR apps for Android.

McDonald’s is pursuing an 18-month effort to turn its business around. In July, it announced it would reposition the brand through better value, service, marketing, and menu options. Now, about a third of the way through its turnaround plan, the effort has focused heavily on marketing and has yet to pay off as same-store sales continue to slide. MCD  reported a 4 percent decline in domestic same-store sales (sales at stores open at least 13 months) for February and a 1.7 percent decline globally. It blamed aggressive competition. While U.S. same-store sales in December and January were up, it appears now that most of this bump probably resulted from better weather than last year’s. Maybe they should consider changing the slogan from “the fast food joint that made America fat.”