FINANCIAL REVIEW

One Foot on the Gas, One Foot on the Brake

Sinclair Noe — January 30, 2015

 

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

DOW – 251 = 17,164
SPX – 26 = 1994
NAS – 48 = 4635
10 YR YLD – .08 = 1.67%
OIL + 3.25 = 47.78
GOLD + 25.00 = 1284.10
SILV + .31 = 17.33

GDP growth slows. The Commerce Department reports fourth quarter gross domestic product grew by 2.6%, down from a very strong 5% growth rate in the third quarter. The results were below consensus estimates of 3% growth. For all of 2014, the economy grew 2.4% compared to 2.2% in 2013.

Consumer spending advanced at a 4.3% pace in the fourth quarter – the fastest since the first quarter of 2006 and an acceleration from the third quarter’s 3.2% pace. The final read on the University of Michigan’s consumer sentiment index was 98.1, down a tick from the 98.2 in the preliminary estimate. That’s still above the 93.6 mark in December and the best reading in 11 years.

Just as consumers were stepping on the gas, businesses were tapping the brakes. Business spending on equipment fell at a 1.9% rate. It was the largest contraction since the second quarter of 2009. The fourth-quarter weakness could reflect cuts or delays to investment projects in the oil industry. But it could also be payback after two back-to-back quarters of robust gains.

A wider trade deficit, as slower global growth curbed exports and solid domestic demand sucked in imports, subtracted 1.02 percentage point from GDP growth in the fourth quarter.

That’s how it works when the rest of the world is moving to QE. Worldwide central bank stimulus now totals over $10 trillion dollars. The new buzz phrase is currency wars, or you could just call it competitive devaluation. Countries are competing against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a currency declines, so too does the price of exports from the country and imports become more expensive. This allows domestic industry and employment to expand.

The downside of this is that price increases for imports can harm citizens’ purchasing power. A policy of competitive devaluation can also result in retaliatory action by other countries, which in turn, can lead to a general decline in international trade. For the US, the problem is that a stronger dollar is slowing GDP growth even as we see the benefits of lower oil prices to counter tougher export markets.

Inflation remains muted in the fourth quarter. In a separate report the Labor Department reports the personal consumption expenditures (PCE) price index fell at a 0.5% rate, the weakest reading since the first quarter of 2009. Excluding food and energy, prices rose at a 1.1% pace, the slowest since the second quarter of 2013. The strong pace of consumer spending in the fourth quarter was overshadowed by a drop in capital expenditure. The PCE is the inflation gauge used by the Federal Reserve, and it is telling the Fed not to rush into raising rates.

In Europe – Deflation. Eurostat today reported the largest decline in consumer prices in the eurozone since July 2009. Consumer prices were 0.6% lower than in January 2014, having fallen 0.2% on an annual basis in December.

European stocks slipped today on the deflation report, but the region’s equity benchmark was still on track for its best monthly performance in more than three years. The Stoxx Europe 600 is up 7.2% for the month of January, which would be its best since October 2011.

Russia’s central bank cut its key interest rate to 15% this morning, after announcing a surprise hike from 10.5% to 17% in December to shore up the weakening ruble.

European Union foreign ministers have extended existing sanctions against Russia, but held off on tighter economic measures for now. Last year’s travel bans and asset freezes will now continue until September. Any sanction require a unanimous vote by all the EU countries. There was some question about whether Greece would approve sanctions, but much of that was misreported. Greece did not oppose sanctions; the EU just never asked the Greeks, and the Greeks did not appreciate being neglected in that manner. It was really symptomatic of how the EU has dealt with Greece for several years now.

Meanwhile, Greece’s new, leftist government opened talks on its bailout with European partners today by flatly refusing to extend the program or to cooperate with the international inspectors overseeing it. Prime Minister Alexis Tsipras has repeatedly said he wants to keep Greece in the euro but he has also made clear he will not back away from election campaign pledges to roll back the terms of the bailout.

A funny thing happened today in the oil market, prices went up, and it was a fast move. There was a big drop in the number of US oil rigs. Baker Hughes reports petroleum producers took 94 oil-drilling rigs off the market in the United States this week as sub-$50 oil continued to wreak havoc on the oil industry. Prices jumped and then many traders probably decided to cover short positions on the last trading day of the month. This week’s drop left 1,223 oil units up, the lowest number in three years. It was the biggest one-week decline for oil rigs since 1987. That year, the oil industry had faced another oil bust that left hundreds of rigs idle or repossessed by banks, which sold them for scrap.

Earlier today, the Commerce Department reported investment in drilling rigs and wells climbed at an 8.9% pace in the fourth quarter after an 8.3% increase from July through September. Prices were going down in the fourth quarter and domestic oil producers were shrugging and pumping more. At least until just recently.

By the way, if you were wondering what lower oil prices mean for renewables, the quick answer is not much. Oil is for cars; renewables are for electricity. The two don’t really compete. The biggest limit to solar installations is the availability of panels. And even as gas prices have dropped, the price for electricity continues to go up. And that is the advantage of solar; as time passes, the efficiency of solar power increases and prices fall. It’s a technology, not a fuel.

And it would be crazy to believe oil prices will stay this low forever. The history of oil prices follows a golden rule: What goes down must come up. Goldman Sachs identified almost $1 trillion in investments in future oil projects that are no longer profitable with oil under $70 a barrel. American drillers are idling rigs faster than they have since 1991. Eventually, supply will shrink and prices will rise again.
Shares of solar and wind companies have been pulled down with oil prices. Still, global investment in clean energy increased 16% last year, to $310 billion. Fossil-fuel subsidies outpace renewable-energy subsidies by a factor of 6 to 1, and this represents a strain on government budgets, and not just here in the US. Reducing the subsidy gap is one of the cheapest ways to increase fuel efficiency and speed up the switch to cleaner energy.

And then that pesky problem of climate change isn’t going away. The U.S. and China reached a historic deal in November to rein in greenhouse gases. Pope Francis is preparing a papal encyclical on climate change, a letter to the world’s bishops that will formalize the church’s moral position on the issue for 1.2 billion Catholics.

With today’s move, oil prices are up 5.8% for the week, but still down 9.4% for the month.

For the week, the Dow was down 2.8%, the S&P was down 2.8% and the Nasdaq down 2.6%. For the month, the Dow was down 3.6%, the S&P fell 3.1% and the Nasdaq was off 2.1%. January marked the worst monthly performance for both the Dow and S&P since January 2014.The Dow has now dropped under support at 17,200 and the S&P has dropped under 2000.

Do you want to know how stocks might perform this year? A widely followed market theory, the January barometer, claims that as January goes, so goes the year. It worked two years ago; January 2013 was a positive month for stock prices, up 7%, and the market went higher for the year by 30%. January 2014, saw stock prices drop by 4%, and it didn’t work – prices were up last year by a little over 11%.

Interestingly enough, while an up January is generally bullish for stocks, a down January is not a reliable predictor of a weak year overall. In ten out of twenty-four weak January years, the stock market actually ended higher, often by a very substantial amount. Indeed, this has happened four times in the last decade alone.

Visa announced an 11.5% increase in profit during the quarter, as a strengthening U.S. job market and cheaper gasoline prices encouraged people to spend. Beating both top and bottom line estimates, net income rose to $1.57B from $1.41B, a year earlier. Visa also announced a four-for-one stock split, cutting its weight in the Dow from 9% to 2.5%.
(Here’s a little quiz. Q: Now that the weighting for Visa is dropping, which Dow Industrial stock has the highest price weighting? A: Goldman Sachs.) (Goldman Sachs and Visa both entered the Dow in September 2013, when the average was last reshuffled. Visa rallied 25% since it joined the gauge on Sept. 20, 2013, while Goldman Sachs gained 3.7%, compared with Dow’s 13% advance. So, Goldman has the highest weighting, due largely to underperformance.)

Shake Shack’s initial public offering priced well above expectations at $21 apiece, and in its first day of trading, the burger chain more than doubled to $48. Underwriters had set an expected price range of $17-$19 per share, up from an initial $14-$16 due to strong demand. At the IPO price, Shake Shack boasted a valuation of about $746 million. Following today’s gain, the market value is more than $1.7 billion. Shake Shack’s debut comes two days after a CEO change at McDonald’s Corp., which is mired in its worst US sales slump in more than a decade.
Next week brings more earnings reports including a slew of energy companies. Monday, we’ll get a report from the Institute for Supply Management. Auto sales are coming out on Tuesday. Next Friday we have the monthly jobs report.

FINANCIAL REVIEW

At Least it Wasn’t a 100 Point Drop

Sinclair Noe — December 15, 2014

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

DOW -99.99 = 17,180
SPX – 12 = 1989
NAS – 48 = 4605
10 YR YLD + .01 = 2.11%
OIL – 2.53 = 55.28
GOLD – 28.30 = 1194.50
SILV – .85 = 16.29

The S&P 500 index traded below its 50 day moving average for the first time since the end of October. At its session low, the S&P 500 was down about 5 percent from its record intraday high hit earlier this month but up more than 8 percent from a low hit in October. Oil continues to be a drag on the stock market, and West Texas Intermediate hit a 5 ½ year low; now down right at 50% from the highs of June. OPEC’s Secretary General reiterated the oil producing organization will not cut production despite the current low prices and glut of supply coming out of the US and elsewhere. That’s leaving supply plentiful and prices low even as demand has been waning.

We have seen the lower prices at the pump and that basically means everybody gets a break, a few extra dollars in your pocket. That’s a good thing. So, why is the stock market reacting badly to lower oil prices? Quite simply there are a lot of companies involved in the energy sector, and that is where we get the drag. Also, the decline in oil prices alongside other economically sensitive commodities, including copper, might signal trouble in the global economy. A sputtering recovery in Europe and concerns about Asia have undercut oil demand even as robust production adds to a global oil glut. The fear is that the drop in oil prices might be a warning of something more sinister in the global economy. And if there are really global economic problems, it could spell trouble for the debt accumulated by energy companies, especially in the high yield market.

In economic news today, the National Association of Home Builders/Wells Fargo released the homebuilders’ confidence index today; it dropped one point to 57. A reading above 50 indicates optimism about new home sales trends. December marks the sixth consecutive month of above-50 readings.

Industrial production rose a seasonally adjusted 1.3% in November. This is the biggest increase since May 2010. The Federal Reserve also made upward revisions to output in the past three months. In November, manufacturing output rose 1.1% with broad-based gains. Output of consumer goods rose 2.5%, the largest increase since August 1998. Utilities output jumped 5.1% on cold weather in the month. Mining output dropped 0.1%.

The Great Recession is officially over, but Americans are still 40% poorer today than they were in 2007, the year before the global financial crisis. According to a new report by the nonprofit think-tank Pew Research Center, the net worth of American families — the difference between the values of their assets, including homes and investments, and liabilities — fell to $81,400 in 2013, down slightly from $82,300 in 2010, but a long way off the $135,700 in 2007. There is also a dramatic disparity in net worth between races. The median net worth of white households was $141,900 in 2013, down 26% since 2007. It declined by 42% to $13,700 over the same period for Hispanic households and fell by 43% to $11,000 for African-American households. One theory for the wealth gap: White households are more likely than other ethnicities to own stocks directly or indirectly through retirement accounts.

The wealth of most Americans has stood still. According to the Bureau of Labor Statistics, in November 2014, the average weekly wage was $853 versus $833 for November 2013. But things are improving somewhat when it comes to housing. According to Black Knight Financial Services, which tracks mortgage performance, nationwide, only 8% of borrowers have homes that are underwater as of October 2014, down from a peak of 35%, or 18 million homes, in February 2011; but 8% still impacts 4 million homes.

Bigger economic news this week will come from Europe, where there will be a presidential election in Greece, which will likely lead to snap elections, which will likely lead to talk of Greece defaulting or making a general commotion in the Eurozone.

Greek Prime Minister Antonis Samaras has brought forward the presidential election to this Wednesday, two months earlier than initially planned. Center-right Samaras needs to get two-thirds of the 300 members of parliament to back his party in either the Wednesday vote or a second round, which is expected just before Christmas. Should he fail, the threshold drops to 180 votes in the third round, possibly held on Dec. 29. If Samaras fails to secure enough support in the third round, parliament must be dissolved, meaning a possible snap election in late January; which seems very possible. And in a snap election, the far-left, anti-austerity Syriza Party is leading the polls. They don’t necessarily want to exit the Euro Union, but the Euro Union might want to kick them out. We’ll see. But the whole thing has really messed with the Greek stock market and threatens the Euro financial theater.

Meanwhile, a snap election was held in Japan yesterday. Prime Minister Shinzo Abe’s Liberal Democratic Party and Komeito, its junior partner in the ruling coalition, won the Lower House election by a landslide. In an election billed as a touchstone for the LDP’s economic policies, the ruling bloc secured a two-thirds supermajority in the 475-seat House of Representatives, giving it the power to override the Upper House. Sunday’s poll was widely seen as a referendum on Abe’s economic policies, dubbed “Abenomics” — a policy mix of radical monetary easing, fiscal stimulus and structural reform vows.

Russia’s currency is plunging yet again today. Currency prices are all about supply and demand. And just about everything that’s transpired in the past year has made the world far less interested in buying Russian money. Last year, one-third of Russia’s exports came from crude oil. When the value of your exports collapse, so does your currency. Worse yet, the Russian government, ever dependent on oil revenue, needs about $100 per barrel to balance its budget. And so, in a rather surprising and dramatic move late today, the Russian Central Bank raised interest rates from 10.5% to 17%. The ruble has lost 18 percent of its value just this month and if the slide continues it might just end up as the worst performing currency of the year—even worse than the Ukrainian hryvnia. Sometimes irony can be completely delicious.

The main event in the US is the Federal Reserve rate decision, where most observers are on the lookout for any change in the central bank’s rhetoric, especially around the timing of a rate hike. No one really expects the Federal Open Market Committee to do anything to the Fed’s ultra-low interest rates when they meet on Wednesday. That’s why most traders will instead focus on any changes to the language in Fed chairwoman Janet Yellen’s statement: Will it finally drop the phrase “considerable time” when discussing when it may make its first rate hike?

One of the thing the Fed should do, if they are really serious about raising rates, is to explain how they will handle the disconnect between the US and the international bond markets, because it is a disconnect that just might lead to a big sell-off in bonds.

US central bank policy makers expect the main Fed funds rate to rise from near zero today to 1.25 per cent by the end of next year, with the first rate rise penciled in for next June. The market projects rates to end 2015 at 0.50 per cent, with the first rate rise in October.

By the end of 2016, the Fed’s policy makers forecast rates at 2.75 per cent, while the market has them at 1.50 per cent. By the end of 2017, Fed policy makers expect rates to be 3.75 per cent compared with market forecasts of 2.0 per cent.

Keep in mind that we are likely to see much more monetary easing in Japan, now that Abe has scored a victory in the snap election. Also, there is a very strong likelihood that Mario Draghi will indeed deliver full blown quantitative easing in the Eurozone early next year, which should keep Euro bond yields in the extremely low to negative range.

But in the US, there has to be risks that yields will rise sharply, should the Fed stick to its forecasts and start tightening policy aggressively in the middle of next year.

With yields on 10-year US Treasuries close to all-time lows and nearly a percentage point lower than they were when the year began, yields surely have only one direction to go — and that is up. If US yields do head north, then yields in other government bonds are likely to follow, despite benign inflationary pressures and the launch of QE by the European Central Bank and continued QE in Japan.

It means 2015 could be a tricky year for fixed income fund managers, particularly those running long-only portfolios. This might explain why absolute return funds have become more popular, as these funds can short the market and use derivatives to protect capital in the event of a blow-up in bonds.

For example, some absolute return funds have bought emerging market credit default swaps to protect portfolios against a sharp jump in yields. I don’t want to play the game of trying to predict where bond yields will be a year from now; that’s a fool’s errand, as the spectacular failure of most bond forecasts this past year proved. But it seems that something big might happen, just because there is a big disconnect between global bond markets.

The US Senate was still at work today because there are a few more pre-holiday tasks ahead. However, there will be no government shutdown as a spending bill was passed Saturday. There were some very strange provisions that were tacked onto the spending bill, but the strangest by far was allowing Citigroup to open a branch office in the cloakroom of the House of Representative. Lawmakers said it was just a matter of convenience and would make it easier to collect their payments and take there marching orders. (not confirmed, it just seems that way)

FINANCIAL REVIEW

Oil and Implications

Sinclair Noe — December 2, 2014

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

DOW + 102 = 17,879
SPX + 13 = 2066
NAS + 28 = 4755
10 YR YLD + .07 = 2.29%
OIL – 1.48 = 67.52
GOLD – 14.30 = 1199.50
SILV un = 16.57

Record highs on Wall Street. The day’s gains were broad, with nine of the 10 S&P 500 industry sectors higher. The only group to fall was telecoms. I think this is the 32nd record high for the Dow this year; pretty soon we’ll be counting them in dozens.

Records for the bond market as well. US corporate bond sales for 2014 have topped $1.5 trillion, setting a new annual record, as borrowers lock in low rates. According to Lipper, investors have poured money into corporate investment-grade funds for 24 straight weeks, with inflows of $880 million for the week ending Nov. 26. Borrowers have offered $1.168 trillion of investment-grade notes in 2014 and $344 billion of junk bonds. Yields on corporate bonds in the U.S. fell to 3.57 percent in June and have since risen to 3.86 percent yesterday.

So, record highs for equities, record issuance for corporate bonds; the story line is that this is a good place to be, and when you look abroad, it makes sense. Yesterday, Moody’s Investors Service cut Japan’s credit rating to A1. Japan is in a recession after a sales tax increase in April destroyed consumer demand, and Prime Minister Shinzo Abe is facing a vote of confidence, and he is likely to retain a majority. As for Europe, well, don’t hold your breath waiting for the ECB to ride to the rescue.

Meanwhile, Russia is headed for a recession. The economic development ministry revised its GDP forecast for 2015 from growth of 1.2 percent to a drop of 0.8 percent. Russian households are expected to take a hit, with disposable income seen declining by 2.8 percent against the previously expected 0.4 percent growth. Sanctions over Moscow’s role in eastern Ukraine are making things worse, hurting Russian banks and investment sentiment in particular. Russia’s economic outlook is at the mercy of the global market for oil, their national budget depends on it.

Another consideration is that Russia and Iran want to escape Western sanctions, meanwhile China continues to demand more oil, and the counterpunch is to trade oil without dollars. We hear warnings that we are seeing the early signs of a transformation in the global monetary system, away from the petrodollar, away from the dollar as the reserve currency. But that hasn’t happened yet, and today the Russian ruble continued its descent to fresh record lows. The result is a very disorderly capital flight from Russia, requiring the Russian Central Bank to step in and buy rubles, and raising the risk of emergency exchange controls. Some Russian banks have already started limiting withdrawals of dollars and euros to $10,000, an implicit lockdown for big depositors. Danske Bank says Russian “funding problems are increasing dramatically,” and “Russia is now flirting with systemic problems.”

Oil prices continued to fall today as a Saudi prince declared that the kingdom would only consider cutting oil production if Iran, Russia and the US agreed to match those cuts because it wants to protect its market share. There is more to the Saudis’ position; they know that low oil prices hurt Russia and Iran, both supporters of Assad in Syria. But today, the Saudi royal line was that falling prices are a result of “over-production everywhere” and not a pre-meditated strategy by Saudi Arabia.

Whatever the cause, the result could be one of the biggest transfers of wealth in history, potentially reshaping everything from talks over Iran’s nuclear program to the Federal Reserve’s policies to further rejuvenate the U.S. economy. Every day, American motorists are saving $630 million on gasoline compared with what they paid at June prices, and they would get a $230 billion windfall if prices were to stay this low for a year. The vast majority of that will flow into the economy, with lower-income households living on tight budgets likely to use money not otherwise spent on gas to buy groceries, clothing and other staples. At current prices, the annual revenue of OPEC members would shrink by about $600 billion, money that will instead stay within the borders of the world’s biggest oil importers, led by the United States, China and Japan.

Although falling oil prices lower inflation, the Federal Reserve claims the low inflation is probably temporary, and they are not altering their underlying judgments about policy. Nonetheless, the slump in oil prices may also help to persuade the European and Japanese central banks to implement further monetary easing as prices remain subdued. It was just about 3 years ago that oil prices, and other commodity prices were on the rise and headline inflation was running a bit higher; back then the argument was to strip out energy from the inflation consideration, and that’s what the Fed did. Meanwhile the ECB did not and they raised rates in Europe, which turned out to be incredibly stupid.

So now that oil is plunging, the same people who saw rising oil as a reason to raise rates should see falling oil as a reason for expansionary policy, right? Not exactly. Now we’re being told to pay no attention to low headline inflation, which they say is just oil, and anyway falling oil prices are a stimulus. So when oil is going up, it’s a reason to tighten policy, and when it’s going down, it’s a reason not to loosen policy.

Meanwhile, the stock market has been hitting record high after record high, corporate bonds are all the rage, and Treasury yields have dropped. Not small moves by the way. From mid-October, equities have surged almost 11% while commodities have fallen 7%. Equity rallies that include a series of record highs after an impressive multiyear advance, which has been the case this year, are usually underpinned by robust economic growth. And last week we saw third quarter economic growth revised higher to 3.9%, which is good; and unemployment continues its steady decline to 5.8%; but it is hardly the sort of economic growth that could be called robust. It doesn’t seem to merit unrelenting records in stocks and it isn’t enough to lift the economy to escape velocity. And if economic performance is really stronger than it looks and feels, and if the stock market is correct in its valuations, then we are setting up a big divergence in bonds and commodities, which are pointing to weaker overall growth.

More and more it looks like equity prices are propped up by share buybacks and dividend hikes and creative accounting, along with the otherwise untouched piles of cash on corporate balance sheets. Meanwhile fixed income investors chase yield and double up on everything with little regard for risk. At some point, the divergences will be brought into balance by economic and policy fundamentals, and that means that we need to see global economic growth if the stock records of today are to be believed, or we will see the bond and commodity markets were right and the stock markets will be dragged down to that level.

In economic news today:
The Commerce Department says construction spending rose 1.1% in October, after having slipped 0.1% in September. Fueling the gains in October was a 1.8% increase in spending on single-family houses. A similar boost in building schools increased government construction spending 2.3%. Total construction spending has climbed 3.3% from a year ago to $971 billion. Still, the solid growth in homebuilding underlines that sector’s weakness during much of the past year. Over the past 12 months, private residential construction spending has risen just 1.9% to an annualized rate of $353 billion.

Ford Motor sales declined 1.8% last month compared to November 2013, the company reported Tuesday. While a slip was anticipated the 187,000 vehicles sold was a weaker showing than anticipated. Ford still sells more trucks than cars or utility vehicles but that figure declined 9.9% to 70,903. The bright spot for Ford – Mustang sales were up 62%.

Chrysler, which is now a part of Italy’s Fiat Chrysler Automobiles, showed a 20% year-over-year increase in U.S. vehicle sales last month for a total of 170,839 units sold. This marks the group’s strongest November sales in 13-years with all five of its existing brands (Chrysler, Jeep, Dodge, Ram Truck and Fiat) posting gains.

General Motors reported a 6% increase in sales delivering 225,818 vehicles in November. Retail sales were up 5% which fleet deliveries grew 11%. Meanwhile the recall troubles continue at GM, as they are recalling 273,182 midsize SUV’s and Buick LaCrosse sedans in the U.S. because the low-beam headlights can cut out, temporarily or permanently. When vehicle in other countries are included, the total climbs to 316,357. The headlight recall brings the total number of GM recalls this year to 79. The total number of vehicles involved is 24.5 million.

FINANCIAL REVIEW

Third Quarter Wrap

Sinclair Noe — September 30, 2014

0 0 

   

Financial Review

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

DOW – 28 = 17,042
SPX – 5 = 1972
NAS – 12 = 4493
10 YR YLD + .02 = 2.51%
OIL – 3.14 = 91.43
GOLD – 6.30 = 1209.70
SILV – .49 = 17.07

We wrap up the third quarter of 2014.

The Dow Jones Industrial Average is up 3.4% year to date; and it is up about 11% from the lows of February. Ten of the 30 Dow stocks are up more than 10% year to date. Eight of the Dow stocks are in negative territory for the year, even after adding in divdends. The best performing Dow stocks are Intel (up 37% ytd) and Microsoft (up 28% ytd). The worst performing Dow stocks are Boeing (down 5% ytd) and United Technologies (down 6% ytd).

The Dow lost 55 points, or 0.3%, for the month, and for the third quarter the Dow added 217 points or 1.3%. The S&P 500 dropped 31 points, or 1.5% in September, and added 12 points for the quarter; and that was good enough for the seventh consecutive quarterly gain, the best run for the S&P 500 since 1998. The Nasdaq Composite lost 87 points, or 1.8%, for the month, but added 85 points for the third quarter. The Russell 2000 index of small cap stocks lost 69 points, or 5.8% in September; and posted a loss of 98 points, or 8.1% for the third quarter.

In other markets: Oil prices dropped from $105.51 to $91.43 per barrel, a decline of more than $14 for the quarter. Gold is down $122 for the quarter. Silver is down almost $4.

The yield on the ten year Treasury note finished the quarter essentially unchanged, but it was a wild ride; one month ago the 10-year yield had dropped to 2.34%. Sovereign bonds around the world beat corporate debt this quarter by the most in three years as consumer-price gains slowed in the U.S. and disinflation threatened Europe. Government securities returned 1.4 percent from the end of June through yesterday, while company debt earned 0.3 percent. But don’t forget the dollar rally; even if you made money in foreign stocks or sovereign debt, you likely have a loss when you try to bring the gains home and have to re-price into dollars.

The dollar index of major currencies rose 0.4% to 85.95. The index has gained 7.7% over the last three months, the biggest quarterly gain since 2008 and a record-breaking 11 successive weeks of gains. Of course a stronger dollar is not always a good thing; it could lead to weaker trade performance, less exports, and more imports. Supposedly a strong dollar is indicative of a strong economy as spending switches from US goods toward foreign goods it will likely result in less output and lower employment than it otherwise would be in the absence of dollar appreciation. In other words, a strong dollar might reduce GDP by almost 0.5%.

Of course a weak currency can be problematic as well, just look at Russia. The ruble is down almost 17 percent against the dollar this year and weakened to a record low this week. The dollar-denominated RTS stock index is in a bear market and yields on government ruble bonds due in 2023 have jumped 1 percentage point since June to 9.42 percent, more than the yield on similar-maturing debt securities sold by Greece.

Net outflows from Russian assets totaled $75 billion in the first half of 2014, compared with $61 billion in all of last year. The Russian central bank is reportedly considering capital controls to limit the outflows. Yuan-ruble trading is growing faster than any other pair of currencies on the Moscow Exchange, and the Russians would like to increase the Chinese currency’s role in local money markets. Some doom and gloomers think that spells the end of the US dollar, but what it actually means is that sanctions are working. The dollar is strong and it dominates world markets.

The S&P/Case-Shiller US National Home Price Index, which covers all nine U.S. census divisions, recorded a 5.6% annual gain in July 2014. The 10- and 20-City Composites posted year-over-year increases of 6.7%. Although all cities but one gained on a monthly basis, 17 saw smaller increases in July as compared to last month.

For those worried that home prices have gotten too high, consider this: In many major cities, prices are still below bubble peaks. In 18 of 20 major US cities, home prices in July were between 3% and 42% below the bubble peaks that were hit in the local markets. Las Vegas is still down 42%, and Phoenix has the second worst recovery, with prices still 35% below the peak. In the most recent Case-Shiller report, Phoenix posted a gain of 5.7% for the past 12 months, and a gain of just 0.3% from June to July.

Consumer confidence fell in September for the first time in five months. The Conference Board, an industry group, said its index of consumer attitudes fell to 86.0 in September from a upwardly revised 93.4 the month before. Consumer confidence was hurt by concerns over the job market and expectations that economic growth will slow in coming months. A variety of factors are impacting consumers. Employers appear to be picking up hiring and laying off fewer employees, but workers are still concerned about their career prospects. Home prices are on the rise, but many households are wary of taking on too much debt, with Americans’ credit-card balances recently hitting the lowest tally in more than a decade. According to the sentiment report: “Tiny wage gains meant that nearly half of all households anticipated declines in inflation-adjusted incomes during the year ahead.”

Even as the U.S. economy reached a milestone in May with employment exceeding the prerecession peak, 29 of 50 states have yet to match that accomplishment. Bloomberg recently compiled Labor Department data shows the weakest jobs rebound has been in the states central to the 2002-2006 housing bubble and the subsequent price collapse. Nevada, Arizona and Florida are among those furthest from their peak employment during the December 2007-June 2009 downturn. The energy industry is driving the economic expansion in 12 of the 13 states leading growth since the recession ended. Leaders include Texas, North Dakota, Oklahoma and Louisiana, with Oregon the only non-energy state among the standouts. Oregon has been boosted by technology manufacturing and fast growth in exports.

Median household income is now 8 percent below what it was in 2007, adjusted for inflation. It’s 11 percent below its level in 2000. It used to be that economic expansions improved the incomes of the bottom 90 percent more than the top 10 percent. Since the current recovery began in 2009, all economic gains have gone to the top 10 percent. The bottom 90 percent has lost ground. We’re in the first economic upturn on record in which 90 percent of Americans have become worse off. And this month, that was reflected in the confidence figures.

Next week the International Monetary Fund hosts a gathering of the top finance officials from around the world. The IMF plans to again revise down its outlook for the global economy next week. Central banks have tried to rev up growth with cheap cash, but printing money can only go so far. The IMF has been arguing for a while that governments must restructure their economies to make them more competitive and capable of consistence growth. Next week they are expected to say that the best idea for many governments is to spend more on infrastructure and invest in roads, bridges, power plants, ports, and other big, expensive projects.

The IMF argues that taking advantage of low borrowing costs to finance infrastructure can boost near-term growth with cash injections and long-term output by increasing the efficient flow of commercial goods. If projects are carefully chosen, that public investment can add two percentage points to growth in industrialized economies, cut debt levels by up to 8% of gross domestic product and increase private investment by a half-percentage point of GDP. The extra debt from financing the projects would be more than offset by the growth returns.

A follow-up on the story about the New York Fed, which is supposed to serve as a banking regulator. ProPublica ran a story about a former New York Fed bank examiner, who noted that her ex-bosses weren’t willing to stand by her claims that Goldman Sachs didn’t have any conflict-of-interest policies, or at least a version that could pass muster. They fired her, but she made secret recordings before she was fired, and now she’s suing. The day this all broke, last Friday, Goldman issued a new conflict-of-interest policy that prohibits investment bankers from trading individual stocks and bonds. That wouldn’t have anything to do with the fact that, like Goldman Sachs itself, one of its investment bankers was on both sides of Kinder Morgan’s acquisition of El Paso, would it? Steve Daniel, a Goldman banker, had an undisclosed $340,000 personal investment, and Goldman Sachs had a $4 billion stake, in Kinder Morgan while both were selling El Paso advice on the deal. And of course there are multiple examples of when Goldman made bets against their clients.

The first case of deadly Ebola diagnosed in the U.S. has been confirmed in Dallas, in a man who was traveling in Liberia and arrived in the U.S. on Sept. 20. The man is being kept in isolation. He had no symptoms when he left Liberia, then began to show signs of the disease on Sept. 24; he was admitted to the hospital on September 26; he is now critically ill. At the same time, another suspected case is being evaluated at a National Institutes of Health facility, the 13th such possible infection in the U.S. All others have tested negative.

There is no approved treatment for Ebola, though drugmakers are attempting to develop vaccines or medicines that could be used in this or a future outbreaks. Current care involves isolating the patient so they can’t infect others, and providing supportive treatment such as intravenous fluids and antibiotics to fight opportunistic infections. There are some drug companies that are working on Ebola vaccines and treatments, and yes, they saw their stock prices jump today. Here’s a quick rundown: NewLink Genetics, an Ames, Iowa, company working on an Ebola vaccine, up 14% today; Tekmira Pharmaceuticals, up about 20 percent; BioCryst Pharmaceuticals, up 12 percent; and Sarepta Therapeutics, up 7 percent.