Yesterday's Gains Wash Away in a Flood of Earnings Data

Charles Schwab: On the Market

Posted: 10/25/2016 4:15 PM ET

Yesterday's Gains Wash Away in a Flood of Earnings Data

U.S. stocks traded lower amid a deluge of divergent corporate earnings reports, while crude oil prices were also under pressure and a read on domestic consumer confidence dropped more than expected. Treasuries were mixed, gold was higher and the U.S. dollar was nearly unchanged. In overseas developments, European equities dipped and stocks in Asia were mixed as the global markets continue to grapple with world monetary and political ambivalence.

The Dow Jones Industrial Average (DJIA) decreased 54 points (0.3%) to 18,169, the S&P 500 Index was 8 points (0.4%) lower at 2,143 and the Nasdaq Composite lost 26 points (0.5%) to 5,283. In moderate volume, 820 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.56 to $49.96 per barrel, wholesale gasoline was unchanged at $1.49 per gallon and the Bloomberg gold spot price gained $9.52 to $1,273.96 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was mostly flat at 98.76.

General Motors Co. (GM $32) reported 3Q earnings-per-share (EPS) ex-items of $1.72, above the $1.48 FactSet estimate, as revenues rose 10.3% year-over-year (y/y) to $42.8 billion, compared to the expected $39.0 billion. GM said it expects full-year EPS to be at the high end of its prior range. However, analyst focus appeared to be on the automaker's performance in Europe and its Chief Financial Officer Chuck Stevens noted that due to the U.K. Brexit vote and ensuing weakness in the British pound, breaking even this year is going to be very challenging. Shares finished solidly lower.

Dow member 3M Co. (MMM $166) posted 3Q profits of $2.15 per share, one penny north of forecasts, with revenues flat y/y at $7.7 billion, roughly in line with projections. MMM lowered the high end of its full-year profit outlook. Shares moved lower.

Dow component Caterpillar Inc. (CAT $84) announced 3Q EPS ex-items of $0.85, exceeding the expected $0.76, as revenues declined 16.4% y/y to $9.2 billion, below the forecasted $9.9 billion. CAT lowered its full-year EPS and revenue guidance. Shares traded to the downside.

Dow member DuPont (DD $70) reported 3Q earnings ex-items of $0.34 per share, topping the estimated $0.21, with revenues rising 1.0% y/y to $4.9 billion, roughly in line with forecasts. DD increased its full-year profit outlook. Shares declined.

Dow component Merck & Co. Inc. (MRK $62) posted 3Q EPS ex-items of $1.07, topping the estimated $0.99, with revenues rising 5.0% y/y to $10.5 billion, exceeding the projected $10.2 billion. MRK raised its earnings guidance for the year. Eli Lilly and Co. (LLY $78) announced 3Q earnings ex-items of $0.88 per share, below the forecasted $0.96, as revenues rose 5.0% y/y to $5.2 billion, versus the estimated $5.3 billion. LLY reaffirmed its full-year EPS outlook. MRK gained ground and LLY ticked higher. 

Dow member Procter & Gamble Co. (PG $87) posted fiscal 1Q earnings ex-items of $1.03 per share, versus the expected $0.98, as revenues were unchanged y/y at $16.5 billion, roughly in line with forecasts. PG reaffirmed its full-year guidance. Shares were nicely higher.

Dow component Visa Inc. (V $82) announced fiscal 4Q EPS ex-items of $0.78, topping the expected $0.73, with revenues increasing 19.0% y/y to $4.3 billion, due to the inclusion of Europe and continued growth in payments volume and processed transactions, compared to the estimated $4.2 billion. V traded lower.

Dow member United Technologies Corp. (UTX $101) reported 3Q EPS ex-items of $1.76, above the forecasted $1.66, with revenues increasing 4.0% y/y to $14.4 billion, exceeding the expected $14.3 billion. UTX raised the low end of its full-year profit outlook, while reaffirming its revenue guidance. Shares are gained ground.

Under Armour Inc. (UA $33) reported 3Q EPS of $0.29, above the expected $0.25, as revenues rose 22.0% y/y to $1.5 billion, roughly in line with forecasts. UA reaffirmed its full-year revenue outlook. Shares fell sharply as some analysts expressed concerns about the slowdown in North American sales growth during the quarter and as the company's revenue growth forecast for 2017 and 2018 disappointed the Street, along with its warning that profit would grow at a slower pace than sales.

Consumer confidence falls

The Consumer Confidence Index (chart) dropped to 98.6 in October from the downwardly revised 103.5 level in September, and compared to the Bloomberg estimate of 101.5. Sentiment toward the present situation and expectations of business conditions both deteriorated. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—declined to 2.2 from the 5.3 posted in September.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Vertigo: Effect of Spiking Healthcare Costs on Consumers, households remain in relatively good shape, with wages and incomes rising and debt levels/debt servicing costs low. But this upward pressure on inflation bears watching. Remember, consumer spending drives nearly 70% of US economic growth. When inflation is rising alongside a robust economy, it doesn't tend to choke off growth. But if it's rising alongside a sluggish economy it puts pressure on the consumer, which in turn pressures the economy. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.1% gain in home prices y/y in August, versus expectations of a 5.0% increase. Month/month (m/m), home prices were up 0.2% on a seasonally adjusted basis for August, above forecasts of a 0.1% increase.

The Richmond Fed Manufacturing Activity Index improved but remained in contraction territory (a reading below zero), increasing to -4 in October from the -8 posted in September, in line with expectations.

Treasuries were mixed, with the yield on the 2-year note gaining 1 basis point (bp) to 0.85%, while the yield on the 10-year note dipped 1 bp to 1.75% and the 30-year bond rate declined 2 bps to 2.50%. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the interest rate environment in her latest article, Are Bond Yields About to Rise?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

Tomorrow, the U.S. economic calendar  will commence with the weekly MBA Mortgage Applications report followed by wholesale inventories, which are projected to tick 0.1% higher m/m in September. Just after the opening bell, Markit's preliminary Services PMI Index will be released, with economists forecasting an October reading of 52.5, up slightly from September’s 52.3. We will round out the day with some housing data in the form of new home sales, with economists expecting a 1.5% m/m decrease during September to an annual rate of 600,000 units.

The political landscape also remains in focus as the November election approaches, and Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Final Clinton-Trump Debate Sets Up a Sprint to the Finish Line, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016, where you can also find timely analysis of The Stock Market and Election Cycles. Be sure to follow Schwab on Twitter: @schwabresearch.

Europe lower, Asia mixed

Healthcare stocks led a decline for European equities as the global markets digested a plethora of mixed earnings reports on both sides of the pond. The British pound fell versus the U.S. dollar amid festering Brexit uncertainty and as Bank of England Governor Carney answered questions in the House of Lords on the economic consequences of the Brexit. However, a read on German business confidence improved more than expected in October, on the heels of yesterday's favorable U.S. manufacturing report. The global markets continued to grapple with world political and monetary policy uncertainty and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, reminds investors, Three Reasons Why Now is Not the Time to Retreat from Global Diversificationand why Your portfolio may be less diversified than you think. Read these articles, at www.schwab.com/oninternational and follow Jeff on Twitter: @jeffreykleintop. The euro ticked higher versus the U.S. dollar and bond yields in the region finished mixed.

Stocks in Asia finished mixed amid a ramp up in earnings reports and yesterday's flood of M&A news and upbeat read on manufacturing activity out of the U.S., while South Korea's disappointing GDP report weighed on its shares. South Korea's 3Q GDP growth slowed to a 2.7% y/y pace from 3.3% in 2Q. Schwab's Jeffrey Kleintop, CFA, offers timely analysis of the global economic picture in his article, World Tour: An Around The World Look At the Economic Landscapeat www.schwab.com/oninternational. An advance for Japanese equities was aided by some weakness in the yen, while Indian stocks traded lower and Australian securities rose with technology, basic materials and financials leading the way. Equities trading in Hong Kong moved to the downside and mainland Chinese listings ticked higher as traders grappled with increased optimism of further government fiscal stimulus and concerns about the crackdown on the real estate sector.

Tomorrow, the international economic docket will include a consumer sentiment read from China, small business confidence from Japan, the Import Price Index from Germany, retail sales from Italy and house purchase loans for the U.K.

Stocks Trim Early Losses but Finish Lower

Charles Schwab: On the Market

Posted: 8/30/2016 4:15 PM ET

Stocks Trim Early Losses but Finish Lower

Domestic stocks finished lower amid heightened monetary policy uncertainty ahead of Friday's highly anticipated labor report, with expectations of a possible one or two rate hike before year end giving a boost to the U.S. dollar to pressure crude oil prices. Gold was lower and Treasuries were mixed, though a better-than-expected read on consumer confidence may have bolstered rate hike expectations. In equity news, the EU said Dow member Apple was granted undue tax benefits in Ireland, while Modelez International halted its pursuit of Hershey.

The Dow Jones Industrial Average (DJIA) declined 49 points (0.3%) to 18,454, the S&P 500 Index shed 4 points (0.2%) to 2,176, and the Nasdaq Composite decreased 9 points (0.2%) to 5,223. In moderate volume, 743 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.63 to $46.35 per barrel, wholesale gasoline declined $0.03 to $1.37 per gallon and the Bloomberg gold spot price decreased $12.03 to $1,311.35 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 96.07.

Hershey Co. (HSY $100) is falling after Mondelez International Inc. (MDLZ $45) announced it has ended discussions with the company regarding a possible combination of the two companies. MDLZ said it determined that there is no actionable path forward toward an agreement following discussions and taking into account recent shareholder developments at HSY. MDLZ traded nicely higher.

Dow member Apple Inc. (AAPL $106) was in focus after the European Union (EU) Commission ruled that Apple was granted undue tax benefits in Ireland of up to 13 billion euros ($14.5 billion). The EU Commission said Ireland must recover from Apple the unpaid tax for the period since 2003 and through 2014, but noted that the amount that Irish authorities should recover could be reduced if other countries were to require Apple to pay more taxes on profits for this period. AAPL and the Irish government both said they will fight the decision. Shares finished lower.

Abercrombie & Fitch Co. (ANF $18) reported a 2Q loss ex-items of $0.25 per share, compared to the expected $0.20 per share shortfall, as revenues declined 4.0% year-over-year (y/y) to $783 million, roughly in line with forecasts. 2Q same-store sales declined 4.0% y/y, versus the expected 4.2% decrease. Shares traded sharply lower after the company said same-store sales are expected to remain challenging through the second half of the year, with a disproportionate effect from flagship and tourist locations.

Potash Corp. of Saskatchewan Inc. (POT $18) and Agrium Inc. (AGU $96) rallied sharply after the two agriculture companies confirmed reports that they are in preliminary merger discussions. The companies said no decision has been made and no agreement has been reached, while there can be no assurance that any transaction will result from these discussions.

United Continental Holdings Inc. (UAL $51) jumped after the airline announced that Scott Kirby has been named president of United Airlines. Kirby held the position of president of American Airlines Group Inc. (AAL $37) since the merger of American and U.S. Airways.

Consumer confidence tops forecasts

The Consumer Confidence Index (chart) rose to 101.1 in August—the highest since September 2015—from the downwardly revised 96.7 level in July and compared to the Bloomberg estimate of 97.0. Sentiment towards the present situation and expectations of business conditions both improved. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—grew to 2.6 from the 0.9 posted in July.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a rise in home prices of 5.1% y/y in June, in line with expectations. Month/month (m/m), home prices were lower by 0.1% on a seasonally adjusted basis for June, matching forecasts.

Treasuries finished mixed, with the yield on the 2-year note losing 1 basis point (bp) to 0.80%, while the yield on the 10-year note ticked 1 bp higher to 1.57% and the 30-year bond rate rose 2 bps to 2.23%. For analysis on the bond markets see our latest article, The Return of the "Bond Vigilantes," at www.schwab.com/insights and follow Schwab on Twitter: @schwabresearch.

Also, for the latest on the subdued market action in the "dog days" of summer, Schwab's Chief Investment Strategist, Liz Ann Sonders offers her latest article, All Summer Long: Will the Extreme Lull in Volatility Persist? at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Ahead of the opening bell tomorrow, the U.S. economic calendar will offer the ADP Employment Change report, forecasted to show private sector payrolls added 175,000 jobs during August, as well as MBA Mortgage Applications. Shortly after trading commences, we will receive the Chicago Purchasing Managers Index, with economists expecting a reading of 54.0 for August, down from the 55.8 registered in July, which will be followed by pending home sales, expected to have increased 0.7% m/m in July.

Europe and Asia higher higher

European equities traded higher, with financials and technology issues leading the way in the wake of the recently boosted U.S. Fed rate hike expectations and eased concerns about the health of the global economy, bolstered by today's upbeat read on U.S. consumer confidence. Also, the euro continued its recent weakness versus the U.S. dollar to aid sentiment, though the global markets remained cautious ahead of Friday's key August nonfarm payroll report in the U.S. However, mining issues saw some pressure, hamstringing the U.K. markets in a return to action following yesterday's holiday, as metal prices were lower and Citigroup offered a bearish outlook for the sector. The British pound dipped versus the greenback, while bond yields in the region finished mixed. In economic news, German consumer price inflation came in cooler than expected for August, while eurozone business and economic confidence slipped for this month. In the U.K. consumer credit decelerated more than expected and mortgage approvals missed forecasts for last month. With global uncertainty remaining elevated to open the door for some possible increased volatility, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly to the upside though conviction remained subdued as the global markets tread lightly amid the recently heightened rate hike expectations in the U.S. ahead of Friday's employment report. Japanese equities dipped following yesterday's rally that was fueled by Bank of Japan's Governor Kuroda's reiterated pledge to deploy further stimulus measures if needed. For more on Japan's potential increased stimulus measures see Jeffrey Kleintop's, CFA, article, What investors need to know about helicopter money at www.schwab.com/oninternational. The downside pressure was pared as Japan reported some relatively better-than-expected July economic data and the yen saw late-day weakness. Japan's overall household spending fell for the fifth-straight month, but by a smaller amount than anticipated, along with retail sales, while the nation's jobless rate unexpectedly dipped. Chinese stocks rose with banking stocks finding support ahead of the sector's earnings releases. Australian securities traded higher, with basic materials and oil & gas issues rebounding from yesterday's declines. Equities in India rallied on optimism that the nation's planned issuance of a new benchmark 10-year bond will boost demand for the nation's debt, per Bloomberg. Finally, South Korean stocks finished higher.

The international docket for tomorrow will remain robust, with releases expected to include industrial production, housing starts, construction orders and vehicle production from Japan, a consumer sentiment read from China, 2Q GDP from India and private sector credit from Australia. Reports from across the pond will include consumer confidence from the U.K., retail sales from Germany and PPI and CPI from France.

Financial Review

No Sense in Wasting Our Time

Sinclair Noe — February 23, 2016

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DOW – 188 = 16,431
SPX – 24 = 1921
NAS – 67 = 4503
10 Y – .02 = 1.75
OIL – 2.09 = 31.30
GOLD + 17.10 = 1226.40

The G20 is meeting this weekend in Shanghai. The US will call on G20 countries later to use fiscal policy in order to boost global demand.  American officials will also urge all members to refrain from manipulating exchange rates for competitive purposes, in line with existing G20 commitments.

The world’s oil giants were meeting today. At a conference in Houston, Saudi oil minister Ali Al-Naimi, considered the world’s most powerful energy policymaker, said production cuts will not happen. Last week, Saudi Arabia, Russia, Qatar and Venezuela proposed a freeze that would cap production at January levels.

But Naimi said: “Freeze is the beginning of a process, and that means if we can get all the major producers to agree not to add additional balance, then this high inventory we have now will probably decline in due time. It’s going to take time. It is not like cutting production. That is not going to happen because not many countries are going to deliver even if they say they will cut production, they will not deliver. So there is no sense in wasting our time seeking production cuts.”

Global production is projected to be 95 million barrels a day in the first quarter of 2016, and consumption around 94 million, according to the EIA.

JP Morgan will set aside an additional half a billion dollars to cover potential bad loans to oil and gas companies in the first quarter. According to a study by Deloitte, thousands of jobs have been cut in the U.S. energy sector and roughly a third of oil producers, or 175 companies, are at high risk of slipping into bankruptcy this year, increasing the risk that bank loans will not be repaid.

JP Morgan expects to set aside an additional $500 million for oil and gas loans in the first quarter, on top of the $815 million it had at the end of 2015; they will also increase reserves for metals and mining loan exposure by $100 million to $350 million.

What worries Wall Street types? A hedge fund called Two Sigma surveyed Wall Street analysts, and here’s what has them losing sleep: a market liquidity event, or a rapid draw-down with losses of more than 20% in one or more assets as market participants try to liquidate positions simultaneously; a hard landing for China, with GDP growth dipping below 3%; sustained global deflation, which would be the big 3 economies experiencing consecutive CPI readings below zero; emerging market sovereign debt crisis with one or more emerging markets defaulting on public debt leading to the risk of contagion; and US corporate credit liquidity crisis, which you probably remember from 2008.

BHP Biliton posted a $5.6 billion first half loss, due in part to a massive write-down of US energy assets. The world’s largest mining company by market value cut its midyear dividend by 74% to 16 cents a share.

Other leading miners and energy giants, including Rio Tinto, Glencore and ConocoPhillips, have cut shareholder payouts in recent months. BHP’s first half loss included an $858 million charge against the Samarco iron-ore mine in Brazil, where a wastewater dam collapsed in November, killing 19 people and polluting 400 miles of rivers.

Home Depot reported a profit of $1.4 billion, up from $1.3 billion a year earlier. Revenue grew to $20.9 billion from $19.1 billion. And Home Depot raised guidance for 2016.

Toll Brothers reported first-quarter net income of $73 million. That was down from its year-ago result of $81 million. The results matched analyst estimates. Revenue increased about 10% and came in better than estimates.

European earnings roundup: Standard Chartered shares plunged after full-year underlying operating income fell 15% to $15.4 billion. Swiss Re posted a 31% rise in 2015 net income, announced the retirement of CEO Michel Lies, and declared a dividend hike and €1-billion-euro buyback. Danone reported a rise in sales for the fourth quarter, boosted by a resurgent performance in its fresh dairy unit in the U.S.

Puerto Rico’s much-delayed audited financial statements for 2014 are expected to be finished and issued by April, Governor Alejandro Garcia Padilla said in a letter to House Speaker Paul Ryan, attributing the tardy submission to “complexities posed by our current financial crisis.”

The S&P Case-Shiller 20-city composite was steady in December, with 10 of 20 cities showing increases in prices for existing homes. After seasonal adjustment, prices rose 0.8%. Over the last 12 months, home prices increased 5.7%, with Portland, San Francisco and Denver each posting double-digit gains. Home prices in Phoenix were up 0.5% in December and up 6.3% for the past 12 months.

In a separate report, the National Association of Realtors reported home resales rose 0.4% to an annual 5.47 million rate in January; that topped expectations of 5.3 million. It was higher than year-ago levels by 11%. Tight supplies pushed prices higher. The median price was up 8.2% from a year earlier in January, the fourth straight month of accelerating yearly price gains.

According to the New York Fed’s quarterly report on household debt, mortgage debt outstanding nearly doubled in the period from 2000 and 2006, but has risen only about 1% since 2012. In 2008 Americans had $12.6 trillion in debt outstanding, of which housing debt made up $10 trillion, or 79% of the total. In the fourth quarter of 2015, there was $12.1 trillion in total debt, and housing’s share had dwindled to 72%, or $8.7 trillion.

One reason is that cash-out refinancing has dropped from around $300 billion a year down to around $30 billion a year, and the small amount of cash-out refi going on is almost completely offset by people repaying second mortgages and HELOCs. Also, the pace of home buying has slowed even as Americans are paying down their home loans.

Another reason is that homeowners are paying down mortgage debt much faster than in previous years, and the reason is that more people are holding their mortgages for longer; people aren’t moving as much as in the past and that means that mortgages are getting older; so payments are further along in their amortization process and principal, rather than interest, is being paid down.

Consumers' confidence fell in February to the lowest level in seven months, as American became a bit more pessimistic about job prospects and business conditions. Stock market losses also added to the anxiety. The Conference Board’s consumer confidence index dropped to 92.2 from a revised 97.8 in January. Consumers’ short-term outlook grew more pessimistic, with consumers expressing greater apprehension about business conditions, their personal financial situation, and to a lesser degree, labor market prospects.

Western Digital will buy SanDisk for $15.8 billion, sticking with plans to combine the makers of memory chips after a potential Chinese investor backed out of another deal amid a national security probe. Western Digital will pay $78.50 a share in cash and stock for SanDisk, 16 percent more than Monday’s closing price.

United Technologies has rejected another merger offer from Honeywell International on concerns it will not be approved by antitrust regulators. Honeywell is said to have offered $108 per share for United Technologies last week, a more than 20% premium to the share price at the time.

United Technologies said the two firms only held “preliminary” conversations. A tie up would have created one of the aerospace industry’s largest companies worth more than $160 billion. However, United Technologies broke off talks because a deal “would face insurmountable regulatory obstacles and strong customer opposition”.

Boeing has won an order from United Continental for 25 current-generation 737 aircraft in a transaction that could be worth over $2 billion at list prices. The follow-on deal comes just weeks after United agreed to buy 40 737-700 jets.

Alphabet is shuttering Google Compare, its U.S. comparison-shopping site for auto insurance, credit cards and mortgages after one year. The quick reversal is a setback to the company’s efforts to provide consumers with niche shopping and financial-services tools, and follows the demise of a similar website called Google Advisor that was shuttered in 2011.

Bill Gates weighs in on Apple’s battle with US government. The world’s richest person shared his thoughts on Apple versus the FBI, and says there should be a debate about whether or not the phone of one of the San Bernardino shooters should be unlocked.

Meanwhile, in the latest edition of their annual letter published today, Bill and Melinda Gates argue that the world needs “an energy miracle,” and are willing to bet that such a breakthrough will arrive within 15 years. In the letter, Gates outlines the environmental and economic quandary that the world faces: a growing population, growing demand for services, and increased energy use.

Each of these factors contributes to rising carbon dioxide emissions, a major driver behind climate change, and there’s no sign that their upward trends will reverse. But Gates argues that we could still avert environmental disaster by focusing on the carbon dioxide produced by energy – specifically, by reducing it to zero.

And even though the energy represents a multi-trillion-dollar market, Gates says the normal venture capitalist model that has worked for biotech and worked for software is not quite right here.” He cited the Breakthrough Energy Coalition – a fund he launched late last year with Facebook CEO Mark Zuckerberg – as a promising new model.

Financial Review

Commodity Crush

Sinclair Noe — December 29, 2015

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

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DOW + 192 = 17,720
SPX + 21 = 2078
NAS + 66 = 5107
10 Y + .08 = 2.31%
OIL + 1.06 = 37.87
GOLD + .50 = 1070.00

The Commerce Department reports the trade deficit grew to $60.5 billion in November – a three-month high – as exports declined more than imports. Exports of goods shrank 1.9% to $121 billion, the second straight monthly decline. Imports dropped a slim 0.2% to $181.5 billion in November. Trade has been a drag on growth in five of the last seven quarters, as the strong dollar and weak global economies have limited exports.

Home values in 20 U.S. cities rose at a faster pace in the year ended October as lean inventories of available properties combined with steadily improving demand. The S&P/Case-Shiller index of property values climbed 5.5 percent from October 2014 after rising 5.4 percent in the year ended September. A limited supply of properties for sale has helped prop up home values.

Prices in Phoenix were up 0.5% from September to October and up 5.7% over the past 12 months ending in October. At the peak in 2006, prices in Phoenix were up 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 55% above January 2000 (55% nominal gain in almost 16 years).

The Conference Board’s consumer confidence index rose to 96.5 in December. In addition, confidence in November was revised higher to 92.6 from 90.4, which was the lowest level in more than a year. Consumers remain positive about the current state of the economy, particularly the job market. The number of people who anticipated more jobs in the months ahead increased slightly while the percentage who expected jobs to be scarce declined.

A new report from Sentier Research takes a look at Census data showing the median annual household income was $56,746 in November. That’s barely above October’s median of $56,688, but it was enough to top the $56,688 reached in December 2007, when the recession began. The bad news is that the median income is 1.1% lower than in January 2000, when record-keeping began. The numbers are inflation adjusted.

Still, the labor market has been showing improvement, even if it barely registers as a blip in wages. The unemployment rate is down 4 percentage points from the summer of 2011, to 5.0%; the median duration of unemployment has been cut in half to 10.8 weeks, and a broader measure of underemployment (the U-6) is 9.9%, down from 16.1%.

Saudi Arabia announced plans to shrink its record $98 billion state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatization. The Saudis are not expected to cut production in 2016. But there are increasing signs that demand might slow much sharper than expected after a spike in 2015. Oil prices higher today after dropping yesterday to near 11 year lows.

Still, it looks like oil is settling in to a range of $30 to $50 a barrel. Energy users everywhere are enjoying an annual income boost worth more than $2 trillion. The net result will almost certainly accelerate global growth, because the beneficiaries of this enormous income redistribution are mostly lower- and middle-income households that spend all they earn.

On the flip side, governments of oil producing countries, such as Saudi Arabia, are cutting public spending even as they run down reserves and borrow from financial markets; and major oil companies are forced to cut back, to the tune of $200 billion this year. And Iran is about to come back online.

A ship loaded with more than 25,000 pounds of low-enriched uranium has left Iran for Russia as part of a deal aimed to limit Tehran’s nuclear program. In a statement, Secretary of State John Kerry said the move was “one of the most significant steps” in fulfilling last summer’s nuclear accord, and it may be only weeks before the agreement takes effect. On “Implementation Day,” roughly $100 billion in Iranian assets will be unfrozen, and the country will be free to sell oil on world markets and operate in the global financial system.

What this means is that the big oil companies like ExxonMobil, Chevron, BP, Shell, and Total are on the ropes. Iran claims it can pump oil for $1 a barrel, and they will, soon. Saudi Arabia claims they can still make a profit under $20 a barrel. The big Western oil companies can’t compete, at least not when it comes to exploration and development of new fields. Shell learned that lesson when it came to developing Artic oil fields, it just didn’t pencil out and they had to abandon that plan at a cost of about $7 billion.

What they could do is provide equipment and technology to oil producing countries, forget about exploration, and maybe go a step beyond and sell their reserves.  That is precisely the strategy of self-liquidation that tobacco companies used, to the benefit of their shareholders. If oil managements refuse to put themselves out of business in the same way, activist shareholders or corporate raiders could do it for them.

As clean energy technology improves and environmental restrictions tighten, it is inevitable that much of the world’s oil reserves will be left in the ground, which means that oil companies are sitting on stranded assets that are, or soon will be, worthless. Redirecting just half the $50 billion that oil companies are likely to spend this year on exploring for new reserves would more than double the $10 billion for clean-energy research announced this month by 20 governments at the Paris climate-change conference. The financial returns from such investment would almost certainly be far higher than from oil exploration.

One of the big themes for 2016 will likely be lower commodity prices. I really don’t like to make predictions and your guess is as good as mine, but here is my thinking: first, commodity prices are in a downtrend and a trend in place is more likely to continue than it is to reverse; commodities, raw materials, the very building blocks of our economies, from oil all the way to copper, are being discounted in price.

Next, demand ain’t what it used to be. For the past 8 years at least demand for raw materials and especially oil has been driven by low interest rate policy which led to over-leveraging and over-borrowing, which led to over-production and over-capacity.

The Federal Reserve threw about $4 or $5 trillion at the economy but they were not alone; the central banks of the Euro Union, Japan, and especially China added in tens of trillions more. In China they built entire cities that sit empty. This over-production is unsustainable and the balloon is now drifting down to earth. And while all the over-production was happening, technology improved efficiency and conservation, further lowering demand.  Eventually, commodities prices will more or less stabilize, but at much lower levels.

And the reality for big oil companies is that they are in a dying business, just like the tobacco companies and the coal companies. Imagine for a moment, the coal company CEO who, ten years ago had the foresight to realize that coal was about to be crushed, and instead had sold off reserves, made big payouts to shareholders and re-invested in almost anything other than coal. It didn’t happen and I don’t expect big oil to do it either, even if it is the smart move.

‘Tis the season to return unwanted holiday gifts — and for retailers to lament the impact of all those boomeranging sales on their bottom lines. Approximately $70 billion worth of products may be returned this holiday season. While retailers can resell some of those items or foist them off on liquidators and discount chains, much of the value of returns is lost as they move through the supply chain. Just how much do businesses lose? Last year, Americans returned about $284 billion in merchandise, according to the National Retail Federation, and anywhere from a quarter to half of that value cannot be recouped, leading to tens of billions of dollars of losses. And fraudulent returns are expected to cost retailers $2.2 billion.

Carl Icahn has sweetened his buyout bid for Pep Boys …, again. And this time the Pep Boys board determined activist investor Carl Icahn’s latest buyout offer was superior to the deal it accepted from Bridgestone. Icahn Enterprises’ latest bid of $18.50 per share values Pep Boys at about $1 billion, while Bridgestone’s previous offer of $17 per share valued the company at about $947 million. The U.S. auto parts retailer has now moved to terminate the Bridgestone agreement.

Two of the world’s largest technology firms, IBM and Microsoft, are vying to tap the fast-growing market for forecasting air quality in China. Bouts of smog enveloping Beijing already prompted authorities to declare two unprecedented “red alerts” this month, and while prediction technology won’t be able to make the air better, it could be a step toward helping the city’s 22 million people live with it. IBM and Microsoft’s advances in “cognitive computing” can provide predictions for the air quality index up to 10 days in advance using data on weather, traffic and factory use.

Financial Review

A Short Week

Sinclair Noe — May 26, 2015

 

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DOW – 190 = 18,041
SPX – 21 = 2104
NAS – 56 = 5032
10 YR YLD – .08 = 2.14%
OIL – 1.37 = 58.35
GOLD – 18.10 = 1188.80
SILV – .35 = 16.82

The S&P/Case-Shiller Home price index shows prices for existing homes rose in March. Both the 10- and 20-City Composites increased significantly, reporting 0.8% and 0.9% month-over-month increases, respectively. Both the 10-City and 20-City Composites saw year-over-year increases in March. The 10-City Composite gained 4.7% year-over-year, while the 20-City Composite gained 5.0% year-over-year.  Phoenix saw prices increase 0.6% in March, and resale home prices were up 3.1% from March 2014.

Sales of new single-family homes climbed 6.8% in April to an annual rate of 517,000 and shoppers have been more active in the first four months of 2015 than any time in the past seven years. Sales surged in the Midwest and in the South. Sales fell slightly in the West and Northeast. New home sales are up 26% compared to one year ago. The median price of new homes, meanwhile, rose 8.3% to $297,300 compared to April 2014.

Orders for durable goods fell a seasonally adjusted 0.5% in April. Orders minus transportation rose 0.5%; that was largely due to a drop in commercial aircraft orders. Orders for core capital goods – a proxy for business investment – climbed 1% to mark the second straight gain. U.S. companies and manufacturers in particular had been hurt by a stronger dollar, weak global growth, a sudden drop in oil-patch investment and a long-running West Coast port dispute that ended earlier this year. So the spring back in business investment could be a good omen. Still, U.S. business investment is running 2.5% behind last year’s pace through the first four months of 2015.

The Conference Board reported a slight rise in consumer confidence in May. Its index rose to 95.4 from 94.3 in April.

Fed Vice-Chair Stanley Fischer says it’s “misleading” to give so much importance to the Fed’s first interest rate hike, since the process of returning to a more normal level will take a few years. Speaking at a conference in Israel, Fischer said any upcoming hike will be determined by data and not by date. Fischer expects the Fed to follow a “gradual and relatively slow” trajectory of short-term interest-rate increases over the next three to four years to bring borrowing costs back to “normal” levels.  Friday, Janet Yellen made clear the central bank was poised to raise interest rates this year, but also stressed that economic data would determine the tightening process. So, the good economic news, combined with the jawboning from Yellen and Fischer, points to the Fed raising rates; and the markets threw a little tantrum. This will not be the only tantrum we will see. Fischer said, “The actual raising of rates could trigger further bouts of volatility,” but it should prove manageable.

And that combo strengthens the dollar. And when the dollar goes up, oil goes down; generally speaking of course. Also factoring into the equation is the old story of supply and demand. Supply might be increasing.  The decline in drilling activity in the US that has been ongoing for 24 weeks appears to have stopped. Data from the driller Baker Hughes showed that the oil-rig count fell by just one, the slowest pace seen during this streak. The weak hands in the oil patch have largely been taken out.

Also, on Sunday, Iran said the Organization of the Petroleum Exporting Countries (OPEC) was unlikely to change its production ceiling at its meeting on June 5. Meanwhile, Iraq has announced intentions to increase oil exports next month, from just under 3 million barrels per day to a record 3.75 million barrels per day. Intentions are not a guarantee of future production, but it looks like the Iraqis are trying to raise money for their fight against ISIS. Of course, if Iraq can’t do better in their fight against ISIS the entire output could be challenged.

Chinese shares marched higher in yet another session today, after the country announced over the weekend it would allow funds domiciled in Hong Kong and China to be sold in each other’s market starting July 1. China also said it would cut duties by as much as 20% on some imported goods in a bid to boost consumer spending at home; the cuts in tariffs are for goods considered necessities, and will not apply to luxury goods.  The Shanghai Composite rose 2%, taking its six-day rally to over 14%.

The mystery in Hong Kong continues after Goldin Properties surged as much as 43% today, after plunging more than 40% this past Thursday, along with a related company, Goldin Financial. The companies had no explanation for the decline. Even with the wild swings, the shares are up about 500% in the past year. Also last week, Hanergy Thin Film Power fell 47% before trading was halted; still no information behind that move.

Venezuela’s currency, the Bolivar, has collapsed. Venezuela has maintained strict currency controls since 2003 and currently has three legal exchange rates of 6.3, 12 and 199 bolivars per dollar used for priority imports. On the black market, where people and businesses turn when they can’t obtain government approval to purchase dollars at the three legal rates, the bolivar has weakened 82 percent in the past year. At the start of the month, Venezuelans could exchange 279 bolivars for a dollar, and today that has dropped to 423 bolivars per dollar. To put it simply, it appears that Venezuelans have lost all faith in the bolivar and seem willing to pay whatever it costs for greenbacks.

In the Eurozone, the Greek economy is on razor watch. The Greeks are bankrupt and they have big payments due next week. They do not have money to pay. For now, Greece is held together with Band-Aids and bailing wire as it borrows money from the Troika to make loan payments to the Troika. It is the classic debt trap tactics of loan sharks. At some point, the Troika will have to show compassion or this will end badly for all concerned.

Meanwhile, Tom Hayes went on trial today. Hayes is the former star trader at UBS and Citigroup, and he is the first person to face trial over allegations of rigging Libor interest rates. There are 20 more traders that are facing charges for rigging Libor. Hayes traded in yen-denominated interest rate derivatives tied to Libor, essentially betting against other traders on the direction of rates. What really makes Hayes’ case interesting is that when he was arrested, he claimed that if he went to trial, he would spill the beans on higher ups in the banks; and he implied that knowledge of rate rigging went all the way to the top of the corporate hierarchy. We shall see.

Charter Communications agreed to buy its larger rival Time Warner Cable for $56 billion. The offer is valued at about $195 a share, a 14% premium to Time Warner Cable’s last closing price. Including debt, the deal is valued at $78 billion. The deal comes a month after Time Warner Cable went back on the block after Comcast terminated the companies’ planned $45 billion merger in the face of serious pushback from Washington regulators. Charter would probably face antitrust scrutiny before its deal with Time Warner Cable could be approved, although it is unlikely to face the same level of resistance as Comcast. Charter will also continue with its separate, cash-and-stock bid to acquire Bright House Networks, a smaller competitor, for $10.4 billion. The two acquisitions would approximately quadruple Charter’s base to about 24 million customers or about 30% of the nation’s broadband customers, compared with Comcast’s 27 million.

People are watching less live TV, and ratings are down. Americans are tired of paying for expensive cable bundles that come with hundreds of channels they don’t watch. Americans are streaming more video online than ever. As a result, an increasing number of Americans are cutting the cord, or even choosing never to subscribe to cable when they move into a new home. TV subscriptions may be declining, but broadband internet is booming. During the first quarter of the year, the same three-month period that saw the decline in TV subscriptions, the 17 largest cable companies in the country, which make up 94% of the market, added 1.2 million broadband subscribers. Providing internet is a higher-margin business than providing TV. Internet providers have costs but they don’t have to pay high fees to networks like ESPN, TNT, and The Disney Channel. And high speed internet is even less competitive than TV; according to the FCC, nearly 75% of households in the US have one or no options for broadband.

Bowing to regulatory pressure, Amazon has begun booking European revenue in the countries in which sales were recorded, rather than funneling it through the low-tax haven of Luxembourg. The change, which could have a big long-term effect on Amazon’s EU income tax payments, went into effect on May 1. The company’s move could be a sign of things to come: Apple, Google, Microsoft, Starbucks, and a slew of other U.S. multinationals have also come under fire for their use of tax havens to cut their EU tax bills.

Fiat Chrysler Automobiles CEO Sergio Marchionne made a direct approach to General Motors about a merger last March. An e-mail from the Fiat-Chrysler CEO pitched the strategic advantages of a combination of the two auto heavyweights, but was rebuffed by GM.

Justice Department investigators have identified criminal wrongdoing in General Motors’ failure to disclose its defective ignition switch tied to at least 104 deaths and are negotiating what is expected to be a record penalty. The New York Times reports a final settlement number is still being negotiated but is expected to exceed the $1.2 billion paid last year by Toyota for concealing unintended acceleration problems in its vehicles.

Heavy rains and flooding have killed at least nine people in Texas and Oklahoma, and 12 were missing. Thirteen people were killed in a tornado in Ciudad Acuna, Mexico, near the Texas border. More than 10 inches of rain flooded Houston, freeways were closed, most public transit was suspended, flights were cancelled. Most Houston school districts were closed for the day. The storms also caused power outages. The storm was part of a system that swept east from central Texas, where it caused flooding in downtown Austin and the surrounding area Monday.

Financial Review

Fixing the Unbroken

Sinclair Noe — March 31, 2015

 

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

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DOW – 200 = 17,776
SPX – 18 = 2067
NAS – 46 = 4900
10 YR YLD – .03 = 1.93%
OIL – 1.15 = 47.53
GOLD – 2.30 = 1183.70
SILV – .06 = 16.73

The S&P/Case-Shiller 20-city home price index showed steady gains in January, up 0.9% from December. Compared to January 2014, prices were up 4.6%.  In Phoenix, resale home prices were unchanged from December to January, and posted a year-over-year gain of 2.6%.

The Conference Board’s consumer confidence index moved up to 101.3% in March from an upwardly revised 98.8 in February. The present situation index, a measure of current conditions, actually fell to 109.1 from 112.1. Yet the future expectations index increased to 96.0 from 90.

We’ve seen quite a bit of volatility in the markets lately. Today marks the 16 session in the month of March where the Dow Industrial Average has closed with a change in excess of 100 points. That is the second most of any month in history; following 20 triple digit moves in October 2008.

Sell in May and go away. You’ve probably heard this stock market advice. The idea is that you can divide the year into the best six months and the worst six months for the stock market; and we are now heading into the worst six months. Like most indicators, it is a measure of probabilities, not a guarantee. Mechanical selling on the last day of March and then buying back in on the last day of October only produces a slight advantage in returns but it eliminates a bunch of risk. Waiting for a market signal, such as a slight downturn in March to sell and a slight uptrend in October to buy produces a significantly better return; and even better, this market-beating return was produced with 39% less risk, which means it’s even further ahead of buy-and-hold on a risk-adjusted basis.

Today ends the first quarter for 2015. The Nasdaq posted gains of 3.5 percent for the quarter, marking the index’s first nine-quarter winning streak. The S&P eked out its own nine-quarter run with a gain of 0.4 percent last quarter. The Dow was negative for the quarter, down about one-quarter of one percent.

The S&P 500  finished the quarter with a small gain; marking the ninth straight quarterly advance for the S&P 500, and the longest winning streak since 1998. The index has only had three other stretches that long since World War II. That’s good news for bulls because the previous three times the market notched a nine-quarter winning streak, the S&P 500 index averaged an increase of 8.1 percent in the 10th quarter. The measure is still down 1.9 percent from a record on March 2 and among the worst performers in 24 developed markets this year.

Of course, the big market mover for the quarter was oil, which dropped from $55.50 a barrel to today’s close of $47.53, a loss of $7.97, or just over 14%. Today marks the deadline for negotiations between Iran and Western Nations to find a resolution to a 12-year standoff over Iran’s nuclear program. And there has not yet been a resolution, so it looks like there will be an extension of the deadline. That is actually considered positive news; the talks would not have been extended if there was no hope for an agreement. There’s some speculation that Iran will be able to release a lot of oil into the world if a deal is reached; good news for drivers, maybe.

The Stoxx Europe 600 index is up 17 percent in the first quarter of 2015. If that gain holds to the end of the day, it will be the best Q1 for European stocks since 1998. German, Italian and Portuguese stock indices are all up more than 20 percent in the quarter.

Asian equities are off to a winning start this year, with China and Japan stealing the show in the first quarter. Abundant global liquidity, provided by the BOJ and ECB, combined with interest rate cuts by several central banks in the region and lower oil prices have bolstered sentiment towards Asian equities. China’s Shanghai Composite has rallied 17% so far this year and expectations of further stimulus will likely buoy the market going forward. Japan’s Nikkei Index was the second top performer in the region, up 13% YTD, benefiting from the central bank’s QE policies and the shift by the country’s pension funds out of bonds and into equities.

Giving his second speech on the topic since Friday, Fed Vice Chairman Stanley Fischer declared that regulators must better monitor and consider new rules for the growing proportion of lending being done within the shadow banking sector. Fisher said: “Non-bank firms and activities can pose the same key vulnerabilities as banks, including high leverage, excessive maturity transformation, and complexity, all of which can lead to financial instability.” The Financial Stability Board stated in a November report that U.S. financial assets held by non-banks reached $25.2 trillion in 2013, exceeding pre-crisis levels.

Recently, we talked about the poor outlook for earnings; both revenue growth and earnings expectations have been ratcheted down for the first and second quarters. Of course one sector feeling the brunt is energy, no surprise there. One of the sectors that had been expected to grow earnings was the financials – but not so fast. Banks, looked to as a bright spot for the upcoming earnings season might not live up to expectations, according to an analysis from Goldman Sachs. The firm’s analysts cut profit outlooks for three of the top four money center banks on Wall Street: BofA, JPMorgan, Citi, and Morgan Stanley. Collectively, Goldman expects the biggest challenge to the banks this year coming from decreased capital markets activity, a worsening macro outlook and increased regulation.

And while we’re on the topic, it is time for today’s edition of “Banks Behaving Badly,” featuring a familiar name, HSBC, the UK’s biggest and possibly worst. HSBC gained notoriety for money laundering a sanctions violations in a 2012 settlement that resulted in a $1.9 billion fine; it was not enough to warrant jail time, but it did result in a deferred prosecution agreement and the Department of Justice installed a monitor in the bank to make sure they operated according to slightly higher standards. The monitor has put together a 1,000 page report that chronicles HSBC’s failure to clean up its act, including failure to upgrade its IT systems, and forging documents. And just to clarify, this report is unrelated to the recent revelations about the way HSBC’s Swiss private banking arm helped clients avoid and evade tax, in some instances by moving bricks of cash around the financial system.

Senator Elizabeth Warren is well known for her opinions on the need for more bank regulation. In 2013, she met with JPMorgan CEO Jamie DImon. In a new afterword for the release of the paperback version of her book A Fighting Chance, Warren recalls that the tenor of the conversation between the two policy adversaries soured when Dimon complained about financial regulations that she has supported. At one point in the conversation, Warren told Dimon, “I think you guys are breaking the law.” Dimon reportedly replied, “So hit me with a fine. We can afford it.”

Indiana Gov. Mike Pence said today that he will back an amendment to the state’s new “religious freedom” law clarifying that it does not allow businesses to deny service to anyone, and insisted that he never intended to discriminate against members of the lesbian, gay, bisexual and transgender community. Pence said he wants the General Assembly to move legislation this week that would make it clear that businesses are not allowed to deny services to anyone. He continued to insist, however, that he does not support adding protections explicitly barring discrimination on the basis of sexual orientation and gender identity. In Indiana, major companies like Twitter and the NCAA, as well as Apple CEO Tim Cook and several others, have spoken out against the law.

Arkansas passed a religious freedom bill today that is similar to an Indiana law that has faced national backlash for legalizing discrimination against lesbian, gay, bisexual and transgender people. The bill cleared the Arkansas Legislature and now heads to the governor’s desk, where it is expected to be signed. In Arkansas, both Walmart and Acxiom, a big data company, have spoken out against the legislation.

Blackstone has agreed to pay more than $1.3 billion to a consortium led by Paulson& for three large hotels. The sale includes the Ritz Carlton and J.W. Marriott in Orlando, Florida and the J.W. Marriott in Scottsdale, Arizona.

Go Daddy is scheduled to hit the markets tomorrow. Go Daddy is expected to price its 22.0 million share IPO within a range of $17-$19, with Morgan Stanley, JP Morgan, and Citigroup acting as lead underwriters on the deal. The ticker symbol will be GDDY. The Scottsdale based company has been around for 18 years. Back in 2006, GDDY tried to launch an IPO but the company cited poor market conditions at the time. Since then there was a shake-up in management with the CEO stepping down in 2011 and then private equity firms acquired the company for $2.25 billion.

The company’s bread and butter is internet domain name registration; they have about 59 million domains under management, or about 21% of all current domain names in the world; they also offer web design services, hosting and security tools. Go Daddy has about 13 million customers, and about 28% are international, mainly Canada, the UK, and India. They still have room to grow in the US; more than half of small businesses in the US do not have a website, and many of the companies that have a website have little or no mobile capabilities. For fiscal year 2014, the company grew revenue 23% to $1.39 billion, which is impressive but still not enough to turn a profit; Go Daddy posted a loss of $61 million, down from a loss of $131 million the year before. And the company is still dealing with debt of around $1.4 billion.

Financial Review

Gulliver’s Travels

Sinclair Noe — February 24, 2015       

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DOW + 92 = 18,209
SPX + 5 = 2115
NAS + 7 = 4968
10 YR YLD – .07 = 1.99%
OIL – .29 = 49.16
GOLD – .50 = 1202.30
SILV – .01 = 16.41

The Dow Industrials and the S&P 500 hit record high closes. The Nasdaq rose for the tenth straight session, its longest streak since July 2009. The Russell 2000 Index of small cap stocks closed at a record 1233.

Fed Chair Janet Yellen testified today before the Senate banking committee in her semi-annual report on monetary policy. Yellen said the Fed is preparing to consider interest rate hikes “on a meeting-by-meeting basis.” Yellen described how the Fed’s rate-setting policy committee will likely proceed in coming months: first by removing the word “patient” in describing its approach to rate hikes, then entering a phase in which rate hikes are possible at any meeting. That approach could open the door to an interest rate increase as early as June, but short-term rate futures contracts showed traders had shifted their expectations of an initial rate hike from September to October. And the yield on the ten year Treasury note slipped down below 2%. So, the markets players are placing their bets.

Yellen said she felt labor markets and other key economic indicators “have been increasing at a solid rate.” However, she said she still feels the job market is not fully repaired. The lack of inflation has made some Fed policymakers hesitant to commit to raising rates. Whether Yellen was more hawkish or dovish than in the past is a matter of interpretation or even wishful thinking, but it seems clear the Fed will rely on incoming data and they will communicate their intentions well in advance. Yellen will appear before the House Financial Services Committee tomorrow.

Greece sent a list of economic reform plans to the Eurogroup of euro zone finance ministers around midnight, just making a deadline set by its international creditors. Euro-region finance ministers approved Greece’s package of economic measures and paved the way for a four-month extension to the country’s bailout agreement, keeping its financial system afloat. The list of commitments includes maintaining current state-asset sales, consolidating pension funds to reduce costs and revamping tax collection and administration. In other words, the Greek Syriza party just agreed to the status quo for the next four months. But there is a problem; the status quo has been a horrible failure; it was what the upstart party ran against; the status quo is what the Greek electorate voted against.

The text of commitments states: that “the Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and timely.” The agreement goes on to state:  “The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.”

And to assure there is no rollback, the funds will be held by the European Financial Stability Fund and only released on request by the ECB. So, the Greeks don’t actually get the money, it will be dished out to recapitalize the banks, and only then if the Greeks don’t get uppity.

It is hard to imagine that this will go over well with the voters in Athens.

House prices edged up 0.1% in December to take the year-on-year change to 4.5%, according to the S&P/Case-Shiller 20-city composite. Miami and Denver saw the strongest monthly advance. Compared to year-ago levels, San Francisco saw the strongest growth with 9.3% gains. Phoenix house prices were up 0.2% for the month, and up 2.4% year over year.

HSH.com took the median home price data from the National Association of Realtors for major cities and then compared that to the median income to determine housing affordability. In 11 of 27 major cities, people need to earn more than the median income to afford a house. The median household income was $54,417 in December 2014. The median household income in Phoenix was $43,960 in 2011. And the new data suggest you would need income of $40,658 to buy a median priced home. San Francisco is the least affordable major metro area. Pittsburgh is the cheapest, but then you would have to live in Pittsburgh.

Meanwhile, a new report from Zillow shows rents are increasing by 3.3% year over year, as of January. According to Zillow, monthly rents have grown at roughly twice the pace of wages in the U.S. since 2000. That means Americans are having to spend a greater share of their income on rent, about 30%, versus 25% in the past. Nationwide, you would need to stay in a home for about 2 years before ownership becomes cheaper than renting.

The Conference Board’s consumer confidence index fell to 96.4 in February from a revised 103.8 in January, which marked a 7 ½ year high. A slight bump in gasoline prices might be responsible for curbing enthusiasm.

Financial data firm Markit said its preliminary, or “flash,” reading of its Purchasing Managers Index for the service sector rose to 57.0 in February from 54.2 in January.

President Obama issued his third veto today, rejecting legislation that would allow construction of the Keystone XL pipeline. The Senate has agreed to hold a vote on overriding the veto.

It was Investors Day at JPMorgan Chase, but apparently not Depositors’ Day. JPMorgan is preparing to charge an array of financial firms, including hedge funds, private-equity firms and foreign banks, for some deposits, citing new rules that make holding money for the clients too costly. Certain deposits are less profitable to handle than they used to be due to new federal rules that can penalize banks for holding deposits viewed as prone to fleeing during a crisis or a stressed environment. So, the bank will eliminate about $100 billion of deposits that it holds for international clients. JPMorgan will is also reducing expenses and “simplifying” its biggest business lines. And part of the cost cutting plan is to close 300 branches, or about 5% of the total, over the next 2 years.

And on Investor’s Day, once again management had to field questions about a possible breakup of the bank. Naturally, the bank concluded that a break up would be terrible. So many synergies would be lost — synergies that JPMorgan’s peers don’t enjoy because they’re simply not as big.

Two agencies, the US Department of Justice (DoJ) and the Commodity Futures Trading Commission (CFTC), have launched separate probes into at least 10 major banks for the possible rigging of precious-metals markets. The banks are accused of collusive behavior, whereby personnel from various establishments communicate with each other and coordinate trading behaviors so that prices move according to what they decide. Banks historically set the price of precious metals, which include gold, silver, platinum and palladium, twice a day using the daily precious metal fixes, also known as the London Fix.

If it all sounds familiar, it is because it follows the same pattern as the manipulation of the Libor, Euribor, ISDA or derivatives, and Forex markets.

One of the 10 banks under investigation for rigging precious metals markets is HSBC. They just reported earnings that badly missed estimates. Part of the reason for the miss, is all the money they have to pay in fines. HSBC has set aside another $550 million to cover potential fines for alleged manipulation of foreign exchange markets and warned it could face a $500 million bill to compensate US customers for debt protection products it offered before May 2012. HSBC paid $611 million to global regulators in November when it was one of six institutions fined over allegations of price fixing and manipulating benchmarks in the $5 trillion-a-day forex market.

HSBC has also come under fire for helping clients hide their income from tax authorities. Meanwhile, the CEO of HSBC has been engaged in some fancy footwork to explain his own secret Swiss bank accounts. Stuart Gulliver explained that in the 1990s, when he lived in Hong Kong and worked as a banker at HSBC, employees received lump-sum bonuses whose amounts could be viewed by other employees through a computer system. In an effort to protect his privacy he put the money in Switzerland to hide it from the prying eyes of his Hong Kong colleagues. But he then had to hide it from his curious Swiss colleagues, so he created an anonymous Panamanian company. Gulliver was the top earner at HSBC, and he felt he had to protect his privacy from his Lilliputian colleagues.

HSBC has countered that Gulliver’s accounts were actually opaque and transparent. And for a bank that has been fined more than $1 billion for laundering money for the Sinaloa drug cartel, I suppose combining Panama and Swiss tax havens to ensure secrecy is the new “transparent” in banking. But for anyone who is not drinking Kool-Aid, it carries a certain stank of greed and sleaze.