Financial Review

Insert Clever Eclipse Headline

Sinclair Noe — August 21, 2017

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DOW + 29 = 21,703
SPX + 2 = 2428
NAS – 3 = 6213
RUT – 0.89 = 1356
10 Y – .01 = 2.18%
OIL – 1.11 = 47.40
GOLD + 7.10 = 1292.30
BITCOIN – 2.81% = 3940.88 USD
ETHEREUM – 2.52% = 315.65

Since August 7, the Dow Industrials have given back 397 points or 1.7%. The S&P 500 has slipped 0.08%, and the technology-weighted Nasdaq has led the way lower with a 2.6% move. Second-quarter results from S&P 500 reporting companies have been solid with 65% beating expectations. Guidance has largely also been quite positive.

The recent price action in equities has left the uptrend under pressure but at this point it doesn’t look like anything more than a pause – at least for the big Blue-Chip names. Small caps are having a tougher time. The Russell 2000 index of small and mid-cap companies moved into negative territory year-to-date.

Most recent economic data suggest the US economy is on better footing that it was in the first half of the year; which seems to be part of a trend for the past few years. This week, the markets are waiting to hear from Fed chair Janet Yellen; she delivers a speech at the Jackson Hole Economic Summit on Friday.

We know that the Fed has been raising rates and plans to trim holdings on its balance sheet, but last week’s minutes paint a picture of a cautious Fed. European Central Bank President Mario Draghi will also speak Friday. Don’t expect any big news on central bank policy.

The central bankers will be talking about economic growth and there will be plenty of discussions about low inflation. US inflation fell to 1.4 percent in June, based on the Fed’s preferred gauge, and consumer prices in the euro area – currently at 1.3 percent – have wavered since the start of the year.

Today, the Federal Reserve published a new survey providing extra detail on the labor market. The survey will be published 3 times a year. Survey says, workers see little hope for higher paychecks, and while they are increasingly searching for new jobs, they expect fewer offers to fall into their laps.

Survey respondents on average said in July that the lowest annual salary they would accept in a new job would be $57,960, down from $59,660 only four months earlier. This measure has declined since November, with most of the changes coming from older and higher-income Americans.

Asked what salary they expected in job offers over the next four months, the average response declined to $50,790 from $54,590 when the last survey was taken in March. The survey, conducted since early 2014 but published for the first time on today, also showed 22.7 percent of respondents searched for a job in the last four weeks, up from 19.4 percent in the previous report. Young people accounted for most of the increase.

The respondents saw a 22 percent likelihood of receiving at least one job offer in the next four months, down from an average response of 25 percent eight months ago.

Trump will speak this evening at 6 p.m. about “the path forward” for US strategy in Afghanistan and South Asia. He is expected to authorize about 4,000 more U.S. troops for counter-terrorism missions as part of a new military strategy in Afghanistan. After 16 years of stuttering war in Afghanistan, the Taliban has returned to its strongest level since 2001.

His plan comes just days after he fired his chief strategist, Steve Bannon, a vehement voice against sending more troops to Afghanistan, and the architect of Trump’s “America First” policy of limiting foreign engagement to situations where the US can benefit directly.

Tomorrow, Trump travels to Phoenix for a campaign rally at the Civic Center. Trump has said he is seriously considering a pardon for former Maricopa County Sheriff Joe Arpaio, who was found guilty of criminal contempt for defying a judge’s order in a racial profiling case.

Even without an announcement of a pardon, the visit could roil grievances and rallying cries after a week of protests in major cities across the country. Both Trump supporters and opponents are planning to demonstrate outside the rally, fueling police concerns about potential clashes.

The Washington Post reports the Trump administration has decided to disband the federal advisory panel for the National Climate Assessment, a group aimed at helping policy makers and private-sector officials incorporate the government’s climate analysis into long-term planning.

The Post said the charter for the 15-person Advisory Committee for the Sustained National Climate Assessment was due to expire Sunday. On Friday, National Oceanic and Atmospheric Administration acting administrator informed the committee’s leader that the agency wouldn’t renew the panel. The next National Climate Assessment is due for release next year.

A bit of hopeful news out of Washington today. Senate Majority Leader Mitch McConnell insisted the government will raise the debt ceiling and avoid defaulting on its debt. Treasury Secretary Steven Mnuchin has called for Congress to pass a bill to increase the borrowing limit by the end of September.

By then, the Treasury will have exhausted its so-called extraordinary measures to continue its borrowing authority and risks defaulting on its debt. The Treasury secretary has called for a “clean” debt-ceiling increase, meaning lawmakers would not attach spending cuts or other provisions to it.

Some conservatives, particularly in the House, have previously tried to pair measures to raise the debt ceiling with spending cuts. Mnuchin said the debt ceiling was his top priority when lawmakers return from recess next month.

Sempra Energy has placed a bid to buy Oncor for $9.45 billion in cash after majority owner Energy Future Holdings abandoned a deal to sell the Texas-based power transmission company to Warren Buffett’s Berkshire Hathaway. This represents a rare blow to Buffett, who avoids bidding wars for companies and had swooped in two months ago to buy Oncor after Texas regulators blocked two previous attempts by Energy Future to sell it.

Energy Future, which has been in bankruptcy since 2014, had initially planned to seek court approval today for the sale of Oncor to Berkshire for $9 billion over opposition from its biggest creditor, hedge fund Elliott Management. Instead, Energy Future will go with Sempra because of the value of the bid, a lower break-up fee and, most importantly, support from Elliott.

San Diego-based Sempra said it expected to own about 60 percent of a reorganized Oncor after it completes the transaction, which is valued at $18.8 billion, including debt. Energy Future owns 80 percent, but Sempra plans to sell some of that equity to other outside investors. A hearing on the revised reorganization plan and creditor support agreement was set for Sept. 6.

Total is buying Maersk’s oil and gas business in a $7.45 billion deal which the French energy major said would strengthen its operations in the North Sea and boost earnings and cash flow. For Danish company A.P. Moller Maersk, the sale of Maersk Oil, with reserves equivalent to around 1 billion barrels of oil, fits with a strategy of focusing on its shipping business.

Fiat Chrysler shares jumped almost 7% today after Great Wall Motors confirmed that it is interested in acquiring at least part of the company. The interest focuses on Fiat’s Jeep and Ram brands of off-road vehicles and trucks. Reports surfaced recently that a Chinese automaker was interested in placing a bid for the brands. Fiat Chrysler said in a statement it has not yet been approached by the Chinese automaker.

Johnson & Johnson was ordered by a California jury to pay $417 million to a woman who claimed she developed ovarian cancer after using the company’s talc-based Baby Powder. The Los Angeles Superior Court jury’s verdict is the largest to date in lawsuits alleging J&J failed to adequately warn consumers about the cancer risks of talc-based products.

The verdict included $70 million in compensatory damages and $347 million in punitive damages. It followed 5 trials in Missouri state court; Johnson and Johnson lost 4 of those trials, resulting in more than $300 million in verdicts against J&J. The company says it will appeal today’s verdict.

Today was the big solar eclipse. And it was probably a grand experience for people in the path of totality. Not such a big deal in Arizona, where we just had a partial eclipse. Hopefully, you did not try to look directly at the sun, unless you had special eyewear.

The pictures of the eclipse were great. My favorite is a picture taken in Wyoming, showing the moon covering about half the sun, and if you look closely, perfectly timed images show a tiny International Space Station passing in front of the sun. That must be one of the all-time great photobombs.

Many people did try to take pictures. And you may have noticed something strange. Your photos probably show the sun blown out in a blaze of light — not the crescent shape of a partial eclipse. But in some photos, a crescent did appear; it was just far from the actual sun and maybe looked blue. The effect is called a “lens flare,” which happens when a camera is exposed to a bright light.

In response, the lens captures some of the light as a reflection. Lens flares generally show up as little dots or circles, but during an eclipse they appear as small crescents. If you were hoping to capture what the eclipse looked like from your location, the crescent reflections that come out as lens flares are actually a pretty good representation. They are similar to the projections you might have seen through leaves or pinhole cameras.

And if you missed this eclipse or can’t wait to do it again, don’t worry. The next one is only 2,422 days away, April 8, 2024.

Financial Review

Beverly, Hills That Is

Sinclair Noe — September 1, 2015

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DOW – 469 = 16,058
SPX – 58 = 1913
NAS – 140 = 4636
10 YR YLD – .03 = 2.17%
OIL – 4.99 = 44.21
GOLD + 5.40 = 1140.80
SILV – .01 = 14.72

Another rough day for stocks across the world after twin surveys showed China’s manufacturing sector in the grip of its worst slump in several years. Asian stocks slumped on the first trading day of September, with Japan’s Nikkei 225 index chalking up a near 4 percent loss into correction territory. The Stoxx Europe 600 Index dropped as much as 3.2 percent. The major US averages lost more than 6 percent each in August. The New York Stock Exchange invoked Rule 48 for the fourth time in two weeks.

If you want, you could blame it on the Fed, as good a culprit as any; they want to raise rates despite data. Or you could look to a global slowdown, as emerging markets struggle with lower and lower commodity prices. The High Frequency Traders certainly can be considered culpable, not for starting the fire but for splashing kerosene on the flames. But really, this is just what markets do. It’s not one thing that causes a market to tumble, it is the added weight of many things. And a market looking to sell is going to sell. The major averages ended in correction territory, down nearly 3 percent in their third-largest daily decline for 2015.

All the turbulence has created a fertile playing field for those who trade the market on a short-term basis, but otherwise has sent many to the sidelines. The recent market rout caught some star Wall Street traders by surprise, others not so much; not a hedge fund affiliated with “The Black Swan” author Nassim Nicholas Taleb that seeks to profit from extreme events in the financial markets. Universa Investments LP gained roughly 20% last Monday.

The gains, some realized, some just paper gains for now, amounted to more than $1 billion in the past week; largely on Monday, as its returns for the year climbed to roughly 20% through earlier this week. Meanwhile, David Einhorn’s Greenlight Capital told investors it lost 5.3% in August; widening Greenlight Capital’s loss for the year to 13.8%, or about $1.4 billion

U.S. construction spending in July rose 0.7%, to an annual rate of $1.08 trillion – its highest level in more than seven years, boosted by an increase in the building of houses, factories and power plants. Construction of single-family houses advanced 2.1 percent in July. Factories rose 4.7 percent, and power facilities increased 2.1 percent. Spending on government building projects slipped 1 percent. Total construction spending has risen 13.7 percent over the past 12 months.

Manufacturing grew at the slowest pace in August in more than two years. The Institute for Supply Management said its manufacturing index dropped to 51.1% last month from 52.7% in July. Readings over 50% indicate more companies are expanding instead of shrinking. The ISM’s new-orders index dropped 4.8 points to 51.7%, the lowest since May 2013. The employment gauge slipped 1.5 points to 51.2%. And the exports index fell 0.5 points to 46.5%.

Roller-coaster stock markets appeared to have no major impact on auto purchases. The six largest automakers in the U.S. market all beat the sales forecasts of industry analysts. The gains contributed to a total seasonally adjusted annual rate of 17.81 million, the highest rate since July 2005. GM, the No. 1 automaker in the U.S. market, reported that sales dropped 0.7 percent. Ford, the No. 2 U.S. automaker by vehicle sales, showed a gain of 5 percent, easily outdistancing expectations. Toyota, No. 3 in U.S. sales, reported an 8.8 percent decline in August. Fiat Chrysler showed a rise of 2 percent, boosted by Jeep SUVs, extending the auto maker’s streak of sales gains to 65 months. For the first time since 2012, Labor Day sales will be included in September results.

If you think the stock market is crazy, just look at the oil market. From Thursday through Monday, West Texas Intermediate crude oil posted its best 3-day gain in a quarter century. What was behind the move? Apparently not much. The fundamentals in the oil market didn’t really change; there is still an oil glut. The Energy Information Agency reported that US shale production was a little lower than previously thought, but it wasn’t a huge drop and there are still massive inventories, especially for refined petroleum, which then causes an inventory backup for crude.

There were rumors of slowing production from Saudi Arabia; rumors, not actual cutbacks. So, it looks like the big parabolic rally in oil was largely spurred by speculation that prices had hit a bottom, and then as prices started rising, it squeezed short sellers. Another way of saying it is – speculation; not exactly the stuff of bottoms. Sure enough, today oil prices dropped 10.1%.

Many see recent events in oil production as a straight battle between Saudi Arabia and the USA. The Saudis seemed intent on crashing American shale producers and for political reasons too intricate to detail in this moment, but it hasn’t really worked out that way. The US frackers have figured out how to keep the rigs pumping. The high priced oil phase of the shale revolution can be seen as the gold rush days of the industry’s history. Frackers paid millions for mineral rights and a whole new generation of Beverly Hillbillies came into being. And while the boom times in the oil patch didn’t last, oil industry insiders who predicted the death of shale oil in the United States got it wrong.

U.S. oil production has begun to drop in response to low oil prices, but not as dramatically as many had anticipated. Oil companies have cut back spending significantly in response to the fall in the price of oil. The number of rigs that are active in the main U.S. tight oil producing regions– the Permian and Eagle Ford in Texas, Bakken in North Dakota and Montana, and Niobrara in Wyoming and Colorado– is down 58% over the last 12 months.

Nevertheless, U.S. tight oil production continued to climb through April. It has fallen since, but the EIA estimates that September production will only be down 7%, or about 360,000 barrels/day, from the peak in April. Shale oil producers are getting more oil out of fewer wells and that factor is keeping the industry alive. Adjustments were made. Analysts now estimate that the breakeven point of new shale oil wells is $27.50 per barrel, not counting financing costs.  Recent oil price falls did not lead to the extinction of fracking, it promoted efficiency in the sector, which heralds further price falls.

Meanwhile, the Saudis probably never suspected that Green Energy could flourish amidst low oil prices. The U.S. Navy has invested an undisclosed amount in the Mesquite solar farm about 40 miles west of Phoenix Arizona, allowing for an expansion of the facility that is anticipated to make it the world’s largest solar farm. The farm will provide 210 megawatts of direct power, a third of the energy needed to power 14 Navy and Marine Corps sites. The solar farm, slated to go online next year, is expected to save the Navy “at least” $90 million in energy costs over the course of the 25-year contract with Sempra U.S. Gas and Power, which operates it.

The Mesquite facility, which completed its first phase of buildout in late 2012, has a potential capacity of 700 megawatts, which would power up to 260,000 homes. It requires no water to operate and reduces greenhouse gas emissions.  The investment marks a big step toward the Department of Defense’s Congress-mandated goal to either produce or procure 25 percent of its total energy needs from renewable sources by 2025.

General Electric announced it has won more than $1 billion in orders from customers in the Asia Pacific region, as energy generators look for ways to improve efficiency and reduce costs and environmental damage. GE is providing six new gas turbines in Thailand, two steam turbines and generators for Vietnam, and starting a large-scale replacement project in Japan. The company made the announcement at the start of the Power-Gen Asia conference.

The White House is considering sanctions against both Russian and Chinese companies and individuals as it tries to stop its alleged cyber theft of commercial and economic information. The move comes as the U.S. grows increasingly frustrated at efforts to steal commercial secrets. President Obama signed an executive order in April declaring a national emergency over cyber-attacks, which “constitute an unusual and extraordinary threat.”

You might want to send Google a Thank You note. Starting today, Google Chrome, the browser of choice for a majority of desktop users, will be effectively cutting off Flash advertising at the knees, ignoring those intrusive, battery-sucking, fan-spinning, auto-play videos and banners. Now people will have to click on the ads to see them in Flash, but if you just want to read something on the internet without being distracted by an advertisement masquerading as a slot machine on meth, well, you have that option. Google’s move follows a similar anti-Flash play by Mozilla, the third-most-used browser, and Amazon’s recent decision to ban Flash-based ads from its ad network. Facebook also recently called on browser makers to stop supporting Flash altogether.

After years of sticking with Flash for desktop browsers, the big software firms and advertisers are suddenly getting scared straight by the prospect of ad blocking. People have been increasingly turning to browser add-ons that block advertising (and the creepy tracking and security vulnerabilities that come along with many of the ads). By preventing people from seeing ads, blocking software will cut off $22 billion in advertising revenue this year, up 41% from last year.