Financial Review

Records Across the Board

Sinclair Noe — June 1, 2017

DOW + 135 = 21,144
SPX + 18 = 2430
NAS + 48 = 6246
RUT + 25 = 1396
10Y + .02 = 2.22%
OIL – .30 = 48.02
GOLD – 3.20 = 1266.40
BITCOIN (Undefined %) = 2452.09
ETHEREUM – 4.09% = 221.44

A record high close for the Dow Industrial average, taking out the last high from March 1^st. Also records for the S&P 500 and the Nasdaq Composite.

In many ways, the Dow is just playing catch-up with the other indexes that were already in record territory. While the Nasdaq is up 16% this year and the S&P 500 has rallied 8.5%, the Dow is up a more modest 7%.

The Institute for Supply Management’s manufacturing index inched slightly higher, hitting 54.9. This implies the overall manufacturing economy grew for the 96th consecutive month.

The Commerce Department announced that spending in the construction sector fell 1.4 percent for the month, the biggest drop since a 2.9 percent fall a year ago. Construction spending was forecast to have grown 0.5 percentage points in April, after falling 0.2 percentage points in March. The drop reflects significant weaknesses in home building, non-residential construction and government projects.

The number of Americans filing for unemployment benefits increased more than expected last week, but the rise probably does not signal a material shift in labor market conditions as claims for several states, including California, were estimated. Initial claims for state unemployment benefits jumped 13,000 to a seasonally adjusted 248,000 for the week ended May 27.

The ADP private sector employment report showed that 253,000 jobs were added in May. The report could signal a strong government payrolls report on Friday that includes hiring in both public and private sectors.

Forecasts are for 185,000 non-farm payrolls created in May. Mark Zandi, chief economist at Moody’s Analytics said, “The current pace of job growth is nearly three times the rate necessary to absorb growth in the labor force. Increasingly, businesses’ number one challenge will be a shortage of labor.”

The Federal Reserve’s latest Beige Book report, a collection of economic anecdotes from businesses across the country, indicated that employers everywhere are under pressure to both hire workers and pay them more. Economists in the Cleveland Fed’s district report, “Staffing firms noted an increase in the number of job openings and placements during the past two months, a situation which they attributed to an improving business climate.” These comments were echoed across the country.

Forecasts from Fed officials suggest that a median of two more hikes are planned before the end of the year – for a total of three. However, San Francisco Federal Reserve Bank President John Williams said that while he sees three interest rate hikes this year as his baseline scenario, four rate increases would also be appropriate if the economy got an unexpected boost.

Perhaps even more important than rate hikes, is what the Fed will say about trimming its $4.5 trillion balance sheet which expanded sharply in response to the Great Recession. The bank massively expanded that balance sheet by buying mortgage and Treasury bonds, as a way of helping keep interest rates low.

Jerome Powell, a Fed board governor, said on CNBC the impact of the Fed’s pullback from bond buying would be minimal. The Fed seems to be trying to have its cake and eat it too, arguing that its bond purchases, also known as quantitative easing or QE, were highly powerful when implemented but will make little difference when withdrawn.

President Trump announced the US will withdraw from the Paris climate agreement and will seek to renegotiate the pact in a way that treats American workers better. Trump is kicking off a withdrawal process that will take until November 2020 to unfold.

While the decision wasn’t exactly unexpected (it was a campaign promise, after all), in today’s announcement Trump said it will bring back clean coal jobs. It won’t. Much of America’s coal gets shipped to a fast-shrinking fleet of power plants that burn the fuel, and there’s no easy path to boosting demand from the sector.

The country’s use of natural gas and renewable energy to produce electricity is meanwhile gathering speed — and creating new generations of energy jobs. Low natural gas prices, at the end of the day, have decimated most of the U.S. coal production. Coal plants have closed and you’re not reopening them.

In a Rose Garden ceremony at the White House today, Trump said, “The bottom line is the Paris accord is very unfair,” citing the deal’s “draconian” financial and economic burdens and a litany of economic projections backing up his case. But the estimates at the heart of the debate varied so widely, some analysts viewed them as unreliable.

Supporting the pro-pullout side was one estimate saying $3 trillion in gross domestic product and 6.5 million in jobs will be lost over the next quarter century — numbers Trump cited without pointing out the timeline. Another view puts the GDP hit at more than $8 trillion through 2100 — but that’s the damage estimated if the U.S. exits the deal.

More worrisome than the long-term guesses could be the expected tariffs on U.S. carbon emitters slapped on by other countries. Twenty-five US companies signed on to a letter running today as a full-page advertisement in the New York Times and Wall Street Journal arguing in favor of the climate pact, and warning of potential “retaliatory measures” by other nations.

Trump said he would like to re-negotiate the Paris accord but today France, Germany, and Italy said they would not enter discussions to change the deal.

While there are still a large number of workers in the traditional fossil-fuel industries according to the Department of Energy, the number of Americans employed in energy-efficient and renewable-energy jobs is also huge.

For instance, 1.1 million Americans work in electric-power generation through traditional fossil fuels, but renewables follow closely with 880,000 employees. Additionally, from a long-term economic perspective, shifting toward renewable energy would likely be more beneficial for job growth.

The Department of Energy said the renewable sector is booming with solar employment growing by 25% and wind-generation employment growing by 32% in 2016. Add on the fact that 2.2 million people are employed in the “the design, installation, and manufacture of Energy Efficiency products and services,” and it’s clear that combating climate change is a big employment driver for the US.

Illinois paid the price for its ongoing budget impasse, with both S&P Global Ratings and Moody’s Investors Service dropping the state’s general obligation credit ratings to one step above junk. The rating downgrades came a day after Illinois’ spring legislative session ended without a budget deal.

S&P cut its rating on $26.3 billion of bonds one notch to BBB-minus, the lowest it has rated any state, and warned that Illinois could sink to the junk level unless it passes a budget that addresses a gaping structural deficit.

Moody’s downgraded Illinois to Baa3 from Baa2, citing the prolonged political impasse that has impeded progress in dealing with a nearly $130 billion unfunded pension liability and fueled growth in unpaid bills now approaching $15 billion, equal to 40 percent of the state’s operating budget.

The boards of Linde Group and Praxair voted to merge, creating a $73 billion global industrial gases leader. Linde’s shareholders will not vote on the deal but 75 percent must tender their shares to the new company for the deal to go through. The deal is expected to close in the second half of 2018.

Deere & Co said it would buy privately held German company Wirtgen Group for about $4.88 billion to expand its road construction operations as it looks to cut down its dependence on its slowing farm business. Deere makes equipment for part of the road-building process – loaders and dump trucks to load rocks into crushers from quarries, earth-moving tools at construction sites, and dozers and motor-graders that help grade roads.

Wirtgen makes crushers that break down large rocks, milling machines, plants to supply hot asphalt for road projects, and pavers and rollers. It has a network of company-owned and independent dealers in about 100 countries.

Financial Review

Cleaning Up

Sinclair Noe — March 28, 2017

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DOW + 150 = 20,701
SPX + 16 = 2358
NAS + 34 = 5875
RUT + 9 = 1367
10Y + .04 = 2.41%
OIL + .71 = 48.44
GOLD – 2.50 = 1252.30

Yesterday, we noted that the Dow Industrial Average had been down for 8 straight sessions – the longest losing streak since 2011. We also noted that the market seemed to be taking a break or a pause; the losses during that time were not big enough to reverse the uptrend.

Sure enough, the uptrend resumed today. Even though stocks wobbled out of the opening gate, they gained their footing with the help of some good economic reports.

Consumer confidence surged to a more than 16-year high in March. The Conference Board said its consumer confidence index jumped 9.5 points to 125.6 this month, the highest reading since December 2000.

Consumers’ assessment of both current business and labor market conditions improved sharply in March. They also anticipated an increase in their incomes. The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001.

When consumers feel good about their jobs or job prospects, their confidence goes up. And then the hope is that the confidence translates into increased spending, especially for a retail sector that has been underperforming in the first quarter.

Separately, the Commerce Department said in its advance economic indicators report the goods deficit fell 5.9 percent to $64.8 billion last month as imports and exports fell. It also said inventories at retailers and wholesalers both rose 0.4 percent last month.

And another report showed the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5.7 percent in January on a year-over-year basis after increasing 5.5 percent in December. The 10-City Composite posted a 5.1% annual increase, up from 4.8% the previous month. The National Index was up 5.9% year-over-year in January, setting a 31-month high.

House prices are being driven by tight inventories. The recent interest rate hikes from the Fed didn’t seem to affect home buyers – at least not yet; 2 or 3 more hikes this year could pinch affordability.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last 12 months. In January, Seattle led the way with an 11.3% year-over-year price increase. In Phoenix, home prices were flat in January, but up 5.1% over the past 12 months.

Hospital stocks dropped today as Republicans in the House of Representatives said they were considering a renewed push to repeal and replace Obamacare, after the effort failed last week. Shares of Community Health Systems dropped 7.6 percent and Tenet Healthcare shares fell 4.8 percent. HCA Holdings, Universal Health Services and Envision Healthcare were all down around 2 percent.

A full-blown push at the repeal and replace is going to be extremely difficult to pull off, but there are other ways to attack the ACA. Health and Human Services Secretary Tom Price already stalled the rollout of mandatory Medicare payment reform programs for heart attack treatment, bypass surgery and joint replacements.

Hospitals and physician groups have been counting on support from Medicare – the federal insurance program for the elderly and disabled – to continue driving payment reform policies built into the ACA that reward doctors and hospitals for providing high quality care at a lower cost. Repeal may be difficult but death by a thousand cuts, that’s another story.

After failing to repeal and replace the Affordable Care Act, President Trump said it was time to move on; and he is. Yesterday, behind closed doors and without his typical fanfare, Trump signed Congress’s repeal of Obama’s Fair Pay, Safe Workplaces executive order that would have mandated that companies with substantial federal contracts be required to disclose past violations of federal labor laws – such as wage and hour laws and workplace safety standards.

The rule aimed at raising standards across the economy by leveraging the federal government’s purchasing power; companies with federal contracts employ roughly one in five American workers.

President Trump has signed an executive order to undo a slew of Obama-era climate change regulations. The decree’s main target is the Clean Power Plan that required states to cut carbon emissions from power plants – a critical element in helping the United States meet its commitments to a global climate change accord reached by nearly 200 countries in Paris in 2015.

The so-called “Energy Independence” order does not directly address the Paris accord, but it reverses a ban on coal leasing on federal lands, undoes rules to curb methane emissions from oil and gas production, and reduces the weight of climate change and carbon emissions in policy and infrastructure permitting decisions.

Trump has denied climate change, calling it a Chinese hoax. While Trump’s administration has said reducing environmental regulation will create jobs, some green groups have countered that rules supporting clean energy have done the same. The number of jobs in the US wind power industry rose 32 percent last year while solar power jobs rose by 25 percent, per a Department of Energy study.

The benefits of energy-efficiency rules and clean-power programs are passed to workers, too; clean-energy jobs surpassed oil and gas-drilling jobs in the US for the first time last year, and job growth in the solar energy sector was 12 times faster than that of overall economy. Several groups have already announced plans to challenge the order in the courts, so there will be a few jobs for attorneys.

The Clean Power Plan required states to collectively cut carbon emissions from power plants by 32 percent below 2005 levels by 2030. Some 85 percent of US states are on track to meet the targets despite the fact the rule has not been implemented.

Wind and solar accounted for more than half of the new capacity added to U.S. grids in the past two years, thanks to two economic trends. The first is low natural gas prices, which have driven down the price of electricity and forced record numbers of aging coal-fired generators to close. The second is that wind and solar farms have become much cheaper to build, making them an attractive replacement for shuttered fossil-fuel plants.

Power prices have already dipped to historic lows, forcing conventional power-plant owners including FirstEnergy and NRG Energy to write down billions in assets. Utilities know that coal and nuclear just aren’t competitive in this era of low gas prices and increasing renewables, absent special treatment to keep them running. And even then, it is not enough to build any new coal powered plants.

State laws requiring utilities to source a portion of their electricity from renewables play an important role. So do federal tax credits for wind and solar farms that were extended in 2015 with support from Republican lawmakers. And these policies remain intact, at least for now. Today’s executive order will probably have little impact on the US wind and solar industries.

After years of being supported by subsidies, prices have plunged so much that renewables can compete with fossil fuels. That’s why energy companies are pushing forward with long-term plans to generate power with clean alternatives, even as Trump vows to breathe life back into coal country. Nobody believes that coal is the future of energy.

Elon Musk has managed to start up an electric car company, Tesla. Then he bought into a solar power company and he’s building a gigantic battery factory, so he can capture power from the sun and store it. Then he started Space X, a re-usable rocket company to launch satellites, with eventual plans to colonize Mars.

And while all that is mildly entertaining, you are probably asking if he can come up with something new and innovative. How about this: Neuralink – what Musk calls “neural lace” technology, implanting tiny brain electrodes that may one day upload and download thoughts. In other words, hook your brain into a computer.

Business filings suggest that Neuralink would build devices designed to treat or diagnose neurological conditions, and conceivably augment human cognitive powers, maybe a way to alleviate brain disorders like epilepsy. In a Vanity Fair article published online today, Musk discussed the idea of merging biological intelligence with machine intelligence, saying: “For a meaningful partial-brain interface, I think we’re roughly four or five years away.”

Compared to neural lace, the debut of yet another new smartphone seems downright pedestrian, but it is still kind of a big deal for Samsung. Tomorrow they are expected to unveil the new Galaxy S8. Look for two different sizes; big and bigger; curved screens, fingerprint scanner, faster processor, and better camera. And a new AI assistant called Bixby. And while it is cool new technology, the most important thing is that the battery does not explode.

The Scottish independence referendum, could be facing a re-run as a direct result of Brexit. By a 69-59 vote, members of Scottish Parliament backed First Minister Nicola Sturgeon’s pursuit of a new independence referendum.

Sturgeon wants to hold a vote between fall 2018 and spring 2019, which she says would give enough time for Brexit negotiations (set to start Wednesday and likely to last for two years) to make substantial progress, but would also leave time for Scotland to leave the UK and still remain in the EU

Tomorrow, a letter personally signed by UK Prime Minister Theresa May will be deliver to European Union President Donald Tusk. The instant the letter exchanges hands marks the moment the UK has officially served its partner of four decades with divorce papers.

The invocation of Article 50 of the EU’s Lisbon Treaty triggers two years of negotiations to secure Britain’s departure from the bloc. May herself considers it “one of the most important documents” in Britain’s recent history. Exactly what is in the letter remains a mystery, at least until tomorrow.

Financial Review

Again and Again

Sinclair Noe — February 21, 2017

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DOW + 118 = 20,743
SPX + 14 = 2365
NAS + 27 = 5865
RUT + 10 = 1410
10 Y + .01 = 2.43%
OIL + .61 = 54.39
GOLD + 2.20 = 1236.60

Stock prices across the world climbed to record highs. Dow, S&P, Nasdaq, and Russell hit record highs again.

Walmart reports same-store sales in the US rose 1.8% for the quarter, the 10th straight quarterly increase. Meanwhile, e-commerce sales were up 29%, boosted by the purchase of online retailer Jet.com in September as well as online grocery. But profit fell 18% in the fourth quarter as the company invests in its online platforms; still, Walmart beat top and bottom-line estimates.

Amazon just lowered its free-shipping minimum to $35 from $49 for customers who aren’t members of its Prime membership program. The change appears to be a response to Walmart’s recent rollout of free two-day shipping for all customers on orders over $35.

Macy’s reports net income was $475 million, or $1.54 per share, down from $544 million, or $1.73 per share last year, but they beat estimates. Revenue also dropped, missing estimates.  Same-store sales fell 2.1%. The company also released preliminary guidance for 2017, expecting sales to decline by 2% to 3% for the full year at all owned and licensed stores. Macy’s plan is to sell its real estate; $637 million sold last year, more to come this year.

Home Depot reported higher-than-expected profit and sales helped by a strong housing market in the United States and set a $15 billion share buyback plan. The company reported a 5.8 percent rise in quarterly sales to $22.2 billion – beating estimates. Profit rose to $1.7 billion in the fourth quarter from year ago $1.4 billion – also beating estimates.

Verizon Communications and Yahoo! say they will go forward with their proposed acquisition but Verizon cut the price by $350 million from the original cost of 4.8 billion. The revised deal comes after months of speculation as whether talks would break down because of two massive data breaches at Yahoo.

Restaurant Brands International has agreed to acquire Popeyes Louisiana Kitchen for $1.8 billion in cash. Under the terms of the agreement, Restaurant Brands, operator of Burger King and Tim Hortons, will pay $79 per Popeyes’ share.

Kraft Heinz dropped its $143 billion bid to buy Unilever – a deal that would have created the largest food company in the world. Already this year, more than $205 billion in proposed deals have been withdrawn.

Reuters reports SoftBank is prepared to cede control of Sprint to T-Mobile to clinch a merger of the two U.S. wireless carriers. SoftBank is expected to approach T-Mobile parent Deutsche Telekom for negotiations when an ongoing auction of airwaves ends in April and a ban on talks between rivals is lifted.

TransferWise, a London-based startup, has launched a service that allows users to make international transfers with Facebook’s chat application. Facebook already allows its users to send money domestically in the United States via its Messenger app, but has not yet launched similar services internationally.

Growth in eurozone business activity surged in February to its highest level in almost six years, per the latest survey by IHS Markit. The overall flash composite index of services and manufacturing spiked to 56.0, up from 54.4 in January. Growth in Germany’s private sector reached its highest level in nearly three years, while French business activity surged to near a six-year high.

Overall, the PMIs showed that private sector manufacturing and service sector activity in the euro zone this month was its strongest since April 2011.Eurozone stocks pushed to a 14-month high this morning.

HSBC’s pretax profit tanks. Europe’s biggest bank by assets saw pretax profit for 2016 fall to $7.1 billion from $18.8 billion the previous year. The UK-based bank reported a net loss of $4.2 billion in the fourth quarter of 2016. The biggest single hit to its battered bottom line came from a $2.4 billion write-down of the value of its private banking business in Europe. HSBC announced a new $1 billion share-buyback program.

BHP Billiton reports a surge in profits. The world’s largest miner said profits surged seven-fold to $3.1 billion during the six months that ended in December. The extra cash helped BHP boost its dividend and pay down debt.

China has halted all coal imports from North Korea for the rest of 2017, effectively slicing the country’s exports by about half, as it steps up efforts to implement U.N. sanctions against the country. Per BMI Research, China imported 22 million tons of coal from North Korea in 2016, representing 12.3% of its total imports.

Philadelphia Federal Reserve Bank President Patrick Harker said over the weekend that he would likely support raising interest rates at the central bank’s upcoming March meeting if he sees more evidence that economic growth and inflation are accelerating. Federal Reserve Bank of Cleveland President Loretta Mester who said she would be “comfortable” with the central bank raising rates.

Minneapolis Fed President Neel Kashkari said the U.S. labor market has “more room to run,” suggesting he does not believe the central bank should raise rates quickly to head off inflation. Kashkari said it has been a “big surprise” that so many workers have returned to the workforce over the past year and a half, and he is “cautiously optimistic” that the pattern will continue.

Over the past few weeks, Federal Reserve Chairwoman Janet Yellen and a host of other Fed officials have suggested that an interest-rate increase at the policy-setting Federal Open Market Committee’s meeting on March 14-15 remains on the table.

It’s that time of year again – when refinery maintenance season kicks in and the market makes a shift to cleaner-burning gasoline, disrupting production and lifting prices for the fuel at the pump. If prices see the average five-year increase they usually do during the spring, retail gasoline could cost an average $2.85 a gallon around Memorial Day.

Crude oil prices have been moving higher and OPEC said it was sticking to its agreement to cut production by about 1.8 million barrels per day to drain a glut that has depressed prices for over two years. OPEC compliance is helping keep prices afloat, but rising US oil production is acting as a counterweight; the result is a glut of crude supplies.

Here’s the hitch: the glut of gasoline is now the worst in 27 years. At 259 million barrels, US gasoline storage levels are now at their highest level since the Energy Information Administration began tracking the data back in 1990.  If both crude and refined product inventories are going up at the same time, then there should be some reasons for worry.

Part of the reason for the glut, of course, are high levels of production, around 9 to 10 million bpd. But that increase came to satisfy rising demand (which, of course, was stoked by lower prices). More demand should have soaked up that excess supply.

However, US demand has faltered. US gasoline demand plunged to just 8.2 million barrels per day in January, and sales were down 4 percent from a year earlier. It was also the lowest level in four years. Weak demand is raising some red flags for the market.

Demand is seasonal, with softer demand in winter months, but this winter’s ‘valley’ is lower than any other since 2012. The glut of gasoline has led to tankers being turned away at New York Harbor in recent weeks, diverted to ports in the Caribbean.

If demand does not rebound, inventories will rise, pushing prices lower. So, while OPEC production cuts are important, keep an eye on US demand, not just for oil prices but also as a barometer of overall economic activity.

The Department of Homeland Security issued a sweeping set of orders today that implement President Trump’s plan to increase immigration enforcement, placing the clear majority of the nation’s 11 million undocumented immigrants at risk of deportation. The memos instruct all agents — including Customs and Border Protection and Immigration and Customs Enforcement — to identify, capture and quickly deport every undocumented immigrant they encounter.

The memos require undocumented immigrants caught entering the country to be placed in detention until their cases are resolved, increase the ability of local police to help in immigration enforcement, call for the hiring of 10,000 more immigration agents and allow planning to begin on an expansion of the border wall between the United States and Mexico.

The memos make undocumented immigrants who have been convicted of a crime the highest priority for enforcement operations. But they make clear that ICE agents should also arrest and initiate deportation proceedings against any other undocumented immigrant they encounter.

These new guidelines, however, leave untouched the executive order signed by former President Barack Obama in 2012 on deferred action for childhood arrivals, which shields from deportation immigrants who were brought to the US as children.

Financial Review

Times Change

Sinclair Noe — September 30, 2015

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

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DOW + 235 = 16,284
SPX + 35 = 1920
NAS + 102 = 4620
10 YR YLD + .01 = 2.06%
OIL – .14 = 45.09
GOLD – 12.40 = 1116.30
SILV – .13 = 14.62

This is the last trading day of the third quarter. China’s main stock market posted its worst quarter since 2008 and its smaller Shenzhen index, posted its worst quarter in at least two decades. Markets in Singapore and Indonesia are set to post their worst quarters since the financial crisis. The MSCI Asia ex-Japan Index fell 19.1% from the beginning of the quarter. The Nikkei closed out its worst quarter since 2010 and the ASX its worst since 2011.

European stocks moved higher today, but not enough to recover from the worst quarter in 4 years. The Stoxx Europe 600 index is down about 9.5% for the quarter. Germany’s DAX index down 12% for the quarter. France’s CAC index posted a quarterly loss of 7.3%, and the UK’s FTSE 100 down 7.7%. The Eurozone is back in deflation. Consumer prices slipped 0.1% year-over-year in September.

The major U.S. averages had a rough third quarter. Concerns about spillover from slowdown in China and the timing of a Federal Reserve rate hike sent markets into correction territory, or more than 10 percent below their 52-week highs, in late August. The major U.S. averages recently fell back into correction mode and were close to retesting the August lows Tuesday.

The Russell 2000 held below its Aug. 24 low Tuesday. For the quarter, the Dow fell 7.6 percent, the S&P lost 6.9 percent and Nasdaq fell 7.4 percent. For September, the Dow fell 1.5 percent while the S&P dropped 2.6 percent and Nasdaq fell 3.3 percent. The Nasdaq biotech index lost 19.8% for the quarter.

West Texas Intermediate and Brent crude oil were down 24% for the quarter, for their sharpest decline since the end of 2014. The LMEX Metals Index is set for its longest streak of monthly declines since January 2009, down 11% for the quarter. Based on the most-active contracts, gold prices lost 1.5% for the month and 4.8% for the quarter. Year to date, gold is down 5.8%.Rice, cocoa, and cotton are the only commodities to post gains year-to-date.

Everything else is down. The worst performers are coffee down 28.8%, and lumber down 34.6%. Brazil and Columbia have flooded the coffee markets to boost exports to customers buying with U.S. dollars, in an effort to help offset losses from weakness in their local currencies. The selloff in lumber tells us something about the construction market, not just domestically but more so in China.

The MSCI Emerging Markets Index is down 19% for the quarter; investors pulled $40 billion out of developing economies in the third quarter, the biggest outflows since the fourth quarter of 2008. About $11 trillion has been erased from global shares in the third quarter.

The head of the International Monetary Fund says there is reason to be concerned about the global economy. In a speech today, IMF Director Christine Lagarde said that her organization sees troubling signs in the world’s finances, and that it is unclear if the current situation is cyclical or if it represents a fundamental downturn. “The simple answer is that there is no simple answer. Certainly, we are at a difficult and complex juncture,” Lagarde said, explaining she is worried about recent global affairs and international economics are similarly distressing.

Interfax reports Russian warplanes have started air strikes against ISIS targets in Syria; this marks Russia’s first use of force in the Middle East since the 1980s. In a speech at the United Nations on Monday, Putin called for a mandate for a broad coalition to fight ISIS that would include Syrian government forces and Iran. The U.S. and a coalition of countries is also carrying out limited airstrikes in Syria against ISIS, but they also say a future Syria must not have Assad at its helm because of his brutal actions against his own people.

Russian strikes will be in support of operations by the Syrian army and won’t target opposition forces other than those of ISIS. At least that’s one story; the other story is that the Russians bombed the Free Syrian Army, the anti-Assad rebel group that is backed by the West. Speaking at the U.N. on Wednesday, Secretary of State John Kerry said the U.S. would have “grave concerns” if Russia targeted other groups. If Putin really wants to jump into Syria with both feet, I suppose the best thing is that nobody tells him he’s jumping into quicksand.

The government will be open tomorrow. The Senate and the House just passed a short-term spending bill that will extend federal funding until December 11 and avoid a government shutdown by tonight’s midnight deadline. Following the votes, Republican leaders plan to start talks with President Obama about a two-year budget, although it’s unclear whether any successor to outgoing House Speaker John Boehner would be interested in such a deal.

Payroll processor ADP says the private sector added 200,000 new jobs in September. The Labor Department will issue its report on Friday; estimates are calling for 190,000 to 200,000 new jobs in the government report. ADP reports about half of the new jobs were created by large companies with 1,000 employees or more. Small and midsize firms were less aggressive in hiring. Only the energy and manufacturing sector reported job losses.

The Securities and Exchange Commission charged twenty-two municipal underwriting firms with selling municipal bonds using materially false statements or omitting required disclosures to investors. They will pay penalties based on the number and size of the fraudulent offerings identified, with a maximum penalty imposed on PNC Capital Markets of $500,000. Mesirow Financial, and Edward Jones also failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers. The firms did not admit or deny the findings, but agreed to cease and desist from such violations in the future.

Tesla last night launched its long-awaited Model X sports-utility vehicle, which features two electric motors, a range of around 250 miles and seating for seven people, as well as “falcon wing” rear doors that can open differently depending on conditions. Tesla CEO, Elon Musk, said around 25,000 people had ordered the SUV, but they’ll have to wait 8-12 months to receive their cars. The basic theme here is: they can sell them as fast as they make them.

Considering that the founder of Tesla Motors is also into rocket ships, and solar arrays, and cargo carrying pneumatic tubes, and planetary colonization, the car offers some unusual features, including Bioweapon Defense Mode. Elon Musk says it should be useful “if there’s ever and apocalyptic scenario of some kind.” We don’t know how well this might work in the event of thermonuclear war; it is, after all just a slightly more aggressive version of an air filtration system, but it might come in handy if there’s a dead skunk in the middle of the road.

There are some other Easter eggs built into the Model X computer programs. There is “Ludicrous Mode”, a button you can push if you want to go from 0-60 in 3.5 seconds, and then if you keep pushing the button you can see a clip from the movie Space Balls. Or, if you want to know more about the people that built your car, on the computer screen press the Tesla logo and then press the lower right corner of the screen and up pops a photo of the development team. And for audiophiles, a premium sound system where you can turn the volume to eleven.

Meanwhile, the only software Volkswagen can come up with is to cheat on emissions, and General Motors is still trying to make the ignition switch work.

The times are changing, and it’s not just computerized electric cars. The biggest coal companies in the U.S. are in trouble. Twenty-six percent of U.S. coal companies have gone out of business in the last three years, and the value of the companies that have managed to survive has dropped 76% in five years, according to a report from the energy finance research group Carbon Tracker.

As of 2001, just 17.1% of U.S. electricity came from natural gas generation. By 2014, gas’ share had increased to 27.4%. The entire U.S. coal industry made a big, expensive, debt-laden bet that China’s thirst for coal, particularly the kind used to make steel, would never slow down, and they were wrong. And now, New York City’s five pension funds, worth a collective $160 billion, announce they will divest their investments in coal.

In America’s long, dangerous history of mining, not once has a coal mine owner been charged criminally for a worker’s death. Coal miner fatalities, in some ways, have been considered a business expense. All of that changed with the indictment of Donald Blankenship. The former CEO of Massey Energy will stand trial starting tomorrow at a federal court in Charleston, W.Va. He faces up to 31 years in prison for allegedly conspiring to violate safety laws and lying to regulators about safety practices at the Upper Big Branch mine in Montcoal, W.Va., where a 2010 explosion killed 29 workers, the nation’s deadliest mining accident in 40 years.

Blankenship is facing criminal charges when other mining executives have not, in large part, because federal prosecutors say he was intimately involved in Upper Big Branch’s output to an extraordinary degree. He demanded reports every half hour on its production—they were sent to his home by fax on nights and weekends. Blankenship’s trial won’t do anything to resolve the disasters the coal industry has left. His conviction might bring closure to the families of the dead miners (if that’s possible). But in the long term, it might end up being a mere footnote in the tortured history of the Appalachian coalfields.

Financial Review

Cleaning Up

Sinclair Noe — August 3, 2015

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DOW – 91 = 17,598
SPX – 5 = 2098
NAS – 12 = 5115
10 YR YLD – .05 = 2.15%
OIL – 1.95 = 45.17
GOLD – 9.10 = 1087.10
SILV – .30 = 14.59

This is going to be an extremely busy week. We still have a third of S&P 500 companies to report earnings. There’s also going to be a plethora of economic activity culminating in the Friday jobs report for July. Oil prices hit a six month low. It’s not just oil. Commodities prices across the board are falling thanks to slowing global demand and a rising dollar. All of this makes it very unlikely we’ll see a big pickup in inflation any time soon.

The Athens Stock Exchange reopened today and it was ugly. The ASE Stock Index dropped 23% after being closed for five weeks, with banking shares down by as much as 30%. The index managed to recover from session lows but still closed down 16%. While local traders are able to buy stocks, bonds, derivatives and warrants under certain conditions, international investors don’t face any restrictions, as long as they were active in the markets before they were shuttered.

The selloff shows the scale of the crisis still facing Prime Minister Alexis Tsipras as he negotiates a third bailout with creditors after six months that have put unprecedented strain on the Greek economy and its financial system.

As expected, Puerto Rico missed a $58 million debt payment due over the weekend. Because the deadline was Saturday, the PFC technically has until the end of Tuesday to make its missed payment, but it appears unlikely to make a difference. Puerto Rico does not have the money to pay. Puerto Rico faces a grim future. It’s operating with a $703 million budget deficit for the fiscal year that began last month. And the commonwealth faces $635 million in debt-service payments this month. Many investors are already focusing on broader questions around how Puerto Rico will restructure its $72 billion in debt, what kind of a “haircut” bondholders will need to take and what reverberations will spread to the U.S. municipal bond market.

A default is imminent and it will be the largest government debt restructuring in US history, and maybe the messiest. Puerto Rico’s indebted central government, municipalities and public corporations cannot file for bankruptcy protection without the OK of the U.S. Congress, which leaves them at the mercy of what could be hundreds of lawsuits filed by creditors. Without a referee in the form of a bankruptcy court, it’s going to be a mess.

Over the years, mutual-fund managers have had an incentive to buy Puerto Rican bonds, because their returns are tax-free. And many well-known mutual funds have significant exposure to Puerto Rico, including Oppenheimer, Franklin, Eaton Vance, and others. So on one side you have Main Street America, Mom and Pop investors who may or may not have known what they were buying in those mutual funds. On the other side you have Puerto Rican citizens, facing severe cutbacks and added costs for everything from driving on their roads to healthcare. Meanwhile, hedge funds have been swooping in like vultures on a carcass, buying bonds at steep discounts and hoping to force repayment through the courts. The hedge funds issued a report demanding huge budget cuts and privatization; even that is unlikely to get the island out of debt.

Chinese regulators restricted short selling of stocks, freezing out day traders, in their latest step aimed at stabilizing the world’s second-largest equity market. Investors who borrow shares must now wait one day to pay back the loans. This prevents investors from selling and buying back stocks on the same day.  Under the old T+0 rule, you could go short in the morning and cover your shorts before market close the same day and lock in your profit, if your bet is right. Now with T+1, you can’t cover your short position in the same day, and have to wait till next day at the earliest. That makes shorting a much more risky venture.

Pacific Rim trade officials failed to clinch a final deal for the Trans-Pacific Partnership on Friday following several days of intense talks in Hawaii. Key sticking points: Auto trade between Japan and North America, New Zealand’s dairy exports and monopoly periods for next-generation drugs. The deadlock may also sink U.S.-led plans, which aimed to finalize the trade deal by the end of 2015.

President Barack Obama has officially revealed a finalized version of a plan to reduce the amount of carbon dioxide emissions that power plants across the country can emit. Obama called the plan “the single most important step that America has ever taken in the fight against climate change.” Adding that “there is such a thing as being too late on climate change.”

While US power plants have limits on other air-born pollutants — like nitrogen and sulfur oxides that cause acid rain — there haven’t been limits, until now, on the levels of carbon dioxide emissions that power plants can emit. Power plants that burn fossil fuels, both coal and natural gas, emit carbon dioxide and in turn these greenhouse gases contribute significantly to the warming of the planet.

The Obama administration has turned to the Environmental Protection Agency to use the Clean Air Act to regulate carbon dioxide emissions from the power industry through the Clean Power Plan. The White House has used the EPA because politically a national carbon emissions reduction plan wouldn’t be able to pass through Congress.

States will be allowed to create their own plans to meet the requirements and will have to submit initial versions of their plans by 2016 and final versions by 2018. The most aggressive of the regulations requires that by 2030, the nation’s existing power plants must cut emissions by 32 percent from 2005 levels, which is an increase from the 30 percent target proposed in the draft regulation. Electric power generation from coal and natural gas plants is responsible for 40% of U.S. carbon emissions.

Clearly, the clean power industries, including solar, wind and even smaller sectors like geothermal, will benefit greatly from the plan. States that opt to meet their requirements by investing in clean power projects could be a major boon to these technologies. Solar and wind project developers include SunPower, First Solar, NRG Energy, and SunEdison. The natural gas industry will also be a major beneficiary of the plan. The coal industry, of course, is one of the major losers in the plan. One of the leading and most economical ways to reduce carbon emissions from coal plants is to simply shut them down, particularly aging plants. At least one fifth of the coal plants in the U.S. have been closed, or are in the process of closing.

The Obama administration says the plan could lead to “30 percent more renewable energy generation in 2030″ and “create tens of thousands of jobs.” Consumers will collectively be able to save “$155 billion from 2020-2030″ on energy bills, and $85 a year on an individual energy bill by 2030.

The Institute for Supply Management’s manufacturing index fell to 52.7% in July from 53.5% in June. Readings greater than 50 indicate expansion. ISM reported that 11 out of 18 industries reported growth with five reported contractions. The group’s employment measure declined from a month earlier and order backlogs slumped. And for some reason, the data was released just a bit earlier than the scheduled 7:00 AM time.

Spending on U.S. construction projects rose just 0.1% in June, well below forecast. Spending advanced 0.4% for new houses, condos, apartment buildings and other residential properties. Outlays on nonresidential and commercial projects was flat.

Consumer spending edged up 0.2 percent in June, the poorest showing since a similar increase in February; and the government revised the spending gain in May to 0.7% from 0.9%.The largest drop in spending involved big-ticket items such as new cars and trucks, according to the Commerce Department; now a quick note here, we also had a report from the car companies saying auto sales were strong in July – more on that in a moment. Even as spending tapered off, incomes continued to rise steadily. Personal income climbed 0.4% in June for the third straight month.

U.S. auto sales were stronger than expected in July and kept the industry on pace for its best performance since the turn of the century. Auto sales rose 5.3 percent to 1.51 million vehicles, above the 3 percent rise expected by analysts, according to Autodata Corp. The figures translate to an annualized sales rate for July of 17.55 million vehicles and keeps the auto industry on a pace for its best year since 2000. High-margin pickup trucks helped sales of the two market leaders, GM and Ford. GM had record sales of the Colorado pickup. Ford’s F-Series sales alone topped those of all Ford and Lincoln brand sedans.

Alpha Natural Resources has filed for bankruptcy in Virginia. The second-largest US coal company has lost almost all its market value since 2011, when it bought Massey Energy Co. for about $7 billion. The deal made it the biggest U.S. producer of metallurgical coal, used in steelmaking; it also saddled the company with debt, right before prices began their plunge.

Former UBS and Citigroup trader Tom Hayes, the first person to stand trial for manipulating Libor, was found guilty of eight counts of conspiracy to rig the benchmark rate. Hayes has been sentenced to 14 years. Jurors in London found that Hayes conspired with traders and brokers to manipulate the London interbank offered rate to benefit his own trading positions. After initially cooperating and being admitted into a whistle-blower program, Hayes had a change of heart and pleaded not guilty. Throughout the trial Hayes insisted his managers at UBS and Citigroup had known of his attempts to manipulate Libor and at no point told him he was doing anything wrong.  Apparently the defense of “everybody else was doing it, too” is not a particularly strong defense. Now it will be interesting to see if prosecutors will go back and revisit Hayes’ earlier claims that rate rigging was systemic. Having followed the trial, it is hard to imagine Hayes was a mastermind.

Wednesday, May 28, 2014 - Reflecting the Economy

Financial Review with Sinclair Noe

DOW – 42 = 16,633
SPX – 2 = 1909
NAS – 11 = 4225
10 YR YLD - .08 = 2.43%
OIL – 1.03 = 103.08
GOLD = 4.70 = 1259.60
SILV - .01 = 19.13

The major stock market indices were lower, but it wasn’t a big move, and we’ve been 4 up days, so today’s pullback was nothing but a pause. What was interesting today was the move in the bond market. The yield on the 10 year treasury dropped all the way to 2.43%; that’s the lowest rate in almost a year. The 10 year treasury has dropped 22 basis points this month, meaning treasuries are on track for the best month since January. Now, remember that the Federal Reserve is supposed to be tapering, cutting back on large scale purchases of treasury bonds.  

What’s fueling the move? It’s hard to pinpoint one thing. Europe is facing some sort of monetary stimulus package from the ECB next week; meanwhile, a report showed German unemployment rose and that pushed yields on the 10 year bund to 1.28%; that trade then spilled over to the US markets, toss in end of month window dressing and there was likely a short squeeze. There are some big short positions on treasuries right now; more shorts than longs.

At the end of the day, the bond market is supposed to reflect the economy; not an exact image but rather a mirror image. And the US economy is probably not as strong as expected. Tomorrow, we’ll get a revised look at first quarter GDP. The initial estimate on GDP showed just 0.1% growth; a pathetic rate blamed on bad weather; the revision is expected to show the economy contracted by 0.6%, maybe worse. Since the recession ended in June 2009, US GDP growth has dipped into the red only once: the first quarter of 2011, when economic output contracted at a 1.3% rate. It appears likely to happen again. The economy was repeatedly disrupted by cold and snowy weather in the first quarter and much of the activity that did not take place then is occurring now during the warmer spring months. Wall Street expects second-quarter growth to snap back with a 3.8% gain.

But where will the springtime burst of growth come from? Exports? Not to Europe and not to emerging markets. The initial GDP report said net exports subtracted 0.83 percentage point from the GDP growth rate in the first quarter. It may be a bigger drag on growth in Thursday’s update. Construction? A bit, yes, but we continue to see the housing market looking soft. Construction lending is seeing a slow, steady recovery, but it remains 66% below its boom-era peak of $631 billion in outstanding loans in early 2008. Companies restocking their shelves? Not likely. Inventories subtracted 0.57 percentage point from GDP growth, according to the first estimate, and that could grow with this week’s revision; inventories remain high and consumer spending sluggish. Corporate profits? Yes sir that is an area of strength but it’s also a two-edged sword.

The Commerce Department is starting to release a new report on corporate profits. Pretax profits adjusted for depreciation and the value of inventories climbed 1.9% in the fourth quarter to a record $2.13 trillion on a annualized basis. Corporate profits as a percentage of GDP stood at 10.2% in the fourth quarter, just a touch below a record high. Corporate profits are now higher than they’ve ever been before.

Here’s the problem; whenever profit margins reach a high, they tend to peak and then rollover, with the stock market and the economy dragging behind in like manner. It’s tough to keep pumping out record profits, in part because profit margins often depend on cost cutting, not just revenue; there are limits to how much fat a company can trim and there are limits to how much a company can increase sales while simultaneously cutting back on R&D and capital expenditures. Right now, stocks are priced to reflect very high corporate profits. Any disappointment would shake that pricing structure and translate into big stock market losses.

Like any individual indicator, this is not an absolute. Corporate profit margins can remain at elevated levels anywhere from a single quarter to multiple years and don’t typically present an imminent warning threat to the stock market or economy until forming a major peak and sudden decline. Profit margins peak on average before the stock market by more than a year and before recessions by more than two years. It doesn’t work out this way all the time; in the early 70’s profits peaked with the market, and in the early 80’s profits peaked after the stock market, and it is possible that the lag time stretches out so far as to make the indicator more or less worthless.

The point is that there are other factors that must be considered. Think of profits as one measurement of the business cycle. So, despite the Fed taper, there is increasing likelihood that interest rates will remain low and possibly decline a bit; if rates decline, stocks are likely to move up with bonds, as we’ve seen can happen; and if falling long-term yields flatten the yield curve, that would increase the risk of a market crash. In a low-yield, low inflation environment, there is a good opportunity to grow profits and so those crashes tend to be preceded by periods of very strong returns. So the current bull market is likely to remain in place until inflation picks up or low-flation/deflation drags down profits.

Falling yields tend to be somewhat more bullish than bearish, but it’s a poor indicator for how the stock market will react. Falling yields are good especially when we are in a bull market, but they can be dangerous if they should drive down the yield curve spread to an unusually low level and then there is the lag effect I mentioned earlier. When the long end of the yield curve comes down that is good for stocks for a while; it can even result in parabolic increases in the short term, but it also indicates bad news for the broader economy, and eventually the bill comes due.

Yesterday we talked about the proposed new EPA regulations on coal fired power plants. Today we’ll talk about the backlash to those proposals; which, by the way, have not been officially proposed yet. It’s anticipated that the new EPA guidelines will try to reduce the percentage of US electricity generated by coal to 14% by 2030 from about 37% right now. Coal is the single biggest source of electricity generation in the US and has been for more than 60 years. The amount of electricity generated by natural gas would rise to 46% by 2030 from about 30% now under the EPA plan. That would make it the biggest generator of the nation’s electricity.

Meanwhile, opponents of the plan say it will increase the cost of electricity and cost jobs. The US Chamber of Commerce released a study showing it would cost the economy $50 billion a year and destroy a quarter million jobs. Sometimes they just pull numbers out of the air; these reports tend to overlook the externalities associated with a dirty fuel like coal, and also overlook the positive impact of cleaner fuels. Anyway, the mudslinging has started.

And a follow-up on the Detroit bankruptcy story. A task force has issued the most detailed study yet of blight in Detroit and recommended that the city spend at least $850 million to quickly tear down about 40,000 dilapidated buildings, demolish or restore tens of thousands more, and clear thousands of trash-packed lots. It also said that the hulking remains of factories that dot Detroit, crumbling reminders of the city’s manufacturing prowess, must be salvaged or demolished, which could cost as much as $1 billion more.

If carried out, the recommendations by the Detroit Blight Removal Task Force would drastically alter the face of the nation’s largest bankrupt city. They would also cost significantly more than the approximately $450 million that the city already plans to spend on blight, raising questions about the feasibility of the vast cleanup effort, which is part of its larger campaign to emerge from bankruptcy by fall and begin remaking itself.

The blight study, which is perhaps the most elaborate survey of decay conducted in any large America city, found that 30% of buildings, or 78,506 of them, scattered across the city’s 139 square miles, are dilapidated or heading that way. It found that 114,000 parcels — about 30% of the city’s total — are vacant. And it found that more than 90% of publicly held parcels are blighted. The report also made several recommendations for preventing blight in the future, including changes to property tax and foreclosure laws, and heavy fines for scrap metal theft.

The basic plan is to clean up the city, but nobody really knows how to go about the task. Do you clean up by tearing down or do you clean up by building or rebuilding? For years, some have contemplated consolidating some of the city’s neighborhoods to allow the city to provide services to a smaller area, more suited to its shrunken population; Detroit has gone from 1.8 million to about 800,000. And if they don’t get this right this time, it will likely revert to farmland.

Tuesday, May 27, 2014 - Currently Trending Here

Financial Review with Sinclair Noe

DOW + 69 = 16,675
SPX + 11 = 1911
NAS + 51 = 4237
10 YR YLD - .02 = 2.52%
OIL - .24 – 104.11
GOLD – 29.20 = 1264.30
SILV - .40 = 19.14

The S&P 500 Index closed at another record high. The Dow Industrial Average is just a little below the May 13 record of 16,715. The Russell 2000 index of small and mid-caps confirmed the uptrend. The Russell had been lagging and there was a concern that small caps might drag the blue chips lower. While the Russell is still down about 2% year to date, on Friday it moved above its 200 day moving average.

Any time the market is trending, it makes sense to look for divergences, or any indicator that might signal a change in trend, but the most important thing to watch is still the trend itself; in other words the market scorecard is measured in price. And right now the trend is up.

Let’s start with some economic news. The S&P/Case-Shiller Home Price Indices continued to show gains in prices for existing home sales; the 10-city composite was up 0.8% and the 20-city composite was up 0.9% month over month; and respective year over year gains of 12.6% and 12.4%. Nineteen of the 20 cities showed positive returns in March; New York was the only city to decline. As of March 2014, average home prices across the United States are back to their mid-2004 levels. Measured from the 2006 peaks, home prices are down 19%.

Mortgage rates started rising in May 2013 as the market speculated about when the Federal Reserve would start pulling back on its large scale asset purchase program, at the same time inventories of new and existing homes dropped, pushing prices higher and affordability was pushed down. One positive for home sales is that mortgage rates have recently dropped with the average 30 year fixed at 4.14% and the average 15 year fixed mortgage at 3.25% the lowest levels since last October.

The Conference Board said its consumer-confidence index rose to 83 in May from a downwardly revised 81.7 in April. The survey shows 20% of respondents expect their incomes will improve in the next 6 months; that doesn’t sound like much but it’s the highest reading since 2007. Other key elements of the survey: A net 18.2% said jobs were hard to get vs. being plentiful, compared with 19.8% in April and 26.5% in May 2013. Those who plan to buy a home within six months fell to 4.9% in May, the lowest since July 2012; that compares with a percentage of 5.6% in April. Those who plan to buy major appliances within six months fell to 45.1%, the lowest since September 2011.

Durable goods orders increased 0.8% in April. Durable goods are products designed to last 3 years or longer; so this is a broad category that includes everything from toasters to cars to nuclear submarines. In April, the Navy inked a $17.6 billion contract for 10 nuclear-powered attack submarines; and while that will be money that will circulate through the economy over several years, it skewed the report. Non-defense capital goods orders fell 1.2%. Business are placing fewer orders while working through a stockpile of goods amassed in the second half of 2013. Last month, durable goods inventories rose 0.1% after increasing 0.2% in March.

The Memorial Day holiday signals the unofficial start of summer and the summer driving season, and that usually equates to higher gasoline prices at the pump. Usually, but not always. According to the Energy Information Administration, prices at the pump are going to fall from today’s levels. This forecast is based on increased crude-oil production and declining global demand.  Rising oil production has boosted US crude-oil inventories to some 398 million barrels. That’s the highest level since way back in 1931. Demand is down, in large part because of better fuel efficiency forced by government MPG mandates. Demand has been declining since 2007. In many areas, gas prices are the lowest since 2011. Each penny decline in gasoline puts $1 billion back into people’s pockets.

Speaking in Portugal today, European Central Bank President Mario Draghi warned that prices in the countries in the euro zone's stressed periphery were falling too sharply, due to the combination of belt-tightening and a high exchange rate. He also cited evidence of a debt trap in stressed countries: the cost of finance for many companies has risen since the crisis, while falling prices mean they can't generate the profits to service their debts. Draghi said that the share of viable small businesses that can't get a loan is only around 1% in Germany or Austria, but around 25% in Spain and 33% in Portugal; Draghi called this imbalance a “credit gap” and blames it for up to a third of the economic slack in the crisis economies and acting as a brake on economic recovery. And so Draghi says the ECB will take action June 5th to ward off deflation and support economic recovery; what precisely will be done is still a matter of speculation.

It is widely anticipated the ECB will cut interest rates combined with an attempt to boost credit to small and medium sized businesses by providing long-term funding to banks provided they deploy that capital to expand business credit. The main lending rate will likely be cut from 0.25% to 0.1% or so. Meanwhile, the deposit rate paid to banks on overnight deposits will likely be cut from zero to a negative 0.1% or so, in effect charging the banks for funds they leave with the central bank.

The Federal Trade Commission has issued a report on the data brokerage industry. The nine data brokers examined in the FTC report were Acxiom, CoreLogic, Datalogix, eBureau, ID Analytics, Intelius, PeekYou, Rapleaf and Recorded Future. Data brokers analyze data collected about consumers to make automated assumptions about them. Consumers are placed in data-driven social and demographic groups for marketing purposes. The commission says that the same data that identifies a motorcycle enthusiast could both get him a discount on a biking magazine and make it easier to charge him more for car insurance. Another way to look at this is that the consumer is not the customer, rather the consumer is the product.

And yes, the data brokers know whether you drive a motorcycle, or smoke cigarettes, or if you are overweight, and how many bathrooms you have in your home, and if you travel or just like to read magazines about travel; that’s all in addition to the basics like name, address, social security number, age, and the bluntly termed “ability to afford products”.

According to the FTC, the firms have done a great job of finding data to crunch. One firm has information on 1.4 billion consumer transactions; another one adds 3 billion new records to its databases each month. While the report doesn’t address credit scores, the framework of the debate is much the same. What really worries the FTC is the impossibly opaque way the data is collected and managed. The data brokers gather their data from other data brokers rather than directly from an original source.

This is where the commission thinks the government should get involved. It suggests a law that would mandate the creation of a centralized portal where data brokers explain themselves, disclose their sources, and give people the opportunity to opt out; or for more sensitive data, require consumers to opt in before data could be sold. The commission hints it might call for some version of the idea that people have a right to have some things be forgotten, but they don’t actually recommend that data brokers cull their data, even when that data may be very old and inaccurate. And there is talk, but nothing concrete, about giving consumers access to their own data, and the ability to call for some of that data to be corrected or deleted.

President Obama today outlined a plan to withdraw all but 9,800 American troops from Afghanistan by the end of the year and withdraw the rest by the end of 2016. Under his plan, 9,800 US troops would remain behind into next year. By the end of 2015, that number would be reduced by roughly half. By the end of 2016, the U.S. presence would be cut to a normal embassy presence. The United States now has about 32,000 troops in Afghanistan.

At some point in the next week, President Obama is expected to announce Environmental Protection Agency mandated cuts intended to reduce carbon pollution by regulating carbon dioxide emissions from about 600 existing coal fired power plants. Obama could not get Congress to take action to address climate change during his first term, so he changed his tack and is using his executive authority under the 1970 Clean Air Act to issue the EPA regulation.

As currently drafted, the rule would cut greenhouse-gas emissions from the utility sector by 25%, the individuals said, but the baseline for that reduction has not been finalized. The EPA plan resembles proposals made by the Natural Resources Defense Council, which would allow states and companies to employ a variety of measures, including new renewable-energy and energy efficiency projects “outside the fence,” or away from the power plant site, to meet their carbon- reduction target.

Usually when the EPA regulates pollutants under the Clean Air Act, the agency sets an emission limit for each facility. By contrast, under a “mass-based system,” which the EPA is poised to adopt, states would have to meet an overall target for greenhouse-gas emissions and ensure that power plants either make those reductions at their facilities or finance efforts to achieve them in other ways, such as conservation or “green” generation or possibly through some variation of the cap and trade system.