It's A Sea Of Red All Over The World As Markets Drop

Financial Review

Been to the Mountaintop

Sinclair Noe — January 15, 2016

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

Subscribe: iTunes | Android | RSS

DOW – 390 = 15,988
SPX – 41 = 1880
NAS – 126 = 4488
10 Y – .07 = 2.03%
OIL – 1.52 = 29.68
GOLD + 10.30 = 1089.80

Let’s start with the good news: US stock and bond markets are closed Monday for the Martin Luther King Jr. holiday.

For the day the Dow dropped 2.4%, the S&P 500 dropped 2.1%, and the Nasdaq lost 2.75%. And even though it was a volatile week, almost all of the damage for the week came in today’s session. The Dow Industrials did take out the September lows but not the August lows of 15,370.

The Nasdaq composite knocked out the closing low from August but not the intra-day August low.

The S&P 500 hit an intra-day low of 1857, dropping below the August 24^th low of 1867. So we should wait for confirmation of a close below 1867 – at which point we have wiped out any reasonable support.

The Russell 2000 small-cap index dropped as much as 3.5 percent to its lowest level since July 2013.

The major S&P sectors all ended sharply lower. The energy sector dropped 2.87 percent as oil prices fell but the tech sector was the big loser, down 3.1%, with Intel down 9% following a weak earnings report after the close yesterday.

It’s a sea of red all over the world. China is in a bear market. China’s Shanghai Composite tumbled 3.6% on Friday. The country’s “National Team” was reportedly active but unable to stem the slide, even after injecting over $15 billion of funds into the market. Selling since the December 22 peak has dropped the index 20%, to levels last seen in December 2014.

The Euro Stoxx 600 tumbled 3 percent, and is now down 20% from its April high. The Euro Stoxx 50 Index of the region’s large caps also entered a bear market last week. The price of bearish contracts on the Euro Stoxx 50 Index rose to the highest since September versus that of options betting on a rebound.

Stocks worldwide have lost more than $14 trillion, or 20 percent, in value from a record last June. $14 trillion is a mountain of money. It took 2 years to add $14 trillion in value and 7 months to lose it. A long time to climb the mountain, and just a few moments to fall.

Crude futures are in the $20s, with the prospect of additional Iranian supply on expectations that Western sanctions will be lifted within days. China’s Sinopec has also purchased its first ever batch of U.S. oil for export, a landmark transaction after the ending of a four-decade ban on domestic exports. West Texas Intermediate is down 1.52 at 29.68, (- 4.8%), after hitting an intra-day low of $29.28.

The risk premium on a gauge tied to US junk-rated companies surged to the highest level since November 2012. The spread between junk rated energy debt and treasuries is at 16%, the widest spread ever. That means that if prices stay at these levels or get worse, we are almost certain to see more defaults in the oil patch. High yield is selling off, emerging-market debt is selling off, and investment-grade bonds are selling off.

Lipper reports investors pulled $2.1 billion from U.S. high-yield funds this past week after withdrawing $809 billion the week earlier. Yields on 10-year Treasury notes fell under 2 percent for the first time since October, while the dollar extended its longest rally since July. Gold surged with the yen on haven demand.

Now, consider that about 27% of the junk debt brought to market in 2014 came from oil companies, many of them riding the shale fracking boom. Then consider that Matthew Mish, global credit strategist at UBS, published a report Wednesday saying that most high-yield issuers’ business models “don’t work with oil in the $20-$40 range.” In this environment, even energy bonds that are trading at distressed levels, 20 cents to 30 cents on the dollar, could be worth “close to zero in reorganization.” For investors, another cause for worry is the relatively low levels of cash currently held by high-yield mutual funds to meet redemptions, on average less than 5% in cash reserves.

Wholesale prices in the US declined in December from the prior month, showing inflation is still well-contained as Federal Reserve officials weigh further increases in the benchmark interest rate. The producer-price index dropped 0.2 percent following a 0.3 percent gain in November. Over the past 12 months, wholesale prices fell 1 percent. The PPI excluding volatile food and fuel prices climbed 0.1 percent from the prior month.

For astute listeners, you might wonder why the consumer price index, or prices at the retail level grew by 0.5% over the past 12 months, while the PPI declined by 1%. The biggest reason is housing costs are included in the CPI, not the PPI. Yep, the rent is too damn high.

Industrial production fell 0.4% in December, the third straight monthly decline, led by cutbacks in utilities and mining (which includes the oil patch). Power plants had more slack in December than any time on record, and the reason is simple, it was the warmest December on record, 6 degrees Fahrenheit above average.

Business inventories fell 0.2% in November, as department stores and companies that sell building materials cut down on their restocking. Business sales also fell 0.2% in November after a 0.3% drop in October. Manufacturers and wholesalers posted sales declines in both months.

Sales at US retailers declined 0.1% in December to wrap the weakest year since 2009, raising concern about the momentum in consumer spending heading into 2016. For all of 2015, purchases climbed 2.1 percent, the smallest advance of the current economic expansion.

Wal-Mart plans to close 269 stores, including its experimental small-format Express outlets, in a push to streamline the chain that will eliminate 16,000 jobs. The move affects 154 locations in the US, plus 60 stores in Brazil.

General Electric agreed to sell its home-appliances business to China’s Haier for $5.4 billion after cancelling a $3.3 billion a deal with Electrolux last month, due to objections from US antitrust regulators. Haier, one of several bidders in the latest round, paid 10 times the division’s earnings over the last year. Louisville will still remain the headquarters for GE Appliances.

BHP Billiton will write down the value of its U.S. shale assets by $7.2 billion, cementing expectations it will be forced to cut its dividend for the first time in over 25 years. The company has also seen prices for its most important product, iron ore, collapse in the last few months due to the economic slowdown in China.

BHP, like many of its biggest competitors, has refused to rein in production. To make matters worse, the company is facing huge legal bills after a dam holding back waste water from a mine in Brazil that it jointly owns burst in December, causing a lethal flood and a trail of pollution hundreds of miles long. The Brazilian government has provisionally estimated the damage from that at $5.2 billion. BHP – 1.49 = 20.19

Citigroup is reporting fourth-quarter profit jumped as legal costs fell and revenue rose. Citi posted a profit of $3.3 billion, or $1.02 per share. That compares with the $344 million, or 6 cents per share, it reported in the same period of 2014. The 2014 numbers were hurt by legal problems at the Mexico subsidiary Banamex, a big mortgage-securities settlement with the Justice Department, and a failed stress test. Revenue edged up 3%, to $18.4 billion from $17.9 billion a year ago. Earnings were a penny better than estimates. Citigroup, once the largest US bank, has now slipped to the fourth largest, just behind number 3 Wells Fargo. C – 2.91 = 42.47

Wells Fargo’s fourth-quarter profit was flat compared with the year-ago period. Wells Fargo reported a profit of $5.7 billion, or $1.03 a share. That compares with $5.7 billion, or $1.02 a share, in the same period of 2014. Profit beat estimates, revenue missed. Last year, Wells Fargo acquired GE’s finance arm, including its commercial banking business; that also included commercial loans to energy companies. WFC – 1.82 = 48.82

Goldman Sachs has entered an agreement in principle to resolve investigations by a number of authorities relating to sales of faulty mortgages between 2005 and 2007, and deceiving investors about the quality of residential mortgage bonds they were peddling. Under the terms of the agreement, the bank will pay a total of $5.1 billion. The deal will also cut Goldman’s Q4 after-tax earnings by about $1.5 billion, which will pretty much wipe out Goldman’s earnings for the quarter.

Now, let’s dig deeper: out of that $5.1 billion, about $1.8 billion will be in the form of consumer relief, meaning they don’t really pay it, they just adjust some accounts to stop the rip-off. Then Goldman will have $2.4 billion in penalties, and $875 million in cash.

The bank has said that it securitized about $125 billion of home loans between 2005 and 2008, of which about $23 billion eventually soured. The penalty represents about 10 percent of investors’ losses. Goldman can deduct the rest of the settlement, about $2.7 billion, from its future tax bills. Goldman Sachs did not admit wrongdoing. GS – 5.78 = 155.61

Financial Review

Tomorrow

Sinclair Noe — June 4, 2015

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

Subscribe: iTunes | RSS

DOW – 170 = 17,905
SPX – 18 = 2095
NAS – 40 = 5059
10 YR YLD – .06 = 2.31%
OIL – 1.66 = 57.98
GOLD – 8.60 = 1177.40
SILV – .40 = 16.18

The sun will come out tomorrow, beyond that we don’t have much certainty. Tomorrow could be a very interesting day in the markets. Greece is scheduled to make a debt payment to the IMF; that will not happen. OPEC meets tomorrow in Vienna; they are expected to leave the current production ceiling of 30 million barrels per day unchanged. And in the US, we have a Jobs Report Friday; the Labor Department is expected to report the economy added about 225,000 new jobs in May and the unemployment rate is forecast to remain unchanged at 5.4%. Any one of these three events could result in major market moves. So buckle your seat belts.

This morning the Labor Department reported the number of people seeking unemployment benefits at the end of May remained near a 15-year low. Some 276,000 Americans filed initial jobless claims in the period running from May 24 to May 30, a week that included the Memorial Day holiday. That was down 8,000 from the prior week.

In addition to the headline numbers in the Jobs Report, we will be looking to see if wages are actually increasing; plus, we’ll look to the U-6 number to see how much slack remains in the labor market (hint: quite a bit; the U-6 stands at 10.8%, and in a tighter labor market, it should be closer to 8.5%); and then we’ll look at the industries where jobs are being created; if manufacturing and construction look weak, it might indicate the economy hasn’t pulled out of the first quarter funk.

Also tomorrow, Greece was supposed to pay a little over $300 million to the IMF, part of several payments due in June totaling more than $1.6 billion. It’s not gonna happen. The Greeks are now saying they will defer the payment. The Greeks offered a proposal to their creditors earlier in the week; the creditors responded with their own take-it-or-leave-it ultimatum. Greece rejected the latest proposal from Greece’s international creditors, with the Finance Ministry saying the plan “can’t solve the riddle” and an agreement requires “immediate convergence of the institutions to more realistic” proposals.

The creditors are demanding Greece make spending cuts and slash public programs to try and generate a zero to 3% surplus in its budget; but the problem is that the Greek debt to GDP ratio is now around 180%, and the more they cut spending, the more the GDP shrinks, which in turn makes the debt to GDP ratio higher. And even if they did cut spending and increase taxes and it miraculously didn’t shrink the economy, it would still take about 50 years of austerity for the Greek public sector debt to fall to a level of sustainability.

So, these negotiations are about the IMF and ECB releasing enough emergency cash to keep Greece afloat. It is a dispute about whether the Eurozone’s creditors (at this point, mainly the IMF and the ECB) will release funds so that they can pay themselves and avoid having to call Greece in default. There is a problem when the creditors have to lend money to the borrower just to make interest payments on the debt; and that in turn, means the fiscal targets in future years are just insane.

There is a temptation for lenders to allow Greece to default and then kick them from the Euro Union. Which would probably be a very, very bad idea. State authority has suffered a bloody collapse in the Middle East and North Africa, and it already poses a serious threat to Turkey. To lose Greece in these circumstances would constitute a major defeat, even though it might be good for the Greek economy, or not – nobody really knows. There has only been one hard study on the macro-economics of a Grexit and it shows a 50% devaluation of the Greek currency would not result in rampant inflation, and would likely restore trade competitiveness. Sure there would be some chaos, but then investors would flood the country to buy on the cheap.

For the ECB and the IMF, the fear is that leniency or even debt forgiveness would encourage Spain, Portugal, Italy, and Ireland to default on debt. For Greek Prime Minister Alexis Tsipras there may be more to lose by betraying his core election pledges than by holding firm in negotiations with creditors, even if it does result in a Greek exit. Tsipras will address the Greek parliament tomorrow.

The IMF sent out an emailed statement that says: “Under an Executive Board decision adopted in the late 1970s, country members can ask to bundle together multiple principal payments falling due in a calendar month. The Greek authorities have informed the fund today that they plan to bundle the country’s four June payments into one, which is now due on June 30.”

So, technically this is not a default, it is a delay; they are kicking the can, but there is little chance they can bundle together $1.6 billion by the end of the month. The Greeks did not roll over and take the take-it-or-leave-it ultimatum from the IMF. Tsipras issued a statement saying: “The proposal of the Greek government is the only realistic one on the table.” Greece’s decision to withhold the payment carries political and financial-market implications that are hard to predict. You might want to buckle your seat belt because it looks like we’re in for a bumpy ride tomorrow.

This morning the yield on the 10 year German bund moved up to 0.93%; that’s a gain of 48 basis points in the past month. The global bond market selloff has erased all of this year’s gains. And maybe we are starting to see some capitulation after that wild spike; time will tell; it might just be people moving to the sidelines ahead of the jobs report and reaction to the Greek debt delay tomorrow.

Oil prices are 40% below year ago levels. OPEC meets tomorrow in Vienna to determine production levels as world-wide crude output continues to exceed consumption. OPEC, which opted not to cut production at its last meeting despite plunging oil prices, is widely expected to stick to that strategy when it meets Friday. The group’s output level already exceeds its quota of 30 million barrels a day.

European oil majors are openly declaring interest in returning to Iran, with leaders of Royal Dutch Shell, BP and Total all saying they are ready to return as soon as international sanctions are lifted. U.S. oil companies remain somewhat more cautious on Iran, at least for now – give them time.

According to the AP: “One of the biggest hits to the economy last quarter came from cuts in drilling activity by energy companies — fallout from the sharp drop in oil prices over the past year. The government said investment in the category that covers energy exploration plunged at an annual rate of 48.6 percent, the steepest drop since 2009.” There had been hope that consumers would spend savings from lower gasoline prices and give a shot in the arm to the economy, but what has happened is the savings have gone to necessities such as rent and groceries, not discretionary consumer spending. Cheaper prices at the pump are not compensating for a raise in the paychecks; and we all have a sinking feeling that lower gas prices are just temporary anyway.

The International Monetary Fund says the Federal Reserve should delay raising rates until next year given the risks that moving too soon could stall the economy. IMF Director Christine LaGarde said the Fed should wait for “more tangible signs” of wage or price inflation than are currently evident. Starting too early to raise interest rates raises the risk of having to retreat back to zero. Overall, the IMF said that the fundamentals for continued growth and job creation remain in place for the U.S. economy, but momentum has been sapped in recent months by a series of negative shocks. The first Fed rate hike could still rattle markets and lead to instability. The IMF calculates that inflation won’t hit 2% until sometime in 2017. The IMF assessment of the US economy said growth had been slower than it expected, and it cut its 2015 forecast to 2.5 percent, from 3.1 percent.

The report from the fund says: “A later lift-off could imply a faster pace of rate increases following lift-off and may create a modest overshooting of inflation above the Fed’s medium-term goal (perhaps up toward 2.5 percent). However, deferring rate increases would provide valuable insurance against the risk of disinflation, policy reversal, and ending back at zero policy rates.”

Earlier this week, Fed governor Lael Brainard said that “foreign headwinds” were causing problems that could lead the Fed to delay interest rate increases.  She said the Fed should adopt a stance of “watchful waiting” and offered the cautious assessment that “liftoff could come before the end of the year.” Only a few Fed officials, however, have suggested that the Fed should wait until next year.

One of the big problems is the strength of the dollar, and if the Fed raised rates it would likely strengthen the dollar even more, especially in light of weakness in the rest of the developed world. As you know, first quarter GDP was revised lower, to show the economy shrinking by 0.7%; and while the contraction was blamed on temporary factors such as bad weather and the West Coast port closures, you can’t overlook the fact that the trade gap widened and trade has been hard-hit by the strong dollar, which makes US exports expensive compared with those from other countries.

I do not know what will happen in the markets tomorrow, but it should be wild. Stay tuned.

Financial Review

To Be Fair

Sinclair Noe — April 16, 2015

 

Podcast: Play in new window | Download (Duration: 13:19 — 6.1MB)

Subscribe: iTunes | RSS

DOW – 6 = 18,105
SPX – 1 = 2104
NAS – 3 = 5007
10 YR YLD – .02 = 1.88%
OIL + 12 = 56.51
GOLD – 3.70 = 1198.90
SILV – .04 – 16.37

Yesterday the ECB pledged to fulfill its €1 trillion-euro bond-buying program; today Eurozone government borrowing costs slid to new lows. Germany’s 10-year yield fell almost a basis point to 0.087% in early trade, while yields on all German government debt out to January 2024 were negative. Other notable levels include France’s 30-year yield, which fell below 1%, and the yield on two-year Portuguese bonds, which is on its way below zero.

The price of Greece’s three-year notes dropped the most since February and Greek corporate bonds also slumped. Credit-default swaps suggested there was a 79 percent chance of the country being unable to repay its debt in five years. Greece’s three-year yield is at a multiyear high, up 359 basis points at 27.7%. Expectations are low that Greece can reach a deal with its creditors at next week’s Eurogroup meeting. Standard & Poor’s has downgraded Greece’s credit rating to CCC+ with a negative outlook, citing a substantial risk of a default due to the country’s drawn out negotiations with its creditors.

Greece has been pushed a step closer to default and potential exit from the euro after one of its main lenders, the International Monetary Fund, all but ruled out allowing the cash-strapped country to delay repaying the €1 billion-euro due next month. Today, the head of the IMF, Christine Lagarde, said delaying the payments would be an unprecedented action that would only make the situation worse. Her comments followed a report that the Greek finance minister, Yanis Varoufakis, had sounded out the IMF over whether Athens could ask for a delay on the payments it is struggling to afford. Varoufakis denied asking for leniency. So Greece might default, that’s nothing new, but there are still plenty of options; some more realistic than others; we might not expect an enlightened solution to the Greek problem, but with any luck there will be something creative.

The Labor Department reports jobless claims increased by 12,000 to 294,000 in the week ended April 11. Fewer than 300,000 American workers filed applications for unemployment benefits for the sixth consecutive week. The total number of people currently receiving benefits was the lowest since 2000.

The pace of home construction rebounded slightly last month after being snowed out in February. Construction starts on new homes increased 2% in March at an annualized rate of 926,000.

Congressional leaders unveiled a bipartisan bill today that gives president Obama fast track authority to negotiate a trade deal with 11 other Pacific nations. The bill gives Congress the power to vote on the Trans-Pacific Partnership once it’s completed, but they could not amend the deal. It would essentially be an up or down vote. The legislation would also make any final trade agreement public for 60 days before the president signs it, and up to four months before Congress votes. If the agreement fails to meet the objectives laid out by Congress – on labor, environmental and human rights standards – a 60-vote majority in the Senate could shut off fast track trade rules and open the deal to amendments.

Former Fed Chairman Ben Bernanke has accepted an adviser role at a hedge fund. Bernanke will join Citadel Investment Group as a senior adviser.  Bernanke reportedly chose Citadel because it is not regulated by the Federal Reserve and he won’t be doing lobbying. So, in a way he’s gone from one hedge fund to another. And this is just another example of the revolving door between government and business, but in fairness, when Bernanke was Chairman of the Fed he couldn’t even refinance his mortgage.

Netflix  announced first quarter earnings late yesterday; net income fell to $24 million, or 38 cents a share, from $53.1 million, or 86 cents, as the strong dollar contributed to losses outside the U.S. But Wall Street isn’t paying attention to that, rather the focus is on subscriber growth; and Netflix added 4.8 million new subscribers worldwide.

Goldman Sachs posted the highest earnings per share in more than five years as all of its major businesses topped analysts’ estimates and the firm paid out a smaller portion of revenue to compensate employees. Net income surged 40 percent to $2.8 billion, and trading accounted for much of the increase. That means the improved returns come at a higher risk.

Citigroup reported its highest quarterly profit in nearly eight years. Citi has been slowly getting its house in order by cutting costs and shedding assets that are not critical to its main businesses. It has sold retail operations in many countries and shrunk its US branch network. Adjusted net income rose 16% to $4.8 billion, or $1.52 per share, beating average analyst estimates of $1.39 per share. Adjusted revenue fell 2% to $19.81 billion.

American Express reported a 6.3% rise in quarterly profit, helped by higher spending by card holders and an increase in net interest income.

UnitedHealth reported earnings and revenue that beat expectations. The company also raised its 2015 earnings forecast.

McDonald’s Japan forecast sharp losses. The 49%-owned subsidiary expects an operating loss of $210 million this year after a damaging series of food safety scandals, a costly french fry shortage, and fierce competition in the coffee sector. The operator of McDonald’s in Japan announced it would close 131 restaurants and renovate 2,000 more as part of its restructuring plan.

Yesterday more than 60,000 workers in 200 cities joined in what organizers claimed was the largest protest by low-wage workers in US history. The demonstrations, calling for a $15 per hour minimum wage, were the latest in a series of strikes that began with fast-food workers in New York in November 2012. The movement has since attracted groups outside the restaurant industry: Wednesday’s protesters included home-care assistants, Walmart workers, child-care aides, airport workers, adjunct professors and other low-wage workers. It also sparked international support, with people protesting low wages in Brazil, New Zealand and the UK.

Despite a slow start to IPO debuts so far this year, three big companies went public today. Etsy, the Brooklyn-based online marketplace for artisanal goods, opened for trading at $31 a share on the Nasdaq stock market. That is nearly double its initial offering price of $16 a share. Not bad for an e-commerce platform that so far hasn’t posted a profit and sells handmade items. Etsy is all about potential; it boasts more than 1 million active sellers, with access to 19.8 million active buyers on the site. And the company says it has achieved just shy of $2 billion in gross sales last year, with buyers or sellers in nearly every country.

Meanwhile, Virtu Financial, the big high-frequency trading firm, opened at $23 a share, about 21 percent higher than its $19 offering price. This is the second effort at going public in two years for Virtu. It postponed the stock sale last spring because of controversy about high-frequency trading prompted by the publication of Michael Lewis’s book “Flash Boys.” Virtu doesn’t help its case when they publish a chart showing one single day of losses in six years of trading activity; which is impossible unless you are gaming the trade.

The retailer Party City opened for trading at $20.40, above its offering price of $17 a share. Party City is going public three years after the private equity firm Thomas H. Lee Partners bought control of the nearly 70-year-old seller of party goods. So far this year, 38 companies have gone public in the US, about 60% fewer than at the same time last year.

Bombardier has hired UBS and Citigroup to advise on a potential IPO or sale of its rail unit, which could be valued at about $5 billion. Splitting off the rail unit would allow management to focus on turning around Bombardier’s aerospace division, which posted a 2014 loss of $995 million.

A New York federal bankruptcy judge has blocked most lawsuits against General Motors related to defective ignition switches. The judge ruled that plaintiffs could not sue the company for at least 84 deaths caused by an ignition fault because they predate GM’s 2009 bankruptcy.  The liability shield included in the 2009 agreement that lifted GM from bankruptcy should be allowed to remain in place, even though the company has acknowledged that many employees knew about the defective switch at the time but failed to alert owners of the cars that they might have a potential claim against the company.

The ruling shuts down not only lawsuits stemming from accidents that took place before July 10, 2009, but also most of the suits seeking economic damages for the loss in value of the defective cars. Lawyers had estimated that the economic loss claims potentially totaled $7 billion to $10 billion. Economic loss cases will be allowed to go forward, the judge ruled, only if they can be tied solely to actions by the post-bankruptcy company, known as New GM.

Last year the auto industry issued more recalls involving old models than ever before; more than 60 million vehicles have been recalled in the United States, double the previous annual record in 2004. In all, there were about 700 recall announcements last year, an average of two a day, affecting the equivalent of one in five vehicles on the road.

WikiLeaks has published 30,287 documents and 173,132 emails stemming from last winter’s cyber-attack on Sony Pictures Entertainment. The hack was reportedly initiated by North Korea in response to the studio’s decision to release “The Interview,” a comedy that centered on an assassination attempt on North Korean leader Kim Jong-un. That resulted in a series of embarrassing revelations, exposing correspondence between top executives and producers that ultimately led to the ouster of studio chief Amy Pascal. The correspondence released today exposes Sony’s political fundraising and its lobbying activities on behalf of anti-piracy. In particular, WikiLeaks cites emails detailing how members of the studio set up a “collective” in order to get around campaign donation limits and send money to New York Governor Andrew Cuomo, because of his support for state film and television tax incentives and work cracking down on piracy.

Financial Review

Not Patient But No Hurry

Sinclair Noe — March 18, 2015

 

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

Subscribe: iTunes | RSS

DOW + 227 = 18,076
SPX + 25 = 2099
NAS + 45 = 4982
10 YR YLD – .11 = 1.95%
OIL + 1.25 = 44.71
GOLD + 18.30 = 1166.90
SILV + .36 = 15.99

Today is Fed decision day. The Federal Reserve released a policy statement along with quarterly economic projections followed by a Janet Yellen news conference. In the statement, the Fed removed the phrase about being “patient” regarding an interest rate increase, which might seem like bad news for Wall Street; except, they came up with new language which sounds like they will be …, well, patient about increasing interest rates.

Here is the new language: The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. 
 
So, now we are looking for “further improvement in the labor market” and reasonable confidence” about inflation.

If this sounds like so much word play, well it is; but the bottom line is that they did not make a firm commitment to raising rates in June, and it could be quite some time until we see interest rates rise. Wall Street liked it and went from a triple digit loss to a triple digit gain.

Maybe Wall Street shouldn’t be so happy. The flip side of the interpretation is that there is still way too much slack in the labor force and we are dealing with disinflation and maybe even deflation. Throw in weak economic data and add a dash of a very strong dollar and aggressive monetary policy from the Bank of Japan and the European Central Bank which may already be having an effect similar to a rate increase by cutting into US exports. And you are looking at Fed monetary policy that has painted itself into a dovish corner. Or maybe we can just chalk it up to bad winter weather and a temporary drop in oil prices; whatever, Wall Street seems to love uncertainty when it comes to raising rates.

The Fed’s economic forecasts see the economy growing 2.3% to 2.7% in 2015, below its prior target of 2.5% to 3%. Nor does the Fed see the U.S. growing more than 2.7% in 2016 or 2017, even with the unemployment expected to fall to as low as 4.8% from its current 5.5% level. And then converting that economic forecast into a dot plot chart, shows interest rates going from zero to  0.625% by the end of the year, down from an earlier projection of 1.125% by the end of 2015.

After the Fed issued the statement, Janet Yellen held a news conference. She said that even though the Fed removed the word patience, they will be patient. Other highlights of the news conference: Yellen says productivity has been “disappointingly low.” She said that equity valuations “appear on the high side but not outside of historical ranges,” and she had no comment of specific sectors, such as biotech. She said the Fed hasn’t made a decision about when to reduce its balance sheet. She also said the Fed can’t change the “brazen” behavior at some of the banks it supervises; which seems like a strange thing for a regulator to admit. And regarding the specifics about just how much improvement the Fed would need to see in the labor market and how confident they would need to be about inflation, well, that was all a little vague but Yellen says the Fed will know it when they see it.

For now, the Fed has opened the door for a rate hike but they don’t appear to be in a hurry to cross the threshold.

Oil extended losses earlier today, and then turned higher following the Fed announcement. Late yesterday the American Petroleum Institute said its data showed U.S. crude stockpiles rose by a massive 10.5 million barrels in the week ended March 13. That was more than double market expectations. This morning the EIA reported that stockpiles rose by 9.6 million barrels to 458 million barrels last week; that’s a new record, and storage has been surging for 10 consecutive weeks. Oil prices have been falling since mid-2014, but the decline stalled in February, raising expectations that prices had bottomed out. But Nymex oil has lost roughly 15% month to date as production has surged despite lower prices; even if we haven’t seen a corresponding drop in retail prices yet; always a little lag in lowering prices at the pump.

Prices are low, storage is filling up, and oil-drilling rigs are being idled at an unprecedented rate. But the U.S. oil boom hasn’t slowed yet.  Global oil demand marches higher each and every year by nearly a million barrels per day. Inventories aren’t likely to max out, there is still room in the storage tanks; but even the possibility of that happening is adding pressure to an oversupplied oil market.

Supply and demand have both been freakishly in tandem for the last 15 years; each up by the same million barrels. Global demand is right around 93 million barrels a day; so just a swing of a few million barrels per day can swing the price from $40 a barrel to $120 a barrel. So, we will see domestic production growth slow, probably sooner rather than later. OPEC is expected to cut production in June. So, the thinking, including Fed forecasts, is that oil prices will rise again, with all the attendant implications for the economy.

There is something that could change the equation for oil price volatility – renewable energy. The cost of solar cells has fallen 75% over the last six years. Meanwhile, fuel efficiency has been improving. Renewable energy doesn’t have to replace oil in order to put a thumb down on global energy prices. It merely needs to become the “swing producer,” what the US became in the past half-decade thanks to the fracking boom, the additional source of supply that tips the balance.

Oil prices may go lower, but at some point the price movement will swing and probably move higher, which would encourage some oil producers to tap wells that are being idled today, but higher oil prices will also encourage more renewable supplies. Eventually, all these wild swings in energy prices will give way to stable, predictable energy, but not just yet.

Greece frustrated its main creditors yesterday by refusing to update euro zone peers on its reform progress at a scheduled teleconference, insisting that the discussions should be escalated to tomorrow’s EU summit. Prime Minister Alex Tsipras hopes to unlock funds from the country’s $254 billion bailout package. Greece faces about $2.1 billion in debt payments on Friday. Athens is likely to run out of cash by the end of the month. The IMF says Greece is its most “unhelpful client ever.” This is all pointing to a possible Greek exit from the Eurozone.

And it is a safe bet that the ECB has been calculating the possibility of a Greek Exit. Greece has about € 320 billion in debt. You would have to think an exit would mean default. And you might wonder why Greece would default when there was already a bailout, two bailouts actually. In the first bailout, the ECB allowed European nations and banks to dump sovereign bonds onto the ECB balance sheet in exchange for cash. In the second bailout, the ECB dumped Greek bonds onto banks, mainly French and German banks. About 80% of the bailout money went to Greek bondholders, not to the Greek economy. So, the earlier bailouts were about giving money to banks that were using Greek bonds as collateral to meet capital reserve requirements. It had almost nothing to do with helping Greece.

So, if Greece defaults, what are the implications? Well Greek debt amounts to about 2% of Europe’s GDP. Why not take a hit and give Greece a fresh start with a square deal that has them make much smaller payments with a haircut for the bondholders? And the most likely answer is that the Troika – the ECB, and the IMF, and the Euro Monetary Union – don’t care a flip about Greece. The fear is that if Greece gets a deal, then Spain and Italy and Portugal and maybe even France will want a deal; and then you are talking about € 3 trillion in sovereign debt, which in turn has been used as collateral for something like € 100 trillion in various derivatives deals. So, the Troika can’t afford a Greek default and they can’t afford a precedent of leniency; which means the preferred approach is to take a hard line to force the Greeks into a bad deal, again.

Just one little problem, now, it is obvious that it is a bad deal. The Greek voters voted against more austerity and more bad deal. Other Europeans see what is happening to Greece and they don’t’ want the same deal. Violent protests hit the streets of the German city of Frankfurt today, as anti-austerity protesters rallied against the opening of a new $1.4 billion building for the European Central Bank.

Premera Blue Cross, which sells health insurance in the northwestern US, said information on 11 million people may have been exposed in a cyberattack uncovered six weeks ago. Hackers may have accessed information including names, Social Security numbers, bank accounts and medical information. The company says it discovered the breach on Jan. 29, said notified the FBI, and is sending letters to affected individuals.

Facebook is updating its PC and mobile Messenger apps to allow users to send cash to each other. Once users link a Visa or MasterCard debit card to their Messenger account, they will be able to send their friends money for free by tapping a dollar sign in the chat box. Some are now speculating that WhatsApp will also join rival messaging platforms to support payments.