Financial Review

91 Days

Sinclair Noe — February 22, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: iTunes | Android | RSS

DOW + 32 = 20,775
SPX – 2 = 2362
NAS – 5 = 5860
RUT – 6 = 1403
10 Y – .01 = 2.42%
OIL – .76 = 53.57
GOLD + 2.50 = 1238.90

Another record high for the Dow. S&P and Nasdaq, not so much.

91 straight trading days — that is how long the S&P has gone without closing lower by 1% or more. The S&P 500 ended 1.2% down on Oct. 11 — more than four months ago — and hasn’t clocked out on such a negative note since then.

The result has been a slow, steady slog to record highs. Hardly the stuff of investor euphoria or irrational exuberance; more like climbing a wall of worry. Stocks are expensive by almost any measure, and Mom and Pop investors seem skeptical, but the reality is that they have few good options but to stand on the edge of the cliff.

In mid-December, Bloomberg polled Wall Street analysts for their full-year predictions.  The average forecast for 2017 was calling for growth of 5.2 percent. The S&P 500 is already up 5.5 percent year-to-date. The average estimate was 2,364. The index touched 2,366 yesterday.

The Federal Reserve’s Federal Open Market Committee held a meeting January 31 – February 1. The Fed stood pat at that meeting, and today they released the minutes from that meeting. Policymakers seemed confident that the labor market was strong, and even though there were signs of inflation, that didn’t seem to worry them.

Fed officials wrestled with uncertainty on issues ranging from the Trump administration’s fiscal stimulus plans to the headwinds a rising dollar may pose. A few participants “noted that continuing to remove policy accommodation in a timely manner, potentially at an upcoming meeting, would allow the committee greater flexibility in responding to subsequent changes in economic conditions.”

The minutes included several references to “downside risks” to the economy. However, the meeting was held before data releases on jobs and inflation early in February that crushed estimates. The takeaway is that they seem ready to raise rates “fairly soon”.

The next policy meeting is March 14-15, and the more likely chance for a rate hike is the policy meeting in June. Still, the Fed is holding to the idea of 3 rate hikes for 2017, so March is on the table.

The National Association of Realtors reports existing home sales jumped 3.3% in January to a seasonally adjusted annual rate of 5.69 million.  January’s sales pace is 3.8 percent higher than a year ago. The median existing-home price for all housing types in January was $228,900, up 7.1 percent from January 2016 and marks the 59^th consecutive month of year-over-year gains.

Total housing inventory at the end of January rose 2.4 percent to 1.69 million existing homes available for sale, but is still 7.1 percent lower than a year ago, and has fallen year-over-year for 20 straight months. And of course, tight inventory combined with higher mortgage rates, means less affordable housing.

Not surprising that lower-price, or starter homes were a sweet spot for buyers. First time buyers rose slightly to 33% of sales in January. For Phoenix, the median listing price was $307,000. And the average time on market was 66 days. Compared to an average of 50 days nationally.

The US has approximately 200,000 unfilled construction jobs, which represents an 81% increase over the last two years, according to estimates from the National Association of Homebuilders. Home-builders like Lennar and Toll Brothers have cited a shortage in construction workers as a major reason they’ve had to slow down home construction.

Toll Brothers reported quarterly profit of 42 cents per share, 7 cents above estimates, while the luxury homebuilder’s revenue beat forecasts by a wide margin. However, overall profit was down 3.8 percent from a year ago, impacted by lower average selling prices.

Shares of Fannie Mae and Freddie Mac plunged by more than 30 percent on Tuesday following a ruling by a US appeals court dismissing hedge funds’ claims that the government seized Fannie’s and Freddie’s profits after their taxpayer bailout.

Fannie and Freddie went into conservator-ship during the 2008 financial crisis, receiving a nearly $188 billion bailout from the federal government. In return, Fannie and Freddie were required to pay a 10 percent dividend to the government. In 2012, the terms of the bailout were amended — the Third Amendment — forcing Fannie and Freddie to forward all their profits to the U.S. Treasury.

On Friday, Fannie and Freddie announced they were sending a combined $10 million in dividends to the U.S. Treasury. Fannie reported a $5 billion profit for the fourth quarter, while Freddie reported a $4.8 billion fourth-quarter profit. Because Fannie and Freddie’s profits have been going to the government, there was nothing left for the investors, who cried foul.

OPEC and Russia will need to prolong their production-cut deal in order to trim the global inventory that is keeping a lid on prices. ABN Amro Bank warned that crude prices could plunge towards $30 a barrel if the cuts are not extended beyond the first half of this year.

Saudi Aramco names 3 underwriters for its IPO. JPMorgan Chase & Co, Morgan Stanley, and HSBC have been selected as the lead underwriters for what is expected to be the world’s largest initial public offering of all time.

Facebook is in discussions with Major League Baseball to air one game a week. Social networks believe their platforms are a “second screen” that sports fans rely on while watching games, and are eager to test the popularity of combining the viewing of video and the commentary that takes place on social networks into a single feed.

Lloyds reported its highest annual profit in a decade, helped by a reduction in payment protection insurance provisions. Pre-tax profits increased by 158%, a level last seen in 2006 before the financial crisis. The UK government’s stake in Lloyds has also fallen below 5% and it wants to return the bank to full private ownership sometime in May.

First Solar  beat fourth-quarter estimates by 27 cents with adjusted quarterly profit of $1.24 per share, and the solar company’s revenue also beat estimates; even as sales fell to $480 million in the quarter from $942 million a year ago. Tempe-based First Solar also tweaked higher its expectations for 2017 sales to between $2.8 billion and $2.9 billion.

First Solar said the more than 300-megawatt Tribal Solar project, which was planned for the Fort Mojave Indian Reservation in Arizona, would not be built. The company’s contract to sell the power to California utility Southern California Edison was canceled. Executives described the cancellation as a one-time event due to the unique concerns of the Fort Mojave Indian Tribe and said the company had several opportunities to offset the impact of the cancellation, including new business in Japan.

Verizon Communications says it will offer its high-speed wireless 5G network to certain customers in 11 U.S. cities in the first half of 2017. Verizon will begin pilot testing 5G “pre-commercial services” in cities, including Atlanta, Dallas, Denver, Houston, Miami, Seattle and Washington, D.C. – Phoenix is not on that list.

New 5G networks are expected to provide speeds at least 10 times and up to maybe 100 times faster than today’s 4G networks, with the potential to connect at least 100 billion devices with download speeds that can reach 10 gigabits per second.

That got me thinking about how the US compares with other countries for internet speed on mobile devices, and the results are not good. South Korea has the fastest mobile internet speeds, followed by Norway and Hungary. The US ranked 36^th on the list, just a bit slower than Romania and Slovenia.

In a big win for rural delivery, UPS just tested a delivery drone on a farm outside of Tampa, Florida, with the Unmanned Aerial Vehicle, or UAV, returning to the roof of the truck. The big feat? The vehicle already moved 2,000 feet down the road. UPS says the “Drones won’t replace our uniformed service providers,” just provide extra assistance. The company also announced it would roll out Saturday ground delivery starting in April.

If you were planning to make a purchase from Amazon.com, today might be good. For today only, Amazon is offering $8.62 off orders of $50 or more. To take advantage of the discount, just enter the promo code “BIGTHANKS” when you check out.

A discount of $8.62 might seem super random, but Amazon has a good reason for that seemingly arbitrary figure. The company ranked No. 1 in the annual Harris Corporate Reputation Poll, earning a score of 86.27 percent, so it’s offering the discount as a thank you to customers.

Watch your mailbox, early-bird filers: Your tax refund should be arriving soon.  So far, the IRS has distributed more than 14 million refunds as of the week ending Feb. 10. The average amount has been $2,058. Both figures are expected to rise as the agency processes more returns.

However, if you will owe tax this year, well…, the current Powerball jackpot is worth $403 million. If you choose the lump sum option, the cash payout is $243.9 million, minus taxes of course.

Financial Review

7 Straight

Sinclair Noe — August 2, 2016

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

Subscribe: iTunes | Android | RSS

DOW – 90 = 18,313
SPX – 13 = 2157
NAS – 46 = 5137
10 Y + .03 = 1.53%
OIL – .43 = 39.67
GOLD + 10.40 = 1363.80

The Dow logged its seventh straight drop, while the Nasdaq snapped its five sessions winning streak. The S&P 500 broke out of a very tight consolidation pattern, but still managed to close with a loss of less than 1%.  WTI crude oil erased an early gain and closed down 1.1% at a four-month low.

Consumers boosted spending by 0.4% in June — the third straight strong increase — but they’ve also been saving less to fund their purchases.  Income growth has not been keeping pace with spending. Incomes rose 0.2% in June for the second straight month.

As a result, the personal-savings rate dropped to 5.3% and matched a 15-month low. Savings had hit a four-year high earlier in the year. Inflation as measured by the PCE index edged up 0.1% in June. The PCE index, the Federal Reserve’s preferred inflation barometer, increased 0.9% in the 12 months ended in June. That’s unchanged from in the prior month.

The annual rate of core inflation was also flat at 1.6%.  Although inflation has been creeping higher lately, there still are no signs of widespread price pressures in the U.S. economy.

CoreLogic reports home prices were 5.7% higher in June compared to a year ago, and prices were up 1.1% from May to June. They forecast a 5.3% increase in home prices over the next year. Including distressed sales, national single family home prices remain 6.7% below peak values recorded in April 2006. Mortgage rates dipped in June to their lowest level in more than 3 years. Among major metro areas, Denver had the lowest unemployment rate and the strongest home price appreciation. Arizona saw a 5.5% increase in home prices over the past 12 months.

Japanese Prime Minister Shinzo Abe’s cabinet approved a $274 billion stimulus package. The Bank of Japan last week only tweaked its monetary stimulus. By total size, the stimulus package ranks among Japan’s biggest since the global financial crisis, but three quarters of the stated value comprises targeted low-interest loans from the government and state-owned companies. The program will include money for infrastructure projects, including a magnetic-levitation train line connecting Tokyo and Osaka, as well as reconstruction projects in the southern region hit by earthquakes in April.  It also will pay for cash handouts to 22 million low-income people.

The Federal Reserve reports loan standards to commercial and industrial firms and commercial real estate tightened for the fourth straight quarter in the three months ended in June. The survey also found standards on all categories of residential real estate mortgage loans were little changed, except some easing for loans that can be bought or guaranteed by Fannie Mae and Freddie Mac. The report also showed that demand for most types of residential real estate loans strengthened over the second quarter.

Major automakers in the U.S. market reported July vehicle sales slightly below expectations as the pent-up demand that has helped drive sales since 2009 plays itself out. In a continuing trend, consumers shunned passenger cars in favor of SUVs and pickup trucks. GM sales dropped 2%. Ford sales slipped 3%. Fiat Chrysler sales rose 0.3%. Nissan reported a 1.2% increase. Honda surprised with a 4.4% increase. Ford shares dropped 4.3% today and are down 14% in the last 4 sessions.

Shares in Biogen jumped almost 10% today, after the Wall Street Journal reported that Merck and Allergan have each informally expressed interest in a possible acquisition. A takeover of Biogen would be the biggest of a biotech company since 2008, and one of the largest takeovers by a drug company on record. Biogen makes drugs that treat multiple sclerosis and hemophilia, and its main focus overall is on neurological and autoimmune diseases, as well as rare diseases.

Pfizer said it has reached a $486 million settlement of shareholder litigation accusing it of causing big losses for shareholders by concealing safety risks associated with its Celebrex and Bextra pain-relieving drugs. Pfizer pulled Bextra from the U.S. market in April 2005, and agreed in September 2009 to pay $2.3 billion to settle a U.S. government probe into the marketing of Bextra and other drugs. The accord is subject to negotiation of a final settlement agreement and court approval, and would end more than 11 years of litigation against the drug maker.

Also, Pfizer reported better-than-expected quarterly results, driven by lower taxes and sales of generic medicines, but revenue from its array of branded patent-protected medicines brought disappointment. Pfizer did not offer any hints on whether it plans to split into two separate companies, a long-mulled potential decision that has kept investors in suspense.

Of the 353 companies in the S&P 500 that have reported earnings through Tuesday morning, 71 percent have topped analyst expectations, according to Thomson Reuters data. Earnings for the second quarter are expected to show a decline of 2.6 percent, an improvement from the expected 4.5 percent decline on July 1.

Emerson Electric, which makes factory automation equipment, said it would sell two units for a total of $5.2 billion as the company focuses on its high-growth businesses. Emerson will sell its network power unit to investment firm Platinum Equity in a deal worth $4 billion, while Japan’s Nidec Corp will buy its motors and electric power division for $1.2 billion.

Australia cut rates to a record low. The Reserve Bank of Australia lowered its benchmark interest rate to a record-low 1.50%, as expected. The central bank’s board noted “that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.”

European bank stocks were crushed again today. The sector remains under pressure after the results of the European Banking Association stress tests were released after markets closed on Friday. Europe’s STOXX Banking Index traded lower by 2.8%, taking this year’s total losses to more than 30%; with Germany’s Commerzbank pacing today’s decline among individual names, down 8.2% after reporting a 32% drop in quarterly profits.

Credit Suisse and Deutsche Bank – will be dropped from the STOXX 50, an index of Europe’s top 50 blue-chip companies next week. Credit Suisse and Deutsche Bank shares have lost half their value this year. Exclusion from a benchmark generally means that exchange-traded funds and other passive investors that track the index will be forced to sell the shares.

Deutsche’s plight should be of particular concern. Its shares are now worth barely a quarter of its book value. That is a twofold bind: proof that investors distrust the bank; and a practical block on being able to raise the equity needed to boost regulatory capital and absorb the cost of fines; and Deutsche faces considerable fines.  Investors are again pricing in a risk that the bank’s coco (or contingent convertible) bonds will be bailed in. Last month, the International Monetary Fund issued a report that concluded Deutsche is probably “the most important net contributor to systemic risks in the global banking system”.

And as bad as that is, the worst of the lot, is Italy’s Banca Monte dei Paschi, which utterly failed the stress test last week and now requires recapitalization. The Financial Times reports: “The proposal is being presented as “the last bailout” for Monte dei Paschi, with the expectation that, if the lender cleans up its bad loans, it will become a takeover target. Still, senior bankers admit it is highly risky and will prove a tough sell to drum up support for the recapitalization with the bank’s past history of burning investors. Bankers do not rule out that, if the recapitalization fails to find enough buyers, Monte dei Paschi may be forced to swap some of its debt for equity.”

The only good news is that Monte dei Paschi is nowhere near as big as Deutsche Bank. Italy is turning into the next Greece. Non-performing bank loans have risen to 18% in Italy. Monte dei Pachi has non-performing loans around one-third of its assets. I’m not sure how this plays out but it will probably be messy.

The Centers for Disease Control and Prevention advised pregnant women not to go to a Miami neighborhood where new, confirmed cases of Zika virus that appeared to be locally transmitted were reported. It was the first time the government health agency tasked with preventing the spread of disease has issued such an advisory for the Zika virus within the 48 contiguous US states, and it appeared to be the first time the CDC has warned against visiting any part of the continental United States for health reasons.

The warning applied to a one-square-mile area north of downtown Miami. Despite the narrowness of the warning, it may be problematic for Florida’s important tourism industry. The state drew in more than 100 million visitors and generated more than $89 billion of economic activity last year

At the end of last year, the FAA mandated—arguably as a stopgap against potentially stricter regulations from Congress about how citizens can use drones—that anyone wishing to fly a consumer drone weighing more than a half pound needed to get a registration number from the FAA for $5.

At a conference at the White House today on the future uses of drones in US airspace, Federal Aviation Administration director Michael Huerta told the gathered crowd that more than consumer 500,000 drones had been registered with the agency since December. According to the FAA, it took 100 years for about 320,000 regular aircraft to be registered with US officials—a feat that drones have surpassed in a matter of months.

Financial Review

Ms. Yellen Goes to Washington

Sinclair Noe — June 21, 2016

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

Subscribe: iTunes | Android | RSS

DOW + 24 = 17,829
SPX + 5 = 2088
NAS + 6 = 4843
10 Y + .03 = 1.70%
OIL – .52 = 48.85
GOLD – 22.30 = 1268.70

Federal Reserve chair, Janet Yellen, presented her semiannual testimony on monetary policy today before the Senate Banking Committee. In prepared remarks, Yellen said weak economic growth in the United States could force the Federal Reserve to hold off on any imminent interest rate increases.

While the American economy’s long-term prospects remain favorable, Yellen signaled that headwinds in the form of slower employment gains in recent months, weak productivity growth and a sluggish pace of inflation have prompted the Fed to adopt a more cautious stance. Yellen said: “Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress toward our 2 percent objective.”

Yellen stressed that monetary policy “remains accommodative” and that “if the economy were to disappoint, a lower path of federal funds rate would be appropriate”. Yellen tried to sound an optimistic outlook for the second half of the year, however, she warned that the British vote on Thursday on whether to stay in the European Union, alongside a US hiring slowdown, posed risks to the economic outlook.

Meanwhile the Federal Reserve submitted its monetary policy report to Congress ahead of Yellen’s testimony. One of the things that stands out is the Fed seems to think the stock market is getting a bit pricey. The report says: “Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades.” Of course, the Fed is not known for its stock picking acumen. Still, stocks probably are over-valued, in large part because the Fed’s low interest rate policy has driven investors to take more risk.

The message seems to be no rate increase in July; a September rate hike is still possible but not as likely, unless we see a big improvement in economic data. That whole idea of 4 rate hikes this year? Forget about it. Two hikes? That’s what Yellen says but then she was calling for 4 hikes at the start of the year. It is hard to imagine 2 more increases when the Fed can’t even seem to do one.

And yet, the Fed seems bent on trying to raise rates, although they haven’t made a real strong case for why they want a rate hike, other than they want tools to fight a potential downturn. What they have not done is to identify which part or parts of the economy are so strong that they require monetary tightening to avoid overheating the economy.

Remain is surging in the polls. The latest Brexit referendum poll from The Telegraph shows that Remain has jumped out to a 7-point lead. The poll, conducted by ORB International, shows Remain ahead of Leave by 53% to 46%. You could look at other polls and find different results, and considering the margin of error, you could still call it a toss-up. Most likely, the fear of Brexit is likely worse than Brexit itself. Of course, we won’t know for sure until we get there.

The most likely market response to an exit is that the British pound and euro drop while the US dollar goes higher in a flight to quality; likewise, US Treasury prices move higher, pushing yields down; stocks probably take a hit. If the Remain campaign wins, then look for a bounce in the pound sterling, higher bond rates due to less uncertainty and a more hawkish stance from the Fed, and a rally in stocks. Again, we won’t know for sure until we get there. One thing that seems likely is that Friday will be a volatile session.

And even though George Soros warns that a Brexit would result in a meltdown worse than Black Wednesday, the only thing happening this week is a vote. If the Leave Campaign wins, it would still take a couple of years before the Brits actually leave the EU, during which time they will negotiate various trade deals and treaties. Leaving the EU requires an act of Parliament, which means they will craft the details of an exit. The Leave Campaign admits that markets might be volatile but they dismiss the economic consequences as fear mongering.

Germany’s Constitutional Court has rejected a legal challenge to the ECB’s Outright Monetary Transaction program, a never-used crisis tool that allowed the central bank to buy debt of financially strained countries. The case was brought by 35,000 German politicians and academics who argued that the so-called OMT scheme violates European law, ever since the ECB announced the program in 2012 and pledged to do “whatever it takes” to prevent the Eurozone from imploding. Basically the Germans confirm they don’t want to provide relief to Greece.

The European Union’s Brussels envoys agreed to extend until the end of January the energy, financial and defense sanctions on Russia over the conflict in Ukraine, but formal approval is still pending.

Chinese internet giant Tencent Holdings and its partners will pay $8.6 billion to buy an 84% stake in the maker of the popular “Clash of Clans” mobile game, in a deal that values the Finnish game maker at $10.2 billion. Tencent and its partners will purchase the stake in Supercell Oy from Japanese telecommunications giant SoftBank and the Finnish company’s current and former employees.

Brazilian telecom Oi has filed for bankruptcy protection; it is the largest ever bankruptcy in Brazil, about $19 billion. The Brazilian economy is slogging through the second year of recession. The filing is likely to have major repercussions in Brazil, since several major state-owned banks are among Oi’s top creditors.

Bids for Sports Authority store leases are due Thursday, and outlets with leases that go unsold are in danger of going dark (the company sold its inventory to a trio of liquidators in May). The New York City-based Modell’s Sporting Goods and the Britain-based Sports Direct are considering a joint bid for as many as 200 stores of the bankruptcy retailer Sports Authority.

Boston Retirement System has filed the first bondholders proposed class action against Volkswagen claiming that “false and misleading statements” led to the securities’ decline after its “emissions scandal went public.” German prosecutors have also launched a probe against former CEO Martin Winterkorn and another senior executive for allegedly not informing investors quickly enough about potential losses.

Boeing signed a tentative agreement, valued at potentially $25 billion, to sell jetliners to Iran, in what would be one of the Islamic republic’s biggest deals with a U.S. manufacturer since trade sanctions on Tehran were eased.

The Federal Aviation Administration has approved new rules for commercial drone operations. Drone flights will be approved for agriculture, research and development, educational and academic use, and powerline, pipeline and antenna inspections. They will also be approved for aiding rescue operations, bridge inspections, aerial photography and wildlife nesting area evaluations.

The rules, which will take effect in late August, will allow drones that weigh less than 55 pounds and fly up to 400 feet high and 100 miles per hour, but only within sight of an operator and not over people. Drones will not be allowed to fly at night unless they have special lighting and must stay at least 5 miles from airports. Operators must be at least 16 and have a remote pilot certificate. The new rules do not cover drones to deliver your online purchases; that would require separate action.

Samsung, the world’s top smartphone maker, plans to invest about $1.2 billion in the United States over the next four years on internet of things technologies. Samsung said it will make the investments through its Silicon Valley arms such as the Samsung Global Innovation Center in order to develop relevant technologies and strengthen cooperation with startup companies.

Evidence is mounting that doctors who receive as little as one meal from a drug company tend to prescribe more expensive, brand-name medications for common ailments than those who don’t. A study published online Monday by JAMA Internal Medicine found significant evidence that doctors who received meals tied to specific drugs prescribed a higher proportion of those products than their peers. And the more meals they received, the greater share of those drugs they tended to prescribe relative to other medications in the same category.

The 2015 Jeep Grand Cherokee that rolled backward down a driveway and killed the actor Anton Yelchin had been recalled for a gearshift issue. Fiat Chrysler in April recalled more than 1.1 million cars and SUVs worldwide because vehicles may roll away after drivers exit, an issue linked to 41 injuries, 212 crashes and 308 reports of property damage.

If you bought a ticket through Ticketmaster between late 1999 and early 2013, you could be eligible for free tickets to a number of events. An email sent to eligible Ticketmaster customers includes instructions on how to get vouchers for free tickets to selected events as well as discounts on Ticketmaster purchases. The vouchers are the result of a class-action lawsuit over ticket fees and other charges, and about 50 million people are in line to receive the vouchers.

Pacific Gas and Electric is preparing to close the Diablo Canyon Power Plant, California’s last operating nuclear facility. The plant’s two reactors would be shut down in 2024 and 2025, when their operating licenses expire. The proposal is part of an agreement with environmental and labor groups, intended to help meet California’s aggressive clean energy goals. It comes after years of public pressure to close the plant, near San Luis Obispo, because of safety concerns over its location, near several fault lines, and its use of ocean water for cooling.

Financial Review

Wide-Ranging

Sinclair Noe — June 2, 2016

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

Subscribe: iTunes | Android | RSS

DOW + 48 = 17,838
SPX + 5 = 2105
NAS + 19 = 4971
10 Y – .04 = 1.81%
OIL – .05 = 48.96
GOLD – 2.30 = 1211.40

Again today the major market averages started the morning in negative territory – the Dow was down about 70 points in the first hour of trading – and then clawed back to slightly positive gains at the close. On Tuesday and Wednesday, the S&P 500 broke through the widely-watched 2100 mark, but finished just slightly below. Today, the index finally squeezed through.

The Organization of the Petroleum Exporting Countries is meeting in Vienna today. OPEC announced there will be no change in oil production policy, no ceiling set on output. OPEC ministers appeared to be at odds over what the bloc’s next move should be. Saudi Arabia’s energy minister said he was pleased with how the oil market was recovering and rebalancing.

The Saudi oil minister said oil prices at $50 won’t allow shale oil and other higher-cost producers to lift supply to levels that hinder market recovery. Prices need to be at level above $50 a barrel for more crude supplies to come back to the market following a slump over the past two years. Maybe, maybe not.

The European Central Bank is also meeting today. The ECB upgraded its growth and inflation forecasts for this year, but warned of downside risks related to the global economy and the so-called “Brexit” vote in the UK. The bank now sees growth of 1.6 percent for 2016, up from a 1.4 percent forecast in March. It left its growth forecast for 2017 unchanged and trimmed its forecast for 2018 to 1.8 percent. Inflation is seen at 0.2 percent compared to a previous forecast of 0.1 percent. The ECB left interest rates unchanged at 0%. Nobody expected any big changes from this meeting.

The ECB is still trying to figure out what is working, or not. According to recent analysis, a prolonged period of negative interest rates is failing to revive investment at Europe’s companies, with the vast majority of businesses in the region saying the stimulus measures have had no affect at all on their growth plans. Some 84 percent of the 9,440 companies surveyed for the European Payment Report 2016 say low interest rates haven’t affected their willingness to invest.

The ADP Employment report shows private employers added 173,000 new jobs in May. The ADP figures come ahead of the U.S. Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.

Outplacement firm Challenger, Gray & Christmas reports planned layoffs totaled 30,157 last month, marking a 27 percent decline from the year ago period and the lowest total since December. Companies typically reduce the pace of layoffs in the summer. The energy sector continued to be the biggest job cutter.

In line with the layoff report, the Labor Department reports fewer Americans applied for jobless aid last week, the third straight drop. Weekly applications for unemployment aid dipped 1,000 to a seasonally adjusted 267,000. The four-week average, a less volatile measure, fell to 276,750.

American births declined and the death rate rose last year for the first time in a decade, a rare increase that was driven in part by more people dying from drug overdoses, suicide and Alzheimer’s disease.  The death rate from heart disease also edged up slightly following a long decline.  Preliminary numbers from the Centers for Disease Control and Prevention show there were 3.98 million U.S. births in 2015, down 0.3% from 2014.

The CDC also found the mortality rate to be 729.5 deaths per 100,000 people last year, up from 723.2 the year before. Earlier this year the CDC reported that life expectancy at birth for white Americans had fallen between 2013 and 2014 from 78.9 years to 78.8 years. While recent research has documented sharp rises in death rates among certain groups — in particular less educated whites, who have been hardest hit by the prescription drug epidemic — increases for the entire population are relatively rare.

An audit report published today suggests that debt-laden Puerto Rico may be able to void almost $4.5 billion of its debt because politicians exceeded constitutional debt limits and their own authority. The report states that some of Puerto Rico’s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors’ claims are unenforceable.

The U.S. Justice Department is likely to approve AB InBev’s takeover of SABMiller later this month. The agreement may contain measures to keep the beer behemoth from edging craft brewers from shelves, and could also include limits on the combined company’s ownership of distributors. The deal received a green light from South Africa’s Competition Commission earlier this week.

Johnson & Johnson said it would acquire Vogue International for $3.3 billion, adding brands such as OGX shampoos and FX hair styling products to its consumer portfolio that includes Neutrogena and Clean & Clear. Buyout firm Carlyle Group acquired a 49 percent stake in the company in 2014.

The Consumer Financial Protection Bureau released a set of sweeping proposals today aimed at reshaping the market for payday loans and other expensive short-term lending that the agency and consumer advocates call “debt traps.” The Consumer Financial Protection Bureau said the median fee on a storefront payday loan was $15 for every $100 borrowed; and with a typical term of 2 weeks, the average annualized rate can easily top 390%.

The rules would limit the number of payday loans a consumer can take out or rollover, lenders will be required in many cases to verify their customers’ income and to confirm that they can afford to repay the money they borrow. The number of times that people could roll over their loans into newer and pricier ones would be curtailed. The new guidelines do not need congressional or other approval to take effect, which could happen as soon as next year. Lenders say the proposed rules would devastate their industry. I certainly hope so.

In a wide-ranging interview Wednesday night, Tesla CEO Elon Musk said that he expects Apple to have a car available to the public by 2020. In contrast, Google worries him less as a competitive threat. “Google’s done a great job, but they’re not a car company,” he said. Musk is also CEO of Space X, and he detailed plans to have the first rocket carrying human cargo to Mars launch in 2024, and arrive at the red planet 18 months later. Here’s a tip for would-be Martians – take some potatoes.

Jeff Bezos, the CEO of Amazon.com, also offered up a wide-ranging interview yesterday, apparently it was the day for wide-ranging interview with eccentric billionaires; I’ll mark my calendar. Bezos also has a private space company, his is called Blue Origin, expected to launch its first people into space in 2017. Those won’t be paying customers, but thousands have expressed interest in paying for a trip on a suborbital craft. Bezos also hopes to build factories in space, where they can take advantage of nearly unlimited solar power.

Back on earth, Bezos said: “It’s probably hard to overstate how big of an impact (artificial intelligence) is going to have on society over the next 20 years.” To that end, Amazon has 1,000 employees working exclusively on Alexa software and Echo hardware. Bezos also says Amazon isn’t aiming to take over the last mile of delivery from UPS, FedEx or the US Postal Service, but the company is looking to “supplement it heavily”; this is necessary for peak selling seasons ahead of major gift-giving holidays in the countries in which Amazon operates. No word yet on when drones will be dropping off packages on the porch.

Walmart says it will start using drones, not for package delivery but for warehouse management. Walmart showed off its drones today at one of its largest warehouses in Bentonville, Arkansas. In six to nine months, the company said, the machines may be used in one or more of its distribution centers to help catalog inventory.

Walmart workers now manually scan pallets of goods with hand-held scanning devices. The drone’s methodical, vertical movements would essentially mimic the path of a person in a forklift who might be inspecting labels and inventory. The machines could help catalog in as little as a day what now takes employees about a month.

IBM is leading in the race for patents. So far in 2016, IBM has been awarded an average of 24 patents per day. Samsung is close behind, followed by Google and Microsoft. I’m not sure if this means IBM is an innovation leader or if they just have an army of good patent lawyers.

More than 18 months after Apple Pay was introduced in the United States, the smartphone giant has made only a small dent in the global payments market. Apple Pay usage totaled $10.9 billion in 2015 in the US. Global adoption has been snagged by technical challenges, low consumer take-up and resistance from banks. Meanwhile, Goldman Sachs has cut its price target on Apple to $124 from $136, but maintained its Buy rating, as a reflection of lower growth expectations for the smartphone industry.

Saudi Arabia’s sovereign wealth fund is investing $3.5 billion in Uber, the largest investment ever in the ride-sharing leader. A managing director for the Saudi fund will take a board seat at the San Francisco-based company after the deal, which values Uber at $62.5 billion. The investment, which was months in the making, does not cash out any of Uber’s existing investors.

Snapchat has 150 million people using the service each day. That makes the four-year-old messaging app more popular than Twitter by daily active users. Twitter, which was founded in 2006, has less than 140 million users interacting with the service daily.

Financial Review

ECB Day

Sinclair Noe — April 21, 2016

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

Subscribe: iTunes | Android | RSS

DOW – 113 = 17,982
SPX – 10 = 2091
NAS – 2 = 4954
10 Y + .02 = 1.87%
OIL – .71 = 43.47
GOLD + 3.70 = 1249.00

The European Central Bank held its key interest rate at 0% and its deposit rate at negative -0.40%. European Central Bank President Mario Draghi brushed off German criticism of his ultra-loose monetary policy and vowed to use all the tools at his disposal for “as long as needed”.

He said the ECB’s policy was working, which helped boost the euro. Draghi also stepped up his calls on euro zone governments to help get the region’s economy on a more solid footing through fiscal policy and more ambitious reforms.

According to a poll of over 1,000 American adults, even with the Dow Jones industrial average near its record high, only slightly more than half of Americans (52%) say they currently have money in the stock market, matching the lowest ownership rate in Gallup’s 19-year trend. Although Americans in all income groups are less likely to have stock investments now than before the Great Recession, middle-class Americans have been the most likely to flee the market.

Nearly three in four middle-class Americans, with annual household incomes ranging from $30,000 to $74,999, said they invested money in the stock market in 2007. Today, only half report having stock investments. This 22-percentage-point drop is more than double the changes seen in stock investing among higher and lower income groups.

Regulators released long-awaited proposed rules that would restrict how big financial institutions can pay their top executives. The new rules would make bankers wait at least four years to receive portions of their bonuses and force banks to find ways to claw back bonuses from bankers if their behavior leads to big financial losses. The new rules would apply only to incentive-based compensation, generally bonuses.

The structure of executive pay packages before the financial crisis was blamed for encouraging bankers to take unnecessary risks. The 2010 Dodd-Frank legislation required the major financial regulators to collaborate on rules aimed at encouraging a longer-term approach to compensation at big financial institutions. The regulators were supposed to propose the rules within 90 days of the law’s passage; and now, more than 5 years later, we have a proposal.

Commodities were booming in early trading today, with crude oil hitting a new 2016 high of $44.49 today. However, Kuwait said it boosted oil output, and Libya said it could soon do the same. Iran also reiterated that it will not be part of any oil production freeze. Ahead of this past weekend’s Doha meeting, a key Saudi prince said his country had the capacity to unleash a million barrels of oil a day on the market, while reiterating a “we won’t freeze if everyone else doesn’t” stance.

One of the more interesting moves has been in the grains market. Soybeans blew through the big $10.00 resistance level, with very little resistance. Corn got a good pop above $4.00 and wheat traded above $5.00. The grains and beans have been on a two-week run. You might suspect there is bad weather, horrible growing conditions, but there is no news. Maybe the markets are factoring in some kind of risk premium and we just don’t know what it is yet, or maybe this market just got a little carried away, and is way overbought at these levels. Beats me.

The number of Americans filing for unemployment benefits fell last week, hitting its lowest level since 1973. Initial claims for state unemployment benefits declined 6,000 to a seasonally adjusted 247,000 for the week ended April 16. The labor market is strengthening despite signs that economic growth slowed sharply in the first quarter. Employers are holding onto their employees in convincing confirmation of the strength of the nation’s labor market.

The Conference Board’s index of leading indicators rose 0.2 percent in March to 123.4, snapping a three-month streak of declines. The index’s six-month growth rate points to “slow, although not slowing, growth in the coming quarters,” said the group in a release. “Financial conditions, as well as expected improvements in manufacturing, should support a modest growth environment in 2016.”

Solar energy company SunEdison filed for Chapter 11 bankruptcy protection this morning, becoming one of the largest non-financial companies to do so in the past 10 years. Once the fastest-growing U.S. renewable energy developer, SunEdison embarked on an aggressive acquisition strategy that left it struggling with $12 billion in debt.

In its bankruptcy filing, the company said it had assets of $20.7 billion and liabilities of $16.1 billion as of Sept. 30. And if you are wondering what the bankruptcy of SunEdison says about the prospects for renewable energy, the answer is: not much. The failure of SunEd is the story of a company that took on too much debt and charted an overly aggressive growth strategy.

Volkswagen has reached a settlement in principle with the Environmental Protection Agency, California officials and consumers over a plan to fix or buy back nearly half a million vehicles that violated emissions standards. The deal includes “substantial compensation” for owners of cars powered by 2.0-liter diesel engines that were fitted with software to cheat emissions tests. Consumers will be allowed to sell their vehicles back to Volkswagen or get repairs. But financial details of the offer, which is still being finalized, were not disclosed.

The cost to buy back all of the cars affected by the scandal would be more than $7 billion. Volkswagen will also be required to invest funds to “promote green automotive” initiatives and establish an environmental remediation fund after years of cars spewing nitrogen oxide emissions at harmful levels. A US district judge in San Francisco set June 21 as a deadline for the parties to file preliminary proposals on the settlement, after which the public will have a chance to comment before he signs off.

General Motors’ first-quarter earnings and sales beat analysts’ estimates by a wide margin as it posted record results in North America and stepped toward a 15-year goal of ending losses in Europe. Net income more than doubled to $2 billion and adjusted profit rose to $1.26 a share, easily topping estimates of $.99-cents per share.

Verizon Communications said profit in the first quarter met expectations as strong tablet sales helped it add new subscribers, though an ongoing strike by its wireline workers was expected to hurt earnings in the current quarter. Still, the No. 1 U.S. wireless carrier stood by its full-year profit forecast.

Southwest Airlines reported a quarterly profit above analysts’ estimates and said it expected unit revenue to rise “modestly” in the second quarter. Southwest said it earned $511 million in the first quarter, up from $453 million a year earlier.

Under Armour reported earnings of 4-cents per share, beating estimates of 2 cents; and revenue rose 30% to $1.05 billion versus estimates of $1.04 billion. But if you listening to the earnings call, you might have missed the numbers. CEO Kevin Plank mainly raved about basketball player Stephen Curry.

After the closing bell, Google parent Alphabet reported first-quarter earnings that fell short of analyst expectations as growing losses from the tech giant’s investments in speculative new businesses overshadowed Google’s booming advertising business. Alphabet reported earnings per share excluding certain items of $7.50. Analysts had expected $7.96, according to S&P Global Market Intelligence.

Alphabet reported $17.26 billion in revenue. It was the second time that Alphabet reported financial results after restructuring as Alphabet. Now Google’s core business is separate from its “other bets” or so-called “moonshots,” many of which lose money such as smart gadget maker Nest and experimental lab X.

Microsoft’s quarterly adjusted profit missed analysts’ estimates as a continued slump in personal computer sales hurt the company’s core Windows business. Microsoft earned 62 cents per share. Analysts on average had expected a profit of 64 cents per share. Worldwide PC shipments fell 11.5 percent in the first quarter, according to research firm IDC.

Starbucks reported a 16% increase in second quarter earnings.  Sales were the best of any non-holiday quarter ever, jumping 9.4% to $4.99 billion, from $4.56 billion in the year-ago quarter. That came in slightly below what analysts expected. Earnings per share came to 39 cents, in line with analyst expectations. Same store sales increased 6% globally.

Amazon has won a deal worth about $30 million to provide e-books to New York City, the nation’s largest school district. The city’s Panel for Educational Policy voted in favor of the three-year contract for the Department of Education, which will take effect in the coming school year. For New York, there may be savings in buying more digital books, as well as the prospect of saving storage space for printed texts.

The Federal Aviation Administration has issued the first approval for flights of small commercial drones at night, in the latest sign of how quickly U.S. regulators are moving to authorize expanded uses of unmanned aircraft. The clearance comes weeks before the FAA is expected to issue long-awaited rules for widespread commercial operations of small drones. So far, such unmanned vehicles have been conducting commercial flights based on thousands of individual exemptions previously permitted by the agency.

FINANCIAL REVIEW

Solid Guesses

Sinclair Noe — July 29, 2015

Audio Player

DOW + 121 = 17,751
SPX + 15 = 2108
NAS + 22 = 5111
10 YR YLD + .03 = 2.28%
OIL + .91 = 48.89
GOLD + 1.20 = 1097.70
SILV + .13 = 14.91

The Federal Reserve FOMC meeting wrapped up earlier today. They issued a statement but there was no press conference. The Fed did not change monetary policy; no surprise, nobody expected a change from this meeting.

The next FOMC meeting is in September and we might see changes then, or maybe December. There really weren’t many clues in the statement. There were a few subtle changes in wording of the statement; specifically on jobs, the Fed said: “The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year.” “Solid job gains” is a fairly strong phrase for the Fed. No indication of slack in the labor market.

The actual decision to raise rates will come when the Fed sees “some” further improvement in the labor market. The word “some” was new. What does “some” mean? You can give it whatever meaning you want but I think it means the labor market is headed in the right direction and as long as it stays on the tracks and continues to make a little progress, it is good.

The Fed kept language saying that “economic activity has been expanding moderately.” The Fed also said that housing has shown “additional” improvement. The Fed acknowledged that energy prices have remained low and that is causing inflation to run below the FOMC’s long-run inflation objectives. And while it may be hard to justify a rate increase with below-target inflation, we also know from Fed Chair Janet Yellen’s earlier testimony that she believes low energy prices are transitory.

In other words, there is nothing in the statement that would stop the Fed from raising rates in September, or December. I don’t think the Fed is certain exactly when they will raise rates, but absent an unexpected meltdown, we will see at least one rate hike before the end of the year. That’s my guess, and the fed funds futures markets support it; but if you are dovish or hawkish you could interpret the Fed statement to your liking.

The Chinese stock market snapped a three-day losing streak. The Shanghai Composite closed up 3.5%. The China Securities Regulatory Commission said that local governments will increase purchases of stocks, while the central bank injected cash into money markets and hinted at further monetary easing. The country’s securities regulator said it was investigating share dumping incidents.

Bill Gross, the former Pimco bond fund manager, now at Janus Capital, criticized the financial markets today, writing that “all global markets are a shell game now. Artificial prices, artificial manipulation. Where’s the real pea (price)?” Gross says the Chinese government, and all the central banks are manipulating markets and prices. He’s afraid that when they stop manipulating markets, prices will drop. What Gross fails to grasp is that there is no indication central banks will stop manipulating markets.

Standard & Poor’s has warned Brazil it could lose its investment-grade credit rating in the coming year if fallout from a number of corruption investigations further stymies economic growth and implementation of austerity measures. The agency has now put the country’s foreign currency rating, which is rated one notch above junk, on negative outlook for possible downgrade. The Brazilian real slid 2% to 3.43 per dollar following the announcement, its weakest level in more than 12 years.

A disorderly resolution to Puerto Rico’s debt problems would be costly not only for the territory but for the United States as a whole. Treasury Secretary Jack Lew said in a letter to the Senate Finance Committee that “The continued deterioration…has the potential to further harm retiree investment portfolios across the country.” Attempts to grant the commonwealth’s public authorities access to Chapter 9 bankruptcy provisions have so far made little progress.

Just a reminder that the global bond market is about twice the size of the global equities market. The bond market is supposed to be a place for safe money. Bond investors should be extremely nervous and very cautious. Most of the big money that flowed into Greek bonds and Puerto Rican bonds over the past few years came from institutional investors; in theory they are sophisticated investors.

If you make a bad investment, you are supposed to pay the full price, because if you don’t pay the full price, you will keep making bad investments. The only way to get the bond market back to its historic role is to make bondholders feel real fear that they might lose money if they make bad decisions. The market should reward bets that are economically wise, and it should punish the foolish players.

A gauge of pending home sales fell in June, pulling back from May’s reading, which was the highest in more than nine years. The index from the National Association of Realtors reached a seasonally adjusted 110.3 in June, down 1.8% from 112.3 in May, signaling that upcoming deals could slow. June is the first decrease in six months.

S&P 500 earnings for the first half of the year are expected to show a 0.7 percent contraction compared to a year ago, the weakest showing since 2009, according to numbers from FactSet research. Growth in the first quarter was just 1.1%, but the second quarter is more than offsetting that, expected to contract at a 2.2% rate.

Meanwhile, Thomson Reuters calculates first-quarter EPS growth at 2%, and currently pegs the second quarter at 0.3% growth. Whichever number you use, chew this over: Both rates, positive and negative, are nominal. They are not adjusted for inflation, and they don’t account for population growth either.

Facebook reported after the closing bell. Advertising revenue remains strong and the number of mobile users is growing. Revenue rose 39 percent to $4.04 billion, the social-media company said in a statement Wednesday, beating analysts’ average projection for $3.99 billion. Net income was $719 million, down from $791 million a year earlier. They beat estimates.

Whole Foods Market reported disappointing results and cut its annual sales forecast. The problem is that you can now find organic produce in most grocery stores.

After the close yesterday, Twitter announced results that beat estimates, but then they lowered guidance in a brutally frank way, saying execution had failed, new product initiatives were not going well; basically they stopped just short of saying you should never, ever tweet. Shares dropped 14% today.

Advancing its push for commercial drones, Amazon has laid out a proposal to slice U.S. airspace into different categories of aircraft. The plan describes a “high-speed transit zone” from 200-400 feet above the ground for advanced drones and a no-fly area between 400-500 feet to create a buffer zone with manned aircraft. Simple consumer drones would be restricted to a “low-speed” zone below 200 feet. The system also permits one person to oversee many automated drones well beyond his or her sight, but bans flights around airports.

Intel and Micron say they developed a new breed of memory chips that could bring dramatic performance gains to computers, smartphones and other kinds of high-tech products. The companies say the new chips will be up to 1,000 times faster than the NAND flash memory chips now used in most mobile devices. The chips won’t be as fast as DRAM but they will be able to store 10 times more data than dynamic random access memory, and they will retain data, even when powered down.

New hardware from Nokia. Jumping into the virtual reality space, the Finnish technology group has revealed a spherical ball-like camera called OZO that can capture 360-degree videos through eight optical image sensors. Advantages of Nokia’s new camera: Live monitoring – footage can be seen as it’s being shot. Rapid playback – recordings don’t need to be digitally stitched together before they’re viewed.

It’s Here: Microsoft’s Windows 10 Now Available As a Free Upgrade.  The new operating system is now available to download as a free upgrade for Windows 7 and 8 users. If you’re running an older version of Windows, the cost to upgrade is $119.

Chevron plans to eliminate 1,500 jobs across the globe amid the ongoing environment of low oil prices. Chevron said the cuts are aimed at increasing efficiency, reducing costs and focusing on work that directly supports business priorities, with $1 billion in targets coming through corporate center cost reductions.

California Senators Dianne Feinstein and Barbara Boxer introduced emergency drought legislation today aimed at helping communities facing severe water shortages and supporting new water projects in the parched state. Key provisions of the California Emergency Drought Relief Act will assist rural and disadvantaged drought-stricken communities with a new USDA program, seek federal support for desalination projects, promote the building of new reservoirs, support water recycling projects, and increase agriculture water conservation mandates.

The Senate ended debate on its long-term highway bill today. Meanwhile the House is going into recess today, and that means the Senate will have to take up a three-month extension of federal highway funding ahead of an end-of-the-week deadline to prevent a gap in infrastructure funds.

Friday, June 27, 2014 - Biscuits on the Table

Financial Review with Sinclair Noe

DOW + 5 = 16,851
SPX + 3 = 1960
NAS + 18 = 4397
10 YR YLD  + .01 = 2.53%
OIL - .10 = 105.74
GOLD – 1.80 = 1316.10
SILV - .25 = 20.97

The major stock indices traded lower for most of the day, and only in the final minutes turned to positive territory. For the week, the Dow slipped 0.6 percent and the S&P 500 declined 0.1 percent, while the Nasdaq gained 0.7 percent. Volume spike today as the Russell Indices were reconstituted.

The Russell Indices are compiled by Russell Investments. The Russell 3000 is an index of the 3000 largest stocks in the US. The Russell 2000 is the 2000 smallest stocks in the Russell 3000. Once a year, the Russell indices are reconstituted, to reflect changes such as acquisitions, bankruptcies, or just changes in the size of the companies listed in the index. The reconstitution probably explains the increase in volume and the last minute increase in prices today.

Some things we need to know heading into the weekend; including Ukraine, Iraq, and Argentina. We’ll start with the situation in Ukraine. The European Union signed a free-trade pact with Ukraine today and warned it could impose more sanctions on Moscow unless pro-Russian rebels act to wind down the crisis in the east of the country by Monday. Georgia and Moldova signed similar deals, holding out the prospect of deep economic integration and unfettered access to the EU's 500 million citizens, but alarming Moscow which is concerned about losing influence over former Soviet republics.

EU leaders meeting in Brussels demanded that, by Monday, Ukrainian rebels agree to ceasefire verification arrangements, return border checkpoints to Kiev authorities, free hostages and launch serious talks on implementing Ukrainian president Poroshenko's peace plan.

EU leaders said they were ready to meet again at any time to adopt significant sanctions on Russia. Diplomats said they could target new people and companies with asset freezes as early as next week. More than 60 names are already on the list. Although it has drawn up a list of hard-hitting economic sanctions against Russia, the EU is still hesitating over deploying them because of fears among some member states of antagonizing their major energy supplier.

Meanwhile, leaders of the European Union's 28 member states voted on the next president of the European Commission, which serves as the EU's executive branch. The president sets the policy agenda, enforces rules and represents Europe abroad. They elected Jean Claude Junker on a 26-2 vote. The losing votes belonged to the United Kingdom and Hungary, and they really have a strong dislike for Junker; so much so that they may try to exit the EU. That probably won’t happen, but there is talk of an “in or out” referendum for the Brits.

A funny thing is happening in Iraq. The US is lining up support for Iraq from Iran and Syria. And the bombing has apparently started, but we’re still trying to figure out who is throwing the bombs. The first aerial bombing took place Monday or Tuesday, apparently carried out by the Syrian Air Force, acting at the behest of the Iranian government in support of the Iraqi government, which the US government supports, but only if the Iraqi’s purge the government of all the goofs who messed up over the past 10 years or so.

Which is to say, the war in Iraq is escalating. Already, the war involves Iraq, Syria, Iran, Turkey, Saudi Arabia, Qatar, ISIS or ISIL if you prefer, Israel, Lebanon, and of course the US. The Pentagon denied reports of US drone strikes along the Iraq-Syria border after reports by BBC of drone bombings. The Murdoch Street Journal reports Syrian airstrikes. Unidentified bombers have reportedly launched an air strike on ISIS positions in northern Iraq. Iraqi television has claimed they are US planes, but the Pentagon has denied responsibility.

US planes were identified by Iraqi television, but the Saudi Al-Arabiya network claims that the raid was carried out by Syria. Meanwhile, Iranian Special Forces sent in to help protect Baghdad and a few select holy sites, along with surveillance drones. And Israel has bombed Syria in retaliation for an attack from Syria that killed Israeli civilians in the Golan Heights.

And so with all this going on, the Pentagon admitted yesterday that armed US drones are now flying over Iraq, equipped with Hellfire missiles, deployed from a base in Kuwait, in addition to unarmed surveillance flights by drones and manned aircraft, and supplemented by US military advisers on the ground.

Meanwhile, the Pentagon says the United States has opened a "joint operations center" in Baghdad, boosting the total number of US service members to 500. And the New York Times reports that Iraqi government officials are saying that the US is planning to send more than 1,000 private security guards to Iraq to protect US troops, which amounts to far more than the US government has previous acknowledged.

For years Iraq has been a major oil producer; it kept Saddam in business all those years; back then Iraq produced about 2.5 million barrels a day; recently output has increased to more than 3 million barrels, and it’s estimated that production could easily top 6 million barrels. In a country of about 30 million, there should be enough natural resources for profound prosperity, but that is not the case. In recent years, none of this oil wealth trickled down to the grassroots, especially in Sunni areas of the country where signs of reconstruction, economic development, restored services, or jobs were hard to find. Instead, the vast new revenues disappeared into the recesses of a corrupt government, and from there – who knows?

So here’s where Iraqi oil, or the lack of its revenues at least, comes into play. Communities across Iraq, especially in embittered Sunni areas, began demanding funding for reconstruction, often backed by local and provincial governments. In response, the Maliki government relentlessly refused to allocate any oil revenues for such projects, choosing instead to denounce such demands as efforts to divert funds from more urgent budgetary imperatives. That included tens of billions of dollars needed to purchase military supplies including, in 2011, 18 F-16 jets from the United States for $4 billion. In a rare moment of ironic insight, Time magazine concluded its coverage of the F-16 purchase with this comment: “The good news is the deal will likely keep Lockheed’s F-16 plant in Fort Worth running perhaps a year longer. The bad news is that only 70% of Iraqis have access to clean water, and only 25% have clean sanitation.”

My grandmother used say, as long as we’ve got biscuits on the table, nobody should go hungry. I guess they never heard that saying in Iraq.

Nothing in today's complex world has a single cause, but you have to think that a major reason for all this is the oil.

Argentina is in trouble. They have until Monday to pay a group of hedge fund managers over $1.3 billion on defaulted bonds. If they don’t pay, they risk default. If it goes into default, investors lose faith in Argentina’s capacity to pay, interest rates on its bonds surge, and the country is forced to print money to pay creditors, the economy could collapse.

Then again, if Argentina does pay this group of hedge fund managers over $1.3 billion worth of bonds by July 30, it opens itself up to lawsuits from other investors who also own those bonds, lawsuits that could cost the country up to $15 billion. That's over half the money it has in its central bank.

The story goes back to 2001, when Argentina was going through a financial crisis. Argentina issued bonds, and they defaulted on those bonds. After the default, hedge fund manager Paul Singer and some other hedge funds swooped in to buy the defaulted bonds for pennies on the peso. They knew they were buying defaulted bonds, but the idea was that things might improve or there might be a deal negotiated; that’s what usually happens, debt issuers restructure debt, and negotiate with creditors to pay less. Creditors usually take the deal because it is better to get something rather than nothing. Most of Argentina’s creditors have decided to accept 70 cents on the dollar.

But Paul Singer is demanding 100% face value of the bonds. And if he is not paid, there is a clause that says no other creditors can be paid. And if Argentina pays the full amount to Singer, the other creditors will likely not be satisfied with a 70% haircut. And the reason Argentina is in this jam is because Singer sued, and it went all the way to the US Supreme Court, and the Supremes sided with the hedge funds, and let stand a district court ruling.

The Supreme Court has been busy handing down decisions this week; and we will likely get a couple more decisions on Monday; I guess they don’t hand down decisions on Friday, and opt instead for an early happy hour. Anyway, the decisions of the past week were downright strange for one reason; several were unanimous. Wednesday, the court decided Riley v. California, which unanimously held that police cannot search the cellphones of people they arrest without a warrant. On Thursday, the court handed down two of its major opinions of this year: National Labor Relations Board v. Noel Canning, about the president's recess appointment power and McCullen v. Coakley, about abortion clinic buffer zones.

You will recall that the court is split ideologically, with 5 justices leaning right and 4 justices leaning left, so it’s a little surprising to see the twain meet. Unanimity is rare; a fractured court is the norm, and yet, we had three unanimous decisions among people who are inclined to disagree; and at a time when the House of Representatives is suing the president and people from one side can’t have a civil conversation with someone from the other side. Maybe this is an example of the rule of law being more important than politics. Before we declare a victory for compromise, maybe there’s a little more to how the court arrived at unanimity.

Even when the court agrees on a ruling, it can divide over the reasoning and even how the rule should be applied. In other words they take very different paths to arrive at the same place. It is possible that a 5-4 decision is not an indication of a polarized court. You have to read the decisions behind the vote. And conversely, a unanimous decision can mask deep divisions that appear down the road.