Financial Review

Double Dog Dare

Sinclair Noe — August 10, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

Subscribe: iTunes | Android | RSS

DOW – 204 = 21,844
SPX – 35 = 2438
NAS – 135 = 6216
RUT – 24 = 1372
10 Y – .03 = 2.21%
OIL – 1.00 = 48.56
GOLD + 8.90 = 1286.80
BITCOIN – 0.11% = 3441.49 USD
ETHEREUM + 0.43% = 301.57

The S&P 500 declined 1.45 percent, the worst decline since May. The Nasdaq composite dropped 2.1 percent, with Apple, Alphabet, Amazon and Netflix all trading lower. It was a broad-based decline on Wall Street. The CBOE Volatility Index (VIX), a gauge of fear in the market, soared more than 40 percent to trade at 15.98. It also hit its highest level since May.

President Trump said North Korea would face “fire and fury” if it threatened the United States. North Korea dismissed the warnings as a “load of nonsense”, and outlined plans for a missile strike near the Pacific territory of Guam.

And today, Trump ratcheted up his rhetoric, saying his “fire and fury” comments may not have been tough enough, and North Korea should be “very, very nervous”. China is the largest trading partner with North Korea and China has called for dialogue to end the crisis but has otherwise been quiet.

China’s interests do not include a unified Korean Peninsula.  When it comes to assessing global geopolitics like the situation with North Korea, we don’t know how this will play out. It could be a brilliant bluff or it could be very dangerous bravado.

Here’s what we might see in the marketplace: stocks tend to react badly to the prospect of war but the exact reaction varies significantly, Treasuries generally move higher – pushing yields lower (The yield on the benchmark 10-year note touched 2.20 percent Thursday, its lowest level since June, although it is worth noting that junk bonds have taken a hit recently – and that may be separate from concerns about war; the cost of protecting high-yield bonds against default in the credit-default swap market has climbed to the highest since mid-July), oil and other commodities tend to jump ahead of a geopolitical event and sell off afterwards.

And of course, gold has started to shine again.

Pimco told investors to pare U.S. equities and junk bonds, but keep exposure to real assets, such as inflation-linked debt, commodities and gold. T. Rowe Price cut its stock allocation to the lowest level since 2000. Morgan Stanley strategists said investors should consider betting against U.S. junk-bonds as recent price weakness may be the beginning of a correction.

Geopolitical turmoil tends to drive volatility but not necessarily trends. In other words, the contrarian play usually works. Warren Buffett has described the strategy as “stay calm when all hell breaks loose.”

Meanwhile, it is a big distraction from other issues such as tax reform, the debt ceiling and healthcare – which you probably thought was a moot point by now. Senate Majority Leader Mitch McConnell is refusing to sign-up for an ambitious White House timeline on tax reform that calls for legislation to sail through by fall.

And he’s now engaged in an extraordinary war of words with the Trump White House. McConnell said he thought Trump “had excessive expectations about how quickly things happen in the democratic process …” This drew a sharp rebuke from Trump and his senior aide Dan Scavino.

The White House is going to need good will from McConnell on tax reform. And they’ve already blown through the initial, absurd, August deadline. Increasing pressure and publicly ripping McConnell is going to make tax reform and the rest of Trump’s agenda even harder to pass.

Meanwhile, there is a very real deadline for a deal on the debt ceiling. Mark your calendar. You can see this one coming: The government will run out of cash on Sept. 29 and cannot borrow more money unless Congress raises the debt ceiling.

This is a perennial crisis, and markets have a well-rehearsed pattern of worry followed by relief. Lawmakers are on recess until Sept. 5, and they plan to take a week off in September. So that leaves 12 working days for Congress to raise the borrowing limit. It’s difficult to give Congress the benefit of the doubt on getting this done.

The White House is usually focused on this priority, but in the wake of the health-care defeat in the Senate, White House budget director Mick Mulvaney initially said that Congress should hold off on all other issues, including the debt ceiling, until it went back to health care. He later changed his position and said Congress should raise the debt ceiling.

McConnell and House Speaker Paul Ryan will push for a clean debt ceiling increase, but some number of more conservative members will vote against that, meaning Democrats will need to provide votes to ensure a successful vote. But it’s not clear what conditions Democrats will demand in exchange for their votes.

Senate Minority Leader Chuck Schumer said earlier this summer that Democratic votes may be hard to come by if Republicans insist on passing a large tax cut for the wealthy. And the White House is pushing for funding for a border wall with Mexico to be included in a debt bill, in exchange for lifting spending caps.

PredictIt has become the go-to prediction market for observing U.S. political events. PredictIt offers weekly debt ceiling markets through the end of October, and at the time of this writing, its participants give less than a 5 percent chance of the debt ceiling being raised by Sept. 15, and less than a 15 percent chance of it being raised by Sept. 22.

If the Trump administration’s Sept. 29 estimate is right, then we could be looking at another tense period for markets like we had in the summer of 2011, when the debt ceiling standoff caused Standard and Poor’s to lower the U.S. credit rating.

Of course, it’s possible the real deadline will be a week earlier or a couple weeks later, given volatility in tax receipts. So, if you mark your calendar, be sure to use a pencil.

Also, today, Trump declared the opioid epidemic a national emergency and said his administration was drafting papers to make it official – this comes about a week after a White House commission on the opioid crisis led by New Jersey Governor Chris Christie recommended the president declare it a national emergency.

The declaration could help unlock more support and resources to address the drug overdose epidemic, such as additional funding and expanded access to various forms of treatment, and it gives the government more flexibility in waiving rules and restrictions to expedite action.

National emergencies are typically declared for short-term crises, such as the Zika virus outbreak or a natural disaster. It is unclear what Trump’s declaration will mean for a complex, long-term public health problem.

Producer prices fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate hike. The Labor Department said its producer price index for final demand slipped 0.1 percent last month, weighed by decreasing costs for services. That was the largest decline since August 2016 and reversed June’s 0.1 percent gain.

In the 12 months through July, the PPI increased 1.9 percent after rising 2.0 percent in the year through June. Core PPI, which excludes food, energy and trade services was unchanged last month. The core PPI increased 1.9 percent in the 12 months through July.

Shares of retailers Macy’s and Kohl’s declined after quarterly results failed to assure investors that a comeback was taking hold. Same-store sales dropped 2.5 percent at Macy’s and 0.4 percent at Kohl’s. Dillard’s sank as much as 16 percent to $61.50 after posting a surprise loss in its second quarter.

Lots of people like to talk these days about how the retail industry is undergoing a structural shift due to changes in how consumers like to shop. But weakness in the retail sector is probably being impacted by consumer debt as well.

Household debt outstanding — everything from mortgages to credit cards to car loans — reached $12.7 trillion in the first quarter. Household net worth stands at a record $94.8 trillion, thanks to rebounding home values and soaring stock portfolios. But that increase has primarily benefited the nation’s wealthiest.

For most Americans, whose median household income, adjusted for inflation, is lower than it was at its peak in 1999, borrowing has been the answer to maintaining their standard of living. The average family of four is living paycheck to paycheck.

And just when you think you’ve got it all figured out. Nordstrom reported second-quarter earnings and sales that topped analysts’ expectations, sending shares of the stock higher after market close. Same-store sales were also positive, a rare outcome among department stores of late. Nordstrom said its results this period was fueled by more customers ringing up purchases online.

Nordstrom’s stock was last climbing more than 3 percent higher in after-hours trading on the news.

Graphics chipmaker Nvidia saw its stock fall more than 7 percent after it reported stronger-than-expected earnings for the second quarter. Earnings came in at $1.01 per share, topping estimates of 70 cents. Revenue was up 56 percent year over year and beat estimates. They raised guidance slightly.

A new international report has confirmed that 2016 was the hottest year for the planet in 137 years of record keeping. It was the third year in a row to break the record. The report was released by the American Meteorological Society.

Almost 500 scientists from more than 60 countries participated in the project. Global sea surface temperatures reached a new record high, and Arctic sea ice extent at the end of its annual growth season was at its lowest maximum level in the nearly 40 years of satellite records.

Every month, at least 12 percent of land surfaces were in severe drought conditions or worse — a record long stretch.

Financial Review

Sneaking Through the Backdoor

Sinclair Noe — February 17, 2016

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

Subscribe: iTunes | Android | RSS

DOW + 257 = 16,453
SPX + 31 = 1926
NAS + 98 = 4534
10 Y + .04 = 1.82%
OIL + 2.35 = 31.39
GOLD + 8.10 = 1209.40

Three in a row; three up days, and good moves at that. If you believe the old adage that every stock market advance is short covering, you have some evidence to back your position. The most shorted stocks among Russell 3000 members gained 6.5% over just two trading days, Friday and Tuesday, while the least shorted issues trailed the Russell’s 4.6% advance over the same period. And while it looks like last Thursday’s lows provided some support in the short-term, it is too soon to see if that support will hold.

Anyone who is calling a bottom in the market is just making stuff up. I don’t know, you don’t know. What we know is the markets have been all over the map in the past 2 months, flitting from one crisis to the next. The good news is that nothing has blown up yet. The bad news is that everything is volatile.

Russia, Saudi Arabia, Qatar, and Venezuela announced an agreement Tuesday to freeze oil production in an effort to ease the oil glut. On Wednesday, Iran said it wouldn’t join the effort, as its production just came back online following years of sanctions, and then they changed their position, and said a production ceiling at January levels would stabilize the market; they didn’t say they would freeze their own production. Whatever. Oil bounced about 7% today. Of course any attempts to control output by oil producing countries does not have a track record of success.

Housing starts slowed in January. Groundbreaking fell 3.8 percent to a seasonally adjusted annual pace of just over 1 million units. Part of the decline in starts could be attributed to the snowstorms, which blanketed the Northeast last month. With building permits ahead of groundbreaking activity, home construction is likely to pick up in the months ahead. The report comes on the heels of a survey on Tuesday showing confidence among homebuilders fell in February amid concerns over “the high cost and lack of availability of lots and labor.”

Mortgage applications increased 8.2% last week. The average interest rate for a 30-year fixed conforming mortgage decreased to 3.83%, the lowest level since April 2015. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000.

Thanks in part to increased production of utilities and manufacturing, industrial production climbed 0.9% in January. This is the first increase since July and one of the biggest monthly gains of the expansion. The strength of the report was tempered somewhat by a downward revision of 3 percentage point to December, resulting in a revised decline of 0.7%. The rise in manufacturing production reflected gains in the output of long-lasting goods such as machinery, furniture and primary metals. Motor vehicle assembly accelerated. The production of food, textiles and chemicals also rose.

Producer prices, or prices at the wholesale level, rose in January as margins for wholesale machinery and equipment increased. The producer price index edged up 0.1 percent after slipping 0.2 percent in December. In the 12 months through January, the PPI decreased 0.2 percent. Lower oil prices and a strong dollar continue to pressure wholesale prices, which is contributing to holding inflation well below the Federal Reserve’s 2 percent target. The latest read on consumer prices is due for release on Friday.

The FOMC published the minutes from its meeting in January, where the Federal Reserve declared it still intended to raise interest rates gradually, but was “closely monitoring” market developments. Policymakers worried last month that tighter global financial conditions could hit the U.S. economy and considered changing their planned path of interest rate hikes in 2016. The word “uncertainty” was sprinkled throughout the minutes, and the Fed seemed afraid that a shock could make a mess of everything.

However, they agreed it would be premature to change their outlook for the U.S. economy, saying they would closely monitor global economic developments as well as oil and stock prices. That suggests the recent slowdown in global growth and steep stock market drops are leading the Fed to consider backing away from the signal it sent in December that it could raise rates four times this year.

Yesterday, Boston Fed President Eric Rosengren said the Fed can take its time to raise interest rates if headwinds from the global economy and financial markets persist. Wall Street is generally skeptical the Fed will raise rates at all this year. Prior to the release of the minutes, prices for fed funds futures implied investors saw a roughly 40 percent chance of a hike in December and less than that for prior meetings

Apple CEO Tim Cook said his company opposed a demand from a U.S. judge to help the FBI break into an iPhone recovered from one of the San Bernardino shooters. Cook said that the demand threatened the security of Apple’s customers and had “implications far beyond the legal case at hand.” In a letter to Apple’s customers, Cook said the FBI had asked the company to build “a backdoor to the iPhone,” and “The government is asking Apple to hack our own users and undermine decades of security advancements that protect our customers.”

In the letter Cook writes: “We have no sympathy for terrorists.” He goes on to add: “Compromising the security of our personal information can ultimately put our personal safety at risk. That is why encryption has become so important to all of us. For many years, we have used encryption to protect our customers’ personal data because we believe it’s the only way to keep their information safe. We have even put that data out of our own reach, because we believe the contents of your iPhone are none of our business.”

That may not be entirely accurate. The FBI can’t raid Apple’s data centers and read your text messages. If they did, they’d be reading a whole lot of encrypted gibberish. Here’s the problem: Apple built a backdoor into the iPhone just for itself, a way for the company to load up new software that could make it easier to gain access, and now the FBI wants to take that backdoor for a spin, too.

And one more thing. Apple appears to take a different tack in dealing with data security demands from China. In January 2015, the state-run Chinese newspaper People’s Daily claimed, in a tweet, that Apple had agreed to security checks by the Chinese government. This followed a piece in the Beijing News that claimed Apple acceded to audits after a meeting between Cook and China’s top internet official, Lu Wei. China’s State Internet Information Office would reportedly be allowed to perform “security checks” on all Apple products sold on the mainland.

According to the report, this was despite Cook’s assurances that the devices didn’t contain backdoors accessible by any government, including the US. We don’t know if Apple permitted a security audit, but if it did, it could have shared vital information with the Chinese government, such as its operating system’s source code, that could indirectly help government agents discover vulnerabilities on their own.

Apple is also in the news in the corporate debt market after the company sold $12 billion of bonds in the second-largest U.S. corporate debt offering so far this year. Yesterday alone, blue chip companies raised more than $23 billion in bonds.

The Hollywood Presbyterian Medical Center in Los Angeles has been operating without access to email or electronic health records for more than a week, after hackers took over its computer systems and demanded $3.6 million in Bitcoins in ransom to return it. Hospital staff are working with investigators from the Los Angeles Police Department and the FBI to find the intruders’ identities.

Meanwhile, without access to the hospital’s computer systems, doctors and nurses are communicating by fax or in person. Medical records that show patients’ treatment history are inaccessible. New patient records are being recorded on paper, and some patients have been transferred to other hospitals. While it’s unlikely that the facility will pay millions of dollars to restore its databases and systems, it’s in desperate straits without a backup of its patient files. Unless law enforcement can break the encryption keeping the data hostage, the hospital may be forced to start from scratch.

Fairchild Semiconductor has rejected a takeover offer worth about $2.5 billion led by Chinese state-backed buyers in favor of a bid from a U.S. rival because of concerns about regulatory approval. Fairchild had said in early January that it expected the Chinese bid to be a “superior proposal” – it amounted to $21.70 a share in cash, compared with the $20 a share that Phoenix-based ON Semiconductor was offering.

U.S. and Cuban officials have signed an agreement that provides for the reopening of scheduled air services between the two nations for the first time in more than 50 years. The move is expected to set off a scramble among American carriers to win route rights to serve Havana, which will be capped at 20 round trips a day from anywhere in the US.

You know that 2015 was the hottest year on record, by a wide margin; 2016 is on track to beat it. Last month was the hottest January in 137 years of record keeping, according to data released today by the National Oceanic and Atmospheric Administration. It’s the ninth consecutive month to set a new record.

To be sure, some of the recent extremes are the result of a monster El Niño weather pattern that still lingers in the Pacific Ocean. The heat that’s dispersed into the atmosphere during an El Niño can linger, which means there’s a decent chance 2016 will turn out to be the third straight year to set a new temperature record. That’s never happened before.

Financial Review

A Hot One

Sinclair Noe — January 21, 2016

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

Subscribe: iTunes | Android | RSS

DOW + 115 = 15,882
SPX + 9 = 1868
NAS + 0.37 = 4472
10 Y + .04 = 2.02%
OIL + 1.50 = 29.85
GOLD + .20 = 1102.40

The European Central Bank announced today that they will hold interest rates at record lows of 0.3%. Mario Draghi said the European Central Bank may need to provide more stimulus programs as soon as March to address concerns about the euro-area recovery. Draghi said, “Downside risks have increased again amid heightened uncertainties about emerging-market growth prospects. It would therefore be necessary to review and possibly reconsider our monetary-policy stance at our next meeting.” Now remember that the markets just love free money, and that was essentially what Draghi promised.

China’s central bank cranked up cash injections in its money-market operations for the third week in a row, trying to counter capital outflows. The PBOC added $60 billion to the financial system using reverse-repurchase agreements, the most in three years. The Shanghai composite dropped 3.2%.

Brazil’s central bank kept policy on hold. The Central Bank of Brazil held its benchmark rate at 14.25%, surprising the consensus, which was calling for a 50-basis-point hike to 14.75%. The bank has been under pressure from politicians and local businesses to raise rates in an effort to combat inflation that is running at a 12-year high, above 10%.

Oil prices moved higher today. Yesterday the API report showed a U.S. crude inventory build of 4.5 million barrels last week – about double trade expectations. Today the U.S. Energy Information Administration reported crude inventories rose by 4 million barrels for the week ended Jan. 15. Now normally, you might expect prices to drop on news that inventories are growing, but the best explanation I can offer is that oil was a little oversold; even with today’s gain, prices are still under $30 a barrel.

Russia’s ruble fell more than 5% overnight, to hit a new record low of 85.97 per dollar. The country is suffering from the slump in oil prices, which has sparked widespread predictions of a second straight year of recession. Russia’s central bank has indicated it will not intervene to support the currency.

The number of applications for unemployment benefits unexpectedly increased last week to a six-month high. Initial jobless claims climbed by 10,000 to 293,000 in the week ended Jan. 16. The four-week moving average increased to 285,000, the highest since mid-April.

The Philadelphia Fed’s manufacturing index was in negative territory in January for the fifth month in a row. The index rose to negative 3.5 from negative 10.2

The first Friday of each month brings the report on non-farm payrolls, or the shorthand is the Jobs Report; a couple of weeks later we get a state by state breakdown. Today, the Arizona Department of Labor Stats reported Arizona’s seasonally adjusted unemployment rate dropped two-tenths of a percentage point from 6.0% in November to 5.8% in December.

The US seasonally adjusted unemployment rate remained unchanged at 5.0% in December. A year ago, the Arizona seasonally adjusted rate was 6.6% and the U.S. rate was 5.6%. The biggest job gains were found in trade, transportation, and utilities; the biggest job losses were in government and construction. Arizona employment grew by 2.5% (65,700 jobs) over the year ending in December.

January 21, 1970 marks the day of the first commercial flight of a Boeing 747. Today, Boeing announced plans to report a $569 million after-tax accounting loss as it cuts production of the iconic 747 jumbo jet in half. Boeing announced that it would lower its production rate on 747-8 jets to match demand in the cargo market.

In other words, it does not want to overproduce for a market that’s not demanding a lot right now. But demand for flight from the consumer economy are running above their recent trend. And this is really the whole economic story in a nutshell. In short, the outlook for consumers is solid while things are falling apart for manufacturers.

United Continental Holdings’ fourth-quarter profit missed analysts’ estimates as a strong dollar and weak economies in energy-dependent markets hurt demand from travelers. Adjusted earnings were $2.54 a share, missing estimates by 2-cents. Revenue dropped 3%.

Southwest Airlines reported it nearly tripled its profit in the final quarter of the year. The No. 4 U.S. airline by traffic said its fuel and oil expense dropped 37% in the latest quarter. Overall, the company posted a profit of $536 million, or 82 cents a share, up from $190 million or 28 cents a share a year earlier. Revenue was up 7.5%

Verizon Communications added 1.5 million new subscribers and exceeded analysts’ profit estimates even as rivals pushed price cuts and promotions to lure customers away. Fourth-quarter earnings excluding some items were 89 cents a share, a penny better than estimates.

Schlumberger reported better-than-expected fourth-quarter earnings and quarterly sales in line with Wall Street consensus. The company said it earned an adjusted 65 cents a share in the quarter, down from $1.50 a share in the year-ago period. Revenue hit $7.7 billion, down from $12.6 billion in the year-ago period. The company faced a continued decline in rig activity, project delays and cancellations and other problems stemming from lower oil prices. The good news is that it wasn’t worse news.

American Express reported its fourth-quarter earnings fell to $899 million, or 89 cents a share, from $1.45 billion, or $1.39 a share, a year earlier. AmEx beat earnings estimates. Revenue dropped to $8.3 billion from $9 billion a year ago.

Union Pacific Corp. reported quarterly earnings that missed analysts’ estimates for the third time this year as a freight slump accelerated. Net income fell to $1.31 a share, 11 cents less than the average of estimates. Revenue decreased 15 percent to $5.21 billion compared with a forecast of $5.44 billion. It was the biggest miss in at least 10 years. The weakness in rail cargo probably will last this year as coal demand continues to drop and U.S. production lags.

General Motors said it sold 9.8 million vehicles in 2015. The results represent a third consecutive year of record global sales for GM. North American deliveries rose 6% to 3.6 million cars, trucks and crossovers, and it also delivered 3.6 million vehicles in China, an increase of 5% from 2014.

Sharp is leaning toward accepting a rescue by government-backed Innovation Network of Japan over a potentially larger offer from Foxconn Technology. A deal with INCJ would allow the firm to keep its technology within Japan and cooperate more closely with domestic companies. Sharp’s stock climbed as much as 25% in Tokyo after Foxconn offered $5.3 billion to take it over.

The next installment of the Star Wars franchise, originally slated to debut on May 26, 2017, is now scheduled to be released seven months later on Dec. 15, 2017. Disney did not cite specific reasons for the push, but did note the success of Star Wars: The Force Awakens. The film has garnered more than $861 million domestically and $1.9 billion internationally – the third largest global release ever.

If you believe in math and gravity and other such “theories” there appears to be precise evidence of a big, fat planet spinning far beyond the planetoid Pluto.  The clues started piling up when astronomers discovered a mini Pluto (aka, rocky Kuiper Belt object far out in the nether regions of the solar system) with an interesting orbital twist… literally. Astronomers then noticed other objects floating around in distance and in the angle of the orbit relative to the horizon of the solar system. So it was more than coincidence.

Using very sharp pencils two Caltech astronomers Michael Brown and Konstantin Batygin, not only have validated the existence of this mystery planet they’ve referred to as “Planet 9”, they have determined both its mass and exact orbit.  Planet 9 from Outer Space is apparently about 10 times the mass of Earth with an orbit 20 times farther out from the sun than Neptune. The only thing really missing from “9” is a fuzzy picture and a real name.

A blizzard watch has been posted from Virginia to New York, for a storm that threatens to bring high winds and heavy snow starting Friday and lasting through the weekend. The snow should begin falling in Washington before sundown Friday, with heavier amounts arriving overnight. In New York, the heaviest accumulations will come on Saturday, which is when Boston may get some snow as well.

Last year shattered 2014’s record to become the hottest year since reliable record-keeping began, according to separate sets of records kept by NASA and the National Oceanic and Atmospheric Administration; 2015’s sharp spike in temperatures was aided by a strong El Niño weather pattern late in the year that caused ocean waters in the central Pacific to heat up. But the unusual warming started early and steadily gained strength in a year in which 10 of 12 months set records.

NASA reported that 2015 was officially 0.23 degrees Fahrenheit (0.13 degrees Celsius) hotter than 2014, the prior record year. NOAA’s figures showed slightly greater warming, of about 0.29 degrees Fahrenheit (0.16 degrees C) hotter than 2014. A quarter of a degree may not sound like much, but on a planetary scale it’s a huge leap. Most previous records were measured by hundredths of a degree.

The El Niño weather pattern of 2015 produced some of the hottest temperatures ever witnessed across swaths of the equatorial Pacific. Across the globe, El Niño triggered powerful typhoons, spoiled cocoa harvests in Africa, and contributed to vast fires in Indonesia. California is getting pummeled with floods, and residents on the U.S. East Coast are bracing for an El Niño fueled snow dump this weekend. Because a strong El Niño still is in place, 2016 is expected to be an exceptionally warm year, and perhaps even another record.

Financial Review

The Gravy Boat

Sinclair Noe — November 25, 2015

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

Subscribe: iTunes | Android | RSS

DOW + 1 = 17,813
SPX – 0.27 = 2088
NAS + 13 = 5116
10 YR YLD – .01 = 2.23%
OIL + .25 = 43.12
GOLD – 4.50 = 1071.90
SILV – .05 = 14.26

We have a boatload, or at least a gravy boat full of economic data before we get into the holiday. Initial claims for state unemployment benefits declined 12,000 to a seasonally adjusted 260,000 for the week ended Nov. 21. Claims have now held below the 300,000 threshold for 38 consecutive weeks, the longest stretch in years, and remain close to levels last seen 42 years ago.

Orders for business equipment climbed more than forecast in October. Bookings for non-military capital goods excluding aircraft rose 1.3 percent, the most in three months, after an upwardly revised 0.4 percent increase in September; non-defense capital goods are considered a proxy for business investment.

So, today’s report shows businesses are spending more on business. It may be too early to call it a trend reversal but cap ex spending had been weak, in large part due to cuts in the energy sector, and also the tendency for companies to indulge in share buybacks rather than plowing money back into the business.

Orders for all durable goods, items meant to last at least three years, climbed 3 percent. Commercial aircraft orders surged 81 percent in October after dropping 32.2 percent a month earlier. Excluding transportation equipment demand, which is volatile from month to month, bookings increased 0.5 percent in October. Stronger demand for computers, heavy machinery, military hardware and jumbo jets offset a dip in auto sales.

Consumer spending edged up 0.1% in October after a similar increase in September. Personal income increased 0.4% last month. Savings increased to $761 billion last month, the highest level since December 2012, from $722 billion in September. A little extra money in the bank may just mean consumers are saving up for the holiday shopping season. If so, it would bode well for cleaning out some of the excess inventory reported in yesterday’s GDP report. This points to a labor market that continues to show signs of recovery even though consumers remain wary.

Still, inflation remains tame. The personal consumption expenditures index, the PCE, was up 0.2%. Year on year core PCE is holding at 1.3%, which is far short of the Federal Reserve’s target of 2% inflation. Still, we expect the Fed to raise interest rates at the December FOMC meeting, but this means that rate hikes will likely take a long and shallow trajectory.

The University of Michigan consumer sentiment index rose to 91.3 in November, up from 90 in October; and while that is a gain, it falls short of the preliminary reading of 93.1. Consumers are feeling decent but not giddy. This follows yesterday’s report from the Conference Board that showed a big drop in consumer confidence. Both reports show consumers are sanguine about current conditions but a bit nervous about future economic prospects.

New single family home sales increased 10.7% in October to a seasonally adjusted annual rate of 495,000. The median price of a new home fell 6% from a year ago to $281,500. New home sales are a bigger driver of economic activity than existing home sales. Today’s numbers show solid, steady, though unspectacular growth, which seems to be a theme in recent economic reports. Still, you have to think there is a cumulative positive impact.

Investors across the world are also watching rising geopolitical tensions between Russia and NATO member Turkey after a Russian SU-24 warplane was shot down by a Turkish F-16 fighter jet on Tuesday. Russia’s Foreign Minister Sergei Lavrov said Turkey may have planned to shoot down the Russian warplane near its border, calling the act “planned provocation.” Lavrov also said Russia will reexamine the entire spectrum of its relations with Turkey because “we can’t leave what happened without a response.”

Russia supplies about half of Turkey’s natural gas, for which Turkey pay’s about $10 billion a year. No doubt the incident will cool business relations between Russia and Turkey but Russia needs the cash; and remember that Russia still supplies oil and gas to Ukraine despite their differences. Beyond that it is important to remember that Turkey is a member of NATO.

In its twice-yearly Financial Stability Review, the European Central Bank has warned that chances of an “abrupt risk reversal” are increasing due to slowing growth in China and the withdrawal of monetary stimulus in the U.S.

European authorities are proposing a system to share the cost of protecting bank deposits, as the FDIC does in the United States, but the European Deposit Insurance Scheme, which would protect savings accounts of up to €100,000-euro, could face opposition from Germany, which has long resisted sharing fiscal risks with other Eurozone countries.

The ECB has additionally announced it will temporarily pause its asset purchase program over the holiday season (December 22-January 1) “to reduce possible market distortions” during a period of “lower market liquidity,” which is to say, they will be closing shop for the holidays.

Minutes from the Bank of Japan’s latest meeting show that some policymakers believe an output gap was one reason the country was taking longer to meet its 2% inflation target, highlighting a lingering worry that quantitative easing may not be working. An output gap is the difference between what an economy is producing and what it could produce if operating at its most efficient. Separately, Japan announced it will raise the minimum wage by 3% to try to stimulate growth.

Andre Esteves, CEO of Grupo BTG Pactual, the largest investment bank in Latin America, has been arrested in Brazil as part of a corruption probe of the state-run oil company, Petrobras; which has lost 80% of its market cap. The government’s leader in the Senate, Delcidio Amaral, was also arrested this morning. Esteves and Amaral are accused of trying to suppress testimony in the investigation into a bribery scheme between Petrobras and the nation’s biggest builders.

More than 100 people have already been arrested, including former top executives at Petrobras and Brazil’s biggest construction conglomerate. And then they started to cut deals with prosecutors by turning evidence on higher ups. Esteves is widely considered the most high-profile figure in Brazilian finance; he is quoted as saying that his company, BTG, stood for “Better than Goldman.” Now the question is whether Esteves can cut a deal by implicating someone even higher up – the president of Brazil.

A federal judge in Manhattan has ruled that General Motors and its law firm, King & Spalding, need not turn over privileged documents to drivers hoping to show that the automaker intended to commit a crime or fraud by concealing defective ignition switches in their vehicles. Most of the documents related to the law firm’s advice from 2010 to 2013 on three crashes involving Chevrolet Cobalts.

Vehicle owners said the deception justified a waiver of attorney-client privilege. The judge found probable cause to believe that GM committed a crime or fraud by hiding the defect from regulators and the public, but did not go the next step to say that communications between GM and the legal firm were made to further such misconduct.

The World Meteorological Organization announced today that 2015 is the hottest year on record, surpassing last year’s record heat. And we still have more than a month left in the year. They made the proclamation without waiting for the end of the year because it has been so extraordinarily hot, forecast to stay that way and unlikely to cool down enough to not set a record.

The World Meteorological Organization is the weather agency of the UN, and they are not alone in their forecast, the US National Oceanic and Atmospheric Administration, NASA, and Japan’s weather agency all say 2014 is the current record hot year with a global temperature of 14.57 degrees Celsius, 58.23 degrees Fahrenheit.

The years between 2011 and 2015 have been the hottest five-year period on record. The record probably won’t last long. Due to the influence of El Nino, which is set to last into the middle of 2016, and continually rising levels of heat-trapping greenhouse gases, which come from the burning of coal, oil and gas, 2016 will be even hotter. The report comes the week before world leaders assemble in Paris to try to negotiate an agreement to fight climate change.

There is some optimism that the Paris summit can move beyond diplomatic posturing. Significantly, investors are beginning to realize that action on climate presents enormous business opportunities. A briefing paper released through the We Mean Business coalition points out that 277 companies with $6 trillion in revenue, and 144 investors with $20 trillion in assets under management, have collectively now made nearly 700 ambitious climate commitments.

The briefing paper  calls for a series of proposals to be included in the text of the Paris agreement to help unlock further flows of finance. These include a goal of net zero greenhouse gas emissions well before the end of the century, strengthening national emissions reduction commitments every five years from 2020, carbon pricing, and improving public policy to scale up private climate finance.

Here’s one way to look at climate change; the internet has been around since the 60’s, and in the 80’s the idea expanded into the World Wide Web. In the 90’s there was talk about building the information superhighway, even though we weren’t quite sure where that road would take us.

There were debates about the cost of building out digital infrastructure and who would bear this huge expense, not who would make fortunes with the business opportunities. It basically boiled down to figuring out how to make money with the technology. Once we wrapped our brains around that, the money started to flow. The same thing is about to happen with Green technology.