Financial Review

Theresa May is Britain’s new prime minister, replacing David Cameron

Sinclair Noe — July 13, 2016

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DOW + 24 = 18,372
SPX + 0.29 = 2152
NAS – 17 = 5005
10 Y – .03 = 1.47%
OIL – 1.37 = 45.43
GOLD + 9.60 = 1343.30

The cost of imported goods increased 0.2% in June, led again by the higher cost of fuel. Import prices have risen four straight months following five straight declines, largely because of the price of oil has climbed from multiyear lows. Excluding fuel, the cost of imports fell 0.3% in June. Over the past year, import prices are still 4.8% lower, reflecting a big drop in the oil prices in 2015.

That’s helped to keep overall U.S. inflation on the low side. Import prices minus fuel are down 1.8% in the past 12 months. U.S. export prices climbed 0.8% in June. Export prices are 3.5% lower in the past 12 months.

Corporations are paying less to the Treasury this fiscal year, and the government’s budget deficit is ballooning because of it. In its latest monthly budget report, the Treasury Department said the deficit through June was $401 billion, up 27% from the same period a year ago. In the month of June, the government managed to post a budget surplus of $6 billion, but that was down from a surplus of $50 billion in June of 2015.

While individual income tax collection has risen so far this fiscal year, it’s a far different story with corporate taxes: revenues are down 11%. The government’s budget year runs from October through September.  The nonpartisan Congressional Budget Office blamed the tax extenders, legislation that gives breaks for both businesses and individuals, for helping to blow up the federal debt in the long term; another possible culprit is that the decrease in corporate taxes may partly reflect lower taxable profits earned so far this calendar year.

The Federal Reserve published its Beige Book today, two weeks before the next FOMC policy meeting. The anecdotal assessment finds the economy chugging along through the end of June with little indication of inflation now or in the near future. Despite a strong rebound in U.S. job growth in June; pressure to raise wages at the end of the second quarter was centered on skilled workers and difficult-to-fill positions. Fed districts also reported some signs of softening in consumer spending but most retained an optimistic outlook, the report said. Manufacturing activity remained mixed while growth in the services sector was seen as “slight to modest.”

Oil industry hopes that markets are about return to balance, ending a global glut that pulled down prices by over 70 percent between 2014 and early 2016, might be abruptly dashed. Despite recent disruptions and output cuts, there is mounting evidence that plentiful supplies and brimming inventories will delay a much-quoted re-balancing of oil markets. Not just are supplies improving, now demand may be waning.

With the United States and Europe stagnating, Asia has been the main pillar of oil demand growth. But that too is now stuttering, with tanker flows into the region down for four straight months. So much oil is now stored that the world is running out of space, forcing traders to charter supertankers in which to keep unsold fuel. There is so much oil in storage that it could take well into 2018 for the glut to clear.

The latest American Petroleum Institute (API) showed crude oil supplies rose to their highest point in ten weeks. Meanwhile, the International Energy Agency said oil production from the Middle East has climbed to a record while U.S. output slumps. Middle Eastern output exceeded 31 million barrels a day for a third month in June amid near-record supply from Saudi Arabia, while U.S. oil production slid 140,000 barrels a day to 12.45 million. The IEA, which mostly kept forecasts for supply and demand unchanged, said that while the rebalancing of the oil market is progressing, brimming inventories remain “a threat to the recent stability of oil prices.”

Theresa May is Britain’s new prime minister, replacing David Cameron. The appointment was official today. May will face immediate pressure from EU leaders to serve formal notice of Britain’s withdrawal and set the clock ticking on a two-year countdown to its final departure. May has already started naming new members of her cabinet. She appointed former foreign minister Philip Hammond to take charge of the finance ministry. He replaces George Osborne, whose determination to balance Britain’s books made him synonymous with austerity.

May also named Boris Johnson, the former mayor of London and a leading Eurosceptic who had until recently been seen as her main rival for the prime minister’s job, to take over as foreign secretary. Meanwhile, the Bank of England holds a policy meeting tomorrow and they are expected to cut the key lending rate to 0.25% form 0.5%, to try to ward off a recession and to reassure markets.

PC sales in the US are growing again. Both Gartner and IDC data shows that PC shipments in the US have returned to growth for the first time in over a year. Gartner data, which includes Windows tablets, showed that PC shipments grew 1.4% in the second quarter. IDC data, which doesn’t include Windows tablets, showed growth of 4.9%.

A federal appeals court ruled General Motors’ 2009 bankruptcy does not shield it from lawsuits over a deadly ignition-switch defect that led to criminal charges against the automaker and prompted the recall of 2.6 million vehicles in 2014.  The 2nd Circuit’s decision affects some injury and death cases stemming from pre-bankruptcy crashes. It will also impact claims from customers who say their vehicles lost value as a result of the ignition switch and recalls involving other parts, which plaintiffs’ lawyers have estimated to be worth between $7 billion and $10 billion.

A bankruptcy judge ruled in 2015 that New GM was shielded from liability over Old GM’s pre-bankruptcy actions, but he allowed some “independent” claims based solely on New GM’s conduct to proceed. Lawyers for GM customers argued that New GM should not be protected because it knowingly concealed the switch defect for more than a decade before it recalled the vehicles in 2014. The ruling allows the cases to proceed but does not address the underlying merits of the claims.

Line Corp. shares are getting popular in the gray market ahead of this week’s trading debut, which will mark the largest initial public offering for a tech company in 2016. According to Cantor Fitzgerald, investors are willing to buy shares for $36, 15% higher than the IPO price. Line will debut in a dual listing in the U.S. tomorrow and Tokyo on Friday.

The FTC has requested additional information from Abbott Laboratories and St. Jude Medical, which are attempting to complete a $25 billion deal combining two of the leading makers of heart-related devices. The request extends the waiting period – the time frame before companies can close a transaction – by 30 days.

One year after hackers showed they could control a moving Jeep; Fiat Chrysler has a new solution to get computer whizzes to work more closely with the company: pay them. The automaker is launching a bug bounty program aimed at compensating hackers between $150 and $1,500 every time they uncover potential cyber-security flaws in vehicles and alert the company.

Elon Musk has no plans to disable Tesla’s Autopilot function in the wake of a fatal Model S crash in May that used the technology, and instead plans to redouble efforts to educate customers on how the system works. Tesla also confirmed that the weekend crash involving Autopilot in Montana, the third serious accident tied to the self-driving feature, resulted from the driver’s hands not being on the wheel ahead of the collision.

Seven years ago, chemistry researchers from Oregon State University were conducting an experiment testing materials for applications in circuit boards and semiconductors; they heated manganese oxide and other substances to 2000 degrees Fahrenheit, when one of their samples came out a vivid blue. They had accidentally created a new color and they named it YInMn, after the elements yttrium, indium and manganese that compose it. Some artists have already given the new color a nickname – Mas Blue. In about a month, the new color will be available as paint.

While the same shade could be created in other ways, what makes this pigment particularly special is its durability and color-fast properties as a chemical coloring agent. Most blue dyes tend to fade, but Mas Blue is resistant to water, oil or acid and non-toxic. The paint will be distributed by the Ohio-based color supplier Shepherd Color Company. Scientists are also exploring the use of Mas Blue as an energy-saving roofing material, since the compound has been found to reflect 40% of infrared light.

Financial Review

The Gravy Boat

Sinclair Noe — November 25, 2015

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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.

Black Monday + 28 years

Financial Review

Black Monday + 28

Sinclair Noe — October 19, 2015

Podcast: Play in new window | Download (Duration: 13:18 — 6.1MB)

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DOW + 14 = 17,230
SPX + 0.55 = 2033
NAS + 18 = 4905
10 YR YLD + .01 = 2.03%
OIL – 1.07 = 46.19
GOLD – 7.10 = 1171.60
SILV – .20 = 15.93

Twenty-eight years ago today, the Dow Jones Industrial Average crashed; a one day loss of 508 points, or 22.6%, down to 1,738 on what is now referred to as Black Monday. It was by far the largest one-day percentage drop in US stock market history.

China’s economy grew 6.9% in the third quarter from a year ago, beating forecasts for 6.8% growth. The results add to doubts the country can meet its year-end GDP target of about 7%, and raises pressure on Beijing to roll out more stimulus measures following a summer stock market plunge and devaluation of the yuan. Most China analysts also feel the GDP number is fictional, probably more like 3% than 6.9%, but it’s still the slowest growth since 2009.  China has been cutting its holdings of US Treasuries for the first time since 2001, but so far demand remains strong from other foreign investors and American investors.

Last month, Chinese President Xi Jingping visited Washington and an agreement was announced that China and the US would refrain from cyberattacks by each country on the other or on companies domiciled in the respective countries. Yeah, not so much. Security services provider, Crowdstrike reports it has tracked a number of attacks on American tech and pharmaceutical companies leading up to and after President Xi’s visit to the US, including the 3 weeks since Washington and Beijing signed the cybersecurity agreement.

Of course, it may be foolish to think that anything on the internets is secure. Case in point: a hacker has breached non-government personal accounts associated with CIA Director John Brennan as well as Department of Homeland Security Secretary Jeh Johnson and posted personal info, fortunately nothing classified. The hacker told the New York Post that it was a fairly simple process to hack Brennan’s personal AOL account. The hacker is apparently a high school student who doesn’t like US foreign policy, and probably has job offers already in San Jose.

The slump in oil prices has pushed Saudi Arabia into a budget deficit for the first time since 2009, forcing the country to delay payments to government contractors. Seperately, Iran’s Oil Minister has said that “no one is happy” with prices at current levels and that OPEC members should cut production to boost prices to $70 to $80 a barrel.

The European Central Bank’s Governing Council meets this week in Malta to set monetary policy for the region. There has been plenty of talk about the need for more monetary easing, but most analysts expect a move later in the year, but not at this week’s meeting. Still, if they plan some sort of stimulus plan, they would need to communicate at this meeting – in other words, they might talk down euro strength. Whatever they do, it’s already working the dollar was higher against the euro and a basket of currencies.

Sustained gains in the dollar will come from a more defined increase in hopes for a December Fed rate hike. In other words, while the ECB might jawbone markets for more easing, the Fed might jawbone markets for a rate hike. That could come from a more hawkish Fed at next week’s Federal Open Market Committee meeting or a solid uptick in payrolls for October and November.

The National Association of Home Builders/Wells Fargo housing market index rose 3 points to 64, the highest level since the same month of 2005. The index measuring sales expectations in the next six months rose seven points to 75, and the component gauging current sales conditions increased three points to 70. The index on buyer traffic held steady at 47.

International Business Machines said its third-quarter revenue fell 14%, hurt by declines in hardware sales and the stronger dollar. IBM posted revenue of $19.2 billion in the latest quarter from $22.4 billion a year earlier.  Per-share earnings from continuing operations fell to $3.34 from $3.68. IBM also lowered its earnings guidance for the year as the company reported sales declines across its major businesses, led by a 39% drop in its hardware segment.

Morgan Stanley is the last of the major banks to announce third quarter results, and they saved the worst for last. Morgan Stanley reported both revenue and profit declined more than expected. The biggest hits came from the bank’s bond and fixed-income trading desks and from its hedge fund and private equity business in Asia. Revenue dropped 13 percent from the same quarter a year earlier, and 20 percent from the previous quarter; the drop was even sharper after accounting for certain customary adjustments for debt valuations. That pushed down the profit in the quarter to $740 million, or 34 cents a share, after those adjustments – a 55% decline from a year earlier.

Recently named Deutsche Bank CEO John Cryan is shaking things up at the investment bank. Cryan cleaned house by removing executives close to the former CEO. Deutsche is also abolishing its group executive committee, which is made up of 19 senior managers, and streamlining how its main units are represented on the management board.

U.S. banks are going to new lengths to ward off big cash deposits, judging that the cash may be too costly to keep. For the first time, State Street has begun charging some customers for large dollar deposits, and JPMorgan has already cut unwanted deposits by more than $150 billion this year. The actions are driven by low interest rates and new regulations adopted since the financial crisis, such as reserves of as much as 40% against certain corporate deposits and as much as 100% against some deposits from hedge funds.

Police have raided Volkswagen’s main offices in France as part of an investigation into the automaker’s cheating on diesel emissions tests. The move suggests VW’s legal troubles are spreading across Europe as similar searches have already been carried out at the company’s headquarters in Italy and Germany. On Friday, Volkswagen reported its group sales fell 1.5% in September, although the larger impact from its scandal will likely be reflected in the sales volume of October.

General Motors has discovered another ignition switch problem that causes engines to shut off and disables power steering, power brakes and possibly the air bags. The automaker is now recalling about 3,300 big pickup trucks and SUVs mainly in North America. The issue was discovered by an employee who owned one of the defective trucks and reported it to higher-ups through GM’s new “Speak Up For Safety” program.

Ferrari’s long-awaited initial public offering is finally at the starting line, with the stock likely to be priced Tuesday night and begin trading on the NYSE on Wednesday. Fiat Chrysler is selling about 10% of Ferrari in the IPO. At the top of its projected range of $48-$52 a share, the luxury sports-car maker would have a stock-market valuation of $9.8 billion.

Ahead of a critical vote this week, leaders at the United Auto Workers union have launched a social-media blitz to help sell a new tentative labor deal to Fiat Chrysler workers. While offering a path to higher wages for new hires, many members still find the deal lacking. Voting on the new contract starts Tuesday and concludes on Wednesday.

Shareholders will get their say this week on two proposed health insurer mergers: Aetna’s $37 billion offer for Humana, and Centene’s $6.3 billion bid for Health Net. Although consumer advocates have raised concerns about whether the combinations will lead to less competition and higher prices, proxy advisors ISS and Glass Lewis have given both deals a thumbs-up. Aetna and Humana investors are scheduled to vote this afternoon and Centene and Health Net shareholders will cast their ballots on Friday.

United Continental is still silent on the medical condition of its new CEO Oscar Munoz, who was admitted to the hospital on Thursday after suffering a heart attack, but investors are questioning who will lead the company in his absence. Munoz’s health problems come barely a month after he took on the job of improving the profitability and reputation of United, the No. 2 U.S. carrier by capacity.

Slowing growth and rising costs are driving a historic wave of consolidation in the semiconductor industry as firms look to streamline their organizations and product lines. Chip companies have so far announced just over $100 billion in mergers and acquisitions this year, exceeding the $37.7 billion in 2014, and totals could go even higher. Last week, at least four chip companies were in talks concerning different deal options, including; Analog Devices, Maxim Integrated Products, SanDisk, and Fairchild Semiconductor.

Alibaba is lobbying to stay off the U.S. Trade Representative’s blacklist this year after coming under renewed pressure over suspected counterfeits sold on its shopping platforms. Alibaba.com was removed from the “Notorious Markets” list in 2011.

Over the weekend, US Airways ceased independent operations after more than 75 years in business.  Flight 1939 — the final flight operated using the US Airways name — started at the airline’s Philadelphia hub before flying to Charlotte, Phoenix, San Francisco and Philadelphia. After its final flight, the Tempe, Arizona-based airline combined its flight and ticketing operations with its merger partner, American Airlines. The Flight number, 1939, was the year US Airways started service, delivering mail.

This is the culmination of an $11 billion merger that was first announced in 2013. Prior to the merger, US Airways boasted a fleet of more than 300 jets. The post-merger American Airlines now has the largest fleet in the world, with more than 900 mainline aircraft. In addition to adding capacity and changing the name, the merger involved combining reservations systems and baggage handling, and millions of tiny details. As you might expect, there were a few little hiccups, but really very few. The transition was one of the smoothest, so far, in aviation history. It is easy to find something to complain about regarding the airlines, any airline, but on this point, it looks like they did it right.

Financial Review

Maybe GM Is Too Damn Stupid To Exist

Sinclair Noe — March 12, 2015

 

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

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DOW + 259 = 17,895
SPX + 25 = 2065
NAS + 43 = 4893
10 YR YLD – .01 = 2.10%
OIL – 1.14 = 47.03
GOLD + 1.60 = 1153.50
SILV + .05 = 15.57

Tuesday was one of the worst days for Wall Street in months; today we saw the biggest rally in a month. Go figure. The Dow and the S&P were up nearly 1.5%; the Nasdaq less of a gain as Intel warned that first-quarter sales would be below its previous outlook, given weaker-than-expected demand for business desktop PCs and lower inventory levels in the PC supply chain.

Another day, another central bank jumps on the easing bandwagon.  South Korea joined twenty four countries across the globe by easing monetary policy in 2015. Taking advantage of low inflation, the Bank of Korea cut its base rate by 25 basis points to a record low of 1.75%. South Korea also previously cut its forecast for this year’s economic growth to 3.4% in January from 3.9%, and they are widely expected to lower it again next month as China’s growth continues to slow and much of Europe flounders.

The IMF has approved a bigger bailout for Ukraine, giving Kiev immediate access to $5 billion of the $17.5 billion in emergency funding to keep the country afloat. Kiev’s conflict with pro-Russian separatists has put the country’s economy into a tailspin with a plunging currency, the highest interest rates in 15 years and central bank reserves of just $6 billion.

The euro fell to less than $1.05 before pulling back to trade higher on the day. The European Central Bank’s launch of a 1.1 trillion euro bond-buying program this week has dented the euro’s appeal by driving yields of many euro zone bonds to all-time lows. Light buying in core European bonds pushed Germany’s 10-year yield to less than 19 basis points and France’s to less than 45 basis points. Meanwhile, aggressive buying of peripheral bonds has both Italy (1.04%) and Spain’s (1.05%) 10-year yield flirting with sub-1.00% prints for the first time ever.

After spiking to a 10-month high last month, the number of people applying for unemployment benefits sank below the key 300,000 mark in early March. Initial jobless claims fell by 36,000 to 289,000 in the seven days extending from March 1 to March 7, reversing a sharp uptick last month that was likely triggered by bad weather.

Retail sales fell 0.6% last month, following even larger declines in January and December. Part of the problem was bad weather, but that doesn’t tell the whole story. Sales at gasoline stations jumped 1.5% — the first increase since last May, but that increase was offset by weaker sales of autos – down 2.6% on the month. Unadjusted retail sales were up just 1.7% over the past 12 months.

Combine the lower retail sales number with today’s report from the Commerce Department showing business inventories are at the highest level in almost 6 years, and it would take 1.35 months to clear the shelves at the current pace. That’s bad news because inventories tie up cash. Cash is supposed to be used to make more cash. Cash on the shelf is cash that isn’t working. Maybe we can blame the slow sales on bad weather. If sales pick up, problem solved; but it doesn’t look like American consumers are in a buying mood. If sales don’t pick up, businesses will need to cut back on purchases while they clear their stock. If enough businesses cut back, the supply chain grinds to a halt and all sorts off bad things result. Here’s how it could play out. We wait a month to see if sales pick up; if not we wait another month for the sales promotions and liquidations; if that doesn’t result in sales, then we could see cost cutting (which is another way of saying job cuts), and that puts us right about June, when the Fed might be looking to raise interest rates.

The prices paid for imported goods rose in February for the first time in nine months, largely because oil is no longer in a freefall. The import price index increased a seasonally adjusted 0.4% last month; that follows a 3.1% drop in January. Export prices dipped 0.1 percent in February after falling 1.9 percent in January.

General Motors’ approval this week of a new $5 billion buyback plan will likely delay one of its important goals: achieving a top-tier credit rating. Standard & Poor’s and Moody’s analysts say the carmaker’s next upgrade could be delayed due to its new capital allocation plan. The buyback scheme was pushed by an activist investor, Harry Wilson, and even if it doesn’t make the company stronger, it might make the shareholders more money, or not.

The intentions of a share repurchase plan are simple: to “return capital to shareholders” by spending money in a way that makes the stock go up and shareholders wealthier as a result. The primary idea is that buying back existing shares decreases the supply of outstanding stock, and gives existing shareholders a bigger piece of the company. Each dollar of earnings is spread among fewer shares, meaning that each share should be more valuable. But stock buybacks aren’t all they’re cracked up to be.

For example, ExxonMobil bought back more than $13 billion of its own shares last year. The price of oil went down and ExxonMobil share price dropped about 9% in 2014. Another example is IBM; they bought back more than $13 billion of its own shares last year and the share price underperformed the broader S&P 500 index by about 25%. Not much of an advantage. The problem with IBM is that the one-time tech giant isn’t doing anything very innovative, and a buyback scheme can’t cover that flaw.

General Motors announced today that, beginning with the 2016 model year, they will cut the warranties coverage on Chevrolet and GMC vehicles. The new warranties will be five years or 60,000-miles on the powertrains, including courtesy transportation and roadside assistance, down from five years or 100,000 miles. Free maintenance will drop to two visits within 24 months, from four.

GM issued a statement that said: “We talked to our customers and learned that free scheduled maintenance and warranty coverage do not rank high as a reason to purchase a vehicle among buyers of non-luxury brands. We will reinvest the savings we will realize into other retail programs that our customers have told us they value more than these.”

We don’t know what retail programs they intend to reinvest in, but we do know they plan to invest $5 billion into a stock buyback plan. And that goes against the published research on warranty coverage. According to a study published in the Journal of Business Research curtailing warranties is bad for business. The study found that: “Warranty improvements signal improved vehicle quality and lower maintenance costs. Warranty curtailments signal the opposite.” The authors note that “Korean manufacturers’ share of the U.S. market quintupled from 1% in 1996 to 5% in 2006. Much of the credit for this increase has been attributed to restyling, lengthened warranty, and improved quality.” And cutting warranties results in a 24% decline in market share growth.

The study finds that if you want to sell more cars, restyling gives you the biggest bang for the buck. In other words, build a better car, give it a strong warranty so people know you are confident that it is indeed a better car, and people are more likely to buy it. Sounds like common sense.

Now, keep in mind that GM is still dealing with claims of defective ignition switches that resulted in crashes that killed 64 people and 1571 other claims are in for injuries. The executives at GM knew for 13 years that their cars had a defective ignition switch that would, well, kill people. But they did a “cost-benefit analysis” and concluded that paying off the deceased’s relatives was going to be cheaper than having to install a $10 part per car. They then covered up their findings and continued to let millions drive around with the defective part in their cars.

So, in the real world, GM must now deal with the death and injury claims; they could repair all the defective switches so nobody else dies; they could make sure there are no additional killer design flaws; they could invest in R&D to build a better car, a car that looks great, runs more efficiently, is safer for the drivers, and is so reliable that they could increase the warranty with confidence – or – they can kowtow to one activist corporate raider and gamble $5 billion on a stock buyback scheme that may or may not pay off; and in the process, they are destroying their own credit rating and hamstringing liquidity.

About 7 years ago GM was on the verge of collapse. Back then we had high oil prices and the Big Three US automakers were stuck making big trucks and SUVs and when oil prices jumped, buyers developed an aversion to gas guzzlers. GM was slow to respond and soon they were bleeding cash. They turned to Uncle Sugar for a bailout, to the tune of $49 billion. GM was essentially nationalized. In December 2013, Treasury sold its last GM shares. According to a tally by the US Treasury, taxpayers lost $9 billion on the U.S. government’s automotive industry rescue program. According to another study by the Center for Automotive Research, a couple of million jobs were saved and the government “saved or avoided the loss of” $105 billion in lost taxes and social service expenses, such as food stamps, unemployment benefits and medical care. Of course there were some vendors that got stiffed by GM in bankruptcy. And it might have been cheaper to just give every GM worker a check for $250,000 and tell them to make the most of it.

We could debate whether the bailout was good or bad, but the bottom line is that GM is still around and now they are profitable, at least for Harry Wilson. The bad thing is that they didn’t learn from their struggles. They aren’t setting aside money as a cushion for a rainy day; they aren’t taking the $5 billion for stock buybacks and investing in R&D and innovation and better, safer cars. They didn’t learn any lessons about how to serve their customers, how to treat their employees and vendors, or how to show gratitude for the country that saved their bacon. And so, if GM ever finds itself in the same situation as they were in just 6 short years ago, the debate should not be about whether there should be government intervention or not, we could just look back on their decisions of the past week and we could all agree that GM was too damn stupid to exist.