Financial Review

Drifting Higher

Sinclair Noe — June 7, 2017

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DOW + 37 = 21,173
SPX + 3 = 2433
NAS + 22 = 6297
RUT + 1 = 1396
10 Y + .03 = 2.18%
OIL  – 2.10 = 45.88
GOLD – 6.80 = 1287.80
BITCOIN – 1.57% = 2736.57
ETHEREUM – 2.04% = 258.86

Major stock, bond and currency markets did little more than drift higher ahead of what many are calling Super Thursday. That’s when the U.K. holds a very important general election, the European Central Bank announces its decision on monetary policy, former FBI director James Comey testifies to the Senate about Russian meddling in the U.S. election, and Brazil’s Electoral Court may issue a decision on campaign corruption that could unseat President Michel Temer.

The Senate Intelligence Committee held public hearings today, with Director of National Intelligence Dan Coats and NSA Director Admiral Mike Rogers repeatedly said they would not discuss their private conversations with President Donald Trump.

Coats and Rogers said they did not feel the public setting of the Senate intelligence committee’s hearing was an appropriate venue to discuss their conversations with Trump. Acting FBI Director Andrew McCabe invoked the probe of special counsel Robert Mueller, when McCabe said he wouldn’t comment on issues in the special counsel’s lane.

Fired FBI Director James Comey is scheduled to appear before the committee tomorrow. Today, Comey released his written prepared opening remarks, saying the President had demanded his loyalty, pressed him to drop a probe into ex-national security adviser Michael Flynn and repeatedly pressured him to publicly declare that he was not under investigation.

The document provides a detailed account of Comey’s private meetings with the President, included direct quotes from Trump and revealed the former FBI chief’s discomfort with the President’s behavior.

President Trump took to Twitter early this morning to break the news about his pick for FBI director. The nominee is Christopher Wray, a private attorney specializing in the defense of individuals and corporations in white-collar criminal cases. He represented New Jersey Gov. Chris Christie during the “Bridgegate” investigation.

This afternoon, Trump traveled to Cincinnati to pitch his 10-year, $1 trillion infrastructure outline as part of a week’s worth of events emphasizing progress on the proposal, though it has yet to be fully fleshed out.

Over the past week, Trump has often undercut and confounded his own aides as they try to shift the conversation toward the infrastructure plan, he was tweeting out new attacks on the news media and feuding with his own Justice Department over its defense of his targeted travel ban.

So far, the infrastructure proposal is not much more than an outline, short on details and specifics, other than a plan announced this week to privatize the nation’s air traffic control. The plan, conceived by the commerce secretary, Wilbur Ross, and economic advisor Peter Navarro, calls on the federal government to spend $200 billion in cash and tax credits that would, they say, result in $800 billion in additional private investment.

In congressional testimony this year, the transportation secretary, Elaine Chao, predicted that a more detailed proposal would be released by late May. But last week she would say only that it was “coming soon.”

Russian hacking of the 2016 U.S. election included sophisticated targeting of state officials responsible for voter rolls and voting procedures, per a top-secret U.S. intelligence document that was leaked and published this week, revealing another potential method of attempted interference in the vote.

The month-old National Security Agency document outlined activities including impersonating an election software vendor to send trick emails to more than 100 state election officials. However, there is no evidence that hackers could manipulate votes, or the vote tally.

Analysts at the NSA believed the hackers were working for the Russian military’s General Staff Main Intelligence Directorate, or GRU. The document’s publication by The Intercept received attention because an intelligence contractor, Reality Winner, was charged the same day with leaking it.

According to Bill Gross, who manages the $2 billion Janus Henderson Global Unconstrained Bond Fund, markets are at their highest risk levels since before the 2008 financial crisis because investors are paying a high price for the chances they’re taking. Speaking at a Bloomberg Investors conference in New York, Gross said, “Instead of buying low and selling high, you’re buying high and crossing your fingers.”

Central bank policies for low and negative interest rates are artificially driving up asset prices while creating little growth in the real economy and punishing individual savers, banks and insurance companies. Despite being concerned about high asset prices, Gross said he feels required to stay invested and sees value in some closed-end funds.

Consumer and business bankruptcies are rising again, after declining for years since the financial crisis. That’s not a propitious sign. For bankruptcy filings by businesses from large corporations to tiny sole proprietorships, the dance started in November 2015. At first it was the energy bust. But bankruptcies of energy companies have tapered off with new money surging into the oil & gas sector once again.

Now bankruptcies in the retail sector are steadily worsening, and other sectors too have picked up the slack. So here we go again. Total US business bankruptcies in May rose 4.7% year-over-year to 3,572 filings, according to the American Bankruptcy Institute. That’s up 40% from May 2015 and up 10% from May 2014.

And there’s another concern: Bankruptcy filings are highly seasonal. They peak in tax season – March or April – and then fall off. The decline in April after the peak in March was within that seasonal pattern. Over the past years, filings dropped in May. But not this year. This year, they jumped.

Sears is closing 72 more stores, in addition to the more than 180 closings that had already been announced this year.  The closings will bring Sears’ store count to about 1,200, down from 2,073 five years ago.

OPEC and other oil producing nations have cut back production in hopes of shrinking a global oil glut. Today, the U.S. government reported an unexpected increase in inventories of crude and gasoline. Crude stocks in the United States grew 3.3 million barrels to 513 million barrels, according to the U.S. Energy Information Administration.

Gasoline inventories also unexpectedly rose, imports increased, and exports dropped. The EIA report pegged total product demand at 19.340 million barrels a day. That included a drop of 505,000 barrels a day for gasoline demand and 520,000 barrels a day for distillate demand from a week earlier.

A 1.4 million barrel-per-day petroleum-demand drop is the kind of shift one associates with a catastrophic storm or economic plunge. Even more shocking, the rise for crude inventories came despite a decline in domestic production and the biggest weekly drop in Saudi imports ever.

Oil has traded below $50 for the past couple of weeks amid speculation that rising U.S. output will counter supply curbs by OPEC and its partners, including Russia. U.S. crude production will average more than 10 million barrels a day in 2018, breaking a record almost five decades old.

Low-cost, long-haul air travel has taken off across the Atlantic. Transatlantic routes are among the industry’s most popular and profitable, and budget carriers are trying to grab a slice of that business by boosting capacity on them by 68 percent this summer.

And that means the flying public may see price wars. Like Boston to London, round trip for under $300. Norwegian Air Shuttle and Icelandic rival Wow have grabbed headlines with one-way fares as low as $69 and $55 this summer, although Wow’s flights involve a stop in Reykjavik.

Lufthansa’s Eurowings budget carrier is in its second year of long-haul flying, while Air France is planning to launch a lower-cost long haul brand this fall in a project dubbed Boost. International Airlines Group launched low-cost long-haul brand Level on Thursday with surprisingly strong ticket sales.

Toshiba aims to name a winner for its prized semiconductor business next week. Sources told Reuters the choice has narrowed to one bid from U.S. chipmaker Broadcom and U.S. tech fund Silver Lake and another from Toshiba chip partner Western Digital and Japanese government-related investors.

Toshiba is rushing to find a buyer for the world’s second-largest producer of NAND chips, which it values at $18 billion or more, to cover billions of dollars in cost overruns at its now-bankrupt U.S. nuclear business Westinghouse Electric.

The British pound sterling gained ground today as the UK saw the final day of campaigning ahead of Thursday’s general election. Polls suggest that Theresa May’s Conservative Party hold a lead of around six points over Jeremy Corbyn’s Labour Party, although outliers suggest that lead could be as big as 12 points, or as small as one point.

While a big move in the price of sterling is expected once results start to come out on Thursday evening, investors in Britain’s currency were largely in wait and see mode ahead of the vote. The polls have been notoriously wrong in recent voting.

Yes, there’s a lot going on tomorrow, but don’t forget to keep an eye on Canada. The Bank of Canada will release its semi-annual Financial System Review and investors will be watching for what the central bank says about the nation’s red-hot housing market. Toronto home prices rose almost 30 percent last month from a year earlier.

In Vancouver, the country’s most expensive real estate market, they’ve climbed 58 percent over four years. Meanwhile, household debt is at record levels, surpassing gross domestic product for the first time. Fitch said Wednesday that banks with greater exposure to those two cities are more sensitive to a market correction.

In the last FSR in December, the Bank of Canada listed elevated household indebtedness, housing market imbalances and fixed-income liquidity as the three main risks to the financial system, and the focus should be similar this time.

Financial Review

Take 63

Sinclair Noe — April 4, 2017

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

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DOW + 39 = 20,689
SPX + 1 = 2360
NAS + 3 = 5898
RUT – 1 = 1368
10 Y + .01 = 2.36%
OIL + .94 = 51.18
GOLD + 2.70 = 1256.70

The U.S. trade deficit fell in February as exports increased to a two-year high and slowing domestic demand weighed on imports. The Commerce Department reports the trade deficit declined 9.6 percent to $43.6 billion. Some of the decline in imports in February likely reflects slower consumer spending.

Trade will probably be either neutral or impose a small drag on gross domestic product in the first quarter after subtracting 1.8 percentage points from fourth-quarter growth. In addition to trade, weak consumer spending also likely constrained the economy in the first three months of the year. The Atlanta Federal Reserve is forecasting GDP rising at a 1.2 percent rate in the first quarter, a deceleration from the 2.1 percent pace logged in the fourth quarter.

In a separate report, Factory orders rose 1% in February for the seventh increase in eight months, a sign of the rebounding fortunes of the manufacturing industry.

The U.S.-China trade deficit dropped 26.6 percent to $23.0 billion in February. The decline in the U.S.-China trade deficit comes ahead of Chinese President Xi Jinping’s visit later this week. President Trump has declared China the “grand champions” of currency manipulation. Trade relations with China are further complicated by growing tensions with North Korea.

The outcome of their talks could have longstanding ramifications for two of the world’s most important currencies. The valuation of a given currency can make stocks and bonds denominated in that currency attractive to foreign investors. Cheaper currencies can help to boost stocks by making companies’ goods more competitive on the global market.

President Trump vowed  today to cut red tape to speed up approval of infrastructure projects and said his overhaul could top $1 trillion on roads, tunnels and bridges, one of his 2016 election campaign promises. Trump did not provide further details on the amount or where the money would come from when he spoke to a White House meeting of 50 chief executives and other business leaders.

U.S. Transportation Secretary Elaine Chao said at the forum that the administration plans to release a legislative package in May. The administration wants to improve the electrical grid and water systems, rebuild airports, bridges, roads and potentially hospitals for military veterans and broadband. National Economic Council director Gary Cohn told executives that privatizing air traffic control, which the administration proposed in its budget outline in March, “is probably the single most exciting thing we can do.”

The Washington Post reported this morning that the White House is looking at the possibilities of creating a carbon tax and a value-added tax as part of tax reform. The Post’s report cites administration officials and “one other person briefed on the process.” Administration officials told the Post that no final decisions have been made about whether a value-added tax or a carbon tax would be included in a tax-reform plan.

Trump will need to come up with ways to raise revenue if he wants to lower tax rates without adding to the deficit. House Republicans have proposed raising revenue through a tax on imports known as border adjustment, but that proposal is opposed by several GOP senators.

Value-added taxes are a type of consumption tax, while carbon taxes would be imposed on the manufacturing of some types of fuel. Later in the day, the White House issued a statement saying, “As of now, neither a carbon tax nor a VAT are under consideration.” One thing is certain though, tax reform will not be easy.

Take 63. There is a new plan to repeal and replace Obamacare. Vice President Mike Pence and two top White House officials made an offer in a closed-door meeting with members of the House Freedom Caucus.

The proposal under discussion  would allow states to opt out of two key Affordable Care Act provisions: essential health benefits, which require insurers to cover certain services, and community rating, which bars carriers from charging consumers based on their medical history or gender. Eliminating these federal requirements could wipe out the safeguards requiring insurance companies to offer insurance to people with pre-existing conditions – one of the most popular provisions of the Affordable Care Act.

The benchmark 10-year Treasury yield fell Tuesday to as low as 2.31 percent, within a basis point of its 2017 low. The level to watch now is the Feb. 24th low at 2.308%. Anything below this pivot, even on an intraday basis, signals that a meaningful top was put in at the March high. And if support falters, the next support is 2.13%.

For all the talk of consumer confidence, it isn’t translating to sales at brick and mortar stores. Retail is the worst performing sector so far, this year. Today, Ralph Lauren said it was shutting its flagship Fifth Avenue store in New York and cutting jobs; Urban Outfitters announced a decline in same store sales; Citigroup downgraded L Brands; First Data Corp., the payments processor, said point-of-sales data for department stores slumped 10.9 percent in March.

Payless ShoeSource is the latest retailer to file for Chapter 11 bankruptcy protection. Payless will close nearly 400 stores as it attempts to boost its balance sheet and restructure its debt load. Payless has 4,400 stores in 30 countries and employs nearly 22,000 people. It was bought in 2012 by private equity firms Golden Gate Capital and Blum Capital partners.

Federal Reserve Bank of Richmond President Jeffrey Lacker said he’s resigning immediately and he regrets his role in disclosing confidential information related to the U.S. central bank’s deliberations in 2012 in an interview with an analyst from Medley. That info, dealing with the Fed’s planned purchase of mortgage securities, was published by the analyst; followed by various investigations over the years, leading to today’s resignation. In a statement emailed by his lawyer, Lacker wrote: “In 2012, my conduct was inconsistent with those important confidentiality policies.”

JPMorgan Chase CEO Jamie Dimon is out with his annual letter to shareholders, in which he discusses not only the bank’s business outlook but also various current economic and political issues. Dimon said he has high hopes for the U.S. but believes there is “something wrong” with the country as well, writing: “Our problems are significant, and they are not the singular purview of either political party. We need coherent, consistent, comprehensive and coordinated policies that help fix these problems.”

Dimon added: “The solutions are not binary — they are not either/or, and they are not about Democrats or Republicans. They are about facts, analysis, ideas and best practices (including what we can learn from others around the world).”

Dimon noted that the U.S. is “an exceptional country,” but there are numerous areas where the country needs to improve. Among them are low wage growth, high health-care costs and overcrowded prisons. Businesses are overburdened with regulations, the nation’s infrastructure needs help, and the education system “is leaving too many behind,” he added.

Among the other ills: Taxes are making U.S. companies less competitive globally, income disparity is widening, and social mobility is decreasing. “The lack of economic growth and opportunity has led to deep and understandable frustration among so many Americans,” Dimon said. “It is understandable why so many are angry at the leaders of America’s institutions, including businesses, schools and governments — they are right to expect us to do a better job.”

Dimon listed 11self-inflicted problems for the economy: excessive regulation, high spending on wars, student loan growth, high health care costs, high-skilled immigrants leaving the US, felony convictions leaving millions with criminal records, a tight mortgage market, the labor force participation rate is too low, education leaves too many behind, the need to invest in infrastructure, and a flawed corporate tax system.

On other issues; Dimon said he’s concerned the U.K.’s departure from the European Union might trigger political unrest throughout the region that could split the currency union, resulting in “devastating economic and political effects.” Dimon devoted more than a third of his letter to deregulation.

Dimon asserted that the Dodd-Frank Act effectively ended the possibility of government bailouts for “too big to fail” banks. He also called for modifying the Financial Stability Oversight Council — the panel of regulators created by the Dodd-Frank Act, however he did not call for repeal of Dodd-Frank.

Separately, JPMorgan said in its annual report that it expects $49 billion of net interest income this year, up from about $46 billion in 2016, assuming additional loan growth and no changes in interest rates. Average core loan growth will be about 10 percent, and loan write-offs will remain close to historically low levels.

In what appears to be a reference to Warren Buffett, Dimon talked about the “secret sauce” that powers the American economy: trust. In the past, Buffett has also talked about the “secret sauce”. Dimon wrote: “A strong and vibrant private sector (including big companies) is good for the average American. Entrepreneurship and free enterprise, with strong ethics and high standards, are worth rooting for, not attacking.”

Dimon is right, trust is important, but it can’t be cajoled or demanded. It must be earned.

Wells Fargo has been ordered to reinstate a former bank manager who was fired after reporting suspected illegal behavior to his superiors and a company hotline. The manager, who wasn’t identified, was dismissed in 2010 after reporting on incidents of suspected bank, mail and wire fraud by two bankers in the Los Angeles area.

Wells Fargo was also ordered to give the whistle-blower about $5.4 million in back pay, compensatory damages and legal fees after OSHA determined his warnings were at least a contributing factor in the termination.

Wells Fargo said they would immediately issue a check along with thanks to the whistle-blower for alerting them to the problems. No, just kidding about that last part – Wells Fargo said they would appeal the order.

Financial Review

Count Your Pants and Shirts

Sinclair Noe — February 23, 2017

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

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DOW + 34 = 20,810
SPX + 0.99 = 2362
NAS – 25 = 5835
RUT – 9 = 1394
10 Y – .03 = 2.39%
OIL + .77 = 54.36
GOLD + 12.10 = 1250.30

The Dow Industrial Average hit another record high close, its 10^th record in a row, its longest run of record closes since 1987. Not counting record closes, the last time the Dow logged gains for 10 straight sessions was March 2013. The S&P 500 finished up a fraction of a point and just short of Tuesday’s closing record of 2,365. The benchmark index set an intraday record of 2,368.00 before retreating.

Treasury Secretary Steven Mnuchin said today that he has asked his staff to explore having the U.S. government issue debt maturities as long as 50 years or 100 years. In an interview on CNBC, Mnuchin said he was not ready to make a “formal announcement” of a 50-year or a 100-year bond.

Mnuchin repeated it was the Trump administration’s goal to have Congress complete work on a tax-reform package by August. Trump has promised a “phenomenal” tax plan by early March to cut business taxes. Paying for that “phenomenal” tax plan could require an equally phenomenal rate of economic growth that experts, including the non-partisan Congressional Budget Office, say may not be possible.

Mnuchin said the administration is aiming for a 3% or higher annual growth rate, but said it make take a couple of years, probably 2018, before we see an “engine of growth” from tax reform and regulatory relief.

Mnuchin says the Treasury has no plans now to label China a currency manipulator. Later in the day, Trump called China a “grand champion” in currency manipulation.  Mnuchin also agreed with the sentiment that the stock market is a report card for how the Trump administration is doing. “Absolutely,” he said, “It’s a mark-to-market business.”

And in the first month, the administration gets the grade of a solid A. Of course, it still has a long way to go to match the 17.4% annual gains sported by the Clinton Administration. And Mnuchin should be wise enough to realize the market is fickle.

Axios reported that President Trump‘s infrastructure plans may be pushed back until 2018. Axios, citing Republican sources, said that putting off any consideration of these plans would give lawmakers on Capitol Hill more breathing room to deal with a legislative calendar that already includes a Supreme Court nomination, tax reform and repealing Obamacare.

Several construction stocks did not fare well today. Shares of Fluor, Eagle Materials, Quanta Services and Vulcan Materials all dropped at least 1.5 percent. U.S. Steel’s stock dropped more than 7 percent.

The Justice Department has rescinded a memo issued by the Obama administration that phased out the use of private contractors to run federal prisons.

The president met today with company executives to discuss how to create jobs, which is nothing unusual, except that five of those companies are laying off thousands of workers as they shift production abroad. Those companies include General Electric, Caterpillar, 3M, United Technologies and Dana. The big idea from the execs was to cut the business tax rate.

The number of Americans filing for unemployment benefits rose slightly more than expected last week, but the four-week average of claims fell to its lowest level since 1973. Initial claims for state unemployment benefits increased 6,000 to a seasonally adjusted 244,000 for the week ended Feb. 18. The four-week moving average of claims, which smooths out week-to-week volatility, fell 4,000 to 241,000 last week.

The American Petroleum Institute reported an 884,000-barrel decline in U.S. crude supplies last week, a 893,000-barrel decline in gasoline stocks and a 4.2 million barrel decrease in distillate inventories.

Official inventory data from the U.S. Energy Information Administration shows a build of 600,000 barrels, that was less than expected. Last week, EIA’s report put crude stockpiles at a record high of 518.1 million barrels. This week’s figures were for a total inventory size of 518.7 million barrels, still above seasonal limits.

Oil producers, in and outside of OPEC, have largely kept their promise to reduce collective output by 1.8 million barrels a day starting in January to tackle a global supply glut. However, a steady increase in US crude production and inventories is stoking concerns that global supply remains bloated despite these cuts.

The United States is expected to become a net exporter of natural gas on an average annual basis by 2018, per a recently released Annual Energy Outlook update from the U.S. Energy Information Administration.

The transition to net exporter is driven by declining pipeline imports, growing pipeline exports, and increasing exports of liquefied natural gas (LNG). The United States is also projected to become a net exporter of total energy in the 2020s, in large part because of increasing natural gas exports.

Low energy prices during 2016 forced Exxon Mobil to lower its estimate of its proved oil and gas reserves. The company had to shave off nearly 15%, or 3.3 billion barrels of oil equivalent, of untapped crude. It comes a day after ConocoPhillips de-booked more than a billion barrels of its oil sands bitumen reserves, citing weak global energy prices.

Wind plant manufacturing is the fastest growing job sector in the U.S. economy — and this employment has been concentrated in the “Rust-Belt” states, pivotal in swinging the presidential election. Similarly, domestic solar companies are growing 12 times faster than the overall job creation rate in the U.S. economy.

In total, renewable energy sector employment in the United States grew 6 percent in 2016 to 769,000 jobs, while employment in gas, coal and oil exploration and extraction combined fell 18 percent, to 375,000 jobs.

European budget carrier Norwegian Air Shuttle said it would begin flying single-aisle planes nonstop from the U.S. to Europe starting in June. The initial flights will connect Edinburgh, Scotland to Stewart International Airport in New York, Green Airport in Providence, Rhode Island, and Bradley International Airport near Hartford, Connecticut.  The airline is promising fares as low as $65.

McDonald’s diners will soon be able to quench their thirst for as little as a dollar. Starting in April, soft drinks of any size will cost a buck, while McCafe specialty drinks will sell for $2. McDonald’s has been looking for ways to boost profits and sales, making its popular breakfast items available all day, and recently rolling out a smaller and jumbo-sized version of its iconic Big Mac.

Jack In The Box missed estimates by 7 cents with adjusted quarterly profit of $1.18 per share, and the restaurant chain’s revenue fell short of forecasts as well.

The Model 3 electric sedan remains on schedule and will reach production of about 5,000 units per week by the end of the year. Tesla reported a wider-than-expected loss of 69 cents per share, compared with the consensus estimate for a 43-cent loss. CEO Elon Musk also announced he will likely seek more capital from investors.

Carlos Ghosn, longtime CEO of Nissan who saved the automaker from near-collapse, will leave his current post to oversee Nissan’s alliances with Renault and Mitsubishi Motors.

Square lost 4 cents per share for its latest quarter, smaller than the 9 cents forecast by analysts, while the mobile payments company’s revenue came in slightly above estimates. Square saw a better than 34 percent jump in payment volume compared with a year earlier.

Nvidia shares closed down 9.3% after a round of bearish analyst comments prompted investors to take profits from the high-flying chip maker, which has more than tripled over the past 12 months. Instinet downgraded the stock to reduce from buy, while BMO Capital Markets cut its price target to $85 from $100.

Shares of HP Inc. rallied 8.6% after quarterly results topped Wall Street estimates.

Also, shares of First Solar led S&P 500 gainers, rising 11%.

Shares of L Brands sank 16% after the Victoria’s Secret parent late Wednesday issued weaker-than-forecast guidance for 2017. Might be feeling the pain from slowing mall traffic.

Hormel Foods shares lost 5.4% after the food company cut its earnings forecast for the year following a sharp decline in profit from its Jennie-O turkey brand.

Kohl’s Corp. shares, which had traded higher earlier after earnings beating forecasts, closed down 2.1%.

The Powerball lottery jackpot reached $435 million last night. A winning ticket was sold in Indiana. For the rest of us – back to work.

Financial Review

If You Build It

Sinclair Noe — February 25, 2016

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

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DOW + 212 = 16,697
SPX + 21 = 1951
NAS + 39 = 4582
10 Y – .05 = 1.70%
OIL + .93 = 33.08
GOLD + 4.30 = 1233.70

The Shanghai Composite in China dropped 6.4% today, extending its fall this year to 22%, as surging money-market rates signaled tighter liquidity and the offshore yuan weakened for a fifth day, while the country’s vice finance minister warned of pressure on exports. The plunge comes as world leaders gather for a G20 meeting in Shanghai, where current market turmoil and a global economic slowdown are expected to be key topics of discussion.

European shares bounced after two days of falls, and sterling steadied after having been pounded all week by ‘Brexit’ fears.  The S&P 500 Index closed at a seven-week high, right at a major level of resistance, and just barely breaking above the 50 day moving average.

Meanwhile, the IMF is calling for urgent and bold action to combat the slowing world economy ahead of the gathering of G20 finance ministers and central bank chiefs. The IMF report says: “The G20 must plan now for coordinated demand support using available fiscal space to boost public investment.” The calls for an organized stimulus program followed warnings that China’s slowdown, financial market turbulence and the collapse in commodity prices were major headwinds that could derail a global recovery.

Citigroup says the chances of a global recession are already high and only going up. The team of economists from Citi say that when they adjust for what they call “true Chinese growth,” the Citi team finds that global growth might have been as low as 2 percent year-over-year in the final quarter of 2015.

That is the lowest since the Eurozone recession of 2012-2013, and if growth remains at such depressed levels, it would qualify as a global recession according to their measures. They forecast global growth will this year once again unperformed (against long-term trends and previous year forecasts).

Citi’s latest forecasts are for global growth of 2.5% in 2016 (based on market exchange rates and official statistics) and around 2.2% (adjusted for probable Chinese erroneous measurements). But the risk of a global growth recession (growth below 2%) is high and rising.

While a global recession may be increasingly probable according to Citi, it’s not necessarily unavoidable. They say the world needs a global version of what they call “Abenomics plus”, which in Citi’s terms would be easy monetary policy coupled with fiscal stimulus and structural reform that would include “material deleveraging.” But, given their recession call, the team doesn’t believe these policy measures will actually occur as fiscal stimulus faces high political hurdles.

A new report this week by the Center on Budget and Policy Priorities warns that state and local spending on infrastructure – including schools and wastewater treatment plants as well as highways and bridges – is at a 30-year low. Total capital spending as a share of state GDP fell in all but five states and the District of Columbia between 2002 and 2013, with the largest drops in Nevada, Florida and Michigan.

According to the 2013 report card by the American Society of Civil Engineers, the U.S. has serious infrastructure needs of more than $3.4 trillion through 2020, including $1.7 trillion for roads, bridges and transit; $736 billion for electricity and power grids; $391 billion for schools; $134 billion for airports; and $131 billion for waterways and related projects.

A big part of the problem is that federal investment in infrastructure has dropped by half during the past three decades, from 1 percent to 0.5 percent of GDP, leaving more of the responsibility and finances to state and local governments. At the same time, states have varied greatly on how much of their annual budgets they have been willing to invest in infrastructure – from as little as 3 percent to 4 percent of total state spending in California, Michigan and Vermont to as much as 9 percent in Alabama, Montana and Nebraska.

The new report says that reversing the decline in state investment in transportation, public buildings and other forms of vital infrastructure “is the key to creating good jobs and promoting full economic recovery,” especially at a time of improved economic conditions and historically low interest rates. But instead of making the infrastructure investments essential to building a stronger economic recovery, the report says, many states have opted instead for cutting taxes and offering corporations tax subsidies in a “misguided approach to boosting economic growth.”

So, in an environment of slowing global growth the threat of a deflationary spiral, how can central banks create demand through monetary policy? And the answer is that they probably can’t. You need fiscal stimulus, and the best way to do that is infrastructure investment. This is not ideology but rather a pragmatic and fairly simple approach.

By investing in infrastructure you’re hiring a lot of people now who then build a number of public goods (roads, bridges, electrical infrastructure and the like) that increase efficiency and productivity over decades of time. It should rightly fall under the category of government investment and not government spending.

Moody’s Investors Service has become the third major rating agency to downgrade Brazil’s debt to junk, slashing its rating by two notches to Ba2 as the former emerging market star sinks deeper into its worst recession in decades. “Every day it’s something, and you don’t know what the next thing will be,” said Samar Maziad, Moody’s lead analyst for Brazil. “There’s very little visibility on what the future will be.”

Orders for US capital goods rebounded in January by the most since June 2014. Bookings for non-military equipment excluding commercial aircraft jumped 3.9 percent, more than forecast, after a 3.7 percent decrease in December that was smaller than previously reported. Orders for all durable goods – items meant to last at least three years – rose 4.9 percent, the most since March.

The number of Americans filing applications for unemployment benefits rose last week from a three-month low. Jobless claims increased by 10,000 to 272,000 in the week ended Feb. 20. The number of people continuing to receive jobless benefits fell by 19,000 to 2.25 million in the week ended Feb. 13. Since early March, claims have been below the 300,000 level which is consistent with an improving job market.

Mortgage rates slipped to a 13 month low…, so if you were waiting. The 30-year fixed-rate mortgage averaged 3.62% in the February 25 week, down from 3.65% a week ago. The 15-year fixed-rate mortgage averaged 2.93%, down 2 basis points.

Federal Reserve Bank of St. Louis President James Bullard reiterated Wednesday that the pressure has come off the central bank to raise rates. Given that Fed policy is driven by incoming data, a drop in inflation expectations and financial market declines, Bullard says it would be “unwise to continue a normalization strategy.” Bullard, long a hawkish member of the Fed who has pushed for higher rates, reversed course in a separate speech last week.

In the ongoing saga of Apple versus the G-Men, Apple has filed its formal opposition to the federal court order requiring it to help law enforcement officials break into an iPhone, setting the stage for more legal wrangling. In its brief, Apple said that the court should vacate the order.

Apple wrote that it supports law enforcement in pursuing justice against terrorists and other criminals, “But the unprecedented order requested by the government finds no support in the law and would violate the Constitution.” Apple added that the order had broad implications that would “inflict significant harm to civil liberties, society and national security.

Attention Pershing Square investors, you need to put the corks back in the champagne bottles. Bill Ackman, the billionaire investor has managed to erase his entire 40% return of 2014, a performance that put him at the pinnacle of the hedge fund world. Ackman’s portfolio dropped 17.3% so far this year, adding to 2015’s 20.5% nosedive. Pershing Square Capital Management, which now oversees $12B, did not detail exactly what caused its most recent losses and a spokesman declined to comment.

With the earnings season wrapping up, about three-quarters of S&P 500 firms have exceeded profit projections, while less than half topped sales forecasts. Analysts estimate earnings at S&P 500 companies fell 4.2 percent in the fourth quarter. For 2015, under GAAP, S&P earnings per share fell by 12.7%, highlighting the sharpest decline since the financial crisis. The implication: Even after a brutal start to 2016, stocks may still be more expensive than they seem.

Today’s earnings reports include a tale of two retailers. The worst of times and the best of times; Sears and TJ Maxx. Sears said today that its same-store sales fell 7.1% in the fourth quarter and revenue dropped 9.8% to $7.3 billion. The company reported a quarterly loss of $580 million, or $5.44 per share, compared with a loss of $159 million, or $1.50 a share, the previous year. Sears said earlier this month that it would accelerate planned closures of 50 stores to cut costs. Sears Chairman Eddie Lampert says the retailer had a rough quarter because of warmer than expected winter weather. Yeah, that’s not it.

TJ Maxx parent company TJX Cos. has managed to escape the curse. The company’s fourth-quarter performance topped Wall Street’s expectations with a sales increase of 6%. The typical TJ Maxx is located in a strip mall, ideally placed so that customers can do their grocery shopping and then meander next door to peruse the clothing and housewares on TJ Maxx’s racks.

Compare that to a trip to a department store such as Macy’s, which usually involves committing to a mall experience. And when shoppers do wander into TJ Maxx, there’s a good chance they will see styles and brands that weren’t there during a previous visit. TJ Maxx had 2015 net sales of $31 billion; Macy’s brought in $27 billion, despite carrying about 50% more inventory. There is an urgency to buy at TJ Maxx or it might not be on the rack tomorrow.

FINANCIAL REVIEW

Test Results Are In

Sinclair Noe — November 24, 2014

 

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

DOW + 7 = 17,817
SPX + 5 = 2069
NAS + 41 = 4754
10 YR YLD – .01 = 2.31%
OIL – .81 = 75.70
GOLD – 3.80 = 1199.30
SILV + .02 = 16.57

The S&P 500 has gained 11% since bottoming out in a slump that stretched from mid-September to mid-October. The rally has been driven by a belief that central bank actions in Europe, China and Japan will help invigorate global economic growth. On Friday, China’s central bank lowered a key interest rate and European Central Bank President Mario Draghi said he was willing to step up the bank’s efforts to stimulate the Eurozone, which has been struggling.

Speaking of European investors that sell assets to the ECB moving into other, more risky, assets that would help accelerate the euro area’s growth, Draghi said that higher prices for European assets might encourage some foreign holders to switch away from the euro, with “investors rebalancing portfolios away from euro-denominated assets towards other jurisdictions and currencies providing higher yields.”

Just to make sure that listeners got the message, he added there was evidence that the asset-purchase programs of the U.S. Federal Reserve and the Bank of Japan “led to a significant depreciation of their respective exchange rates, even in a situation in which long-term yields were already very low, as in Japan.” You have been warned; the euro, like the yen, is heading lower.

You have low interest rates and despite talk in the US about the Fed raising rates, that is a long way off, maybe another year; meanwhile long-term rates continue to grind lower in most parts of the world. If you want to find a quick and easy profit, borrow money in Germany, where the 10-year bund yields 0.8%, and put it in the US 10-year Treasury at 2.31%, plus you get the increase in the dollar. The euro looks set to continue its downward path, propelled by the strong desire of the weaker governments in the monetary union to see a further devaluation to aid Europe’s very patchy growth prospects. And if you feel a bit more risky, borrow money in Germany and put some in US stocks.

So, the markets are betting on global stimulus, or if you prefer, free money from the central bankers, but does that really help? Well, it certainly helps the financial markets, but the economy? … Not so much. Jens Weidmann, Germany’s central bank president delivered a speech today where he said that monetary policy alone can’t create growth, and must be based on higher productivity and policy reforms.

Weidmann says: “Central banks are not able to deliver growth. Whenever we meet, this is always the first question, there is the conception that there is this silver bullet and this is distracting our attention from the main problem.”

Where does growth come from? Well, perhaps you saw the 60 Minutes story on infrastructure. According to the American Society of Civil Engineers “investing in infrastructure is essential to support healthy, vibrant communities. Infrastructure is also critical for long-term economic growth, increasing GDP, employment, household income, and exports. The reverse is also true – without prioritizing our nation’s infrastructure needs, deteriorating conditions can become a drag on the economy.”

By the way, the ASCE reports the US grades out at D+ on infrastructure. The U.S. ranks #16 globally for infrastructure, according to the World Economic Forum. In case you missed it here are some other notable stats from the 60 Minutes story:
One out of every 9 bridges in America, more than 70,000 across the country, is considered deficient. Almost one-third of the major roads in the U.S. are in poor condition. Only 2 of 14 major ports on the eastern seaboard will be able to accommodate the super-sized cargo ships that will soon be coming through the newly expanded Panama Canal. There are more than 14,000 miles of high-speed rail operating around the world, but none in the United States. U.S. air travel is the world’s most congested, due to “a shortage of airports runways and gates along [with] outmoded air traffic control systems.”

And in case you were wondering, the engineers estimate we need to spend $3.6 trillion on infrastructure by 2020. The engineers do not offer a financing plan. Which brings us around to one of the great debates between those who see depressions as the result of inadequate demand, implying that inflation will fall and that printing money does nothing unless it boosts employment, and those who see depressions as the result of mal-investment, and who predict that running the printing presses will lead to runaway inflation.

To test the opposing sides of the debate you would need to run economic tests where central bankers respond to a massive downturn with aggressive monetary stimulus. Which has been going on for a few years now, and everywhere you look inflation is low and threatening to jump over to deflation. So, running the printing press does not lead to inflation or hyperinflation, and it does a poor job of increasing demand. Monetary stimulus tends to concentrate on the financial markets but it never seems to trickle down. We’ve run that test and it does not work. Demand comes from higher productivity, and higher productivity can be achieved by investing in infrastructure.

It’s time now for another edition of “Banks Behaving Badly.” We all know that Wall Street analysts play a crazy game, it has been going on for a long time. More than 10 years ago, prosecutors cracked down on research analysts who served the interests of investment banks over the investing public. Seems not all the analysts and investment banks got the memo. Today, the Financial Industry Regulatory Authority, or Finra, fined Citigroup $15 million for failing to adequately supervise its research analysts’ interactions with the bank’s clients.

In one example cited by Finra, Citigroup hosted “idea dinners” for institutional clients at which some of the bank’s equity research analysts discussed stock tips that differed from their published research. In another, an analyst helped the bank’s investment banking clients with their investor “road show” presentations ahead of a public offering. Even when Citigroup discovered problems with its analysts’ communications with clients, Finra says the bank’s disciplinary actions “lacked the severity necessary to deter repeat violations.’’ Citigroup agreed to settle the case with Finra without admitting or denying the charges.

A $15 million fine? That is embarrassingly small for a mega bank like Citi. What other mischief have they been up to? Well, the European Central Bank kicked Citigroup out of its foreign-exchange market liaison group after the Citi was fined for rigging the ECB’s own currency benchmark. The ECB removed Citigroup from the panel, which advises the central bank on market trends, after regulators fined the lender $1 billion for rigging currency benchmarks including the ECB’s p.m. fix. Citigroup was one of six banks fined $4.3 billion by U.S. and U.K. regulators last week and is the only one that also sits on the ECB Foreign Exchange Contact Group. Citigroup is the world’s biggest foreign-exchange dealer, with a 16 percent market share.

While 49 state treasuries were submerged in red ink after the 2008 financial crash, one state’s bank outperformed all others and actually launched an economy-shifting new industry. So reports the Wall Street Journal this past week, discussing the Bank of North Dakota and its striking success in the midst of a national financial collapse led by the major banks. The article states: “It is more profitable than Goldman Sachs, has a better credit rating than JPMorgan Chase and hasn’t seen profit growth drop since 2003. Meet Bank of North Dakota, the U.S.’s lone state-owned bank, which has one branch, no automated teller machines and not a single investment banker.”

The reason for its success? As the sole repository of the state of North Dakota’s revenue, the bank has been one of the biggest beneficiaries of the boom in Bakken shale-oil production from hydraulic fracturing, or fracking. In fact, the bank played a crucial part in kick-starting the oil frenzy in the state in 2008 amid the financial crisis. And that may be partially true, however, the oil boom did not actually hit North Dakota until 2010. Yet it was the sole state to have escaped the credit crisis by the spring of 2009, when every other state’s budget had already dipped into negative territory. According to Standard & Poor’s, the BND’s return on equity was up to 23.4% in 2009 – substantially higher than in any of the years of the oil boom that began in 2010.

The real reason for the Bank of North Dakota’s success is much more simple: profits, rather than being siphoned into offshore tax havens, are recycled back into the bank, the state and the community; costs are low – no exorbitantly-paid executives; no bonuses, fees, or commissions; the bank’s mission is promoting economic development, not competing with private banks.

FINANCIAL REVIEW

Third Quarter Wrap

Sinclair Noe — September 30, 2014

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Financial Review

Podcast: Play in new window | Download (Duration: 13:15 — 6.1MB)

DOW – 28 = 17,042
SPX – 5 = 1972
NAS – 12 = 4493
10 YR YLD + .02 = 2.51%
OIL – 3.14 = 91.43
GOLD – 6.30 = 1209.70
SILV – .49 = 17.07

We wrap up the third quarter of 2014.

The Dow Jones Industrial Average is up 3.4% year to date; and it is up about 11% from the lows of February. Ten of the 30 Dow stocks are up more than 10% year to date. Eight of the Dow stocks are in negative territory for the year, even after adding in divdends. The best performing Dow stocks are Intel (up 37% ytd) and Microsoft (up 28% ytd). The worst performing Dow stocks are Boeing (down 5% ytd) and United Technologies (down 6% ytd).

The Dow lost 55 points, or 0.3%, for the month, and for the third quarter the Dow added 217 points or 1.3%. The S&P 500 dropped 31 points, or 1.5% in September, and added 12 points for the quarter; and that was good enough for the seventh consecutive quarterly gain, the best run for the S&P 500 since 1998. The Nasdaq Composite lost 87 points, or 1.8%, for the month, but added 85 points for the third quarter. The Russell 2000 index of small cap stocks lost 69 points, or 5.8% in September; and posted a loss of 98 points, or 8.1% for the third quarter.

In other markets: Oil prices dropped from $105.51 to $91.43 per barrel, a decline of more than $14 for the quarter. Gold is down $122 for the quarter. Silver is down almost $4.

The yield on the ten year Treasury note finished the quarter essentially unchanged, but it was a wild ride; one month ago the 10-year yield had dropped to 2.34%. Sovereign bonds around the world beat corporate debt this quarter by the most in three years as consumer-price gains slowed in the U.S. and disinflation threatened Europe. Government securities returned 1.4 percent from the end of June through yesterday, while company debt earned 0.3 percent. But don’t forget the dollar rally; even if you made money in foreign stocks or sovereign debt, you likely have a loss when you try to bring the gains home and have to re-price into dollars.

The dollar index of major currencies rose 0.4% to 85.95. The index has gained 7.7% over the last three months, the biggest quarterly gain since 2008 and a record-breaking 11 successive weeks of gains. Of course a stronger dollar is not always a good thing; it could lead to weaker trade performance, less exports, and more imports. Supposedly a strong dollar is indicative of a strong economy as spending switches from US goods toward foreign goods it will likely result in less output and lower employment than it otherwise would be in the absence of dollar appreciation. In other words, a strong dollar might reduce GDP by almost 0.5%.

Of course a weak currency can be problematic as well, just look at Russia. The ruble is down almost 17 percent against the dollar this year and weakened to a record low this week. The dollar-denominated RTS stock index is in a bear market and yields on government ruble bonds due in 2023 have jumped 1 percentage point since June to 9.42 percent, more than the yield on similar-maturing debt securities sold by Greece.

Net outflows from Russian assets totaled $75 billion in the first half of 2014, compared with $61 billion in all of last year. The Russian central bank is reportedly considering capital controls to limit the outflows. Yuan-ruble trading is growing faster than any other pair of currencies on the Moscow Exchange, and the Russians would like to increase the Chinese currency’s role in local money markets. Some doom and gloomers think that spells the end of the US dollar, but what it actually means is that sanctions are working. The dollar is strong and it dominates world markets.

The S&P/Case-Shiller US National Home Price Index, which covers all nine U.S. census divisions, recorded a 5.6% annual gain in July 2014. The 10- and 20-City Composites posted year-over-year increases of 6.7%. Although all cities but one gained on a monthly basis, 17 saw smaller increases in July as compared to last month.

For those worried that home prices have gotten too high, consider this: In many major cities, prices are still below bubble peaks. In 18 of 20 major US cities, home prices in July were between 3% and 42% below the bubble peaks that were hit in the local markets. Las Vegas is still down 42%, and Phoenix has the second worst recovery, with prices still 35% below the peak. In the most recent Case-Shiller report, Phoenix posted a gain of 5.7% for the past 12 months, and a gain of just 0.3% from June to July.

Consumer confidence fell in September for the first time in five months. The Conference Board, an industry group, said its index of consumer attitudes fell to 86.0 in September from a upwardly revised 93.4 the month before. Consumer confidence was hurt by concerns over the job market and expectations that economic growth will slow in coming months. A variety of factors are impacting consumers. Employers appear to be picking up hiring and laying off fewer employees, but workers are still concerned about their career prospects. Home prices are on the rise, but many households are wary of taking on too much debt, with Americans’ credit-card balances recently hitting the lowest tally in more than a decade. According to the sentiment report: “Tiny wage gains meant that nearly half of all households anticipated declines in inflation-adjusted incomes during the year ahead.”

Even as the U.S. economy reached a milestone in May with employment exceeding the prerecession peak, 29 of 50 states have yet to match that accomplishment. Bloomberg recently compiled Labor Department data shows the weakest jobs rebound has been in the states central to the 2002-2006 housing bubble and the subsequent price collapse. Nevada, Arizona and Florida are among those furthest from their peak employment during the December 2007-June 2009 downturn. The energy industry is driving the economic expansion in 12 of the 13 states leading growth since the recession ended. Leaders include Texas, North Dakota, Oklahoma and Louisiana, with Oregon the only non-energy state among the standouts. Oregon has been boosted by technology manufacturing and fast growth in exports.

Median household income is now 8 percent below what it was in 2007, adjusted for inflation. It’s 11 percent below its level in 2000. It used to be that economic expansions improved the incomes of the bottom 90 percent more than the top 10 percent. Since the current recovery began in 2009, all economic gains have gone to the top 10 percent. The bottom 90 percent has lost ground. We’re in the first economic upturn on record in which 90 percent of Americans have become worse off. And this month, that was reflected in the confidence figures.

Next week the International Monetary Fund hosts a gathering of the top finance officials from around the world. The IMF plans to again revise down its outlook for the global economy next week. Central banks have tried to rev up growth with cheap cash, but printing money can only go so far. The IMF has been arguing for a while that governments must restructure their economies to make them more competitive and capable of consistence growth. Next week they are expected to say that the best idea for many governments is to spend more on infrastructure and invest in roads, bridges, power plants, ports, and other big, expensive projects.

The IMF argues that taking advantage of low borrowing costs to finance infrastructure can boost near-term growth with cash injections and long-term output by increasing the efficient flow of commercial goods. If projects are carefully chosen, that public investment can add two percentage points to growth in industrialized economies, cut debt levels by up to 8% of gross domestic product and increase private investment by a half-percentage point of GDP. The extra debt from financing the projects would be more than offset by the growth returns.

A follow-up on the story about the New York Fed, which is supposed to serve as a banking regulator. ProPublica ran a story about a former New York Fed bank examiner, who noted that her ex-bosses weren’t willing to stand by her claims that Goldman Sachs didn’t have any conflict-of-interest policies, or at least a version that could pass muster. They fired her, but she made secret recordings before she was fired, and now she’s suing. The day this all broke, last Friday, Goldman issued a new conflict-of-interest policy that prohibits investment bankers from trading individual stocks and bonds. That wouldn’t have anything to do with the fact that, like Goldman Sachs itself, one of its investment bankers was on both sides of Kinder Morgan’s acquisition of El Paso, would it? Steve Daniel, a Goldman banker, had an undisclosed $340,000 personal investment, and Goldman Sachs had a $4 billion stake, in Kinder Morgan while both were selling El Paso advice on the deal. And of course there are multiple examples of when Goldman made bets against their clients.

The first case of deadly Ebola diagnosed in the U.S. has been confirmed in Dallas, in a man who was traveling in Liberia and arrived in the U.S. on Sept. 20. The man is being kept in isolation. He had no symptoms when he left Liberia, then began to show signs of the disease on Sept. 24; he was admitted to the hospital on September 26; he is now critically ill. At the same time, another suspected case is being evaluated at a National Institutes of Health facility, the 13th such possible infection in the U.S. All others have tested negative.

There is no approved treatment for Ebola, though drugmakers are attempting to develop vaccines or medicines that could be used in this or a future outbreaks. Current care involves isolating the patient so they can’t infect others, and providing supportive treatment such as intravenous fluids and antibiotics to fight opportunistic infections. There are some drug companies that are working on Ebola vaccines and treatments, and yes, they saw their stock prices jump today. Here’s a quick rundown: NewLink Genetics, an Ames, Iowa, company working on an Ebola vaccine, up 14% today; Tekmira Pharmaceuticals, up about 20 percent; BioCryst Pharmaceuticals, up 12 percent; and Sarepta Therapeutics, up 7 percent.

Apple Bites

Financial Review with Sinclair Noe — September 9, 2014

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

DOW – 97 = 17,013
SPX – 13 = 1988
NAS – 40 = 4552
10 YR YLD + .03 = 2.50%
OIL + .05 = 92.80
GOLD + .30 = 1256.80
SILV + .04 = 19.16

Today’s epiphany is courtesy of Apple; they unveiled not one but three new things. Let’s examine.

The iPhone 6 is the new phone, and it is a little bit bigger than the old phone. And they even have an iPhone 6 plus, which is a little bit bigger. So, the new phones won’t fit in your pocket anymore. I know, it’s like the most totally incredible thing ever.

The Apple Watch is smaller than the old phone; so small it can be strapped on your wrist. It even has a dial so older people will realize it is supposed to be a watch and not just a little phone strapped to your wrist. It is called the Apple Watch because iWatch was just a little too creepy.

The third thing is Apple Pay, which is a payment processing service that has Apple partnering with American Express, MasterCard, and Visa so you can pay for purchases with a big iPhone 6 or an Apple Watch, just like you can pay for things with an American Express, MasterCard, or Visa credit card. The big difference is this is new technology, whereas the credit card is like 50 years old; and this new technology runs on batteries that might last for 12 hours before requiring a charge. But, you don’t need to carry a small piece of plastic that doesn’t require batteries and your transaction will be more secure because it will use the technology of iCloud, which is the same technology that allows hackers to get naked pictures of celebrities, so you know it’s really, really safe.

Apple share price moved higher by about 4.8% during the day but closed down – .37 at 97.99.

Moving over to the economic news of the day:
On the heels of a disappointing jobs report last week, the Labor Department reports more workers are quitting their jobs. The JOLT report, or Job Openings and Labor Turnover summary shows about 2.52 million workers quit their jobs in July, the most since June 2008, and up from 2.31 million a year earlier. This is actually considered healthy, because the idea is that people don’t quit their jobs, unless they think they can find a better job. Or maybe a lot of people just don’t like their job. There were 4.67 million job openings at the end of July, down slightly from 4.68 million openings.

Average consumer spending fell in 2013, its first drop in three years; cautious families cut expenditures on restaurants, clothing, entertainment, alcohol and tobacco, and slashed charitable contributions. Last year, total average expenditures by families, singles and other “consumer units” hit $51,100, down 0.7% from 2012′s tally of $51,442, as income edged down. Makes sense; people earned less and spent less. Meanwhile, spending rose for necessities, such as housing and health care.

Today’s young Americans are burdened by debt at a far greater rate than prior generations; 35% of Americans age 24 to 28 have debts that exceed their assets. That’s roughly double the proportion of their peers in the late 1980s and mid-1970s. The share of young Americans with debt, if not the overall dollar amount, has actually fallen from prior generations. Today, 75% of young Americans have debt, compared with 76.5% of late baby boomers at the same age and 78.2% of early baby boomers; but big shifts in the types of debt held by the groups have led to far different experiences.

Younger Americans today are taking on far less mortgage debt and far more student and credit-card debt than the early and late boomers did at the same age. Only 19.8% of today’s young Americans have home-related debt, down from 29.9% of their peers in the late 1980s and 43.1% of those in the mid-1970s. Conversely, 22.4% of young Americans today have education debt, compared with 5.1% among late baby boomers and none among early boomers.

Most people think the economy is headed in the wrong direction, and that is the global economy, not just here in the US. Pew Research Center asked nearly 49,000 people in 44 countries whether they liked the direction in which their country was heading, about their view of the economy, and where they thought the economy was heading. The Greeks, Italians, Spanish, and Ukrainians are the most pessimistic about their economy with 97%, 96%, 93%, and 93% of respondents, respectively, saying their current economic situation was bad. Greece led with the highest percentage of respondents who thought things would get worse in the next 12 months with 53%.

The Chinese are very optimistic. Only 6% of Chinese respondents thought things were bad, and only 2% thought things would get worse. Similarly, only 11% of respondents from Vietnam thought things were bad, along with 15% of those in Germany. In the US, 58% of respondents thought the economy was bad, and 30% thought it would get worse in the next 12 months.

The National Federation of Independent Business said its Small Business Optimism Index for August rose 0.4 to 96.1. Eight of the index’s 10 components either improved or showed no change. The job growth indicated in the survey was sluggish, with owners adding an average of only 0.02 workers per firm, and fewer saying they planned to hire more workers in the future. Some businesses appeared to lose pricing power, with 15 percent of respondents saying they had reduced prices, and a drop in the number of owners saying they planned price hikes. Though more owners said they expect an improvement in business conditions than said so in the month before, a slight majority still are not convinced conditions will improve. The index is still 4 points below where it was before the start of the 2007 financial crisis and recession.

Senator Elizabeth Warren is holding hearings on Capitol Hill, and she actually had the cajones to ask regulators why no senior officials at Bank of America, Citi and JPMorgan Chase have been prosecuted over their role in the housing collapse. The three banks have agreed to a combined tens of billions in penalties, but no officials have been sentenced over the alleged misconduct. Warren allowed that the regulators themselves can’t prosecute; that would be up to the Justice Department. But regulators can provide referrals.

Daniel Tarullo, the governor at the Federal Reserve who’s most involved in bank regulation, said the central bank provided information to the Justice Department. But, when pressed, he indicated that the Fed didn’t specifically refer anyone. Warren noted that after the savings-and-loan crisis in the 1970s and the 1980s, the government brought over 1,000 prosecutions and got over 800 convictions. Warren, by the way, wasn’t alone. Sen. Richard Shelby, the Alabama Republican, put the onus on the Justice Department for the lack of prosecutions. Shelby said: “People shouldn’t be able to buy their way out of culpability.”

No, they should not be able to, but they are.

The Obama administration announced a series of measures to help shore up crumbling infrastructure, including half a billion dollars in loans for the electric grid; part of a $1 trillion dollar plan to fund transportation, water and electricity needs over the next 6 years. New efforts include $518 million in loans for 22 electric projects from the Department of Agriculture that will build 5,600 miles of electrical lines in rural areas and improve the electric grid. Currently, the grid is unable to withstand many outages tied to weather, costing the economy up to $33 billion each year.

Treasury Secretary Jack Lew said investing in infrastructure has historically been one of the best ways to create jobs and boost economic growth, but spending has fallen over the past decade, as two-thirds of roads are now in disrepair, and one out of nine US bridges have structural deficiencies.

The European Union’s trade commissioner is practically begging for the US to start exporting oil and natural gas to Europe. Tension between Russia and the West over the future of Ukraine is spurring the European Union to renew efforts to end decades of dependence on Russian gas. One solution would be greater access to US oil and nat gas resources. Overturning a 40-year US ban on oil exports by agreeing to send oil to Europe could pressure Russian President Vladimir Putin by lowering global crude prices. Nat gas prices in Europe are about 3 times what they are in the US, and one concern is that exporting nat gas, could drive up prices in the US. Whatever happens likely won’t happen for at least a year, which raises the possibility of a cold winter in Europe, if Russia-Ukraine situation turns even uglier.

Speaking of natural gas. McDonald’s reports that global sales at stores open more than a year dropped 3.7 percent in August. That was the company’s worst month for same-store sales since the spring of 2003. This is the second month in a row that McDonald’s has reported global same-store sales that set 10-year marks for awfulness. Performance was dragged down largely by the Asia/Pacific, Middle East and African regions, where same-store sales plunged 14.5 percent. McDonald’s is still recovering after a video surfaced showing workers at one of its meat suppliers in China engaging in unhygienic practices, including picking up meat off the floor and putting it back in a processing machine. McDonald’s was forced to pull meat off menus in many China outlets after the scandal came to light. No word on whether diners could tell the difference between meat and the non-meat menus. McDonald’s US same-store sales fell 2.8 percent, and in August McDonald’s captured its second smallest share of the fast-food market since 2011.