The Greek Situation Still Is A Long Way From Being Resolved

Financial Review

Unsustainable

Sinclair Noe — July 7, 2015

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

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DOW + 93 = 17,776
SPX + 12 = 2081
NAS + 5 = 4997
10 YR YLD – .05 = 2.23%
OIL + .14 = 52.67
GOLD – 15.50 = 1155.30
SILV – .70 = 15.15

These are interesting times. There is the situation in Greece; the Chinese equity markets are suffering a bit of a meltdown; Puerto Rico has fallen into a black hole of debt; negotiations are underway with Iran; and the cherry on top – earnings season starts tomorrow. Traders might be forgiven if they were a feeling a little jittery. This morning the stock market headed into triple digit negative territory, (the Dow was down 200 points earlier) only to get an afternoon jolt of good news; namely, there may be a deal to be had with Greece. So, let’s dig in there.

Greek Prime Minister Alexis Tsipras is in Brussels for an emergency Eurozone summit. Over the weekend, Greeks overwhelmingly voted to reject more austerity. Actually, they voted on a debt proposal that is no longer under consideration, but figuratively they voted against austerity. Greek banks remain closed and ATMs are reportedly running out of cash. The European Central Bank has maintained its emergency loan cap for Greek banks. German Chancellor Angela Merkel said there was no basis for reopening negotiations with Athens. European leaders have all made clear the onus is on Greece to explain how it plans to pull itself out of the crisis.

Before the meeting, President Obama got involved; making phone calls to Merkel and Tsipras. At the meeting, Greece proposed a settlement until the end of the month; an intermediate stop-gap measure, with promises of a more substantive proposal to follow tomorrow. And the longer this drags out, the optics of soup kitchens upon soup kitchens paints an ugly picture of modern day Europe. And Sunday’s “no” vote is already resonating with several other Euro countries, especially the southern tier of nations. And the “no” vote was also a figurative vote to default on Greece’s debt to the IMF, and a defeat for Germany’s Angela Merkel and the Troika of creditors she led that insisted and continue to insists that there is no way out for Greece but to pay back its debt. The “no” vote was also a victory for democracy. We should have greater trust in the democratic process.

Most of the news stories about Greece harp on the idea that the Greeks are lazy and irresponsible; they borrowed money unwisely, they spent too much on pensions and other government giveaways, they didn’t pay taxes, and now they don’t want to pay their debts. The reality is that the effective tax rate to GDP in Greece (even after the tax evasions) was higher than ours. Their work week is higher than ours and Germany. And much of the country’s tax-collection problems stem from the fact that there are two and a half times more self-employed and small-business people in Greece than there are in the average country. And small businesses are expert at avoiding tax. If Greece were more like Germany, with big corporations and unionized workforce, in other words if they were more socialists, then tax collection would be much higher in Greece. And about irresponsibility, remember the banks decided to lend three hundred billion to Greece despite knowing all these facts (corruption, tax evasion). So who was more irresponsible, the banks or the Greeks?

Debt carries risk; risk for the borrower and risk for the lender. That is why borrowers pay interest on debt to the lender. The lender does not get a guarantee; they could lose their money; that’s how free markets work. And if the borrower does not or cannot repay, the lender does not enslave the borrower. We now have bankruptcy laws that allow a borrower to get out from under unsustainable debt and get a chance at a fresh start.

When it comes to loans, it takes two to tango. One party lends and the other one borrows. Both sides take risks and both sides receive benefits. It is incumbent on the lender to assess the risks and set interest rates at appropriate levels to compensate for taking the risk. If the lenders are not well-prepared they can lose. That is how a free market is supposed to work.

Greece’s lenders were not well prepared, and that was their failure. The loans were originally made by private investment banks, such as Goldman Sachs. And when they were staring in the face of losses, the banks managed to unload their bad debts onto the Eurozone governments, who were not well prepared. Germany and its allies should have left the debt in private hands where it belonged, but the politicians have a tendency to kowtow to the bankers, and that was their failure. The IMF’s own assessment of Greek debt, published just a few days ago, states: “Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable.” Germany’s own bankers knew Greece couldn’t pay this back. And yet Merkel persisted, demanding a pound of flesh in lieu of cash.

The IMF analysis also suggested the Europeans would have to accept a principal writedown. As a member of the so-called troika of creditors that included the European Commission and European Central Bank, the fund’s hands were tied from the start, and the analysis was little more than an admission of the inevitable; the bloodletting failed to cure the patient. An internal review in 2013 concluded that the IMF should have pushed earlier for a restructuring of Greece’s debt, which would have eased austerity and limited the economy’s contraction. As it turned out, Greece plunged into a much deeper recession than anticipated, with unemployment surging to about 25 percent. So, it wasn’t surprising that the Greeks voted against more of the same.

The Greek situation still is a long way from being resolved, but if Greece gets kicked out of the Euro, it wouldn’t be the worst thing that could happen.

Wiping out much of yesterday’s rebound, Chinese shares fell yet again today, casting doubt on the slew of recent support measures unleashed by Beijing. Traders are also getting increasingly nervous about the unusually large number of Chinese companies asking for their shares to be suspended. About a quarter of the roughly 2,800 companies listed in Shanghai and Shenzhen filed for a trading halt by the close on Monday, and another 200 announced a suspension today. In the face of a big sell-off, the Chinese answer is to stop the trading, and the logical next step is to forbid talking about selling. Shanghai -1.3%; Shenzhen -5.8%; ChiNext-5.7%.

Iran and six major powers will keep negotiating past today’s deadline for a long-term nuclear agreement as they try to tackle the most contentious issues, including the continuation of a UN arms embargo on Iran. The spokeswoman for the US delegation said the terms of an interim deal between Iran and the six would be extended through Friday to give negotiators a few more days to finish their work. The negotiations have been impacting the price of oil. Yesterday, US crude oil futures dropped by 7.7%, or $4.40, to close at $52.53, almost rivaling the price decline in the aftermath of OPEC’s decision to not intervene in oil markets last year.

Lawyers for Puerto Rico have asked the U.S. Court of Appeals in Boston to reinstate a law to help it deal with $72 billion in debt. The court resisted, agreeing instead with a San Juan judge who threw out the statute in February. The dispute centers on whether the island, which is excluded from federal bankruptcy code regarding municipal entities, can make its own rules for allowing public agencies to seek protection from creditors. In a majority decision, the appeals court wrote: “In denying Puerto Rico the power to choose federal Chapter 9 relief, Congress has retained for itself the authority to decide which solution best navigates the gauntlet in Puerto Rico’s case.” Barring help from federal lawmakers, the decision means Puerto Rico will have no other choice except to continue piecemeal negotiations with creditors.

We have a couple of economic reports today:
Corelogic reports home prices increased 1.7% in May, while year-over-year growth rose to 6.3%, the fastest annual pace since last July. CoreLogic expects home prices to slow to annual growth of 5.1% by May 2016.

The US trade deficit widened in May as exports declined by the most in three months, showing businesses were having trouble drumming up sales to overseas customers. The gap grew 2.9 percent to $41.9 billion from the prior month’s revised $40.7 billion. Domestic crude production reduced America’s imported fuel bill, which dropped in May to the lowest level since February 2002. While persistent US household spending led to record automobile imports.

Job openings at U.S. workplaces rose to a record high of 5.36 million in May. Compared with same period in the prior year, May’s job openings rose 16%.  With 8.67 million unemployed people in May, there were about 1.6 potential job seekers per opening, matching April’s ratio. In May 2014, there were about 2.1 potential seekers per opening.

Alcoa kicks off the second quarter earnings reporting season tomorrow after the closing bell. A recent report from FactSet examines expectations for second quarter earnings as reporting season approaches. According to the report, year-over-year earnings and revenue for the S&P 500 are expected to decline by 4.5% for the second quarter of 2015. If that happens, it will mark the largest year-over-year decline in earnings since the second quarter of 2009. The last time the index reported a year-over-year decrease in earnings was a 1.0% dip in the third quarter of 2012. Companies that generate more than 50% of sales inside the United States are anticipated to have an earnings growth rate of 0.3%. Companies that generate the majority of their sales abroad, however, have an estimated earnings decline of 11.4%.

Financial Review

King v Burwell Plan B

Sinclair Noe — June 9, 2015

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

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DOW – 2 = 17,764
SPX + 0.87 = 2080
NAS – 7 = 5013
10 YR YLD + .04 = 2.42%
OIL + 1.81 = 59.95
GOLD – 1.60 = 1176.10
SILV – .04 = 15.92

Each month the Labor Department reports on nonfarm payrolls, usually that report comes out on the first Friday of the month; a few days later they release the JOLT survey, Job Openings and Labor Turnover from the prior month. Job openings at US workplaces rose to 5.3 million in April from 5.1 million in March. That’s the most job openings in 14 years, and those job openings were spread among industries, including health care, retailers and providers of professional services. Now, keep in mind that this is the Job Openings from April, and we just saw the May Jobs report, which showed that the unemployment rate ticked up from 5.4% in April to 5.5% in May; and the reason the unemployment rate was higher is because more people entered the labor pool. Most of the nearly 400,000 new job seekers were under the age of 25.

While the number of job openings soared, employers are still taking their time filling them. Total hiring in April fell to 5 million from 5.1 million. The disparity between more openings and flat hiring suggests employers are being picky about new hires. Many companies say they are having difficulty finding qualified workers. They may not be offering high enough wages. Average hourly pay rose just 2.3 percent in April from a year earlier, much lower than the roughly 3.5 percent gains typical in a healthy economy.

With 8.5 million unemployed people in April, there were about 1.6 potential job seekers per opening, below March’s ratio of 1.7. In April 2014, there were about 2.2 potential seekers per opening. The number of separations, such as quits and layoffs, dropped to 4.8 million in April from 5 million in March. This indicates that fewer people have confidence to quit their current job to find another job; in other words, people don’t necessarily think the grass is greener on the other side of the fence. In the year that ended in April, employers added a net 2.8 million jobs, representing 60 million hires and 57.2 million separations.

The Commerce Department reports wholesale inventories rose 0.4% in April. Inventories of durable goods, such as autos and machinery, increased 0.1%. Meanwhile, inventories of nondurable goods rose 0.8%. Wholesale sales rose 1.6% in April, following a drop of 0.3% in March. Inventories are a key component of gross domestic product changes. At April’s sales pace it would take 1.29 months to clear shelves. An inventory-to-sales ratio that high usually means an unwanted inventory build-up. Conversely, it could show confidence from businesses anticipating better sales in the second quarter.

If it sounds like a mixed bag of economic news, well it is. The economy is showing signs of improvement but not enough to achieve escape velocity. And the stock market can’t decide which way to go. Last week stocks traded in their tightest weekly range in 21 years. The S&P 500 index has not moved more than 1 percent in either direction in 14 of the past 15 sessions, and the spread between the highest and lowest close this year has been only 6.9 percent, the narrowest since 2006. About 59 percent of stocks closed above their 200-day moving averages at the end of last week, the lowest percentage in eight months. The lack of breadth is not an indicator of a market top, rather it is a sign of consolidation. At some point, the market will decide which way it is moving but for now it is just grinding sideways.

The bond market seems to have no trouble finding direction – it is going down. The global bond market has been sliding for a couple of months, and in the past couple of weeks, US Treasuries have joined in on declines. If you were waiting for confirmation, we now have it; speculative-grade notes (or junk bonds) tend to have shorter maturities and fatter cushions of extra yield over benchmarks than higher-rated bonds, features that can protect the market in periods of rising rates and climbing inflation. And so the high yield debt market has shown some resiliency until right about now. Investors are starting to flee, yanking $1.5 billion from the two biggest high-yield bond exchange-traded funds over the past week.

HSBC will cut costs by as much as $5 billion within two years, selling its units in Brazil and Turkey and laying off as many as 50,000 jobs, or about 20% of its workforce. It will cut its assets by a quarter, or $290 billion on a risk adjusted basis by 2017, and slice $140 billion from its investment bank. HSBC also pledged a new era of higher dividends.

German prosecutors have raided Deutsche Bank offices in Frankfurt in a search for evidence related to client securities transactions, as Germany’s largest lender struggles to break free of regulatory issues that contributed to an overhaul of its top leadership this week.
The raid was apparently tied to a tax rebate strategy by some of the bank’s clients known as “dividend stripping”, in which a stock is bought just before losing rights to a dividend, then sold, taking advantage of a now-closed legal loophole which allowed both the buyer and the seller to reclaim capital gains tax.

General Electric has agreed to sell its private-equity-lending unit to Canada’s largest pension fund in a deal valued at about $12 billion. GE is largely getting out of the banking business. With the deal, GE has unveiled $55 billion worth of asset sales, putting the company on track to reach its goal for $100 billion in sales by the end of the year.

Fiat Chrysler Automobiles’ CEO Sergio Marchionne is reaching out to hedge funds and other potential allies to prod General Motors into a merger. Marchionne has been emboldened by recent successes of activist investors at GM and sees them as a means to consolidate the fragmented auto industry. So far, GM has resisted all of Fiat Chrysler’s entreaties, including a merger appeal to Chief Executive Mary Barra earlier this year. GM’s annual shareholder meeting is taking place today.

Meanwhile, Federal prosecutors are reportedly weighing criminal wire fraud charges against General Motors over the company’s failure to recall vehicles equipped with faulty ignition switches. The Wall Street Journal reports US prosecutors in New York are considering other possible charges and have not made a final decision. Authorities hope to reach a settlement with the automaker by the end of summer or early fall.

You know about the extreme drought in California. Governor Jerry Brown declared a state of emergency and set aside $687 million to help households, farmworkers, and others struggling in drought-devastated counties. More than $320 million sits unspent in government bank accounts more than a year after lawmakers voted to use the money to provide water, protect wells from contamination and upgrade outdated water systems.

The Obama administration has announced it will forgive federal student loans owed by Americans who can prove their schools broke a state law, such as false advertising, fraudulent recruiting or other deception, to lure them to apply and borrow funds. The move, which could potentially involve billions of dollars, is designed to grant debt relief to former students of now-bankrupt Corinthian Colleges, which lied to prospective students about its graduates’ job success. The forgiveness push, though, will likely stretch far beyond the institution.

The Supreme Court is expected to hand down a decision sometime this month in the case of King v. Burwell, which challenges the availability of tax credits to discount the cost of health insurance in at least 34 states. Opponents of the law say it allows subsidies in no more than 16 states that created insurance marketplaces, called exchanges. An adverse Supreme Court ruling would throw insurance markets into disarray, and might spell the end of the Affordable Care Act, or Obamacare, at least in its current form. More than 6 million consumers risk losing discounts on their monthly premiums if the court rules against Obamacare.

And so today, President Obama made his case against King v. Burwell. Obama says the Supreme Court shouldn’t have taken up the case challenging the federal subsidies, and that Congress could settle the issue at the heart of the case with a “one-sentence” change to the law. The section states that subsidies will be available for those who purchase insurance through exchanges “established by the state.” This is an issue, because three dozen states refused to set up their own exchanges and left it up to the federal government. Republicans, however, see the lawsuit as an opportunity to undo what they view as Obamacare’s most onerous provisions, or undo Obamacare completely; and it might just happen.

If the court ruled against Obamacare, most experts believe the health insurance market would suffer what’s called a “death spiral” without the subsidies. Healthy people in states without subsidies would drop their coverage because it would start costing too much. Then insurance would become more expensive, because premiums would go up with healthier people dropping out of the pool. Then more people would drop their coverage as it got even more expensive. Then premiums would go up once again. This downward spiral could destroy Obamacare’s advances with respect to private health insurance. But the threat of this descent into chaos could also be what saves Obamacare. The Supremes are well aware that if they rule the subsidies are not allowed, the law would basically implode and millions of real people would lose their insurance coverage, and there is a good chance several health insurers would collapse, and that doesn’t even begin to cover the explosion in litigation that would follow.

It’s a fool’s game to predict how the Supreme Court will rule, and so it was most unusual to hear the president speak out against a case that has not yet been decided. I don’t think this was an attempt to sway the justices; they have likely made up their minds by now. Rather, after the decision is announced, no matter which way the Supremes decide, there should probably be a Plan B.

Financial Review

Jobs Report Friday

Sinclair Noe — March 6, 2015

 

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

Subscribe: iTunes | RSS

DOW – 278 = 17,856
SPX – 29 = 2071
NAS – 55 = 4927
10 YR YLD + .13 = 2.24%
OIL – 1.02 = 49.74
GOLD – 31.90 = 1164.30
SILV – .35 = 15.81

The first Friday of the month is all about jobs.

The Bureau of Labor Statistics reports the economy added 295,000 new jobs in February. The unemployment rate dropped from 5.7% to 5.5%. The results topped estimates of 235,000 jobs, and also beats the revised 239,000 reported for January (revised down from 257,000); and also up from 188,000 a year ago.

The estimates were lower, mainly because most of the country has been experiencing harsh winter weather, and on the West Coast there was a shutdown and a slowdown at the ports. None of that seemed to matter, and if you are thinking ahead, you might imagine that the economy will just keep getting stronger as the weather gets better.

Now, you might look at how Wall Street responded to this very good news about jobs and you might be scratching your head, you might even think Wall Street is opposed to honest, hardworking Americans. Well, maybe a little, but the reason for the sell-off is that a stronger economy means higher interest rates. Investors are looking and focusing entirely on what the Federal Reserve will do in the coming months. Effectively good news in this data point supports the notion that they will raise rates in the not-too-distant future. Wall Street and corporate America have been enjoying a long run of free or at least very cheap money.

The Fed says any interest rate increase decision will be data dependent, but it should not be just that the unemployment rate drops to a given level. Disinflation leaves some wiggle room. And the Fed should also consider the long-term damage suffered by workers who have dropped out of the labor force or are long-term unemployed. Better to grow a little faster than desired rather than stamp out a recovery that is just approaching escape velocity.

Wages rose 0.1%, or .03 cents to $24.78. Average hourly wages for private-sector workers have been rising slowly, at around a 2% annual pace, for the last few years. There was a 0.5% increase in wages in January, but that now looks like a “one off” month. The Consumer Price Index, or inflation at the retail level, fell 0.1% in January compared to a year earlier; so that means “real” wages actually grew.

The US economy added over one million jobs between November and January, and it looks like the labor market is getting stronger and stronger. February was the 53rd straight month of employment gains, and the 12th straight month payrolls have increased by at least 200,000, the best run since a 19-month stretch that ended in March 1995. Payrolls rose 3.1 million in 2014, the most in 15 years. And payrolls are up 3.3 million year-over-year in February.

Most industries added workers to their payrolls. Bars and restaurants led the way by adding 59,000 jobs. It looks like people who are saving a few dollars at the gas pump are spending a few dollars for dining out. Unfortunately, bars and restaurants are not typically high paying jobs. Education and health services added 54,000 jobs. White-collar business and professional firms hired 51,000 employees, while cutting back on their use of temporary workers. The number of temp workers fell for the second month in a row for the first time since 2011. A cut back in temp jobs may indicate that temp workers are getting permanent positions.

Retailers added 32,000 workers. Construction companies created 29,000 jobs in February despite poor weather in much of the eastern half of the country. Transportation and warehousing added 18,000 jobs; financial activities added 10,000 jobs; and Information added 7,000.

Manufacturers created 9,000 new jobs, the smallest amount in 18 months. A few factors hit manufacturing, including a stronger dollar and weak global growth that has curtailed demand for American-made goods. In a separate report this morning the Commerce Department said exports fell 2.9% in January to a seasonally adjusted $189.4 billion, marking the third decline in a row. Imports decreased 3.9% to $231.2 billion, resulting in a lower trade gap of $41.8 billion for December.

Government added 7,000 jobs last month; those were state and local jobs, not federal. State and local government jobs are slowly posting gains – now up 138,000 from the bottom but still 620,000 below the peak.

There are still 6.6 million workers who are underutilized, working part-time even though they would prefer full-time work; that’s down slightly from 6.8 million in January. If you add underutilized workers with unemployed workers, you come up with a different measure called U-6, which figures the unemployment rate at 11%, down from 11.3% in January, and the lowest U-6 since September 2008.

And let’s be clear when we look at U-6 compared to the U-3 unemployment rate, which is the headline number at 5.5%. Sometimes, some people say the U-6 is the real unemployment number, and it usually goes in line with some theory that the government is trying to hide the real numbers. No, these are two separate numbers. And you should not try to compare apples to oranges. The U-6 number can help us get a better understanding of slack in the labor market, which goes a long way to understanding why wages remain stagnant.

Another reason for stagnant wage growth is that many people have been sitting on the sidelines, sometimes discouraged from looking for work, sometimes they have gone to school for training, and in the case of the boomer population, many have retired, even if it was involuntary. According to the BLS, there are 2.7 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 2.8 in January. And this was reflected in the participation rate, which dropped from 62.9% to 62.8%. The participation rate is the percentage of the working age population in the labor force. What we see here is that some long-term unemployed have moved back into the labor pool, while the massive demographic shift persists, and others have walked away from the pool. The drop in the jobless rate reflected both an increase in hiring and a decline in the number of people in the labor force.

When people get back in the labor pool after a long bout with unemployment, they typically return for lower wages. Also, part-time workers have very little power in negotiating higher wages; usually their best hope is for more hours. This puts a downward bias on wages.  There is growing evidence that an improvement is underway. One indication is the growing number of younger workers changing jobs as they gain more confidence in their prospects. There were 2.7 million quits in December; you have to quit a job before you get a new job. And you don’t quit unless you are fairly confident about a new job. On average, workers who switch jobs get a 14% pay increase in their new salaries.

Job openings now top 5 million, the highest level since January 2001. The number of job openings is seen a measure of labor market slack, with more job openings indicating the balance of power in the labor market shifting towards workers looking for jobs and away from employers looking to hire.

We have seen strikes at oil refineries and a slowdown at the West Coast ports; that indicates that workers feel they have enough bargaining power and confidence to demand higher wages. At the same time, we heard that Walmart is raising wages for workers to $9 an hour, and up to $10 an hour next year; a move that is slowly and surely being repeated at other retailers. This indicates that it is cheaper to retain workers at higher wages than it is to find new workers.

Labor advocates say retailers should be focusing on adding hours as well as lifting pay for some workers. Retail workers make up 11% of working adults but that 18% of those who are working part time would rather be employed full time. Many who want more hours are women from minority groups.

Whenever we hear about stagnant wage growth we hear the argument of the “skills gap”; this is the idea that businesses can’t find the workers they need because American workers do not have the skills or education to perform. And it is always a little difficult to counter that argument without sounding anti-education. So don’t take this wrong. Education is still a great way to get a good paying job. Highly educated workers generally have a higher rate of employment and generally higher wages. But that doesn’t tell the whole story.

If businesses were desperate for workers with certain skills, they would presumably be offering premium wages to attract such workers. So where are these fortunate professions? You can find some examples here and there. Interestingly, some of the biggest recent wage gains are for skilled manual labor — sewing machine operators,boilermakers — as some manufacturing production moves back to America. But the notion that highly skilled workers are generally in demand is just false.

Meanwhile, the inflation-adjusted earnings of highly educated Americans have gone nowhere since the late 1990s; their wages are just as stagnant as everybody else. The premium to higher education has plateaued over the last 10 years. We see evidence highly skilled workers have less rapid career trajectories and are moving into less skill occupations if anything. Productivity is not growing very rapidly, and a lot of the employment growth we’ve seen in the past 15 years has been in relatively low education, in-person service occupations.  Wage inflation in the United States is 2%. It has not gone up in five years. There are not 3% of the economy where there’s any evidence of hyper wage inflation of a kind that would go with worker shortages. The idea that you can just have better training and then there are all these jobs that will magically appear, all these places where there are shortages and we just need to train people is fundamentally an evasion.

The simple reality is that demand creates jobs. If someone has a job, they spend their paychecks and that creates demand, and businesses then hire someone to meet the demand rather than lose the business. Unless you’re doing things that have things that are effecting the demand for jobs, more training and more education just means you’re helping people win a race to get a finite number of jobs. The core problem is that there aren’t enough jobs.

FINANCIAL REVIEW

Divergence

Sinclair Noe — December 9, 2014

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

DOW – 51 = 17,801
SPX – 0.49 = 2059
NAS + 25 = 4766
10 YR YLD – .04 = 2.22%
OIL + .80 = 63.85
GOLD + 27.80 = 1233.00
SILV + .73 = 17.21

We’ll start with economic news.

The Labor Department reports there were 4.83 million job openings in October, up from 4.69 million job openings in September. The number of available jobs means workers are more likely to leave their current jobs in search of a better deal. The quit rate, the share of total employees opting to quit their jobs was 1.9% in October, roughly the same level it was just before 2007. With 9 million unemployed people in October, there were about 1.9 potential job seekers per opening. In October 2013, there were 11.14 million unemployed people or about 2.8 potential seekers per opening.

The Commerce Department reports wholesale inventories increased 0.4%, despite an energy price-related decline in the value of petroleum stocks. September’s wholesale stocks were revised up to show a 0.4% gain. This might indicate that third quarter GDP could be revised slightly higher.

The National Federation of Independent Business says small-business sentiment reached a seven-year high in November. The index rose 2 points to 98.1, the highest level since Feb. 2007, as expectations for business conditions in six months surged and expectations for real sales volumes also gained. While stocks have soared and GDP and employment figures have returned to pre-recession highs, small business has lagged in the recovery. But that’s changing. Small businesses added more than 100,000 jobs to their payrolls last month, accounting for almost half of the total gains in the private sector.

So the economic news in the US was pretty good today. No reason for a market selloff, but that’s how the morning started, with a 200 point decline on the Dow. Crude oil prices bounced a little higher but nothing outside the norm. Sure the Federal Reserve could put the brakes on a Santa Claus rally; the Fed FOMC meets next week, and they might make minor changes to their language to indicate a willingness to raise rates next year, or Fed policymakers might drop their assurance that short-term interest rates will stay near zero for a “considerable time” and replace it by saying they’ll be patient before moving rates. What’s the difference between “considerable time” and “patience”? Who knows?

And don’t forget that politicians in Washington could always throw a monkey wrench in the works. They’ve done it before. Congressional negotiators were nearing a deal on massive spending legislation that would avert a government shutdown and bring the 113th Congress to a close, but they can’t resist the temptation to add on bits of legislation not directly related to the spending bill. A vote is expected by Thursday. And even if the bill makes it out of the House, the Senate could take up and pass the spending bill shortly after it leaves the House, but only if all senators agree. And this might shock you but it doesn’t look like all senators are in agreement on the bill; which could mean a push for further debate, forcing a continuing resolution and pushing the matter into next week when most of the politicians are planning a trip home for the holidays.

Meanwhile, the rest of the world is having a hard slog. In China the day started with a hard selloff in equities as the country moves to rein in credit as part of a broader set of financial reforms. China’s securities clearinghouse issued temporary restrictions on using lower-rated or riskier corporate bonds as collateral for short term borrowing. Chinese stocks had been surging for months. The Shanghai Composite Index is up almost 50 percent since July. The rally has been largely fueled by individual retail investors, who have been piling into the market and increasingly resorting to margin financing, or short-term borrowing, to purchase shares. While welcoming signs of life in the country’s stock markets, Chinese officials have grown wary in recent weeks of the rising levels of debt that have fueled the rally, and they have cautioned investors against speculation. If the stock market’s credit line is not yet maxed out, the question for investors is whether Beijing is likely to pull the plug and kill the party. The Shanghai Composite index dropped 5.4% today. The Shenzen Exchange dropped 4.2%. That doesn’t mean the bullish trend is over, but it was a gut check.

Then international trading moved to Europe and the Athens stock market crashed, down 11.2% on the day. Greek Prime Minister Antonis Samaras announced that Greece’s presidential elections will be held on December 17, two months earlier than scheduled. And there are no candidates yet. The opposition party Syriza, best known for its opposition to the Eurozone’s bailout of Greece, said the government doesn’t have the votes needed to elect a president. If Greece does not elect a president on December 17, snap parliamentary elections will be called.

Also, a report from The Financial Times said that Greece and finance ministers in the Eurozone agreed to extend Greece’s bailout by two months after the government failed to adopt the economic reforms required to get the last of their rescue funds. And so while the European Central Bank deals with flagging economic growth and rapidly declining inflation, the Eurozone might have to respond to political unrest in Greece, too.

What exactly is the Syriza political party? Well, first, it isn’t a political party, it is a coalition; so they don’t exactly have a party platform. But generally speaking they are opposed to austerity. They are essentially good with sovereign debt default, or at least a haircut for bondholders; they want the ECB to directly purchase Greek bonds; they want to write off the bank debt of people who can’t afford to repay; they want to tax the rich; and in a country with 25% unemployment and 50% youth unemployment, they want the EU to fund a jobs program.

Now, just a quick refresher on Greece, back in 2010 they faced insolvency; the Euro Union and the International Monetary Fund stepped in and extended non-performing loans and pretended there was no problem. In 2012, they continued the “extend and pretend” strategy while extracting a pound of flesh in the form of austerity budgeting, essentially transferring the hundreds of billions in losses from the Greek bankers to the Greek taxpayers. Eventually, the vulture funds moved into Greece to pick over the remains in the Greek bond market. But now, Greek voters may be saying that they won’t play the game anymore and the Euro-crisis is back on the front burner.

So, as we head into 2015, we have a US economy showing signs of solid recovery with a consistently improving labor market; we have China trying to deal with market instability as they try to stabilize at lower growth rates than in recent years; and the Eurozone dealing with economic stagnation which has fueled social and now political disenchantment which bodes poorly for future investment prospects. Where this all ends up in 2015 is hard to guess, but it would be easy to see some extreme volatility if even one of these economies jumps the tracks.

Meanwhile, the Supreme Court is back in session and they are handing down rulings. Today, the Supremes ruled that warehouse workers who fill orders for retail giant Amazon don’t have to be paid for time spent waiting to pass through security checks at the end of their shifts. The unanimous decision is a victory for the growing number of retailers and other companies that routinely screen workers to prevent employee theft. The justices said federal law does not require companies to pay employees for the extra time because it is unrelated to their primary job duties. Writing for the court, Justice Clarence Thomas said the screenings are not the “principal activity” which the workers are employed to perform.

And that brings us to today’s edition of “Banks Behaving Badly”. Federal prosecutors in Manhattan have sued Deutsche Bank, claiming that the bank owes the United States government about $190 million in unpaid taxes, penalties and interest. Prosecutors contend the tax liability stems from a transaction that Deutsche Bank undertook 14 years ago. The bank had acquired a company that held shares of Bristol Myers Squibb, and when the bank sold those shares, they made a profit of about $100 million. Prosecutors say they did not pay tax on the gain. Deutsche Bank claims they made a deal with the IRS in 2009 and paid to settle. The bank did not release the payment to the IRS, but insiders are saying it was $6 million. Prosecutors say the bank used shell companies to artificially inflate the cost basis of the stock so it did not owe any capital gains on the appreciation.

Citigroup will record $2.7 billion in litigation expenses and another $800 million in repositioning charges in the fourth quarter, leaving the bank with a small profit for the quarter. The $800 million in repositioning charges is an interesting way to say they will be firing more workers and close branches. The legal costs stemmed from government investigations into possible manipulation of foreign exchange markets, rigging Libor interest rates, and violating money laundering rules. That’s right, Citi is a repeat offender.

Citigroup adjusted its third-quarter earnings lower on Oct. 30, two weeks after the numbers were initially reported. The company added a $600 million legal charge that it attributed to “rapidly evolving regulatory inquiries and investigations.” Last month the bank agreed to pay $1 billion to settle a probe into currency manipulation with three regulators in the US and the UK. Michael Corbat was named CEO of Citi 26 months ago. Under Corbat’s tenure, the bank has reported earnings of $21.8 billion over 8 quarters. In the past 26 months, Citigroup has had legal expenses and repositioning charges totaling $13.3 billion, or more than half the banks’ earnings.

FINANCIAL REVIEW

Dow Up, Oil Down, Quit Your Job

Sinclair Noe — November 13, 2014

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

DOW + 40 = 17,652
SPX + 1 = 2039
NAS + 5 = 4680
10 YR YLD – .02 = 2.34%
OIL – 2.79 = 74.39
GOLD + .20 = 1162.90
SILV – .01 = 15.77

Record high close for the Dow Industrials.

The Nasdaq Composite hasn’t seen record highs since the spring of 2000, when it closed at 5048, which is just 368 points, or about a 7% move from here. If you were unlucky enough to have bought the PowerShares QQQ exchange-traded fund, an ETF that tracks that top 100 non-financial stocks in the Nasdaq, on March 10, 2000, you’d still be in the red on that investment.

Tech companies are once again in a leadership role. While Microsoft, Apple and several other tech leaders of today are trading at higher prices than 15 years ago, Intel and Cisco are still well below their 2000 peak prices. Of course the largest company in market cap is Apple at $660 billion. Apple shares have surged more than 40% so far this year, creating more than $160 billion in market value for shareholders, which coincidentally is about the same market cap as IBM, which was once considered the big player in tech. Today, Microsoft passed Exxon to become the second largest company in terms of market capitalization. Exxon has a market cap of $400 billion; Microsoft is worth $408 billion. Exxon’s declining fortunes can be tied directly to the price of oil.

Have you stopped by a gas station in the past few days? I did. I paid $2.78 a gallon. Gas prices have been falling for the past 48 days, and the nationwide average is now $2.92 a gallon, the lowest since December of 2010.

Crude oil prices were down again today after OPEC said demand for its oil will drop next year, and Saudi Arabia remained silent about a possible cut in production. There is another OPEC meeting in 2 weeks, and it is possible that OPEC members Venezuela and Nigeria will cut production, but today the Saudis merely reiterated their policy of stable global markets as they rejected rumors of a price war.

Global demand for oil from OPEC, which pumps a third of the world’s oil, will drop to 29.20 million barrels per day (bpd) next year, almost a million bpd less than what it currently produces. Oil production around the world has been strong in recent years. A boom in the US has pushed domestic production up 70 percent since 2008. At the same time, demand for fuels is growing more slowly than expected in Asia and Europe because of weak economic growth. The US economy is faring relatively well, but more fuel-efficient cars and changing driving habits are keeping domestic gasoline demand low.

Meanwhile, the International Energy Agency says the 30% drop in oil prices over the past 4 months will damage the US shale oil boom and cause supply problems down the road. The low prices could deter investment in production, which will eventually hurt supply. Deutsche Bank said recently that 40% of US shale oil production scheduled for 2015 would be “uneconomic” if prices drop below $80 a barrel; that might be what the Saudis are hoping for. It may be tough to shake out those domestic producers; technology has advanced dramatically.

Meanwhile, oil stocks, shares in oil companies, have not taken the same hit as oil. Sure Exxon-Mobil and Chevron are off their highs, but they have rebounded from mid-October lows; just not as much as the rest of the market. Oil broke a very important level of support at $80 a barrel, which is now the new level of resistance; and the next level of support is $75, broken today. Oil is now extremely oversold but almost nobody seems to think it will go much lower from here; and if it does, there will undoubtedly be production cuts. Of course, the contrarian in me says that nobody is expecting oil to go lower, so it probably will. The point here is nobody knows, so let the market tell you.

Today, the Energy Department revised its outlook for gas prices, saying the average price for gas in the US will be below $2.94 a gallon in 2015; that implies oil prices won’t move above about $84; that forecast included a few caveats about production and possible supply disruptions. The EIA also slightly lowered its prediction for growth in U.S. oil production because lower prices will force some drillers to cut back. Production is expected to reach 9.4 million barrels a day in 2015, down from a previous estimate of 9.5 million barrels per day. Still, that would be an increase of 4 percent over this year and the highest domestic crude production since 1972.

Still, $2.94 a gallon is a 44 cent drop from the outlook issued just a month ago; and that’s 45 cents a gallon less than the average price paid this year. And that works out to about $60 billion in savings. It’s almost like everybody will be getting a raise.

Lord knows we need a raise. This is the first “recovery” where median household income has dropped, and continues to drop. The unemployment rate has dropped to 5.8%. Jobs are coming back but wages aren’t. Every month the job numbers grow but the wage numbers go nowhere. Most new jobs are in part-time or low-paying positions. They pay less than the jobs lost in the Great Recession. And wages are less predictable. Most Americans don’t know what they’ll be earning next month and two-thirds are living paycheck to paycheck. When that is the case, workers who have a job tend to stay on the job, even if the wages are stagnant.

That may be changing. The Bureau of Labor Stats published the Job Openings and Labor Turnover Summary, or JOLTS, for September. There were 4.7 million job openings on the last day of September, down slightly from 4.9 million in August. But more employees quit their jobs: 2.8 million in September compared to 2.5 million in August. These are voluntary separations. This means workers have confidence they can leave their job for greener pastures. The number of job openings are up 20% year-over-year compared to September 2013. Quits are up 16% year-over-year.

It’s definitely good for wages. The unemployment rate comes down, but wage growth lags behind. When labor markets finally begin to tighten and the economy nears full employment, that’s when wage growth accelerates. And we are starting to see a shift in attitudes. Consumer confidence has been firming. More Americans are working, more people are changing jobs, and gasoline prices are down; so even if workers haven’t seen an increase in the paycheck, they have more money to spend, and that might fire up more consumer spending.

We are wrapping up earnings reporting season. Today, Walmart posted diluted earnings per share came to $1.15 in the third quarter, narrowly beating estimates of $1.12 a share, and above the $1.14 it booked in the same quarter last year. Total revenue for the quarter grew 2.9 percent from the previous year, to $119 billion. Same store sales were up for the first time in 2 years.

This has been another strong earnings season and US companies are now sitting on mountains of cash. Capital Economics and Audit Analytics figures companies now have $1.9 trillion in cash held in the US, and $2.1 trillion in cash held offshore.

A follow-up to yesterday’s news of $4.25 billion in fines for a half dozen banks involvement in rigging the foreign exchange markets. I know that sometimes it sounds like we repeat the news. The rigging of Forex markets sounds a lot like the rigging of Libor markets or derivatives markets, but the thing that really makes the Forex rigging a bigger problem is that it happened after all those other manipulations. The Forex investigations ran through October of last year. And that means there was absolutely zero deterrent impact from the billions of dollars in fines for Libor, or all those other fines. Did managements really not know, or even suspect, something was wrong? Did they just turn a blind eye? Or did they just not care?

In a rational world, the customers would move their business to firms with higher standards. That is not going to happen because investment banking is almost a closed shop. The six firms involved in the settlement are five of the biggest banks in the world. Clearly billion dollar fines have not altered bad behavior. No doubt criminal convictions would concentrate minds on the trading floor and in the executive suites. Maybe we should rethink the idea that banks have some inalienable right to control foreign exchange markets or interest rate markets with reckless abandon. Six years after the financial crash, some of the world’s biggest banks are still out of control. In other fields, firms with shoddy practices fear the loss of their license to operate. Big banks don’t, but should. At the very least, it should be time to consider suspensions; a six month ban on foreign exchange trading; maybe a three month ban on bond trading. That would shake things up, for the better.

FINANCIAL REVIEW

Thanks Hank

Sinclair Noe — October 7, 2014

0 0 

   

Financial Review

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

DOW – 272 = 16,719
SPX – 29 = 1935
NAS – 69 = 4385
10 YR YLD – .07 = 2.35%
OIL – 1.91 = 88.43
GOLD + 1.50 = 1209.30
SILV – .16 = 17.29

The S&P 500 dropped below its 50-day moving average last week and has yet to move back above that level. Coincidentally, the S&P 500 has been sliding for a few weeks, going back to September 19, which was the day of the Alibaba IPO, just coincidentally. The Dow is also trading below its 50 day moving average. Welcome to the start of earnings season.

In the past 3 months the US dollar has jumped by 8% against the euro. That makes American goods more expensive relative to European goods. And it wasn’t just the dollar against the Euro, but against a basket of foreign currencies. It is estimated that a 5% rise in the dollar versus the euro results in a drop of about $1 for full-year Standard & Poor’s 500 Index per-share earnings; current estimates for the S&P are running around $118. Partly because of the dollar and the related decline in oil prices, earnings estimates have seen one of the largest downward revisions over the last few years aside from the weather-beaten first quarter of this year.

Earnings-per-share are projected to have grown 4.9% in the third quarter, that’s down from 7.8% earnings growth 3 months ago. At the end of March, third quarter earnings were forecast to grow 9%. The strong dollar may have an even greater impact on guidance for the fourth quarter. Alcoa marks the unofficial start of the earnings season with their report after markets close tomorrow.

US job openings hit a 13-year high in August. According to a report published by the US Labor Department, there were 4.84 million open jobs to fill in the US in August, up from 4.61 million the previous month. The good news is economists were only expecting 4.7 million job openings. The bad news: Hiring in August dropped to 4.6 million from 4.9 million in July.

Americans boosted their use of credit in August by the slowest rate in nine months. Consumers increased borrowing by a seasonally adjusted $13.5 billion in August, or by a 5% annual rate. The gain was the smallest since last November and marks a big deceleration from the 8.1% increase in July. Consumers took out more loans to buy cars or pay for college, with non-revolving credit rising by 7%. Yet Americans actually cut credit-card use a touch, as revolving credit dropped 0.2%. Consumer credit increased by an annual pace of 6.2% in 2012 and 6% in 2013 and it’s on track to grow even faster in 2014 despite the slowdown in August.

A gauge that tracks delinquencies in eight major types of closed-end loans, such as credit to buy cars or pay for property improvements, dropped in the second quarter to 1.57%, the lowest rate in the data’s four-decade history; the data does not include home purchase mortgages.

The International Monetary Fund trimmed its forecast for global economic growth to 3.3%, down from the earlier forecast of 3.4%, forecast in July. The IMF predicts the US economy will grow at a 2.2% pace, which is up from the July forecast. The 17-nation euro zone is expected to expand by just 0.8% this year. If you are thinking you’ve heard this story before, and I’m just repeating myself, well, not exactly; the IMF has developed a nasty habit of missing economic forecasts, and when the misses are exposed, they are forced to revise.

Three scientists win a Nobel for making the world a little brighter. Isamu Akasaki, Hiroshi Amano, and Shuji Nakamura won the Nobel Prize for physics for their discovery of how to produce blue light from semi-conductors, which allowed for the creation of white-light LEDs. So, the Nobel goes to the inventors of a new light bulb, but that is a major deal.

Nearly a fourth of global electricity consumption is used to brighten dark spaces. Traditional incandescent and fluorescent lights are notoriously inefficient with much of the energy used to produce light lost in the form of heat. Meanwhile, LED lamps last longer and use a fraction of the energy to produce the same, if not more, light. That has huge consequences for the developed world, and cities, offices, and homes are already swapping out old bulbs for the brighter, more efficient LEDs. But the technology has perhaps even greater significance for the more than 1.5 billion who lack access to electricity grid. In Sub-Saharan Africa, that’s two out of three people. By requiring less power, LEDs perform better than traditional lights on portable, scale solar energy, which makes spreading electricity to rural, off-grid regions much easier.

Federal officials asked a group of large banks and other financial institutions last month to check if they had seen indicators associated with the cyberattack that resulted in the theft of account information for millions of JPMorgan customers this summer. A number of financial institutions responded that they had seen traffic from the suspect computer addresses linked to the hackers, but that they didn’t believe they had been breached. Rather, the hackers, whose identity remains unknown, appeared to be “probing,” or searching for weaknesses on the firms’ digital perimeters. So, who has the weakest cyber security? Either the other financial institutions have been hacked and they just don’t realize it yet, or JPMorgan was a pathetically weak link.

The New York Times reports that the Department of Justice is preparing to charge several of the world’s biggest banks with colluding to alter the price of foreign currencies; essentially rigging the Forex market. Deutsche Bank, Citigroup, JPMorgan Chase, Barclays and UBS are among the dozen or so banks under investigation. Prosecutors are reportedly planning to indict individual bank employees for currency manipulation. They will not be going after the bank executives, but rather the traders. That is a familiar story. Everyone knows that the CEOs of big banks know absolutely nothing about what’s actually going on in their banks. The execs offer up a sacrificial lamb and go on with their unsavory practices, but this time might be different.

The idea is that prosecutors would use the currency rigging to reopen earlier settlements in the Libor interest rate rigging cases. Those rate rigging cases have already led to settlements with 5 banks, and part of the deal there was not to do bad things like rig markets. Meanwhile, some banks also remain under investigation. In the last major rate-rigging case against a bank, prosecutors are discussing the possibility of forcing Deutsche Bank or one of its subsidiaries to plead guilty to manipulating Libor. And the Libor case could quite easily result in criminal charges, if the DOJ has the spine for it. That remains to be seen. So far the Department of Justice has been afraid of the impact of a wounded bank on the world economy, and so they have done little more than levy “slap-on-the-wrist” fines, essentially taking a cut of the ill-gotten gains; like allowing a Cocaine Cartel to pay its criminal fines in crack.

The AIG bailout trial started last week. The trial is largely the result of former AIG CEO Maurice “Hank” Greenberg arguing that AIG wasn’t treated as well as the banksters when it came time to pass out taxpayer bailouts. The banksters got sweetheart deals, and for AIG, the government demanded 80% of the company stock, and used it as collateral against the loan, and charged 12% on the loan, and later, started sweeping all the dividends. Greenberg and his companies, notably Starr International, were the biggest AIG investors at the time, and the government’s bailout effectively crushed their shares.

Of course, AIG had been playing fast and loose with derivatives of subprime mortgages, and they had been forced to restate earnings, and their entire operation was a big, greedy hot mess that likely would have collapsed without a taxpayer bailout. AIG had become the industry leader in credit default swaps, essentially insuring the big banksters on large swaths of toxic mortgage deals. If AIG did not unravel all that credit default insurance, the entire banking structure likely would have collapsed.

Yesterday, former Treasury Secretary Hank Paulson admitted that certain firms were treated differently than others; AIG was treated tougher than Citigroup; Paulson said that circumstances warranted it because those banks were more essential to keeping the financial system afloat. He said that the government had to treat AIG harshly to win political support. Of course, the government didn’t treat AIG that harshly, gifting them a carryover tax benefit worth $35 billion and letting their executives take bonuses in 2009. Hank Greenberg argues that AIG could have survived; that other potential suitors were ready to step in with offers, but the government made them an offer they couldn’t refuse, and then the government changed the terms of the offer. There has been no testimony that a gun was held to anyone’s head. AIG took the deal at the time.

Today, Tim Geithner took the stand; Geithner was the president of the New York Fed in 2008, before he succeeded Paulson as Treasury Secretary. Geithner admitted that he had described an AIG bankruptcy as an unacceptable option and that the company represented a “systemic risk” in September 2008 that required government intervention. And that seems to be Greenberg’s argument; that the bailout of AIG was punitive and confiscatory. And it looks like it probably was. That’s what it should have been. AIG was forced to pay the credit default swap insurance, the banks survived; the taxpayers were paid back for their bailout of AIG, and now Hank Greenberg and Starr International want an extra $40 billion.

Of course, AIG might have gone completely bust, they could have dragged down the banksters with them, and the entire financial system could have melted down, and Hank Greenberg could be scrounging for a meal in the dumpster. Instead, he was left with a few billion, just enough to hire some high priced lawyers to spit in the face of taxpayers who saved his bacon. Thanks Hank.

http://dealbook.nytimes.com/2014/10/06/big-banks-face-another-round-of-u-s-charges/

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.