Financial Review

Sunshine

Sinclair Noe — June 15, 2017

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DOW – 14 = 21,359
SPX – 5 = 2432
NAS – 29 = 6165
RUT – 7 = 1410
10 Y + .02 = 2.16%
OIL – .47 = 44.26
GOLD – 6.40 = 1254.70
BITCOIN – 1.86% = 2411.30 USD
ETHEREUM – 3.44% = 348.76

The Dow could not hang on to record highs and the S&P 500 and Nasdaq Composite continued to slip. A selloff in technology stocks that began last Friday has clipped 4.1 percent off the S&P 500 information technology index as investors worry about stretched valuations in 2017’s top-performing sector.

During that time, Alphabet has lost 5.8 percent, Amazon is down 5.2 percent and Facebook is off 4 percent. Apple has declined more than 7 percent in the past five days. Valuations of the mega-tech stocks have moved to lofty levels and there is reasonable concern that valuations have grown too large relative to earnings forecasts.

The question is whether this is just a healthy pullback or the beginning of something more ominous. You must to decide for yourself, but it certainly means you should be paying closer attention to any holdings in these big tech names.

Factory production slipped 0.4 percent in May, as manufacturers cranked out fewer cars, computers and semiconductors, a sign that economic growth remains sluggish. The drop follows a big 1.1 percent gain the previous month, so we might be looking at a little statistical noise.

Overall industrial production, which includes mining and utilities, was unchanged in May. Mining activity posted a large gain for the second straight month, rising 1.6 percent. Much of that increase has been driven by greater oil and gas drilling. Utility production rose 0.4 percent.  Americans are buying fewer cars, after sales reached record levels last year. They have now fallen for five straight months. Automakers responded by slicing output 2 percent in May.

The Empire State manufacturing index climbed to 19.8 in June after falling to minus-1 in May. Readings above zero show that factories are expanding. The Empire State index only measures sentiment in New York, but economists track it because it provides an early read on factory output nationwide. It has risen seven of the last eight months.

The number of Americans applying for unemployment benefits fell for a second straight week. The Labor Department said claims for jobless benefits last week dropped by 8,000, to a seasonally adjusted 237,000. The less-volatile four-week average rose by 1,000 to 243,000. Overall, 1.94 million people were collecting unemployment checks, down 10.2 percent from a year ago.

Applications for unemployment benefits have come in below 300,000, a historically low figure, for 119 straight weeks, the longest such stretch since 1970. And while it is an impressive streak, it also reminds us that fewer people are eligible for unemployment benefits.

The national jobs report is issued the first Friday of each month and each state then reports on non-farm payrolls around the middle of the month. Today, Arizona reported the statewide unemployment rate slightly increased from 5.0% in April to 5.1% in May; still better than 5.3% a year ago, but not as strong as the 4.3% national rate.

Arizona lost 14,700 Nonfarm jobs in May. The private sector lost 5,500 jobs, and government cut 9,200 jobs. Arizona Nonfarm employment grew by 1.8% (48,200 jobs) over the year in May.

President Trump today signed an executive order to expand federally funded apprenticeship programs. The order takes $100 million away from other federally funded job training programs to fund the new apprenticeships. And while apprentice programs seem like a good way to close the skills gap, some economists say the skills gap is not the problem, or at least no more of a problem today than in years past.

Instead they point to a slowdown in startup businesses and new technology that has allowed employers to conduct more thorough research on an applicant before hiring. The proportion of middle-skill jobs in the economy (jobs that might benefit from an apprentice program) has declined since the 1980s, while relative job growth has been concentrated at either the low end of the spectrum, like retail, or the high end, like software development.

In other words, jobs that don’t need extensive training or jobs that need more training than an apprenticeship.

The Senate voted 98-2 approving legislation to impose new sanctions on Russia, and to force President Donald Trump to get Congress’ approval before easing any existing sanctions on Russia. The measure is intended to punish Russia for meddling in the 2016 U.S. election, annexation of Ukraine’s Crimea region and support for Syria’s government in the six-year-long civil war.

The bill also includes new sanctions on Iran over its ballistic missile program and other activities not related to the international nuclear agreement reached with the United States and other world powers. The bill now goes to the House of Representatives.

The Washington Post reported late Wednesday that the special counsel investigating Russian influence in the presidential campaign is now examining whether President Trump tried to obstruct justice. Allegations of obstruction arose last month when he fired FBI Director James Comey.

Meanwhile, the Senate is continuing work on legislation to repeal the Affordable Care Act. If you are not familiar with the Senate version of the repeal, you are not alone. Senate republicans are keeping it a secret. In theory, the bill is open to any of the 52 republican senators, but few seem to know about any of the details.

Democrats have been locked out of the process, along with the rest of the public. Tom Price, the secretary of health and human services, said that he, too, had not seen the Senate bill. The legislation will be considered in the Senate under an expedited procedure that precludes a Democratic filibuster and allows passage by a simple majority. Sunshine is always the best disinfectant.

The Bank of England met today and left interest rates unchanged at a record low of 0.25 percent, but a surprisingly large number of the members of its Monetary Policy Committee, three out of eight, opted for a quarter-point increase. The main concern appears to be inflation, which at 2.9 percent is running hot; but any attempts to curb inflation by hiking rates also runs the risk of slowing the economy, which is already sluggish.

The Bank of Japan concludes a two-day board meeting Friday that isn’t expected to bring any change in policy. The focus will be on Governor Kuroda’s press conference and any clues he gives about possible adjustments to his monetary program and an eventual exit from stimulus.

Yesterday, the Federal Reserve raised interest rates again, and said more increases are on the way, on the belief that the recent slowdown in inflation is transitory. Don’t tell Kroger. Grocery chain Kroger took its biggest one-day loss since 1999.

The company cut its annual profit outlook as it deals with growing competition from discount chain Aldi and from Lidl, a German chain opening its first locations in the US. Kroger’s stock plunged $5.72, or 18.9 percent, to $24.56. Kroger said lower food prices were hurting its profits, sparking a sell-off among its competitors, including Whole Foods and even Wal-Mart.

And while wheat prices have been moving higher on weather related news, most other commodities are significantly lower. Look at oil, now trading below $45 a barrel. Lower oil prices ripple through the economy, putting a lid on inflation. And the lid, or resistance level, for oil seems to be around $55 a barrel; that’s the price that spurs US shale producers to ramp up production.

Meanwhile, bond traders do not seem to share the Fed’s enthusiasm for economic growth. The spread between the yields on two-year and 10-year Treasuries fell to 80 basis points today. The spread is currently within a few hundredths of a percentage point of being the tightest it has been since 2007. A flattening yield curve points to slower economic growth.

Wells Fargo has stepped in it again. The bank has been dealing with a scandal involving opening over 2 million bogus accounts without customer consent. Now Wells Fargo faces a new round of lawsuits accusing the bank of modifying mortgages without customers’ consent.

Any change to a payment plan for a person in bankruptcy is subject to approval by the bankruptcy court and the other parties involved. The changes are part of a trial loan modification process from Wells Fargo and typically resulted in lower monthly loan payments, which would seem to benefit borrowers, particularly those in bankruptcy.

But deep in the details was this fact: Wells Fargo’s changes would extend the terms of borrowers’ loans by decades, meaning they would have monthly payments for far longer and would ultimately owe the bank much more. They put borrowers in bankruptcy at risk of defaulting on the commitments they have made to the courts, and could make them vulnerable to foreclosure in the future.

According to court documents, Wells Fargo has been putting through unrequested changes to borrowers’ loans since 2015. Wells Fargo stood to profit from the new loan terms it set forth, and, under programs designed to encourage loan modifications for troubled borrowers, the bank receives as much as $1,600 from government programs for every such loan it adjusts.

This is not the first time Wells Fargo has been accused of wrongdoing related to payment change notices on mortgages it filed with the bankruptcy courts. Under a settlement with the Justice Department in November 2015, the bank agreed to pay $81.6 million to borrowers in bankruptcy whom it had failed to notify on time when their monthly payments shifted to reflect different real estate taxes or insurance costs.

Maybe you are starting to sense a pattern of bad behavior. They just reach into your pocket and take your money because they can. And because nobody stops them.

Financial Review

And Pause

Sinclair Noe — March 2, 2017

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

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DOW – 112 = 21,002
SPX – 14 = 2381
NAS – 42 = 5861
RUT – 17 = 1395
10 Y + .03 = 2.49%
OIL – 1.21 = 52.62
GOLD – 15.00 = 1235.00

Yesterday, the Dow advanced about 300 points to close above 21,000 for the first time, just 24 trading sessions after it first hit 20,000. That matches the fastest-ever move between thousand-point milestones, which last happened in 1999 and took the index above 11,000.

The number of Americans filing for unemployment benefits fell to near a 44-year-low last week. Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 223,000 for the week ended Feb. 25, the lowest level since March 1973.

It was the 104th straight week that claims remained below 300,000, a threshold associated with a healthy labor market. That is the longest stretch since 1970.

The Federal Reserve’s Beige Book, a collection of anecdotes about the economy gathered before the central bank makes interest-rate decisions, said “businesses were generally optimistic about the near term but to a somewhat lesser degree than in the prior report.” Overall, the US economy continues to meander along, with all districts reporting “modest to moderate” growth.

Federal Reserve Gov. Lael Brainard has been among the most consistent doves at the Fed, but now, “near-term risks” to the U.S. from abroad appear to have diminished. Brainard the US economy appears to be in transition to a more stable growth path and gradual interest-rate hikes are likely to be appropriate “soon.”

Fed Gov. Jerome Powell became the latest Fed official to hint that a hike is imminent when he said Wednesday that the case for raising interest rates in March “has come together.” Fed Chair Janet Yellen is set to speak on the economic outlook in Chicago on Friday in her last speech before the Fed’s March 14-15 meeting.

Emerging-market borrowers are selling bonds at an unprecedented pace before the Federal Reserve raises interest rates. Emerging-market issuance in dollars and euros this year has already exceeded $100 billion. That’s the fastest pace ever and almost 20 percent more than the previous record for the period in 2014. With yields still favorable to borrowers, they may accelerate plans to refinance maturing debt and lock in current yields.

The yield on the two-year US Treasury note rose 3 basis points to 1.32% in recent trade, its highest end-of-day level since June 10, 2009. Bond yields rise as prices fall. The yield also notched its largest four-day increase since Feb. 8, 2011. The yield on the 10-year Treasury note has popped about 16 basis points in the past week.

The dollar advanced. Oil closed at the lowest level in more than three weeks. US stockpiles expanded to 520 million barrels, the most in weekly government data going back to 1982, even as Saudi Arabia continued to lead OPEC’s efforts to cut production to end the glut.

Snapchat parent Snap Inc raised $3.4 billion in its IPO last night, valuing the company at $24 billion, more than double the size of Twitter and the richest valuation in a U.S. tech IPO since Facebook five years ago.

The shares priced at $17 each, above the expected range of $14-16. And the IPO was oversubscribed by more than tenfold; and when shares started trading, there was a pop to $25, and shares closed at $24.47.

Snapchat’s founder and early investors cashed out over $1 billion today. This for a company which reported revenues of $404 million with losses of $515 million in 2016. And shareholders don’t have voting rights. Go figure.

About 32 million Yahoo user accounts were accessed by intruders in the last two years using forged cookies. The company said some of the latest intrusions can be connected to the “same state-sponsored actor believed to be responsible for the 2014 breach,” in which at least 500 million accounts were affected.

Yahoo also said in December that data from more than 1 billion user accounts was compromised in August 2013. Yahoo’s board of directors have decided to forgo CEO Marissa Mayer’s 2016 bonus following the results of an internal investigation of how the company’s massive hacks were handled.

Yesterday, Amazon’s cloud service S3 went down for a few hours. Today, Amazon blamed the outage on human error and the movie LaLa Land.

Banks globally have paid $321 billion in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing, per data compiled by Boston Consulting Group. That tally is set to increase in the coming years as European and Asian regulators catch up with their US peers, who have levied most charges to date.

The Labor Department has proposed delaying a rule that would require retirement advisers to act in the best interest of their clients. The “fiduciary rule” was set to go into effect on April 10 and would have prohibited retirement advisers from accepting incentives for promoting certain funds over others.

The Labor Department announced a proposed 60-day extension for the rule to go into effect on June 9. During that time, the department said it will collect applicable information on the possible effects of rule, including public comments.

As credit card companies compete for customers by offering increasingly better rewards and perks, American Express is giving its Platinum card a facelift and a benefits overhaul. The newly-enhanced card will come with Uber credits, increased travel rewards and more access to special events. But the new benefits don’t come cheap. The card carries a $550 annual fee, an increase from $450, and currently offers no sign-up bonus.

Federal law enforcement officials searched three facilities of heavy machinery manufacturer Caterpillar in Illinois. It was not immediately clear why federal agents raided the three locations, but Caterpillar has been fighting an Internal Revenue Service demand that the company pay $2 billion in taxes and penalties for profits assigned to a Swiss parts distribution subsidiary, Caterpillar SARL, or CSARL, per filings with the Securities and Exchange Commission.

That subsidiary was also the subject of a 2014 Senate committee report that charged Caterpillar “shifted billions of dollars in profits away from the United States.” Caterpillar also disclosed in its report that it had received grand jury subpoenas from the U.S. District Court for the Central District of Illinois seeking documents and information related to the movement of cash among U.S. and non-U.S. subsidiaries, and the purchase and resale of replacement parts.

Boeing is cutting its Seattle-area workforce by at least 1,800 jobs this year as the company streamlines operations. Boeing approved voluntary layoffs for 1,500 mechanics. Another 305 engineers and technical workers are leaving voluntarily.

Anheuser-Busch InBev  reported worse-than-expected quarterly results. The company said that challenges in Brazil hurt its overall performance.

Shake Shack same-store sales whiff. The burger chain announced adjusted earnings of $0.09 a share, matching estimates, but said same-shack sales, or sales in stores open at least two years, rose 1.6%, well shy of the 2.6% estimated gain.

Barnes & Noble reported third-quarter profit that missed expectations. Same-store sales fell 8.3%, largely due to lower traffic and a decline in coloring books, artist supplies and the best-selling Adele album that was released in 2015. The company now expects full-year 2017 same-store sales to decline about 7%.

Broadcom came in 15 cents above estimates with adjusted quarterly earnings of $3.63 per share, while the chip maker’s revenue was slightly above estimates. The company, which is a major supplier for Apple, said it expects healthy demand for its products to continue.

After the closing bell, Costco reported fiscal second-quarter per-share earnings and sales below expectations and said it plans to raise membership fees in June by $5.

The creepiest thing of the day, and there were multiple candidates – goes to Spiral Toys; a company that sells internet-connected teddy bears that allow kids and their far-away parents to exchange heartfelt messages left more than 800,000 customer credentials, as well as two million message recordings, totally exposed online for anyone to see and listen.

Since Christmas day of last year and at least until the first week of January, Spiral Toys left customer data of its CloudPets brand on a database that wasn’t behind a firewall or password-protected. The exposed data included more than 800,000 emails and passwords.

As we’ve seen time and time again in the last couple of years, so-called “smart” devices connected to the internet—what is popularly known as the Internet of Things or IoT—are often left insecure or are easily hack-able, and often leak sensitive data. There will be a time when IoT developers and manufacturers learn the lesson and make secure by default devices, but that time hasn’t come yet.

So, if you are a parent who doesn’t want your loving messages with your kids leaked online, you might want to buy a good old fashioned teddy bear that doesn’t connect to a remote, insecure server.

Tomorrow is the first Friday in March, but it is not a Jobs Report Friday. The jobs report is a monthly ritual for anyone following markets or the US economy, as it contains some of the main data points measuring the health of the labor market in the world’s largest economy.

The report almost always comes out on the first Friday of the month, but not this month: The February 2017 report is scheduled to be released on March 10, a week later than might be expected. It turns out that this is due to the way the jobs numbers are gathered and how the days of the week fell this year during a short month.

When the 12th is on a Sunday and there are 30 days or less in the month, the release date will wind up being the second Friday of the following month – so March 10, not tomorrow.

Attorney General Jeff Sessions said he would recuse himself from investigations involving the Trump campaign over his contacts with Russian officials during the 2016 election, but stood firm on the answers he gave during his Senate confirmation hearing about his past communications. Sessions denied during his confirmation hearing that he had ever communicated with any Russian officials while he was a top Trump campaign surrogate.

During his press conference, Sessions emphasized that he didn’t meet with Russian operatives about the Trump campaign during the election. So, the story is shifting. Is it too late to change my vote for Creepiest Thing of the Day?

Financial Review

Déjà vu

Sinclair Noe — February 2, 2017

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DOW – 6 = 19,884
SPX + 1 = 2280
NAS – 6 = 5636
RUT – 3 = 1357
10 Y – .01 = 2.47%
OIL – .23 = 53.65
GOLD + 6.40 = 1217.00

In Pennsylvania, today the famed groundhog Punxsutawney Phil emerged from his burrow Thursday and saw his shadow. In Arizona, Agua Fria Freddie slithered from his hole and saw his shadow. Six more weeks of winter per folklore.

Yesterday, Janet Yellen must have seen her shadow, so at least 6 more weeks without a rate hike.

Yesterday afternoon, the Federal Reserve wrapped up its two-day policy meeting and stuck to its mildly upbeat view of the economy but gave no hint on when it will next raise interest rates. The FOMC held its benchmark interest rate between a range of 0.50% and 0.75% while noting that the labor market “remains solid” and inflation was “still below” its 2% target.

Today, the Bank of England, while raising its forecast for British growth this year, also kept policy unchanged and said rates could go either way depending on the economic outlook. The BOE held its key interest rate and asset-purchase program unchanged at 0.25% and 435 billion pounds, respectively, but some members raised concerns about accelerating inflation, with forecast that prices could rise at 2.8% following the sharp drop in the pound sterling.

U.S. worker productivity slowed in the fourth quarter, leading to the smallest annual increase in five years. Productivity, which measures hourly output per worker, rose at a 1.3 percent annual rate in the quarter. Productivity in the third quarter was revised up to show a 3.5 percent pace of increase.  Productivity has increased at an annual rate of less than 1.0 percent in each of the last six years.

The number of Americans who applied for unemployment benefits at the end of January fell by 14,000 to 246,000, an extremely low level that might foreshadow another solid employment report tomorrow. New claims have tallied less than 300,000 for 100 straight weeks, a streak that last occurred in 1970. The economy had created more than 2 million jobs per year for six straight years.

Tomorrow is the nonfarm payroll report for January. Most estimates are running around 175,000 new jobs for the month, but with strong economic reports, some estimates are running as high as 200,000. The December report came in at 156,000 jobs and 4.7% unemployment.

The US Treasury Department said it will allow companies to do some transactions with Russia’s Security Service (FSB), despite cyber-sanctions put in place by former President Barack Obama. US intelligence agencies accused the FSB of involvement in hacking of Democratic organizations during the 2016 presidential election. But the White House insists it is not loosening sanctions.

President Trump said today he’d like to “speed up” talks over renegotiating the North American Free Trade Agreement, which he said has been a “catastrophe” for U.S. workers and jobs. His comments come a day after Mexico kicked off the countdown on trade negotiations. President Enrique Peña Nieto announced Wednesday he would start trade negotiations to reform NAFTA in May, after a 90-day consultation period with Mexican businesses.

Facebook had a blockbuster quarter. The social-media giant earned $1.41 a share as revenue exploded by 51% versus a year ago, to $8.81 billion. Both monthly active users and daily active users outpaced estimates. Ad sales grew 53 percent. But Facebook shares dropped almost 2% today. Go figure.

After the closing bell, Amazon reported weaker-than-expected holiday sales. The company reported net income of $749 million, or $1.54 a share, compared with $482 million, or $1 a share, in the year-earlier period – missing earnings estimates. Sales for the period increased 22% to $43.7 billion from $35.7 billion a year ago, that was also a miss on revenues.

Amazon lowered guidance for the current quarter. Amazon dropped about 4% in after-hours trade, which was easy to figure. And while Amazon is being punished for falling short of expectations, let’s take a moment to recognize that Amazon had $2.4 billion in net income for the full year, up more than 300% from the year before. While it did not manage to match that performance in the fourth quarter, Amazon still increased profit 55% in its biggest period of the year.

Deutsche Bank posted a loss of €1.4 billion-euro for 2016, citing restructuring and “negative news flow” around a fine from the US Department of Justice. Legal costs hurt as well. Its $7.2 billion US penalty, the largest against any bank, was for fines and compensation for its involvement in the toxic debt crisis of 2008. Revenue declined 10% to €30 billion-euro.

Merck reported better-than-expected U.S. quarterly sales for its key cancer drug, Keytruda, but overall fourth quarter sales missed estimates. Earnings of 89 cents per share matched estimates. Merck forecast largely in-line 2017 results.

Ralph Lauren dropped about 10% this morning after its CEO abruptly resigned. The fashion company reported a 12% drop in holiday quarter revenue to $1.71 billion due to weak consumer demand.

 Macy’s is trying to sell Macy’s. The department store chain has slashed jobs and stores, sold off pricey real estate, and announced the retirement of its long-time CEO Terry Lundgren to appease investors. But hedge funds have run out of patience for losses as the entire apparel sector reels from a disappointing Christmas holiday shopping season.

Royal Dutch Shell recorded its worst annual profit in more than a decade. The CEO said he’s pleased with 2016’s $52 billion takeover BG Group, but Shell is close to selling assets totaling $5 billion to cut debt. And although Shell’s fourth-quarter profit was lower than expected at $1.8 billion due to tax impairments and full-year earnings dropped, it still made more money than rival Exxon Mobil in the second half of the year.

Sony cut its full-year profit forecast for a second time after posting quarterly earnings that missed estimates on a major write-down. Net income will be $23 million in the 12 months ending March. Sony said it does not plan to sell its pictures business after suffering a $1 billion write-down, and instead aims to turn it around by adding sales channels and making more use of movie characters.

Reckitt Benckiser Group  is in advanced talks to buy Mead Johnson Nutrition in a $16.7 billion deal that would take the British consumer goods maker into the baby formula market and boost its business outside of Europe.

A South Korean court has decided to end Hanjin Shipping’s court receivership process and expects to declare bankruptcy on Feb. 17 after a two-week period for appeals. It made the decision as the firm’s liquidation value would be worth more than its value as a going concern.

Alphabet’s self-driving car unit is far more comprehensive and mature than its rivals, according to new statistics released by regulators. The data shows that Waymo logged 30 times more miles of testing in autonomous vehicles than all its competitors combined last year in California. Its cars were also the most accurate, with human intervention needed for safety reasons only 0.2 times per thousand miles.

It’s not legal to fly a drone anywhere near an airport — at least not without a special waiver from the Federal Aviation Administration. For the first time under the FAA’s commercial drone rules, the agency granted permission to operate a drone at an airport.

Seven flights were conducted by Berkeley-based 3D Robotics on Jan. 10 at Hartsfield-Jackson Atlanta International, the busiest airport in the world. The 3D Robotics drone was given permission to collect data on two, four-story parking structures at the airport that a construction firm was hired to demolish.

In its broadest deployment, so far, IBM’s Watson will be assisting H&R Block’s 70,000 tax professionals this filing season at 10,000 branch offices across the country, where 11 million people file taxes. The AI partnership will be presented during a 60-second Super Bowl television ad.

Financial Review

Dog Days Drag On

Sinclair Noe — August 4, 2016

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

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DOW – 2 = 18,352
SPX + 0.46 = 2164
NAS + 6 = 5166
10 Y – .04 = 1.50%
OIL + .89 = 41.72
GOLD + 2.70 = 1361.40

Another day on Wall Street without conviction. The major indices continue to trade in a very, very tight range.

The Bank of England cut interest rates 25 basis points to 0.25 percent.  The bank also announced it would expand its quantitative-easing program by 60 billion pounds and purchase corporate bonds.

The basic argument for the rate cut is to stimulate economic growth by encouraging people to borrow and invest. This, in turn, should help to spur inflation. The rate cut was widely expected. The extension of bond buying was not as widely expected. The introduction of corporate bond buying will be of particular interest to the markets since it has only briefly been experimented with in the past.

The BoE left its forecast for growth this year steady at 2.0 percent, but 2017 brings a sharp downgrade to growth of just 0.8 percent from a previous estimate of 2.3 percent. Businesses in the U.K. are looking beyond the Bank of England and are calling on Chancellor of the Exchequer Philip Hammond to deliver a “bumper” fiscal stimulus.

The number of Americans filing for unemployment benefits rose last week. Initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 269,000 for the week ended July 30. Claims have now been below 300,000, a threshold associated with a strong labor market, for 74 consecutive weeks, the longest streak since 1973.

In separate report, global outplacement consultancy Challenger, Gray & Christmas said employers in the U.S. announced plans to cut 45,346 workers from their payrolls in July, a 19 percent increase from June. Though it was the second straight monthly increase, layoffs were 57 percent lower than in July last year. Job cuts in the energy sector surged 796 percent to 17,725 last month.

Tomorrow is the monthly jobs report from the Department of Labor. The past couple of months have been anything but normal. Employers added a meager 11,000 workers in May, the fewest in almost six years. Payrolls rebounded by 287,000 in June, the most in eight months.

Most estimates are calling for 180,000 or so new jobs in July. Job gains averaged 172,000 a month in the first half of this year. The jobs report is also projected to show the unemployment rate fell to 4.8 percent after climbing to 4.9 percent in June as more people entered the labor force.

As joblessness has reached the Fed’s threshold for full employment, economists are anticipating the pace of payroll growth will slow further. Even if the economy adds just 150,000 new jobs each month, it would push the unemployment rate lower. Wage growth remains flat. A tightening labor market should prompt hiring managers to offer more pay to attract and retain skilled and experienced workers but we really haven’t seen wage pressure.

The US is importing more oil than it’s producing. Domestic production in the U.S. remains under pressure, down 1 million barrels a day in July from a year earlier, while crude imports surged to the highest level since 2012. A large OPEC supply has caused the US to import more oil than it has produced for the first time since January 2014. According to an analyst’s report from Commonwealth Bank, “the increase in US oil imports reflects OPEC’s strategy to target market share instead of price.”

Revenue from tech deals is at its highest level since the dot-com bubble. Tech mergers and acquisitions have brought in $1.9 billion this year, according to Dealogic. That’s up 11.8% from the same period last year and trails only the same period in 2000 ($2.2 billion) for the highest total.

There have been 54 IPOs through July this year, down 54% from 118 deals during the same period in 2015. These IPOs raised $11.5 billion, down 50%. It was the worst year-to-date since 2009. Of the 54 IPOs, 23 were healthcare companies. Their 43% share of all IPOs so far this year is the highest on record, according to Dealogic. Another 11 were in finance. Only 9 were in technology.

Only two IPOs – Twilio and Line – have priced above range, down from 31 last year, the lowest year-to-date number on record. There simply isn’t a whole lot of appetite for overpriced and overhyped IPOs.

The US Chamber of Commerce and the Texas Association of Business filed a lawsuit in Texas federal court that said a regulation from the U.S. Treasury Department in April exceeded what the law allows the department to do. The lawsuit is the first to challenge a rule on inversion, or transactions used by a company whereby it becomes a subsidiary of a new parent company in another country for the purpose of falling under beneficial tax laws.

Typically, they are used by US companies to move to countries with lower tax rates, even though they still maintain much or most of their operations in the US. A wave of inversions largely ended after Treasury moved against the deals. A Treasury spokeswoman said in a statement that its action was based on strong policy interests and clear legal authority. It said the department would continue to defend the regulations to slow the erosion of the US corporate tax base.

JPMorgan Chase said US and British authorities ended probes into its activities involving Libor and other benchmark rates without issuing new fines. JPMorgan paid $89 million to the European Union’s antitrust unit in 2013 as part of a multi-firm settlement in relation to Yen Libor. The bank said at the time this concerned “the conduct of two former traders during a one-month period in early 2007.” Now regulators from both countries say they have closed their investigations without further action.

Toyota slashed its forecast. The world’s largest automaker says full-year operating profit will come in at 1.6 trillion yen ($15.7 billion), down from its previous forecast of 1.7 trillion yen. That would represent a 44% drop in profit, caused mostly by the strength of the Japanese yen. Every Toyota and Lexus model available in the U.S. has posted sales declines in 2016, a trend putting Volkswagen on course to surpass its Japanese rival as the world’s top-selling automaker.

In other earnings news: Shares of the mobile payments company Square rose after it reported strong second-quarter results and raised its projections for the year. The stock rose 8.43 percent.

The hamburger chain Jack in the Box reported better-than-expected results and raised its forecasts for the year. Its stock gained 10.56 percent.

The travel website operator TripAdvisor reported lower revenue growth and profit margins in the second quarter, disappointing analysts. The company also said terrorism was one thing making it harder to predict how its business will perform. Its stock lost 8.49 percent.

LinkedIn reported quarterly earnings that beat analysts’ expectations, as sales popped across the board, with revenue up 31%.

MetLife, the largest U.S. life insurer, reported a quarterly profit that widely missed analysts’ estimates, largely due to weaker underwriting and tax-related adjustment in two of its largest markets. Shares dropped about 4% in after-hours trade.

U.S. government researchers have begun their first clinical trial of a Zika vaccine. Meanwhile, funds to fight the virus are expected to run out in the coming weeks due to congressional inaction. The number of locally spread Zika cases has jumped to 15 in Florida and the number of U.S. states affected has reached 45. As of July 27, 1,658 travel associated cases of Zika were reported across the continental U.S. and Hawaii.

Daily fantasy sports games are resuming in New York after Gov. Andrew Cuomo likened the contests to a “game of skill” rather than “based on chance” and signed a bill that will allow operators like DraftKings and FanDuel to obtain registrations. The law requires them to pay an annual fee of as much as $50,000 with a 15% tax on their revenue. It also bars anyone younger than 18 years old from playing and prohibits college and high school matches.

Just do it! Except for golf – don’t do that. Nike is getting out of the golf equipment business. Nike said it would stop making clubs, golf balls and golf bags, instead devoting its resources to shoes and apparel. And Tiger Woods’ golf bag is going to have a different look whenever he returns. Sales at the Nike Golf division fell 8.2% to $706 million in the fiscal year that ended in May, making it the company’s worst performing major category. Shares of Callaway Golf jumped almost 9% this morning.

Meanwhile, Golfsmith International, the retailer of golf clothing and equipment, is considering filing for bankruptcy. Golfsmith hired the investment bank Jefferies LLC to solicit buyers for the roughly 150-store chain, without success so far.

After six years of effort and about $30 million in investments, space-exploration startup Moon Express has become the first commercial venture to get U.S. regulatory authorization for a mission beyond Earth’s orbit. The company expects to send a small robotic lander to the moon in late 2017, and eventually plans to send people there and may get involved in lunar mining.

Apple spent $850 million last year on a 130-megawatt solar farm near San Francisco, and now Apple can begin selling power into wholesale markets, joining Google parent Alphabet in the energy-trading business. Apple’s subsidiary Apple Energy LLC may sell energy, capacity and other services needed to maintain reliable power, according to an order by the Federal Energy Regulatory Commission.

Apple, together with Google, are among a group of tech companies outside the utility industry ramping up investments in energy projects. In addition to the California solar farm, Apple Energy owns 19.9 megawatts of generation capacity in the Nevada Power Company service area and 50 megawatts in the Salt River Project service area in Arizona. Apple may begin wholesale power sales Saturday.

Financial Review

Hat Trick

Sinclair Noe — July 14, 2016

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

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DOW + 134 = 18,506
SPX + 11 = 2163
NAS + 28 = 5034
10 Y + .07 = 1.54%
OIL + .75 = 45.50
GOLD – 7.70 = 1335.60

The S&P and Dow closed at record highs. The S&P hit 2,168.99, its fourth straight intraday record peak, while the Dow hit 18,537.57 to mark its third straight intraday record high.

The Bank of England took markets by surprise, making no change to interest rates. The call to leave rates unchanged at 0.5% was largely unexpected by investors, as traders had priced in a more than 80% chance of a rate cut to a record low of 0.25%. The BOE said in a statement that most of the policymakers expect to loosen monetary policy by August; apparently they just need a little more time to put together a package of measures to stimulate growth. Maybe they are just trying to keep their powder dry.

U.S. producer prices jumped 0.5% in June — the biggest increase in more than a year — largely owing to higher oil prices and margins for financial services. Yet inflation overall remains muted. In the past 12 months, the producer price index has advanced 0.3%, the first year-over-year increase since the end of 2014. Core prices – stripping out food, energy, and trade margin categories – core prices rose a smaller 0.3% in June.

The number of applications for U.S. unemployment benefits last week held at the lowest level since mid-April. Jobless claims were unchanged at 254,000 in the week ended July 9. Companies having trouble finding qualified and skilled workers are hesitant to dismiss employees. Weekly claims have been below 300,000 for 71 straight weeks, the longest period since 1973 and consistent with robust employment conditions.

Sales of new single-family homes likely grew at a seasonally adjusted annualized rate of 530,000 units in June, up 8.6 percent from a 488,000 annualized pace in May. The Mortgage Bankers Association said June’s estimated pace of sales was up 7 percent from a year earlier. Without adjusting for seasonal factors, there were likely 47,000 new homes sold last month, unchanged from May.

JPMorgan Chase reports second quarter profit slipped 1% versus the same period a year earlier, but that beat estimates. JPMorgan’s second-quarter net income slipped to $6.2 billion in the second quarter ended June 30 from $6.3 billion a year earlier. Net revenue rose 3 percent to $25.2 billion from $24.5 billion. Six major banks report earnings on Friday.

BlackRock, the world’s largest money manager, said second-quarter profit fell 3.7 percent as performance fees declined and clients shifted money from stocks to lower-fee fixed income and cash investments. Net income in the three months through June declined to $789 million, or $4.73 a share, from $819 million, or $4.84 a share, a year earlier.

BlackRock is the first big U.S. money manager to report second-quarter earnings, giving a glimpse of how firms navigated financial markets that were rattled by Britain’s vote to leave the European Union.  Larry Fink, chairman and CEO of BlackRock, weighed in on the recent stock market rally, saying the data on fund flows don’t support the moves. He said the recent rally has been supported by institutional investors covering shorts.

That is probably an oversimplification of what we are seeing. Institutions bet big before the Brexit vote that the markets would skyrocket and that the UK would not leave the EU and unfortunately the exact opposite result happened, forcing these same institutional players to then scramble and go short the market. Well everyone went short at the same time and thus whenever markets move in a herd mentality, one way or the other, it creates opportunities for others to take advantage of the situation.

Certainly short covering is part of the story, but I think we are also seeing a long term bull that went through 13 months of sideways action, or consolidation, and now is breaking out on a bit of decent news. Consider that Brexit did not result in a Lehman moment; central bankers around the globe are pumping money into the system; the Federal Reserve is not hiking rates; the June jobs report showed a strong rebound; earnings season will beat expectations even if it is slightly negative for a fifth consecutive quarter.

The market has been running, a full-fledged sprint to record highs. And even though overbought indicators are flashing a warning sign, remember that the market climbs a Wall of Worry. In situations like this, the market can surprise and just keep running.  Eventually and inevitably, there will be a pause, maybe even a pullback, but I don’t know when; maybe tomorrow, maybe two weeks, maybe longer. Sure, there is plenty that could go wrong but they aren’t going wrong right now.

KFC owner Yum Brands rose 3 percent to $88.27 a day after its key China business showed signs of strength.

Delta’s higher-than-expected quarterly profit sent its shares 3.6 percent higher. An airline industry index has risen almost 12 percent over the past six sessions.

Line Corp. rose in its U.S. trading debut after the Japanese messaging company raised more than $1 billion in the biggest technology initial public offering of the year. Shares opened at $42, after pricing at $32.84 apiece. The company, which is listing shares in Japan and the U.S., will start trading in Tokyo on Friday. Shares closed up 26.6 percent at $41.58.

Monsanto is considering a deal with BASF. The seed giant is considering the acquisition of BASF’s agriculture-solutions unit. While the price tag of the potential deal is unknown, Monsanto would probably pay in newly issued shares. The talks come after Monsanto rejected a $62 billion takeover bid by Bayer in May, and today Bayer sweetened the offer to $64 billion. Global agrochemicals companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes.

The Federal Communications Commission voted unanimously today to open nearly 11 gigahertz of high-frequency spectrum for mobile, flexible and fixed-use wireless broadband; that made the United States the first country to set aside an ample amount of airwaves for so-called 5G wireless applications and networks. New 5G networks are expected to provide speeds at least 10 times and maybe 100 times faster than today’s 4G networks.

5G technology could have a broad impact beyond things like speeding up movie downloads. It could also improve road traffic by monitoring sensors in streetlights, roadside architecture and cars. It could even help detect air pollution using sensors in trees. In other words, this is the platform for the Internet of Things. Verizon and AT&T have said they will begin deploying 5G trials in 2017, and the first commercial deployments at scale are expected in 2020.

California regulators have again rejected Volkswagen’s plan to fix diesel vehicles that were programmed to cheat on air pollution tests, saying the idea was “incomplete” and “substantially deficient.” The proposal would have covered about 16,000 3.0-liter diesel cars for model years 2009 to 2016. About 85,000 VW 3-liter diesel vehicles that cheat on emissions are on roadways nationwide.

Google faces a new antitrust attack from European Union regulators who allege the search engine skews results in its own favor and unfairly restricts rival online advertising platforms. The European Commission announced a new round of charges against Google, claiming that some of the company’s advertising products restricted consumer choice. The new charges relate to some of Google’s online advertising tools — the main engine for $75 billion in annual revenues — and parts of the company’s search business linked to online shopping.

Financial Review

Place Your Bets

Sinclair Noe — April 7, 2016

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DOW – 174 = 17,541
SPX – 24 = 2041
NAS – 72 = 4848
10 Y – .06 = 1.69%
OIL – .33 = 37.42
GOLD + 18.20 = 1241.50

Federal Reserve officials seemed evenly split at their March meeting on the key question of whether to raise interest rates; policymakers were also split on whether the recent pickup in core inflation would prove persistent. Global risks also seemed to leave the FOMC flat-footed. Ultimately the Fed decided there was no urgent reason to hike rates at the March meeting and there doesn’t seem to be agreement on an April hike either.

Later this evening there will be a rare group interview including Fed Chair Janet Yellen, plus her three predecessors – Ben Bernanke, Alan Greenspan, and Paul Volcker; that’s 37 years of Fed Chairmen. The topic? “How the chairs’ philosophies and personal beliefs impact decision making with international implications.” Please try to curb your enthusiasm.

The number of Americans filing for unemployment benefits fell last week, suggesting the labor market continued to strengthen despite tepid economic growth. Initial claims for state unemployment benefits declined 9,000 to a seasonally adjusted 267,000 for the week ended April 2. Jobless claims have now been below 300,000, a threshold associated with healthy labor market conditions, for 57 weeks, the longest stretch since 1973.

Americans added to their debt at a steady solid pace in February. The Federal Reserve reports consumer credit grew at a seasonally adjusted annual rate of 5.8%, for a gain of $17.2 billion, compared to a 5% gain in January. Consumer credit has been consistently solid over the past year with no monthly gains below 5%.

Total consumer borrowing, which does not include mortgage debt, is now $3.57 trillion. There was a 6.6% gain in the category that covers auto loans and student loans. This was a bit below the 7% gain in January. Pent-up demand for new vehicles and student debt has been two big drivers of this new strength in consumer credit. Credit card borrowing rose 3.7% in February after a 0.3% drop in the prior month.

More than 40% of the roughly 22 million Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, according to a quarterly snapshot of the Department of Education’s $1.2 trillion student-loan portfolio. In a survey by Citizens Bank, a startling 6 in 10 millennials said they have no idea when their loans will be paid off and more than a third don’t even know the interest rate they are paying. The report says that on average, graduates owed about $41,000 in student loans.

Apollo Education reported a Q2 adjusted EPS loss of -31 cents continuing operations, a much wider loss than consensus of -10 cents, and said it will not provide future guidance at this time.

Mortgage rates fell to the lowest level since February 2015. Mortgage provider Freddie Mac reports the 30-year fixed-rate mortgage averaged 3.59% in the April 7 week, down from 3.71%. The 15-year fixed-rate mortgage averaged 2.88%, down from 2.98%.

One of the trends of 2016 has been a move from stocks to bonds. According to data from ETF.com the 10 exchange-traded funds that have suffered the biggest outflows this year are all equity funds of some shape or form. Meanwhile, six of the 10 biggest recipients of inflows are bond products from across the spectrum, with everything from Treasuries to high-yield bonds attracting fresh cash. In March, stocks staged a rebound but that isn’t holding in the first few trading days of April.

First quarter earnings reporting season kicks off Monday when Alcoa posts results. Don’t look for earnings to lift the market. Stephen Parker of JPMorgan’s Private Bank told CNBC: “We need to see what companies are saying about the future and, if they can paint a better picture about the back half of the year now that oil has stabilized, that the dollar has come off, that’s going to drive markets higher.” So, that sounds like they are giving up on a decent first quarter earnings season.

Icelandic Prime Minister Sigmundur Gunnlaugsson announced yesterday he was stepping down after Panama Papers revelations that he and his wife held a shell off-shore corporation. So, who is the next world leader who will fall?

In Ireland you can bet on almost anything, Irish bookmaker Paddy Power Betfair PLC has opened betting lines on which head of state could be the next to go. Argentina’s President Mauricio Macri is the favorite at 8-1 odds. Paddy Power also has laid odds that the President of Pakistan Nawaz Sharif will leave at 10-to-1 and Ukraine’s President Petro Poroshenko almost as good at 12-1.  British Prime Minister David Cameron is listed at 20-1 odds for being forced from power.

The European Union has decided it is best to get in front of the mob and call it a parade. The EU tax regulators have vowed to stop the kind of tax avoidance uncovered in the Panama Papers scandal. The EU effort to close loopholes includes automatic exchanges of tax deals between countries and companies and they’re working on an automatic system for sharing firms’ tax data between all tax authorities.

The Panama Papers may have an impact on US banking. The U.S. Treasury Department intends to issue a long-delayed rule forcing banks to seek the identities of people behind shell-company accounts, in the wake of the “Panama Papers” scandal which exposed global wealth hidden from tax authorities via offshore vehicles. A department spokesman said the law would “soon” be turned over to the White House for review and issuance, but did not confirm a timetable for the initiative.

The regulation is designed to close a loophole allowing “secretive financial maneuvers” in the U.S. banking system. Under current policy, the names of company heads can be obscured as identities are not required when limited liability corporations are registered with certain states. The change would force institutions to identify each individual who owns 25 percent or more of the equity interests.

The issue came into the spotlight after Mossack Fonseca was found connected with M.F. Corporate Services Wyoming LLC – a Wyoming-based corporation now being audited by the state, in addition to several other companies in the state and states with similar anonymity policies – which was allegedly being used as a tax haven.

You may be wondering why the US Treasury waited until the Panama Papers to push forward this rule about knowing who is opening a bank account. It seems that Panama and Switzerland are not the only places that allow banking secrecy and anonymous corporate off-shore shell companies. The center of that universe is in the US.

Alibaba says that it became “the largest retail economy in the world” at the end of its fiscal year on March 31, “as measured by gross merchandise volume on its China retail marketplaces.” The company has yet to declare its fourth quarter and full year financial results, but the announcement makes it clear that Alibaba surpassed the $482 billion figure reported by Wal-Mart for its fiscal year ended Jan. 31.

Struggling teen apparel retailer Pacific Sunwear filed for Chapter 11 bankruptcy protection today. The Anaheim, California-based retailer listed assets in the range of $50 million to $100 million, and liabilities of between $100 million and $500 million The company’s shares fell as much 42 percent to a record low of 5 cents in early morning trading.

Will a self-driving car be smart enough to pull over to the side of the road in a dust storm? Alphabet is expanding its testing of self-driving cars to the Phoenix, Arizona metro area. The company’s Google unit has conducted driver-less vehicle testing for six years in Mountain View, California, where it is based.

Google said its test drivers recently began driving four Lexus RX450h SUVs around the Phoenix area to create a detailed map of streets, lane markers, traffic signals and curb heights. That information will then be fed into the technology embedded in the autonomous cars so they know how to navigate the city on their own.

About a dozen trucks from major manufacturers like Volvo and Daimler just completed a week of largely autonomous driving across Europe, the first such major exercise on the continent. The trucks set off from their bases in three European countries and completed their journeys in Rotterdam in the Netherlands yesterday. One set of trucks, made by the Volkswagen subsidiary Scania, traveled more than 2,000 km and crossed four borders to get there.

When trucks autonomously follow one another, it’s called platooning; they’re connected by Wi-Fi and they leave a much smaller gap between vehicles than when humans are at the wheel, essentially like NASCAR racers drafting behind a vehicle. Platooning can reduce fuel use by up to 15%.

While self-driving cars from Google or Ford get most of the credit for capturing the public imagination, commercial uses for autonomous or nearly autonomous vehicles have been quietly putting the concept to work in a business setting. Turns out that John Deere is the largest operator of autonomous vehicles for the time being. The self-driving technology featured on John Deere tractors is less technically complex than fully driver-less cars. And for now, the tractors are still supposed to have a driver at the wheel, even if they never touch it.

One reason for the rapid advance in autonomous tractors – they are usually operated on private land and that means fewer regulations and fewer strange things that come around the corner. Also, the robots can drive a more precise straight line than human counterparts. Crops are generally planted in one long row after another, and farmers want to make sure they use up all their land.

I know what you’re thinking, and the answer is yes. They also make robotic lawn mowers.

Financial Review

Before the Deluge

Sinclair Noe — October 1, 2015

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

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DOW – 12 = 16,272
SPX + 3 = 1923
NAS + 6 = 4627
10 YR YLD – .02 = 2.04%
OIL – .11 = 44.98
GOLD – 1.80 = 1114.50
SILV un = 14.63

Manufacturing grew in September at the slowest pace in more than two years. The Institute for Supply Management said its manufacturing index dropped to 50.2% last month from 51.1% in August, reflecting a stronger dollar and weaker global economy that is hurting U.S. exports of many major American-made goods. That’s the weakest reading since May 2013, although any reading above 50 indicates growth.

The number of people who applied for unemployment benefits rose by 10,000 to 277,000 in the week ended Sept. 26, but initial claims remain extremely low in a sign of steady improvement of the labor market. The average of new claims over the past month, meanwhile, fell by 1,000 to seasonally adjusted 270,500. The level of new claims sank below 300,000 in early March and has remained there for 30 straight weeks, a feat last accomplished in 1973, when the nation’s working population was 40% smaller. Tomorrow morning is the monthly jobs report from the Labor Department.

Construction spending increased 0.7% in August, and gained 13.7% over 12 months. Residential construction rose 1.3%, while nonresidential construction grew 0.3%. Construction of lodging climbed 2.8% and has climbed 41.4% over 12 months.

Not all American homes are rising in value and not all markets are experiencing the recovery evenly. According to a report from Zillow, almost 30% of all homes lost value in August from a year earlier; that’s down from a high of 65% in 2009, although a normal housing market would be closer to 20%. Overall, the median value of homes rose 3.3% year-over-year to $180,800, but appreciated at half the pace of August 2014.

President Obama has signed into law a bill that extends federal funding until December 11 after the Senate and the House yesterday passed the proposal, as expected. Had Congress not approved the measures, the government would have shut down today, the first day of the new fiscal year. Republicans and Democrats now have around ten weeks to formulate a long-term budget, with the parties looking to strike a two-year deal.

Hurricane Joaquin is headed for the East coast, maybe. Where it lands is still uncertain. Joaquin is a Category 3 hurricane with winds of 125 miles per hour and gusts to 155 miles per hour; an increase of the sustained winds to 130 mph would make it a Category 4 storm. Right now it is hitting the Bahamas and within the next 24 hours, it is expected to head north, possibly hitting the Carolinas, or Virginia, or even making land near New England.

The best guesstimates have it headed for New York City. If the hurricane heads for the coast, it will lose some of its punch and slow down to a Category 1 or possibly a tropical depression before landfall. Even if it veers to the northeast and heads out into open waters, it is expected to produce serious flooding. Beyond the wind and the rains, there is a strong possibility of waves approaching 30 feet and storm surge of 8 feet.

Even as the track of the storm is uncertain, the governors of Virginia and New Jersey have already declared a state of emergency.  We all remember Hurricane Sandy but if current projections hold, Joaquin won’t be another Sandy, but nature is unpredictable. Parts of the eastern U.S. from Florida to New Jersey are under flood watches and warnings today, with more than 10 inches of rain already having fallen in some areas this week.

The weather is a staple for the commodity markets. The rain and flooding is expected to be a big problem for cotton farmers in Georgia and the Carolinas. Atlantic hurricanes can be mildly bullish for energy markets as oil and gas platforms could be shut down as a precaution. They could also damage infrastructure, such as refineries and transportation. Traders now expect minimal disruptions to energy markets.

The big three U.S. automakers – GM, Ford, and Fiat Chrysler – reported a jump in September sales as cheap gasoline and ultra-low interest rates drove demand for sport utility vehicles and pickup trucks. Total U.S. auto sales, an early glimpse of consumer spending each month, are expected to have risen about 14% last month.

According to auto industry consultancy Edmunds.com sales got a boost from the calendar, with the entire Labor Day weekend falling in September for the first time since 2012. GM said its total sales in September rose 12%; Ford posted sales gains of 23%; and Fiat Chrysler says September sales were up 14%.

Deere and the United Auto Workers union have reached a tentative agreement to replace the six-year master labor contract that ended at midnight last night. The deal is for another six years and will now go to a vote of the 10,000 Deere manufacturing staff that the UAW represents.

Ratification of a contract between the UAW and Fiat Chrysler appears to be impossible after workers at assembly plants in Ohio and Michigan on Tuesday overwhelming voted against a proposed four-year deal.

Samsung is now accused of Volkswagening its TVs. Yep, that’s the new word for cheating on environmental tests. Independent lab tests show Samsung televisions use less power when they are tested for energy efficiency ratings than during real world use. Sweden’s government has also been looking into TVs from unspecified manufacturers that “clearly recognize” the video used in testing, and which “immediately lower their energy use by adjusting the brightness of the display” in response.

Google and Microsoft have ended a long-running patent spat involving about 20 suits in the U.S. and Germany. Microsoft had alleged that Google’s former Motorola Mobility unit infringed its IP. Google, which held onto most of Motorola’s patents following its sale to Lenovo, alleged that Xbox consoles infringed its patents. Now they’ve made nice with each other, Google and Microsoft plan to cooperate on various patent issues.

The Centre for Economic Policy Research says the Eurozone recession is over. Like the National Bureau of Economic Research in the U.S., the CEPR labels recessions based on a variety of economic indicators and not the informal definition of two consecutive quarters of negative GDP growth. The CEPR said the period from the third quarter of 2011 to the first quarter of 2013 represented the second post-financial crisis recession in the Eurozone. The reason the CEPR feels confident in saying the Eurozone is out of the recession is that the duration of the recovery has made up for its slow speed. However, the Eurozone recovery has been “unusually lackluster” by historical standards.

The third quarter was ugly for stocks, but there were a few winners. More than 3 dozen companies in the S&P 500 posted double digit gains for the quarter. Chipotle, Amazon, and Google posted 20% gains for the quarter. Merger news also pushed some stocks higher, such as Teco, AGL Resource, Cablevision, Chubb, and Molson Coors. Also making the list: Activision Blizzard, Nike, Under Armor, Best Buy, Royal Caribbean, Southwest Airlines, Reynolds American, and Altria.

Merger activity has been strong in 2015. According to data from Thomson Reuters, $3.19 trillion in deals were announced year-to-date, just 2% below 2007 levels. Many of the transactions were worth more than $10 billion, making up 36.5% of the total. In the third quarter there were fewer deals than in any other three-month period this year, yet the dollar volume surpassed $1 trillion. Energy has been the top industry by value, as companies sought strength in consolidation as the price of commodities plummeted. There was also a slew of health care transactions, especially in insurance and pharmaceuticals. Goldman Sachs and Morgan Stanley were the top-ranked financial advisers on these deals.

Bankers like to make big dollar deals; they don’t like to get their hands dirty with smaller loans, but that doesn’t mean they won’t take a cut. For many years the big banks have bankrolled smaller consumer lenders, also known as payday lenders. In the past they were known as loan sharks, and even as the names changed, the terms didn’t; these lenders are still charging outrageous rates, sometimes more than 200%.

But now the Consumer Financial Protection Bureau (CFPB) is starting to tighten regulations on the consumer lenders. The lenders have come under scrutiny for a range of practices that can lead borrowers to believe they are paying far less in interest and fees than they actually are. Now that regulation is getting tighter, the big banks are trying to protect their loans to the subprime lenders; the big change is an amendment that says that if one of the loan sharking companies faces regulatory action that has a material impact on its business, it would constitute a default. And a default would give the big banks the right to seize the lender’s assets, at least in theory; or a pound of flesh if it suits them.

JPMorgan Chase shareholders have won court permission to pursue their securities fraud lawsuit as class action against the bank over the “London Whale” trading scandal, which caused a $6.2 billion loss. Shareholders led by pension funds in Arkansas, Ohio and Oregon alleged that JPMorgan, CEO Jamie Dimon and CFO Douglas Braunstein knowingly hid increased risks at the Chief Investment Office operating in London, including on an April 13, 2012 conference call when Dimon called reports about the synthetic portfolio a “tempest in a teapot.”

It turned out to be a $6.2 billion loss by the London Whale and fallout contributed to even bigger losses for shareholders as market capitalization dropped by $40 billion from April 13 to May 21, 2012. And don’t forget the $1 billion in fines reached in a settlement with regulators that included a rare admission of wrongdoing.

Financial Review

Rockets and Rocks

Sinclair Noe — July 23, 2015

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DOW – 119 = 17,731
SPX – 12 = 2102
NAS – 25 = 5146
10 YR YLD – .05 = 2.27%
OIL – .74 = 48.45
GOLD – 3.60 = 1091.40
SILV – .14 = 14.76

Greece can begin bailout talks. Greece’s parliament approved new reforms that pave the way for Prime Minister Alexis Tsipras to begin negotiating his country’s third bailout. Parliament overwhelmingly approved the measures, but roughly a quarter of Tsipras’ Syriza party voted against the reforms. Now Greece and its creditors will begin working out the details of the latest bailout package, the third for Athens in the past five years.

Nearly everyone agrees that Greek debt is unsustainably high, but that’s where the agreement ends. The IMF on July 14^th issued a report calling for debt relief, a 180 turn from their earlier demands of austerity. The monetary fund recommended either a “very dramatic extension” of payment deadlines by up to 30 years or “deep upfront haircuts,” banker jargon for write-offs.

Lots of headlines flew out of Asia  overnight: Japan’s exports increased the most in five months in June, fueled by strengthening overseas demand, but imports remained subdued due to the effect of lower commodity prices. South Korea’s economy logged its weakest expansion in six years in Q2, recording just 0.3% growth from the previous quarter, as the country got battered by a MERS outbreak and a severe drought. Heading south: New Zealand’s central bank cut interest rates by a quarter point for the second time in six weeks, stating further easing would likely be necessary to stoke inflation. The cut was less than anticipated, and short sellers were squeezed as the kiwi, the New Zealand dollar unexpectedly rallied.

President Obama is urging lawmakers to renew the charter for the Export-Import Bank before leaving on a break in August, saying both small and large businesses are hurting from the lapse in new loan guarantees and trade insurance. The 81-year-old institution recently saw its charter conclude, after Congress allowed it to expire on June 30. The Ex-Im Bank is still allowed to manage and wind down its portfolio of loans, but cannot enter into any new deals.

The U.S. leading economic index rose 0.6% in June. The Conference Board said the index indicates “continued strength in the economic outlook for the remainder of the year.” A strong reading for housing permits and the interest-rate spread led the LEI’s growth.

New applications for US unemployment benefits declined by 26,000 to 255,000 in the seven days ended July 18 – the lowest level since 1973. New claims have been under key 300,000 since late February, the longest run in 15 years. The data should provide ammunition for those Federal Reserve officials who have been pushing for higher interest rates.

Oil prices have officially moved into bear territory. From the high on June 10^th, WTI oil has dropped just over 20%. Of course, oil is still down about 57% from the highs reached a year ago before the crash. And crude is also still above the lows of the crash near $43 per barrel.

Data from the American Petroleum Institute showed a weekly build in inventories that topped forecasts. And the Energy Information Administration’s weekly data showed a build in stockpiles last week after two periods of declines. Meanwhile, 12-member oil cartel OPEC continues to exceed its production targets to maintain its share of the market. OPEC member Iran is gearing up to boost exports following its deal with world powers that would lift economic sanctions.

Here’s the twist. As oil prices dropped over the past year, demand increased by 1.6 million barrels a day, despite the slowdown in China. Meanwhile, since October the number of rigs actively drilling for new oil around the world has declined about 42 percent. More than 70,000 oil workers have lost their jobs globally, and in 2015 alone, listed oil companies have cut about $129 billion in capital expenditures. US oil production did not drop, it just leveled off, even as OPEC has increased production to over-fill the void.

Oil’s fall is also part of a larger rout in commodities. Copper slumped to a six-year low. The number of requests to withdraw copper from London Metal Exchange warehouses relative to the level of global inventories tracked by the bourse dropped this week to the lowest since March 2013. That shows consumption has almost dried up for the stockpiles that have doubled over the past year.

Copper is an industrial metal used in everything from buildings to cars and more, so it serves as an indicator for what’s to come in raw materials and as a gauge of global expansion. Copper prices have long held the position in some investor’s minds as a viable economic indicator. So strong is this belief that many call it ‘Dr. Copper’ (as in PhD in Economics). The reality is somewhat different. Over the past 4 years, copper has been in a nasty downturn, even as the economy and the stock market have been improving. Dr. Copper is not good for predicting economic activity, but it might be good at reflecting speculation in the copper market.

Meanwhile, a chorus of institutional investors are now singing out against the China market. The Chinese government had tried to lure foreign money by creating A-shares, making it easier for foreign investors to buy mainland listed stocks directly; and for a while it worked. The stock exchanges in Shanghai and Shenzen shot up like a rocket (doubling in less than a year), only to fall like a rock. Overseas investors have pulled cash out of Chinese stocks via a trading link between Hong Kong and Shanghai for 12 of the past 13 trading days. The list of hedge fund managers running from Chinese markets reads like a who’s who: Bill Ackman from Pershing Square, Paul Singer from Elliott Management, Richard Perry from Perry Capital, and Ray Dalio from Bridgewater. These are all recent cheerleaders for the Chinese markets.

You could see this coming from miles away. When an index, or even an individual security, experiences a massive spike in price, it becomes disconnected from fundamentals, and it is inevitable that it will stall, rollover, and plummet back to earth. Technical analysts call this a parabolic run or climax run; and it always seem to end the same way. Some agile short-term traders are willing to make that gamble on the hope they can dump stocks at the first sign of weakness. The difference in China is that the government stepped in and essentially halted trading in about half the high-flying stocks.

Between the end of June and early July, the Chinese government announced at least 40 measures to prop up the market, including an interest-rate cut by the central bank and establishing a stabilization fund to outright buy stocks; all at a cost of about 10% of GDP. The rise and fall of the market over the past year may well have convinced many investors that the market is simply not a reliable investment vehicle, at the very least it created a cap on growth moving forward.

Earnings reporting season is in high gear. In the busiest day for profit reports, some 50 companies are releasing results today. Caterpillar missed revenue expectations and cut it its full-year revenue outlook to $49 billion from $50 billion.

3M posted better-than-expected profits at $2.02 a share versus consensus estimates of $2.00 but missed on revenues, as the company lowered its full-year outlook.

American Express reported its second-quarter earnings fell to $1.47 billion, or $1.42 a share; and revenue dropped 4%. Amex beat profit estimates but missed on revenue projections.

McDonald’s said same-store sales were down 2% in the second quarter, reflecting negative traffic in all its major segments.

SanDisk, which makes flash memory chips, reported lower revenue and profit but quarterly results were better than Wall Street’s much-weaker expectations.

Dow Chemical reported better-than-expected profit of $1.2 billion, but revenue of $12.9 billion missed Street estimates.

General Motors’ second quarter profit doubled, beating expectations at $1.1 billion, as the automotive company sold more trucks, SUVs, and crossover vehicles.

Credit Suisse swung to a profit of $1.1 billion in the second quarter, compared with a loss a year earlier, when it was fined $2.6 billion in the U.S. for helping Americans evade taxes.

After the close, Amazon reported a profit, seriously; it was a small profit of $92 million on revenue of $23.2 billion. Shares of Amazon jumped 17% to $565 in after-hours trading, which pushed the market capitalization up by $40 billion; meaning Amazon now has a larger market cap than Wal-Mart. And don’t even look at the P/E ratio; you could get vertigo.

After delivering its third profit warning this year, Qualcomm has declared it may break itself up and announced plans to slash 15% of its workforce (4,500 jobs). The move comes after hedge fund Jana Partners called for the company to spin off its chip business from its highly profitable IP licensing unit. Qualcomm also aims to reduce costs by about $1.4 billion and boost capital returns to shareholders.

Nikkei, the Japanese media group, is paying about $1.3 billion to acquire the FT Group, which includes The Financial Times, as the pink broadsheet’s British parent company, Pearson, exits the newspaper business to focus on its core educational publishing.

LeBron James is taking his acting talents to Warner Brothers. The NBA star and his company, SpringHill Entertainment, have signed a content creation deal with Warner Bros. that includes potential projects in film, television and other digital properties.