Financial Review

Hack Attack

…..Russia sanctioned for hacks. Unemployment claims down. Trade deficit up. Sprint’s not-so-big job announcement. SEC in-house courts won’t fly. Alere has problems with Medicare billing. Sears continues a long, slow descent. Toshiba continues a fast, sharp descent. Airpods on backorder. Madrid minus cars. A tipping point for solar.

Financial Review by Sinclair Noe for 12-29-2016

DOW – 13 = 19,819
SPX – 0.66 = 2249
NAS – 6 = 5432
RUT + 2 = 1363
10 Y – .03 = 2.48%
OIL – .29 = 53.77
GOLD + 16.70 = 1159.40


As expected, the Obama administration is fighting back against Russia for its hacking efforts to influence the election. The operation was broad, involving not only hacking the Democratic National Committee but scanning and intruding into state voter databases. The hackers leaked the pilfered e-mails in a bid to damage Clinton’s campaign, according to U.S. intelligence agencies. The administration sanctioned 2 Russian intelligence services, ejecting 35 Russian intelligence operatives from the US. The FBI and Homeland Security Department also released a report with technical evidence intended to prove Russia’s military and civilian intelligence services were behind the hacking to expose some of their most sensitive hacking infrastructure; a more detailed report will be released in 3 weeks, including malware and computer addresses. Members of both parties in Congress have expressed alarm about the campaign hacking and vowed to conduct hearings into Russia’s role.


The number of Americans who applied for unemployment benefits in the week before Christmas fell by 10,000 to 265,000 – the lowest levels since last summer. Initial claims have been under 300,000 for 95 straight weeks, the longest streak since 1970. Just a reminder, the December Non-Farm Payroll report from the Department of Labor will be published on Friday, January 6; with early estimates running around 170,000 net new jobs in December. Jobs are the lifeblood of the economy, and will give direction to the Federal Reserve moving into the New Year. We remember that last year the Fed was predicting 4 rate hikes for 2016; we ultimately got one increase in December. Now the Fed is predicting 3 rate hikes for 2017 as the economy inches toward full employment. So, the jobs reports are crucial data.


The trade deficit increased 5.5% in November to a seasonally adjusted annual $65 billion. Exports rose 1.0% to $121 billion, while imports totaled $187 billion, up 1.2% from October. Wholesale inventories edged up 0.9% to a level of $594 billion; that was 1.2% higher than a year ago. A bigger trade deficit is negative for GDP growth.


Sprint confirmed it would “create or bring back to America” 5,000 jobs, mostly in customer care and sales. President-elect Trump campaigned on bringing jobs back to the US but the 5,000 Sprint jobs confirmed Wednesday aren’t exactly new — they are part of a previously announced initiative led by Japan’s Softbank to create 50,000 jobs in the US.


Splitting from an earlier ruling, a federal appeals court has found that in-house courts at the Securities and Exchange Commission are unconstitutional. That marks a heavy setback for the agency’s enforcement efforts as it uses five administrative-law judges to handle most routine cases. A spokesman said the SEC is reviewing the decision and wouldn’t immediately have further comment.


The Food and Drug Administration released cybersecurity recommendations today for companies that manufacture internet-connected medical devices. The FDA says unsecured devices are subject to hacking and could prove fatal.


Alere is appealing a decision by the Centers for Medicare and Medicaid Services to revoke Medicare billing privileges for the health-care provider’s Arriva Medical diabetes business. CMS had alleged that Arriva submitted Medicare claims for patients who had died. Alere has denied an impropriety.


Sears just announced a fresh round of store closures. The company told employees on Tuesday that it will close 30 Sears and Kmart stores in early 2017. Most of the stores will start liquidation sales on January 6 and go out of business between late March and mid-April. This latest round of closures will bring the total number of stores that Sears has closed this fiscal year to more than 200. That means the retailer will have fewer than 1,500 stores left by early 2017. That’s down nearly 60% from 2011, when Sears had more than 3,500 stores. The unofficial list of new store closures does not include Arizona stores. CEO Eddie Lampert, a hedge fund manager and Sears’s biggest investor, will offer a $200 million letter of credit to the department-store chain through affiliates of his firm, ESL Investments Inc. The amount could be expanded to as much as $500 million with the consent of lenders.


Apple and Samsung dominated Christmas wish lists this year but both had a luckluster holiday season. Yahoo’s Flurry Analytics looked at new phone and tablet “activations” between Dec 19 and Dec 25. Both Apple and Samsung still dominated but Apple saw a fall in share while Samsung saw a slight increase. This year, 44 percent of activations globally were Apple devices, a decline from the 49 percent seen in a similar period in 2015, and 51 percent in 2014. Meanwhile, 21 percent of activations were Samsung devices, a tiny rise from 19.8 percent last year.


AirPods remain in short supply. If you want to buy a pair of the wireless earbuds from Apple, you won’t find them in the local Apple store; there is a 6-week waiting list. That’s what happens when you eliminate the headphone jack on the iPhone. During a visit to the New York Stock Exchange yesterday, CEO Tim Cook called the wireless earbuds “a runaway success,” and said Apple was “making them just as fast as we can.” Meanwhile, Indian officials are meeting early next week to evaluate the incentives sought by Apple to manufacture its products in the country. The government is trying to promote local manufacturing under Prime Minister Narendra Modi’s “Make in India” campaign, but it remains to be seen whether they would agree to more concessions for Apple.


Toshiba shares dropped another 17% in Tokyo on worries about the company’s financial stability. The stock has fallen by more than 40% after the firm warned this week it’s expecting billions of dollars in losses from its takeover of a US-based nuclear construction business. Toshiba cannot raise cash by issuing shares because of restrictions imposed by the stock exchange after last year’s accounting scandal. It looks more and more likely that the only solution is to sell off the core of the company. Meanwhile, share price is in a death spiral.


German pharmaceutical company Boehringer Ingelheim agreed to divest five types of animal health products to settle charges that a proposed asset swap with Sanofi would harm competition. The proposed asset swap involved Boehringer Ingelheim’s acquisition of Sanofi’s $13.5 billion animal care subsidiary and Sanofi’s obtaining the Germany company’s consumer health care business unit, valued at nearly $8 billion, plus $5.5 billion in cash.


The City of Madrid says all privately-owned cars with even-numbered registration plates will be banned from the Spanish capital’s roads today to curb rising air pollution. The move follows a dry, sunny stretch of weather which sent levels of nitrogen oxide, a poisonous gas which can cause respiratory problems such as asthma, soaring above European-Union-set limits. The restriction could alternate between odd and even number plates if high levels of contamination persist.


The World Economic Forum (WEF) has determined that in many parts of the world, solar energy is now the same price or even cheaper than fossil fuels for the first time. While the average global LCOE [levelized cost of electricity] for coal and natural gas is around $100 per megawatt-hour, the price for solar has plummeted from $600 a decade ago to $300 only five years later, and now close to or below $100 for utility-scale photovoltaic. For wind, the LCOE is around $50.


According to the WEF, more than 30 countries have already reached grid parity—even without subsidies. (“Grid parity” is the point when an alternative energy source, say solar, can generate power at a LCOE that’s equal or even less than the price of traditional grid power.) The WEF highlighted how the unsubsidized LCOE for utility-scale solar photovoltaic—which was not competitive even five years ago—has declined at a 20 percent compounded annual rate, making it not only viable but also more attractive than coal in a wide range of countries.


Countries that have already reached grid parity include Chile, Mexico, Brazil and Australia with many more countries also on the same track. The WEF projects that two thirds of the world will reach grid parity in the next couple of years, and by 2020, solar photovoltaic energy is projected to have a lower LCOE than coal or natural gas-fired generation throughout the world. This means that we have reached a tipping point for renewable energy, which is reflected in new installations. Through the end of September, solar accounted for 39 percent of all new electric generating capacity brought on-line in the U.S. Both utility-scale installations and residential installations grew strongly. The United States solar market shattered all previous quarterly solar photovoltaic (PV) installation records. One megawatt of solar power was installed every 32 minutes in the U.S. from July to September, for a record total of 4,143 megawatts. That brings total installed solar capacity in the U.S. to 35.8 gigawatts, enough to power 6.5 million homes.




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