Financial Review

Blame Columbus

…Stocks flounder. Google’s breach. SCOTUS returns tomorrow. Brazil elections. Nordhaus and Romer win Nobel Economics. UN climate change report.
Financial Review by Sinclair Noe for 10-08-2018

DOW + 39 = 26,486
SPX – 1 = 2884
NAS – 52 = 7735
RUT – 2 = 1629
10 Y = 3.23%
OIL – .12 =74.22
GOLD – 15.20 = 1188.50

 

Earlier in the session, the Dow Industrial Average was down over 220 points. So, it was a decent recovery but a disappointing session nonetheless. The Nasdaq closed down for a third straight session. Among the biggest drags on both the Nasdaq and the S&P 500 were Microsoft Corp, down 1.1 percent, and Adobe Systems Inc, down 3.2 percent. By contrast, defensive sectors, including utilities, consumer staples, and real estate, led the S&P’s major sectors in percentage gains. The bond market was closed for Columbus Day.

 

Google will shut down the consumer version of its social network Google+ after announcing data from up to 500,000 users may have been exposed to external developers by a bug that was present for more than two years in its systems. Alphabet discovered and patched the leak in March of this year and had no evidence of misuse of user data or that any developer was aware or had exploited the vulnerability. So, why are we only learning about this now? The Wall Street Journal reports that Google did not report this earlier because they were concerned about regulatory scrutiny. Under the European Union’s General Data Protection Regulation (GDPR), if personal data is breached, a company needs to inform a supervisory authority within 72 hours, unless the breach is unlikely to result in a risk to the rights and freedom of users.

 

Justice Brett Kavanaugh’s first vote as a member of the Supreme Court could come as soon as Tuesday or Wednesday on a Trump administration request testing how much power courts should wield over top executive branch officials. The administration has already made one unsuccessful run at the high court on the issue: It asked Justice Ruth Bader Ginsburg last week to step in to block depositions of Commerce Secretary Wilbur Ross and Justice Department civil rights chief John Gore in lawsuits challenging Ross’ decision to put a question about citizenship on the 2020 U.S. Census. Ginsburg rebuffed the stay request, but Justice Department attorneys have indicated they plan to return to the Supreme Court with another emergency stay application within days unless they get full relief from lower courts, which seems unlikely. Justice Department lawyers argue the depositions of Ross and Gore ordered by a federal judge in New York City constitute an unwarranted intrusion into executive authority and could prove distracting to senior officials with important duties.

 

Kavanaugh is expected to take the bench for the first time at the Supreme Court on Tuesday as the justices hear arguments in three criminal cases relating to the application of three-strikes-and-you’re-out provisions in federal law that apply a 15-year mandatory minimum to federal offenders with three prior serious convictions. Kavanaugh won’t have to immediately cast any public votes in the cases being argued and his decisions aren’t likely to emerge until the court prepares formal opinions and releases them — a process that typically takes weeks or months. However, emergency stay applications like the one the Trump administration filed last week in connection with the Census-related suits are typically acted on within days and sometimes within hours.

 

Brazilians voted Sunday in the first round of their presidential elections, elevating far-right politician, Jair Bolsonaro. Bolsonaro won 46 percent of the vote and narrowly missed winning the election outright. Leftist candidate Fernando Haddad, who is backed by popular former President Lula da Silva, came in second and garnered approximately 29 percent of the vote. Lula was leading in the polls but then he went to jail for corruption – part of a corruption investigation that has snared over 200 politicians. The runoff between the Bolsonaro and Haddad is set to take place October 28 — and it’s a battle that is likely to fracture an already divided electorate. Brazilians are reeling from the country’s rampant corruption problem, escalating crime rates, and flailing economy, and the two candidates presented very different approaches to those problems.

 

Haddad, of the leftist Workers’ Party, has made Brazil’s economic problems a central focus of his platform, and presented a tax-and-spend plan to reduce unemployment and strengthen the social safety. He’s tried to tie himself closely to the leftist legacy of Lula. Bolsonaro, the far-right candidate, made security a central part of his campaign — a platform that apparently resonated with Brazil’s electorate, since he looks to be the early favorite in the presidential runoff at the end of the month. The former army captain has threatened to break the system — though in some cases, especially when it comes to the economy, he hasn’t provided many specifics. Bolsonaro talks a lot about killing people—common criminals, political opponents, the organizers of queer-art shows. Promising to cleanse the nation of corruption, he holds up the 1964–85 military dictatorship, when torture was state policy, as “a period of glory for Brazil.” Since Brazil’s return to democracy a generation ago, no major politician has spoken like this. Democracy is barely a generation old in Brazil; its institutions are still fragile, and the precarity of its working class far more acute. And so Bolsonaro’s likely victory later this month feels both highly probable and especially dangerous. His running mate is a general who has talked casually about carrying out an autogolpe—a “self-coup”—if one of the three branches of government fails to do its job.

 

Today, the Nobel Prize in economics was awarded to two economists, William Nordhaus and Paul Romer. William Nordhaus of Yale University is considered the father of climate-change economics. As it happens, he won the prize on the same day that the UN’s Intergovernmental Panel on Climate Change put out a report warning that we are running out time in the fight against global warming. Nordhaus has spent the better part of four decades trying to persuade governments to address climate change, preferably by imposing a tax on carbon emissions. One of the clearest messages that emerges from his work is that a global carbon tax is the most efficient way to contain climate change. In the 1970s, amid rising concern about pollution, economists including Professor Nordhaus began to argue that taxation was the most effective remedy: The government should require polluters to pay for damage to the environment and to public health. The idea remains broadly popular among economists; essentially a market-based solution. But Nordhaus himself isn’t optimistic about it, given how reluctant governments are to impose a price on carbon emissions.

 

Paul Romer of New York University, today’s other Nobel winner, is more optimistic about fighting climate change. His work focuses on understanding how technological innovation and the spread of ideas boosts economic growth. Romer’s work has demonstrated that government policy plays a critical role in fostering technological innovation. The prize committee emphasized that both men, in their work, have argued that markets are imperfect, and that government intervention can improve outcomes.

 

The award was announced just hours after a United Nations panel said large changes in public policy were urgently needed to limit the catastrophic consequences of rising temperatures. The prize committee said its choice of laureates was meant to emphasize the need for international cooperation.

 

That report from the United Nations’ scientific panel on climate change, the Intergovernmental Panel on Climate Change, describes a world of worsening food shortages and wildfires, and a mass die-off of coral reefs as soon as 2040. The report found that if greenhouse gas emissions continue at the current rate, the atmosphere will warm up by as much as 2.7 degrees Fahrenheit above preindustrial levels by 2040, inundating coastlines and intensifying droughts and poverty. Avoiding the most serious damage requires transforming the world economy within just a few years. The authors of the report estimate that the damage would come at a cost of $54 trillion. The report details the economic damage expected should governments fail to enact policies to reduce emissions. The United States, it said, could lose roughly 1.2 percent of gross domestic product for every 1.8 degrees of warming.

 

The report was written and edited by 91 scientists from 40 countries who analyzed more than 6,000 scientific studies. The Paris agreement set out to prevent warming of more than 3.6 degrees above preindustrial levels — long considered a threshold for the most severe social and economic damage from climate change. Absent aggressive action, many effects once expected only several decades in the future will arrive by 2040, and at the lower temperature. To prevent 2.7 degrees of warming, the report said, greenhouse pollution must be reduced by 45 percent from 2010 levels by 2030, and 100 percent by 2050. It also found that, by 2050, use of coal as an electricity source would have to drop from nearly 40 percent today to between 1 and 7 percent. Renewable energy such as wind and solar, which make up about 20 percent of the electricity mix today, would have to increase to as much as 67 percent. Meeting this goal means massive changes in transportation; in energy, land, and building infrastructure; and in industrial systems. It means reducing our current coal consumption by one-third. It also demands a vast scale-up of emerging technologies, such as those that remove carbon dioxide directly from the air. All in the very narrow window of the next 12 years. The report also shows there’s no avoiding the costs of climate change; we either invest now to clamp down on greenhouse gases, or we pay down the line through property damage and lost lives.

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