Canoe Trips on Mars
Financial Review by Sinclair Noe for 09-28-2015
DOW – 312 = 16,001
SPX – 49 = 1881
NAS – 142 = 4543
10 YR YLD – .07 = 2.09%
OIL – .03 = 44.40
GOLD – 14.20 = 1133.10
SILV – .53 = 14.70
Well, this was just ugly. All three major indices traded in correction territory today or more than 10 percent below their 52-week highs. For the Nasdaq Composite, the 50 day moving average crossed the 200 day moving average, forming a pattern that goes by the catchy name “death cross”. The Nasdaq Biotechnology ETF closed down 6.3%, following a 5% drop on Friday.
Shares in mining and trading company Glencore fell almost 30 percent and closed at a record low, wiping out more than $5 billion in market valuation. The fall followed publication of a note by analysts at investment bank Investec which raised doubts about Glencore’s valuation if spot metal prices do not improve. The note pointed to high debt levels and a need for deeper restructuring. The analysts wrote: “If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate.” Glencore, a Swiss based company, has said it will suspend dividends, sell assets and raise cash with a $2.5 billion share placement, among other measures, to cut its $30 billion debt pile and protect its credit rating.
The 15-month commodities free-fall is starting to resemble a full-blown crisis. A Bloomberg index of commodity futures has fallen 50 percent since a 2011 high, and eight of the 10 worst performers in the Standard & Poor’s 500 Index this year are commodities-related businesses.
Alcoa the world’s largest aluminum producer, says it will split into two separate publicly-listed companies, with the separation expected to be completed in the second half of 2016. The company says the split will create an “upstream company”, focused on bauxite, alumina and aluminum, and a “value-add company”, focused on innovation in “high performance multi-material products and solutions in attractive growth markets”.
Royal Dutch Shell has abandoned its Arctic search for oil after failing to find enough crude. Shell has spent about $7 billion on exploration in the waters off Alaska so far and said it could take a hit of up to $4.1 billion to shut down exploration in the region. The unsuccessful campaign is Shell’s second major setback in the Arctic after it interrupted exploration for three years in 2012 when an enormous drilling rig broke free and ran aground. Environmental groups and shareholders have also pressured Shell to drop Arctic drilling.
The IMF warns world GDP at 3.3% this year isn’t realistic anymore, and a forecast of 3.8% for next year is not either. IMF Director Christine Lagarde pointed to slowing growth in emerging economies, in particular China. Lagarde says “There is no reason (for the Federal Reserve) to rush” to tighten policy, noting both the Japanese central bank and the ECB in recent years both hiked and then were forced to quickly retreat.
The Federal Reserve will probably raise interest rates later this year and tighten policy gradually thereafter, so says William Dudley, New York Fed President, echoing statements from Fed Chair Janet Yellen last week. Dudley, who cautioned in late August that the uncertain global outlook made the case for a rate increase in September less compelling, said his expectation on the timing of liftoff was “not calendar guidance. It depends on the data.” San Francisco Fed President John Williams, also speaking today, made a similar argument.
As world growth falters, the US consumer rolls along. Most of the change over the past quarter related to China. The Chinese currency was devalued, and many Chinese economic indicators continued to slow. China has showed lower growth rates and missed growth forecasts for several years. The news this morning shows Chinese industrial profits fell 8.8% in August year-over-year. It’s not new news. Still, the devaluation brought some already well-known weaknesses to the forefront. And as we have long been expecting, a slowing China generally has helped the U.S. economy as the small decrease in exports has been more than offset by lower commodity prices, which puts more money in consumer pockets.
Purchases of new cars and trucks and strong back-to-school sales drove consumer spending higher in August, a sign the economy continues to expand at a moderate pace. In August, consumer spending rose a seasonally adjusted 0.4% to match the revised gain in July. Personal incomes rose 0.3% last month. Incomes have also risen steadily since the early spring, largely reflecting strong job creation that’s tugged the unemployment rate down to a post-recession low of 5.1%. Since spending grew faster than income, the amount of money individuals save fell a tick to 4.6% from 4.7%. Inflation as gauged by the PCE price index, was unchanged in August. The PCE index is up just 0.3% in the past 12 months.
This week’s big economic report comes on Friday, when the Labor Department publishes the September employment report. The consensus estimate calls for 190,000 new jobs in September. The unemployment rate is likely to remain at 5.1%.
A gauge of pending home sales fell 1.4% in August to the lowest level in five months. The index from the National Association of Realtors declined to a seasonally adjusted 109.4 in August from 110.9 in the prior month. Pending sales have leveled off since mid-summer, with buyers being bounded by rising prices and few available and affordable properties within their budget.
The federal government is funded only through Wednesday but House Speaker John Boehner says there won’t be a government shutdown. Speaking on CBS’ “Face the Nation,” Boehner confirmed plans to pass a short-term funding bill. Boehner, who announced Friday he is resigning from Congress at the end of October, also said he will set up a committee to investigate Planned Parenthood.
President Obama addressed the United Nations General Assembly this morning, saying the US is was willing to cooperate with Russia, as well as Iran, to try to end the Syrian civil war but the two big powers clashed over whether to work with Syrian President Bashar al-Assad, whom Obama called a tyrant. Russian President Vladimir Putin, in contrast, told the gathering of world leaders that there was no alternative to cooperating with Assad’s military in an effort to defeat ISIS. Later, Obama and Putin met privately.
In opening the General Assembly, Secretary General Ban Ki-moon struck a sober theme, asserting that: “Inequality is growing, trust is fading, and impatience with leadership can be seen and felt far and wide.” Mr. Ban called explicitly for an “end to bombings” in Yemen, and named the five countries that, as he said, “hold the key” to peace in Syria: Russia, the United States, Saudi Arabia, Iran, and Turkey.
Pro-independence parties won a majority 72 seats (out of 135) in Catalonia’s regional parliament, but took down only 48% of the vote. Blocked by the national government from holding a referendum on independence, the separatists attempted to turn these elections into just that. While they won a majority of seats, the failure to gain more than 50% of the vote means had this been a referendum, it would have been a loss.
Apple said it sold more than 13 million iPhone 6s and 6s Pluses during their first weekend on the market. The company beat its previous record of 10 million in sales for the previous generation of iPhones in its first weekend in 2014. This year’s results benefited from the inclusion of the Chinese market, where regulatory problems delayed the gadget’s debut last year.
Whole Foods Market said it would cut about 1,500 jobs, or about 1.6 percent of its workforce, over the next eight weeks. The cuts are aimed at reducing costs as the company invests in technology upgrades. Whole Foods said in May that it would launch a new chain of smaller, more value-focused shops next year.
Scientists say there is water on Mars. In a paper published in the journal Nature Geoscience, scientists report definitive signs of liquid water on the surface of present-day Mars, a finding that will fuel speculation that life, if it ever arose there, could persist to now, or possibly in the future. In the research, Dr. Alfred McEwen, a professor of planetary geology at the University of Arizona and the principal investigator of images from a high-resolution camera on NASA’s Mars Reconnaissance Orbiter, along with other scientists discovered in photographs from the Mars Reconnaissance Orbiter dark streaks descending along slopes of craters, canyons and mountains. The streaks lengthened during summer, faded as temperatures cooled, then reappeared the next year. The researchers were able to identify the telltale sign of a hydrated salt at four locations. In addition, the signs of the salt disappeared when the streaks faded. In other words, small rivers of liquid water; briny water, but water nonetheless. The salts lower the freezing temperature, and the water remains liquid. The average temperature of Mars is about minus 70 degrees Fahrenheit, but summer days near the Equator can reach an almost balmy 70.
Many mysteries remain. For one, scientists do not know where the water is coming from. One theory is that the salts act like a sponge to soak up moisture from the environment. The other possibility is underground aquifers, frozen solid during winter, melting during summer and seeping to the surface.