Financial Review

Financial Review Market Scorecard 08-19-2014

DOW + 80 = 16,919 SPX + 9 = 1981 NAS + 19 = 4527 10 YR YLD+ .02 = 2.40% OIL (sept) = 94.48 GOLD – 2.00 = 1296.20 SILV – .18 = 19.50 Check out this episode!

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Financial Review

It’s Just a Matter of Time

  The consumer price index rose a seasonally adjusted 0.1% in July. Food prices rose 0.4%, but energy costs declined 0.3%; the first drop in energy prices since March. Consumer prices have risen an unadjusted 2% over the past 12 months, down slightly from June. Prices surged in the early spring but have since tapered off. Excluding volatile food and energy prices, the core rate has risen 1.9% in the same span, unchanged from the prior month. Almost all of the increase in consumer prices can be traced back to housing costs, or shelter prices; over the past year, shelter prices are up 2.9%.   Hourly wages have risen about 10% overall since June 2009, to $24.45 an hour. But over the same span they’ve slipped 0.3% in “real” or inflation-adjusted terms. Since the Great Recession ended five years ago, the amount of money Americans earn each hour after adjusting for  inflation has actually fallen. And that largely explains why the economy is growing so slowly.   The Federal Reserve should be in no hurry to raise interest rates because there is no serious threat from inflation, at least not now.   According to the US Travel Association and GfK, a market research firm, you might not take a vacation this year. About 40% don’t plan on using all of our paid time off. The share of American workers taking vacation is at historic lows. In the 1970s, about 80 percent of workers took a weeklong vacation every year. Now, …

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Financial Review

Theory and Instinct; Nobody Knows

  Over the weekend, the geopolitical hotspots did not explode. Kurdish forces made progress against ISIS militants in Iraq; Ukrainian forces made progress against pro-Russian separatists in eastern Ukraine. The ceasefire between Israel and Hamas is holding.   In economic news, the NAHB/Wells Fargo Housing Market Index showed that homebuilder sentiment rose for the third straight month in August. That should be a positive for new home construction.   Meanwhile, mortgage-finance giant Fannie Mae cut its outlook for the housing market this year and next, because rising mortgage rates, bad winter weather and consumer “conservatism” are all hitting the housing market. In its August forecast, Fannie said it expects construction starts for single-family homes to hit 642,000 in 2014, down about 8% from its July forecast of 696,000. Likewise, Fannie cuts its outlook for new single-family homes sales in 2014 by 11% to 431,000 from 486,000.   Housing affordability hit its lowest level in nearly six years in June. The National Association of Realtors reports the mortgage payment for a median-priced US home in June requires 16.3% of median household income. Even though housing affordability is still historically quite favorable by the NAR’s index, homes are not only becoming less affordable, but affordability may be even less favorable for first-time buyers. A separate index maintained by Goldman Sachs that looks only at marginal buyers shows that housing affordability is largely in line with its historic average.   The New York Federal Reserve says a new SEC rule designed to reduce …

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Financial Review

Financial Review Market Scorecard 08-15-2014

DOW – 50 = 16, 662 SPX – 0.12 = 1955 NAS + 11 = 4464 10 YR YLD – .06 = 2.35% OIL + 1.49 = 97.07 GOLD – 8.40 = 1305.50 SILV – .31 = 19.65 Check out this episode!

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Financial Review

Don’t Worry

  For the week, the Dow rose 0.7%, the S&P 500 gained 1.2% and the Nasdaq climbed 2.2%.   The Federal Reserve said factory production jumped 1.0% last month after rising 0.3% in June. That was the largest gain since February and reflected increases across all major categories. Auto production surged 10.1%, the biggest rise since July 2009. There were also solid gains in the production of machinery and computers and electronic goods; yesterday we talked about the importance of capex and business spending; maybe we’re seeing signs of that.     Or not. In a separate report, the New York Fed said its “Empire State” general business conditions index fell to 14.69 this month from 25.60 in July.   A preliminary August reading on the University of Michigan/Thomson Reuters consumer-sentiment index fell to the lowest level in 9 months, 79.2 down from a final July level of 81.8.   Producer prices, or prices at the wholesale level increased 0.1% in July, with 0.5% growth for transportation and warehousing prices; goods prices were unchanged; food prices rose 0.4%; energy prices dropped 0.6%. Overall producer prices rose 1.7% over the 12 months that ended in July, down from June’s annual-growth rate of 1.9%.   But the economic news carried little weight today, as attention once again focused on geopolitics. That might not be totally accurate; Wall Street looks at geopolitical hotspots but it can’t hold their focus. A new survey of institutional money managers around the world by Bank of America …

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Financial Review

Financial Review Market Scorecard 08-14-2014

DOW + 61 = 16,713 SPX + 8 = 1955 NAS + 18 = 4453 10 YR YLD – .01 = 2.40% OIL – .39 = 97.20 GOLD + .70 = 1313.90 SILV + .05 = 19.95 Check out this episode!

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Financial Review

The Circular Capex Spending Problem

  Iraqi Prime Minister Nouri al-Maliki stepped down today, a surprising reversal for a prime minister who a day earlier had assured his supporters that he wouldn’t step down unless forced out by Iraq’s high court.   President Obama says the US operations have broken the ISIS siege of Mount Sinjar. Thousands of Yazidi refugees were stranded on the mountain. Many of those displaced had now left the mountain and further rescue operations are not planned, however US airstrikes against ISIS will continue for now. And Iraqi and Kurdish forces fighting ISIS will continue to receive US military assistance.   Russian President Vladimir Putin said Russia would stand up for itself but not at the cost of confrontation with the outside world, which sounded like a softer, gentler Putin. Trust him about as far as you can throw him. Intense fighting continues as the Ukrainian military kept up its offensive to retake separatist strongholds in Eastern Ukraine.   A new, five-day truce between Israel and Hamas appeared to be holding despite a shaky start, after both sides agreed to give Egyptian-brokered peace negotiations more time. The second extension of the ceasefire, this time for five days rather than three, has raised hopes that a longer-term resolution to the conflict can be found; maybe. The Missouri State Highway Patrol will take over the supervision of security in the St. Louis suburb that’s been the scene of violent protests since a police officer fatally shot an unarmed black teenager.   Earnings season …

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Financial Review

Oil, At Least in Theory

  The economic news today did not point to a positive session for Wall Street. Retail sales for July were flat compared to June. Excluding autos and gas, retail sales were up just 0.1%. Clothing sales increased 0.4% but that was primarily due to extreme discounting. That report was confirmed by an earnings report from Macy’s, which missed expectations on earnings and revenue, and then lowered guidance. In after-hours trade, Cisco reported better than expected earnings and revenue.   The US has deployed 130 Marines and Special Operations forces to northern Iraq to help assess ways to rescue thousands of members of the Yazidi religious group taking refuge on Mount Sinjar. Those military advisers will not have a combat role, but the Defense Department left open the possibility that US troops could help create a safe passage for the Yazidi off Mount Sinjar. That might put US troops in direct combat with the ISIS militants trying to kill the Yazidi, a proposition President Obama has not signed off on, but one the military advisers are exploring.   The US and Iran don’t agree on much, but it appears the two countries are backing Iraqi Prime Minister Nouri al-Maliki’s replacement, Haider al-Abadi. Iran’s endorsement on Tuesday means that Maliki, who has indicated he won’t go quietly, will have an even harder time holding onto his position. The United States and its allies hope that replacing Maliki, who alienated the Sunnis of Iraq, will undermine support for the militant group the Islamic …

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Financial Review

Hype is Hurting

  The Dow Industrial Average has now gone negative year-to-date. Seven of the 10 main groups in the S&P 500 declined, with energy companies dropping 0.7 percent to lead the slide as Brent crude settled at the lowest level since July 2013. The International Energy Agency said a supply glut was shielding the market against threats in the Middle East.   As we wrap up earnings season, 73% of companies have beaten earnings estimates, slightly above the 1-year average of 72%, but “beating estimates” this time doesn’t mean what it did in recent quarters. For the past few years, analysts have ratcheted down their estimates in the run-up to earnings season, setting the bar lower and lower—and setting up an easy beat. Companies are beating by an average of 4.2%, above the 1-year average of 3.2%. Q2 earnings growth is 8.4%, up from an expected 4.9% on June 30. This is the second-highest earnings growth rate since Q4 2011. Revenues are now up for 5 consecutive quarters and at all-time highs, and it now looks like revenues might be driving earnings. The strongest sectors for upside earnings surprises have been telecom services, health care (especially biotech), and information technology; while consumer staples is the weakest. US banks and thrifts had their second best quarter in 2 decades, with more than $40 billion in net income.   Profit margins have soared. Net profit margins more than doubled from 4.6% in March 2009 to 9.8% at the end of the first quarter. …

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Financial Review

Financial Review Market Scorecard 08-12-2014

DOW – 9 = 16,560 SPX – 3 = 1933 NAS – 12 = 4389 10 YR YLD + .02 = 2.44% OIL – .15 = 97.22 GOLD + .60 = 1309.50 SILV – .10 = 20.02 Check out this episode!

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