Financial Review

Equally Divided

Wall Street’s muted response to terrorism, FBI to Apple – never mind, Google in the cloud, and the Supremes are equally divided.

Financial Review by Sinclair Noe for 03-22-2016

DOW – 41 = 17,582
SPX – 1 = 2049
NAS + 12 = 4821
10 Y + .01 = 1.94%
OIL – .30 = 41.22
GOLD + 4.70 = 1248.80
Three explosions that ripped through the Belgian capital of Brussels this morning killed at least 34 people and wounded about 170 more; 20 dead at a metro station and 14 more killed at Brussels’ international airport. Brussels is on lockdown; all public transportation has been shut down. Security at transportation hubs throughout Europe was increased; also heightened security in New York and Washington.


On Wall Street, the reaction was somewhat muted, but transportation shares and banks declined. There was a shift to safe haven assets, with German bonds and US Treasuries advancing, at least initially. Hotel and airline stocks slid on European markets with EasyJet, Air France-KLM Group, and Ryanair all dropping more than 4 percent.


Facebook activated a feature that allows users to easily inform their friends and relatives that they are safe in response to the Brussels terrorist attacks. The “Safety Check” feature was also activated after terrorist attacks in Paris and the floods in India, among other recent emergencies. Through the feature, more than 950 million people received a notification that their friend or relative was safe following a crisis in 2015.


American manufacturers grew slightly faster in March, but many companies say demand is subdued and some are still trying to work off excess inventories. The Markit Flash PMI rose a tick to 51.4 this month from a 28-month low of 51.3 in February. US factories continue to endure their worst spell for three and a half years. Headwinds include reduced spending by the struggling energy sector, the strength of the dollar, persistent weak global demand and growing uncertainty caused by the looming presidential election. The weak performance of the manufacturing sector is likely to weigh on first-quarter growth.


The Supreme Court upheld a nearly $6-million class-action verdict for a group of Iowa meat-packers who claimed they were not paid for time spent putting on and taking off safety gear. The high court has been skeptical of class-action claims in recent years, and when the justices agreed to hear the appeal from Tyson Foods, corporate groups – including the US Chamber of Commerce and the National Association of Manufacturers – had hoped the justices would use the case to further rein in class-action claims. Instead, in a 6-2 ruling, the high court said the class-action claim made sense. In its appeal, Tyson had argued that the workers could not prove how much time they spent putting on their protective clothing, relying instead on estimates. Since the company did not keep records, workers used an expert who studied a sample and concluded they spent on average about 18 minutes a day putting on safety gear. That was good enough. Justice Anthony M. Kennedy said, “A representative or statistical sample, like all evidence, is a means to establish or defend against liability.”


Under federal law, states can authorize bankruptcy filings by their municipalities, including public utilities, but Puerto Rico and the District of Columbia can’t. Puerto Rico sought to get around that provision in 2014 by passing a local law that offers an option similar to bankruptcy. A US appeals court ruled in July that Congress had reserved for itself the power to decide how Puerto Rican debt should be restructured. Today, Puerto Rico took the case to the Supreme Court. Only seven justices heard the arguments in the case. Justice Antonin Scalia died in February and has not yet been replaced. Justice Samuel Alito recused himself. But it remains unclear how the court will rule on whether the 2014 law can allow the territory to escape some of its $70 billion in debt.


The Supremes handed down a decision, of sorts, in a bankruptcy dispute between a Missouri bank and a development company that defaulted on its loans. In Hawkins v. Community Bank of Raymore, the question in the case is what legal protections are available to Valerie Hawkins and Janice Patterson, who were required by the bank to sign on as guarantors on a loan application submitted by their husbands. When the men’s business failed to make loan payments, the bank declared the loans in default and demanded payment from all four. Hawkins and Patterson argued that such a demand constituted discrimination because of marital status, which is prohibited under the Equal Credit Opportunity Act, which bars lending discrimination across a host of factors. But the bank contended that the two were not considered loan “applicants” under that law since they simply had to sign on as spouses to the loan seekers, leaving the courts to settle the dispute. The 8th Circuit Court of Appeals said the wives had to pay. Today, the Supremes said: “The judgment is affirmed by an equally divided court.” Since Justice Scalia’s death last month, there are 8 justices and they were evenly divided;  the justices had to ditch all the opinions, concurrences and dissents they may have been writing and, in essence, throw up their hands.


Libya does not plan to attend an April 17 meeting of oil producers about freezing supply to support prices, joining fellow OPEC member Iran in snubbing the initiative. The absence of the two OPEC members would limit the impact of any freeze by producers from OPEC along with Russia, even though Libya’s output has been curtailed for many months by unrest and the chance of it increasing production swiftly is low.


The national average for gasoline prices at the pump is poised to shoot past $2, as fuel demand hits levels never before seen at this time of year. The mean price for a gallon of regular gasoline now stands at $1.98, and has climbed for 25 out of the past 27 days, for a total of $0.28/gallon, according to AAA. Despite the rise in costs, pump prices are still about $0.45/gallon cheaper than a year ago, on average, and are at their lowest levels for late March since 2009.


Brazil’s oil giant, Petrobras, reported a fourth quarter loss of $10.2 billion, its biggest on record. The loss was 48% larger than a year ago, and it turned the oil giant’s full-year 2015 results into a loss.


The FBI says that a third party had “demonstrated an alternate method” for unlocking the iPhone used by one of the San Bernardino shooters. They haven’t unlocked the phone yet, but they feel confident they have found the keys, so “never mind.” A federal judge has agreed to postpone today’s court hearing with Apple at the FBI’s request. The government was ordered to file a status update by April 5. Besides privacy issues and the fight over encryption, the move would shatter the illusion that Apple can create unbreakable software; it might also shatter the illusion that the FBI is full of Luddites.


Google wants to be a big player in the cloud. Google pretty much invented the cloud 20 years ago for their own use, but it turned into a big business. Google is currently third in cloud computing, an increasingly popular way for companies to run their IT operations. That’s a $20 billion-a-year business forecast to grow 35 percent over the next year. So now they are stepping up to claim their share. Google/Alphabet will open data centers in Oregon and Japan in the coming months to support its cloud infrastructure and app platform, and plans to open another 10 over the next 12-18 months.  Google’s efforts also include upping its enterprise sales and marketing spend to sell Microsoft Office clients on Google Apps. Amazon/Microsoft cloud client Apple has already begun using the Google Cloud Platform.


Andy Grove, the Silicon Valley elder statesman who made Intel into the world’s top chipmaker and spearheaded the semiconductor revolution, has died at the age of 79. Grove was Intel’s first hire after it was founded in 1968 and became the practical-minded member of a triumvirate that eventually led “Intel Inside” processors to be used in more than 80% of the world’s PCs.


Carnival has won Cuban government approval to begin sailing to the Caribbean island nation, allowing its Fathom division to become the first U.S. cruise line to dock there in more than 50 years. The agreement, which will grant Carnival access to three Cuban ports beginning in May.


Global IPO activity volume fell nearly 40% to just over $12 billion in the first quarter, marking its weakest start to the year since the financial crisis. Lower oil and commodity prices, the strength of the U.S. dollar and economic volatility have led investors to adopt a “wait and see” approach or seek alternatives such as M&A, according to EY’s latest Global IPO Trends report. The slowdown is evident in all regions across the world, but that it’s important to note that there is still, on average, one IPO each day.


Top daily fantasy sports companies FanDuel and DraftKings have agreed to halt their business in New York, betting on a legislative path to make the games legal after a four-month fight with the state’s attorney general. The settlement means the firms would not have to pay any fines or other penalties related to the gambling charges, even if they are found to have been operating illegally.


If you enjoy local crafted beers, you’re in luck: There are now more U.S. breweries than at any other point in recorded American history. According to data released today by the Brewers Association, there were 4,269 operating breweries in the country at the end of 2015, surpassing the previous record logged all the way back in 1873 when a lack of transportation and refrigeration meant breweries had to be local. Just in time for March Madness.



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