Milk and Cookies Redux
More record highs on Wall Street. Import goods inch up. Budget deficit grows as corps pay less. Beige Book, meh. Oil gluts return. May new PM. PC sales grow. New GM loses shield of Old GM. Something new under the sun – Mas Blue.
Financial Review by Sinclair Noe for 07-13-2016
DOW + 24 = 18,372
SPX + 0.29 = 2152
NAS – 17 = 5005
10 Y – .03 = 1.47%
OIL – 1.37 = 45.43
GOLD + 9.60 = 1343.30
The cost of imported goods increased 0.2% in June, led again by the higher cost of fuel. Import prices have risen four straight months following five straight declines, largely because of the price of oil has climbed from multiyear lows. Excluding fuel, the cost of imports fell 0.3% in June. Over the past year, import prices are still 4.8% lower, reflecting a big drop in the oil prices in 2015. That’s helped to keep overall U.S. inflation on the low side. Import prices minus fuel are down 1.8% in the past 12 months. U.S. export prices climbed 0.8% in June. Export prices are 3.5% lower in the past 12 months.
Corporations are paying less to the Treasury this fiscal year, and the government’s budget deficit is ballooning because of it. In its latest monthly budget report, the Treasury Department said the deficit through June was $401 billion, up 27% from the same period a year ago. In the month of June, the government managed to post a budget surplus of $6 billion, but that was down from a surplus of $50 billion in June of 2015. While individual income tax collection has risen so far this fiscal year, it’s a far different story with corporate taxes: revenues are down 11%. The government’s budget year runs from October through September. The nonpartisan Congressional Budget Office blamed the tax extenders, legislation that gives breaks for both businesses and individuals, for helping to blow up the federal debt in the long term; another possible culprit is that the decrease in corporate taxes may partly reflect lower taxable profits earned so far this calendar year.
The Federal Reserve published its Beige Book today, two weeks before the next FOMC policy meeting. The anecdotal assessment finds the economy chugging along through the end of June with little indication of inflation now or in the near future. Despite a strong rebound in U.S. job growth in June; pressure to raise wages at the end of the second quarter was centered on skilled workers and difficult-to-fill positions. Fed districts also reported some signs of softening in consumer spending but most retained an optimistic outlook, the report said. Manufacturing activity remained mixed while growth in the services sector was seen as “slight to modest.”
Oil industry hopes that markets are about return to balance, ending a global glut that pulled down prices by over 70 percent between 2014 and early 2016, might be abruptly dashed. Despite recent disruptions and output cuts, there is mounting evidence that plentiful supplies and brimming inventories will delay a much-quoted rebalancing of oil markets. Not just are supplies improving, now demand may be waning. With the United States and Europe stagnating, Asia has been the main pillar of oil demand growth. But that too is now stuttering, with tanker flows into the region down for four straight months. So much oil is now stored that the world is running out of space, forcing traders to charter supertankers in which to keep unsold fuel. There is so much oil in storage that it could take well into 2018 for the glut to clear.
The latest American Petroleum Institute (API) showed crude oil supplies rose to their highest point in ten weeks. Meanwhile, the International Energy Agency said oil production from the Middle East has climbed to a record while U.S. output slumps. Middle Eastern output exceeded 31 million barrels a day for a third month in June amid near-record supply from Saudi Arabia, while U.S. oil production slid 140,000 barrels a day to 12.45 million. The IEA, which mostly kept forecasts for supply and demand unchanged, said that while the rebalancing of the oil market is progressing, brimming inventories remain “a threat to the recent stability of oil prices.”
Theresa May is Britain’s new prime minister, replacing David Cameron. The appointment was official today. May will face immediate pressure from EU leaders to serve formal notice of Britain’s withdrawal and set the clock ticking on a two-year countdown to its final departure. May has already started naming new members of her cabinet. She appointed former foreign minister Philip Hammond to take charge of the finance ministry. He replaces George Osborne, whose determination to balance Britain’s books made him synonymous with austerity. May also named Boris Johnson, the former mayor of London and a leading eurosceptic who had until recently been seen as her main rival for the prime minister’s job, to take over as foreign secretary. Meanwhile, the Bank of England holds a policy meeting tomorrow and they are expected to cut the key lending rate to 0.25% form 0.5%, to try to ward off a recession and to reassure markets.
PC sales in the US are growing again. Both Gartner and IDC data shows that PC shipments in the US have returned to growth for the first time in over a year. Gartner data, which includes Windows tablets, showed that PC shipments grew 1.4% in the second quarter. IDC data, which doesn’t include Windows tablets, showed growth of 4.9%.
A federal appeals court ruled General Motors’ 2009 bankruptcy does not shield it from lawsuits over a deadly ignition-switch defect that led to criminal charges against the automaker and prompted the recall of 2.6 million vehicles in 2014. The 2nd Circuit’s decision affects some injury and death cases stemming from pre-bankruptcy crashes. It will also impact claims from customers who say their vehicles lost value as a result of the ignition switch and recalls involving other parts, which plaintiffs’ lawyers have estimated to be worth between $7 billion and $10 billion. A bankruptcy judge ruled in 2015 that New GM was shielded from liability over Old GM’s pre-bankruptcy actions, but he allowed some “independent” claims based solely on New GM’s conduct to proceed. Lawyers for GM customers argued that New GM should not be protected because it knowingly concealed the switch defect for more than a decade before it recalled the vehicles in 2014. The ruling allows the cases to proceed but does not address the underlying merits of the claims.
Line Corp. shares are getting popular in the gray market ahead of this week’s trading debut, which will mark the largest initial public offering for a tech company in 2016. According to Cantor Fitzgerald, investors are willing to buy shares for $36, 15% higher than the IPO price. Line will debut in a dual listing in the U.S. tomorrow and Tokyo on Friday.
The FTC has requested additional information from Abbott Laboratories and St. Jude Medical, which are attempting to complete a $25 billion deal combining two of the leading makers of heart-related devices. The request extends the waiting period – the time frame before companies can close a transaction – by 30 days.
One year after hackers showed they could control a moving Jeep, Fiat Chrysler has a new solution to get computer whizzes to work more closely with the company: pay them. The automaker is launching a bug bounty program aimed at compensating hackers between $150 and $1,500 every time they uncover potential cybersecurity flaws in vehicles and alert the company.
Elon Musk has no plans to disable Tesla’s Autopilot function in the wake of a fatal Model S crash in May that used the technology, and instead plans to redouble efforts to educate customers on how the system works. Tesla also confirmed that the weekend crash involving Autopilot in Montana, the third serious accident tied to the self-driving feature, resulted from the driver’s hands not being on the wheel ahead of the collision.
Seven years ago, chemistry researchers from Oregon State University were conducting an experiment testing materials for applications in circuit boards and semiconductors; they heated manganese oxide and other substances to 2000 degrees Fahrenheit, when one of their samples came out a vivid blue. They had accidentally created a new color and they named it YInMn, after the elements yttrium, indium and manganese that compose it. Some artists have already given the new color a nickname – Mas Blue. In about a month, the new color will be available as paint. While the same shade could be created in other ways, what makes this pigment particularly special is its durability and color-fast properties as a chemical coloring agent. Most blue dyes tend to fade, but Mas Blue is resistant to water, oil or acid and non-toxic. The paint will be distributed by the Ohio-based color supplier Shepherd Color Company. Scientists are also exploring the use of Mas Blue as an energy-saving roofing material, since the compound has been found to reflect 40% of infrared light.