More Than Bad Weather
Financial Review by Sinclair Noe
DOW – 28 = 18,011
SPX – 2 = 2109
NAS – 6 = 5076
10 YR YLD + .07 = 2.27%
OIL + .84 = 61.04
GOLD + 3.90 = 1193.70
SILV + .04 = 16.85
It has been a busy day for central bankers. The Reserve Bank of India cut interest rates for the third time this year, lowering its key repo rate by 25 bps to 7.25%, even though the Indian economy has become one of the fastest-growing in the world. Meanwhile, the Reserve Bank of Australia kept rates unchanged at a record low of 2.0% today, in line with expectations. The Bank of Japan is also meeting today; the Nikkei Index snapped its 12-day record run, ending its longest winning streak since February 1988.
Federal Reserve Governor Lael Brainard says economic data does not point to a significant second quarter bounce. Brainard is a voting member of the Federal Open Market Committee and she says the slowdown is more than just bad weather in the first quarter; she cited the strong dollar. Brainard says net exports subtracted “a whopping” 1.9 percentage points from first quarter GDP. On the jobs side, the pace of gains has slowed, and wage growth remains soft. Consumers, for their part, are not inclined to spend their gas price windfalls. Brainard says she would oppose raising interest rates at the June FOMC meeting but she expects higher rates before the end of the year.
The Federal Aviation Administration briefly halted all United Airlines flights this morning. The grounding happened around the same time as reports about bomb threats against five flights, including a United flight. Federal officials said later the threats were not credible. The total stoppage time was 39 minutes. The FAA originally cited automation issues as the cause for the halt.
Meanwhile, in an internal investigation conducted by the Department of Homeland Security, the Transportation Security Administration (TSA) failed to detect banned weapons and fake explosives smuggled in by undercover agents posing as passengers 95% of the time. The trials were conducted at the busiest U.S. airports and agents were repeatedly able to smuggle weapons through checkpoints. TSA agents failed 67 out of 70 tests.
The U.S. Senate has passed a bill reforming a government domestic spying program that swept up millions of Americans’ telephone records, sending the bill to the White House for President Obama to sign into law. Reversing U.S. security policy that had been in place since shortly after the 9/11 attacks, the bill would end a system exposed by former National Security Agency contractor Edward Snowden in 2013. The eavesdropping agency collected and searched records of phone calls looking for terrorism leads but it was not allowed to listen to the content of calls.
The passage of the USA Freedom Act would require telephone companies, such as Verizon and AT&T, to collect and store telephone “metadata” the same way that they do now for billing purposes. But instead of routinely feeding U.S. intelligence agencies such data, the companies would be required to turn it over only in response to a government request approved by the secretive Foreign Intelligence Surveillance Court. Passage of the bill is the first major legislative reform of U.S. surveillance practices since Snowden’s revelations two years ago this month.
Along with the phone records program, two other domestic surveillance programs authorized under the USA Patriot Act have been shut down since Sunday. The Senate missed the deadline to extend legal authorities for certain data collection by the NSA and the Federal Bureau of Investigation.
Orders for goods produced in U.S. factories slipped 0.4% in April, marking the eighth decline in nine months. Orders for durable goods — products meant to last at least three years — fell 1% in April. Orders for nondurable goods rose 0.2%.
The Big Three U.S. automakers all beat estimates for domestic light-vehicle sales in May. General Motors’ deliveries for the month were the best since 2007 while Fiat Chrysler’s were the highest in a decade. Fiat Chrysler said U.S. sales rose 4 percent last month. Ford deliveries slipped 1.3 percent, a smaller decline than analysts projected, while GM’s 3 percent gain topped estimates. The annualized pace of sales, adjusted for seasonal trends, rose to 17.8 million, from 16.7 million a year earlier and topping estimates for a 17.3 million rate. It was the fastest pace since July 2005
Underwater homeowners who file for Chapter 7 bankruptcy protection are still on the hook for secondary loans tied to their properties. Under the bankruptcy code, the claims of secured creditors are typically cut into two parts: a secured claim up to the value of the collateral and an unsecured one for the rest. The question is whether this division means that a lien associated with the secured claim is cut down to the value of the collateral. For example, if a secured creditor is owed $100 and has a lien on property worth $40, does the secured creditor have a $40 lien after the bankruptcy case, or does it retain a lien for $100?
From the debtor’s perspective, it would be helpful to restart life after bankruptcy with as little property encumbered as possible. But creditors would like to hold on to the bigger lien in case the property value rises. The short answer to whether a debtor can “strip off” a lien is: It depends. In particular, it depends on which chapter of the bankruptcy code the debtor files under. Individuals tend to file under Chapters 7 and 13. Under both of these chapters, the courts have ruled so-called lien-stripping impermissible, particularly with regard to the debtor’s home. On the other hand, corporate debtors routinely strip off liens of under-secured creditors in Chapter 11 cases.
In the case of Bank of America v. Caulkett, two borrowers each had two mortgages on their homes, with Bank of America holding the junior liens. Both borrowers were underwater and filed for Chapter 7 bankruptcy two years ago. The borrowers wanted to “strip off” the junior mortgages, shedding those debts. The Supreme Court ruled unanimously, finding that lenders still have a secured claim “regardless of whether the value of that property would be sufficient to cover the claim.”
The Supreme Court ruled 8-1 that retailer Abercrombie & Fitch may have violated workplace discrimination law when it turned down a Muslim job applicant because she wore a hijab, even though her religious beliefs never came up in the interview. Samantha Elauf applied for a sales position at an Abercrombie children’s store in Oklahoma in 2008. Despite her high marks in the interview, Elauf didn’t land the job because her headscarf ran afoul of Abercrombie’s employee “look policy,” which bars hats and promotes the retailer’s brand. Civil rights law requires that employers accommodate workers’ religious beliefs in the workplace, and forbids them from firing or not hiring someone because of those beliefs. But Abercrombie argued that it couldn’t have known to make such an accommodation because Elauf, who was 17 at the time, never requested one. The majority of justices didn’t buy that argument, reversing an earlier appeals ruling in Abercrombie’s favor. They said that whether or not Abercrombie had firm knowledge of Elauf’s need for an accommodation was not relevant — only whether her headscarf was a “motivating factor” in their decision not to hire her. The ruling sends Elauf’s case back to the lower court for further consideration.
A day after an emergency mini-summit of Greece’s international creditors, the country submitted a proposal it hopes will secure a deal to unlock desperately needed rescue money. The Greek prime minister, Alexis Tspiras, said: “We have submitted [our own] realistic plan for Greece to exit the crisis. A realistic plan, whose acceptance by the institutions, our lenders and our partners in Europe will mark the end of the scenario of divisions in Europe.” He said it was now up to the bloc’s political leadership to decide whether it wanted “to adjust to realism”.
Euro zone officials branded the Greek text insufficient and said it was not formally on the table. They are now offering up their own proposal, as a take it or leave it offer. The Greek leader faces a backlash from his own supporters if he has to accept cuts in pensions and job protection to avert a default and keep Greece in the euro zone. Greece says it can make a €300-million-euro payment on Friday, but they would still face three more payments in June, totaling more than €1.6-billion-euro.
Sepp Blatter, the president of FIFA announced his resignation today following arrests of several FIFA officials in the past week as part of a corruption investigation. Blatter announced the decision at a hastily arranged news conference in Zurich, six days after police raided a hotel in the city and arrested several FIFA officials, and just four days after he was re-elected to a fifth term as president. Blatter said an election to choose a new president would be held as soon as possible, though a FIFA official said it would probably not take place until December at the earliest.
ABC News is reporting that Blatter is being investigated by the FBI and U.S. prosecutors. The FBI declined to comment because Blatter has not been publicly identified as a target of the investigation. The sources said the feds are conducting the FIFA probe the same way they would handle an old-school New York-style racketeering case.
M&A activity hit an all-time monthly record in May, surpassing the previous highs seen during the height of the dot-com bubble and peak of the debt boom that led to the 2008 financial crisis. The overall value of U.S.-bound deal-making amounted to $243 billion in May, compared to $226 billion during the same month in 2007 and $213 billion in January 2000, the previous biggest and second biggest months respectively. Companies have been on a borrowing binge as they lock in on cheap funding before the Fed hikes rates.