Nice Little Planet
Financial Review by Sinclair Noe for 11-18-2015
DOW + 247 = 17,737
SPX + 33 = 2083
NAS + 89 = 5075
10 YR YLD + .01 = 2.27%
OIL + .03 = 40.70
GOLD + .20 = 1071.00
SILV – .01 = 14.28
Stocks rallied the most in four weeks, while Treasuries pared losses. The dollar traded near a seven-month high against the euro. Oil was little changed near a two-month low after dropping below $40 a barrel in New York for the first time since August as producers’ output swelled global inventories to a record. U.S. supplies climbed to the highest for the season in more than 80 years.
A predawn police raid on an apartment building in a Paris suburb led to the deaths of two extremists, including the alleged ringleader of last weekend’s attacks – although there is no official confirmation; the raid also resulted in seven arrests. Police also found plans in the apartment for more attacks on Paris. French President Hollande renewed his case for an extension to a state of emergency decreed after the attacks and for changes to the constitution that he said would make France safer. Meanwhile, a French aircraft carrier headed to the eastern Mediterranean to intensify the bombardment of ISIS positions in Syria.
Hacking collective Anonymous accessed and took down more than 5,500 social media accounts associated with ISIS. As part of its efforts, Anonymous published a guide for supporters of how to identify and clean out ISIS-linked accounts.
While we have all been following the news about the attacks in Paris it is important to remember that ISIS is not going to win; they will not establish a caliphate in Paris, nor will they take over New York, or LA, or Kansas City. The point is not to minimize the horror. It is, instead, to emphasize that the biggest danger terrorism poses to our society comes not from the direct harm inflicted, but from the wrong-headed responses it can inspire. The goal of terrorists is to inspire terror, because that’s all they’re capable of. And the most important thing we can do in response is to refuse to give in to fear.
The Federal Reserve published the minutes of the last FOMC meeting and earlier today, 3 more Fed policymakers said they support a rate hike in December. Atlanta Fed President Dennis Lockhart said Wednesday he is comfortable moving rates higher “soon”; Cleveland Fed President Loretta Mester repeated that she thinks the economy can handle a small rate hike; Richmond Fed President Jeffrey Lacker, remember he voted for raising rates in September and October, said he has his “fingers crossed” that conditions will finally be right for a rates liftoff in December.” And that is pretty much what the Fed minutes revealed – the Fed is ready to raise interest rates at the next FOMC meeting on December 16.
Sovereign debt spreads are widening as investors look to Fed tightening and ECB easing in December. The extra yield on two-year Treasury notes over their G7 peers has widened to 76 basis points, the most since 2007. In the euro-area, meanwhile, Germany this morning sold two-year notes at a record-low yield of minus 0.38 percent.
New home construction declined by 11% in October to an annual rate of 1.06 million, marking the lowest level since the early spring. Housing starts in September were also revised down to a 1.19 million annual rate from 1.21 million. Permits for single-family homes, which account for about three-quarters of the housing market, rose 2.4% in October to an annual rate of 711,000. That’s the highest level since the end of 2007. The decrease in starts last month was primarily due to a 25.1 percent slump in work on multifamily homes.
BlackRock, the world’s largest asset manager, is winding down a global macro hedge fund after losses and investor redemptions eroded assets. BlackRock Global Ascent lost 9.4 percent this year, according to an October investor document, on track for its worst year since inception in 2003. The fund, which had $4.6 billion in assets just two years ago, has shrunk to less than $1 billion as of Nov. 1
Members of the Organization for Economic Cooperation and Development have agreed to scale back public financing for coal-fired power plants. The policy would cut off financing for 85 percent of coal projects going forward. The new policy, which will take effect in a year, would provide subsidies only for so-called “ultra-supercritical” coal-fired power plants — those built to the most stringent environmental standards.
Square is due to price its NYSE IPO later today in an offering that’s being closely watched for what it means for the potential listings of other “unicorn” tech companies – those worth over $1 billion – such as Airbnb and Dropbox. Amid a difficult market for tech IPOs, Square set its price range at $11-13 a share, valuing the company at up to $4.2 billion, or 30% below its worth in a private fundraising round a year ago. Trading in the firm’s stock is scheduled to start on Thursday.
Canadian Pacific has laid out its proposal to acquire Norfolk Southern. Norfolk Southern said will “carefully evaluate” Canadian Pacific Railway’s $28.4 billion acquisition offer, but has described the bid as “low-premium” and warned that it would face significant regulatory obstacles. Canadian Pacific is offering around $94.94 in cash and stock, or a 9% premium to Norfolk Southern’s closing price of $87 yesterday. The combined rail network would be worth about $47 billion.
Air Liquide has agreed to buy Airgas in the largest takeover in the industrial-gases sector in nine years. Air Liquide is offering $143 a share for an enterprise value of $13.4 billion. The deal will make Air Liquide the world’s biggest supplier of industrial gases and give it a dominant position in the U.S.
The Justice Department has unconditionally approved Schlumberger’s $12.7 billion proposed purchase of Cameron International, putting the companies on track to close the deal early next year.
Federal prosecutors are actively pursuing criminal cases against executives from Royal Bank of Scotland and JPMorgan Chase for allegedly selling flawed mortgage securities. The Wall Street Journal reports investigators are working to establish that the bankers ignored warnings from associates that they were packaging too many shaky mortgages into investment offerings and are weighing whether they can prove that constituted fraud. At RBS, prosecutors are scrutinizing a $2.2 billion deal that repackaged home mortgages into bonds in 2007. In a 2013 civil settlement with RBS, the Securities and Exchange Commission described the lead banker on that deal, whom it didn’t name, as trying to push it through over concerns of the diligence department. The JPMorgan probe has long been stalled because officials have been divided over whether they have sufficient evidence to charge anyone with a crime but it has recently picked up steam. While major banks have had to pay billions of dollars in settlements over the financial crisis, there has been a notable lack of criminal convictions. So, after about 8 years, the Department of Justice isn’t actually announcing indictments, but they are picking up steam.
New York Attorney General Eric Schneiderman has subpoenaed Yahoo in his investigation into the multibillion-dollar daily fantasy sports industry. Yesterday, Schneiderman filed for a temporary injunction to shut down industry leaders DraftKings and FanDuel, arguing that they facilitate illegal gambling.
Target posted third-quarter results that matched analysts’ estimates and raised the low end of its annual profit forecast, citing strength in health products and children’s apparel.
Lowe’s, the second-largest home-improvement chain, reported a 5% rise in quarterly sales, thanks to a robust housing recovery. Net income climbed to $736 million, or 80 cents a share, from $585 million, or 59 cents a share.
Reuters has published an excellent examination of stock buybacks and the results are pretty incredible. In fiscal 2014, among the 3,297 US companies examined, spending on buybacks and dividends surpassed the companies’ combined net income. In the most recent reporting year, share purchases reached a record $520 billion. Throw in the most recent year’s $365 billion in dividends, and the total amount returned to shareholders reaches $885 billion, more than the companies’ combined net income of $847 billion. The phenomenon is the result of several converging forces: pressure from activist shareholders; executive compensation programs that tie pay to per-share earnings and share prices that buybacks can boost; increased global competition; and fear of making long-term bets on products and services that may not pay off.
Because buybacks increase demand and reduce supply for a company’s shares, they tend to increase the share price, at least in the short-term. By decreasing the number of shares outstanding, they also increase earnings per share, even when total net income is flat. If those buybacks come at the expense of innovation, short-term gains in shareholder wealth could harm long-term competitiveness. Share repurchases have helped the stock market climb to records from the depths of the financial crisis, but many argue that the records have come at the expense of workers by cutting into the capital spending that supports long-term growth – and jobs. Further, because most most U.S. stock is held by the wealthiest Americans, workers haven’t benefited equally from rising share prices. The U.S. economy is now twice as rich in real terms as it was 40 years ago, but most people feel poorer.
This has been by far the hottest year on record. Last month was the hottest October in 136 years of data, making it the eighth record-breaking month so far in this record-breaking year. This week the El Nino weather pattern started setting records of its own, with some of the warmest weekly temperatures ever seen across large parts of the equatorial Pacific. Last month wasn’t just the hottest October on record, it was the biggest departure from normal for any month in the past 136 years, according to data from the National Oceanic and Atmospheric Administration. Nice little planet you have here. Shame if something happened to it.