Financial Review

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Edging lower. Monsanto/Bayer a big deal. Import prices fell. Census data on poverty, medical care, and inequality. Techies want real news. Autonomous shopping carts. Ford to Mexico. Uber minus Uber drivers. SpaceX minus a launch pad. Shipping minus customers. Apple’s back. Wells Fargo under investigation.


Financial Review by Sinclair Noe for 09-14-2016


DOW – 31 = 18,034
SPX – 1 = 2125
NAS + 18 = 5173
10 Y – .04 = 1.69%
OIL – 1.26 = 43.64
GOLD + 4.20 = 1323.60


Wall Street edged lower, and trading seemed calm compared to the past few days. The S&P 500 remains down almost 3 percent from before a steep selloff on Friday, even though interest rate futures indicate expectations for a rate hike at the Fed’s Sept. 20-21 meeting are still low. What we are seeing is probably a preview for what will happen when the Fed does raise rates.


Monsanto has finally agreed to a takeover offer from Bayer, valuing it at $128 per share or a total of more than $66 billion, ending months of wrangling after increasing its bid for a third time. The deal would be the largest all-cash transaction on record and put a quarter of the combined world market for seeds and pesticides under one roof. Bayer has also settled on a $2 billion break-up fee for the deal, which could close by the end of 2017.


The Monsanto-Bayer deal will face anti-trust scrutiny. Last year Monsanto tried to buy Syngenta, but the Swiss company fended off the attempt, only to agree later to a takeover by China’s state-owned ChemChina. Elsewhere in the industry, U.S. chemicals giants Dow Chemical and DuPont plan to merge and later spin off their respective seeds and crop chemicals operations into a major agribusiness.


Here’s why it matters to you: the consolidation of two big industry players into one of the world’s largest agrochemical firms may limit farmers’ choices and bargaining power, with increasing seed prices expected to be passed on to the grocery aisles. Regulators are likely to take a dim view of so many Big Ag deals happening at once. If the 3 deals go through, it would result in just 3 companies selling 59% of all the globe’s seeds, with Monsanto/Bayer control 30% of the total; and 64% of the world’s pesticides. There will be strong opposition in the US and around the globe. Regulators will likely demand the sale of some soybeans, cotton and canola seed assets as a condition for approving the deal, at the very least. And it is possible that all three deals will be shot down.


Vitae Pharmaceuticals shares more than doubled to $20.85 after Allergan said it would buy the company for $639 million.


U.S. import prices fell for the first time in six months in August on declining petroleum and food costs. The Labor Department says import prices decreased 0.2 percent in August after an unrevised 0.1 percent gain in July. Last month’s drop was the first since February. Import prices have been constrained by a strong dollar and cheap oil. That, together with sluggish wage growth have left inflation persistently running below the Fed’s 2 percent target. Imported petroleum prices declined 2.8 percent last month after decreasing 3.6 percent in July. Import prices excluding petroleum were unchanged after climbing 0.5 percent in July. The report also showed export prices fell 0.8 percent in August.


You’ve heard that old line “we fought a War on Poverty, and poverty won.” Well, maybe poverty hasn’t won, but it is still too high. New data from the Census Bureau shows median middle-class wages rose 5.2% between 2014 and 2015, the first annual increase since 2007. But the median household income was still lower than it was in 2007. The official poverty rate decreased to 13.5 percent for last year, a drop of 1.2 percentage points. That represents 3.5 million people who are no longer in poverty and is the largest annual percentage point drop since 1999. And the uninsured rate continued to fall. The percentage of Americans without health insurance for the entire year dropped by 1.3 percentage points, to 9.1 percent. Since 2013, the uninsured rate is down 4.3 percentage points. Still, the Census Bureau reports that 11.2 million individuals were pushed below the poverty line last year because of medical expenses. The latest data found that 29 million people went uninsured last year, including 3.7 million children, and that deductibles and other out-of-pocket costs have continued to rise well after the Affordable Care Act (ACA) went into law in 2010. The quickest path to the poor house is to get sick.


Americans all grew richer pretty much across the board last year, but they also stayed relatively unequal. The Gini coefficient, which the Census uses to track the gap between the rich and poor, was unchanged in the last year, despite all those wage gains and declining poverty. In fact, it’s up 5.5% since 1993, when the government first began tracking the data. Women might be earning more today, but the gap between what they earn and what men expect to earn hasn’t narrowed significantly since 2007. Despite the many positive trends in the report, there are also still lingering signs of an uneven recovery. To date, only one income group is actually earning any more than they were in 2007: the top 5%.


In his annual State of the Union speech, European Commission President Jean-Claude Juncker warned the EU was facing an “existential threat,” but insisted that Brexit doesn’t mean “the disintegration of the European Union.” He also said the U.K. could not expect access to the EU’s internal market without the free movement of people.

European officials will unveil
 new technology rules today aimed at reining in many of the world’s largest tech firms. Under the proposals, which will take years to complete, European publishers may be given powers to charge internet companies whenever their content shows up in online results or other services. Chat apps will also be more heavily policed by extending rules which currently only cover telecoms providers.


With plans to launch by the end of October, Facebook and Twitter have joined a network of over 30 companies to tackle fake news and improve the quality of reporting from social media. Google-backed First Draft Coalition will create a voluntary code of practice, promote news literacy among social media users, and establish a platform where members can verify questionable stories.


Walmart is working on a self-driving shopping cart that customers would be able to hail like an Uber – possibly through a smartphone app. Not only has the retailer filed a patent for a cart that has a motor and video cameras, but it would be able to return itself from customers’ cars to the store. The system may also help Walmart manage inventory by scanning store shelves to ensure products are there.


Ford Motor CEO Mark Fields says that all of the company’s small-car production would be leaving U.S. plants and heading to lower-cost Mexico. Ford also rolled out plans today to expand into robo-taxi fleets and other autonomous-car services. Ford says the move into new business services will deliver 20% profit margins once rolled out — far higher than the low single-digit return typical for car manufacturers. Ford told investors that its 2017 financial performance would decline from this year’s levels.


Uber launched its self-driving pilot program in Pittsburgh today; the unveiling of the company’s secretive work in autonomous vehicles and the first time self-driving cars have been so freely available to the U.S. public. But it is not as if robots are taking over the Steel City. There will be only four self-driving vehicles available to passengers, to start, and two people will sit in the front to take over driving when the car cannot steer itself. Uber’s Pittsburgh fleet consists of Ford Fusion cars outfitted with 3D cameras, global positioning systems (GPS) and a technology called lidar that uses lasers to assess the shape and distance of objects, mounted somewhat crudely to the vehicle’s roof. The company is also outfitting Volvo SUVs that will be added to the fleet.


SpaceX hopes to start launching its rockets again in November, a mere three months after the company’s Falcon 9 exploded on a launch pad at Cape Canaveral. But given the significant repairs needed for Launch Complex 40 – the site of the explosion – SpaceX’s next flight will likely take off from the Vandenberg Air Force Base or an alternate launch site at the Kennedy Space Center.


The Hanjin Shipping Co. terminal at South Korea’s largest port used to be one of the world’s busiest. Dozens of container carriers would line up to ferry boxes to and from the giant cranes that loaded and unloaded the world’s biggest ships. Last week the terminal, as big as 100 football fields, came to a virtual standstill. Whatever capital is tied up in those containers isn’t moving, any more than the container are. Hanjin is not alone. Of the biggest 12 shipping companies that have published results for the past quarter, 11 have announced huge losses. Several weaker outfits are teetering on the edge of bankruptcy.


Apple’s stock hit a 2016 high today, with its market value peaking above $600 billion for the first time since April. Reports of strong early orders for the iPhone 7 as well as arch-rival Samsung Electronics’ widely-publicized recall of potentially exploding Galaxy Note 7 smartphones, pushed shares of Apple up 10 percent in the past three days.


JPMorgan is now the biggest bank in the world by market capitalization. Shares of Wells Fargo slid 3.3% on Tuesday, giving the company a market capitalization of $239.7 billion, compared with JPMorgan’s $242.8 billion. Federal prosecutors are investigating Wells Fargo in connection with the bank’s sales practices after it agreed to pay $185 million in fines for opening more than 2 million unauthorized accounts. According to a report in the Wall Street Journal, the probe by U.S. Attorneys in New York and San Francisco is in its early stages and could lead to a criminal inquiry


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