Financial Review

Summer Stall

Financial Review By Sinclair Noe

DOW – 47 = 17,550
SPX – 4 = 2093
NAS – 9 = 5105
10 YR YLD + .06 = 2.21%
OIL + .80 = 45.97
GOLD + 1.40 = 1088.50
SILV + .08 = 14.68

 

Corelogic reports home prices rose 1.7% in June, and nationwide home prices including distressed sales, increased by 6.5% over the past 12 months. Fifteen states and the District of Columbia were the strongest since the series began in 1976. Only four states – Massachusetts, Connecticut, Louisiana and Mississippi – saw year-over-year declines.

 

Orders for goods produced in US factories rose 1.8% in June. Orders for durable goods, products meant to last at least three years, advanced 3.4% in June. Orders for nondurable goods edged up 0.4%.Factory activity has been stymied by a strong dollar and spending cuts in the energy sector after last year’s sharp plunge in crude oil prices. Tepid global demand also has weighed on manufacturing, which accounts for about 12 percent of the domestic economy.

 

Greece expects to wrap up its bailout deal with international creditors by Aug. 18, with the drafting of the agreement to begin Wednesday. The ongoing talks are reaching the end of the first phase, with the second phase to include the details of the final deal. The Greek stock market reopened yesterday, after being shut down for 5 weeks; yesterday the Athens Stock Exchange index closed down 16%.

 

Puerto Rico is in default. On Monday, the commonwealth paid just $628,000 of the $58 million it owed creditors, triggering the largest municipal default in US history. By a quirk of law, Puerto Rico is not allowed to seek protection through the bankruptcy courts, like we saw when Detroit failed to pay its debt. At the same time, it is unable to draw on support from the International Monetary Fund since it is not a sovereign country. A group of 34 hedge funds is calling on Puerto Rico to shut down schools, saying it spends far too much money on education. Congress may help the territory through the passage of a bankruptcy bill, although that effort has faced opposition. The island has also floated the idea that the Treasury Department could guarantee its debt when it seeks to borrow in the market again – helping to lower the cost significantly.

 

A Pimco ETF that once tracked the performance of a much larger fund formerly managed by Bill Gross, may have violated federal securities laws. Pimco has disclosed that the SEC is considering filing an enforcement action over potential trading infractions that took place in the Total Return Fund. The fund may have improperly valued small stakes in non-agency Mortgage Backed Securities, leading to inaccurate disclosures about performance.

 

Investors pulled $2.5 billion from Pimco’s flagship fund in July, the 27th consecutive month of outflows from what used to be the world’s largest mutual fund. The July withdrawals from the Pimco Total Return Fund compare with $3 billion in redemptions in June, and $2.7 billion in May. The fund’s assets have plunged to $101 billion, from a high of $293 billion in April 2013. And the reason is probably not related to the SEC investigation, although that won’t help. Investors took out record amounts of money amid concerns about lackluster returns and rising interest rates; the whole bond sector has been weak and even though Pimco’s Total Return outperformed 93% of its peers, it still only managed to return 1.6% this year.

 

But there has been even more pain in the commodity sector. Since oil hit $107 a barrel last summer, energy companies have lost $1.3 trillion in valuation. State pension funds and insurance companies have also been hard hit. Investment advisers, who manage the mutual funds and exchange-traded products that are staples of many retirement plans, had $1.8 trillion tied to energy stocks in June 2014.

 

China represents a major source of commodity demand and China’s business cycle has been slowing. Meanwhile, the strong dollar exacerbates the declines in commodities, a trend that might continue if the Fed raises interest rate targets later this year.

 

China has unveiled more rules that make it harder for speculators to profit from hourly changes in stock prices. Under the new guidelines, short sellers must wait at least one day to cover their positions and repay loans used to buy shares. Chinese markets are up on the news. Shanghai +3.7%; Shenzhen +4.5%; Chinext +6.1%.

 

The DOJ is investigating billions of dollars’ worth of mirror trades made by Deutsche Bank on behalf of its Russian clients to move funds quietly out of the country, in violation of sanctions. Deutsche’s Russian clients bought stocks in rubles in Moscow, and then made simultaneous stock purchases in London in an attempt to launder money. The new inquiry adds to the wave of legal woes challenging the institution, which has been battered by multiple criminal investigations and resignations of top executives.

 

Shire Plc made an unsolicited offer to buy Baxalta for about $30 billion in stock to create a biotech company focused on rare diseases.  Baxalta was spun off by Baxter International last month. Shire said it hadn’t discussed the proposal with Baxter. Baxalta, based in Deerfield, Illinois, would benefit from a lower tax rate by being taken over by a U.K. company.

 

Microsoft now holds $108 billion offshore, a 17 percent increase over the past year. Microsoft crossed the $100 billion mark, making it just the second U.S. corporation, along with General Electric, to do so. Apple has more cash abroad than Microsoft, but it already has assumed for accounting purposes that it will pay tax on some of the stockpile and thus has less than $70 billion offshore that would affect earnings directly if repatriated.

 

Community Health  is planning to spin off 38 hospitals as well as its consulting unit into a separate company called Quorum Health. Community Health is the second largest publicly traded hospital operator in the U.S.

 

Apple’s stock dropped to a six-month low today, representing a 12% drop from February highs. Apple has traded lower for 10 of the past 11 sessions. Yesterday, Apple closed below its 200-day moving average, which many view as a dividing line between longer-term uptrends and downtrends. Today, the shares dropped 3.2% on the heaviest volume since January.  So, for now this looks like a technical correction for Apple. And there might not be a fundamental reason to lift Apple out of its slump. With 74.5 million iPhones sold in the December quarter and the iPhone so important to earnings, the worry is it will get tough for them to post year-over-year growth

 

AIG reported adjusted earnings that beat estimates by 17 cents; more than doubled its quarterly dividend; and announced a $5 billion addition to its stock buyback program. AIG’s results were aided by new investments in China.

 

Toyota reported record earnings, helped by lower expenses and currency gains. The Japanese automaker sales growth continued to be held back by a self-imposed production slowdown aimed at preventing quality problems.

 

Aetna’s second-quarter earnings jumped 33 percent and the health insurer raised its 2015 forecast again. Aetna gained members in both its Medicare
and Medicaid businesses, and higher underwriting margins or improved profitability helped balance a jump in operating costs during the quarter. The nation’s third-largest health insurer easily topped Wall Street expectations.

 

Allstate was the biggest decliner in the S&P 500. The insurance company dropped 11.9 percent after reporting earnings that fell significantly short of analysts’ expectations. The company said its earnings dropped because of more frequent and more severe auto accidents.

 

After the close, Dow component Disney reported earnings rose a better-than-expected 11%, boosted in part because of the success of Marvel’s “Avengers: Age of Ultron” as well as the continued popularity of merchandise related to the “Frozen” film. Disney is up nearly 30 percent this year, and hit a new high this morning, but dropped about 1% in after-hours trade.

 

Arts and crafts site, Etsy said it had a net loss of $6.4 million, or 7 cents per share, wider than the loss of $3.2 million, or 8 cents per share, posted in the year-earlier period. Etsy dropped 13% in after-hours trade.

 

First Solar reported second-quarter earnings of $95 million, or 93 cents a share, compared with earnings of 4 cents a share a year ago. Revenue hit $896 million in the quarter, compared with $544 million a year ago. First Solar rallied 12% in after-hours trade.

 

A California company has produced a prototype car using 3-D printing technology. The 3D printed chassis is only 102 pounds and has the same strength and safety protection as a frame made out of steel. The car runs on natural gas powering a 700 horse power engine. They hope to have it on the road next year.

 

Last month, an Arizona company – Local Motors – announced plans for a 3D printed electric car; they also hope to go into production next year.

 

The Food and Drug Administration has approved the first prescription drug made through 3-D printing: a dissolvable tablet that treats seizures. Aprecia Pharmaceuticals said the FDA approved its drug Spritam for adults and children who suffer from certain types of seizures caused by epilepsy. The tablet is manufactured through a layered process using 3-D printing and dissolves when taken with liquid.

 

The lineup for the first 2016 Republican presidential debate was unveiled today. Actually there will be two debates on Thursday. The first debate. The first debate will be at 2PM Arizona time; it will feature candidates that didn’t make the cut, including: Rick Perry, Rick Santorum, Bobby Jindal, Carly Fiorina, Lindsey Graham, George Pataki, and Jim Gilmore. The main event will be at 6PM and it will feature the higher rated candidates, including: Donald Trump, Jeb Bush, Scott Walker, Mike Huckabee, Ben Carson, Ted Cruz, Marco Rubio, Rand Paul, Chris Christie, and John Kasich. In that order.

 

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