The Day of Futures Past
Financial Review by Sinclair Noe for 10-21-2015
DOW – 48 = 17,168
SPX – 11 = 2018
NAS – 40 = 4840
10 YR YLD – .04 = 2.03%
OIL – 1.08 = 45.21
GOLD – 9.10 = 1167.70
SILV – .22 = 15.78
Oil futures settled at their lowest level in nearly three weeks. OPEC is holding a special meeting in Vienna with cartel members and non-members Russia and Mexico to discuss ways to prop up oil prices. Don’t hold your breath. Meanwhile, the U.S. Energy Information Administration reported a much bigger than expected increase of eight million barrels in crude supplies for the past week.
The European Commission has ruled that Starbucks and Fiat Chrysler’s tax deals with the Netherlands and Luxembourg are illegal state aid, ordering the respective governments to recover as much as $34 million from each. The ruling follows an EU investigation launched in June 2014. It looked into whether the two companies were given so-called sweetheart tax deals that effectively lowered their corporate taxes. Who’s up next? European regulators are finishing up investigations into McDonald’s and Amazon’s tax affairs in Luxembourg and Apple’s arrangements in Ireland.
Outgoing House Speaker John Boehner said Republicans will meet on Oct. 28 to nominate a candidate to replace him. Last night, Rep. Paul Ryan of Wisconsin said he would run for the job if certain conditions were met. With a critical deadline just two weeks away, House Republican leaders are discussing options for raising the U.S. debt limit. Last week, Treasury Secretary Jacob Lew moved the cutoff for raising the debt limit to Nov. 3, earlier than the Nov. 5 date he had set earlier. After that point, Lew said, the Treasury would have less than $30 billion to fund the government, “far short” of expenses on certain days.
Syrian President Bashar al-Assad arrived in Moscow on an unannounced visit on Tuesday, in the leader’s first known trip outside his country since the start of the country’s civil war. During the meeting, Russia’s Vladimir Putin reiterated his commitment to support Assad through military and political channels, and said he would call on other world powers to look into a potential diplomatic solution to the conflict.
A group of high-profile lawyers plans to file a request today to begin impeachment proceedings against Brazilian President Dilma Rousseff. Today’s move is only the first step in a drawn-out process which could take up to eight months. The Brazilian real is down 32% this year.
General Motors and EMC released their latest earnings reports before opening bell this morning. GM posted adjusted earnings of $1.50 per share, a 55% year over year increase that beat estimates of $1.18 per share. EMC reported earnings of 43 cents per share and revenue of $6.08 billion for the third quarter. Analysts had been looking for earnings of 44 cents per share and $6.17 billion in revenue.
Coca-Cola said revenue fell a worse-than-expected 4.6% in the third quarter despite improvements in volume, as the beverage giant said currency fluctuations will hurt results for the year more than expected.
Boeing posted a $1.7 billion net profit, up from $1.3 billion during the same period last year. Boeing delivered 199 commercial jets in the third quarter, up from 186 during the same quarter last year. And more of those jets are expensive wide-bodies, such as the 787 Dreamliner. During this quarter last year, 31 Dreamliners were delivered to airlines; this year Boeing delivered 37. The challenge now for Boeing is to bring down the production cost of the long-delayed Dreamliner so it can bring in more cash and maybe, someday, breakeven on the plane whose development costs ran over budget.
Credit Suisse reported worse than expected third-quarter results with net income falling 24 percent and the investment bank posting a pre-tax loss of 125 million francs. Separately, the bank announced a plan to raise $6.3 billion in new capital and a corporate reorganization.
Western Digital agreed to buy SanDisk for about $19 billion. SanDisk is one of the largest makers of Nand flash memory chips, which store data in mobile devices and are increasingly being used in hard drives in computing. The technology uses less power and is faster to access information, making it more useful in cloud-computing data centers.
Lam Research is buying KLA Tencor for about $10.6 billion. The merger will create a $19 billion semiconductor firm that will rival Applied Materials, and serve 42% of the wafer fabrication equipment market when the deal closes in the middle of next year. The offer of $67.02 per KLA Tencor share represents a 24% premium to Tuesday’s closing price.
According to Hedge Fund Research, hedge funds suffered their largest quarterly loss in assets since the financial crisis during the three months that ended in September. The third-quarter saw the average fund lose 3.9% driven by slowing growth in China, sliding commodities prices and a likely U.S. Fed rate hike that sent stocks tumbling. Notables: David Einhorn’s Greenlight Capital is down 17% YTD, and Bill Ackman’s Pershing Square has now fallen 12.6% for the year (down 12.5% for September.)
Today, Ackman’s Pershing Square just purchased 2 million more shares of Valeant Pharmaceuticals. It’s either brilliant or insane; time will tell. In September Valeant dropped 23% and Ackman’s large 5.7% stake in Valeant really hurt his returns for the month; so he doubled down. And today, Valeant dropped another 30%. We don’t know when Ackman bought in today. Citron Research, a stock-commentary site run by a short seller, said Valeant is using a couple of specialty pharmacy called Philidor RX Services and R&O Pharmacy to store inventory and record those transactions as sales; comparing the accounting and auditing to Enron. Valeant has been at the forefront of an intensifying debate over price increases for older drugs in the U.S. Last week it said it had received subpoenas from the U.S. Attorney’s Offices in Massachusetts and Manhattan.
Here’s the kicker. R&O Pharmacy has sued Valeant. The lawsuit says that R&O believes that both Valeant and R&O are “victims of a massive fraud perpetuated by third parties” or that “Valeant is conspiring with other persons or entities to perpetuate a massive fraud against R&O and others.”
I think I’ll go with insane.
The chairman of the Commodity Futures Trading Commission, Timothy Massad, says that the regulator is very concerned about the potential for disruptive events in the U.S. Treasury market and is already taking steps to address the growth of automated trading and increasing cybersecurity risks. New proposals include requirements for pre-trade risk controls and other measures to reduce risks of automated trading. The CFTC also wants to increase transparency regarding market maker incentive programs and self-trading to make sure it isn’t illegal wash trading.
Toyota is recalling about 6.5M vehicles worldwide to fix a defective power window switch in models including the Yaris/Vitz subcompact, Corolla, Camry and others. Debris caused by wear from the electrical contact points can accumulate and cause a short circuit. That in turn could make the switch assembly overheat, potentially leading to a fire.
Yahoo has signed a search advertising deal with Google. The deal builds on an existing search partnership with Microsoft under which the company gets a percentage of revenue from ads displayed on its sites. The move also follows disappointing Q3 results from Yahoo that missed expectations and unveiled cost cuts, content write-offs, and more soft guidance.
Today is the day that Marty McFly flies the time traveling Delorean to Hill Valley California, and if the flux capacitor is correct, he landed there about 18 minutes ago. We’re talking about the movie Back to the Future, Part 2. And if you don’t really remember the movie or you haven’t heard the news stories over the past few day, the intrepid time traveler from 1989, played by Michael J. Fox, set his time machine to October 21, 2015. Today is the day of futures past.
And it has been intriguing to look back at the movie to see how their fictional predictions have panned out. Of course, one of the favorite futuristic gizmos was the hoverboard; it isn’t a ubiquitous toy but a couple of companies have built functioning hoverboards. The garbage powered portable nuclear fission machines – not so much. Fax machines everywhere – nope. Cubs win the World Series – still within the realm of possibility but the odds are astronomical; however there is now a major league team in Miami.
Still the movie got some things right: Flat panel TVs with built in video-conferencing were in the movie, and I actually have a flat screen at my home with the Skype app. Wearables, such as Google Glasses or Apple Watch – yep. Biometrics – sort of; Biff paid for a taxi with his thumbprint; I can’t do that but I can pay for stuff with my phone and my phone can be unlocked with a thumbprint. Programmable, automated homes – yes; my home is not automated but the technology exists. 3D holographic entertainment, advertising, and gaming – yes we have that; still working out the specifics, but we have it. The Black & Decker food hydrator – not exactly but I do have a microwave, which is probably worse. There are other examples, but you get the idea.
The writers, 30 years in the past, actually did a pretty good job of predicting the future. New ideas and technologies have completely changed the way we live, learn, and work. So, the next question is: What will our world look like in 2045, thirty years from today? Maybe we’ll make a mess of everything but I hope and believe that 30 years from now we’ll be doing much better. Maybe we’ll have peace, or end poverty, or find cures to horrible diseases. Try to imagine the world you want to live in 30 years from today, and then move in that direction. And if the future has hoverboards for everybody, that’s just a bonus.