The Foreseeable Future
Financial Review by Sinclair Noe for 11-09-2015
DOW – 179 = 17,730
SPX – 20 = 2078
NAS – 51 = 5095
10 YR YLD + .01 = 2.34%
OIL – .18 = 44.11
GOLD + 2.50 = 1092.90
SILV – .16 = 14.68
The jobs report on Friday showed a rise of 271,000 new jobs last month and the unemployment rate dropping to 5%. In a speech in Tempe on Saturday, San Francisco Fed President John Williams said: “My forecast is that we’ll reach our maximum employment mandate in the near future and I’m increasingly confident that inflation will gradually move back to our 2% goal.” Williams said: “I view the next appropriate step as the start of a process of gradually raising interest rates,” and the data will determine when it comes to lifting rates. Williams offered an upbeat outlook on the economy, and he said that it is OK that the pace of job creation has slowed relative to recent history, because continuing on that pace could cause problems. (For whom?)
We all knew about the jobs report on Friday, so why the delayed reaction in the markets today to news from Friday? Well, that would be assuming that the markets went down today because everybody figured out that the Fed is definitely going “live” with a planned rate hike in December. I don’t know why the markets went down today. On any given day, markets go up or down. Buying is stronger than selling or vice versa. Wipe out the statistical noise in the past 3 months of jobs reports and the labor market looks like it has for a long time, sluggish growth. Wipe out the statistical noise of today’s trading and the market is still in an uptrend, with strong seasonal probabilities to boot. And a trend in place is more likely to continue than it is to reverse…, until it reverses.
In its semiannual economic forecasts, the Organization for Economic Cooperation and Development said that growth in the U.S. would continue to be among the most robust in the group of nations, hitting 2.4% in 2017. It predicted the 19-nation Eurozone would continue to lag behind the U.S., with growth at 1.5% this year, and 1.9% in 2017. Growth throughout the OECD is forecast to hit 2% this year.
Global financial regulators published new rules that aim to stop banks from becoming “too big to fail,” to prevent a repeat of the 2008 financial crisis. The plan, drawn up by the Financial Stability Board in Switzerland, aims to ensure that the world’s biggest lenders maintain sizable financial cushions that can absorb losses as a bank is failing, without threatening a crisis in the broader banking system. The new standards aim to make banks change the way they fund themselves to better weather a crisis, a requirement that could force firms to raise more than $1.2 trillion in new securities. Under the rule for total loss-absorbing capacity, or TLAC, by January 2019 large lenders will have to hold a financial cushion of at least 16% of their risk-weighted assets in equity and debt that can be written off. That requirement will gradually increase, reaching 18% of assets weighted by risk by January 2022. A leverage ratio requirement will also be imposed, rising from 6 percent initially to 6.75 percent. The rules would apply to the world’s top 30 banks.
The push to make sure banks are no longer too big to fail is also advancing on a second front, as Wall Street expands a revision of financial contracts worth trillions of dollars. The changes are expected to allow certain securities and funding contracts to remain intact for as long as 48 hours after a bank fails; theoretically, that would be enough time for governments to step in and set up a healthy version of the doomed institution.
Students at the University of Missouri have been demonstrating for weeks for the ouster of the university president, protesting the school’s handling of racial tensions and several specific acts, including: racial slurs hurled at black students and feces smeared into the shape of a swastika on a wall in a residence hall. The president of the Missouri Students Association, who is black, said a man had called him a racial slur as he walked on campus. The University of Missouri football team said they would stop playing unless the university president was kicked out. The football coach backed the players. The prospect of a football strike drew national attention, and officials said that just forfeiting the team’s game next weekend against Brigham Young University would cost the university $1 million.
The players’ boycott follows a decision by a black graduate student, Jonathan Butler, to go on a hunger strike over what he said in a letter to the Board of Curators were “a slew of racist, sexist, homophobic, etc., incidents that have dynamically disrupted the learning experience” of minority groups at Missouri. Two groups representing graduate students and graduate student workers said they would stage walkouts in solidarity with the activists. Students set up tents on the university commons. Today, the president, Tim Wolfe, resigned.
We have reported the story of Turing Pharmaceutical, the company run by a thirty-something former hedge fund manager who bought a shell company and then bought rights to a drug, daraprim, that had been around for more than 60 years; he promptly jacked the price up from $13.50 a pill to $750. At first it seemed like an outlier. Then we heard from Citron Research, a short-sale researcher, saying that Valeant Pharmaceutical had been cooking the books, setting up bogus specialty pharmaceutical suppliers to show sales that didn’t really exist. Valeant shares were clobbered, losing two-thirds of value from recent highs. Today, Citron came out with another report on another company. In a tweet, Citron says Mallinckrodt’s stock has significantly more downside than Valeant, and is a far worse offender of the reimbursement system – more to follow.
We don’t know what will follow but it has become clear that pharmaceutical companies are gaming the reimbursement system and are actively involved in price gouging – not all of them but enough to sour the entire pharmaceutical industry.
Saudi Arabia is determined to stick to its policy of pumping enough oil to protect its global market share, indicating that the country is in no mood to change tack ahead of OPEC’s Dec. 4 meeting in Vienna. The chairman of Saudi Aramco said, “There have been no conversations here that say we should cut production now that we’ve seen the pain.”
Weyerhaeuser has agreed to buy Plum Creek Timber in a deal that combines the two largest owners of timberland in the U.S. The all-stock transaction will result in a $23 billion timber REIT carrying more than 13 million acres of land.
Anbang Insurance Group said it would acquire U.S. annuities and life insurer Fidelity & Guaranty Life in a deal valued at about $1.57 billion as Chinese insurers seek to expand into the United States. Chinese insurers including Fosun International Ltd and Anbang Insurance have launched some $6.1 billion worth of overseas deals this year as they seek to diversify their holdings by purchasing interests in real estate, insurance and other sectors.
Goldman Sachs is closing its money-losing BRIC fund; BRIC stands for Brazil, Russia, India, and China. The bank said in an SEC filing that it doesn’t expect “significant asset growth in the foreseeable future.” The fund had lost 88 percent of its assets since its 2010 peak.
Google is making its internal AI development software available for free, hoping to influence how people design, test, and run artificial-intelligence systems. Google is releasing a program called TensorFlow as freely available open-source software. It’s based on the same internal system Google has spent several years developing to support its AI software and other mathematically complex programs.
Dubbing it the “Networks of the Future,” Ericsson and Cisco have agreed to create a broad technology and commercial partnership that stops short of a full-blown merger but aims at an unusual level of cooperation in everything from research and development to customer service. The alliance will help add $1 billion or more in annual sales for each company by 2018. The companies say the partnership will offer customers the best of both companies: routing, data center, networking, cloud, mobility, management and control, and global services capabilities.
Sierra Leone was declared Ebola-free by the World Health Organization on Saturday, making it the second West African nation – besides Liberia – to eradicate the disease. Although the Ebola-free stamp means that Sierra Leone has gone 42 days, or two incubation cycles of the virus, without an infection, the country still faces significant hardships ahead. According to the IMF, Sierra Leone is on track to suffer Africa’s worst recession this year: a ruthless 21.5% contraction.
Greenhouse gas levels in the atmosphere reached a record high in 2014. According to the World Meteorological Organization levels of carbon dioxide, the main greenhouse gas, climbing steadily towards the 400-parts-per-million (ppm) level, having hit a new record every year since reliable records began in 1984. Carbon dioxide levels averaged 397.7 ppm in 2014 but briefly breached the 400-ppm threshold in the northern hemisphere in early 2014, and again globally in early 2015. Levels of the other two major man-made greenhouse gases, methane and nitrous oxide, also continued a unrelenting annual rise in 2014, reaching 1,833 parts per billion (ppb) and 327.1 ppb, respectively. Both rose at the fastest rate for a decade. Next month 150 countries will be meeting in Paris for a major conference on global warming; so far none of the proposals submitted for consideration at the conference would curb emissions enough to meet a target agreed in 2010 to limit global warming to within 2 degrees Celsius (3.6 Fahrenheit) of pre-industrial levels.
The Center for Public Integrity, a Washington based nonprofit has issued its 2015 State Integrity Investigation, ranking each state for transparency and accountability and conflicts of interest and corruption. The good news for Arizona is we ranked 22nd; in the bottom half but not the worst. The bad news is Arizona only graded out with a “D”. The most corrupt state was Michigan; the least corrupt, Alaska, Connecticut, and California. I do not make this up.