Financial Review

The Wall

…..Stocks hit the wall. Holiday spending figures. Pending home sales drop. Russian sanctions possible. Lloyd’s considers moving out of London. Barclays fights. Qualcomm fined. Kate Spade wants to sell Kate Spade. Fines for fake news. Can Amazon Echo testify against you? Minimum wage hikes coming soon. Americans spend more on health care than any other country. Expats increasing.

Financial Review by Sinclair Noe for 12-28-2016

DOW – 111 = 19,833
SPX – 18 = 2249
NAS – 48 = 5438
RUT – 16 = 1360
10 Y – .05 – 2.51%
OIL – .21 = 53.69
GOLD + 4.20 = 1142.50


The Dow Industrial Average is flirting with 20,000 but today it hit a wall. Stocks fell the most in two weeks in light holiday trading. Trading has been thin across the globe during the last week of the year, with volumes in crude oil, equities and currencies all below average. We have 2 trading days left in the year.


A jump in consumer spending in the final stretch of December significantly offset a slow start to the holiday shopping season, and is likely to help many retailers beat sales forecasts. The December spending boost is in contrast to a muted November, when early holiday promotions and expectations among consumers that deals would always be available took a toll.


Spending over the Thanksgiving weekend in November fell 3.5 percent from a year ago despite a strong jump in online sales, according to the National Retail Federation. Brick-and-mortar sales in the week ending Dec. 24 rose 6.5 percent year-over-year after having fallen for the rest of the month, according to data from analytics firm RetailNext. Strong demand for furniture, home furnishings and men’s apparel from the start of November through Christmas Eve pushed U.S. retail sales up 4 percent, higher than the previously expected 3.8 percent, according to data from MasterCard’s holiday spending report. Official government data and results from retailers will not be available until next month.


Contracts to buy previously owned U.S. homes fell in November to their lowest level in nearly a year. The National Association of Realtors said its pending home sales index, based on contracts signed in November, dropped 2.5 percent to 107.3. The biggest slowdown was in the West, where pending contracts dropped by 6.7%. The NAR blamed the slowdown on higher mortgage rates and tight inventory.


The White House is getting ready to announce a package of sanctions and diplomatic censure to punish Russia for its attempts to meddle in the 2016 presidential election. The Washington Post reports a number of punitive measures were on the table, including “economic sanctions and diplomatic censure.” Other methods may include covert cyber-operations. An announcement describing the public portions of the response could come as early as this week.


Lloyds Banking Group is planning to establish a subsidiary in Germany or the Netherlands if the U.K. leaves the European Union without retaining access to its single market. The EU is in the process of tightening rules for subsidiaries of non-EU banks. Britain looks likely to lose its financial passport in Brexit negotiations due to start next year. London’s 328-year old insurance market, Lloyd’s of London, is also planning to move some of its operations to the continent in reaction to the UK’s Brexit vote.


Barclays is refusing to settle with the US Department of Justice over allegations it deliberately sold mortgage bonds to investors that it knew were backed by loans “made to borrowers who were not creditworthy and which were supported by house appraisals it knew were inflated”. By refusing to settle, Barclays is borrowing a page from the Deutsche Bank Playbook; Deutsche also refused to pay a $14 billion settlement for similar wrongdoing, and then eventually settled for $7.2 billion, but only about $3.1 billion of that is actual cash; the rest is loan forgiveness and credit relief. If Barclays took the settlement as offered it would mean a hit to capital reserve ratios. So, Barclays is likely holding out for a better deal, but it could be a risky play – this is not their first offense.


Airbus is delaying the delivery of 12 double-decker A380 aircraft to Emirates Airline. This comes after the company warned this year that it would scale back production of the super jumbo because of weak demand. Meanwhile, Delta announced it has canceled a $4 billion order for 18 Boeing 787 Dreamliners that was inherited as part of its merger with Northwest Airlines.


Qualcomm is facing an $865 million fine in South Korea. Qualcomm said the Korea Fair Trade Commission issued the penalty after finding it had violated the country’s competition law. The country’s antitrust regulator has accused the chipset designer of imposing unfair licensing fees on mobile device makers using its patents. The company has faced similar hurdles in China and Europe, but South Korea is an important market: Samsung is Qualcomm’s second-biggest customer. The fine is the largest ever levied in South Korea.


Toshiba shares tumbled 20% overnight,  hitting the Tokyo exchange’s daily downward limit, wiping out about $5 billion in market capitalization over the past 2 days after the company said it could face a multi-billion dollar charge on the nuclear power unit it acquired last year from Chicago Bridge & Iron. Toshiba executives declined to provide further details about the writedown, adding that the sum would be finalized by mid-February.


Japan’s Takata could be close to settlement with the US Department of Justice over its massive exploding-airbag recall. The Wall Street Journal reports Takata is expected to pay up to $1 billion to resolve allegations of criminal wrongdoing in handling its faulty airbags. At least 184 people have been injured in the United States in incidents involving potentially deadly Takata air bags. Worldwide, approximately 100 million vehicles have been recalled.


Kate Spade might be for sale. The Wall Street Journal reports the handbag and accessory retailer is working with investment bankers about a possible sale of the company; share price jumped nearly 20% on the report. Kate Spade reported lower-than-expected quarterly same-store sales last month and said pricing competition would likely dampen earnings during the holiday shopping quarter.


GNC, the chain of nutrition stores, has temporarily shuttered all 4,464 of its U.S. locations, as it rolls out its revamped pricing strategy. The one-day closures come two months after the retailer admitted that inconsistent prices on its website and in stores, as well as discrepancies over what it charged loyalty members versus casual buyers, were making its locations confusing to shoppers. While GNC expects its new, simplified pricing structure will bring more shoppers into its stores, there will be repercussions — at least in the short term. When the company raised prices on its website to better align with what shoppers pay in stores, the changes sparked a 30 percent quarterly decline in same-store sales.


Germany is considering fining social networks such as Facebook up to €500,000-euro for each day the platform leaves a “fake news” story up without deleting it. The law would force the social networks to create offices focused on responding to takedown demands and would make the networks responsible for compensation if a post by individual users were found to slander someone.


Can Amazon Echo testify against you? In what may be the first case of its kind, Amazon has denied investigators voice data from an Echo owned by an Arkansas man who has been charged with murder, despite a police warrant. The tech giant refused to hand over the audio data on two separate occasions, although it did share suspect’s account information and purchase history. Amazon’s Echo (and its main competitor, the Google Home) works by passively recording everything you say. When the Echo hears “Alexa” (or whatever your activation phrase is), it begins to actively record. That snippet of speech is then sent to Amazon’s cloud servers, where your recorded message is run through a speech-recognition neural network and a response is sent back to you, whether that’s playing a song or giving you the weather forecast. Police in Arkansas think the Echo may have recorded audio of a murder, although that kind of audio probably did not end up in Amazon’s cloud memory.


Come the new year, millions of the lowest-wage workers across the country will get a raise. Some of those raises will be very minor — a cost of living adjustment amounting to an extra nickel or dime an hour. But in several places the jump will be between $1 and $2 an hour. The biggest minimum wage raises, percentage wise, will be in Arizona (up 24% to $10), Maine (up 20% to $9) and three Silicon Valley cities (up 20% to $12). All told, the minimum wage is set to rise in 21 states, at least 22 cities, four counties and one region.


Americans spent $2.1 trillion in 2013 on diagnosis and treatment of health problems, which amounts to more than 17 percent of the total U.S. economy. And spending on health care for 2015 is estimated to top $3.2 trillion; that means Americans pay more for health care than any other country. A new study published in the Journal of the American Medical Association reveals what patients and their insurers are spending that money on, breaking it down by 155 diseases, patient age and category, such as pharmaceuticals or hospitalizations. About half of all health-care spending in the US goes to treat a small group of diseases, and diabetes is leading the pack, costing $101 billion in diagnosis and treatment in 2013. Heart disease, the second-largest source of expenses, cost a total of $88 billion that year. Medical spending increases with age — with the exception of newborns. About 38 percent of personal health spending was for people over age 65.


More and more Americans are retiring outside of the United States, according to the Social Security Administration. The number increased 17 percent from 2010 to 2015, and about 400,000 American retirees are now living outside the country. The countries they have chosen most often: Canada, Japan, Mexico, Germany and the United Kingdom.



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