Financial Review

War on Drugs Again

…..China trade deal. GE like Nafta. CPI up. Inventories down. Consumer sentiment: bad now but it’ll get better. Consumers consuming, but not at JC Penney. Amazon is the 800 pound gorilla. Wells Fargo, worse than we thought. Worldwide cyber-attack. Do not click. Jeff Session declares war on drugs, again.

 

Financial Review by Sinclair Noe for 05-12-2017

DOW – 22 = 20,896
SPX – 3 = 2390
NAS + 5 = 6121
RUT – 7 = 1382
10Y – .07 = 2.34%
OIL – .01 = 47.82
GOLD + 2.90 = 1228.70

 

The Dow industrials and S&P 500 both snapped a streak of three weeks of gains Friday, closing lower for the session and week, while the Nasdaq finished higher for a fourth week of gains. For the week, the Dow dropped 0.5%, the S&P 500 ended the week down 0.4%. The Nasdaq posted a weekly gain of 0.3%.

 

After months of bashing China for its trade practices, the Trump administration said it had agreed with Beijing on a broad range of measures aimed at improving the access of American beef producers, electronic-payments providers and natural-gas exporters, among others. The U.S. has been lobbying for China to open up its market to American beef for years — it was banned in China in 2003 after a mad cow disease scare. The perception among some businessmen in the country has been that the Chinese have been sitting on the beef issue until the U.S. agreed to buy cooked poultry products made in China. Other measures include credit card companies are trying to move into Chinese electronic payment platforms, Credit ratings agencies are looking to expand their presence in China, and the big agriculture firms will try to get genetically modified seeds to be reviewed by Chinese Ag officials – no sales yet, just consideration.

 

General Electric’s chief executive, Jeffrey Immelt today praised Mexico as a big part of its future growth and said the company is “very supportive” of the North American Free Trade Agreement (NAFTA). GE plans to double its purchases from Mexican suppliers next year, according to a statement from the office of Mexican President Enrique Pena Nieto. “We’re optimistic about Mexico,” Immelt told Mexican officials at the inauguration of an expansion of GE’s operations in Monterrey. “We’re very supportive of NAFTA.” General Electric announced that it won a contract to supply two new gigawatts of power in Mexico and had also signed a separate $120 million, multi-year deal to provide service to gas and steam turbines in Mexican power plants.

 

Consumer prices rebounded as expected in April as the cost of gasoline rose. The consumer price index, a basket of consumer goods that reflects price changes at the retail level, rose 0.2% from March. Compared to the prior year, CPI rose by 2.2%. Higher gasoline and heating gas costs helped lift the index. Used cars, clothes, and medical care all declined from March. When the volatile costs of food and energy are excluded, core CPI increased by 0.1% month-on-month, and by 1.9% year-on-year, a 19-month low. Good to know for everybody who doesn’t consume energy or eat food.

 

Inventories at U.S. businesses continued to pile up in March. Business inventories rose 0.2% in March, the Commerce Department said Friday. This is the fifth straight month of inventory gains. Business sales were flat in March. The inventory-to-sales ratio, an indication of demand, remained steady at 1.35 in March.

 

Consumer sentiment brightened in an early May reading as Americans turned more bullish on their income expectations. The University of Michigan’s confidence gauge jumped to 97.7 from 97.0 in April. The survey’s tracker of current conditions was unchanged at 112.7, but the expectations gauge rose more than a point, to 88.1 from 87.0. Consumer spending intentions were mixed: plans to buy household durables were the strongest in a decade, while plans to buy a vehicle were at a three-year low.Americans’ views are still sharply divided by political affiliation

 

The American consumer is alive and well. Sales at US retailers rose in April, and March sales were stronger than originally estimated. Retail sales increased 0.4% and were 4.5% higher compared to a year ago. A 0.2% monthly decline for March was revised up to show a 0.1% increase. Sales have risen in three of the first four months of 2017. Sales at gasoline stations were 12.3% higher in April than a year ago, as the cost of oil strengthened. With motor vehicles and gas stripped out, sales were up 0.3%, after a 0.4% increase in March.

 

J.C. Penney said in its earnings report said “adjusted” net income was 6 cents a share. On the surface, that appeared to be a big positive surprise, because analysts were expecting a loss of 21 cents per share. But the company snuck into its report that the “adjusted” number for the latest quarter “includes the sale of operating assets,” (specifically the sale of one of its distribution centers) which totaled $117 million. Strip that out because it is a nonrecurring item, and the result was a first quarter loss. Same-store sales declined 3.5%. Investors weren’t fooled, and the stock plummeted 14% to a record low close of $4.55.

 

Dick’s Sporting Goods disclosed an accounting error. In a filing with the SEC, Dick’s said a computation error caused it to overstate earnings in its fourth quarter and full-year results by $23.4 million. Down 4.5% today.

 

Nordstrom dropped 10.8% after weak quarterly same-store sales. Macy’s fell 3%, bringing its loss to more than 19% in the past two sessions following its dismal quarterly report.

 

Amazon is now the second largest U.S. apparel retailer, behind only Wal-Mart, with Amazon taking share from department stores and Target as it rises in prominence. Nearly half of 1,000 adults surveyed in Morgan Stanley’s latest Alphawise survey (46%) reported having bought clothing from Amazon in the past year. About the same percentage (47%) said they expected to buy more clothes from Amazon and fewer clothes from other retailers in the next 12 months. Traditional retailer should be very nervous. When online sales hit 20% of all purchases in a given retail category, a surge in Amazon growth is sure to follow. The 20% level is a threshold indicating Amazon is going to displace a legacy retailer. Twenty percent is when Amazon steps on the gas … when consumer behavior is changing. This pattern has held true for Amazon since the very first sector CEO Jeff Bezos disrupted, books, which passed the 20% mark between 2007 and 2008. Amazon’s rapid expansion into a “store for everything” continued as online sales passed 20% for consumer electronics between 2010 and 2011, and cloud services, which Amazon dominated from the moment it launched Amazon Web Services in 2006, each time, 20% sector penetration proved the tipping point.

 

It’s the scandal that won’t go away. Attorneys for victims of Wells Fargo fake account scam are now saying that the bank may have been responsible for more unauthorized accounts than previously thought. In a legal filing, plaintiffs’ attorneys in a class action lawsuit say: “Based on public information, negotiations, and confirmatory discovery, the parties estimate the number of unauthorized accounts for the period 2002-2017 is approximately 3.5 million. This number may well be over-inclusive, but provides a reasonable basis on which to estimate a maximum recovery.”

 

A huge cyber attack leveraging hacking tools widely believed to have been developed by the U.S. National Security Agency is spreading …, well, like a virus. Ransomware is scrambling data on computers and causing major IT disruptions. In England, the virus hit health care facilities. Routine appointments had been canceled and ambulances were being diverted. Hospitals and surgeries across England were forced to turn away patients. People in affected areas were being advised to seek medical care only in emergencies. Scottish health boards were also hit. Telecommunications giant Telefonica was among many targets in Spain, though it said the attack was limited to some computers on an internal network and had not affected clients or services. Sweden’s Civil Contingencies Agencies put out a warning saying that “a large-scale ransomware campaign is being carried out in a number of countries. FedEx said on Friday it was experiencing issues with some of its Microsoft Windows systems. At last count, the worm has infected computers in 99 countries and it is still growing.  It is believed that a Russian hacking group known as Shadow Brokers pilfered the worm and other hacking tools from the National Security Agency’s servers. The actual ransomware is a worm called WannaCry. If you see that file, do not click.

 

Attorney General Jeff Sessions made it official. The federal government will now reboot its war on drugs. The official word came down in the form of memos from Sessions that ordered federal prosecutors to cease and desist on the soft approach former Attorney General Eric Holder took toward prosecuting petty drug offenders. Now prosecutors must demand the harshest sentence, must use the threat to pile on sentence enhancements to browbeat drug offenders into copping a guilty plea, and they must itemize the drugs an offender uses to insure they are slapped with the minimum mandatory sentence. Sessions isn’t just talking about cracking down on the use of the hard stuff, he is directing law enforcement to get tough on pot. Sessions’ “tough on crime” attitude, which he has espoused since the beginning of his tenure, is being widely compared to the 1970s “War on Drugs” that wreaked havoc on minority communities in previous decades. That effort really ramped up in the late 1980s with the introduction of mandatory minimums for drug crimes, and peaked with the Clinton-era 1994 crime bill that established further harsh sentences and funneled billions into the nation’s prisons.

 

Reactions from criminal-justice reform circles have been unanimous, from lawmakers and law enforcement leaders to advocacy groups and criminologists. Prosecutors and law-enforcement leaders reacted with dismay to Sessions’ memo. Law Enforcement Leaders to Reduce Crime and Incarceration, an organization of nearly 200 current and former police chiefs, sheriffs, and prosecutors, called the move an “ineffective way to protect public safety.”

 

 

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