Financial Review

Wide-Ranging

S&P 2100. ECB 0%. OPEC no change. American death rate up. CFPB cracks down on payday usury. Wide-ranging billionaires. The rise of the drones. And patents galore.

Financial Review by Sinclair Noe for 06-02-2016

DOW + 48 = 17,838
SPX + 5 = 2105
NAS + 19 = 4971
10 Y – .04 = 1.81%
OIL – .05 = 48.96
GOLD – 2.30 = 1211.40

 

Again today the major market averages started the morning in negative territory – the Dow was down about 70 points in the first hour of trading – and then clawed back to slightly positive gains at the close. On Tuesday and Wednesday, the S&P 500 broke through the widely-watched 2100 mark, but finished just slightly below. Today, the index finally squeezed through.

 

The Organization of the Petroleum Exporting Countries is meeting in Vienna today. OPEC announced there will be no change in oil production policy, no ceiling set on output. OPEC ministers appeared to be at odds over what the bloc’s next move should be. Saudi Arabia’s energy minister said he was pleased with how the oil market was recovering and rebalancing. The Saudi oil minister said oil prices at $50 won’t allow shale oil and other higher-cost producers to lift supply to levels that hinder market recovery. Prices need to be at level above $50 a barrel for more crude supplies to come back to the market following a slump over the past two years. Maybe, maybe not.

 

The European Central Bank is also meeting today. The ECB upgraded its growth and inflation forecasts for this year, but warned of downside risks related to the global economy and the so-called “Brexit” vote in the UK. The bank now sees growth of 1.6 percent for 2016, up from a 1.4 percent forecast in March. It left its growth forecast for 2017 unchanged and trimmed its forecast for 2018 to 1.8 percent. Inflation is seen at 0.2 percent compared to a previous forecast of 0.1 percent. The ECB left interest rates unchanged at 0%. Nobody expected any big changes from this meeting. The ECB is still trying to figure out what is working, or not. According to recent analysis, a prolonged period of negative interest rates is failing to revive investment at Europe’s companies, with the vast majority of businesses in the region saying the stimulus measures have had no affect at all on their growth plans. Some 84 percent of the 9,440 companies surveyed for the European Payment Report 2016 say low interest rates haven’t affected their willingness to invest.

 

The ADP Employment report shows private employers added 173,000 new jobs in May. The ADP figures come ahead of the U.S. Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.

 

Outplacement firm Challenger, Gray & Christmas reports planned layoffs totaled 30,157 last month, marking a 27 percent decline from the year ago period and the lowest total since December. Companies typically reduce the pace of layoffs in the summer. The energy sector continued to be the biggest job cutter.

 

In line with the layoff report, the Labor Department reports fewer Americans applied for jobless aid last week, the third straight drop. Weekly applications for unemployment aid dipped 1,000 to a seasonally adjusted 267,000. The four-week average, a less volatile measure, fell to 276,750.

 

American births declined and the death rate rose last year for the first time in a decade, a rare increase that was driven in part by more people dying from drug overdoses, suicide and Alzheimer’s disease.  The death rate from heart disease also edged up slightly following a long decline.  Preliminary numbers from the Centers for Disease Control and Prevention show there were 3.98 million U.S. births in 2015, down 0.3% from 2014. The CDC also found the mortality rate to be 729.5 deaths per 100,000 people last year, up from 723.2 the year before. Earlier this year the CDC reported that life expectancy at birth for white Americans had fallen between 2013 and 2014 from 78.9 years to 78.8 years. While recent research has documented sharp rises in death rates among certain groups — in particular less educated whites, who have been hardest hit by the prescription drug epidemic — increases for the entire population are relatively rare.

 

An audit report published today suggests that debt-laden Puerto Rico may be able to void almost $4.5 billion of its debt because politicians exceeded constitutional debt limits and their own authority. The report states that some of Puerto Rico’s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors’ claims are unenforceable.

 

The U.S. Justice Department is likely to approve AB InBev’s takeover of SABMiller later this month. The agreement may contain measures to keep the beer behemoth from edging craft brewers from shelves, and could also include limits on the combined company’s ownership of distributors. The deal received a green light from South Africa’s Competition Commission earlier this week.

 

Johnson & Johnson said it would acquire Vogue International for $3.3 billion, adding brands such as OGX shampoos and FX hair styling products to its consumer portfolio that includes Neutrogena and Clean & Clear. Buyout firm Carlyle Group acquired a 49 percent stake in the company in 2014.

 

The Consumer Financial Protection Bureau released a set of sweeping proposals today aimed at reshaping the market for payday loans and other expensive short-term lending that the agency and consumer advocates call “debt traps.” The Consumer Financial Protection Bureau said the median fee on a storefront payday loan was $15 for every $100 borrowed; and with a typical term of 2 weeks, the average annualized rate can easily top 390%. The rules would limit the number of payday loans a consumer can take out or rollover, lenders will be required in many cases to verify their customers’ income and to confirm that they can afford to repay the money they borrow. The number of times that people could roll over their loans into newer and pricier ones would be curtailed. The new guidelines do not need congressional or other approval to take effect, which could happen as soon as next year. Lenders say the proposed rules would devastate their industry. I certainly hope so.

 

In a wide-ranging interview Wednesday night, Tesla CEO Elon Musk said that he expects Apple to have a car available to the public by 2020. In contrast, Google worries him less as a competitive threat. “Google’s done a great job, but they’re not a car company,” he said. Musk is also CEO of Space X, and he detailed plans to have the first rocket carrying human cargo to Mars launch in 2024, and arrive at the red planet 18 months later. Here’s a tip for would-be Martians – take some potatoes.

 

Jeff Bezos, the CEO of Amazon.com, also offered up a wide-ranging interview yesterday, apparently it was the day for wide-ranging interview with eccentric billionaires; I’ll mark my calendar. Bezos also has a private space company, his is called Blue Origin, expected to launch its first people into space in 2017. Those won’t be paying customers, but thousands have expressed interest in paying for a trip on a suborbital craft. Bezos also hopes to build factories in space, where they can take advantage of nearly unlimited solar power.

 

Back on earth, Bezos said: “It’s probably hard to overstate how big of an impact (artificial intelligence) is going to have on society over the next 20 years.” To that end, Amazon has 1,000 employees working exclusively on Alexa software and Echo hardware. Bezos also says Amazon isn’t aiming to take over the last mile of delivery from UPS, FedEx or the US Postal Service, but the company is looking to “supplement it heavily”; this is necessary for peak selling seasons ahead of major gift-giving holidays in the countries in which Amazon operates. No word yet on when drones will be dropping off packages on the porch.

 

Walmart says it will start using drones, not for package delivery but for warehouse management. Walmart showed off its drones today at one of its largest warehouses in Bentonville, Arkansas. In six to nine months, the company said, the machines may be used in one or more of its distribution centers to help catalog inventory. Walmart workers now manually scan pallets of goods with hand-held scanning devices. The drone’s methodical, vertical movements would essentially mimic the path of a person in a forklift who might be inspecting labels and inventory. The machines could help catalog in as little as a day what now takes employees about a month.

 

IBM is leading in the race for patents. So far in 2016, IBM has been awarded an average of 24 patents per day. Samsung is close behind, followed by Google and Microsoft. I’m not sure if this means IBM is an innovation leader or if they just have an army of good patent lawyers.

 

More than 18 months after Apple Pay was introduced in the United States, the smartphone giant has made only a small dent in the global payments market. Apple Pay usage totaled $10.9 billion in 2015 in the US. Global adoption has been snagged by technical challenges, low consumer take-up and resistance from banks. Meanwhile, Goldman Sachs has cut its price target on Apple to $124 from $136, but maintained its Buy rating, as a reflection of lower growth expectations for the smartphone industry.

 

Saudi Arabia’s sovereign wealth fund is investing $3.5 billion in Uber, the largest investment ever in the ride-sharing leader. A managing director for the Saudi fund will take a board seat at the San Francisco-based company after the deal, which values Uber at $62.5 billion. The investment, which was months in the making, does not cash out any of Uber’s existing investors.

 

Snapchat has 150 million people using the service each day. That makes the four-year-old messaging app more popular than Twitter by daily active users. Twitter, which was founded in 2006, has less than 140 million users interacting with the service daily.

 

 

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