OPEC meets in Algiers next week. No deals. Banks must scale back betting on commodities. Yahoo breach biggest ever (so far). France passes Germany. Marriott achieves global dominance over hotels. UPS trucks can’t go everywhere. Twitter pops on rumor – how appropriate. For profit college sucks. Why you paid for bonuses at Wells Fargo. Hottest-ever August.
Financial Review by Sinclair Noe for 09-23-2016
DOW – 131 = 18,261
SPX – 12 = 2164
NAS – 33 = 5305
10 Y – .02 = 1.61%
OIL – 1.73 = 44.59
GOLD + .40 = 1338.10
The Dow Industrials posted a gain of 0.8% for the week. Both the S&P 500 and the Nasdaq were up 1.2% for the week.
Ahead of a major oil summit in Algiers next week, Saudi Arabia reportedly offered to lower its oil production if Iran agrees to cap output this year at its current level of 3.6 million barrels-per-day. Saudi output usually drops in winter and spikes during hot summer months. And even though the Saudis are the largest producers in OPEC, there are several countries that are getting desperate, including Venezuela, Nigeria, Libya, Iraq, and Iran – they will sell whatever they can whenever they can, or face political unrest at home. Even if the meeting in Algiers results in a freeze on production, it might not have a significant impact on prices because US shale producers could pick up the difference.
Based, in part, on news of an agreement on a production freeze, oil climbed this morning over $46 a barrel. As the morning wore on, Bloomberg reported the Saudis did not have a deal in place. Then, the Federal Reserve Board said it was inviting public comment on a proposed rule that would make it harder for banks to trade physical commodities. In addition to requiring the banks to hold more capital for activities involving commodities, banks would also be required to tighten the amount of commodities they could hold. The comment period is open for 90 days. Anyway, oil rolled over and closed down more than 4%.
Yahoo’s data breach is enormous. The company believes the credentials of at least 500 million user accounts were stolen by a “state-sponsored actor” (possibly Russian) in 2014, which would make it the largest-ever data breach. If you have a Yahoo e-mail account you should change your password, set up a two-factor authentication (such as a backup phone for text messages), and keep an eye on your account. When you consider all the other hacks in the past couple of years (remember Home Depot, Target, Hilton, T-Mobile, Staple, UPS – yeah, that’s just a partial list) you may be wondering if you have been exposed to hackers, and the answer is yes. If you use a debit or credit card or the internet you have almost certainly been hacked. Good luck.
France’s economy is driving Europe. For the first time since 2012, France’s economy is doing better than Germany’s, at least according to preliminary PMI data from Markit. Germany missed growth forecasts for a second consecutive month due to weaker than expected service sector growth. The EU’s flash figure for overall growth in September suggests the economy is growing at slowest pace in more than 20 months.
The Markit flash U.S. manufacturing purchasing managers index fell to 51.4 in September from 52, marking the lowest level since June. Manufacturing activity in September grew at the slowest pace in three months as purchasing managers blamed weak new orders and the strong dollar.
Boston Federal Reserve President Eric Rosengren said this morning that he believed interest rates should be raised gradually now and warned that if the unemployment rate falls from here, it could stoke inflation, which could lead to a recession. Rosengren was one of 3 Fed policymakers voting for a rate hike this week. Minneapolis Fed President Neel Kashkari, responding to questions from the public on Twitter, said he believed the labor market continues to have slack and that he wanted to see the unemployment rate, now at 4.9 percent, to come down. The bigger worry for him, he said, was that the Fed will raise rates too soon rather than too late. The view that the labor market is not close to overheating is also central to Dallas Fed President Robert Kaplan’s view that the Fed should be patient and cautious in raising rates.
U.K. Prime Minister Theresa May has distanced herself from comments made by Foreign Secretary Boris Johnson suggesting formal talks on Brexit will begin by “the early part of next year.” According to a Downing Street spokesman, “The government’s position has not changed: we will not trigger Article 50 before the end of 2016 and we are using this time to prepare for the negotiations.”
Marriott International closed Friday morning on its $13 billion acquisition of Starwood Hotels & Resorts Worldwide, bringing together its Marriott, Courtyard and Ritz Carlton brands with Starwood’s Sheraton, Westin, W and St. Regis properties. In total, 30 hotel brands now fall under the Marriott umbrella to create the largest hotel chain in the world with more than 5,800 properties and 1.1 million rooms in more than 110 countries. That’s more than 1 out of every 15 hotel rooms around the globe. Starting today, members of Starwood and Marriott’s two loyalty programs will be able to link their accounts together.
Facebook has been giving advertisers an inflated metric for the average time users spent watching a video — by not counting people who viewed for less than 3 seconds.
United Parcel Service said it began testing the use of drones for emergency deliveries of medical supplies this week with a flight in rural Massachusetts, which the company hopes will eventually lead to federal approval of drones as a regular delivery option. UPS is working with drone manufacturer CyPhy Works. The two companies yesterday completed a test of delivering medicine from the coastal town of Beverly, Massachusetts, to Children’s Island, a small island about three miles into the Atlantic Ocean. Last month the FAA established rules for commercial drones, including flying within the line of sight of the operator. Obviously there might be some exceptions.
Amazon shares closed past the $800 mark for the first time on Thursday, more than doubling its stock price in just 17 months. That gives Amazon a market cap of over $380 billion, making it the fourth most valuable company in the US; trailing only Apple, Alphabet and Microsoft.
Japanese regulators are considering taking action against Apple over possible antitrust violations that may have helped it dominate the nation’s smartphone sales. Japan’s Fair Trade Commission (FTC) said that NTT Docomo, KDDI Corp and Softbank Group were refusing to sell older surplus iPhone models to third party retailers, thereby hobbling smaller competitors. Under those deals, surplus stock of older iPhones is kept out of the market and sent to overseas markets, such as Hong Kong. The carriers also bulk purchase the Apple smartphones and sell them at a discount, which gives the U.S. company an advantage over rivals such as Samsung
Twitter shares jumped the most in more than two years after CNBC said the company may soon receive a takeover offer. Potential suitors include Salesforce.com and Alphabet/Google, among others. Twitter may get a formal offer shortly – or not.
Some of the nation’s largest for-profit colleges are suffering steep declines in enrollment. The industry has been losing students for the last six years, but the crisis appears to be deepening with alarming speed. The most recent corporate filings show enrollment at the University of Phoenix chain fell 22% this year, to 171,000 students, marking a 70% loss since 2010. DeVry University reported a 23% drop this year. The collapse of ITT Tech last month is a problem for the industry. Since 2014, DeVry has closed 39 campuses and plans to shutter more in the upcoming year.
Wells Fargo CEO John Stumpf has resigned from the Federal Reserve Advisory Council, a banking industry group which meets with the Fed’s board of governors four times a year to discuss economic issues. Meanwhile, eight senators have asked the Labor Department to launch a probe into whether Wells may have violated wage laws by failing to pay overtime to employees who stayed late to meet sales quotas.
We have talked extensively about the Wells Fargo scandal, but here is one more insult – salt on the wound. You paid for it. If you have paid federal taxes over the past couple of years, you essentially subsidized the multimillion dollar payouts given to Wells Fargo executives who oversaw a massive consumer fraud. Carrie Tolstedt, an executive who oversaw Wells Fargo’s Community Banking group — where much of the fraud occurred — pocketed millions in “performance pay,” including stock and equity, between 2012-2015. Under a 1993 law, corporations can deduct no more than $1 million of executive compensation from their taxes. But that law made an exception for pay linked to performance. Consequently, because Wells Fargo structured Tolstedt’s payout as a bonus — rather than wages — the bank could deduct the $78 million from its taxes, effectively giving itself a $27 million tax boost. Banks continue to use these subsidies even as government regulators charged them with breaking rules. Between 2012-2015, Wells Fargo cashed in on $54 million in tax subsidies for CEO John Stumpf’s compensation. Over that same period, regulators extracted $10.4 billion in misconduct penalties from the bank.
Today is a cool day in Phoenix, relatively speaking. This week saw the autumnal equinox and today we get a hint of relief. August 2016 was Earth’s warmest August since record keeping began in 1880, said NOAA’s National Centers for Environmental Information (NCEI) on Tuesday. In the NOAA database, August 2016 came in 1.66°F warmer than the 20th-century average for August, beating the previous record for August, set in 2015. NASA also reported the warmest August in its database, as well as a tie with July 2016 for the warmest absolute temperature recorded in any month. August 2016 marked the 16th consecutive month that NOAA’s global monthly temperature record was broken, which is the longest such streak since global temperature records began in 1880.