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Economy

Virgin America files plans for IPO

NEW YORK (AP) — Virgin America's next destination is Wall Street. (...)

Virgin America files for IPO

NEW YORK (AP) — Virgin America's next destination is Wall Street. (...)

Asia stocks rise modestly ahead of US, China data

SEOUL, South Korea (AP) — Asian stock markets posted modest gains Tuesday as investors treaded cautiously ahead of U.S. and Chinese economic reports later this week. (...)

China profits boost Asia stocks, Europe unenthused

BEIJING (AP) — Asian stock markets were mostly higher Monday, shrugging off jitters about stiffer Western sanctions against Russia, after China reported strong corporate profits. Benchmarks in Paris and London also rose but many other European markets drifted lower. (...)

Stocks drift sideways in late afternoon trading

NEW YORK (AP) — Major stock market indexes drifted between slight gains and losses late Monday afternoon, as traders prepared for a week loaded with reports on the economy and corporate profits. (...)

Business Markets

Smith & Wesson paying $2M to settle SEC charges

WASHINGTON (AP) — Smith & Wesson has agreed to pay $2 million to settle civil charges of bribing government officials in Pakistan, Indonesia and other countries to win military and police business. (...)

US stocks open mixed on Wall Street

NEW YORK (AP) — The stock market is opening mixed at the start of a busy week as a batch of merger announcements lift shares in Family Dollar and other companies. (...)

Smith & Wesson paying $2M to settle SEC charges

WASHINGTON (AP) — Smith & Wesson has agreed to pay $2 million to settle civil charges of bribing government officials in Pakistan, Indonesia and other countries to win military and police business. (...)

Stocks end little changed ahead of earnings rush

NEW YORK (AP) — U.S. stocks are ending little changed as traders wait for key economic and earnings reports later this week. (...)

Friday, July 25, 2014 - Hot and Dry

Hot and Dry
by Sinclair Noe
DOW – 123 = 16,960
SPX – 9 = 1978
NAS – 22 = 4449
10 YR YLD - .04 = 2.47
OIL - .13 = 101.94
GOLD + 13.30 = 1308.20
SILV + .35 = 20.82
For the week, the Dow is down 0.8%, the S&P is flat and the Nasdaq is up 0.4% in its second straight weekly rise.
In economic news, durable goods orders were up 1.4% in June, but May’s numbers were revised lower to show a 1.2% decline. Shipments of core capital goods fell 1%. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement. The government will release its first snapshot of second-quarter GDP next Wednesday. The economy contracted at a 2.9% rate in the first three months of the year, with business spending on equipment falling at a 2.8% rate.
Investors have been selling junk bonds. In the past week investors pulled $2.3 billion from junk bond funds. That marked the biggest outflow since June 2013, when the Fed was hinting about tapering. The high-yield market has pulled back in recent weeks, sending prices lower and yields higher. The bond market is not as liquid as it once was; trading volume is down across the board, and trading desks have been cut back, meaning a big sell-off could look more like a run on bonds.
Yesterday we told you about Amazon.com’s earnings report, or more specifically, a lack of earnings. Amazon has a unique business model where they manage to consistently increase sales without actually turning a profit. If it seems like this kind of model has limitations, you are correct, and today Amazon hit the wall. Yesterday’s non-earnings report went from bad to worse as Amazon announced the current quarter will result in bigger losses than the last quarter. The $126 million dollar loss will swell to a $400 million dollar loss, maybe as much as $800 million.
Breaking down the forward guidance, about $410 million of the current quarter loss will be in the form of stock compensation. What makes this even more interesting is that the company lost about $14 billion in market cap today. Jeff Bezos lost $3.5 billion from his personal fortune; Bezos may be an internet visionary, but lacks some basic math skills.
Also yesterday, Visa reported net income for the quarter ended June 30 rose 11 percent to $1.36 billion, or $2.17 a share, from $1.23 billion, or $1.88, a year earlier. Analysts had expected $2.10 a share. Visa’s losses accounted for about one-third of the decline in the Dow today. So, the earnings side was good but the company reduced its revenue forecast for the rest of the fiscal year. One reason for the reduction – Russia. After the US imposed sanctions on Russia, Putin recommended Russia create its own payment system. Visa said that tensions with Russia may affect earnings by “several pennies,” and that headwinds, in the form of lower cross-border volumes, are likely to continue in the short term in international corridors such as Ukraine, Venezuela and Argentina.

The European Union has been holding meetings in Brussels to find agreement over imposing sanctions on Russia over its behavior in Ukraine. They’ve decided to put together an outline on sanctions and get together again next week; the outline would exclude the crucial gas sector.
Following the downing of Malaysia Airlines Flight 17, many Europeans are eager for their governments to do something to punish Putin for fomenting instability in the Ukraine. But the debate over economic sanctions is shining an awkward spotlight on the large and important trade relations between Russia and Europe. Russia is Europe’s gas station, and if Europe decides to stop doing business with Russia, they will have to figure out a new, and likely more expensive way to put gas in the car and to heat their homes.
According to the Energy Information Administration, oil and natural gas accounted for 70% of Russia’s export revenues in 2012; and most of those exports go to Europe; and most of Europe hasn’t figured out how to provide their own energy. Oil reserves in the North Sea are expensive to tap; fracking technology hasn’t happened for a number of reasons; and so Europe depends on Russia for about 30% of its natural gas. Many of Europe’s biggest corporations are directly involved in importing fuel from Russia, and many of Europe’s biggest industries, such as utilities, power-hungry manufacturers, car manufacturers, transportation systems, and anyone else who uses electricity – all rely on fuels imported from Russia.
If the EU were to suddenly grow a spine and just say no to Russian oil and natural gas, it would certainly inflict some short- term pain on Russia, but oil and gas are fungible and the market is global. One of Putin’s first moves was to sign a deal with China to make Russia a major supplier of natural gas. Europe does not have a quick replacement for Russia’s natural gas and winters in Europe can get very cold.
The US does not depend on Russian fuels, however there are a couple of strange side stories coming out of the sanctions. First, is the as-yet-unaddressed need to restart NASA, so we don’t have to depend on Russia for ride sharing to the space station. The other, is that Americans don’t really care much about Russia anyway; last week the US imposed a fresh round of sanctions on Russian companies, including weapons manufacturers. How did patriotic Americans respond? Well, you can no longer buy Kalashnikov AK-47s. Technically you can, you just can’t find any. The move sent American gun buyers into a frenzy, seeking to buy any and all AK-47s on any store shelf.
So, it should come as no surprise that Russia has stepped up its direct involvement in fighting between the Ukrainian military and separatist insurgents, unleashing artillery attacks from Russian territory and massing heavy weapons along the border. So, while the EU considers drafting a new outline of possible sanctions for further possible consideration; Russia may send in the troops.
About 34% of the contiguous United States was in at least a moderate drought as of this week.
Things have been particularly bad in California, where more than 80% of the state is in “extreme” drought, state officials have approved drastic measures to reduce water consumption. California farmers, without water from reservoirs in the Central Valley, are left to choose which of their crops to water. Parts of Texas, Oklahoma and surrounding states are also suffering from drought conditions. East of the Mississippi, rainfall has been rising. But global warming also appears to be causing moisture to evaporate faster in places that were already dry. Researchers believe drought conditions in these places are likely to intensify in coming years.
A new study released yesterday by NASA and the University of California Irvine shows we are losing water at a shocking rate in the West. Using a satellite designed to track changes in groundwater, the research team found that the Colorado River basin—which supplies water to 40 million people in seven states—lost 15.6 cubic miles of freshwater in the last 10 years. From December 2004 to November 2013 the Colorado basin lost nearly 53 million acre feet, or almost double the volume of the nation’s largest manmade reservoir, Lake Mead. (Actually, Lake Mead is no longer the biggest reservoir in the country; a lake in North Dakota takes that honor, as Lake Mead has shrunk.) More than 75% of that loss was due to excessive groundwater pumping. It’s the first study to quantify just how big a role the overuse of groundwater plays in dwindling water resources out West.
How did this happen without anyone noticing it? The answer, basically, is that up until this study, nobody had a good way of measuring how much water is stored underground. And the researchers aren’t certain how much groundwater is left. Water above ground in the basin's rivers and lakes is managed by the U.S. Bureau of Reclamation, and its losses are documented. Pumping from underground aquifers is regulated by individual states and is often not well documented.
In the last seven years, Lake Mead’s dwindling has accelerated. The lake is now just barely more than 1,080 feet above sea level, slightly below its previous record low set in November 2010. Lake Mead is expected to drop another 20 feet into record territory by summer 2016. The low water level is already affecting hydroelectric power production. If the water level drops below 1050, the Hoover Dam might not be able to produce electricity.
Well before then, perhaps as soon as next April, downstream water rationing will kick in—which has never happened before. A 2007 shortage-sharing agreement sets three elevations for which water restrictions will be imposed on the Lower Basin states of Arizona, California, Nevada, and New Mexico. The first shortage level, 1,075 feet, will likely come into effect in the next several months. It would require a total water use cut of 4.4%, with Arizona taking an 11% cut, Nevada a 4% cut, New Mexico 3.3% and California remaining the same.
Right now, Phoenix has officially recorded just over one inch of precipitation since the start of the year; the normal amount is just under 4 inches. The problem is that when above-ground water supplies run low - which is happening now, and it is common in California, even when there isn’t a drought - water managers use groundwater to meet public and farming needs. The study finds that so much groundwater has been used that it will be impossible to recover it naturally; overall supply of available freshwater will continue to decrease as a result.

Thursday, July 24, 2014 - Bankster Logic

Bankster Logic
by Sinclair Noe
DOW – 2 = 17,083
SPX + 0.97 = 1987
NAS – 1 = 4472
10 YR YLD + .05 = 2.51%
OIL - .03 = 102.04
GOLD – 10.10 = 1294.90
SILV - .54 = 20.47
An extremely flat day on Wall Street but good enough for another S&P 500 record high close.
In economic news: Initial claims for state unemployment benefits declined 19,000 to a seasonally adjusted 284,000 for the week ended July 19, the lowest level since February 2006. In the past six months, unemployment has fallen much faster than expected, from 6.7 to 6.1%. The labor market is still struggling with long term unemployment and part-time jobs instead of full-time work, but it seems to be making progress.
One area not showing progress is wages. The Labor Department released its latest report on median wages; on a year-over-year basis, median earnings were up just 0.8% in the second quarter, to $780 per week, not enough to keep pace with inflation. The median wage data is a bit different than the weekly earnings data that comes out of the Labor Department’s payrolls report. That one is the average earnings, and what’s likely happening is the growth for top earners is pulling that series up more. Average earnings are up 2.1% year-on-year. The report also showed that women earned 83.5% of what men did.
The Commerce Department said new home sales dropped 8.1% to a seasonally adjusted annual rate of 406,000 units in June. It was the biggest decline since July of last year. May and April sales were revised lower. So this was a very weak new home sales report, but earlier in the week we saw a fairly strong report on existing home sales.
Let’s move over to earnings reports:Amazon.com can sell stuff, they just haven’t figured out how make a profit. Amazon is expanding grocery service, they introduced a new smartphone, and a set-top box for TV streaming, and they managed to increase revenue 23% to $19.34 billion from $15.7 billion in the earlier period. They also reported a loss of $126 million or 27 cents per share.
Caterpillar has the exact opposite problem; revenue fell but they posted a higher profit. Caterpillar’s revenue numbers have now fallen in six of its past eight quarters, with the quarterly year-over-year decline averaging 8.3%. In the last quarter, sales fell 3% from a year ago to $14.1 billion, while profit increased 4.1%.
Starbucks posted fiscal third-quarter profit of $512 million, or 67 cents a share, up from $417 million, or 55 cents a share a year ago. Revenue for the three months ended June 29 rose 11% to $4.1 billion from $3.7 billion.
Signaling a major turnaround in the airline industry’s fortunes, the nation’s three major legacy carriers; American Airlines, United Airlines and Delta Air Lines — all posted record profits in the past quarter. Delta reported net income for the second quarter of $801 million, up 17 percent from the year-earlier period. United Airlines, which had a loss in the first quarter and has struggled with its merger with Continental Airlines, posted a $919 million second-quarter profit. Douglas Parker, the chief executive of American Airlines, said today that the airline’s second-quarter profit, excluding special charges, of $1.5 billion was its best quarterly earnings performance ever.
General Motors posted second quarter earnings of $190 million on revenue of $39.6 billion, up from $39.1 billion in the same period a year ago. The problem for GM has been recalls for safety issues, which have killed 13 people. GM set up a compensation fund with $400 million; they have also paid $2 billion this year for the recalls, and they announced pretax charges of $874 million to cover future product recalls. GM is likely to feel the financial repercussions of the millions of cars it has recalled for years to come. The company has recalled 29 million vehicles this year, many of which haven’t yet been repaired. To give a sense of the pace, GM recalled around 15 million vehicles for ignition switch related issues so far this year, and repaired around 560,000 in the second quarter. It announced a recall of more than 700,000 vehicles for a separate issue just yesterday. The surprising part is the increase in revenue, which comes in part from pricing, but also the bad press hasn’t deterred buyers.
Businesses and individuals in the US have parked about $2.6 trillion in money market funds. It is generally considered a safe place to leave money short term, or that was the thinking until 2008, when money market funds broke the buck, dropping below par value of $1 per share. Turns out, the funds weren’t guaranteed. There is no government insurance on the safety of deposits, no regulator-required capital buffer to protect against losses, no central bank ready to stand as “lender of last resort” to keep a money market fund from suffering a short-term cash crunch. Of course, the Treasury and the Fed stepped in to bail out the funds and avoid a run on the funds, which would have been catastrophic.
And so, a mere 6 years later, the government has finally managed a few reforms, but they aren’t real reforms because the bankers fought reform tooth and nail.  The new reforms do not include capital buffers, but they will allow for a floating NAV, or net asset value. So your share in a money market fund may or may not be worth one dollar. And if you try to cash out, the funds can impose extra fees to slow down a potential run. That’s about it. After 6 years. I hope you feel safe and secure in the knowledge that nothing of any substance has changed in the last 6 years.
An examination by the Federal Reserve Bank of New York found that Deutsche Bank AG’s giant U.S. operations suffer from a litany of serious problems, including shoddy financial reporting, inadequate auditing and oversight and weak technology systems. In a letter to Deutsche Bank executives last December, a senior official with the New York Fed wrote that financial reports produced by some of the bank’s US arms “are of low quality, inaccurate and unreliable. The size and breadth of errors strongly suggest that the firm’s entire U.S. regulatory reporting structure requires wide-ranging remedial action.”
Deutsche Bank, one of Europe’s largest banks, was a forceful opponent of the Fed’s push to force foreign banks to comply with the same capital requirements as domestic banks. Officials from Deutsche Bank argued that the Fed’s requirement was too restrictive.  This year, the Fed went ahead with those tougher capital requirements for foreign banks. But it gave most of them until the middle of 2016 to comply. Yes, of course it’s theoretically possible that management could go through and fix everything that’s wrong with the firm’s US operations but, really, this is more of a tear down job.
Dark pools are where institutional investors can place large buy and sell orders without alerting the broader market. Prices and transactions are not reported; it is the furthest thing from a free and open marketplace.  Different financial institutions run a variety of dark pools. Barclays runs one of the biggest dark pools called Barclays LX. They’ve been sued by the state of New York for fraud; the suit alleges Barclays favored high frequency traders over other investors in the dark pool and they falsified marketing materials, inaccurately portraying the concentration of high-frequency traders in the market, and misrepresenting a service that purported to protect investors from predatory trading behavior.
Today, Barclays filed a motion to dismiss the lawsuit, and this is classic bankster logic; they argued that Barclays’ customers were sophisticated enough to understand that “glossy marketing brochures” about the dark pool, did not reflect its actual composition; their customers knew better than to rely solely on the marketing materials. So, they basically admitted they were lying in their marketing material, but their clients were smart enough to know that banks are liars.
President Obama called today for Congress to end a tax loophole that allows big corporations to designate a foreign country as their official address, in order to avoid US taxes. The corporation doesn’t have to actually move their headquarters, just set up an address overseas. Obama called on members of Congress to close the loophole even if they disagree with his broader calls for changes to the tax system that would lower corporate rates and close several loopholes, including that one. The legislative effort is unlikely to succeed in Congress.
Nine inversion deals have been reached this year by companies ranging from banana distributor Chiquita Brands to Medtronic. The whole idea is to pay less taxes while still enjoying the benefits of doing business in the US. Of course, the legal change of corporate headquarters is essentially a process of renouncing citizenship, and it just seems corporations should face the loss of citizenship the same way people do, which means they should pay an exit tax. There are other ways to put an end to this inversion tax evasion scheme. And if we don’t, you can count on executives whose companies were born of American ingenuity and which make their profits from American customers (including the government) will troll international waters for opportunities in low-cost tax havens. It’s a race to the bottom.



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