Monday, November 25, 2013

Monday, November 25, 2013 - A Record High, Barely

A Record High, Barely
by Sinclair Noe

DOW + 7 = 16,072
SPX – 2 = 1802
NAS + 2 = 3994
10 YR YLD - .01 = 2.73%
OIL - .75 = 94.09
GOLD + 7.90 = 1252.60
SILV + .38 = 20.31

The Dow and the S&P 500 indices have posted 7 weeks of gains. Today was flat, with the Dow up a few points and the S&P down a little. We'll have a holiday shortened week, with the market closed on Thursday (something retailers should consider).

Over the weekend, the big news was a nuclear agreement, of sorts between the US and Iran. The basic idea of the agreement is that we would lift some sanctions against Iran and they would not expand their nuclear program. The deal frees up some Iranian oil revenue that had been frozen in foreign banks. It's unlikely Iran will add much in oil exports in the six months covered by the agreement. Iran has been exporting oil to China, India, South Korea, and Japan; those countries were granted waivers on sanctions because they really wanted the oil.

The main benefit of the weekend’s deal with Iran may be the psychological impact on the market, which has long been propped up by fears of a supply disruption resulting from the standoff between Iran and the United States and its allies. Also, Iran may benefit from access to investment in oil infrastructure and equipment; but again, this is a 6 month deal for now. Many Middle Eastern countries have invested in infrastructure and need prices not to drop. Don't forget, a cartel controls a fair amount of the international pricing of oil. As sanctions kept Iranian oil out of the market, (kind of, sort of) many OPEC countries ramped up production and exports; they could easily cut exports if the price drops.

The US has been aggressively pursuing domestic oil and gas development, and there is currently a bit of a glut of production in the US. Don't expect a change in the price at the pump. The national average for gasoline is $3.26 a gallon compared with $3.43 a gallon a year earlier; and down about 60 cents just since early September. We may see a further decline, but very little that could be attributed to the deal with Iran at this time.

Meanwhile, a funny thing has happened as the price at the pump dropped, the wholesale price that refiners, banks, and traders pay before the gas reaches the consumer have jumped almost 20 percent over the last couple of weeks. While we've seen a boom in domestic production, we've also seen a boom in US exports of refined products; exports have more than tripled from about 1 million barrels a day to more than 3 million barrels a day. Yes, we have plenty of oil, a little less in refined petroleum products.

Also, this deal is still largely dependent on the cooperation of Congress, and Congress has been less than cooperative on almost everything, and especially anything to do with Iran. The White House has some discretion to rescind the Iran sanctions without Congress’s approval. The method for removing any given set of sanctions depends on how those sanctions were passed in the first place. If they’re the product of an executive order, as many of the existing sanctions against Iran are, removing them requires only that the White House decide to stop enforcing them. Removing sanctions that have been passed into law by Congress, however, is a much more difficult challenge.

Former Treasury Secretary Tim Geithner has a new job. He passed up a chance to work at megafund manager BlackRock. Geithner, who has landed a plum private-equity gig with Warburg Pincus, opted against joining CEO Fink’s BlackRock — with $4 trillion in assets under management — because he wanted to have a more involved role with any company he ended up joining.

Swiss voters overwhelmingly rejected an initiative that would have restricted executive salaries to 12 times that of the lowest-paid employee. Roughly 65% of Swiss voters Sunday opposed the 1:12 Initiative for Fair Pay.

How much should you pay to deposit money in a savings account at a bank? Not how much should you be paid, how much should you pay. Retail banks have warned they might need to start charging customers and companies for deposits if the US Federal Reserve cuts interest it pays on bank reserves. Not only has the Fed maintained a zero interest rate policy, but they have been paying banks to hold excess funds on deposit with the Fed. There is talk of the Fed not paying the banks; just talk at this point. The idea being that banks would be more inclined to put money to work with lending and other stuff that helps the economy. So, the banks are just talking about how they might have to charge you to make a deposit. The banks say that, without that interest payment, they might also be pushed to take ever-crazier risks with money that was once safely parked at the Fed.

Signed contracts for existing homes fell nationwide in October for the fifth straight month, further evidence the housing market has slowed after a frenzied rebound earlier this year.

The National Assn. of Realtors said its pending sales index, adjusted for seasonal swings, dropped 0.6% from September and was down 1.6% from its October 2012 level. The trade group said the government shutdown in early October, declining affordability and limited inventory curbed sales.  The index, which reflects signed contracts whose sales haven't yet closed, is at its lowest level since December of last year.

The world's biggest retailer, Walmart, announced that it is to replace its president and chief executive, Mike Duke, who is stepping aside after a year in which the company has struggled with sluggish sales and labour disputes.
Doug McMillon, currently CEO of Walmart's international division, will replace Duke as president and CEO of Walmart Stores on 31 January. Duke relinquishes the reins five years in charge, although he will stay on as chairman of the company's executive committee. Maybe a sign that Walmart will concentrate more on the international side of their business.
H&M the second largest clothing retailer, based out of Sweden has promised to pay workers In Bangladesh and Cambodia, a living wage. The pledge covers 850,000 workers. H&M said that because conditions varied between countries and factories, it would support textile workers in negotiating a living wage – a salary that enables a decent standard of living – instead of imposing a figure. It said paying more to factories that adopt a living wage would not push up the price of its goods.

The stock market will be closed Thursday, and a half day on Friday. Or, I should say Black Friday. Don't fall for it. Bargain hunters can — and, in some cases, should — avoid the Black Friday weekend crush. The shopping bonanza is mainly an expertly marketed ploy to capitalize on shoppers' fear of missing out. By dangling a small batch of irresistible savings, stores land hordes of hopeful shoppers all scheming to score the retail version of the golden ticket. Yet only a tiny percentage of customers end up with the most desirable deals. The rest, unwilling to leave empty-handed, walk away with lesser bargains arranged appealingly nearby.

The weekend is crowded with misleading promotions, including deceptive discounts off misstated "original" prices and deals that could have been had a year earlier. More than 90% of Black Friday ads this year feature items being sold at exactly the same price as they were last Black Friday. Retailers have been in a promotional mood for months as they try to attract wary shoppers. They're trying to make up for sales that have been weak through much of the year, damaged by volatile weather, shaky consumer confidence, the government debt stalemate and a payroll tax increase.

Forecasts for the Thanksgiving-to-Christmas period — which can sometimes account for 40% of a retailer's annual sales — are dour. Morgan Stanley predicted the worst holiday sales since 2008. Worried retailers may continue discounting well past Black Friday in an attempt to suck in last-minute stragglers

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