Friday, July 11, 2014

Friday, July 11, 2014 - TGI Friday

TGI Friday
by Sinclair Noe

DOW + 28 = 16,943
SPX + 2 = 1967
NAS + 19 = 4415
10 YR YLD - .01 = 2.52%
OIL – 2.44 = 100.49
GOLD + 3.70 = 1340.00
SILV + .03 = 21.55

We start with a quick review of the global hot-spots.

Israel and Gaza are throwing missiles at each other. Israel has better offense and defense. Approximately 100 Palestinians have died in the bombing; one Israeli has died in the missile attacks. President Obama has offered to negotiate a ceasefire but there isn’t much interest. Palestinian militants say they will fire missiles at Tel Aviv’s main airport. Israelis won’t rule out a ground war and vow the aerial assault will continue until quiet is restored.

Ukrainian President Poroshenko vowed to "find and destroy" pro-Russian rebels who killed 23 servicemen and wounded nearly 100 in a missile attack today. Kiev blames Moscow for fanning the violence and allowing fighters and high-powered weaponry to cross the frontier from Russia to Ukraine.

Kurdish forces seized two oilfields in northern Iraq and took over operations from a state-run oil company. Kurdish politicians formally suspended their participation in Iraqi government in Baghdad. An oil ministry spokesman in Baghdad described the takeover as dangerous and irresponsible. The Shi’ite run government of Prime Minister Maliki has been trying to cobble together a coalition government with very little success and it now appears the country has literally been divided into three states. Meanwhile, when the extremist Sunni faction known as ISIS took over the city of Mosul, they reportedly captured some radioactive materials, 40 kilos of uranium. The International Atomic Energy Agency says it is low grade and doesn’t pose a risk. I’m just guessing that story isn’t the last we’ll hear about the radioactive materials.

Portugal’s government and central bank tried to reassure investors that the country’s banking system is safe and sound. Banco Espirito Santo said any losses at the holding company Espirito Santo International would not pose a danger to the bank. European markets moved a little higher today.

Recent financial history in the Eurozone paints a less than compelling picture of bank soundness. You will remember when the Greek banks floundered. About four years ago, there was that little problem with Bankia in Spain. Bankia bought up smaller bankrupt regional banks and then went bankrupt itself. Bankia shareholders and Spanish taxpayers took the brunt of that failure. You will also remember the Bank of Cyprus, where the depositors took a big haircut.

The common theme in Eurozone bank failures is that things go wrong, governments claim everything is under control, banks fail, banks get bailed out or bailed in, depositors and taxpayers get the shaft. Rinse, lather, repeat. And then you think, these are just the banks in the peripheral countries. Don’t forget the money laundering by HSBC and BNP Paribas, and the tax evasion schemes from Credit Suisse.

Back in the USA, the speaker of the House of Representatives is suing the President. Politics makes strange bedfellows. Casino magnate and conservative donor Sheldon Adelson joined Berkshire Hathaway CEO Warren Buffett and former Microsoft CEO Bill Gates to write a New York Times op-ed criticizing House Republicans for failing to address an overhaul of the nation’s immigration system, which they said “borders on insanity.”

And the top story in America today…, Lebron James will take his basketball talents to Cleveland.

The World Cup championship will be played Sunday; Germany versus Argentina. More than one billion people are expected to watch at least a bit of the final game; more than 3.2 billion will have watched at least some of the games of the tournament, which would make World Cup 2014 the most watched televised event ever.

The markets moved higher today, which is more than we can say for CYNK Technology, the obscure OTC stock that surged 36,000% from a couple of pennies to more than $25 dollars in a few weeks, with nothing in the way of an actual business. The SEC closed down trading. I told you it was a bad idea.

Potato salad, however, is apparently a good idea. A guy from Ohio posted a simple request on the crowd-funding website, Kickstarter: Help him raise $10 to buy the ingredients to make potato salad. Within about a week’s time, 5,300 people donated between $1 and $10 to the potato salad endeavor for a grand total of $44,000.

Meanwhile, Wells Fargo was the first of the big banks to report second quarter earnings. The bank’s earnings per share of $1.01 in the second quarter matched analyst’s estimates; profit rose 4% from the same period a year ago, to $5.7 billion. The bank’s second-quarter revenue fell to $21.1 billion from $21.4 billion a year ago.

The FTC has sued Amazon for billing parents millions of dollars for unauthorized app purchases made by children. The FTC suit seeks an order that Amazon pay back parents for such purchases and also force the company to require parental consent for such purchases in the future.

Meanwhile, Amazon is seeking permission from the FAA to test its delivery drones near Seattle. Amazon wants to use drones to deliver packages in 30 minutes or less as part of a program called “Prime Air”. In 2012, Congress required the FAA to establish a road map for the broader use of drones. The FAA has allowed limited use of drones in the US for surveillance, law enforcement, atmospheric research and other applications. The Federal Aviation Administration estimates about 7,500 drones will be flying across the sky for commercial use by 2018. The agency plans to issue rules by the end of this year governing the flight of drones weighing less than 55 pounds. Last year, the US government created six sites for companies, universities and others to test drones for broader commercial use.

About a month ago, I told you that Apple was working on a new type of glass made of synthetic sapphires. This week, Apple won a patent for “fused glass device housings”, a new method of fusing glass to make casings for devices like the iPhone.  There is speculation that the next version of the iPhone will use the nearly indestructible glass for a cover or for an entire casing. According to the new patent, Apple has figured out a way to build an all-glass device that would still be durable and lightweight, essentially by fusing multiple pieces of glass together rather than designing casings out of a single slab. The new casing could be a sales killer; if the case doesn’t break, why would you be forced to buy a new one.

America’s largest reservoir and Las Vegas’ main water source and an important indicator for water supplies in the Southwest, will fall this week to its lowest level since 1937 when the manmade lake was first being filled. Lake Mead is expected to drop to 1,081 feet above sea level; by 2016 the lake is projected to drop below 1,075 feet above sea level and trigger water rationing.

The California State Water Resources Control Board will hold a public hearing next week to impose rules that would ban wasteful outdoor watering; things like hosing down sidewalks and driveways, or washing a car without a shut-off nozzle. The rules would give local agencies the authority to impose fines of up to $500 a day on scofflaws, although enforcement would probably start with warnings and escalating fines.

At the beginning of the year, Governor Brown declared a drought emergency and asked residents to voluntarily cut use by 20%, but water use has only declined by 5%, and in Southern California’s 3 largest cities, water use has increased in the last year.

Over a three-week span starting next Monday, 72% of the S&P 500's members will report earnings, and we’re off to an uneven start. Alcoa kicked off the season with strong results. Wells Fargo posted decent numbers but mortgage originations were down; that had been a cash cow for Wells Fargo. Container Store reported earnings that were a big disappointment. Why would you buy boxes, if you weren’t moving? The results seem to indicate that the housing market is weak, or possibly consumer spending is weak.

Yesterday, the discount chain, Family Dollar reported same store sales fell 1.8% during the quarter, and the CEO offered a downbeat assessment: "Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment."

And then Gap topped off the week of discouraging retail commentary by reporting June same-store sales that fell 2% year-over-year. Sales were expected increase 0.8%. Gap's management, however, was light on additional commentary. This rash of discouraging retail data, however, makes the broader US economic picture seem murky, and consumer demand seems to have been weak in a number of sectors of the economy, but earnings season is just starting.

Many of the biggest banks on Wall Street will turn in quarterly results that will provide some insight into how the slowly improving economy is translating to companies’ bottom lines. Among the big names on the earnings calendar this week: Citigroup, Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America.

Next week’s economic calendar includes a report from the Commerce Department on retail sales in June. Wednesday brings the PPI, or producer price index, or prices at the wholesale level. Another, though indirect, part of the inflation outlook is the level of slack in industrial capacity. When goods producers have little capacity to spare, chances increase for bottlenecks and shortages that could introduce price increases at the wholesale level. The Fed will report on industrial production and capacity utilization on Wednesday. On Wednesday, the National Association of Home Builders and Wells Fargo will release its July housing market index, a gauge of builder confidence. The Commerce Department will report on June housing starts and building permits Thursday. And Tuesday and Wednesday, Federal Reserve Chairwoman Janet Yellen takes the Hill to deliver semi-annual testimony before the House and the Senate, where she will regale lawmakers with tales of noisy inflation and an economy that is inches from liftoff.

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