Monday, July 29, 2013 - Bees' Revenge

Bees' Revenge

by Sinclair Noe

DOW – 36 = 15,521
SPX – 6 = 1685
NAS – 14 = 3599
10 YR YLD + .04 = 2.60%
OIL - .13 = 104.57
GOLD – 6.60 = 1328.20
SILV - .14 = 19.95

Two big economic stories planned for this week. The Federal Reserve FOMC is meeting and they will issue a statement on Wednesday. Then we have the monthly jobs report on Friday.

September is the most likely time for the Fed to begin paring its $85 billion in monthly bond purchases. There are some concerns that big gains in jobs numbers could be enough of an economic pickup to prompt an early end to the Fed's bond buying, a program which has helped stocks rally for much of this year. So, from a Wall Street perspective, good news on the jobs front is bad news from the Fed, but of course signs of a stronger economy are more important in the long run. The S&P 500 is up 18.2 percent for the year so far, however that is not a good indicator of the broader economy.

The Fed may not cut back on bond buying. Remember the fact that Chairman Ben Bernanke has said that the decision to do so will be driven by the actual incoming data on the jobs and the economy rather than the Fed’s current expectations regarding that data. Despite the slow, steady job growth, unemployment has only moved about five-tenths of a percentage point down. This movement is barely enough for Bernanke to claim progress towards the Fed’s interim goals of 7% for the end of QE and 6.5% for the “beginning of thinking about” the end of ultra-low short term interest rates.

Moreover, despite the growth in jobs, the stock market indices and business profits, GDP for the three quarters following the inception of QE III looks like it will average about 1%, not 2%; and the first look at 2Q GDP might be even less than 1%, and that will be announced this week. We're still getting doses of sequestration blended into the GDP. And don't forget that the DC politicians could still

Monday's data was less than upbeat. Contracts to purchase previously owned US homes fell in June, retreating from a more than six-year high touched in May as rising mortgage rates were starting to dampen home sales.

We had a merger mania Monday.

US drugmaker Perrigo agreed to buy Irish drug company Elan for $8.6 billion. US-traded Elan shares rose 3.5 percent to $15.46. Perrigo was the S&P 500's worst percentage decliner, shedding 6.7 percent to $125.17.

Hudson's Bay Co , operator of department store chains Lord & Taylor in the United States and The Bay in Canada, said it would buy luxury retailer Saks for $16 per share. Saks shares rose 4.2 percent to $15.95.

Shares in advertising groups jumped after Publicis and Omnicom said they would merge. the deal might create an opening for rivals to poach defecting clients and potentially trigger more deals.

Omnicom shares were down 0.6 percent to $64.75 while smaller rival Interpublic Group gained 4.7 percent to $16.61.

Among the day's big gainers, shares of CF Industries Holdings, the world's second-largest maker of nitrogen fertilizer, jumped 11.8 percent to $202.30 after activist hedge fund Third Point LLC said it had acquired a stake.

Meanwhile, AMR Corp's American Airlines and US Airways will win EU approval for their $11 billion merger to become the world's largest carrier after agreeing to cede slots on a transatlantic route.

Treasury Secretary Jack Lew on TV yesterday, was asked "how come the Obama administration bailed out the banks but isn't talking about doing so for Detroit?"

The failure of large, major banks, two out the big three auto companies, the secondary market for housing finance-all of these posed unacceptably large risks to global financial markets, and thus the global economy, to a major industry, including its upstream and downstream suppliers, and to the national housing sector.

Detroit is not systemically connected in those ways, which is a sad commentary on the enormous power the banks wield over the economy. Still, Chapter 9 of the bankruptcy code might actually be a way to fix the problems with Detroit, short term. Of course, bankruptcy reorganization doesn't solve the longer term problem of deindustrialization. Detroit needs big investments along the lines of a Marshall Plan, and that probably won't happen unless there's an invasion.

And as we're hearing the news about Detroit, we are just now starting to hear about how the banksters helped to destroy the Motor City. Seems Detroit tried to buy derivatives to hedge against problems with their pension funds, but then there was a credit downgrade, and that squeezed the derivatives positions. Not enough in and of itself to destroy Detroit, just putting salt on the wounds. I'll try to get the full story in the next couple of days.

Remember about two weeks ago, when we heard that JPMorgan was close to reaching a settlement with the Federal Energy Regulatory Commission for manipulation of electricity prices? Well, no settlement as of yet. So, FERC is putting a little pressure on the process, issuing a statement claiming FERC staff "has preliminarily determined that JP Morgan Ventures Energy Corporation (JPMVEC) violated the Commission's Prohibition of Electric Energy Market Manipulation ... by engaging in eight manipulative bidding strategies.”

The Arctic sea ice is declining at a rapid pace. In 2013, it shrank to the smallest block ever recorded; it was just 40 percent of what it was in the 1970s. The North Pole now has a lake, an oversized puddle on top of the remaining sea ice. Although our climate experiences periods of warmer and cooler temperatures, this thawing could eventually lead to runaway melting as the ice becomes thinner and thinner over time.

As the Arctic thaws, it opens up areas for oil and gas exploitation. It's estimated that 30 percent of the world's undiscovered gas and 13 percent of its oil is located in the ice-locked region. While you'd think this would pave the way for profit, the reality is that costs will far outweigh the benefits; the possible economic benefits are probably in the billions of dollars however the possible costs and damage and extra impact is in the order of tens of trillions of dollars.

A newly released paper says that Arctic permafrost in the East Siberian Sea could be a global disaster in the making. Once this area thaws as much as 50 billion tons of methane could be released into the air.

Permafrost is soil that holds frozen moisture. It never thaws at any point in the year. One author of the new study says that this Arctic methane release is a massive economic time bomb.

Most attention is paid to the greenhouse gas carbon dioxide, or CO2. However, methane has been found to be at least 25 times better at trapping heat than CO2 gas. The Arctic region basically traps in methane gas in ice and frozen soil, like a large filter. The polar regions keep the atmosphere from having too much methane, but this is changing.

If the researchers are right, a 50 billion ton increase in methane in the atmosphere will speed global warming by 15 to 35 years, the date by which the world experiences a 2-degree-Celsius temperature rise above preindustrial levels.

Under a business-as-usual scenario of emissions, the researchers found the methane release would add $60 trillion in economic damage to the world's economy and would speed up the time by which the world experiences the 2-degree threshold by 15 years, to 2035. Sixty trillion dollars was the mean of the model, meaning some of the results produced much higher climate costs, more than $200 trillion. Under a slightly different scenario, in which emissions elsewhere were curbed, the methane cost would hit $37 trillion and temperatures would cross the 2-degree benchmark by 2040.

Go outside in the sun for about 15 minutes and tell me it isn't happening.

A swarm of about 30,000 bees attacked a North Texas couple as they exercised their miniature horses, stinging the animals so many times they died. The woman was stung about 200 times; her boyfriend was stung about 50 times. They survived. The two miniature horse died from the stings. The bees are being tested to see whether they are Africanized or "killer" bees. It is unclear what prompted them to leave the hive.

I have a theory. The bees are seeking revenge.

Bees are dying, or being killed off by the millions. According to professional beekeepers tens of millions of bees are dying. This is an ongoing problem; it's been a problem for a few years, and the problem is getting worse. And it matters, especially if you like to eat food.

There are about 100 crop species that provide 90 percent of food globally and, of these, 71 are pollinated by bees. In the US alone, a full one-third of the food supply depends on pollination from bees -- so if bee colonies continue to be devastated, major food shortages will inevitably result. I talked about this back in the Spring, the lack of bees threatened the almond crop in California.

Last month, an estimated 25,000 bumblebees were found dead in an Oregon parking lot as well, just a short time after 55 trees in the area had been sprayed with Safari, a neonicotinoid insecticide. These chemicals are typically applied to seeds before planting, allowing the pesticide to be taken up through the plant’s vascular system as it grows. As a result, the chemical is expressed in the pollen and nectar of the plant, and hence the danger to bees and other pollinating insects.

Oregon also followed up by restricting the use of 18 pesticides containing a type of neonicotinoid, but Oregon is the only state to put restrictions in place. Earlier this year the European Food Safety Authority (EFSA) released a report that ruled neonicotinoid insecticides are essentially “unacceptable” for many crops.