Friday, September 13, 2013 - Five Years After

Five Years After

by Sinclair Noe

DOW + 75 = 15,376
SPX + 4 = 1687
NAS + 6 = 3722
10 YR YLD - .02 = 2.88%
OIL - .39 = 108.21
GOLD + 6.90 = 1328.90
SILV + .53 = 22.37

The war hasn't started..., yet.

That's good. Peace talks continued in Geneva today. Secretary of State John Kerry and Russian foreign minister Sergei Lavrov, and somehow at the peace table was Henry Kissinger, or maybe that was just an apparition; the ghost of Salvador Allende; nope, it was Henry.

Anyway, no cruise missiles flying, no poison gas bombs exploding. It's a good day. The road to peace is full of potholes, and one of the biggest obstacles is the time to round up the poison gas in Syria and get rid of it, against the backdrop of a fast moving kaleidoscope of warring factions. Even in a tranquil setting, the disposal of poison gas is apparently a momentous task, but Assad has signed the Chemical Weapons Convention treaty to get rid of the poison gas.

When the convention came into force in 1997, participating countries agreed to destroy their stockpiles within 10 years, with an option to apply for a five-year extension. Five countries - the US, Russia, South Korea, India and Albania - all missed the main 2007 deadline. Two years ago, the United States, Russia and Libya were granted further extensions to a previously agreed final deadline for destroying their weapons. There is probably some gas in Libya that isn't fully accounted for.

However, the majority of declared, undestroyed chemical weapons remain in Russia and the US. The US has destroyed 90% of the chemical weapons it declared in 1993, when the treaty was first signed. We still have more than 3,100 tons of poison gas stored in Colorado and Kentucky, and the best guess is that it will take 10 more years to dispose of it.

So, this whole peace process could change in many, many ways before there is a resolution on chemical weapons. But the war hasn't started..., yet.

With Congress momentarily freed from the Syrian crisis, lawmakers plunged back into their bitter fiscal standoff as Speaker John Boehner appealed to the Obama administration and Democratic leaders to help him resolve divisions in the Republican ranks that could lead to a government shutdown by month’s end. OK, let's make sure you actually heard that; Boehner is appealing to Obama to keep Republicans under control. In response, Obama suffered minor shock, started smoking cigarettes again, and decided to prop up a cardboard cutout of Henry Kissinger between Boehner and Ted Cruz. The reason for the discontent goes back to Obamacare, which survived the 41^st vote to defund it in Congress.

Against that backdrop, much of the federal government will shut down as of Oct. 1 unless Congress approves new spending bills to replace expiring ones, and by mid-October, the Treasury Department will lose the borrowing authority to finance the government and pay its debts. Just five scheduled legislative days stand between the House and a government shutdown that has loomed for months. As of now, Republican leaders appear to have no idea how to stop it. House members are preparing for the worst. A 14-page fact sheet on the impact of a government shutdown, originally written in 2011 by Representative Scott Rigell, Republican of Virginia, has gone back into circulation among House members.

Now, it shouldn't happen, but the closer the deadline, the more probable the bad outcome; this is after all, Congress.

The Federal Reserve FOMC meets next week and they will likely consider two steps that seem inconsitstent. They will probably lower their estimates for growth for this year and next for the third consecutive time. Simultaneously, they are forecast to start scaling back the $85 billion in monthly bond purchases they have been relying on to stoke the recovery.

What’s more, annual inflation has been running at least a half percentage point below the Fed’s goal since December. And while the unemployment rate is at 7.3 percent in August and falling, that’s mainly because some Americans are leaving the labor force.

So, the growth forecast is being lowered, inflation is running low, and hiring is slowing and the Fed is expected to announce a taper away from QE. This is going to be fun to watch.

So, it's a good day, even if it is Friday the 13^th. I don't think I'm superstitious, but the Associated Press reports on a Finnair Airlines flight to Helsinki today; the airline's three letter designation for Helsinki is HEL, and it is flight number AY666. Yea, I don't think so.

It was smooth sailing on Wall Street today. The Dow gained about 3% this week; the best week since early January. This marks the fifth anniversary of the collapse of Lehman Brothers. The American Enterprise Institute, a conservative think tank that typically defends big business, published a survey and they concluded: The persistent lack of trust in Wall Street five years after the crash suggests that many Americans have deep misgivings about the operations of the financial sector. The consensus is that many of these firms are not ethical or concerned about the well-being of the country.

An NBC poll asked how much people were personally affected by the crises on Wall Street and in the housing market over the past five years, 52 percent said "some" or "a great deal," while 47 percent said "only a little" or "not at all." That reflects a slight cooling of concerns expressed in the middle of the crisis, when 59 percent said some or a great deal and just 41 percent said only a little or not at all.

I didn't need a survey for that.

Reuters notes that no top executives at large Wall Street or commercial banks have been convicted of criminal charges relating to the 2008 crisis. They try to explain why, but they failed to mention that the bankers bought Congress and the courts. Despite costly state rescues in Spain, mainstream politicians have shied away from calling for investigations into various failures and that may result in blowback. Frustrations over the slow progress of legal probes in Spain is even leading some activist groups to consider lobbying the United Nations to list economic crimes as a crime against humanity. True that, but it won't happen.

It's not that federal government tried to prosecute a bunch of them but lost the cases. There were no serious efforts at criminal prosecutions at all. U.S. Attorney General Eric Holder offered one explanation earlier this year, saying: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.” (In a later hearing, he said that his comment was misconstrued and that he was arguing that no bank is in fact too big to jail.)

America doesn’t criminalize bad business decisions, even when they lead to business failure. But there is a long list of criminal activity documented over the past five years, and a long trail of evidence that could be used in court; still no cases. And it really proves the two-tiered nature of justice; the courts have become a place of special privileges for the select few.

Five years later; after a big dip, corporate profits have roared back to a record high as a share of GDP in 2013. In the five years since Lehman fell, corporate profits have risen at an annualized rate of 20.1 percent. (Those are profits after taxes, by the way.)

The top 1 percent of earners got hit hard by the financial crisis, seeing their incomes drop 36 percent. But they've more or less recovered since, with incomes rising roughly 31 percent. 

The median household income in July was $52,113. That's 6.2 percent lower than the median in September 2008, the start of the financial crisis. And there hasn't been much growth since 2011. That jibes with research from economist Emmanuel Saez, which notes that incomes of the bottom 99 percent have fallen 12 percent in the downturn and have grown just 0.4 percent in the recovery.

Labor's share of the national income has fallen to record lows. All sorts of theories have been put forward for this trend. High unemployment has held wages down since the recovery. But there are also long-term trends at work, too. Outsourcing and labor-saving technologies have allowed companies to boost profits while cutting payroll. U.S. productivity gains don't seem to be translating into higher wages the way they used to. And for people who lost a job, and have been unemployed more than 26 weeks, it is nearly impossible to get back in the workforce.

There are still 7.1 million American homeowners who are underwater on their mortgage — that is, they owe more than their home is worth. This number has started to come down for the first time this year as home prices rise nationwide, but that was after years of little progress. In Nevada, 36 percent of homeowners still have negative equity. 

Thursday, September 12, 2013 - Going Interstellar

Going Interstellar

by Sinclair Noe

DOW – 25 = 15,300
SPX – 5 = 1683
NAS – 9 = 3715
10 YR YLD - .01 = 2.91%
OIL + .02 = 108.62
GOLD – 44.80 = 1322.00
SILV– 1.48 = 21.84

The war hasn't started..., yet.

The peace talks are underway in Geneva between Secretary of State Kerry and his Russian counterpart Lavrov. In a news conference ahead of the Geneva talks, Foreign Minister Lavrov said the resolution of the chemical weapons issue in Syria would make any military strike by the United States unnecessary. The UN has confirmed it has received documents from Syria on joining the Chemical Weapons Convention, a key step in the Russian plan. Syria's president said it would submit arms data one month after signing, but Mr Kerry has rejected that time-frame.

Even before the talks, Russian President Vlad Putin weighed in with an op-ed in the New York Times arguing that a military strike risked “spreading the conflict far beyond Syria’s borders” and would violate international law, undermining postwar stability. Putin says poison gas was used in Syria but not by Assad; he also didn't say who sold the poison gas to Syria; he talks about peace and democracy; and he finishes the editorial by saying “We are all different, but when we ask for the Lord’s blessings, we must not forget that God created us equal.” It's all quite bizarre, to have Putin lecturing the US on democracy and morality and God.

The good news is that the war hasn't started..., yet.

And that means we can focus on domestic problems, like shutting down the government. Lawmakers are tied up in knots over increasing the debt ceiling this fall, but they eventually will; eventually. The only question is how messy the process will be. They really don't have much choice. Even if they shut down government for a while, they can't make the stunt last long.  A default would hurt the economy and markets, and most lawmakers know this. That's why they regularly raise the debt ceiling before it comes to that. In fact, since 1940, Congress has effectively approved 79 increases to the debt ceiling. That's an average of more than one a year.

Despite some politicians' incorrect assertions, raising the debt ceiling does not give the government a "license to spend more." It simply lets Treasury borrow the money it needs to pay the bills in full and on time. Those bills are for services already performed and entitlement benefits already approved by Congress. In other words, it's a license to pay the bills the country incurs as a result of past decisions made by lawmakers from both parties over the years. It sounds like it should be a straight forward deal. It's not. It's a chance to position for whatever idea a politician can position for. Things will likely get ugly before they get uglier. That's about the only thing we can count on from Congress.

Believe it or not, Greece's job situation is getting worse. Greece's jobless rate hit a record high of 27.9 percent in June, and was more than twice the average rate in the euro zone of 12.1 percent in July.  The unemployment rate has more than tripled since 2008, the start of a six-year recession which has wiped out about a quarter of Greece's economy. Joblessness is a major headache for the government as it scrambles to hit fiscal targets and carry out structural reforms demanded by its international creditors.

Meanwhile, an independence rally in Catalonia drew more than one million. That's a lot of people. Greece's unemployment rate is now higher than Spain's

If you plan on buying one of Apple's new iPhones, you may want to head to Wal-Mart. Wal-Mart announced it will carry the new devices and sell them at prices lower than Apple and other retailers. Wal-Mart said it will carry 16-gigabyte versions of the iPhone 5c and the iPhone 5s. The iPhone 5c will be available for $79 ($20 cheaper than its regular price) with a two-year contract from AT&T, Verizon or Sprint. The iPhone 5s will be available for $189 ($10 cheaper than its regular price) from the same carriers.

It's strange when Wal-Mart can get a better deal from Apple than the Apple stores.

A Dutch designer thinks the way people currently buy electronics is inherently wasteful. As soon as a new device comes out, the old one is tossed in the garbage or put on the shelf to collect dust. He's introduced a new phone called PhoneBloks, a smartphone that has detachable components on its front and back so that everything from the processor to the camera can be easily upgraded without discarding the rest of the phone. The entire contraption is held together by a pegboard-style base, with a screen -- also replaceable -- mounted on the front. It's kind of like lego-blocks for a phone.

If you're looking for a good deal on airline tickets; you might want to keep an eye on United Airlines. For about 15 minutes today, they offered $0 fares plus $5 in tax for many domestic flights. That worked out to $10 flights between Washington DC and Hawaii, while others scooped up over a dozen tickets to destinations all over the country.

And then, just as quickly as the airfares showed up, United’s reservation system slammed to a halt, reporting “United.com is currently undergoing maintenance  Flight search and booking are unavailable for all flights.” They say it was a computer glitch.

California lawmakers are poised to raise the state's minimum wage by 25% -- a move that would make the state's hourly workers among the most highly paid in the country. Millions of workers would see their hourly pay jump from $8 to $9 on July 1, 2014 and to $10 on Jan. 1, 2016, under legislation which received strong support this week from the state's Governor Jerry Brown and other legislative leaders. "The minimum wage has not kept pace with rising costs," Brown said in a statement. "This legislation is overdue and will help families that are struggling in this harsh economy."

A survey by Duke University and CFO Magazine  of more than 500 Chief Financial Officers, shows they expect to boost full-time hiring by nearly 1.8% next year, which represents a slight increase from this year. The results indicate that despite worries over President Obama's health care reform law, a recent tendency on the part of companies to hire more part-time workers may be turning around; so far in 2013, companies have hired more than four times the amount of part-time workers than full-time workers, while in 2012 the opposite was true.

New figures on wealth inequality from economists Thomas Piketty and Emmanuel Saez show that the top 10 percent earned more than half of our nation's income. That hasn't happened since they started tracking these figures a century ago.

What about the bottom 99 percent? After being left out of the post-crisis boom, they finally saw an increase in their earnings last year, but it was less than one percent. By contrast, income for the top one percent rose twenty percent. The really rich, the top 0.01 percent, saw their income soar by more than 32 percent.

As the Economic Policy Institute recently observed, "The median worker saw an increase of just 5.0 percent between 1979 and 2012, despite productivity growth of 74.5 percent--while the 20th percentile worker saw wage erosion of 0.4 percent .

Shareholders of Dell approved a proposal led by company founder Michael Dell to take the computer company private. The proposal, worth about $25 billion, won an unspecified majority of votes from the holders of Dell stock. The buyers consortium sweetened the deal in recent weeks in response to criticism from activist Carl Icahn and others, who had complained their offer undervalued the company.

As Dell goes private, a couple of companies are going public. Hilton Worldwide, which is owned by Blackstone Group, could be valued at $30 billion. Blackstone does not intend to issue so many shares that it loses control of Hilton.

Twitter is going public. It's could be the biggest IPO since Facebook, and hopefully they learned a lesson from that. The IPO announcement came in the form of a tweet. The details of Twitter’s filing are confidential, thanks to the JOBS Act.

Designed to foster more IPOs for “emerging growth” companies, the IPO provisions of the law have become a way for most companies that want to go public do so with less investor scrutiny. The new rules have cut the time that all that information is available to the public to three weeks before the roadshow.

And finally, scientists now have strong evidence that NASA's Voyager 1 probe has crossed the heliosphere, the magnetic boundary separating the solar system's sun, planets and solar wind from the rest of the galaxy. The first man-made object to leave the solar system.

"In leaving the heliosphere and setting sail on the cosmic seas between the stars, Voyager has joined other historic journeys of exploration: The first circumnavigation of the Earth, the first steps on the Moon," Ed Stone, chief scientist on the Voyager mission said "That's the kind of event this is, as we leave behind our solar bubble."

The twin spacecraft Voyager 1 and 2 were launched in 1977, 16 days apart. Voyager 2 will exit the solar system in about 2 billion more miles. Voyager 1 has a long way to go before the next stop. The probe will fly near a star in about 40,000 years. But as of today, human-kind has gone interstellar.