Podcast: Play in new window | Play in new window (Duration: 13:16 — 6.1MB)
DOW – 163 = 17,568
SPX – 22 = 2079
NAS – 57 = 5088
10 YR YLD un 2.27%
OIL – .31 = 48.14
GOLD + 9.10 = 1100.50
SILV + .08 = 14.84
Well, this turned out to be an ugly week. The Dow lost 600 points from the high a week ago. The Dow lost 2.8% on the week, dropping below its 200 day moving average. The S&P lost 2.1%; Nasdaq down 2.2%. The Russell 3000 was down 3.1% for the week. Amazon (AMZN) gave back about half of thursday's gain. Crude oil hit a 4-month low.
And if you are not quite sure what to make of the markets, that is understandable; they aren't going up and they aren't going down, we are in a sideways market; this might be the mother of all sideways markets. The Dow is in slightly negative territory year to date. The Dow has moved on either side of breakeven 21 times so far this year. According to research from Bespoke Investment, no other year has been so fickle, the closest being the 20 times the blue chip index swung in both 1934 and 1994. The S&P 500 went through the first half of the year without moving more than 3.5 percent in either direction.
Hedge funds are holding the first ever bet on a decline in gold prices since the government started collecting the data in 2006. The Commodity Futures Trading Commission shows hedge funds shifted to a net-short position of 11,345 contracts in New York futures and options.
The Federal Reserve accidentally published internal staff five-year forecasts on their website on Friday. Then they pulled the forecasts down. Oops. And when you look at the forecast, it got weirder. The numbers just don't work. Potential GDP is forecast to run about a half a percent below real GDP for the next 5 years; inflation edges right up to 1.9% but can't top 2%; interest rates move up on a very slow, very gradual glide path reflecting one rate hike this year and 3 more incremental hikes next year; the unemployment rate drops down to just over 5% and stays there – right at that magical level that many think represents full employment.
And that brings us to the Definition of the Day; confirmation bias is a tendency to search for or interpret information in a way that confirms ones preconceptions, leading to statistical errors.
Now normally we don't think the economists at the Fed are clueless buffoons but that is not out of the question. It is possible that they intended to leak the forecast. It could be a big prank. Maybe a trial balloon. Hey markets, this is what it looks like when the Fed hikes rates; the economy gets better, we reach full employment without inflation or volatility of any kind. The Fed said it was a glitch. Apparently the glitch button is right next to the print button.
Speaking of glitches; Fiat Chrysler (FCAU) is recalling about 1.4 million cars and trucks after Wired magazine published a story about software programmers who were able to take over a Jeep Cherokee being driven on a Missouri highway. Fiat Chrysler already issued a software update. They say no vehicles have been hacked, other than the one; they say they are just recalling cars “out of an abundance of caution”.
Meanwhile, in the world of economic data:
The flash reading of the Markit manufacturing purchasing managers index rose slightly to 53.8 in July from a 20-month low of 53.6 in June. The rebound was led by stronger output and order book growth.
Markit's Eurozone composite PMI fell to 53.7 this month from June's four-year high of 54.2. Despite the loss of momentum, “the PMI suggests the Eurozone continues to enjoy its strongest performance seen over the past four years” and “indicates that the economy grew 0.4% in Q2.”
Activity in China's factory sector contracted at the fastest pace in 15 months in July, suggesting that the world's second-largest economy is struggling to stabilize and halt a broad slowdown. The flash Markit China PMI dropped to 48.2, the lowest reading since April last year and the fifth straight month under 50 – the level that separates growth from contraction.
So, the recap: China contracting, Eurozone with moderate growth that is slowing, and the US has moderate growth that is improving.
Sales of new single-family homes in the U.S. fell 6.8% in June to an annual rate of 482,000, the slowest pace in seven months. June's sales pace was up 18.1% from a year earlier. The median price of new homes, meanwhile, fell 1.8% to $281,800 compared with June 2014. The supply of new homes was 5.4 months at June's sales pace, compared with 4.8 months in May.
For the first half of 2015, volume in U.S. commercial real estate – properties like office buildings, shopping malls, and apartment complexes priced above $2.5 million – grew 36% compared to the same time last year. According to data compiled by Real Capital Analytics a total of 15,610 of such commercial properties changed hands with an average transaction price of $16.3 million for a total of $255 billion in transactions, which tops 2006.
Following downgrades by major credit rating agencies, UBS is backing away from its Puerto Rico bond funds, warning clients that they can no longer use them as collateral. By doing so, the bank is effectively admitting that it sold a bad product and that the funds are too risky for itself and average investors. Puerto Rico has been looking to restructure and postpone bond payments since dropping a bombshell on holders of its $72 billion debt in June.
The State-Boston Retirement System filed a class action lawsuit against 22 financial companies that have served as primary dealers of US Treasury securities. The suit filed in federal court, alleges a conspiracy to manipulate Treasury auctions. The suit names Goldman Sachs (GS), JPMorgan Chase (JPM) and Bank of America's Merrill Lynch among the other usual suspects. The complaint alleges the banksters illegally profited on the sale of Treasury bills, notes and bonds at investors' expense, by using chat rooms, instant messages and other means to swap confidential customer information and coordinate trading strategies in the roughly $12.5 trillion Treasury market. This enabled the banks to inflate prices on Treasuries they sold to investors in the pre-auction “when issued” market, and deflate prices when they bought Treasuries to cover their pre-auction sales, violating antitrust laws.
The pension fund said its “expert economists” observed wide gaps between when-issued and auction prices around December 2012, but that these gaps narrowed significantly as the Department of Justice and other regulators began probing alleged manipulation of the London interbank offered rate. At that point the banksters clearly felt they were under scrutiny, and they stopped their manipulation.
Remember when an Amtrak train derailed in Philadelphia back in May? It shut down train traffic on the eastern seaboard for a couple of days. The Transportation Department is now investigating whether 4 airlines intentionally raised prices following the incident. That would be price gouging, and very ugly.
U.S. authorities have initiated investigations into whether banks should have raised alarms about money flows linked to alleged corruption at soccer's governing body. Prosecutors have questioned lenders, including HSBC, Standard Chartered, Delta National Bank and Trust Company, in connection with the FIFA scandal. The probes could also create a headache for the financial industry over its money-laundering controls, which are increasingly under the regulatory microscope.
Anthem (ANTM) has agreed to buy Cigna (CI) in a deal valued at $54 billion, wrapping up a year of negotiations and creating the largest health insurer in the US. Cigna shareholders will get $103.40 per share in cash and 0.51 Anthem shares. The deal comes three weeks after Aetna (AET) struck a deal to buy Humana (HUM) for $37 billion and is part of an industry-wide consolidation that could result in the Big 5 health insurers merging into the Big 3. The deals are still subject to regulatory approval.
AT&T's (T) proposed $48 billion purchase of DirecTV has cleared its final regulatory hurdle after the FCC voted to approve the merger. At least three of the five commissioners voted in favor of the deal, which will combine the country's No. 2 wireless carrier with the largest satellite-TV provider.
Meiji Yasuda Life Insurance has agreed to acquire US insurer StanCorp Financial Group (SFG) for about $4.8 billion, joining several other Japanese insurers that are expanding abroad to counter the shrinking domestic market.
After nearly 30 years of development and testing, the world's first malaria vaccine – called Mosquirix – has gotten approval from European drug regulators. The shot, which was developed by GlaxoSmithKline (GSK) in partnership with the PATH Malaria Vaccine Initiative, is expected to be endorsed by the European Commission within a couple of months. Malaria infects around 200 million people a year and killed an estimated 584,000 in 2013.
