Never The Twain Shall Meet – Financial Review

Podcast: Play in new window | Play in new window (Duration: 13:17 — 6.1MB)

DOW – 179 = 16,330
SPX – 24 = 1942
NAS – 72 = 4756
10 YR YLD – .09 = 2.12%
OIL – .85 = 45.83
GOLD – 8.70 = 1125.70
SILV – .45 = 14.87

Pope Francis is in Washington. The Pope will visit Washington, New York City and Philadelphia as part of his first-ever trip to the U.S., a six-day, five-night trip which will feature a couple of masses that are expected to draw huge crowds. The Pope will address a joint session of Congress Thursday; he may make points that challenge both parties, particularly if he repeats his remarks against what he sees as the excesses of globalization and capitalism. And he may discomfort both the White House and Congress if he urges them to do more to help Syrian refugees flooding through Europe. Then he will address the United Nations General Assembly in New York, where he will also conduct mass at Madison Square Garden on Friday.

China’s President Xi Jinping touched down in Seattle today to meet American business leaders before heading to Washington on Thursday to speak with President Obama. The two will discuss several thorny issues, including cybersecurity, the South China Sea, North Korea’s nuclear threat, human rights and a widening trade deficit. President Xi will tour the Boeing aircraft plant near Seattle. Not much new to see really, China has stolen more data from Boeing than Xi will ever see on a hospitality tour. Meanwhile, in his first interview with foreign media since Chinese stocks skidded this summer, Xi told The Wall Street Journal that government intervention to arrest the plunge was necessary to “defuse systemic risks” and was akin to acts taken by governments in “some mature foreign markets.” Hmm, wonder who he’s thinking about?

The Asian Development Bank is forecasting the Chinese economy will grow less than 7% this year, and warning of widening fallout from the country’s economic slowdown.

Just two years after a government shutdown over the Affordable Care Act, lawmakers are again heading toward a funding impasse – this time over federal money for Planned Parenthood. In January 2014, the Bureau of Economic Analysis estimated the direct impact of the last closure lopped about three-tenths of a percent off real GDP growth in the 2013 fourth quarter, and experts now estimate a three-in-four chance the government shuts down at the end of September (up from 67% last week).

The dollar hit an almost two-week high against a basket of currencies this morning after comments from Fed officials revived expectations that rates could still be hiked later this year. Dennis Lockhart, a voting member of the Federal Open Market Committee, is scheduled to speak again later in the day. Fed Chair Janet Yellen speaks on Thursday; and this is the speech that matters most. She won’t take questions, so it’s up to Yellen to decide if she wants to guide market expectations by emphasizing the Fed remains on track to raise rates this year, or whether she is willing to wait until next year.

If she stays silent on the topic, that would point to a delayed liftoff. They don’t want to surprise the market, which means they have to lay out a course of action before they can be sure they are going to follow it. There are two remaining FOMC meetings this year. Investors see the chances of liftoff in October as only around 20 percent, while a hike by December is less than a 50-50 proposition, according to trading in federal funds futures.

Bond fund giant Pimco says the pace of Federal Reserve interest-rate increases is likely to be even more gradual than the firm expected in March and that the U.S. central bank may find it impossible to escape the effective lower bound of policy rates. Pimco said in its quarterly Cyclical Forum outlook report that: “In contrast to robust consumption and housing, business investment confronts the headwinds from low oil prices and cutbacks in drilling and exploration, while exports will be challenged by the delayed effects of a stronger dollar and slower growth in emerging economies.” Pimco cut its forecast for U.S. economic growth in the next 12 months to between 2.25 percent and 2.75 percent, from 2.5 percent and 3 percent in March.

The Federal Housing Finance Agency reports house prices rose a seasonally adjusted 0.6% in July. That takes the year-over-year gain to 5.8%. Over 12 months, every region was positive, led by the 9.4% rise in the Mountain region, which includes Arizona.

European Union ministers have approved a plan that compels member countries to take in 120,000 refugees, despite strong objections from four dissident nations in Central Europe. The Czech Republic, Hungary, Romania and Slovakia voted no. Finland abstained. As a legal matter, however, the plan is final and must be carried out even if those countries oppose it.

Problems at Volkswagen continue to grow. Over the weekend, Volkswagen (VLKAF) said 482,000 vehicles equipped with diesel engines sold in the US were rigged with a sophisticated software algorithm that could detect when a car was undergoing an emissions test; the software would adjust the pollution emitted during the test, and then after that, it was back to spewing deadly nitrous oxide gases at up to 40 times the legal limit. Yesterday, VW announced they had set aside $7.3 billion to deal with the problem.

That’s bad, but it gets worse. Now the company admits that it cheated on the emissions controls for 11 million vehicles worldwide. Regulators from Germany, France, South Korea and Italy have vowed to scrutinize Volkswagen’s vehicles. The U.S. Justice Department has also begun a criminal probe. The 11 million cars affected are more than VW sells in a year. To address the growing crisis, the executive committee of the carmaker’s supervisory board will meet tomorrow. VW shares have dropped 31% in the past 2 days.

The shock waves from the scandal enveloping Volkswagen were being felt across the sector as traders wondered who else might be affected. Germany’s Daimler, the maker of Mercedes-Benz cars, was down 6 percent, while BMW fell 5.3 percent. France’s Renault was 5.5 percent lower.

A former peanut company executive has been sentenced to 28 years in prison for his role in a deadly salmonella outbreak, the stiffest punishment ever handed out to a producer in a foodborne illness case. The outbreak in 2008 and 2009 was blamed for nine deaths and sickened hundreds more, and triggered one of the largest food recalls in U.S. history. Before he was sentenced, former Peanut Corporation of America owner Stewart Parnell listened as nine victims testified about the grief caused by tainted peanut butter traced to the company’s plant in southwest Georgia.

The Securities and Exchange Commission is voting on new rules that would force most mutual funds, outside of money market funds, to have sufficient liquid assets to meet the legal requirement for daily redemptions and access to funds within seven days. It would also allow “swing pricing,” which is the process of reflecting in a fund’s NAV the costs associated with shareholders’ trading activity in order to pass those costs on to the purchasing and redeeming shareholders.

Brian Moynihan will keep his dual role as Bank of America Corp.’s chairman and chief executive officer after shareholders voted to ratify governance changes made last year. Preliminary results showed the resolution passed with about 63 percent of the votes. Bank of America (BAC) had called the special meeting after angering some investors by undoing a 2009 shareholder-backed bylaw requiring an independent chairman.

Lloyd Blankfein, CEO of Goldman Sachs, said he has been diagnosed with lymphoma and will undergo chemotherapy in New York over the next few months. In a memo published on the investment bank’s website, Blankfein said it is a “highly curable” form of lymphoma, and his doctors fully expect him to recover.

It may not seem like much; just an extra hundred dollars or so a year, but the steady upward creep in health insurance deductibles has easily outpaced the average increase in a worker’s wages over the last five years. According to a new study from the Kaiser Family Foundation deductibles have risen more than six times faster than workers’ earnings since 2010. Four of five workers who receive their insurance through an employer now pay a deductible, in which they must pay some of their medical bills before their coverage starts. Those workers’ deductibles have climbed from a yearly average of $900 in 2010 for an individual plan to above $1,300 this year, while employees working for small businesses have an even higher average of $1,800 a year. One in five workers has a deductible of $2,000 or more.

Is 100 percent renewable energy possible by 2050? Greenpeace says yes. In a new study, Greenpeace projects that complete global reliance on renewable energy is within our grasp, and suggests the switch will create millions of jobs. The prediction sounds idealistic, but in the past equally dramatic Greenpeace predictions have proven accurate. In fact, the US-based Meister Consultants Group concluded earlier this year that “the world’s biggest energy agencies, financial institutions and fossil fuel companies for the most part seriously under-estimated just how fast the clean power sector could and would grow.”

And the main finding of the report includes another positive projection: more renewables will mean more jobs. Solar PV is expected to provide 9.7 million jobs, and wind power is expected to provide 7.8 million. And the projected 20 million jobs coming from renewables are far more than the coal, gas, and oil industries today combined. So although the International Energy Agency predicts the number of jobs to fall after 2020, the Energy Revolution report expects the number of jobs to increase between now and then.