Sunday, January 17, 2016
The first couple of weeks of 2016 yielded a slew of interesting developments worth watching, particularly so with global central banks in such sharp focus:
1. Bad banks: Financials in general but banks in particular have helped lead the S&P 500 (down 4.7 percent) to ugly early returns. The industry was down nearly 8 percent by midday Friday, with some big names accounting for the most damage as the group gets set to report fourth-quarter earnings next week. JPMorgan Chase has tumbled 9.3 percent, Citigroup was off close to 9 percent and Bank of America fell 8.6 percent. These stocks were supposed to outperform as the Fed raises rates — which it did in December for the first time in more than nine years — but are getting clobbered so far.
2. Utilities: It could just be a basic safety trade, but utilities, among the worst-performing sectors last year, have proven to be the best of a bad bunch so far in 2016. The group is down just narrowly so far, with companies like Consolidated Edison (up 3.3 percent) and Dominion Resources (a 2.6 percent rise) providing rare gainers for an index where just more than 40 stocks are positive.
3. Gold looking good: A global deflationary environment doesn't make much of a case for gold, but worries over central bank currency manipulation does. China's bungling of its yuan depreciation coupled with fears of a policy mistake from the Fed and the massive equity market sell-offs around the world sent investors running to the yellow metal. Gold is up about 4 percent year to date, and traders have poured $4.4 billion into the Market Vectors Gold Miners exchange-traded fund, the second-biggest fund flow of any ETF in 2016.
4. Contrarian tides: Despite the whipsaw moves in the market, there are plenty of folks out there looking for things to change. One of the more interesting bets has been on oil, which has tumbled 12 percent so far as it continues its free fall. Traders, however, have been piling into the United States Oil ETF, pushing more than $3 billion into the fund that is generally regarded as a trading vehicle more than a long-term investment. Also, the Wall Street turmoil hasn't deterred companies from looking to jump into the market. U.S. initial public offerings and other equity capital markets activity stands at $3.5 billion on 16 deals so far, the highest number of deals ever and the biggest dollar volume in 13 years, with all but one coming from health care, according to Dealogic.
5. No one is panicking (yet): Despite the barrage of selling, outflows from equity funds for the week did not reflect a stampede for the exits. To be sure, equity funds saw $8.8 billion in outflows, which was the largest in 17 weeks, while bond funds took in $3.3 billion, which was the largest in 11 weeks, according to Bank of America Merrill Lynch. However, Michael Hartnett, BofAML's chief investment strategist, noted that while "redemption pressures continue and are broadening, too," the pace does "not indicate mass investor capitulation." In fact, BofAML said its "Global Breadth Rule" is showing a contrarian "buy" signal as more than 88 percent of all global equity markets are trading below both their 200-day and 50-day moving averages.
CUTTING TO THE CHASE - J.P. Morgan’s annual earnings were just shy of the biggest ever on Wall Street. But CEO James Dimon said some of the bank’s lending businesses are “obviously” going to get worse. The New York bank has built up its reserves for bad loans, a shift that spotlights Wall Street’s mounting concerns about the fate of oil and gas companies. Worries among investors and policy makers are also mounting over whether the U.S. economy and financial markets can remain upright while so much of the world teeters. Global stocks have been falling again today despite a relief rally on Wall Street, as steep declines in oil prices and Chinese stocks renewed anxieties.
SOMETHING STINKS - The nonprofit watchdog group Public Accountability Initiative first reported on Kathleen Brown's role at Sempra. She also holds $400,000 in stock and last year received a $188,380 salary, the Associated Press reported. Campaign finance records show that Brown has received tens of thousands of dollars in campaign contributions from Sempra and Sempra employees going back to at least 2006.
Gov. Jerry Brown now needs to "get in front of this" and divulge any possible conflicts of interest: For a governor who wants his legacy to be fighting greenhouse gases, it's really the gas at Porter Ranch -- and the problems with fracking -- which could really really be the sinkhole for his legacy.
The remedy is for the governor to come clean about any contacts his sister has with his administration....and to fully disclose any emails, correspondence or phone calls between his sister an any state agency over which he has control -- get in front of this.
BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to: Joan Baez (75) Monterey, CA; Nick Clooney (82) Memphis, TN; Julia Louis-Dreyfus (55) Woodland Hills, CA; Faye Dunaway (75) Santa Barbara, CA; Dick Enberg (81) Del Mar, CA; Stephen Hawking (74) Montclair, NJ; James Earl Jones (85) New York, NY; Bart Starr (82) Green Bay, WI; Howard Stern (62) New York, NY.
HOW BOWIE CHANGED WALL STREET - David Bowie was known for his ability to reinvent himself. But he also helped inspire a pocket of Wall Street that tries to create money out of weird things like billboard rental income, cellphone tower lease payments and literary or film libraries. ... In 1997, Mr. Bowie bundled up nearly 300 of his existing recordings and copyrights into a $55 million security that paid the buyer - Prudential Insurance Company of America - a 7.9 percent annual rate over 10 years, backed by the income from his royalties and record sales, and the licensing of his songs for films or other uses.
The so-called Bowie bonds were among the first in what would become a wave of esoteric asset-backed securities deals based on intellectual property, including a more recent one involving Miramax's film library (including titles like "Pulp Fiction" and "The English Patient"). Bankers have also come up with securities backed by franchise revenue for the restaurant chains Sonic and Church's Chicken, among others. The buyers in these deals, which are negotiated privately by the banks that put the transactions together, tend to be specialized hedge funds or big institutions that can negotiate terms with the bankers.
SCOTUS COULD CRIPPLE UNIONS - The Supreme Court appeared ready last week to weaken public-sector unions by ending their power in more than 20 states to require workers to pay a fee for representation even if they decline to join a union. ... Challengers brought a case in California asking the court to overrule a 1977 precedent permitting unions to levy the charges in states that allow it, arguing the First Amendment prohibits government agencies from requiring employees to help fund a public union. The issue is of significant importance to government unions in about half of the states, mostly Democratic-leaning, that allow the fees.
The charges provide a stable source of support that has braced the labor movement against its losses in the private sector. The unions largely have supported Democratic candidates sympathetic to their goals. Earlier high-court decisions have distinguished between the unions' conventional political and lobbying activity, for which employees who object can obtain a refund, and collective bargaining over wages, hours and benefits.
COLLEGE CHRONICLES - MARK YOUR CALENDARS: Jan. 23, is the last day to take the old SAT. The College Board says the new version debuts March 5.
OSCAR TIME - http://oscar.go.com/nominees
SERIOUSLY? -- Famed Ahwahnee hotel to change name in trademark dispute: The names of iconic hotels and other landmarks in the world-famous Yosemite National Park will soon change in an ongoing battle over who owns the intellectual property, park officials said Thursday. The luxurious Ahwahnee Hotel will become the Majestic Yosemite Hotel, and Curry Village will become Half Dome Village, said park spokesman Scott Gediman.
HELLO - Jimmy Fallon, Adele & The Roots Sing "Hello" (w/Classroom Instruments)
NFL PICK OF THE WEEK – Sunday 1/17, 1:00 PM ET, Fox: Seattle Seahawks (11-6) vs. Carolina Panthers (15-1). Carolina has too much, 24 – 17. Season to date (10-8)
COLLEGE FOOTBALL PICK OF THE WEEK – Congratulations to the Alabama Crimson Tide for the National Championship victory over the Clemson Tigers. Season to date (12-7)
COLLEGE HOCKEY GAME OF THE WEEK – Sunday 1/17, 5:00 PM ET, FSD: Ohio State Buckeyes (6-11-2) vs. #6 Michigan Wolverines (13-3-4), Michigan in OT 4 – 3. Season to date (2-5).
THE SWAMI’S WEEK TOP PICKS –
(NFL Jan. 17) Pittsburgh Steelers (11-6) vs. Denver Broncos (12-4), Pittsburgh is beat up, Denver wins 20 – 17.
(NHL, Jan. 17) Los Angeles Kings (17-13-3) vs. Anaheim Ducks (19-17-7), Kings win 4 – 3.
(NBA, Jan. 17) Dallas Mavericks (23-18) vs. San Antonio Spurs (35-6), Spurs 93 – 80.
Season to date (6 -6)
Next week: Jack Ass of the Month, Dear Rink Rats, and Brazil's Olympic troubles.
Until Next Wednesday, Adios.
January 17, 2016
CARTOON OF THE WEEK – “Doonesbury”