Seeking Alpha

Marvin Clark's  Instablog

Marvin Clark
Send Message
Marvin R. Clark is the Managing Principal of Monsoon Wealth Management (MWM). Monsoon offers affluent individuals and business owners’ wealth management, economic, and market advice throughout America. Based in Scottsdale, Arizona, Monsoon’s major task is employing a macroeconomic top-down... More
My company:
Monsoon Wealth Management
My blog:
Fixed Income Daily
View Marvin Clark's Instablogs on:
  • Decision Day At The Feds

    It's Decision Day for the Federal Reserve, and it was an easy decision. The FOMC wrapped up a two-day policy session with a statement that interest rates will remain unchanged near zero; where they have been stuck for 7 full years. The Fed's statement left open the possibility that the Fed will raise rates at its final meeting of the year, in December. While noting that job growth has slowed, it said that other economic indicators remained relatively strong and the domestic economy "has been expanding at a moderate pace".

    The Fed also signaled that its concerns about the global economy have diminished. In the statement from the meeting in September the Fed said global economic and financial developments might restrain domestic growth. In today's statement they just say the Fed "is monitoring global economic and financial developments."

    The next FOMC meeting is scheduled for December 15 and 16. Fed chairwoman Janet L. Yellen said in a late September speech that she still expected to raise rates this year, as long as economic growth continued. Stanley Fischer, the Fed's vice chairman, said much the same a few weeks later. Many Fed policymakers have been saying they will raise interest rates since March, but there are also doves among the Fed, arguing against rate hikes.

    Today's decision to keep rates near zero was supported by nine of the ten members of the Federal Open Market Committee. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, once again dissented, as he did at the September meeting, arguing the Fed should start to raise rates now. Of course any decision would need to be supported by better economic data, and for now at least, the economy can't seem to build any real momentum.

    The Fed will raise interest rates …, someday. But it won't be easy. We've been locked into near zero since December 2008, but that was during rough times; the economy lost 576,000 jobs that month. Things have improved quite a bit since those dark days. But there are still risks and no guarantees that recovery can continue without monetary stimulus. The recovery has received almost no fiscal stimulus - to the contrary. The lack of fiscal stimulus has been one of the main reasons why the recovery has been so sluggish, even as the economy has shown consistent growth.

    Even as the federal debt grew substantially in recent years, the government's annual interest payments barely increased thanks to the Fed's efforts to minimize borrowing costs. Higher rates mean higher debt servicing costs which would choke off any possibility of fiscal policy shouldering the burden of recovery.

    The labor market has recovered most of the ground lost during the downturn but there is still slack. Full employment is a loose target and the Fed doesn't really know when we will hit it. We're close but not there yet. Workers remain underutilized and discouraged. Wages have not shown strength, certainly not enough to push inflation, which remains well below the Fed's 2% target. And while the price of oil has an outsized influence on broader prices, the Fed has little control over the commodity markets one way or the other.

    The Fed also has little control over long term interest rates, they just set the target for very short-term rates; still, if they raise the target, you could expect the rates on everything from cars to credit cards to mortgages to jump, along with a stronger dollar. And this is where it gets tricky. A stronger dollar would hurt US exports while also making imports cheaper; in other words the possibility of a slowing economy combined with disinflation. Further, it could hurt emerging market economies, as their currencies buy less and their resources sell for less. Higher rates would be good news for savers, who now earn near zero, but for now they have to take on more risk, which is why Wall Street enjoyed a nice rally on today's news.

    The House has approved the reauthorization of the U.S. Export-Import Bank, marking a big victory for business groups that had fought to secure its revival. The bank's future, however, may not be fully resolved until December. The House bill now goes to the Senate, which recently approved a similar measure as part of an unrelated transportation bill.

    Following years of intense debate, the Senate has passed a controversial bill that will see the Department of Homeland Security become a hub for sharing information about cyber-attacks within the government and the private sector. The Cybersecurity Information Sharing Act, known as CISA, would give legal protection to companies that share information about cyber-threats with the government and with each other.

    This should help them detect intrusions faster, improve their defenses, and take advantage of government advice and intelligence. It should give law enforcement a clearer picture of the threats facing U.S. networks and help in pursuing cybercriminals. The bill, which has faced privacy concerns from high-tech firms and advocacy groups, must now be reconciled with a separate piece of legislation that was passed by the House of Representatives earlier this year. In the end, Senator Harry Reid summed it up best: "The bill, which is okay, is better than nothing."

    The Energy Information Administration said U.S. commercial crude inventories rose by 3.4 million barrels to a total of 480 million barrels in the previous week, but gasoline and distillate inventories fell. Also, Mexico's state oil company Pemex said it had received a license from the United States to import U.S. light crude to be refined at Mexican refineries in exchange for its own heavier crude oil. Now, oil was up today, which seems a little counter-intuitive because the EIA had reported weekly jumps of eight million and 7.6 million barrels in its past two reports and today's data marked a fifth weekly rise in a row.

    Volkswagen reported a net loss of $1.84 billion in the third quarter, its first quarterly decline in more than a decade. Volkswagen subtracted €6.7 billion-euro from profit to cover the cost of recalling and repairing about nine million cars equipped with illegal software intended to cheat on emissions tests. The effect of the deceptive software on sales and revenue is likely to worsen in coming quarters.

    Fiat Chrysler Automobiles reported a better-than-expected 35 percent jump in quarterly earnings helped by strong performance in North America, and confirmed its full-year guidance.

    A successful contract pitch, that included a Super Bowl ad, has landed Northrop Grumman as much as $80 billion to build the U.S. Air Force's Long-Range Bomber. Northrop beat out Boeing and Lockheed Martin for the contract.

    As reported yesterday, Walgreens Boots Alliance is acquiring Rite Aid for $ 9.4 billion, or $17.2 billion after factoring in debt. Walgreens expects the transaction to close in the second half of 2016.

    Separately, Walgreens Boots Alliance reported a better-than-expected quarterly profit, helped by lower costs achieved through its cost-cutting plan. Walgreens in April launched a plan to cut $1.5 billion in costs by the end of fiscal 2017, which would include store closures and freezing salary hikes for senior U.S. executives.

    Confirming earlier rumors, Toshiba has announced the sale of its image sensor business to Sony as it tries to recover from a $1.3 billion accounting scandal. Sony recently said it would spin off its image sensor business into a new wholly-owned subsidiary called Sony Semiconductor Corporation, and Toshiba's operations are set to come under that umbrella. No financial details of the deal have been disclosed.

    Amazon, which has rapidly built a network of on-demand workers for its Prime Now service, now faces a lawsuit over how those workers are treated. The action potentially thrusts Amazon into the center of a debate roiling Silicon Valley over whether on-demand workers should be treated as employees or independent contractors. Companies such as Uber and Postmates, which consider their workers contractors and thereby avoid some expenses, have faced similar suits.

    IBM announced it will acquire the digital and data assets of The Weather Company in a deal valued at about $2 billion. The Weather Company is currently owned by the Blackstone Group, Bain Capital and NBC Universal, which paid $3.5 billion for the firm in 2008. IBM will use the Weather Company's digital assets to boost its Watson cloud and Internet of Things platforms.

    It's an interesting idea. The Weather Company gathers data from 147,000 weather collection stations, and that process could be improved through the Internet of Things and then analyzed by Watson. The result: Airlines use it to manage turbulence. Insurance companies use it to judge risk. Agricultural companies use it to manage crops. A side benefit to the deal is that much of the Weather Company's data is managed on the computing systems of IBM competitors, including Amazon and Google, and now it will move to IBM's cloud, called Softlayer. That is not enough to right the ship at IBM, but it might give us a hint of how some companies will commoditize the cloud.

    Now, just a reminder that the third Republican debate starts in less than one hour, so this is a good time to remind you of the rules for the drinking game. Whenever you hear the phrase that starts with: "I'm the only candidate on this stage…." You take a drink. Also, you should take a shot of something, your choice, whenever a candidate mentions Ronald Reagan. If Reagan is mentioned along with Tip O'Neil, it's a double shot. Remember to watch responsibly and hydrate. - See more at:

    Oct 28 10:26 PM | Link | Comment!
  • Congress Reaches Tentative Budget Deal, CB Consumer Confidence Falls And Apple

    Congressional leaders have reached a tentative budget deal with the White House in a breakthrough that would set government funding levels for the next two years and extend the nation's debt limit through 2017. The bill would raise the spending caps set in place in 2011 that would result in deep cuts to both defense and non-defense spending, called sequestration. This deal would provide $80 billion in sequester relief.

    The bipartisan agreement would include long-term entitlement reforms to the Social Security Disability Insurance (SSDI) program, the first major reform to Social Security since 1983. The Social Security Disability Insurance program would be amended, in part to tighten and standardize eligibility requirements that now vary by state. That change was projected to save the government $5 billion. It also prevents a spike in Medicare B premiums for millions of seniors. The increases would have been caused by the rare absence of a cost-of-living increase in Social Security benefits, because of unusually low inflation.

    The deal still needs Congressional approval, but for outgoing House Speaker John Boehner this was a matter of wrapping up unfinished business before his departure, or as Boehner described it "cleaning the barn." Representative Paul Ryan, the likely successor to House Speaker said he would likely vote for the deal but he said "the whole process stinks."

    The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 to pay for spending in that budget bill. The proposed sale equates to more than 8% of the 695 million barrels of reserves. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period.

    Also, the two-year budget deal produces savings from one of the most popular programs in farm country, federally subsidized crop insurance, and farm state lawmakers are furious. Senators and House members said they weren't notified of the cut before the deal was struck. Budget-writers in Washington have long eyed the crop insurance program, which costs more than $9 billion annually, as a pot of available money. But farm-state lawmakers have fought to protect it, saying it makes more sense than other farm subsidies since it pays out when farmers suffer losses.

    Meanwhile, 62 Republicans have joined 184 Democrats to pass a "discharge petition" to renew the Export-Import Bank's charter. Monday's vote means that, barring any other last-minute obstacles, a vote on reauthorizing the bank should pass the House shortly. The bill would then go to the Senate, where it awaits an uncertain fate.

    The U.S. Federal Reserve kicks off its two day monetary policy meeting today, with their decision to be announced at 11 AM tomorrow. There's virtually no chance that the Fed will hike interest rates this week, certainly not if they want to claim they are data dependent. Figures on U.S. jobs, retail sales, manufacturing, inventories and exports all disappointed, while new jobless claims and housing data - for the most part - have showed continued strength. The challenge for policy makers will be to keep their options open for a move this year, while acknowledging weak data that could tilt the tone of the statement toward liftoff in 2016.We had another batch of tepid data today.

    Orders for long-lasting or durable goods fell a seasonally adjusted 1.2% in September; a sign of widespread softness in the manufacturing sector. The auto industry was one of the few bright spots again, with orders snapping back 1.8% after a decline in August. Orders for core capital goods - a proxy for business investment - declined 0.3% to mark the second straight drop.

    The Conference Board said that consumer confidence in October fell to a reading of 97.6, down from a revised 102.6 in September.

    Service sector output growth fell to a nine-month low in October. The Markit Flash U.S. services purchasing managers index fell to 54.4 in October from 55.1 in September, which means it's still above the 50 mark indicating growth. Markit attributed the slowdown to slowing new business growth and more cautious spending patterns.

    Home prices rose 0.4% in August to stretch year-on-year gains to 5.1%, according to the S&P/Case-Shiller 20-city composite. Eighteen out of 20 cities reported monthly gains. That's not unusual for the summer, and after seasonal adjustment, five were down, 11 were up, and four were unchanged. Portland and Denver had the strongest monthly gains, while only fast-growing San Francisco saw a decline, of 0.1%. Phoenix posted a monthly gain of 0.6%, and a 4.9% gain for the past 12 months.

    After the closing bell, Apple reported higher-than-expected quarterly revenue and profit as sales of iPhones increased 35%, driven by the launch of the 6S and 6S Plus models last month. Apple's (AAPL) sales in China nearly doubled to $12.52 billion, accounting for nearly a quarter of its total revenue. Apple's net income for the quarter rose to $11.1 billion, or $1.96 per share, from $8.4 billion, or $1.42 per share, a year earlier. Net sales rose about 22% to $51.50 billion.

    Apple offered holiday guidance that is a little light of expectations, about 4% growth at the high end of the range, but remember that Apple never seems to miss guidance. Apple shares were up about 2.5% in after-hours trade.

    Meanwhile, Chase (CCFCCF) is launching its own competitor to Apple Pay that will allow consumers to pay retailers using their smartphones in stores, and it has already won the endorsement of a major group of companies. For merchants, it's promising fixed pricing and no additional fees for network, processing or fraud liability, and will work not via NFP (tap-and-pay) but by using existing gift-card scanners. Chase Pay will be available mid-2016.

    Also, after the closing bell, Twitter reported earnings. Revenue was up 58% to $569 million, beating estimates. Earnings per share were 10 cents, twice as good as estimates. Twitter (TWTR) missed estimates on the number of users they added over the quarter, only 4 million new Twitterers. Shares down 11%.

    Despite a slowdown in China, Alibaba, (BABA) the Internet giant, experienced a surge in revenue in the latest quarter, driven by strong growth in mobile. Alibaba reported that sales rose 32 percent in the latest quarter to $3.5 billion. Earnings per share increased 30 percent.

    Ford Motor (F) reports third-quarter profit that rose sharply but still fell short of estimates as higher taxes reduced the payoff from its aluminum-bodied F-Series pickups. Earnings excluding some items were 45 cents a share, compared with the 47-cent average of estimates. Net income more than doubled to $1.9 billion from $835 million a year earlier when Ford was changing over to the new F-150 pickup. Shares were down 5% today. Go figure.

    Novartis (NVS) has agreed to pay $390 million to resolve a lawsuit claiming the company paid kickbacks to increase sales of several prescription medicines. Novartis reported that third quarter net income fell 42% to $1.8 billion.

    Pfizer (PFE) reported better-than-expected third-quarter results and raised its full-year outlook. Earnings fell to $2.13 billion, or 34 cents a share, from $2.67 billion, or 42 cents a share, in the same period a year ago.

    BP's (BP) earnings in the third quarter were nearly cut in half compared to a year earlier, as low crude prices and charges related to its 2010 Gulf of Mexico spill weighed on its financial performance.

    United Parcel Service (UPS) beat third-quarter profit expectations, but missed on sales. A decline in international package revenue offset increases in domestic and supply chain and freight revenue.

    IBM fell to its lowest price in five years after disclosing that the Securities and Exchange Commission is conducting an investigation related to the technology seller's revenue recognition. IBM last week cut its full-year profit forecast and reported its 14th straight quarter of shrinking sales. No doubt another stock buyback announcement is in the offing.

    Walgreens Boots Alliance (WBA) will acquire Rite Aid (RAD); at least that was the rumor floating about today. That was enough to send Rite Aid share prices up 39%, which would value the company at about $8.9 billion. The actual announcement came after the close of trade, and it values the company at $9.4 billion. Still, it sounds like somebody leaked some important news.

    Starwood Hotels & Resorts Worldwide (HOT) jumped the most in six years after the Wall Street Journal reported that at least three big Chinese companies are competing to buy the company. Chinese investors have been pretty aggressive in the hotel market over the last year or so. Starwood has some pretty powerful brands, and they announced in April that it was exploring
    strategic options including a possible sale.

    Walmart (WMT) has applied to the FAA for permission to test drones for home delivery, curbside pickup and checking warehouse inventories, a sign it seeks to compete with Amazon (AMZN) in using drones to fill and deliver online orders. A Walmart spokesperson said: "There is a Walmart within five miles of 70% of the U.S. population, which creates some unique and interesting possibilities for serving customers with drones."

    In about one month, Black Friday will descend on American retailers and shoppers will be whipped into a frenzy. One retailer thinks there are better ways to spend the day after Thanksgiving. Outdoor sporting goods company REI will shut its stores on Black Friday, no online sales either, and it is paying employees to take the day off.

    The CEO of REI issued a statement: "Black Friday is the perfect time to remind ourselves of the essential truth that life is richer, more connected and complete when you choose to spend it outside. We're closing our doors, paying our employees to get out there, and inviting America to OptOutside with us because we love great gear, but we are even more passionate about the experiences it unlocks."

    Oct 28 7:31 AM | Link | Comment!
  • U.S. Economy Looks Shaky, Which Weak GDP Reading Would Confirm

    The U.S. economy has looked shaky of late, and an expected weak reading on third-quarter gross domestic product should confirm that. As a result, the Federal Reserve is again expected to keep interest rates near zero. The Fed decision, due Wednesday, and the GDP report, coming Thursday, will be the center of focus on this week's economic calendar. Weak data almost certainly means the Fed will stick with its Zero Interest Rate Policy at this week's meeting. The big question is whether the Fed will hint at a December move.

    Also on the calendar this week is some sort of deal for the debt ceiling, which needs to be raised by November 3 in order to avoid default; and to meet the November 3 deadline, a deal needs to be reached this week. Talks have intensified between the White House and House Speaker John Boehner on a two-year budget agreement that would also increase the federal debt limit. Congressional leaders are said to be nearing an agreement, which would then need to win backing from most Democrats and at least several dozen Republicans for House passage. The deal raises the prospect that Boehner could resolve two of the thorniest fiscal hurdles before he resigns later this week.

    If completed, the agreement would be the most significant spending accord in two years and perhaps since 2011, when the White House and congressional Republicans enacted deep spending cuts in exchange for an increase in the debt ceiling. Obama and some Republicans have been trying to undo part of those cuts, known as sequestration, ever since-GOP defense hawks want to lift budget caps for the Pentagon, while the president has refused to do so unless he can get an equivalent increase in domestic spending.

    Under the emerging agreement, that's what would happen. Money for defense and non-defense accounts would go up by about $50 billion this year and another $30 billion in fiscal 2017. The deal would also prevent steep premium increases for millions of Medicare beneficiaries, the House official said, in a win for Democratic negotiators. CNN is reporting that the spending increases would be offset by oil sales from the Strategic Petroleum Reserve, higher fees for telecommunications companies, and changes to the crop insurance program.

    In political terms, the agreement would be a victory for three people in particular. Boehner would succeed in his stated goal of (mostly) clearing the deck of big issues for his successor. Ryan, who has barely won the support of hardliners in the House, would be spared the challenge of having to negotiate contentious fiscal agreements within weeks of assuming the speakership.

    And, Obama would walk away victorious in his bid for Congress to relax spending restraints now that the economy has improved and the budget gap has shrunk (at least for the next few years). The president would also get relief in another respect: By removing the shadow of a possible government shutdown or default, he stands a better chance of seeing Congress act on his other priorities, namely criminal-justice reform, in his remaining 14 months in office.

    A bipartisan group of House members will try to revive the Export-Import Bank, a federal government agency that finances exports. This is separate from the debt limit. Created during the Depression, the Ex-Im Bank provides insurance and loan guarantees to overseas buyers of American products. The Ex-Im Bank, essentially stopped doing new business on July 1, after House leaders let its charter lapse.

    Opponents of the Ex-Im Bank claim it is nothing more than an example of corporate welfare, even though the bank paid the Treasury $675 million in fiscal year 2014. The bank says it supported $27.4 billion in exports and 164,000 American jobs last year. Nearly 90 percent of its loan recipients, the bank says, were small businesses, whose exports accounted for about 40 percent of those supported with Export-Import funding. Supporters in the House appear to have enough votes to re-authorize the bank, although it's less clear it can pass the Senate.

    The pace of new-home sales in the U.S. sank 11.5% in September to an annual rate of 468,000, marking the lowest level in 10 months. Sales for August were also revised down to a 529,000 pace from an original 552,000, which would have been a post-recession high. The median price of a new home in September was 13.5% higher compared to one year ago: $296,900 vs. $261,500. Despite the big drop in sales in September, new-home purchases are up 2% in comparison to September 2014.

    Toyota has regained its crown as the world's biggest car company by sales after releasing figures for the first nine months of the year. The Japanese carmaker sold 7.49 million in the first three quarters of 2015, beating Volkswagen's 7.43 million and General Motors' 7.2 million. The reversal could prove the tip of the iceberg for Volkswagen, which is engulfed in the worst scandal in its 78-year history.

    Negotiators for the United Auto Workers and General Motors reached a tentative agreement on undisclosed terms for a new four-year labor contract, averting a threatened strike. The proposed deal will now go to a council of several hundred UAW leaders on Wednesday, and will then head to a ratification vote by UAW's 52,700 workers.

    FedEx said it expects shipments during the holiday period between the Black Friday and Christmas Eve to rise 12.4% above year ago levels to 317 million shipments. This holiday period includes one more day that last year. FedEx expects the holiday period to include three shipment volume spikes, including Cyber Monday and the first two Mondays in December. The package delivery service said it was adding 55,000 employees for the holidays, and will expand operations.

    Valeant Pharmaceuticals has conducted an internal reviewed of the company's accounting for its Philidor arrangement and has confirmed the appropriateness of the company's related revenue recognition and accounting treatment. "In light of the recent allegations, however, the Board of Directors has decided to establish an ad hoc committee to review allegations related to the company's business relationship with Philidor and related matters."

    Last Wednesday, Citron Research accused the company of using a network of pharmacies to create phantom sales of its products. Valeant said Philidor is independent and that the drugmaker's accounting leaves no way for it to stuff inventory into the pharmacy. Valeant can't remove the CEO or management of Philidor, and the drugmaker's executives and board members don't own any stake in the pharmacy. Valeant shares were down 35% last week, and even after the conference call today, shares dropped another 5%.

    Duke Energy announced plans to buy Piedmont Natural Gas for $4.9 billion in cash. The boards of both companies have unanimously approved the buyout deal. Piedmont shareholders will receive $60 in cash for each share of common stock, representing a roughly 40% premium to Piedmont's closing price on Friday.

    Eating processed meats causes cancer, and red meat probably increases cancer risks. That's the judgment of a panel of global experts assembled by the World Health Organization. Eating an extra 50 grams daily of processed meat increases the risk of colorectal cancer by 18 percent. The W.H.O. says that while the overall risk is small, it "increases with the amount of meat consumed."

    ExxonMobil has responded to mounting calls for a federal investigation into accusations that the company knew for decades about the risks of burning fossil fuels and the effects on climate change, but withheld the information and sought to sow doubt among the public. Exxon says the allegations are "inaccurate and deliberately misleading." But there is more to the story than a simple denial and it goes back to former Exxon CEO Lee Raymond.

    Beginning in 1977, Exxon scientists began to produce a decade of papers that described a general scientific consensus that the burning of fossil fuels was changing global climate. It was not yet knowable whether the planet was undergoing a heating trend, but if it was, temperatures could rise by three to 10 degrees Celsius, one early paper said.

    In the late 1980s, however, Exxon abruptly embraced a message that scientists were exaggerating how much they knew, and that the risk was that they were utterly wrong. In full-throated public statements, Raymond himself said he did not believe the planet was warming.

    The possible legal ramifications of the Exxon paper trail are that the company could potentially be shown in a court to have deliberately squelched scientifically based evidence that effectively accepted the consensus view. Science is rarely incontrovertible, but, as the tobacco industry was fined a decade ago for having lied about the dangers of cigarettes, Exxon could be liable for stiff penalties should it be shown to have purposely misled the public for corporate gain.

    A former prosecutor in the successful 2006 US racketeering case against tobacco companies has asserted that similar charges might be warranted against ExxonMobil. Exxon under Raymond had not previously been seen to have maliciously distorted in-house scientific research. But now, the news reports, relying on previously little-known papers and documents, many of them housed in an ExxonMobil archive at the University of Texas, allege that the company knew much more than it owned up to. The scandal has implications beyond ExxonMobil, as other oil companies that conducted their own research could also face public scrutiny.

    Oct 26 9:55 PM | Link | Comment!
Full index of posts »
Latest Followers


  • Take a major long-term position in CVD Equipment Corporation (CVV). Graphene is the future.
    Aug 20, 2011
  • Have a Happy New Year! In January, we shall continue this conversation on exceeding beta.
    Dec 31, 2010
  • Investments to play in a bond bear market: DSXJ, BWZ, DSTJ, DTUS, DTYS, DLBS,
    Dec 11, 2010
More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.