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26Feb2016 Market Close: Large Caps Close Down, But Log 2nd Weekly Gain, WTI Crude Slides Below $33 And The US Dollar Settles Higher In The Low 98's

Written by Gary

SP500 second failed attempt to penetrate upper resistance was close but no cigar as the Spooze trended downwards from the opening bell. Large caps closed in the red (DOW down 57 points) and the small caps closing in the green (+0.2%). Several analysts view dips as buying opportunities in this short-term overbought market. I say sit on your hands.

Todays S&P 500 Chart

The Market in Perspective

Here are the headlines moving the markets.

Dow settlement signals impact of Scalia death on class actions

WASHINGTON (Reuters) - Dow Chemical Co's agreement to pay $835 million to settle a price-fixing dispute provides evidence that Justice Antonin Scalia's death is a blow to businesses that have had success recently in challenging class action cases at the U.S. Supreme Court.

Another economic slump, another communications test for Fed

NEW YORK (Reuters) - The Federal Reserve, facing the delicate task of explaining how it will forge ahead with rate hikes in a stormy world economy, is wary of again tying its actions to calendar dates but officials want to keep "forward guidance" as an emergency tool.

Oil ends down on profit-taking but still up strongly on week

NEW YORK (Reuters) - Oil prices fell on Friday as investors cashed out big weekly profits after a rally driven by disruptions to crude supplies and Wall Street's gains from U.S. economic data.

United Tech rejects Honeywell's $90.7 billion offer

(Reuters) - U.S. industrial conglomerate United Technologies Corp on Friday rejected a $90.7 billion offer by rival aerospace supplier Honeywell International Inc, saying that pursuing a merger would be "irresponsible" toward its shareholders.

Wall St. mixed as investors eye future rate hikes

(Reuters) - Wall Street was mixed on Friday as concerns about the timing of future interest rate hikes offset gains in materials and energy stocks.

Apple CEO Tim Cook commits to annual dividend raise

(Reuters) - Chief Executive Tim Cook said on Friday Apple Inc is committed to raising its dividend annually, a move designed to please investors but also a sign the world's most famous technology company may no longer be a growth stock.

United Tech says Honeywell's offer undervalues company

(Reuters) - United Technologies Corp said Honeywell International Inc's offer grossly undervalued the company and overstated potential synergies.

Caterpillar, Deere cut 170 more jobs

(Reuters) - Caterpillar Inc and Deere & Co said on Friday they are cutting a total of 170 jobs yet another step in the consolidation of the slumping U.S. heavy machinery sector.

U.S. consumer spending, inflation data keep rate hikes on table

WASHINGTON (Reuters) - U.S. consumer spending rose solidly in January and underlying inflation picked up by the most in four years, keeping Federal Reserve interest rate increases on the table this year.

US Government Releases 2015 Financial Statements: "Keeps Getting Worse"

Submitted by Simon Black via SovereignMan.com,

Hot off the presses, the US government just published its audited financial statements this morning, signed and sealed by Treasury Secretary Jack Lew.

These reports are intended provide an accurate accounting of government finances, just like any big corporation would do.

And once again, the US government's financial condition has declined significantly from the previous year.

For 2015, the government reports $3.2 trillion in total assets.

This includes everything from financial assets like bank balances to physical assets like tanks, bullets, aircraft carriers, and the federal highway system.

Curiously, the single biggest line item amongst these listed assets is the $1.2 trillion in student loans that are owed to the government by the young people of America.

This is pretty extraordinary when you think about it.

37% of the government's total reported assets are student loans, which is now considered one of the most precarious bubbles in finance.

$1.2 trillion is similar to the size of the subprime mortgage market back in 2008. And delinquency rates are rising, now at 11.5% according to Federal Reserve data.

Plus, it's simply astonishing that so much of the federal government's asset base is tantamount to indentured servitude as young people pay off expensive university degrees that barely land them jobs making coffee at Starbucks.

On the other side of the equation are a reported $21.5 trillion in liabilities, giving the government an official net w ...

According To This, 2016 Is Set To Be The Most Volatile Year On Record

It is different this time. So far in 2016, there has been 23 days where the S&P 500 has moved +/- 1%. To put that in context, in the last 60 years, no other year has started off with such volatility.

2016 has been busy...

2016 is now the "most volatile" year on record...

And for those wondering about VIX in context - S&P Implied Vol just dropped back to its historical volatility, which is picking up once again.

When the market is swinging around at this rate, does the risk-reward really make sense for those buying dividend-stocks to be "paid to wait" seems weak... and furthermore, most hedge funds will be forced to derisk amid this chaos (which perhaps explains the recent crash in equity market neutral funds).

Chesapeake's AIG Moment: Energy Giant Faces $1 Billion In Collateral Calls

Back on February 10, when looking at Carl Icahn's darling Chesapeake, whose stock had plunged to effectively record lows on imminent bankruptcy concerns, we said that for anyone brave enough to take the plunge, the "Trade of the Year" would be to go long a specific bond, the $500 million in 3.25s of March 2016 which were maturing in just over a month, and which on February 10 were yielding 300% at a price of 80.5 cents on the dollar.

And then, just two days later, in an unexpected turn, Chesapeake announced that contrary to public opinion, the troubled energy giant "is planning to pay $500 million of debt maturing in March, using a combination of cash on hand and other liquidity that may include its credit line, according to a person with knowledge of the matter." The issue referenced was precisely the bond that was our "trade of the year."

To be sure, the bond promptly surged, even as the stock priced tumbled, on what was seen as a very bondholder-friendly action (and thus to the detriment of shareholders) and hit a price of 95 cents while the stock tumbled by 15%, generating a 30% return for anyone who had decided to go along. At that moment we urged anyone in the trade to take their profits and go home, taking a few weeks, or the rest of 2016, off.

A quick update since then shows that those same bonds are currently trading effectively at par (99.25 cents)...

... suggesting that the risk of a near-term Chesapeake bankruptcy may be gone for now.

But is it truly off the table?

Sadly, we think that despite the brief hiccup in optimism, CHK's ...

Fear The Smell Of (Monetary) Napalm In The Morning

Via ConvergEx's Nick Colas,

Warm up the choppers and put some Wagner on the loudspeakers - "Helicopter money" is a hot economic topic.

That's where central banks print money and either hand it to the government for things like infrastructure investment or just send it out to consumers to spend. While that may sound like an extreme measure, advocates of this novel approach argue that it is a valid response to an extreme problem: slowing global growth and central banks with no "Standard" tools left in the shed.

But would it work? There are two real-world examples in the last 15 years that offer some clues: the 2001 and 2008 tax rebate checks mailed to millions of Americans for up to $600 (2001) and $1,200 (2008). Studies by the National Bureau of Economic Research done in the wake of both events show notable differences.


In the first "Drop" (mid 2001), recipients reported spending most (53-73%) of their windfall.
In the second (early 2008), the percentage dropped to one third and most recipients reported saving the cash or using it to reduce debt.

The key lesson here: if policymakers are considering "Helicopter money", they need to have the choppers in the air before a crisis hits. After that, it is too late.

The world's central bankers are apparently out of ideas for how to stimulate the global economy back to health. Low interest rates? Check. Zero interest rates? Check. Buying bonds to lower long term interest rates? Big check. Negative interest rates? Ditto. If monetary policy were a theme park, we could safely say we've been on every ride in the whole pl ...

U.S. Stocks Notch Second Straight Week of Gains

U.S. stocks posted their second straight week of gains, buoyed by the recent rally in oil prices, but traders said the rough start to 2016 looms large on sentiment.

IRS: Cyberattacks More Extensive Than Reported

The Internal Revenue Service said more than twice as many taxpayer accounts may have been hit by cybercriminals than the agency previously reported, with hackers gaining access to as many as 700,000 accounts and attempting to break into an additional 575,000.

Why Oil Prices Will Leave a Mark at Warren Buffett's Berkshire Hathaway

Berkshire Hathaway's annual results Saturday will give investors a closer look at how Warren Buffett is coping with what could be the market's biggest problem: oil.

January 2016 Inflation Adjusted Personal Income and Consumption Growth Good?

Written by Steven Hansen

The data this month showed good income growth and spending growth weak (both on the high side of market expectations). HOWEVER, the backward revisions now show NO year-over-year change in the rate of growth for disposable income and a jump in the rate of growth of personal consumption expenditures. Bottom line is that consumption is again growing faster than income based on year-over-year growth.

The Wall Street Journal: Sharp races to save Foxconn deal, as share price plummets

Japan's Sharp Corp. raced to save the proposed buyout by China's Foxconn Technology Group, as Sharp's stock plunged as investors questioned whether a merger would take place.

Market Extra: Investors might want to wait before jumping back on the dollar bandwagon

With the dollar on track to post its first weekly gain against the yen since January, some investors are asking themselves: could the dollar be on the verge of breaking higher?

Summary of Economic Releases this Week

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Earnings Summary for Today

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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