July 11-15: Banks Surprise and Stocks Soar

DJIA 18506 // S&P 2161 // NASDAQ 5028 // 10-YR TRE 1.589% //

EURO 1.107 // OIL 45.58 // GOLD 1328 // BIT 664

"Prior to the financial crisis, all but 2% of the people in the Western world end up better off than people like them 10 years ago. But the world changes when you get a cohort of people that are no longer advancing." -Richard Dobbs, McKinsey

-0.1%

Effect of Brexit on US GDP, according to economists polled by the Wall Street Journal. US GDP is expected to clock in at 2.2% this year, versus 2.3% pre-Brexit. A big factor: over 40% of revenues from S&P 500 companies is made internationally, with a big chunk of overseas revenue coming from Europe.

NOTE: If article is paywalled, use Google to search for title or try accessing via mobile

EARNINGS:

A Boomlet in Lending Boosts JP Morgan, WSJ

JP Morgan led off 2Q bank earnings with a surprise. Its loan book across everything from commercial real estate to consumer lending rose 10% from a year earlier. Fixed income trading also saw a pop, perhaps because of good positioning for Brexit volatility.

M&A:
Bright Lights Focusing on AMC's Purchase of Odeon and UCI Cinemas, Dealbook

US-based AMC announced purchase of UK-based Odeon for 921 million pounds ($1.2 billion). AMC used Brexit as an opportunity to coerce private equity firm Terra Firma into a deal to sell. Odeon has been privately owned by Terra Firma since 2004.

MACRO:
In Advanced Economies, Two-Thirds of Population Have Seen Income Stagnate, WSJ
Across advanced economies, about two-thirds of the population (or more than a half billion people) earn the same as or less than their peers did a decade ago, according to McKinsey. This is a break from the post-WWII trend whereby most families improve on standard of living versus predecessors.

STOCK MARKET RALLY:
Buybacks Pump Up Stock Rally, WSJ
The Dow Jones average has notched four records in four days this week. There are concerns that results are based less on earnings and more on central bank policy and buybacks. Shares outstanding in the S&P 500 have fallen overall this year for the first time since 2011.

COMMODITIES:
IEA Sees Record Middle East Oil Supply as US Output Slumps, Bloomberg
Success seems to be nearing for OPEC's painful strategy of the last year, as they maintain high output and low prices to drive US producers out of the market. Oil prices have recovered more than 70% against a 12 year low set this January.

Vocabulary:

• helicopter money
• Treasury International Capital report
• Wang Jianlin
• Brexit
• Housing start

Calendar, July 18-22:

• Monday: Housing Market Index, Treasury International Capital
• Tuesday: Housing Starts
• Wednesday: MBA Mortgage Applications, EIA Petroleum Status Report
• Thursday: Jobless Claims, Philadelphia Fed Survey
• Friday: Baker Hughes Rig Count, PMI Manufacturing Index Flash

Last Week's Predictions: 1/3 All-Time: 27/54

1. CPI up: WRONG
2. Alcoa beats: RIGHT
3. Big financial M&A: WRONG

Weekly Predictions:

1. Dalian Wanda's bid for 49% of Paramount Pictures gets rejected by Viacom's board
2. Continued strong earnings from at least 2 more banks
3. Housing starts positive surprise

Feb 23-27: Riding the bull

DJIA 18130 // S&P 2102 // NASDAQ 4448 // 10-YR TRE 2.002% //

EURO 1.1224 // OIL 48.87 // GOLD 1216 // BIT 261

After flip flopping for months on  whether or not additional internet regulation will hamper or speed innovation, regulators last week decided to manage "equal access" to the internet, acknowledging the importance of a platform previously thought of as a frontier territory but which has now become part of the fabric of the modern US economy.

34%

Netflix's share of overall internet downloads during peak evening times in May 2014, up 32% from 2013.

Top News (click on article titles for links; if paywalled, copy article title into Google)

FCC adopts net neutrality rules to ban internet discrimination, Yahoo Finance

After months of debate, on Thursday the FCC moved forward with plans to regulate the internet as a utility much in the same way other telecommunications networks are now controlled. That means Netflix and Google won't have to pay extra fees to assure streaming video quality, but it also means they may be susceptible to connection speed slowdowns as more space is reserved for competitors.

Stock markets all around the world break records, CNN Money
Investors, made giddy by central banks' easing of lending rates, have driven stock market indices worldwide to some of their highest levels since the recession, with some indices hitting all-time highs. The Dow Jones average broke 18,200 for the first time. However, Nobel Prize winner Robert Schiller warns that price/earnings multiples are now around the same level they were before the bubble burst in 2008.

Janet Yellen puts Fed on path to lift rates, WSJ
Citing rates of employment, production, and spending improving at a "solid rate," the Fed plans "at some point" to consider raising the federal funds rate. The cost of credit is considered extremely important to the economy because it determines the cost of home and auto loans for consumers (who constitute around 70% of US GDP) as well as corporate debt for companies, and also plays an important role in valuation.

JP Morgan to start charging big clients fees on some deposits, WSJ
New regulations and low interest rates are pushing bigger banks toward considering charges for larger corporate clients including financial service providers such as hedge funds and PE firms. Retail customers should not be affected by the fees. Traditionally one of banks' most attractive and stable forms of funding, it has become increasingly expensive to maintain profits on deposits amidst newly mandated capital and liquidity requirements.

RadioShack to sell name with $20 million opening bid, CNN Money
Radioshack's largest shareholder agreed to bid $20 million for the consumer electronics brand name in court last Wednesday. After being in business for 94 years, the chain is now liquidating its brand and store leases through bankruptcy proceedings. Despite a financial downtown, RadioShack's name recognition could help save another company a tremendous amount of cost in new branding.

Vocabulary (click to open link)

• FCC
• P/E 10 (Schiller P/E) ratio
• Federal funds rate
• Liquidity
• Private equity

Calendar:

• Mon Mar 2: Personal income and outlays, PMI Mftg, ISM Mftg; CZR, NTRI, PANW, STNG
• Tue Mar 3: Motor vehicle sales, Janet Yellen speaks; AMBA, AZO, BCS, BBY, JD, KATE, TIVO
• Wed Mar 4: ADP employment, ISM Non-mftg, EIA petrol; ANF, AEO, BREW, PETM, TST
• Thu Mar 5: Jobless claims, Productivity, Factory orders; CSIQ, COST, DMND, KR
• Fri Mar 6: Employment situation, International trade; SPLS

Predictions from last week: 1 / 3 All-Time: 13 / 21

• Yellen keeps "patience" wording: CORRECT
• CPI comes in at 0.0%: WRONG
• GDP annualized rate of 3.5%: WRONG

Weekly Predictions:

1. Costco beats estimates after rejecting AmEx's bid
2. Trade gap continues to widen in face of strengthening dollar
3. Caesars misses estimates amidst weakness in China

Jan 12-16: Je suis Charlie

DJIA 17640 // S&P 2028 // NASDAQ 4664 // 10-YR TRE 1.909% //
EURO $1.1835 // OIL $46.07 // GOLD 1238

World leaders gathered in Paris in the wake of coordinated terrorist attacks last week. The event saw Benjamin Netanyahu and Mahmoud Abbas lock arms in solidarity against the violence.

$46.07

Closing price of the front-month futures contract for West Texas Intermediate crude oil, now trading at a level not seen since April 2009. WTI crude was trading at $107.26 this past June.

Paris March in Solidarity Against Terror Attacks Was Largest in French History, TIME

Heads of state from across the world joined with around 1 million marchers in the streets of Paris on Sunday in the largest procession through the city since the end of World War II. The march followed a 2.5 mile route through the city; marchers were watched by sharpshooters on buildings overhead. Notably absent from the group was US President Obama. Following criticism, the Obama administration apologized for their "mistake" in not attending.

Oil Settles Below $47 as Goldman Cuts Outlook, MarketWatch

Monday's drop in the price of oil follows cuts from both Goldman Sachs and SocGen on their projections for oil prices through 2016. Goldman has targets of $41, $39, and $65 for oil in 3, 6, and 12 months, respectively. Saudi prince al-Waleed bin Talal was quoted as saying we will "never again" see oil above $100 a barrel.

Companies Break a Sweat as Dollar Catches Fire, CNBC

As the US Dollar spikes to its highest levels in 12 years, pundits worry about negative effects on US trade and manufacturing due to the relatively-expensive nature of US exports. Any negative effects would counteract benefits from the dollar's strength including increased purchasing power of American companies abroad, and the check a strong dollar puts on inflation. McDonalds, General Mills, Nike, and Costco have all publicly stated that currency effects will crimp earnings in 2015.

ECB's Bond-Buying Plans Face Doubt, WSJ

As the dollar gains, the euro continues to slide as the ECB debates purchasing sovereign debt of struggling participant states. Concern among stronger economies including Germany warn of the moral hazard of "bailing out" eurozone governments that have made imprudent decisions. Asset purchases by central banks, referred to as "quantitative easing" or "QE," are designed--among other things--to drive down borrowing costs, encouraging households and businesses to invest and spend.

Vocabulary:

Charlie Hebdo http://en.wikipedia.org/wiki/Charlie_Hebdo

ECB http://www.investopedia.com/terms/e/europeancentralbank.asp

QE http://www.investopedia.com/terms/q/quantitative-easing.asp

WTI http://www.investopedia.com/terms/w/wti.asp

Brent http://www.investopedia.com/terms/n/northseabrentcrude.asp

Calendar, Jan 12-16 (Nasdaq Economic Calendar):

• Mon 12th: earnings from AA
• Tue 13th: NFIB Small Business Optimism Index; KBH
• Wed 14th: Retail Sales, Import and Export Prices; JPM, WFC 
• Thu 15th: Jobless Claims, PPI, Empire Manufacturing Index; C, INTC, SLB
• Fri 16th: CPI, Industrial Production, Consumer Sentiment; GS

Predictions, Jan 12-16

• Dollar will continue strengthening dollar index continues to rise
• Crude prices will continue to drop
• Alcoa (AA) will beat earnings on Jan 12

Participants: J. O'Brien, J. Ayat, S. Ballantyne, K. Meenan