Category: Macro (page 1 of 61)

Why We Need To Be Paying Attention To Turkey

Turkey’s electoral board has rejected appeals from the country’s main opposition parties to annul the referendum granting President Tayyip Erdogan sweeping new powers. Opposition parties had called on the electoral board to annul Sunday’s vote, which was narrowly won by the “Yes” camp, because unstamped ballot papers were included. Some groups are now planning to appeal to Turkey’s constitutional court and, if it is unsuccessful there, then the European Court of Human Rights. Election monitors say they are aware of up to 2.5 million tampered referendum votes and also criticized the government for holding the vote during a state of emergency that was imposed after the failed coup in July against Mr. Erdogan. There have been public protests every night since the election results were announced. Though dozens of people were rounded up Wednesday morning for participating in the demonstrations, organizers say they plan to continue showing up. Tens of thousands of people have been detained for political reasons in Turkey in recent months, but these were the first political arrests reported since the referendum. Mr. Erdogan and his allies say their victory will help bring stability and prosperity to the country, while their critics argue that it will give the president too much power, insulate the post from judicial scrutiny and, as a result, contribute to greater instability. It’s expected that protests will continue, which will likely be accompanied by further arrests, escalating violence and more worrisome headlines. We should continue to pay close attention to the developments in Turkey. (Sources: Reuters, CNBC)

One Of America’s Largest Coal Plants Closing Decades Ahead Of Schedule

Arizona is home to the Navajo Generating Station, the largest coal power plant in the Western U.S.. The plant also has the not-so-flattering distinction of being the seventh largest source of climate pollution in the country, emitting over 14 million metric tons of carbon dioxide every year. Three years ago, the plant owners struck a deal with the U.S. Environmental Protection Agency (EPA) to close the plant by 2044. However, the shutdown now looks like it will happen decades ahead of schedule. The owners of the coal-fired plant — which provides much of the power to the pumps of the Central Arizona Project, the canal that has enabled the explosive growth of Phoenix and Tucson — voted a couple of weeks back to close when its lease ends in December 2019. It has nothing to do with environmental regulations though, but rather economics. The plant is old and has been undercut by low prices for natural gas that fuel other plants. In fact, customers of the plant are actually paying more for their electricity than they would otherwise. The Central Arizona Project, one of the main purchasers of NGS power, reported in a recent presentation that they could have saved $38.5 million in 2016 by purchasing power at standard market rates instead of the coal plant. The unfavorable economics of coal are not limited to just NGS though – it’s an issue facing the entire industry and has nothing to do with the Clean Power Plan. The country’s coal fleet is shrinking mostly due to the fact that the plants are old – the ​Navajo​ ​G​enerating ​S​tation was built in 1972. The average retirement age of coal plants in 2015 was 58 years old, which indicates that much of the country’s coal fleet is facing its demise in the relatively near future. According to an analysis of SNL Energy data, 46 coal units have received regulatory approval to retire over the next 12 years. Few new coal plants are in the works to replace those that are being shut down, too. The EIA only lists three proposed electric-sector coal plants scheduled to open by 2021. This could all prove to be a big problem for President Trump and his promise to bring about a “coal renaissance.” Despite his more coal-friendly policy, utilities so far seem to be sticking to their plans to retire their aging coal units and transition to more efficient plants, most of which will utilize either natural gas or renewable energy sources like solar and wind. David Schissel, director of resource planning analysis at the Institute for Energy Economics and Financial Analysis, says the market forces working against coal are not going away. “What the owners of Navajo have been saying about the economics of their plant is reflective of what’s happening to the entire industry.” (Sources: CoExist, LA Times, SNL)

A Look Back At DJIA 1,000 Point Milestones

Dow 21,000 was hit just 35 calendar days after first closing above 20,000.  If the current levels hold, it will be tied for the quickest run to a new thousand-point threshold after first surpassing the prior one. Back in 1999, the DJIA took down 11,000 just 35 days after first surpassing 10,000 for the first time. Given that 1,000 points is a much smaller percentage of 21,000 (4.8%) than it is of 11,000 (9.1%), the current run isn’t nearly as impressive as the 35-day run in 1999, but the bulls will still take it. (Source: Bespoke Investment)

Goldman Analysts…Cognitive dissonance exists in the U.S. stock market

Goldman Sachs analysts believe investors and traders in the stock market are acting irrationally. “Cognitive dissonance exists in the US stock market,” Goldman Sachs’ David Kostin said. “S&P 500 is up 10% since the election despite negative [earnings per share] revisions from sell-side analysts.” “Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely path forward,” Kostin continued. “On the one hand, investors, corporate managers, and macroeconomic survey data suggest an increase in optimism about future economic growth. In contrast, sell-side analysts have cut consensus 2017 adjusted EPS forecasts by 1% since the election and ‘hard’ macroeconomic data show only modest improvement.” Much of the post-US election rally in the stock market has been attributed to President Donald Trump’s promises for tax cuts and deregulation. However, it may be premature to price in Trump’s business-friendly positions. This seems to explain why analysts’ projections for earnings have yet to be revised up. Goldman Sachs analysts have made no secret about their cautious attitude toward the market. In a note outlining expectations for the S&P 500 in 2017, they argued “hope” would drive the index to 2,400 before “fear” takes over pulling the index back down to 2,300 by year-end. “We are approaching the point of maximum optimism regarding policy initiatives,” Kostin said. “We expect investors will soon de-rate their expectations of potential 2017 EPS growth as they face the reality that the accretive impact from tax reform will not occur until 2018.” (Source: Yahoo Finance)


Earnings Season Looks Like It’s Headed To A Strong Finish

So far this earnings season, 65% of companies that have reported have beaten consensus analyst earnings per share estimates.  As shown in the first chart below, 65% would be the strongest reading seen since Q3 2010 if it holds through the end of earnings season on February 21st (2/21 is when Wal-Mart reports, which marks the unofficial end to earnings season). For top-line revenues, 57% of companies have beaten estimates this season.  While not as strong as the bottom-line EPS beat rate, a revenue beat rate of 57% would be good enough for the strongest reading since Q4 2014. (Source: Bespoke Investment Group)

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