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Wednesday, December 07, 2016

A Date That Will Live in Infamy

Financial Review

A Date That Will Live in Infamy

DOW + 297 = 19,549
SPX + 29 = 2241
NAS + 60 = 5393
RUT + 11 = 1364
10 Y – .05 = 2.35%
OIL – 1.04 = 49.89
GOLD + 4.00 = 1174.30

Another record high close for the Dow Industrial Average – 3 in a row. The Dow is up in 18 of 22 sessions, but today was the first triple-digit gain since Nov. 10. Plus, records for the S&P 500 index and the Russell 2000 index of small cap stocks. The Dow Transportation Average gained 231 to close at a record high of 9371, taking out the old record high of 9217 set December 19, 2014.

For Dow Theorists, this is confirmation of the bull. Dow Theory holds that strength in the shipping and rail stocks needed to transport goods — a sign of healthy demand and production — is a prerequisite to strength in the broader market.

The transportation average often is a leading indicator for the economy. If we get everything in gear, it suggests everything is in harmony to the upside. From a recent low of 7885 on October 26, the Transports have jumped about 19%, which is just freakish strength. If you caught the planes, trains and shipping containers early, congratulations. The Transports are pricing in a high success rate for infrastructure not only passing, but happening right away and that should give you pause.

A lot is at stake this today as  Time Warner chief executive, Jeff Bewkes, and his AT&T counterpart, Randall Stephenson, answered questions at the Senate antitrust committee hearing about conflicts that might arise from the merger of a major media producer and a major distributor.

AT&T’s $108 billion acquisition would join America’s largest pay TV provider with a media and entertainment company that has a massive catalog of movies and TV shows. Critics charge it could give the telecom giant a huge advantage in the marketplace.

At issue is something called “zero-rate.” That means the ISP, in this case AT&T, won’t count a customer’s viewing of AT&T-owned content against his or her data allowance. Currently, AT&T has such a promotion with DIRECTV. AT&T wireless customers who also subscribe to DIRECTV can watch that content on their mobile devices without it counting against their data allowance.

If you are both an AT&T and DIRECTV customer, that’s a great deal. But if you are a small ISP trying to compete against AT&T, you may think the playing field has suddenly become a lot less even. So far, AT&T is batting one for two on proposed mega-mergers. Last year its deal to acquire DIRECTV got a green light from regulators. Before that, its deal to acquire rival T-Mobile did not.

President-elect Donald Trump continued to show the power of his fully operational Twitter feed yesterday as one tweet brought an offer of talks from Boeing on the cost of a plane order, while another saw shares in SoftBank Group rally to their highest level since August 2015.

While there is disagreement over whether Trump’s tactics will prove effective over the long term, and even if the investments he flags are possible, this Twitter feed seems likely to continue to be one of the most important in markets.

Meanwhile, Trump has picked Scott Pruitt, the Oklahoma attorney general to run the Environmental Protection Agency. Pruitt has been a close ally of the fossil fuel industry and a staunch opponent to environmental regulations. So, it’s kind of like picking an atheist to be the next Pope.

Time magazine has named its Person of the Year – Donald Trump. Trump is the magazine’s 90th person of the year. The runner-up is Hillary Clinton. Trump, in an interview with the Time magazine, said he would bring down drug prices. The S&P 500 healthcare index swiftly lost 1.6 percent, while the Nasdaq Biotechnology index dropped 3.8 percent – set for its worst day in nearly two months.

Pfizer was hit with a $107 million fine by British officials for an epilepsy drug price increase of as much as 2,600 percent. In the UK, branded drug prices are regulated. Pfizer figured out a way to raise the price – sort of through the back door. Pfizer sold the UK distribution rights to Flynn Pharma, debranding the drug and making it generic.

Because generic drugs are generally available to customers at cheaper prices than branded products. The drug was no longer subject to price regulation, leaving Pfizer free to sharply increase the price it charged Flynn, which in turn further raised the price it charged the National Health System. Pfizer jacked up the price from £2.83 to £67.50. Pfizer says it will appeal the fine.

The European Commission has fined three banks for manipulating a key interest rate, known as the Euribor, or European Interbank Offered Rate. The commission levied $520 million in fines against JPMorgan, Credit Agricole, and HSBC. JPMorgan faced the largest fine at $360 million. Euribor is used to set rates on everything from home loans to complex derivatives. Major banks submitted information daily to set the rate. The regulator said the banks had acted as a “cartel.”

Citi is being investigated for its role in the pound’s “flash crash. “Citi’s Japanese trading operation is being investigated by the Bank of England for exacerbating the pound’s October flash crash by placing many sell orders after the initial fall began

Shares in Italian banks continued their recovery after falling sharply on Monday in response to Prime Minister Matteo Renzi’s referendum defeat. La Stampa newspaper had reported that Rome would be asking for €15-billion-euro from the European Stability Mechanism to help the Italian banking system.

At the same time, Reuters quoted unnamed sources as saying that the government would take a €2-billion-euro controlling stake in Monte dei Paschi. The Italian government plans to buy junior bonds to boost its stake to 40%, although there are concerns this might amount to state aid, in violation or Eurozone regulations.

Traffic at U.S. fast-food restaurants fell 1% in the third quarter to mark the sector’s first traffic decline in five years. The industry tracker NPD Group said total restaurant visits were also down 1%, hurt by the now familiar list of factors that have weighed this year, ranging from the higher costs of eating out, changing consumer behavior and higher bills for items such as rent and prescriptions.

Eating out has become more expensive even as the cost of at-home dining has fallen. The cost of food purchased for home use — that is, groceries — has fallen 2.4% in the past year, according to the October consumer price index. That’s the biggest decline over a 12-month period since the end of the Great Recession in 2009

Sometimes it seems there is a Starbucks on every corner, but not every intersection has been caffeinated. Starbucks hopes to change that. The coffee retailer plans to open 12,000 new stores in the next five years.  The company also said it would open an outlet of its high-end coffee chain, Reserve Roastery and Tasting Room – for the real coffee connoisseurs, or at least someone crazy enough to pay $10 for a cup of Joe, or should we say Josephus.

Today, is of course, December 7th, a date which will live in infamy; 75 years ago, today the United States was suddenly and deliberately attacked by the naval and air forces of the Empire of Japan.

It is a hallowed site. About 15 minutes into the attack at Pearl Harbor, the Arizona was destroyed, killing 1,177 sailors and Marines on board. And there the Arizona remains to this day.  On December 6, 1941, Arizona took on a full load of fuel – nearly 1.5 million gallons – in preparation for its scheduled trip to the mainland later that month. The next day, much of it fed the explosion and subsequent fires that destroyed the ship following its attack by Japanese bombers.

However, despite the raging fire and ravages of time, some 500,000 gallons are still slowly seeping out of the ship’s submerged wreckage: 75 years after its demise, Arizona continues to spill up to 9 quarts of oil into the harbor each day. They call the leaking oil, the “tears of the Arizona.”

Some people believe the oil will continue to leak until the last Pearl Harbor survivor dies. We will know if that is true soon.

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