Financial Review

Happy Time Vibe

Sinclair Noe — December 4, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 58 = 24,290 (Record)
SPX – 2 = 2639
NAS – 72 = 6775
RUT – 11 = 1532
10 Y + .02 = 2.38%
OIL – .91 = 57.45
GOLD – 4.00 = 1276.70

Cryptocurrency

• Number of Currencies: 1,362
• Total Market Cap: $349,166,950,507
• Volume (24h): $13,255,090,001

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	11,582.0	$195.97B	$6.14B	46.29%	1	-0.11%	+19.49%
	Ethereum	ETH	462.13	$45.26B	$1.03B	7.74%	0.0404611	-0.62%	-1.92%
	Bitcoin Cash	BCH	1,508.90	$26.23B	$777.45M	5.87%	0.134083	-1.97%	-3.99%
	Ripple	XRP	0.24700	$9.79B	$107.72M	0.81%	0.00002174	+0.82%	-3.39%
	IOTA	MIOTA	2.23250	$7.22B	$1.08B	8.17%	0.00022357	-15.60%	+136.49%
	Dash	DASH	754.28	$5.93B	$157.91M	1.19%	0.0658949	-1.14%	+21.57%
	Litecoin	LTC	103.320	$5.61B	$331.87M	2.50%	0.00890391	-0.70%	+12.94%
	Bitcoin Gold	BTG	305.21	$5.38B	$119.41M	0.90%	0.0277613	-1.87%	-9.77%
	Cardano	ADA	0.127907	$3.45B	$77.64M	0.59%	0.00001145	-7.25%	+162.11%
	Monero	XMR	210.35	$3.32B	$94.78M	0.72%	0.0185096	+1.85%	+21.83%

This morning, the markets surged – largely, a happy-time vibe from the tax cut plan – but as the day wore on, the euphoria faded. The Nasdaq turned south after about one hour of trading. The entire tech sector came under serious pressure.

Microsoft dropped 4%, its biggest single-day decline since June 2016.  Facebook lost 3.6%. Amazon down almost 2.5%. Alphabet down 1%. Apple slipped about 0.7%. The S&P 500 managed to hang on until the final minutes of trading before the numbers turned red. The Dow Industrials managed to hold on to a positive session and a record high close, but that close was 245 points down from the intraday high.

Treasuries continued to slip. Even though yields rose today, they remain relatively subdued, with 10-year Treasury yields struggling to push much above 2.40 percent. If the economic outlook is so strong, then how does one explain long-term bond yields?

Bond traders are naturally more cautious, and appear to be taking their cue from forecasts that fiscal stimulus, including Republican-backed tax cuts, will deliver only a modest boost to the economy in the next two years.

Municipal bond investors are bracing for what promises to be the biggest week not only of 2017, but possibly of years to come. Estimates are that borrowers may sell $19 billion to $21 billion of tax-exempt bonds this week, almost triple the average this year. The reason why issuance will boom is that the Senate this weekend passed its version of tax reform, which includes prohibiting tax-exempt advance refunding.

Senate Republicans narrowly passed their tax bill over the weekend, and now must reconcile it with the House version before they can send it to the White House. Easier said than done. There are significant differences between the House and Senate versions.

The Senate calls for all individual tax breaks to expire after 2025 to comply with budget rules, while the House would keep most of the individual changes in place, except for a $300 per person family credit.

So-called pass-through businesses, such as partnerships and limited liability companies, are also treated differently under the bills. And the Senate bill would postpone a corporate tax rate cut — to 20 percent from 35 percent — for one year, until 2019; that means tax overhaul’s potential direct impact to 2018 corporate earnings is likely to be zero.

The House bill would consolidate the current seven individual tax brackets to four, leaving the top tax rate at 39.6 percent. The Senate bill would have seven brackets — with lower rates, and a top rate of 38.5 percent.

In a last-minute change, the Senate GOP decided to keep the alternative minimum tax for individuals, while raising the exemptions until 2026, and preserve the corporate AMT. The House would repeal both levies.

The Senate bill also keeps the estate tax (while doubling the exemption amount until 2026). The House plan doubles the threshold, but eventually fully repeals the levy. The Senate legislation also calls for repealing the Obamacare individual mandate — and while House Republicans mostly support that, it could get tricky if moderates’ votes are needed.

A key part of trying to make health insurance coverage universal is to require that everyone gets it; this helps spread the costs of health care among as broad a pool of people as possible. Repealing the requirement will save the government money because fewer people will enroll in publicly-subsidized health plans.

However, a good chunk of those subsidies underpinned the individual insurance market, so even people who don’t receive the payments are expected to see higher premiums.

The U.S. faces a partial government shutdown after money runs out on Dec. 8 if Congress can’t agree on a spending bill by then. House Republicans introduced a temporary stop-gap spending bill to fund the government until Dec. 22. The bill maintains the current federal spending levels but includes a provision to ensure that states are not forced to suspend the popular Children’s Health Insurance Program, which annually provides health insurance for nearly 9 million children in low-income families.

In the largest deal of 2017 CVS Health is buying Aetna, the third-largest US insurer, for $69 billion. Aetna stockholders will be paid $145 a share in cash and 0.8378 CVS shares per Aetna share. The acquisition is subject to regulatory approval, but if approved it will change the nature of retail and healthcare.

First, if CVS does buy Aetna, it might be able to win over more business—both from individual consumers and from employers buying plans on behalf of their workers. In theory, that’s because CVS could gain a competitive edge by reducing the cost of providing care to Aetna’s customers.

How could it do this? CVS is not just drugstores. In 2006, it acquired a company called MinuteClinic, which operates walk-in clinics. CVS now has more than 1,000 of them, including in its stores and in some Target locations. This is one of the main reasons CVS and Aetna could, together, save money: A company that sells insurance could start providing care directly, and steer customers not immediately to doctors but rather first to its own nurses and pharmacists working at CVS locations.

For example, if an Aetna customer has diabetes, it can be extremely costly (for both Aetna and the customer) for them to frequently see doctors for help managing their condition. Instead, a merged CVS-Aetna could encourage this customer to go to its walk-in clinics regularly for check-ins, potentially limiting those higher-cost doctor visits.

The merger is intended to shift the way consumers interact with their healthcare. The plan is to make pharmacies the “new front doors of healthcare” — as opposed to a traditional doctor’s office or a hospital; and once a customer is in the front door, the sale continues in the pharmacy.

The other reason for the CVS-Aetna deal is Amazon, which has been plotting to move into the pharmacy business. Amazon has already secured the necessary licenses in 12 states and there is a possibility they will try to start up an online pharmacy that could ship medications.

How does a brick and mortar retailer respond to Amazon? History shows that Amazon can crush competitors. Whether the CVS-Aetna deal could withstand the onslaught remains to be seen, but they are going to respond with some fresh new ideas. The actual amount of money prescriptions bring into pharmacies isn’t all that much, it’s what else you buy while you’re at the pharmacy — snacks, drinks, beauty products — that makes pharmacies a booming business.

Say that prescription portion went online, it would be much harder for retail pharmacies to compete with convenience stores, grocery stores and anyone else selling candy bars and deodorant. But say you’re an Aetna member, the preferred way to get your prescription might be by going to a CVS pharmacy, bringing foot traffic that might not come organically. And it is possible CVS-Aetna customers could see benefits if the new company can provide some innovative new services or pass through cost benefits to them.

On the other hand, the merger could give CVS control over drug wholesalers, pharmacies, insurers, and pharmacy benefit managers – in other words, a way to crush competition from other companies. One thing the two companies are hoping for is synergy – that’s corporate-speak for cost savings, and the big place to cut expenses is by firing workers.

For the first time in 40 years, power plants are no longer the biggest source of U.S. greenhouse gas pollution. That dubious distinction now belongs to the transport sector: cars, trucks, planes, trains and boats.

The big reversal didn’t happen because transportation emissions have been increasing. In fact, since 2000 the U.S. has experienced the flattest stretch of transportation-related pollution in modern record keeping, according to data compiled by the U.S. Energy Information Administration. The big change has come from the cleanup of America’s electric grid. Electricity use in the U.S. hasn’t declined much in the last decade, but it’s being generated from cleaner sources.

A dramatic switch away from coal, the dirtiest fuel, is mostly responsible for the drop in emissions. Coal power has declined by more than a third in the last decade. Meanwhile, the transportation sector is getting cleaner. Cars are becoming more efficient under aggressive pollution rules, or CAFÉ standards, but that’s so far been offset by an ever-rising American appetite for SUVs, crossovers and pickup trucks.

Investments in electric cars may soon begin to do to the transportation sector what wind and solar have done to the power sector: turn the pollution curve upside down. The price of battery packs has been plummeting by about 8 percent a year and electric cars are now projected to become cheaper, more reliable, and more convenient than their gasoline-powered equivalents around the world by the mid-2020s.

Financial Review

9 Months

Sinclair Noe — October 20, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 165 = 23,328 (Record)
SPX + 13 = 2575 (Record)
NAS + 23 = 6629 (Record)
RUT + 6 = 1508
10 Y + .06 = 2.38%
OIL + .37 = 51.66
GOLD – 9.70 = 1281.00

Cryptocurrency

• Number of Currencies: 875
• Total Market Cap: $173,502,181,290
• 24H Volume: $4,521,356,959

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	6,080.0	$101.40B	$2.66B	58.98%	1	+1.60%	+7.51%
	Ethereum	ETH	297.71	$28.44B	$431.85M	9.57%	0.0491008	-1.62%	-13.01%
	Ripple	XRP	0.20260	$7.90B	$139.84M	3.10%	0.00003372	-2.97%	-21.81%
	Bitcoin Cash	BCH	321.00	$5.40B	$158.45M	3.51%	0.0531441	-1.23%	+0.71%
	Litecoin	LTC	58.220	$3.12B	$170.80M	3.78%	0.00959001	-3.16%	-2.81%
	Dash	DASH	285.50	$2.20B	$44.77M	0.99%	0.0474201	-1.53%	-7.67%
	NEM	XEM	0.20684	$1.88B	$4.82M	0.11%	0.0000343	-5.49%	-0.13%
	BitConnect	BCC	216.039	$1.56B	$13.66M	0.30%	0.035516	+8.32%	+9.32%
	NEO	NEO	27.860	$1.38B	$34.87M	0.77%	0.00454346	+0.14%	-4.24%
	Monero	XMR	87.50	$1.33B	$33.12M	0.73%	0.0142987	-3.12%	-8.33%

Record highs for the Dow, S&P and Nasdaq – marking the 24^th time this year that all 3 major indexes hit records on the same day. The Dow has posted 53 record highs this year, while the S&P has notched 49, although the number of highs is almost irrelevant. More important is the strength and duration of the trend.

The S&P has been extremely steady – notching 241 days without a decline of 3% or more. If the S&P can continue this calm trading, it would break a record going back to 1995. the S&P 500 is on pace for its ninth consecutive year in the green, which would match a similar streak from 1991 to 1999.

For the week, the Dow gained 2%. The S&P 500 was up 0.9 percent for the week while the Nasdaq added 0.4 percent. The Dow and S&P have now posted gains for 6 consecutive weeks. The Nasdaq is up for 4 weeks.

What about valuation? At Friday’s close, the S&P 500 traded at 19.5 times forecast earnings, the highest since the dot-com era. It represents an earnings yield of 5.1 percent, more than double the payout from 10-year Treasury bonds.

While third-quarter profit growth is forecast to drop to 2.6 percent for S&P 500 companies from around 10 percent in the first half, we need to remember the impact from hurricanes on third quarter results, and expect a rebound in coming quarters. While earnings have been good, enthusiasm today was focused on tax cuts.

In a Thursday evening vote, the Senate voted to approve a spending blueprint that will allow Republicans to pass a $1.5 trillion tax cut without Democratic votes and without concern of a possible Democratic filibuster. The vote went along party lines, except for Senator Rand Paul, who voted no.

The Senate budget authorizes lawmakers to blow a gaping hole in the deficit, roughly twice the size of the 2009 stimulus package that 38 then-Senate Republicans opposed, despite earlier pledges to offset its cost. The House version prescribed a deficit-neutral approach, but House Republicans now are likely to accept the Senate plan in the interest of accelerating work on a tax overhaul. So, all the deficit hawks who wailed and moaned about the country going into debt have now come down with amnesia.

The biggest thing — which senators from both parties emphasized this week — is the passage of “reconciliation instructions” that tell the Senate Finance Committee that a tax bill cannot be filibustered if it adds $1.5 trillion or less to the deficit. Over the next 10 years, the budget calls for $473 billion in cuts from Medicare and $1 trillion from Medicaid.

Filibusters require 60 votes to break, which means Democrats could derail the tax bill even though they are in the minority. A bill brought up under reconciliation requires only 51 votes to pass, and Republicans hold 52 seats (plus, they have Vice President Pence to break a 50-50 tie).

The budget also includes reconciliation language that the energy committee could use to ease restrictions on oil drilling in the Arctic, so a bill that is brought up to do that also may not be filibustered. And that is what last night’s vote was about – setting a process for avoiding a filibuster. It doesn’t create a budget, even though the 2018 fiscal year has already begun. It doesn’t lay out details of what might be in the budget. In other words, the budget is not really about the budget.

In fact, as senators debated the budget resolution this week, they have focused on the merits of the coming tax bill, not spending levels and programs to fund and defund. In that sense, it has been a legislative debate about legislation that does not yet exist.

Republicans have released a framework for their tax plans, but don’t waste your time reading it because whatever happens in the coming weeks will not have anything to do with that initial framework.

Members of the House Ways and Means Committee are huddling next week to debate final, unresolved questions in their bill. Discussions continue among members of the Senate Finance Committee as well. Once a bill drops – in about a week or two, maybe – House Ways and Means members will meet for what is called a markup, where representatives offer amendments. This will be about the only chance for Democrats to have any input.

The bill will eventually work its way to the Congressional Budget Office, and the CBO will make sure not increase deficits by more than the amount allowed in the budget resolution. And the only way that happens is if they use dynamic scoring, meaning farfetched projections for economic growth to offset the cuts – economic growth that most economist say is nearly impossible.

Today marks 9 months of the Trump administration, so it’s a good time to look at how the markets and the economy have been performing. Thanks to Rex Nutting at MarketWatch for putting together the research over the past 25 years. The stock market, as you know, is doing quite well in comparison with past periods.

Since Jan. 20, the S&P 500 is up 12.8%. It’s been better than that over a nine-month period about a third of the time since 1992. The best nine-month period was between April and December 2009, when the S&P soared 46.7%. The worst period was in the nine months just before that, from July 2008 to March 2009, when it fell 43.6%.

The market was better than it is now about 46% of the time while Bill Clinton was president, 34% under Barack Obama, and 14% under George W. Bush. So, the market is good but hardly unprecedented.

The job market has also been strong, averaging 140,000 net jobs a month since January, which works out to 0.8% growth. Job growth has been better over an eight-month period about two-thirds of the time since 1992. It was better 97% of the time under Clinton, 73% of the time under Obama, and 37% of the time under George W. Bush.

The economy grew at a 2.1% annual rate in the first half of the year and is expected to maintain that trend (perhaps a tick higher) for the foreseeable future. It’s grown faster than that about two-thirds of the time since 1992, but most of those faster periods were in the 1990s.

The best two-quarter period was at the end of 1999, when it grew at a 6.1% pace. The worst two-quarter growth was the 6.8% decline at the end of 2008 and the beginning of 2009. Growth was faster than the recent 2.1% growth half of the time under both Obama and Bush 43. Growth was faster 91% of the time when Clinton was president. The conclusion: the markets, jobs, and economic growth are good, but not the greatest.

The National Association of Realtors reports sales of existing or previously owned homes rose 0.7% in September to an annual rate of 5.39 million, breaking a three-month losing streak. The number of homes available for sale climbed 1.9% in September, but total housing inventory was still down 6.4% compared to a year ago at 1.9 million. The median price of an existing home increased 4.2% to $245,100.

Arizona’s seasonally adjusted unemployment rate decreased from 5.0% in August to 4.7% in September. That compares to a 4.2% unemployment rate at the national level. Arizona gained 36,400 Nonfarm jobs (1.3%) in September, a little better than average. Government added 26,100 jobs while the Private Sector gained 10,300 jobs. Arizona Nonfarm employment grew by 1.3% (35,900 jobs) over the year in September.

According to a new report from the British medical journal Lancet, pollution in all its forms killed 9 million people in 2015 and, by one measure, led to economic damage of $4.6 trillion. Diseases caused by pollution account for about one in six deaths worldwide.

As Halley’s Comet continues its eternal processional through the solar system, it occasionally gives those of us who are Earthbound a pretty good show—and one of them, the Orionid Shower, is taking place this weekend. So, if you are looking for shooting stars, you could see up to 20 per hour tonight and tomorrow night. All you need is a clear sky, and a spot as far away from light pollution as possible, and a little patience – enjoy.

Financial Review

Solid 23K

Sinclair Noe — October 18, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

Subscribe: Android | RSS

DOW + 160 = 23,157 (Record)
SPX + 1 = 2561 (Record)
NAS + 0.56 = 6624 (Record)
RUT + 7 = 1505
10 Y + .04 = 2.34%
OIL + .03 = 52.07
GOLD – 4.30 = 1281.50

Cryptocurrency 

• Number of Currencies: 872
• Total Market Cap: $169,632,917,992
• 24H Volume: $5,029,229,846

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,627.1	$93.66B	$2.41B	48.10%	1	+0.94%	+15.98%
	Ethereum	ETH	315.86	$30.13B	$611.96M	12.20%	0.0562455	+0.62%	+3.70%
	Ripple	XRP	0.21733	$8.39B	$323.31M	6.44%	0.00003869	+0.50%	-17.52%
	Bitcoin Cash	BCH	327.54	$5.49B	$460.27M	9.17%	0.0583761	-3.27%	+4.67%
	Litecoin	LTC	60.840	$3.25B	$293.12M	5.84%	0.0108171	+0.26%	+19.46%
	Dash	DASH	298.30	$2.28B	$38.73M	0.77%	0.0531836	+0.86%	+0.68%
	NEM	XEM	0.22017	$1.99B	$3.48M	0.07%	0.00003926	+2.65%	+3.30%
	NEO	NEO	29.117	$1.44B	$47.65M	0.95%	0.00512899	-2.16%	-3.21%
	BitConnect	BCC	199.648	$1.44B	$13.78M	0.27%	0.0354773	+4.74%	+18.98%
	Monero	XMR	89.32	$1.37B	$35.88M	0.72%	0.0159926	+0.36%	+2.54%

Yesterday the Dow Industrials topped 23,000 for the first time only to close just below the milestone. Today, the Dow sprinted past 23,000 without looking back.

Yesterday we told you IBM posted better than expected earnings and revenue (even though it was the 22^nd consecutive quarter where revenue declined) but they did report growth where it counts, with revenue increasing 11% in cloud computing and software-as-a-service offerings; good enough for a 9% pop – its biggest one-day gain in almost 9 years – which, in turn, lifted the Dow. Also record highs for the S&P 500 and Nasdaq.

The Dow logged its fourth straight daily rise, as well as its 13th gain of the past 16 trading days. The S&P gained for a fourth straight day as well as its 14th positive session of the past 17. The Dow has now notched 51 record high closes this year, the most all-time high finishes in a single year since 2013.

Senate Republicans appear to have enough votes to pass a budget measure to use a procedure known as reconciliation to move tax legislation through the Senate with a simple majority, rather than the 60 votes normally required.

Reconciliation is a parliamentary procedure that allows for the expedited passage of budget-related legislation that alters revenue, spending and the federal debt limit. It is a vital technicality to moving forward on tax cuts. The Senate is expected to vote on a budget bill this week.

Treasury Secretary Steven Mnuchin told Politico the stock market will see a “significant” drop if tax reform is not passed. Mnuchin said, “There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done.” So, if tax cuts don’t get done, don’t blame Mnuchin – blame Congress.

Remember when the Trump administration first proposed its 9-page blueprint for tax reform. They claimed that it would not benefit the very wealthy. For almost a year now, Treasury Secretary Steven Mnuchin has pledged that wealthy Americans would receive no tax cut whatsoever. It became known as the Mnuchin Rule – no tax cuts for the wealthy, that’s the rule.

Then he softened the pledge to say that avoiding tax cuts for the rich was a goal, not a commitment.

So, it should be no surprise that today Mnuchin just gave up on his promise, admitting “it’s very hard not to give tax cuts to the wealthy with tax cuts to the middle class.” Which goes down as the stupidest thing of the day, in a day filled with stupidity. It really is simple – if you promise no tax cuts for the wealthy, you don’t cut their taxes – simple, you just don’t lie.

Yesterday, Senators Lamar Alexander and Patty Murray announced a bipartisan deal to stabilize Obamacare by restoring subsidies to health insurers. The agreement would shore up Obamacare by reviving billions of dollars of federal subsidies to insurers for two years to help lower-income Americans obtain medical coverage. Alexander said that Trump had “completely engineered” the bipartisan proposal.

On Tuesday, Trump said the White House was involved in the negotiations and that the agreement was “a very good solution” for a short-term approach, but today he said he could “never support bailing out” insurance companies.

Trump’s decision to end key Obamacare payments is already reverberating throughout the health insurance market. Blue Cross Blue Shield of North Carolina announced its final Obamacare exchange premium increases for 2018 on Wednesday, and it pinned a significant amount of the increase on Trump. BCBS said it was forced to increase premiums due to lost funding from Obamacare’s cost-sharing reduction (CSR) payments.

There is a slice of people in the market, roughly 10% according to BCBS NC, who do not receive the tax credit and will therefore bear the brunt of the increase caused by the lost CSRs. The announcement comes just a few days after a similar announcement from the Department of Insurance in Pennsylvania. According to the department, the average Obamacare premiums in the state would increase 30.6% in 2018, up from 7.6% if the CSRs continued.

American Express reported quarterly earnings and revenue that beat analysts’ expectations and raised its forecast for the year. The company also announced that Stephen Squeri will succeed Kenneth Chenault as CEO, effective February 1, 2018.

Northern Trust also posted quarterly results, beating top and bottom-line estimates. The company’s stock rose 3.8 percent and was among the best performers in the S&P 500.

United Airlines said its third-quarter net income fell by a third to $669 million from the year-ago period, partly due to $185 million in pretax losses caused by canceled flights during the Atlantic hurricane season.

EBay forecast current-quarter adjusted profit that was largely below analysts’ estimates as the company continues to ramp up spending to tweak its e-commerce platforms.

One of the world’s biggest mining companies and two of its former top executives are in trouble for allegedly overstating the value of a mine in Africa by billions of dollars. The Securities and Exchange Commission claims that Rio Tinto realized the mine was worth significantly less within a year of purchasing it, but did not share that information with investors until 2013. In a filing with a district court in New York, the SEC accused the company and the two former senior executives of fraud.

Ford is recalling 1.3 million F-series pickup trucks, the best-selling vehicle in America, for a door latch problem that could allow the door to open while the truck is moving. The affected models include some of the model year 2015, 2016 and 2017 F-150’s, as well as some 2017 Super Duty pickups.

Two weeks before a Federal Reserve FOMC policy meeting, the Fed publishes the Beige Book, a collection of reports and observations from Fed districts around the country. The latest snapshot of the economy shows modest to moderate growth and few signs of inflation.

Hurricanes Harvey and Irma hit during the survey period and will have a negative effect on third-quarter economic growth, the Fed has said, although it expects the impact to be temporary. “Despite widespread labor tightness, the majority of districts reported only modest to moderate wage pressures.” Shortages were particularly acute in construction, transportation, skilled manufacturing, and some healthcare and service positions. “These shortages were also restraining business growth,” the Fed said.

However, this did not feed through into higher wages and there also was little change overall in selling prices despite several districts reporting increased manufacturing input costs.

Once every 5 years, the Chinese Communist Party gets together and today was the day. Chinese President Xi Jinping laid out a confident vision for a more prosperous nation and its role in the world. The speech was heavy on aspiration and short on specific plans.

On the economy, Xi said China would relax market access for foreign investment, expand access to its services sector and deepen market-oriented reform of its exchange rate and financial system, while at the same time strengthening state firms.

Homebuilding fell to a one-year low in September as Hurricanes Harvey and Irma disrupted the construction of single-family homes in the South, suggesting housing probably remained a drag on economic growth in the third quarter. Housing starts decreased 4.7 percent to a seasonally adjusted annual rate of 1.127 million units. That was the lowest level since September 2016 and marked the third monthly decline in starts. Building permits fell 4.5 percent.

Inequality and economic insecurity have been rising for American workers — and the situation is only getting worse as they age into retirement. The Organization for Economic Co-operation and Development released a study that found the gap between wealthy and low income seniors is wider in the United States than it is in all but two of its 35 member nations — Mexico and Chile.

Although previous generations of retired Americans have seen rising levels of economic security, that trend appears to be coming to an end. Lower wages and the decline of pensions for middle-class workers are combining to create a class of older people with very thin financial cushions.

Tomorrow marks the 30^th anniversary of Black Monday – the Crash of 1987. On that day, the Dow lost 508 points, a fall of nearly 23%. At today’s market heights, a percentage fall of that magnitude would knock more than 5,200 points off the DJIA.

The crash was blamed on a number of factors, but at heart, it was the growing complexity of the market that seemed to overwhelm participants and set the stage for the calamity. Computerized trading, then in its infancy, combined with new hedging strategies that used relatively newfangled stock-index futures contracts were all part of the picture.

The market is much more complex now – not necessarily a good thing. The major exchanges now have automatic trading curbs in place – meaning a 23% one-day crash shouldn’t happen, at least in theory.

Financial Review

23K(ish)

Sinclair Noe — October 17, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

DOW + 40 = 22,997 (Record)
SPX + 1 = 2559 (Record)
NAS – 0.35 = 6623
RUT – 5 = 1497
10 Y – .01 = 2.30%
OIL + .14 = 52.01
GOLD – 9.70 = 1285.80

Cryptocurrency

• Number of Currencies: 881
• Total Market Cap: $164,018,283,218
• 24H Volume: $4,954,812,161

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,358.1	$89.65B	$1.86B	37.48%	1	-4.27%	+12.45%
	Ethereum	ETH	304.46	$29.07B	$530.61M	10.71%	0.0568999	-3.54%	+1.24%
	Ripple	XRP	0.22479	$8.75B	$412.24M	8.32%	0.00004228	-1.92%	-13.77%
	Bitcoin Cash	BCH	345.00	$5.95B	$942.47M	19.02%	0.0663392	-6.41%	+12.14%
	Litecoin	LTC	56.180	$3.01B	$208.32M	4.20%	0.0105002	-5.10%	+11.48%
	Dash	DASH	287.68	$2.21B	$41.24M	0.83%	0.0538494	-3.45%	-0.64%
	NEM	XEM	0.21036	$1.89B	$3.05M	0.06%	0.00003909	-5.30%	-2.68%
	NEO	NEO	29.112	$1.45B	$78.17M	1.58%	0.00540911	-8.06%	-4.17%
	Monero	XMR	89.19	$1.36B	$44.46M	0.90%	0.016648	-1.85%	+2.95%
	BitConnect	BCC	186.401	$1.34B	$13.34M	0.27%	0.0347181	-4.43%	+14.14%

The Dow Industrials and the S&P 500 hit another record high close. The Nasdaq Composite barely missed. The Dow briefly moved above 23,000 intraday – for the first time ever. Wait for 24,000 before you buy a hat.

It took 53 trading days for the Dow industrials to move from 22,000 to the 23,000 mark. Don’t know how long you might have to wait. Valuations seem a bit high at these levels. But a 1,000-point move isn’t what it used to be. If the Dow picks up another 1,000 points to reach 24,000, that will represent a 4.3% advance from the 23,000 mark.

Two senators announced a bipartisan breakthrough to shore up Obamacare, a least for the short-term. The agreement worked out by Republican Senator Lamar Alexander and Democratic Senator Patty Murray would meet some Democratic, including a revival of the subsidies for Obamacare and restoring $106 million in funding for a federal program that helps people enroll in insurance plans.

In exchange, Republicans would get more flexibility for states to offer a wider variety of health insurance plans while maintaining the requirement that sick and healthy people be charged the same rates for coverage. The deal still has to make it through both houses of Congress and be signed by Trump.

If it becomes law, it could end a chaotic situation for insurers after the White House moved last week to dismantle parts of the Affordable Care Act. Shares of U.S. hospital operators moved higher after news of the deal. Tenet shares were up 4 percent, while HCA was 2.3 percent higher. Shares of some health insurers also extended their gains on the day, with Anthem up 2.5 percent and Centene rising 2.8 percent.

UnitedHealth, the largest US health insurer, is the first health insurer to report and its third-quarter net earnings rose 26.3 percent, beating analysts’ expectations. Its shares rose more than 5 percent

Trade ministers from the United States, Canada and Mexico wrapped up a contentious round of NAFTA negotiations. The three sides agreed to carry on with talks and said they would negotiate into the first quarter of 2018, beyond the end-year framework initially envisaged to complete the negotiations.

Canada and Mexico have rejected U.S. proposals involving the dairy and auto sectors, dispute resolution, government procurement and a sunset clause that would effectively end NAFTA after five years unless all parties agree to extend it.

A federal judge in Hawaii on Tuesday granted a temporary restraining order against Trump’s third travel ban, just hours before it was set to take effect at midnight. Trump issued a proclamation last month restricting travel to the US from nationals of eight countries, including Iran, Syria, Yemen, Somalia, Venezuela, Chad, Libya, and North Korea.

Those restrictions came after the first two iterations of the travel ban, which targeted majority-Muslim nations, faced court challenges. Trump’s second travel ban was partly implemented, and the Supreme Court was scheduled to hear arguments on its constitutionality in October. But the justices removed oral arguments from the schedule after part of the second ban expired and Trump issued the third ban as a replacement in September.

The third ban will likely make its way to the Supreme Court, as well, though it must go through the appellate court system first. Another federal court is also expected to rule on the ban in a separate legal challenge. Almost immediately, the Department of Justice announced it would appeal the ruling.

Morgan Stanley and Goldman Sachs reported earnings and they followed a pattern of weak results due to calm markets. Like JPMorgan Chase and Citigroup, the firms that reported today showed a decline in fixed-income trading revenue. Low volatility has been problematic for Wall Street, especially compared with what was an active trading environment in the third quarter of 2016.

Goldman’s fixed-income trading revenue dropped 26 percent from a year ago, while Morgan Stanley posted a 21 percent decline. Still, both banks’ debt trading units slightly beat analyst expectations for the quarter. Morgan Stanley, Wells Fargo and JPMorgan all posted record revenue from their wealth- and asset-management units as stock markets hit records and after the Federal Reserve hiked interest rates three times in the past year.

Goldman Sachs also gained from rising markets, as its revenue from equity investments climbed to the highest in almost four years. JPMorgan, Citigroup, Bank of America and Wells Fargo boosted provisions for consumer loan losses from the previous quarter, which could be a leading indicator of a turn in the credit cycle. Goldman Sachs reported earnings of $5.02 per share vs. $4.17 expected.

Also, revenue of $8.33 billion also easily beat expectations of $7.54 billion. Goldman Sachs was down 2.6%. Morgan Stanley posted earnings of 93 cents a share – topping estimates of 81 cents. Morgan Stanley was up slightly.

IBM reported third-quarter net income of $2.7 billion, or $2.92 a share, compared to $3.2 billion, or $2.98 a share, in the year-ago period – still, that beat estimates. Revenue fell slightly to $19.1 billion from $19.2 billion in the year-ago period, marking the 22-consecutive quarter of revenue declines. IBM shares popped 4% in after-hours trade.

Yesterday, after the closing bell, Netflix reported earnings – a modest beat, but they added a whole bunch of subscribers. And one of the major reasons they keep adding subscribers is because they keep adding movies. Netflix has released at least 34 original movies so far in 2017. It plans to release 80 next year. That’s more titles than most movie studios release in a year.

Disney—which also owns Pixar, Marvel Studios, and Lucasfilm—released 13 movies in the US in 2016; Time Warner’s Warner Bros., New Line, Fine Line, Warner Independent, and Picturehouse studios released a combined 23 films; and Sony, which released the most, put out 38 movies throughout its studio portfolio last year, less than half of what Netflix is proposing.

Netflix is padding its already massive content budget to support the ambitious movie-release schedule it has planned. It expects to spend between $7-8 billion on content overall next year, up from $6 billion in 2017. Even with a recently announced hike in subscription fees, you have to wonder if Netflix is experiencing a bit of cash burn. Netflix shares dropped about $3 today.

Volvo and Chinese parent company Geely unveiled the first model of its new Polestar electric brand, and announced a more than $750 million investment to develop the brand further. It is the first step to developing high-performance electric cars that are aimed at some of the same customers targeted by makers such as Tesla.

The first production car will be the Polestar 1, a hybrid 600-horsepower two-door, four-seater hybrid coupe, with just above 90 miles of pure electric range. That car will go into production in 2019. It will be followed soon by an all-electric car aptly named the Polestar 2.

Industrial production in the U.S. rebounded in September after two straight declines, rising 0.3% in September. Capacity utilization rose to 76% from 75.8% but remained below summer levels.

Production for July, meanwhile, was revised to show a small decline instead of a 0.4% gain. The decline in August lowered to 0.7% from 0.9%. Most industries boosted output in September, led by construction and utilities.

Manufacturing production edged up 0.1%. The most notable decline was in chemicals, an industry concentrated in the South. A pair of major storms that swept through the region from Texas to Florida held down U.S. production by about 0.25 percentage points.

Industrial production fell at a 1.5% annual rate in the third quarter, but the Fed said its index would have risen at least 0.5% if not for the hurricanes. Other indicators of heavy industry points to steadily rising sales and production and that’s likely to help keep the U.S. on its current 2% annual growth path.

The cost of imported goods jumped 0.7% in September in the biggest gain in more than a year, led by fuel prices and industrial supplies. Excluding fuel, import prices rose a smaller 0.3%.

Sentiment among home builders spiked in October after faltering over the summer. The National Association of Home Builder’s monthly confidence gauge jumped four points to a reading of 68, the highest reading since May. The NAHB warned that builders need to be mindful of long-term repercussions from the recent hurricanes, such as intensified material price increases and labor shortages.

And a final note, if you follow the metals markets you may have noticed that palladium is now trading around $980, while platinum is just $938 an ounce. That reverses long-term price trends.

Financial Review

Wipe Out

Sinclair Noe — October 4, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 19 = 22,661 (Record)
SPX + 3 = 2537 (Record)
NAS + 2 = 6534 (Record)
RUT – 4 = 1507
10 y un= 2.33%
OIL – .52 = 49.90
GOLD + 3.50 = 1275.60

Cryptocurrency

• Number of Currencies: 882
• Total Market Cap: $141,383,357,373
• 24H Volume: $2,829,934,428

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	4,160.0	$69.41B	$1.16B	40.99%	1	-1.33%	-0.63%
	Ethereum	ETH	288.28	$27.52B	$275.44M	9.73%	0.0695521	-1.07%	-4.57%
	Ripple	XRP	0.21870	$8.49B	$307.66M	10.87%	0.00005313	+2.28%	+10.83%
	Bitcoin Cash	BCH	350.26	$5.88B	$304.62M	10.76%	0.0846327	-1.57%	-22.15%
	Litecoin	LTC	50.560	$2.70B	$80.31M	2.84%	0.0121508	-1.31%	-9.12%
	Dash	DASH	295.00	$2.27B	$42.78M	1.51%	0.0717433	-2.26%	-12.56%
	NEM	XEM	0.21516	$1.88B	$3.00M	0.11%	0.00005023	+1.30%	-13.41%
	NEO	NEO	29.589	$1.48B	$60.65M	2.14%	0.00710292	-5.17%	-2.88%
	IOTA	MIOTA	0.52500	$1.47B	$8.71M	0.31%	0.00012679	-3.62%	-3.07%
	Monero	XMR	88.00	$1.35B	$26.69M	0.94%	0.0213148	-2.18%	-10.66%

The Institute for Supply Management’s index of service-oriented companies  jumped to a 12-year high of 59.8% in September from 55.3%. The last time the index was higher was in August 2005. Numbers over 50% are viewed as positive for the economy and anything over 55% is considered exceptional.

ADP reports private-sector employment slowed in September as firms added 135,000 jobs. The ADP data, produced in conjunction with Moody’s Analytics, may be more important than usual this month as it should be much less affected by hurricanes than the government data.

Workers are included in ADP payrolls even if they are not paid due to bad weather. Still, Moody’s Analytics’ Chief Economist Mark Zandi said hurricanes Harvey and Irma cut job gains by 50,000-60,000 jobs, mainly by forcing smaller “mom-and-pop” retailers to close.

Friday’s Nonfarm Payroll report will be a little crazy, with estimates all over the place due to the hurricanes. The number I’m hearing is 100,000 jobs, which would be very weak, but not enough to change the Fed’s outlook since it will be just a one-month blip in the data. This could provide a nice setup for dollar bulls. We have strong economic data but a weak jobs number could offer a minor, fleeting dip.

In a bizarre moment on Tuesday, Trump told Fox News that he was “gonna have to wipe out” Puerto Rico’s debt. Trump said: “We are going to work something out. We have to look at their whole debt structure. You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave goodbye to that.”

It isn’t clear how Puerto Rico’s debt could just be made to disappear outside bankruptcy court. Still, to “wipe out” $74 billion in municipal debt, billions of which are guaranteed by the island’s constitution, would shake investor faith in a market long considered one of the safest of havens.

Lower-rated municipal borrowers would almost certainly see their borrowing costs rise to account for the added risk. The debt is widely held, by hedge funds, pensions and residents of the territory. Many of the hedge funds could be considered vulture investors who swooped in after Puerto Rico was already in trouble, buying up debt for pennies on the dollar and hoping to force payment at full par. But the biggest chunk of Puerto Rico’s debt is pension obligations.

The commonwealth’s budget is under the control of a federally appointed oversight board mandated as part of the bankruptcy legislation. Created by Congress to wield broad sway over the territory’s finances, the panel approves the island’s budget and is meant to help make unpalatable decisions such as closing schools and cracking down on tax evasion.

In addition to the existing debt, damages from Hurricanes Irma and Maria are expected to run about $35 billion, or a per capita cost of about $10,000 per citizen of Puerto Rico. The power grid is destroyed and it might be 6 months or more to have electric service restored; the tourism industry is in dire straits and the economy is a mess. Puerto Rico doesn’t have money to repair the hurricane damage, much less to pay off its earlier debt.

After Trump’s remarks, a shudder went through the $3.8 trillion muni bond market and Puerto Rican bondholders freaked. Puerto Rico’s beaten-down benchmark bonds plummeted from an already unprecedented 44 cents on the dollar to as little as 30 cents.

If Puerto Rico’s $74 billion in debt can just be wiped away, what does that mean for the rest of the muni bond market. That doomsday scenario, of course, is contingent upon Trump’s being able to cancel all the commonwealth’s debt, amassed over decades and enabled by a yield-hungry Wall Street.

There’s no indication he has a plan to do so. Administration officials, as they’ve done throughout his presidency, quickly walked his comments back. Soon after, Trump’s budget head Mick Mulvaney told CNN not to take the president “word for word”.

On Monday, Catalonian politicians will try to hold a parliamentary session to evaluate the October 1 vote to secede from Spain. Then they are expected to declare their independence. What happens after that remains a mystery. Spain and the EU say the independence vote was illegal. Spain’s High Court launched an investigation against top Catalan police and organizers on suspicion of inciting rebellion against the state, just hours after the Spanish king charged that the Barcelona separatists were acting “outside the law and outside democracy.”

As the king addressed the nation, trade unions in Catalonia led a powerful general strike that shut down businesses, highways and schools in a mass protest against police violence. Protesters took to the streets. Stay tuned.

Richard Smith, the recently-former CEO of Equifax testified before the Senate Judiciary subcommittee today. Smith said the Equifax data breach happened because of a breakdown in communication at the company. They knew their software was vulnerable and needed to be fixed but the tech guy never patched the glitch.

Smith didn’t say who the tech guy was but said he has since been fired. Senator Al Franken gave the unknown tech guy a name – Gus; saying, “Why is the security of 145 million people all in the hands of one guy? Why is it all up to Gus?”

If Smith knows Gus’s real name, he kept it to himself. But Gus may not be entirely at fault. Smith said it’s possible “this one guy” didn’t know all of Equifax’s various business portals were using the faulty software. Later security scans didn’t detect the vulnerability either. Equifax made more missteps after it publicly disclosed the hack Sept. 7.

A customer service representative – let’s call this one Sam – tasked with responding to customers’ Tweets sent out incorrect links to the website the company created to help consumers sign up for credit monitoring. Instead, that person was tweeting out links to a phishing website with a similar name. Sam, the customer service representative is no longer with the company.

Richard Smith resigned with a multi-million-dollar golden parachute and still refuses to accept responsibility. The hearing drew a silent protester dressed like the Monopoly man character, (you know – Rich Uncle Pennybags in top hat, monocle) who sat in the audience behind Smith but in the range of the video camera. She was there to protest forced arbitration.

Equifax’s initial offer of free credit monitoring after the hack would have made consumers accept arbitration to settle disputes with the company, something Smith has said was a mistake and has since been removed.

Google held a splashy press event in San Francisco today. They showed off the second generation of various Google devises, including: two new versions of its Pixel smartphone; a new premium laptop; a cheaper, smaller model of its Home speaker and a larger version designed for music. All the products go head-on with recent offerings from Apple and Amazon. Those two rivals are aggressively shipping devices with built-in features, like voice-assistance and augmented reality, that could upend how people access information — Google’s main business.

Google’s latest device refresh is all about making sure it can claim a lead in that next era of computing, and keep its services front-and-center in people’s lives – and that means a sharp focus on its artificial intelligence software. Google owns Android, the software behind most smartphones, but it has long struggled with ways to tame its many hardware partners and make them competitive with Apple’s iPhones.

Apple tightly controls hardware and software, and has lured consumers with mobile payments, its voice-based Siri assistant and initial forays into augmented reality, technology that splices the digital and physical worlds. Amazon, meanwhile, has emerged as a viable contender in the smart home market with its assistant, Alexa, and a seemingly unending suite of Echo gadgets.

Samsung, which makes Android phones has tried to push its own, new voice assistant – Bixby – which is still light years behind Google assistant. My pick for the coolest gadget unveiled go to Google Pixel Buds – wireless headphones or earbuds, which can be paired with Google Assistant and can provide live translation of up to 40 languages.

The International Energy Agency reports solar power grew faster than any other source of fuel for the first time in 2016. The IEA says 165 gigawatts of renewables were completed last year, which was two-thirds of the net expansion in electricity supply. Solar powered by photovoltaics, or PVs, grew by 50 percent, with almost half of new plants built in China. Solar PV capacity growth will be higher than any other renewable technology through 2022.

This marks the sixth consecutive year that clean energy has set records for installations. The IEA expects about 1,000 gigawatts of renewables will be installed in the next five years. China is the undisputed leader in renewables and solar, installing more than 2 times the gigawatt capacity of the US, and accounting for close to half of the global market.

On Monday, the US Supreme Court threw out an appeal in a trademark suit brought by Louis Vuitton against a California company that makes tote bags featuring cartoon drawings of … Louis Vuitton bags. (“Permissible parody,” the court ruled.)