Financial Review

Record High Close

Sinclair Noe — September 12, 2017

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DOW + 61 = 22,118.86
SPX + 8 = 2496
NAS + 22 = 6454
RUT + 8 = 1423
10 Y + .05 = 2.17%
OIL + .07 = 48.30
GOLD + 4.40 = 1332.40

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	4,090.9	$67.79B	$1.84B	39.05%	1	-1.41%	-7.54%
	Ethereum	ETH	290.01	$27.21B	$748.65M	15.85%	0.0699279	-1.32%	-9.75%
	Bitcoin Cash	BCH	531.44	$8.30B	$268.92M	5.70%	0.121699	-1.40%	-8.80%
	Ripple	XRP	0.20765	$7.94B	$95.49M	2.02%	0.00005036	-0.82%	-4.57%
	Litecoin	LTC	65.650	$3.36B	$462.01M	9.78%	0.0154368	-0.53%	-12.62%
	Dash	DASH	319.73	$2.43B	$27.77M	0.59%	0.0780748	-1.96%	-3.01%
	NEM	XEM	0.25413	$2.20B	$3.78M	0.08%	0.0000595	-1.16%	-16.76%
	Monero	XMR	109.25	$1.65B	$39.90M	0.85%	0.0266699	-2.43%	-7.19%
	IOTA	MIOTA	0.56000	$1.59B	$31.88M	0.68%	0.00013947	-5.37%	-8.24%
	Ethereum Classic	ETC	14.9243	$1.36B	$158.83M	3.36%	0.00346056	-0.63%	-16.68%

The last time the Dow hit a record high was August 7 at 22,118.42. Since then, the market has had a few startling declines. And yes, stocks are expensive at these levels, and you must think the market might be susceptible to Fed tightening, or some sort of exogenous event – but today, the world to not explode, so it’s all good – until it isn’t.

The monthly Job Openings and Labor Turnover Survey, or JOLTS, released by the Labor Department showed the labor market continued to tighten even as job openings rose to a record high in July. Skilled labor and experienced workers are in short supply.

Job openings, a measure of labor demand, increased by 54,000 to a seasonally adjusted 6.2 million. The highest level in 17 years. Job openings have now been above 6 million for two straight months. Hiring increased 69,000 to 5.5 million in July, lifting the hiring rate to a near 1-1/2-year high of 3.8 percent from 3.7 percent in June.

About 3.2 million Americans voluntarily quit their jobs in July, up from 3.1 million in June. The quits rate is a measure of job market confidence. People leave one job to take another, hopefully better job. Part of the problem with the labor market is that firms have not been willing to pay to attract workers, and so workers stay in their current job.

The JOLTS data signal that the labor market was in solid shape in July. However, we could see a drop in the monthly jobs report due to disruptions from Hurricanes Harvey and Irma. Still the JOLTS data should be enough to bolster the Federal Reserve’s position that the labor market has largely recovered.

A separate report from the National Federation of Independent Business showed a record share of small businesses in August ranked difficulties finding qualified workers as “their top business problem.” The rise in job vacancies in July bolsters views that August’ s moderation in job gains was largely because of a seasonal quirk.

The Census Bureau report median household income in America was $59,039 last year, surpassing the previous record of $58,655 set in 1999. The figure is adjusted for inflation. The Census said the uptick in earnings occurred because so many people found full-time jobs last year, rather than a big increase in wages.

America’s poverty rate fell to 12.7 percent, the lowest since 2007, the year before the financial crisis hit. The percent of Americans without health insurance for the entire year also dropped in 2016 to just 8.8 percent, the lowest ever, largely thanks to expanding coverage under the Affordable Care Act. Some 28.1 million people lacked health insurance in 2016, down from 41.8 million in 2013.

So, one of the big reasons why there is less poverty is because of safety net programs, not because of increased wages. Social Security, for example, reduced the number of people in poverty by 8.15 percent last year; refundable tax credits like the EITC reduced the number of people in poverty by 2.55 percent.

Even though the median household income is at the highest level since 1999 and even though the number is adjusted for inflation, it may not mean that Americans are earning more because the Census Bureau has changed the methodology for calculating the data. The Economic Policy Institute crunched the Census data to account for the change. The 2016 median income figure remains 1.6% below its 2007 level and 2.4% below where it was in 1999.

There are still big disparities between race and class. Median income for African-American households was only $39,490 last year, far lower than $65,041 for whites. Asians fared the best, earning $81,431. The rich also continue to get wealthier, while the nation’s poorest families — the bottom 20 percent who earn $24,000 or less — remain worse off financially than they were in 1999.

The CoreLogic Home Price Index shows home prices nationwide, including distressed sales, increased year over year by 6.7 percent in July 2017 compared with July 2016 and increased month over month by 0.9 percent in July. In Arizona, home prices increased 6.2% year-over-year and 0.6% month-over-month.

While mortgage interest rates remain low, there are growing concerns about affordability as one-third of the top US cities are now considered overvalued. It is interesting to consider that home prices have been rising much higher and faster than incomes. It would be nice if we could switch that and have incomes growing faster than housing prices – or at least keep pace.

U.S. News & World Report released its new college and university rankings. Princeton University topped the national university list for the seventh straight year, and Williams College led the liberal arts list for the 15th straight year. Cal-Berkeley and UCLA shared top honors for public universities.

Some 16 million people in Florida have no electricity. While some homes may see power restored within days, utilities said that other customers may have to wait weeks. Florida Power & Light plans to send out 16,000 workers, including crews on loan from other utilities. The company has also deployed drones to assess problems from the air.

The storm brought havoc to Georgia and South Carolina as well. More than 500,000 people evacuated Georgia’s coastal communities, some of which saw storm surge running through their streets. Six deaths in Florida have been blamed on Irma, along with three in Georgia and one in South Carolina. At least 35 people were killed in the Caribbean last week.

Never waste a crisis. The thinking is that economic fallout from the Hurricanes Harvey and Irma would only raise the sense of urgency to bring some type of tax relief to businesses and consumers. Trump has pushed for slashing the corporate tax rate to as low as 15% from a top rate of 35%, but Congress is reportedly looking to split the difference. Negotiations between the White House and Congress appear to be focusing on a rate closer to 23%, according to the Washington Post. Or perhaps a bit higher.

Asked if a 15% goal was feasible, Treasury Secretary Steven Mnuchin said at a hedge-fund conference, “I don’t know if we will be able to achieve that.” The big question: How to pay for it?

The White House has floated the idea of killing of certain loopholes such as a tax break for Wall Street hedge-fund managers and even possibly ending the popular deduction for mortgage interest. Yet congressional leaders have told the White House the mortgage deduction is off limits. A major reduction in the corporate rate would increase deficits.

Apple unveiled the new iPhone X, but we are all expected to say “ten” instead of “X”. It is not the tenth iteration of the iPhone, but it will mark the tenth anniversary, even though it seems iPhones have been with us much longer. It will feature a faster processor, better camera, no home button, Face ID, wireless charging, an edge-to-edge display and augmented reality. And a $999 price tag. You do not have to pay full retail.

Apple also announced the iPhone 8 and 8 Plus will go on sale this month; they are also new phones or at least updated, and cheaper than the X, but it seems unlikely they will be the big sellers. Also, a new Apple watch and Apple 4K television. The iPhone X won’t be available for pre-order until October 27. It is expected to begin shipping by November 3.

Apple’s annual iPhone event also marked the public’s first look at Apple’s new “spaceship” headquarters in Cupertino. While the main campus wasn’t available to the press to tour, Apple hosted its iPhone keynote underground at the new Steve Jobs Theater, an all-glass enclosure that cost around $14 million to build.

Executives from JPMorgan Chase, Bank of America and Goldman Sachs warned that trading conditions during the third quarter were likely to be poor for their banks. Revenue from trading of stocks and bonds continues to suffer from decreased market activity and volatility. Bank of America sees revenue from trading stocks and bonds likely to decline around 15 percent in the third quarter compared with the year-ago period.

JPMorgan CEO Jamie Dimon gave an even more downbeat forecast for his bank, predicting a 20 percent drop in trading revenue. Goldman execs said conditions for fixed-income trading have not improved much since the beginning of the year, but he declined to be specific.

FINANCIAL REVIEW

Taking on Water

Sinclair Noe — November 6, 2014

Podcast: Play in new window | Download (Duration: 13:17 — 6.1MB)

Financial Review
DOW + 69 = 17,554
SPX + 7 = 2031
NAS + 17 = 4638
10 YR YLD + .03 = 2.38%
OIL – .70 = 77.98
GOLD + 1.30 = 1142.30
SILV + .11 = 15.53

Record highs for the Dow Industrial Average and the S&P 500 index. Milk and cookies time.

Outplacement consultant Challenger, Gray & Christmas says layoffs increased by 51,000 last month. Layoffs are down 4% from a year ago, and the increase in October follows a 14 year low in September. Meanwhile, the Labor Department reports the number of Americans applying for new jobless benefits fell by 10,000 last week, to 278,000; the eighth straight week under 300,000. This is all part of the setup for tomorrow morning’s monthly jobs report.

The big news today comes from the European Central Bank; ECB president Mario Draghi announced the central bank will increase its balance sheet by €1 trillion, or about $1.2 trillion, over the next 2 years. Interest rates are already at record lows, and Draghi has said they can go no lower. The ECB has issued long-term loans to banks and started buying covered bonds in the hope of flooding the economy with enough liquidity to ease credit constraints. Purchases of asset-backed securities are due to start this month.

Exactly what the ECB will purchase remains uncertain, but they are likely to move into the €1.4 trillion market for investment grade non-financial corporate bonds next month. Corporate bonds still won’t be enough and the ECB will have start buying government debt early next year.

There was a minor brouhaha about Draghi’s announcement; Reuters reported that some ECB policymakers were upset that Draghi was being overly aggressive with monetary policy. Draghi squashed that when he gave the statement, he said the asset purchases had “been approved and underwritten unanimously.”

Meanwhile the Bank of England also met today, and said it would keep its benchmark interest rate at 0.5%, where it has been since March 2009. The bank also left unchanged a stimulus program of holding 375 billion pounds, or about $600 billion.

Meanwhile, an ignominious revelation as Irish newspapers printed a letter from former ECB president Jean-Claude Trichet to former Irish finance Minister Brian Lenihan back in November 2010 where the ECB explicitly threatened to cut off emergency funding from the Irish banking system, unless Ireland immediately applied for a bailout and agreed to a program of austerity and bank recapitalization.

So, it appears the ECB really did take notes from the Federal Reserve.

Let me take you back to 2008 to refresh your memory. The major financial institutions were looking into the furnace of a global financial meltdown; the Bush administration had cobbled together a 3 page plan to bail out the banksters; most politician, both Republicans and Democrats weren’t buying in. Then-senator Obama told reluctant Democrats that as president, he would pursue major foreclosure relief efforts, but it was important to keep the banks out of the furnace. With candidate Obama on board, the bailout passed with minimal Republican support. And then after the election of 2008, the new administration decided that changing bankruptcy laws would be too difficult. Obama and Geithner let the banksters run the administration’s mortgage modification program; truly putting the foxes in charge of the hen house; and as we all know now, the mortgage mod plan was an epic failure.

On Tuesday, voters voted with their middle finger. Republicans say the 2014 midterms were a referendum on Obama’s failed policies, and they are right; but these were also failed policies of the GOP. Following the financial crisis of 2008 the politicians saved Wall Street and spit on Main Street. As the voters left the polls they were surveyed; two-thirds said the US economic system “favors the wealthy”; about 80% said they were worried about the direction of the economy; about half said things will be worse for the next generation. The economy, as in every election, remained the top issue on voters’ minds.

There has been economic recovery from the near meltdown in 2008, but it has been uneven and insufficient for most people; a few drops of tepid water on a hot summer day in Phoenix; enough to keep you alive but not enough to quench your thirst; meanwhile, a cool waterfall for the lucky few who have it made in the shade. Both Republicans and Democrats share blame for the economic shortcomings, but the buck stops in the Oval Office; rightly so. Voters may or may not be aware of all the details, but they know the game is rigged.

Everything is rigged. The Libor is rigged. The foreign exchange markets are rigged. The metals markets are rigged. The stock market is rigged. The tax system is rigged. The justice system is rigged. And of course, Washington DC is rigged.

If you steal a soda from the corner grocer, you would probably go to jail, and rightly so; but a bankster can steal billions, forge signatures on documents (remember robo-signing), perjure, money launder, inside trade, cheat on taxes, lie on official documents and the worst that happens is a slap on the fine that is ultimately paid by shareholders and consumers, and the whole thing is tax deductible. And the regulator and prosecutor then shuffle through the revolving door to get paid off by corporate America.

There has been some economic recovery but the economy is still headed in the wrong direction. Consider that in 2005, for every $1 of financial wealth there was 66 cents of non-financial wealth, things like homes and family businesses. Ten years later, for every $1 of financial wealth there was just 43 cents of non-financial wealth. What happens to all this financial wealth? Over 90% of the assets owned by millionaires are held in low-risk investments (bonds and cash), the stock market, and real estate. Business startup costs made up less than 1% of the investments of high net worth individuals in North America in 2011. Small business is the backbone of America, the economic engine for new jobs, but that engine has run out of fuel.

On the corporate side, stock buybacks are employed to enrich executives and hedge fund activists rather than to invest in new technologies. In 1981, major corporations were spending less than 3 percent of their combined net income on buybacks, but in recent years they’ve been spending up to 95 percent of their profits on buybacks and dividends. Now you might say that corporations are just sitting on a hoard of cash anyway, so why not employ that cash somewhere; but what it really says is that we have run out of productive ideas and good old Yankee ingenuity is dead. I don’t believe that, I just think we need the right soil to grow small businesses again.

The Upper Middle Class of America Owns a Smaller Percentage of Wealth Than the Corresponding Groups in All Major Nations Except Russia and Indonesia. The upper middle class in the US, defined as everyone in the top half below the richest 20%, owns 11.9 percent of the wealth – that’s 11.9% for the upper middle class in the US. Indonesia at 10.5 percent and Russia at 7.5 percent are worse off, but in all other nations the corresponding upper middle classes own 12 to 27 percent of the wealth. The American Dream is dead.

America’s bottom half compares even less favorably to the world: dead last, with just 1.3 percent of national wealth. Only Russia comes close to that dismal share, at 1.9 percent. The bottom half in all other nations own 2.6 to 10.2 percent of the wealth; just 1.3% in America. A rising tide lifts all boats. And we keep hearing that the tide is coming in, but only a few yachts are rising, and the other boats are taking on water. Don’t get me wrong, I’m not talking about a handout. I’m talking about a hand up, in an economy that’s not rigged against you. It’s the idea of equality of opportunity, make of it what you will.