Barbarians at the Gate with Toothpaste

Sinclair Noe — October 10, 2017

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

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DOW + 69 = 22,830 (Record)
SPX + 5 = 2550
NAS + 7 = 6587
RUT + 4 = 1508
10 Y – .02 = 2.35%
OIL + 1.34 = 50.92
GOLD + 3.90 = 1288.50

Cryptocurrency

• Number of Currencies: 874
• Total Market Cap: $153,183,891,232
• 24H Volume: $3,150,277,911

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	4,745.0	$79.08B	$1.51B	47.97%	1	-0.62%	+10.31%
	Ethereum	ETH	301.25	$28.69B	$332.08M	10.54%	0.0637418	+0.63%	+2.43%
	Ripple	XRP	0.25804	$10.12B	$329.41M	10.46%	0.00005539	-0.10%	+28.57%
	Bitcoin Cash	BCH	315.99	$5.28B	$261.54M	8.30%	0.0668111	-0.32%	-21.06%
	Litecoin	LTC	50.400	$2.69B	$81.09M	2.57%	0.0106525	-0.02%	-3.77%
	Dash	DASH	287.90	$2.20B	$28.65M	0.91%	0.0609756	-0.73%	-4.26%
	NEM	XEM	0.21437	$1.91B	$4.76M	0.15%	0.00004475	+2.96%	-4.85%
	NEO	NEO	30.150	$1.50B	$47.56M	1.51%	0.00634651	+2.97%	-10.79%
	IOTA	MIOTA	0.47300	$1.32B	$7.64M	0.24%	0.00009993	-0.63%	-14.76%
	Monero	XMR	86.08	$1.31B	$24.55M	0.78%	0.0181888	-0.49%	-6.51%

The Dow and the Nasdaq opened at record high. The Dow Industrials managed to hang on for a record high close. Only two of the 11 primary S&P 500 sectors are in negative territory for the year, and for broader indexes, even mild pullbacks of 3% have basically been nonexistent for months.

Volatility is near record lows. Other regions have also reported strong gains: European equities are up more than 20% this year, as are emerging markets. Basically, every country—as gauged by the most popular single-country exchange-traded funds—is positive on the year.

The International Monetary Fund is holding a meeting in Washington. Today a reporter asked Maurice Obstfeld, the chief economist at the International Monetary Fund: “Are financial markets being irrationally exuberant?” Obstfeld’s response? “Maybe.”

And he went on to add: “To some degree, asset prices are being supported by very, very low interest rates. They are supported by growth expectations that could be disappointed. Our assessment that longer-term growth rates, particularly in advanced economies, are subdued, feeds into that. So, our concern is simply that, if interest rates were to rise faster than expected or growth outcomes not validate these high asset prices, there could be abrupt repricing that could be disruptive.”

The IMF seems to be taking a more cautious stance – still calling for global economic growth, but issuing a warning against complacency. The IMF fears that financial markets are ignoring the risks, just as they did in the buildup to the crisis in 2007.

What’s more, central banks and finance ministries have used up much of their ammunition in the past decade. There is little or no scope to cut interest rates, QE has long since been subject to the law of diminishing returns, and governments are running much bigger budget deficits.

Remember that tax reform plan that was released just a couple of weeks ago. We were told it was the greatest thing since Ronald Reagan invented sliced bread. Today, Trump said he plans to make changes to his tax plan within the next few weeks, while dismissing concerns that his public spat with Senator Bob Corker would scuttle an overhaul. Trump didn’t specify what kind of changes, and it’s unclear whether he now intends to release another version.

Environmental Protection Agency Administrator Scott Pruitt is trying to repeal the Clean Power Plan, declaring “The war on coal is over.” What Pruitt forgot to say is that coal lost. Nobody in their right mind wants to go back to coal – it is dirty, expensive and an environmental nightmare. The Clean Power Plan hasn’t gone into effect yet, so there is no data to show if it had an impact on emissions. The repeal effort will end up in court. Next on the EPA’s agenda – bringing back whale oil.

The barbarians were at the gate, demanding more profit from the sale of toothpaste and detergent. But Procter & Gamble declared victory over activist investor Nelson Peltz, saying initial figures show it won the biggest proxy battle in history. But the narrow win puts pressure on the owner of Bounty and Tide to move faster in its turnaround and regain the support of investors. P&G will file results with the Securities and Exchange Commission when the vote is finalized.

Peltz’s fund Trian Partners said it plans to challenge the proxy results. With a market capitalization of $230 billion, P&G is the largest company to have fought a proxy fight and one of a few companies larger than $50 billion. In 2015, David Taylor took over as CEO and since then the company simplified its corporate structure, streamlined its portfolio, poured more money into research and development and worked to improve operations.

But the proxy fight wasn’t about how the company is run, rather it is how the shares have performed. Since Taylor took the reins, P&G’s stock has outpaced most U.S. consumer products companies, including Clorox and Colgate-Palmolive, though it under-performed against the S&P 500.

Walmart said it expects US online sales to jump about 40% in the next fiscal year. Walmart plans to invest heavily in e-commerce and online grocery in the coming months, with plans to double its online grocery pickup locations by the end of next year.

They will redesign their website by the first quarter and it will feature Jet.com’s “smart-cart” system – which basically gives automatic discounts the more stuff you throw in the cart. Now this is where it gets interesting. Walmart is ubiquitous for its brick and mortar stores but they haven’t shown great leadership online – that’s where Amazon shines.

Amazon’s is on a parallel track where they’re trying to build up the logistical capability and the brick-and-mortar capability, frankly, that Walmart already possesses. Walmart has been automating its supply chain and moving into online sales. Armed with open-source software such as the OpenStack cloud, Walmart is fighting Amazon on its high-tech turf.

Amazon responds AWS, Amazon Web Services, their own cloud which controls everything. In other words, this is a battle of the retail giants. Each brings its own set of skills to the fight. So, where does one have an advantage?

Unless you follow the retail business like a hawk, you might not know that Amazon was beating Walmart every day on its “Everyday Low Price” guarantee. Walmart responded by calling in the major consumer suppliers — from diapers to clothes to TVs — with an offer they couldn’t refuse: Either cut their wholesale prices by at least 15 percent off, or Walmart would limit their presence in stores and create its own branded products to compete with them.

Amazon, never afraid to cut sales margins by increasing volume, has responded by selling even more CRaP, an inside Amazon acronym for “Can’t Realize a Profit” products. Amazon will cut its own profit to get a new customer. Amazon will reinvest its last dollar in new technology – they’ll even invest money they don’t have.

Also, today Walmart announced $20 billion in share buybacks. This is something I would never expect from Amazon. Share buybacks are the fallback position for management that can’t figure out the next big innovation. Either way, Walmart and Amazon are the 800-pound gorillas of retail, and this will be an ongoing battle.

Last year, the South Korean military’s computer network was breached by North Korean hackers. The hack was discovered in September last year. Now South Korea is reporting it was worse than previously estimated. The North Koreans stole classified wartime contingency plans jointly drawn by the United States and South Korea.

It remained unclear how much the hacking has undermined the joint preparedness of the South Korean and United States militaries, with South Korean officials simply saying that they have been redressing whatever damage was caused by the cyberattack.

A security breach at Deloitte, a major accounting and consulting firm, may be much more serious than the company admits. Deloitte previously said on Sep. 25 that “very few clients” had been affected by a hack into its email platform, which began in fall 2016 and was uncovered in March 2017.

Yet the Guardian reported today that the affected server housed emails exchanged with about 350 clients, many of them high profile. That group includes the U.S. departments of defense, state, energy, and homeland security, along with the National Institutes of Health, the U.S. Postal Service, and major companies like Fannie Mae and Freddie Mac. The server also contained emails to or from unnamed global banks, airlines, car manufacturers, energy companies, and pharmaceutical manufacturers.

More than a dozen wildfires burned across Northern California for the third straight day. Here’s what we know: At least 15 people have died since Sunday night, when most of the fires began. Nine deaths were in Sonoma County. More than 100 people were being treated at Napa- and Sonoma-area hospitals for fire-related injuries or health issues.

About 2,000 homes and businesses have been destroyed by the fires. Wildfires were burning more than 115,000 acres in California as of Tuesday morning; firefighters are still in rescue mode, not containment mode. Fires have left more than 91,000 customers without power in the state. Some of the largest of the 14 blazes burning over a 200-mile region were in Napa and Sonoma counties, home to dozens of wineries that attract tourists from around the world.

They sent smoke as far south as San Francisco, about 60 miles (96 kilometers) away. The causes of the fires were unknown. A large part of Santa Rosa was evacuated. Authorities imposed a sundown-to-sunrise curfew for parts of the city. Taken as a group, the fires are already among the 10 deadliest in California history, and the death toll is expected to grow.

Alongside the new Pixel 2 smartphones Google unveiled last week, the company also launched a set of Bluetooth earbuds called the Pixel Buds with one standout feature: instant translation between 40 different languages using a Pixel smartphone.

In a live demo on stage, the Pixel Buds were shown translating short phrases back and forth between English and Swedish using Google Translate running on a Pixel 2 smartphone. This isn’t the first time Google has tried to break the language barrier.

The Google Translate app on Android and Apple’s iPhone can already perform the same trick. For non-Android’s, the Bragi Dash Pro does the same thing, using the iTranslate app on an iPhone.

Financial Review

Trump Budget

Sinclair Noe — May 23, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 43 = 20,937
SPX + 4 = 2398
NAS + 5 = 6138
RUT + 3 = 1380
10 Y + .03 = 2.28%
OIL + .36 = 51.49
GOLD – 9.70 = 1251.70

In the morning, U.S. economic data showed new single-family home sales in April tumbled from near a nine-and-a-half-year high, while manufacturing activity for May fell to the lowest level since September.

While the President is on an overseas trip, stocks were helped by a lack of major news updates related to the government probe on possible ties between his election campaign and Russia. While today’s economic data was weak, investors were relieved Trump’s first full budget plan was largely as expected, even if it is not expected to be approved in Congress.

The Trump Budget was published today. Its official title is “A New Foundation for American Greatness” and it includes big changes to the role of the federal government. It would cut or eliminate numerous programs that the White House says are a waste of money or create too much dependency.

Some of these programs — including Medicaid and food stamps — provide benefits to up to a fifth of all Americans. The $4.09 trillion budget proposal for the fiscal year that begins in October, is the first detailed blueprint for how Trump wants the government to change.

White House Office of Management and Budget Director Mick Mulvaney called the plan a “Taxpayer First Budget,” and he said they worked to jettison any spending that they felt they could not defend. In total, this meant roughly $3.6 trillion in cuts over the next 10 years.

The Trump budget team made rosy assumptions about economic growth that many economists — both conservative and liberal — said went too far. Trump has proposed cutting the corporate tax rate from 35 percent to 15 percent, but his budget assumes that corporate tax receipts will increase almost every year.

The budget says the U.S. government will collect $328 billion in estate and gift taxes over the next decade, but it also says Trump will eliminate the estate tax. The budget assumes its policies will kickstart an era of 3% GDP growth by 2021.

The Congressional Budget Office assumes the U.S. can grow at 1.9%, and professional forecasters see, as measured by the Blue-Chip survey, see just 2.1% GDP growth. Per analysis from a Committee for a Responsible Federal Budget, there is no plausible path to 4% growth, and 3% growth is “unlikely.”

It would require exceeding the record levels of productivity set between 1959 and 1968 or restoring capital growth, productivity growth, and labor-force participation to the levels achieved in the booming 1990s. The independent Tax Policy Center estimated that Trump’s campaign tax plan would add $7.2 trillion to the deficit.

Whether realistic or not, higher growth estimates allow the Trump administration to project that the government will collect more revenues from taxpayers and spend less on safety-net programs, offsetting the costs of the president’s wish list to hold deficits down.

The budget would provide $574 billion for the Pentagon, a 10 percent increase from the last full-year budget in fiscal 2016 and about 9.5 percent more than the budget Congress approved for the current fiscal year. Trump’s proposal would exceed the military spending caps under the 2011 Budget Control Act by $52 billion.

The president would reduce nearly a third of funding for diplomacy and foreign aid including global health and food aid, peacekeeping and other forms of non-military foreign involvement. Also, spending more than $2.6 billion for border security, including $1.6 billion to begin work on a wall on the border between Mexico and the US, or at least between Naco and Agua Prieta.

While the Pentagon’s budget would see a $6 billion increase, the push for more high-priced weapons — including fulfilling Trump’s pledge to increase the Navy fleet to 350 ships from 275 that can be deployed today — will wait another year.

He’s also proposing cutting funding for the State Department by more than 28 percent. The budget also makes use of several other classic accounting gimmicks. It assumes that the wars in Afghanistan and the Middle East will cause future Congresses to allocate $593 billion in extra war funding that won’t be needed and then claims to save that amount by not spending it.

On the campaign trail, Trump said, “I’m not going to cut Social Security like every other Republican, and I’m not going to cut Medicare or Medicaid.”  In his fiscal 2018 budget proposal, Trump asked Congress for $3.6 trillion in spending cuts that would mean steep reductions in Medicaid health insurance payments, Social Security disability benefits, food stamps, low-income housing assistance and block grants that fund meals-on-wheels for the elderly.

Funding for Medicaid, the health-care program for low-income Americans and many people in nursing homes, and CHIP, the Children’s Health Insurance Program, would be cut by $880 billion over 10 years.

Funding for SNAP, the Supplemental Nutrition Assistance Program, a modern version of food stamps that provided benefits to 44 million people in 2016, would be cut 29 percent. In many cases, a higher burden of paying for anti-poverty programs would be shifted away from the federal government and onto the states.

The budget would cut payments to disabled workers by $72 billion over the next 10 years, or about $7.2 billion a year. That represents 5% of the disability benefits the government doled out in 2016. The disability insurance fund was created in 1956 in a series of amendments to beef up Social Security.

Social Security retirement benefits and Social Security Disability are all part of a single Social Security safety net designed to ensure that American workers can live with dignity when they retire or if they become too disabled to get gainful employment.

Far from a separate program, Social Security Disability Insurance is a protection available to all Americans, and is paid for through the same Social Security payroll taxes that pay for retirement benefits.

The budget also calls for cuts to the National Institute for Health, the Centers for Disease Control and Prevention, the Food and Drug Administration, and Planned Parenthood.

The Environmental Protection Agency, as expected based on prior budget proposal drafts, is set to lose 31% of its current budget, which amounts to a $2.7 billion cut. That will likely hinder the agency’s ability to enforce environmental laws, impede its tap water safety programs, and eliminate its Climate Protection Program, among other changes.

State and tribal assistance grants would be slashed from $1.08 billion to $597 million, or 45%. Those grants pay for states to carry out several federal directives such as toxic substance compliance, pesticides enforcement and brownfield inspections. Some of those categories have been zeroed out entirely, including beach protection, radon monitoring and lead testing.

The White House plan to trim the national debt includes selling off half of the nation’s emergency oil stockpile and the entire backup gasoline supply; a move that would raise $500 million in fiscal year 2018 — and as much $16.6 billion over the next decade — by drawing down the Strategic Petroleum Reserve.

The budget projects raising $1.8 billion over the next decade by opening the 19-million-acre Arctic National Wildlife Refuge to oil and gas development. The idea of allowing drilling in the refuge for its estimated 12 billion barrels of crude has long been championed by Alaska Republicans. But it’s anathema to environmentalists, who have successfully blocked ANWR drilling plans from advancing.

The plan includes changes to a few popular student loan programs – cutting back on the number of loan repayment options; eliminating the program that allows some workers in public service jobs to have their debts waived; and changes to Pell Grants, federal grant issued based on financial need.

These proposals would apply to loans that were issued on or after July 1, 2018. They would not apply to loans issued after July 1, 2018, if those loans are used to finish the borrowers’ current course of study. In other words, a college junior in seeking a loan on July 1, 2018, to finish her bachelor’s would not be subject to these proposals.

The proposed budget estimates that the federal government could save $35 billion over the next decade by rolling back regulations governing Wall Street. The White House does not detail how those savings would be realized. But the administration said an ongoing review of existing financial rules “will likely result in proposals that will provide significant savings to the federal government.”

Treasury Secretary Steven Mnuchin is currently conducting a comprehensive review of the impact of the 2010 Dodd-Frank financial reform legislation. An initial report recommending policy changes is expected to come at the beginning of June.

Fiscally and socially, the Trump proposal is a reverse Robin Hood.

Cuts in domestic programs to fund big military-spending hikes would disproportionately hit the poor. Tax cuts would primarily benefit the affluent. The Library of Congress is filled with budget proposals that presidents sent to Capitol Hill and never saw again in the form of legislation.

Even with a House and Senate controlled by fellow Republicans, Trump’s plans could face the same fate. Congress usually starts its drafting process each year with the existing budget and makes additions or subtractions from that.

If it keeps to that practice, it will be starting with a plan that passed with bipartisan support earlier this month, one Democrats believe many Republicans would not mind sticking to for another year. Remember that Congress has a difficult time passing any budget. Today’s White House proposal likely deepens the divide.

Financial Review

Never Ending Pi

Sinclair Noe — March 14, 2017

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

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DOW – 44 = 20,837
SPX – 8 = 2365
NAS – 18 = 5865
RUT – 7 = 1362
10Y – .02 = 2.59%
OIL – .45 – 47.95
GOLD – 5.10 1199.60

The Federal Reserve Federal Open Market Committee is meeting today and tomorrow to determine monetary policy. Fed policymakers have clearly indicated they will raise the overnight benchmark interest rate by 25 basis points to a range of 0.75 percent and 1.00 percent,  and may signal there could be even more than the three rate rises they have forecast for this year.

While the Fed meeting is the focus for markets this week, investors also have to assess the impact of central bank meetings in Britain and Japan, a gathering of G20 finance chiefs, President Trump’s first budget and an election in the Netherlands.

The dollar index rose 0.3%. Yields on benchmark 10-year German government bonds briefly hit 14-month highs above 0.5%, before reversing. Oil fell to 3-1/2-month lows after Saudi Arabia announced it has reversed about one-third of its production cuts and the Organization of the Petroleum Exporting Countries (OPEC) reported oil stocks were still rising despite agreed output cuts.

US producer prices increased 0.3% in February after rising 0.6% in January; and the year-on-year gain was the largest in nearly five years. In the 12 months through February, the PPI jumped 2.2 percent, the biggest advance since March 2012. The core PPI, a key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.3 percent in February, the biggest gain since April 2016. Core PPI increased 1.8 percent in the 12 months through February.

Small-business owner optimism dipped in February but stayed near long-time highs. The sentiment gauge from the National Federation of Independent Business fell 0.6 points to 105.3. The stronger economy increasingly seems to come at a price for small-business owners. The NFIB wrote in its release: “This is one of the tightest labor markets in the 43-year history of the NFIB survey.”

FDIC Vice Chairman Thomas Hoenig rolled out what he called “a comprehensive plan for reforming bank oversight, calling on the biggest lenders to further separate investment banking activities and accept stricter capital requirements in exchange for fewer regulations. It would require large, complex, universal banks to separately capitalize and manage their traditional commercial banking activities and their nontraditional activities, such as investment banking.  In other words, a variation on the Glass-Steagall Act.

Wall Street seems largely unfazed by political turmoil and uncertainty. The major indices are still very close to record highs, and the VIX, the volatility index, is near long-time lows; closing today at 12.23. There are a couple of possible explanations: the global economy has been in recovery mode – a slow, sluggish and boring uptrend.

Per the World Bank, annual global growth since 2011 has hovered in a narrow 2.3 to 3 percent range. The International Monetary Fund’s measure pegs it in an even tighter 3.1 to 3.5 percent range since 2012. And if both institutions’ estimates are met, 2017 will be yet another year of growth being stuck within these narrow parameters. Global company earnings volatility has been low throughout the post-crisis recovery – consistently 5 percent or lower over the past five years.

In the past 20 years, there have been only two significant bouts of earnings volatility of 15 percent and higher, or global recessions. They coincided with the market crashes of 2000-02 and 2007-09. The other reason is that in a low interest rate environment investors don’t have much alternative. You ride out the risk. So, we have strong data but uncertain politics, and they seem to balance out, at least for now.

Luxury fashion retailer Neiman Marcus Group said it was exploring strategic alternatives, including a sale of the company. The move comes about two months after the company pulled its IPO. Neiman Marcus also reported a 6.1 percent drop in second-quarter revenue as issues in its new merchandising and distribution system forced the company to take additional markdowns. Hudson’s Bay has emerged as the most prominent suitor.

MoneyGram International has received a buyout bid from Euronet Worldwide that is 15% higher than MoneyGram’s current buyout deal with Ant Financial Services Group. Euronet’s bid of $15.20 a share in cash will value the company at over $1 billion. The Ant Financial bid MoneyGram agreed to in January was $13.25 a share. MoneyGram’s stock has doubled over the past 12 months through Monday.

Ruby Tuesday it was putting itself up for sale, as the casual dining industry’s slump shows no signs of ebbing. The Tennessee-based company said it’s considering “strategic alternatives,” including a potential sale or merger. The move was paired with an announcement that the company’s sales at restaurants open at least a year tumbled about 4% in the period ended Feb. 28. The chain’s quarterly revenue also fell nearly 17%, compared to a year earlier, to $225.7 million.

Networking software company Citrix Systems has been exploring strategic alternatives including a potential sale. Citrix, which gave activist hedge fund Elliott Management a board seat in 2015, has looked at selling itself in the past, before embarking on spin-offs and sales of smaller business units. It now has a market capitalization of $13.2 billion.

You might not be able to get there from here. A powerful nor’easter is hitting the mid-Atlantic and the Northeast with heavy snow, sleet and rain, prompting more than 6,000 flight cancellations today and more than 2,500 delayed flights, resulting in bad news for the airline stocks. The NYSE Arca Airline index lost about 2% today, dropping to a 4-month low. Plus, the storm resulted in school closures, power outages, and warnings from officials to stay off the roads – and that is bad news for trucking stocks

Brexit is coming. UK Prime Minister Theresa May has been granted the power to trigger Article 50; however, she’s not expected to begin the formal process of the UK’s exit from the European Union until the end of the month.

The New York attorney general accused Exxon Mobil of withholding documents from his office as it investigates whether the energy company misrepresented its understanding of climate change to investors and the public.

Lawyers for Attorney General Eric Schneiderman’s office said in court documents that Exxon hadn’t disclosed that Rex Tillerson, the former chairman and chief executive, used an alias email address to discuss risk-management issues related to climate change. Tillerson, now the U.S. secretary of state, used the pseudonym “Wayne Tracker” from at least 2008 to 2015.

The Trump administration is weighing even deeper cuts to the Environmental Protection Agency than previous versions of their budget outline suggested. In its first budget draft last month, the White House proposed a 25% cut to the EPA budget. But wait there’s more; officials are now considering cutting the agency’s $8.1 billion budget even further.

The ax looks set to fall hardest on EPA’s climate change programs, with the staff there expected to leave the agency. The EPA budget proposal is likely to run into opposition in Congress, and it is already running into opposition from mayors.

Los Angeles Mayor Eric Garcetti is coordinating the effort with dozens of other cities to purchase up to $10 billion worth of electric vehicles. Thirty cities including New York and Chicago jointly asked automakers for the cost and feasibility of providing 114,000 electric vehicles, including police cruisers, street sweepers and trash haulers. That would be comparable to about 72% of total US plug-in vehicle sales last year.

The auto makers have been fighting CAFÉ rules which set fuel efficiency standards and complaining that there is not enough demand to justify developing more efficient electric vehicles. The mayors say they would like to have more electric vehicles on the streets, including some that haven’t been developed yet, such as plug-in fire trucks and street sweepers. While the initiative would probably be spread out over several years, it would provide electric vehicle manufacturers reliable demand.

Alphabet’s Executive Chairman Eric Schmidt announced today via Twitter that “John Goodenough, inventor of the lithium battery, has developed the first all-solid-state battery cells.” And that is a pretty big deal. Goodenough’s batteries reportedly have three times as much energy density as today’s lithium-ion batteries. They store and transmit energy at temperatures lower than traditional lithium-ion packs and can be made using globally abundant supplies of sodium.

The research could result in “a safe, low-cost all-solid-state cell with a huge capacity giving a large energy density and a long cycle life suitable for powering an all-electric road vehicle or for storing electric power from wind or solar energy.” Goodenough and his team of researchers at the University of Texas have applied for patents on the solid-state battery technology and it may be a while till the batteries move to production.

Goodenough is a National Medal of Science laureate, and by the way, he is 94 years old.

Today, March 14, or 3-14, is Pi Day. Pi is the ratio of the circumference of a circle to its diameter and it is represented by the irrational number that never ends. Math enthusiasts know all about it, and the rest of the population is probably hoping for cherry pie, or maybe pizza.

Financial Review

The Streak Ends

Sinclair Noe — February 28, 2017

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

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DOW – 25 = 20,812
SPX – 6 = 2362
NAS – 36 = 5825
RUT – 21 = 1386
10 Y – .01 – 2.36%
OIL – .13 = 53.92
GOLD – 4.30 = 1248.80

After 12 straight record high closes, the Dow Industrials finally posted a losing session. No milk and cookies today. It was the best run of record highs since 1987.

After topping out at 103.82 on January 3, the US dollar has weakened against a basket of its peers, pulling back into the 100 area. Dollar weakness is good news for the multinationals that dominate the S&P 500. Stocks rallied right after the election, bonds sold off for roughly the same reasons.

Yields on the benchmark 10-year Treasury note rose to a high of 2.64% in the middle of December (yields move opposite to prices) – reflecting expectations for faster growth, but in the past month buyers returned to bonds, pushing yields down as low as 2.32% and today finishing at 2.36%.

The rally in bonds might be explained by recent headlines that Trump’s proposed stimulus plans will take longer to implement than previously expected and that the stimulus will be less expansionary than first thought. Today, the market paused ahead of President Trump’s address before Congress; and the markets will be looking for specifics with specific timelines.

President Trump speaks to a joint session of Congress tonight, where investors hope for more details on the administration’s plans for tax reform, deregulation and infrastructure spending. The future of the Affordable Care Act could also be a subject, as well as updates on the Border Tax Adjustment.

Trump said he believes the extra $54 billion dollars he has proposed spending on the US military will be offset by a stronger economy as well as cuts in discretionary spending. Still to be answered – what will be cut, and how will the military spend an extra $54 billion, and how will it be accounted for.

Today, Trump signed an executive order that asks new EPA Administrator Scott Pruitt to begin the long process of repealing the Clean Water Rule (also known as the “Waters of the US rule”) and replacing it with… something else. Here’s the catch: Rolling back this rule won’t be easy to do.

By law, Pruitt must go through the years-long federal rulemaking process and replace the Obama-era regulation with his own version – and then defend it in court as legally superior. And, as Pruitt’s about to find out, figuring out which bodies of water deserve protection is a maddeningly complex task that could take years and years.

Gross domestic product increased at a 1.9 percent annual rate, per the Commerce Department’s second estimate for the fourth quarter, confirming the estimate published last month. Output increased at a 3.5 percent rate in the third quarter. The economy grew 1.6 percent for all of 2016, its worst performance since 2011, after expanding 2.6 percent in 2015.

Consumer spending was revised from 2.5 percent to 3.0 percent. Economic data early in the first quarter has been mixed, with retail sales rising in January but home-building and business spending on capital goods easing.

The US trade deficit for goods widened in January, as Americans snapped up consumer goods made abroad. The advance look at the trade deficit widened 7.6% to $69 billion. Imports widened by $4.4 billion while exports fell by $400 million. Imports of consumer goods jumped 4.8% in January and climbed 7.8% over 12 months.

The S&P/Case-Shiller 20-city index rose 5.6% in the three-month period ending in December compared to a year ago, up from a 5.2% annual gain in November. The broader national index rose 5.8% for the year in the December period, the strongest gain in 30 months.

In December, the hottest markets were again in the West. Seattle prices rose 10.8% compared to a year ago. In Phoenix, home prices rose 0.2% in December, and 4.9% compared to a year ago.

The Conference Board’s survey of consumer confidence rose to 114.8 in February from 111.6 in January. That’s the highest level since July 2001. Only 20% of survey respondents said jobs are “hard to get,” that is an 8-year low. In February, the present situation index rose to 133.4 from 130.0. The index measures how Americans feel now. The expectations index that looks six months ahead increased to 102.4 from 99.3 last month.

The Senate has confirmed billionaire investor Wilbur Ross as Commerce secretary, clearing another one of Trump’s economic team members. Ross has agreed to divest from much of his business empire.

Dallas Fed President Rob Kaplan says the financial market is pricing in the probability of an interest-rate hike by the Federal Reserve in either March, May or June and that is “likely in the neighborhood of where we are heading.” Kaplan said, “I don’t think the exact timing is the most important thing. I think the path of rates is.”

Kaplan, who is a rate-policy voter this year, said the economy is making good progress toward the Fed’s goals of full employment and a stable 2% rate of inflation. Meanwhile, Philadelphia Fed President Patrick Harker, another rate-policy voter said today, “I see three hikes as appropriate for 2017, assuming things stay on track.”

Well, if the Fed does raise rates in 2 weeks, we have been warned. Those comments helped push the 2-year yield to its highest since December. Interest rate futures implied traders saw a nearly 57 percent chance the Fed will raise rates at its next meeting on March 14-15, up from roughly 31 percent late on Monday, per Reuters data.

Morgan Stanley gave some wealth management clients incorrect tax information that caused some to underpay and others to overpay. The bank is setting aside $70 million to cover the costs and is in discussions with the IRS over the errors that occurred in tax years 2011 through 2016.

South Korean authorities have formally charged the heir of Samsung – Jay Y. Lee – with bribery and embezzlement in the corruption scandal that has rocked the country’s political establishment. Samsung Electronics President Park Sang-Jin has also resigned, as well as Vice Chair Choi Gee-Sung.

YouTube viewers worldwide are now watching more than 1 billion hours of videos a day, threatening to eclipse US television viewership, which is estimated at 1.25 billion hours. YouTube surpassed the figure, which represents a 10-fold increase since 2012, late last year. By comparison, Facebook and Netflix, as of January 2016, counted 100 million and 116 million hours of daily video views, respectively.

It goes to show… Comcast has announced a deal that will allow customers with the latest gear to search for and watch YouTube videos through their cable boxes. The deal follows a similar tie-up with Netflix unveiled last July. YouTube apps are available through many smart TVs and internet-connected boxes like Roku, but those don’t allow for an integrated search across traditional TV networks and Netflix.

YouTube is getting ready to take on traditional cable companies, today unveiling Unplugged, a live TV service streamed over the internet. Unplugged will be similar to Dish’s Sling TV and AT&T’s DirecTV Now, allowing you to subscribe to a so-called “skinny bundle” of popular pay TV channels at a cost of around $30 to $40 per month.

A large swath of the internet went down today when Amazon’s cloud-based Simple Storage Service, or S3, went offline. Amazon’s service provides website and image hosting and storage capabilities for a variety of companies including Imgur, Dropbox, Slack, Snapchat’s Bitmoji, parts of Amazon itself and a slew of others.

UBS published a research report on Apple, writing: “the company may have over 1,000 engineers working on a project in Israel that could be related to AR [augmented reality]. Augmented reality is an area where Apple could leapfrog competition in providing a superior user experience. This could result in sustained iPhone retention rates and more switchers.”

However, if you really want the skinny on Apple, they were holding their annual shareholder meeting today, and Apple CEO Tim Cook predicts tons of revenue from “future stuff I can’t talk about.”

Target forecast a drop in full-year sales at established stores and reported a steeper-than-expected fall in holiday-quarter sales due to “unexpected softness” at its stores. Target’s net sales have now declined for six quarters in a row as shoppers increasingly gravitate to online retailers. Target said it expects sales at stores open for at least a year to decline in the low-single digit percentage range, and they cut earnings guidance 16% to 24%.  Target shares down about 13% at a 2-year low.

Valeant Pharmaceuticals  posted better-than-expected earnings and revenue for the fourth quarter as it cut costs and saw strength in its Bausch & Lomb eye care business. However, revenue fell 13% from a year ago. The company has been struggling to regain investor confidence after it came under investigation over its accounting and drug pricing practices last year.

Priceline Group hit a 52-week high after reporting a beat on both its top and bottom lines for the fourth quarter. Revenue was up 17% thanks to a jump in hotel reservations.

Saudi Aramco will buy a 50% equity stake in Malaysian firm Petronas’ major refining and petrochemical project for $7 billion. The deal will boost Aramco’s downstream business ahead of a planned initial public offering next year.

OneWeb Ltd, a US satellite startup backed by Japan’s SoftBank Group, and debt-laden satellite operator Intelsat SA agreed to merge in a share-for-share deal.  SoftBank will buy voting and non-voting shares in the combined company for $1.7 billion in cash.

Starbucks will locate one of its ultra-luxurious coffee “roasteries” in Milan, Italy, marking the chain’s first entry into the Italian coffee market where founder and CEO Howard Schultz originally drew inspiration for the company. Starbucks plans to open 20 to 30 Roastery locations worldwide, where customers are treated to personalized small-batch brews of Starbucks Reserve coffee.

Financial Review

Mars Looks Pretty Good

Sinclair Noe — September 27, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW + 133 = 18,228
SPX + 13 = 2159
NAS + 48 = 5305
10 Y – .03 = 1.56%
OIL – 1.00 = 44.93
GOLD – 10.90 = 1328.00

A CNN poll showed that 62 percent of voters who watched last night’s presidential candidate’s debate felt that Democratic nominee, Hillary Clinton, won. In markets, the Mexican peso seems to agree, with the currency rallying as much as 2 percent after the head-to-head concluded, any other correlations to the markets are hypothetical.

Last night’s debate was all over the place. That’s not a commentary on the candidates, rather on the broadcast itself. Unlike the primaries, the networks do not take turns running the general election debates. Instead, the non-partisan, non-profit Commission on Presidential Debates runs the show and hands out sets of keys to whoever wants them.

That means in addition to every major network, other platforms like Facebook, Twitter, and Yahoo were able to broadcast their own streams. The early estimates are that 81 million people watched the debate on one of the 12 TV networks and about 2.5 million watched live streaming. Although about 90% of the people probably tuned in just to see if the roof would collapse.

Top social media platforms steered hundreds of thousands of users to voter registration websites over the weekend in an effort several states said set new records for registration activity. Facebook, Instagram, Snapchat and other social media networks began reminding users over the age of 18 to register to vote. Users on Facebook were directed to a federal website that would then direct them to sites in their home states.

Today is National Voter Registration Day; it is not the last day you can register to vote, just a day to encourage everyone to register. In Arizona, you have until October 8 to register by mail, or October 10 to register online.

Before we get to the actual election, the government might shut down. The federal budget runs through Friday. We need a new budget to keep running; that is not going to happen. Typically, the politicians come up with a continuing resolution, an extension on the deadline for a budget; that might not happen either. The stopgap funding bill under consideration would keep the federal government running through Dec. 9, as well as provide funds to combat the Zika virus. It also includes disaster-relief aid for flooding in Louisiana and other states.

Senate Democrats are demanding federal aid for residents of Flint, Michigan to deal with their poisonous water problem. Senate majority leader Mitch McConnell is talking about removing aid to flood victims in Louisiana in exchange for aid to Flint.

That deal may or may not fly. But then there is another rider on the stop gap budget, the inclusion of a poison pill policy rider to keep political money from big corporations a secret. The rider would block the Securities and Exchange Commission (SEC) from working on a rule to require publicly traded companies to disclose their political spending. This rider is one of the main sticking points standing in the way of a deal to keep the government open. The deadline for a budget deal is Friday.

Iran is unwilling to freeze its oil production at current levels. The nation’s oil minister also said the country doesn’t intend to strike an agreement with other crude producers in Algiers this week. Iran will increase output from 3.6 million barrels per day to 4 million.

OPEC’s decision to hold informal talks this week has fanned speculation that it might be about to deviate from a two-year-old policy of pumping without limits, which succeeded in hurting rival suppliers but also sent prices into free-fall. Energy Ministers are now calling the gathering a “consultative meeting,” saying “it wasn’t time for decision-making.” A formal OPEC meeting will take place in Vienna on Nov. 30, when a supply agreement may be reached.

The World Trade Organization has cut its forecast for global trade growth this year by more than a third. The new figure of 1.7%, down from its April estimate of 2.8%, would be the slowest pace of trade and output growth since the 2009 financial crisis. It is also the first time in 15 years that international commerce has been left trailing behind the world economy.

The downturn reflects the slowdown in countries such as China and Brazil and lower levels of imports into the US. Trade has grown 1.5 times faster than gross domestic product over the long term – but the WTO say it will only grow 80% as fast this year. That would be the first reversal of globalization since 2001 and only the second time this has happened since 1982.

Global bonds moved higher as renewed concerns over Europe’s banks spur demand for safe assets. Germany’s 10-year yield fell to the lowest since July and Finland’s dropped below zero for the first time. Spain’s 10-year yield dropped to a record low. The outlook may be different for Treasuries, as Blackrock, the world’s biggest money manager, warned of the risks of holding Treasuries as the Federal Reserve moves towards raising rates.

Single-family home prices rose slightly less than expected on an annual basis in July, and the year-over-year gain was smaller than in the prior month. The S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5 percent in July on a year-over-year basis, down from 5.1% in June. In Phoenix, existing home prices were up 0.8% from June to July, and up 5.2% over the past 12 months.

A key measure of consumers’ attitudes increased in September, to its highest level since the recession. The Consumer Confidence Index hit 104.1 in September, up from August’s revised reading of 101.8. The survey measures confidence toward business conditions, short-term outlook, personal finances and jobs.

A federal appeals court has ruled that American Express could stop merchants that accept its cards from encouraging customers to use rival payment cards that charge the stores lower transaction fees. The decision reversed a lower court’s 2015 ruling that such restrictions violated federal antitrust law. The decision is a major victory for American Express, which wants to ensure that its customers, who pay higher-than-average membership fees, do not encounter any barriers to use.

The ruling means that American Express can continue to enforce provisions in its contracts with merchants that prohibit them from steering customers toward other forms of payment. Credit card costs are largely invisible to consumers, but retailers pay a fee each time a credit or debit card is used. Amex charges higher so-called swipe fees, or interchange fees, than Visa or MasterCard, and some consumer advocates argue that those costs can get unfairly passed on to shoppers in the form of higher prices.

Samsung Electronics has recovered more than 60% of all recalled Galaxy Note 7 smartphones sold in South Korea and the US. Samsung announced on Sept. 2 a global recall of at least 2.5 million Note 7s in 10 markets due to faulty batteries causing some phones to catch fire.

Caesars and its creditors have agreed on a restructuring to get the casino’s operating unit out of bankruptcy. Creditors will receive about 70% of the fully diluted equity in the new structure, while second lien noteholders and unsecured creditors will get paid $0.66 on the dollar.

Walt Disney is working with a financial adviser to evaluate a possible bid for Twitter. Twitter has started a process to evaluate a potential sale. Salesforce.com is also considering a bid and is working with Bank of America on the process. No deal yet, just speculation.

Last year, the Environmental Protection Agency finalized a far-reaching rule that would, for the first time ever, regulate carbon dioxide emissions from America’s existing coal- and gas-fired power plants, which are a major source of pollution. The Clean Power Plan set specific emissions targets for each state and gives them plenty of flexibility in deciding on how to meet the goals. If all goes as intended, the plan would reduce power plant emissions roughly 30 percent below 2005 levels by 2030.

Various oil and coal companies, along with 27 states led by West Virginia, have sued to overturn the Clean Power Plan. Many of these states could meet the plan’s targets fairly easily, but they are opposed to any expansion of EPA powers. In response, the Supreme Court halted implementation of the Clean Power Plan until the court challenges were finished.

Today the litigants presented oral arguments to the DC Circuit Court. A ruling is expected in either late 2016 or early 2017. Whatever the outcome, the next stop for this case is the Supreme Court, which has been split 4-4 between conservatives and liberals ever since Justice Antonin Scalia’s death this year. If there’s a 4-4 SCOTUS split on this case, then whatever the DC Circuit Court rules will stand.

SpaceX has successfully tested a new rocket engine it plans to use to take people to Mars within the next 10 years. CEO Elon Musk tweeted about the successful first firing of the Raptor engine and included photos. Musk said he expects SpaceX to make an unmanned mission to Mars by 2018, using existing technology. He plans to use the Raptor engine for a manned Mars mission by 2025.

SpaceX has yet to carry humans into outer space, but it has won a contract from NASA to carry U.S. astronauts to the International Space Station as soon as next year. Today Musk laid out his plans for Mars colonization. The idea is reusable rockets, somehow making fuel on Mars, refueling stations in space, spaceships carrying about 100 passengers per flight to Mars to inhabit a city of 1 million. All this within the next 10 years.

Financial Review

Groundwork for Fed Minutes

Sinclair Noe — August 16, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW – 84 = 18,552
SPX – 12 = 2178
NAS – 34 = 5227
10 Y + .02 = 1.57%
OIL + .84 = 46.58
GOLD + 7.20 = 1346.80

Housing starts ran at a seasonally adjusted 1.21 million annual rate in July, a 2.1% increase over the June figure. Permits were at a 1.15 million annual rate in July, essentially flat from a revised June reading. Single-family starts edged up 0.5% to a 770,000 annual pace.

Most of the strength in July came from multifamily starts, which popped 8.3% to a 433,000 annual rate. Overall housing starts are 5.6% higher compared to a year ago, and July’s figure was the second-best of the recovery.

The consumer price index rose 0.8% compared to a year ago. The Labor Department said core CPI, which strips out food and energy, rose 2.2%. The cost of food was unchanged in July, and has risen 0.2% over the past year, the smallest increase since the 12 months ending in March 2010.

Energy prices declined 1.6% and are 10.9% lower for the year. (However, today, oil posted its fourth straight session of gains.)

Real hourly wages, those which account for inflation, increased 0.4% in July. Wages are up 2.0% over the year.

Medical care prices jumped 0.5 percent in the month for a year-on-year rate that leads the major readings, at a downright inflationary 4.0 percent.

Housing costs rose 0.3 percent in the month with this year-on-year at 2.4 percent which, next to medical care, is the second highest on the list.

Industrial production in July saw the biggest one-month gain in 20 months, suggesting a hint of strength in manufacturing. Industrial production climbed 0.7% in July, the biggest percentage rise since Nov. 2014. Compared to the same period of 2015, production is still down 0.5%. The factory sector has been hammered by the strong dollar, lower commodity prices and weak growth overseas. Vehicle production was exceptionally strong in June and was also very solid in July.

New York Federal Reserve President William Dudley said an interest rate hike in September is still possible. Dudley said, “The labor market is getting tighter and we’re starting to see signs of wage gains starting to accelerate, so I think we’re getting closer to that point in time when it will be appropriate to actually raise short-term rates again.”

The markets still think there is just a 12% chance of a rate hike in September. Dudley says the markets are too complacent about a possible rate hike in September. We might learn more tomorrow when the Fed releases the minutes of the FOMC July policy meeting.

Atlanta Federal Reserve Bank President Dennis Lockhart said today that the US economy is likely strong enough for at least one interest rate increase before the end of 2016, as job gains continue and inflation moves in a “healthy” direction, and he thinks 2 rate hikes are still a possibility.

Lockhart said recent U.S. gross domestic product data overstated weakness in an economy whose fundamentals remain on track for moderate growth through this year and next. He added, however, that he is not locked into a particular date for a rate increase.

Warren Buffett’s regulatory filings show he has taken a large bite out of Apple, raising his stake in the stock by 55%. Berkshire Hathaway’s holding in the tech giant was first revealed in May and shares have since risen more than 20%. The move contrasts with Carl Icahn and George Soros, who both sold Apple entirely. Buffett also took a dimmer view on Walmart, cutting his stake in the retailer by 27%.

Hedge funds of a certain size are required to disclose their long stock holdings in filings known as 13-Fs. Of course, the filings only provide a partial picture since they do not show short positions or wagers on commodities and currencies. These filings come out 45 days after the end of each quarter, so it’s possible they could have traded in and out of the position. Still, it does provide a glimpse into where some of the top money managers have been placing money in the stock market.

George Soros has become more bearish on equity markets, nearly doubling his short bet against the S&P 500, following similar moves by Jeffrey Gundlach, Carl Icahn and David Tepper. According to his 13F filing, Soros now holds put options on roughly 4 million shares in SPY, the S&P 500 Exchange Traded Fund, also known as Spiders.

Soros Fund Management LLC, which took a $263 million stake in Barrick Gold in the first quarter, and then cut its holdings by 94 percent in the ensuing three months. Looks like Soros timed that trade to perfection; after climbing 169% in the first half, Barrick’s best-ever performance for the period, shares have slipped from a three-year high reached last month.

Hedge fund manager Paul Tudor Jones, the founder of Tudor Investment Corp, doubled-down on his bet against the stock market, according to his fund’s most recent 13-F filing. During the second quarter, Tudor Investment bought put options on over 5.95 million shares of Spiders. The fund now owns puts on 8.34 million shares of the exchange-traded fund, making it the fund’s largest position.

Aetna is withdrawing from 11 of the 15 states where it currently offers plans through the Affordable Care Act exchanges. Aetna will leave nearly 70% of the counties in which it currently sells coverage. Aetna’s decision follows similar moves from UnitedHealth and Humana, and it puts at least one county, Pinal in Arizona, at risk of having no insurers offering exchange plans in 2017 (a circumstance that would present a major challenge to the basic mechanics of ACA).

Some states like Alaska and Oklahoma will be left with only one participant selling individual coverage in 2017. Aetna has said it has been swamped with higher than expected costs, particularly from pricey specialty drugs.

The Environmental Protection Agency and the Department of Transportation issued new rules today to reduce greenhouse gas and set new fuel efficiency standards for medium-and heavy-duty trucks and buses. EPA estimates the standards, as proposed, would: Reduce carbon pollution by one billion tons and cut fuel use by 1.8 billion barrels of oil by 2027. The proposals are expected to save vehicle owners $170 billion in fuel costs over the lifetime of the vehicles, and save the average American household $150 a year by 2030.

Transportation recently surpassed power plants as the leading US source of carbon pollution. The EPA and the Transportation Department are near the mid-point of a program expected to raise the average fuel economy of passenger cars to more than 50 miles per gallon by 2025. It has also tackled emissions from power plants and the electrical grid.

The Department of Justice has found Volkswagen liable for criminal wrongdoing. Volkswagen is expected to face criminal and civil penalties for violating the Clean Air Act by installing software on vehicles that violates environmental standards meant to reduce smog, but prosecutors have yet to decide the specific criminal charges they might bring against the automaker.

Volkswagen admitted to installing the emissions-cheating software. The automaker expected to receive credit from prosecutors for cooperating with the investigation and agreeing to a civil accord in June with regulators and consumers that could separately cost the automaker up to $15 billion. The credit could reduce the financial penalty Volkswagen receives, among other things, in the final settlement with the Department of Justice. Volkswagen set aside roughly $21 billion to deal with the fallout

We’ve heard plenty lately about self-driving cars; Google has built an autonomous vehicle and logged about 1.8 million miles, but most of the autonomous systems are really driver-assisted. That is changing. Ford Motor plans to have a fully autonomous vehicle – no steering wheel, no gas or brake pedals – available by 2021 for ride-hailing services. Fiat Chrysler has teamed with Google to develop 100 self-driving minivans. Ford conducted unsuccessful negotiations with Google prior to the Chrysler deal.

GM has spent almost $600 million – and will spend more – acquiring self-driving software maker Cruise Automation and invested $500 million for a 9 percent stake in ride-hailing company Lyft. GM is testing Cruise’s self-driving software on Chevy Bolt electric cars in Scottsdale.

Google has launched a new video-calling app called Duo. If you have used Apple’s FaceTime, then Duo won’t seem like a big deal but Duo works on both Apple and Android devices. You can initiate a call using a phone number rather than a Google account or Gmail address, making it easier to call friends, family and other people already stored on smartphone contact lists. Google’s main innovative feature is “Knock Knock ,” which lets you see live video of your caller before you answer, unlike Apple’s FaceTime. It runs on Wi-Fi and cellular networks, automatically switching between different types and speeds of connection and adjusting video quality.

Google is a little late to the messaging party; there is already plenty of competition. Even if Apple users are enticed by the cross-platform functionality–they can only make Apple-to-Apple FaceTime calls– Google still has to win over Android consumers—that’s over 80% of the worldwide smartphone market—who can use Microsoft’s Skype and Google’s own Hangouts. Plus, these platforms offer file transfers, text messaging and group calling. The main draw of Duo seems to be that it is so basic, even I could use it.

Financial Review

The End of Summer

Sinclair Noe — September 21, 2015

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW + 125 = 16,510
SPX + 8 = 1966
NAS + 1 = 4828
10 YR YLD + .08 = 2.21%
OIL – .26 = 46.42
GOLD – 6.50 = 1134.40
SILV + .03 = 15.31

The National Association of Realtors says sales of previously owned homes fell 4.8% in August to an annual pace of 5.31 million, marking the first decline in four months. The sales rate in July was revised down slightly to a seasonally adjusted 5.58 million, but that was still the highest level in eight years. The median price of homes sold was up 4.7% to $228,700 from 12 months ago. Inventories of existing homes on the market rose 1.3% to 2.29 million, representing 5.2 months’ supply at current sales trends. Sales fell in all major regions except the Northeast, where they were unchanged.

The Federal Reserve reports businesses racked up new debt at an annual rate of 8.3% in the second quarter. That was the fastest growth since the first quarter of 2008 and was driven mostly by corporate bond issuance. While issuing debt, the corporate stockpile of cash rose to $2.06 trillion from $1.99 trillion. The Fed report also shows that households and nonprofits saw their net worth increase by $695 billion in the second quarter, mostly due to the rise in home values but also due to the stock market. Household credit grew 3.9% in the second quarter, mostly due to student and auto loans. The total debt outside the financial sector – of households, businesses and all forms of government – rose to $43.98 trillion from $43.51 trillion.

Investors will be looking for hints on when the Fed may finally raise rates when a number of central bank officials including Chair Janet Yellen, appear in public this week. Over the weekend, St. Louis Fed President James Bullard said there is a powerful case to be made for a rate hike, which he said could come in October.  Richmond Fed President Jeffrey Lacker explained why he dissented in favor of higher interest rates. San Francisco Fed President John Williams said “most likely” the right time to start lifting interest rates will arrive this year. Bullard is a non-voting member of the Fed. Federal Reserve Bank of Atlanta President Dennis Lockhart, a voting member of the FOMC spoke today, saying he is in favor of a rate hike before the end of the year, even though he voted against a hike at last week’s meeting.

Pope Francis went to east Cuba today to celebrate the second Mass on Cuban soil. In his first two days in Havana, the pope met Cuba’s Fidel and Raul Castro. But there was no encounter for dissidents. Three were hauled away from Revolution Square on Sunday before the pope celebrated Mass for tens of thousands. Pope Francis will fly from Cuba to the United States tomorrow.

Greek voters have given the left-wing Syriza party the second chance it was asking for, following another high-stakes election that marks the next phase of the country’s debt crisis. Syriza leader and former Prime Minister Alexis Tsipras had enraged many Greeks by breaking an election pledge and ignoring the outcome of a referendum, but that did not stop citizens from putting him back in power. Results: Tsipras gathered around 35% of the vote.

The election is over, the economic problems are not. The financial markets are no longer concerned that Syriza will be the template for a political backlash against budget cuts or that it could start the breakup of monetary union by leaving the single currency. There is no reason for the markets to worry about Greece, at least for now. The Greek economy has contracted by 29% in the past 6 years. Greece can’t pay its debts. Tsipras will step up the pressure for debt relief now that he has his new mandate. He will be turned down. Greece will likely default at some point.

The U.S. and China are negotiating what could become the world’s first arms control agreement for cyberspace, with each country committing not to be the first to use the weapons to cripple the other’s critical infrastructure during peacetime. The proposed accord would address attacks on power stations, banking systems, cellphone networks and hospitals, but would not protect against most of the cybercrimes China has been accused of conducting, including the widespread poaching of intellectual property and the theft of millions of U.S. government employees’ personal data.

Some of the most popular Chinese names in Apple App Store were found to be infected with malicious software in what is being described as a first-of-its-kind security breach. The applications were infected after software developers were lured into using an unauthorized and compromised version of Apple’s developer tool kit. Meanwhile, Apple says that last week’s rollout of iOS 9 marked the “fastest iOS adoption ever,” with more than 50% of existing devices upgrading to the new mobile operating system just five days into its launch.  The company began taking preorders for its newest smartphones, the iPhone 6s and iPhone 6s Plus, on September 12. It will begin selling the new hardware in retail stores this Friday.

Apple aims to release its first car in 2019. Although many reports have suggested that Apple is working on a self-driving car, the company’s first vehicle likely won’t be fully autonomous, according to a report in the Murdoch Street Journal. It will be electric. Apple has already been aggressively hiring for its car project, poaching employees from companies like Ford, General Motors, Tesla, Volkswagen, and more.

Many of its recent hires have expertise in connected and autonomous vehicle systems. It remains unclear if Apple will develop its “Apple Car” from the ground up or if it will team up with an existing auto manufacturer. Rumors have suggested Apple has held discussions with BMW over a potential partnership that would see the BMW i3 used as the basis for the Apple Car.

The Environmental Protection Agency (EPA) says Volkswagen used software for diesel VW and Audi branded cars that deceived regulators measuring toxic emissions and could face penalties of up to $18 billion. Volkswagen has for years promoted its TDI turbodiesels as a clean and efficient alternative to hybrids, but now it appears the cars were clean only when hooked up to emissions testing devices and dirty the rest of the time, spewing out about 40 times the allowed levels of pollution.

The EPA and California regulators began asking questions in May 2014 after West Virginia University researchers published a study that found lab results did not match up with road tests. The software was designed to detect when auto emissions were being hooked up to the cars; and only then the car’s emissions-control machinery would kick in. Once the test was over, the software noticed that, too, and returned to its illegally and dangerously dirty operations.

Think about that for a moment. Code had to be written for the express intent of cheating on auto emissions tests. People in the manufacturing process had to know it was happening. It took substantial testing to make it work. It happened across different models and brands. It lasted for 6 years, until it was discovered by an outside source.

It’s estimated that about 482,000 of the cars were manufactured and sold from 2009 through 2015, and are still on the road. It is a near certainty that VW will recall the cars to remove the allegedly illegal software that deceives emission inspection stations; it is less certain what VW will do to bring the cars into compliance with clean-air regulations without hampering their performance and gas-mileage.

At least one class-action lawsuit has already been filed on behalf of Volkswagen and Audi owners. It claims fraud and breach of contract, citing the “diminished value” of the nearly 500,000 recalled diesel vehicles, which usually sell for a premium price over their gasoline counterparts. Specifically, after recalled Volkswagen diesels are fixed, the cars might have degraded horsepower and fuel efficiency. Volkswagen could be criminally prosecuted. And there is evidence that the excessive pollution spewed out by VWs is deadly. VW shares down about 17%, and the company lost nearly $17 billion in market capitalization.

Remember Standard Chartered, the British bank accused of violating sanctions against Iran back in 2006? The investigation into those violations produced one of the most memorable quotes from a bankster, as one senior exec with Standard Chartered purportedly said: “You (blanking) Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

In 2007, StanChart committed to stop dealing with Iranians; then in 2012 they were fined $1 billion for sanctions breaches and compliance failures. Well, a new Financial Times report reveals that even after the 2012 fines, StanChart still had some compliance issues, and they could not say with certainty whether they were still dealing with Iranian customers; and US regulators are now investigating further sanctions breaches.

If the bank is found to have breached sanctions again, it could incur further fines or lose its vital dollar clearing license. And of course, according to the recent Yates Memo from the DOJ, they might seek criminal charges for repeat offenders; requiring the bank to turn over criminally culpable individuals as part of any settlement. This should be an interesting test of the Yates Memo.

You have probably never heard of Daraprim, it is a drug which has been on the market for 62 years, it is the standard of care for a food-borne illness called called toxoplasmosis caused by a parasite that can severely affect those with compromised immune systems, and it is used by HIV/AIDS patients. The pill sells for $13.50, or it used to, until about a week ago, when the price shot up to $750 a pill.

A spokesman for Turing said the company will use the money from the sales to further research treatments for toxoplasmosis, which he said has long been neglected. He also said the firm had plans to invest in marketing and education tools to raise awareness of the disease; a reasonable and reasoned answer, but one that has been unsatisfactory for many, especially in light of the corporate history. It turns out that Turing was a hedge fund that bought the marketing rights to Daraprim in August, and basically decided to jack up the price.