Financial Review

Everybody Wants to Go to Heaven

Sinclair Noe — November 1, 2017

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DOW + 46 = 23,424
SPX + 5 = 2580
NAS – 15 = 6712
RUT – 9 = 1492
10 Y – .01 = 2.36%
OIL – .04 = 54.34
GOLD + 3.90 = 1275.30

Cryptocurrency

• Number of Currencies: 888
• Total Market Cap: $189,077,138,499
• 24H Volume: $7,220,358,890

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	6,936.4	$117.35B	$3.59B	49.69%	1	+2.99%	+21.11%
	Ethereum	ETH	277.77	$26.95B	$741.45M	10.27%	0.040594	-3.76%	-5.34%
	Bitcoin Cash	BCH	549.00	$9.52B	$1.30B	17.96%	0.0817164	+3.03%	+68.43%
	Ripple	XRP	0.18122	$7.19B	$99.04M	1.37%	0.00002682	-5.19%	-9.05%
	Litecoin	LTC	51.450	$2.76B	$159.73M	2.21%	0.00739832	-3.07%	-8.47%
	Dash	DASH	253.83	$1.95B	$60.01M	0.83%	0.0366871	-6.71%	-11.45%
	BitConnect	BCC	260.114	$1.91B	$24.17M	0.33%	0.0373998	+7.57%	+21.97%
	NEO	NEO	24.340	$1.59B	$59.18M	0.82%	0.00351398	-9.18%	-14.85%
	NEM	XEM	0.16222	$1.42B	$7.67M	0.11%	0.00002275	-2.71%	-21.96%
	Monero	XMR	82.37	$1.28B	$46.76M	0.65%	0.0119949	-4.22%	-6.40%

The Dow and the S&P closed near records. The Nasdaq slipped from a record high close yesterday.

The ISM manufacturing index fell to 58.7% in October, a month after hitting a 13-year high of 60.8%. Sixteen of the 18 industries tracked by ISM reported growth. After a flurry of activity in the wake of the hurricanes, we seem to be returning to more normal, yet still strong manufacturing growth.

Construction spending rose in September, led by a surge in government spending. Spending ran at a seasonally adjusted annual $1.22 billion rate. Spending increased 0.3% during the month, and stood 2% higher than a year ago.

For the second month in a row, public works projects drove the spending increase. Public-sector outlays were 2.6% higher than in August, while private-sector spending was 0.4% lower. Compared to a year ago, however, the pace of total public construction spending is 1.6% lower, while overall private spending is 3.1% higher.

The Federal Reserve left a key interest rate unchanged in November but called the economy “solid,” which is Fedspeak to say policymakers remain on track to raise the cost of borrowing next month.

The central bank had previously projected it would raise its benchmark fed funds rate, now between 1% and 1.25%, at its final meeting on Dec. 12-13. In a statement, the Fed also acknowledged core inflation “remained soft” and is likely to remain so in the short run.

The Fed offered a lengthy explanation of what happened to inflation after Hurricanes Harvey and Irma. Higher gas prices boosted overall inflation in September and the after-effects will continue to impact inflation, though for items other than food and energy inflation remained soft.  The Fed still expects inflation to reach its 2% target in the “medium term.”

The more muted language on inflation might be a clue the bank will proceed more cautiously early in 2018. But really no surprises from the Fed today. Fed Chairwoman Janet Yellen has said the strength of the economy justified more gradual rate hikes despite low inflation readings. The modest changes to the Fed statement shows that remains the majority view.

More indications that Jerome Powell will be nominated to replace Janet Yellen when her term expires in February. The Wall Street Journal reports Powell is the choice. An announcement is expected tomorrow.

Powell has never dissented from any decision since becoming a Federal Reserve governor in May 2012. He’s agreed to lift interest rates four times in five years. Put another way – there is hope Powell will represent continuity at the Fed. Powell has made clear he’s a proponent of the “off ramp” the Fed has chosen as it’s begun to reduce the size of its $4.5 trillion balance sheet.

In a speech in June, Powell also imagined the Fed balance sheet probably wouldn’t get below $2.4 trillion, and possibly not even $2.9 trillion. Stylistically, Bernanke called Powell a “moderate”.

We were waiting for the rollout of the GOP tax plan but it has been delayed. Maybe tomorrow. The problem is basic math – how to cut tax rates without eliminating popular tax breaks. The answer likely lies in smoke and mirrors.

Even if the delay does not throw the Republican schedule off course, it signals potential difficulties ahead for a bill that Republicans are attempting to pass on a party-line basis, over what appear most likely to be loud objections from some business groups — and relentless criticism from Democrats.

As Republicans rushed to lock down support from their members and key interest groups earlier on Tuesday, some new details of the bill began to trickle out. The draft bill is expected to cut the top corporate tax rate to 20 percent immediately, and not phase it in over a period of years, as had been discussed.

The plan might give up on trying to cut the highest rate for the wealthiest earners, which would be above the 35 percent the Republicans identified as their top tax rate in the framework released in September; the idea is to keep that rate at 39.6% and then protest the idea that they are cutting taxes for the wealthy. Maybe a phased in repeal of the estate tax over several years.

Republican leaders also confirmed they would maintain a federal tax deduction for at least some state and local property taxes paid, while eliminating comparable deductions for income and sales taxes. This is going to be a big problem – first because it looks a lot like double taxation – next because states’ rights – next because nobody wants to be taxed on their taxes to give a big tax break to corporations and rich guys.

It is now clear that the original plan to fully eliminate the deduction for state and local taxes is not dead – the big problem for people who believe in math is that the tax plan doesn’t work without those cuts. On taxes, everyone wants to go to heaven, no one wants to die.

Then, this morning Trump tweeted that the tax plan should include a repeal of the individual mandate on Obamacare, which would turn a difficult math problem into a big hot mess. Nobody is quite sure what the tweets mean, if anything, but tying the tax plan to the already failed effort to repeal Obamacare just doesn’t make sense.

GOP leadership is scrambling to get a tax deal done on an extremely compressed schedule, not only because they want to have an accomplishment to tout, but also because the quicker they do it, the less chance there is that resistance will build. And right now, they seem genuinely spooked by the possibility that the public will conclude that their tax cut is little more than a gigantic giveaway to corporations and the wealthy.

This is a well-grounded fear: It is, in fact, a gigantic giveaway to corporations and the wealthy, and polls show the public doesn’t believe corporations and the wealthy desperately need relief from the oppressive burden of taxation. Morgan Stanley warned in a report this week that enacting aggressive tax cuts to businesses and individuals risks “overheating” the economy and causing stocks to “boom then bust.”

The concern is that slashing the corporate tax rate from 35% to 20% could backfire by forcing the Federal Reserve to accelerate interest rate hikes. That in turn would raise borrowing costs for consumers and businesses, potentially unnerving the stock market along the way. Morgan Stanley strategists wrote: “Adding stimulus to an already strong economy likely stirs the Fed… pulling forward the end of an aging cycle.”

Ironically, given all the excitement on Wall Street about tax cuts, Morgan Stanley argues that “failure of tax reform” would be the “best” outcome for extending the economic and market recovery from the Great Recession.

So, what’s a one-day delay in releasing details of the tax plan? Well, that means there are just 10 working days for Congress between tomorrow and the Thanksgiving holiday. And while many things can be done in 10 days, re-wiring the economic engine might be overly ambitious.

Facebook beat earnings and revenue expectations. The company reported third-quarter net income of $4.7 billion, or $1.59 a share, compared to $2.63 billion, or 90 cents a share, in the year-ago period. Revenue rose to $10.3 billion from $7 billion in the year-ago period. Analysts surveyed by FactSet had estimated $1.28 a share on revenue of $9.8 billion.

Daily active users, a metric closely watched by analysts and investors, rose 16% to 1.37 billion, compared with the year-earlier period. For the fourth quarter, analysts model earnings of $1.70 a share on revenue of $12 billion. The company’s shares, which hit a record earlier in the day, initially rose in after-hours trading, but later fell into negative territory. They have gained almost 60 percent this year.

Meanwhile, lawmakers released a batch of Russian-bought Facebook ads that showcased politically charged content allegedly spread on social media by Moscow ahead of the 2016 U.S. election. Lawyers from Facebook, Twitter and Google testified about Russian influence on their networks. After decades of relatively little regulatory scrutiny, the tech industry is now on the defensive on a range of policy issues.

Tesla reported third quarter earnings – or more accurately they reported their largest ever quarterly loss. Tesla also pushed back its target for volume production on its new Model 3 sedan by about three months, saying that while progress fixing bottlenecks was made, it was difficult to predict how long it would take for all production issues to be fixed.

Tesla’s long-term viability depends on the Model 3, its new sedan that starts at $35,000, about half the price of its flagship Model S. Tesla plans to produce 500,000 vehicles in 2018, mostly Model 3s, a six-fold increase over 2016 levels.

But the company made just 260 Model 3 sedans in the third quarter due to “production bottlenecks,” it said. It had planned to build more than 1,500. Tesla posted a net loss of $619 million, or $3.70 per share, even as revenue rose to 30% to $2.98 billion. Tesla shares dropped about 5% in after-hours trade.

Earlier this month, Wells Fargo fired four foreign exchange bankers. No big deal, right? In its statement, Wells Fargo said, “The departure of these employees was not related to issues involving market collusion, front-running or market manipulation.”

We’re pretty sure you can see where this is going. Federal prosecutors are looking into possible front-running of trades. If it’s not one thing, it’s another.

Financial Review

Falling Leaves

Sinclair Noe — September 25, 2017

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

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DOW – 53 = 22,296
SPX – 5 = 2496
NAS – 56 = 6370
RUT + 1 = 1451
10 Y – .04 = 2.22%
OIL + 1.43 = 52.09
GOLD + 13.20 = 1311.30

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	3,946.1	$65.48B	$1.37B	42.06%	1	+0.41%	-0.96%
	Ethereum	ETH	295.46	$27.84B	$461.77M	14.14%	0.0743875	+0.09%	2.49%
	Bitcoin Cash	BCH	463.90	$7.59B	$319.61M	9.79%	0.115731	+2.79%	-2.86%
	Ripple	XRP	0.18620	$7.02B	$35.87M	1.10%	0.00004642	+1.30%	-1.61%
	Litecoin	LTC	52.580	$2.77B	$214.73M	6.58%	0.013211	+0.75%	-3.52%
	Dash	DASH	343.33	$2.60B	$60.08M	1.84%	0.0870719	-1.12%	5.57%
	NEM	XEM	0.23614	$2.09B	$2.84M	0.09%	0.00005895	+1.14%	-3.66%
	IOTA	MIOTA	0.54778	$1.53B	$10.26M	0.31%	0.00013932	-1.48%	-6.10%
	Monero	XMR	94.33	$1.41B	$28.15M	0.86%	0.0236862	+0.26%	-4.71%
	NEO	NEO	26.999	$1.33B	$91.78M	2.81%	0.00675399	+3.88%	32.73%

North Korea’s foreign minister said Trump has “declared war” on his country and threatened to shoot down US jets in international airspace. Ri Yong Ho said the “declaration of war” meant North Korea could target US bombers. He said: “The question of who won’t be around much longer will be answered then.”

That was a reference to Trump’s recent tweet that the North Korean foreign minister, and leader Kim Jong-un “won’t be around much longer”.

Maybe the North Koreans are good market timers and they timed their rhetoric for maximum market impact. So far, no weapons have been fired but it offers a good excuse for selling stocks, if you were looking for an excuse.  A better justification is that stocks have been on a record-setting run and we are now heading into the end of the month and the end of the quarter, so it’s a good time to make the ledger look pretty.

Yet another justification is that the bull market is getting long in the tooth. This can’t go on forever, can it? And the answer is no, it can’t last forever, but that doesn’t mean the bull can’t keep running a bit longer.

One of the more nettlesome concerns is that the bull market is not very broad – mostly wrapped up in the fortunes of the FAANG stocks. And even if you suppose the FAANGs will continue to dominate, they are getting a bit too big to expect exponential growth rates, and that means valuations ranging around 18-time forward earnings are a bit on the rich side. It just doesn’t seem realistic to expect the next 5 years to be as strong as the last 5.

Today’s case in point – Apple, flirting with correction territory as Digitimes reported that Apple suppliers were shipping just 40 percent of the components originally ordered for the premium phone, which goes on sale in early November. Apple is still going to sell a whole bunch of phones but maybe not the phenomenal growth we’ve come to anticipate.

Meanwhile, Facebook dropped 4.6% today – that’s $20 billion market cap evaporating. Facebook dropped its plans to issue a new class of non-voting shares. A special committee of the company’s board previously approved the plan to issue the shares, but a class action lawsuit was filed to block the share issuance.

Facebook is also dealing with investigatory pressure from US lawmakers. The company announced it would cooperate with regulators as they investigate Facebook’s role in the 2016 election.  Of course, Apple and Facebook aren’t going away anytime soon, so maybe you buy the dips.

Toss in a Federal Reserve that seems intent on tightening accommodation and the growth story looks even more implausible. The Federal Reserve is on track to sell some of its bond holding and gradually raise interest rates. We know this from last week’s FOMC statement.

New York Fed President William Dudley said today that he expects inflation will pick up, citing the soft dollar and strong overseas growth among the reasons he expects slightly above-average U.S. economic activity and a long-sought rise in wages.

Dudley said: “With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the 2 percent objective over the medium term,” adding, “In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.”

Meanwhile, Chicago Fed President Charles Evans delivered a speech today entitled: “the puzzle of low inflation”. Whatever the Fed does, it will be slow and incremental. Imagine the Fed’s balance sheet as a lawn full of autumn leaves. Dudley wants to use a rake. Evans wants to pick up each leaf individually. Nobody is even thinking about using the leaf blower.

Still the Fed is in tightening mode. Federal Reserve economists worry that the central bank may have a hard time lowering interest rates when future economic crises arise. The reason is simple: Demographics. San Francisco Fed economists believe that the aging population in the U.S. is putting long-term downward pressure on rates, a phenomenon that won’t allow a lot of room to provide stimulus through rate cuts.

Sen. Rand Paul reiterated his opposition to the Graham-Cassidy health care bill, despite revisions. Sen. John McCain of Arizona has opposed the bill’s initial version and Texas Republican Sen. Ted Cruz said Sunday he was against it. Maine Republican Sen. Susan Collins seems likely to do the same.

Alaska Sen. Lisa Murkowski is undecided but had opposed earlier GOP bills to repeal Obamacare that the Senate rejected in July. Republican leadership is using a tried-and-true method to get wavering colleagues to vote yes: money. Lots of it. An extra $14 billion in aid for Maine, Texas, Kentucky, Arizona, and Alaska. So, Senate Majority Leader Mitch McConnell believes he knows who he’s dealing with, now he’s just negotiating the price.

Germans voted over the weekend. Chancellor Angela Merkel’s party remained the biggest parliamentary bloc, but only pulled about 33% of the vote, meaning Merkel will have to build a coalition. Voters flocked to the anti-immigration Alternative for Germany (AfD); the first far-right party to enter the German parliament in more than half a century pulled about 13% of the vote.

Japan’s Prime Minister Shinzo Abe said he will dissolve the Lower House for a snap election when the Diet convenes for an extraordinary session Thursday, in a high-stakes political gamble that observers say could determine whether he survives as Japan’s leader. There are several issues at stake, including a 2019 planned tax hike needed to fund education and social security; also, Abe’s authority to act in the event of North Korean aggression by amending Japan’s pacifist Constitution.

Voting stations set up for the referendum on Kurdish independence from Iraq have closed their doors and counting of ballots has begun. Turnout was near 80%. The referendum is opposed by the Iraqi central government in Baghdad as well as the neighboring countries of Turkey and Iran, besides major international powers.

The Kurds are likely to approve the referendum, but they are not expected to result in any immediate declaration of independence. While the result is non-binding for the Iraqi government, it is binding for the Kurdish leadership to follow the will of the people.

Brent crude surged to its highest in more than two years as Turkey threatened to shut down Kurdish oil shipments through its territory. Crude has risen more than 9 percent this month in New York, as U.S. refiners recovered from Hurricane Harvey and both OPEC and the International Energy Agency sweetened their worldwide demand forecasts. Oil should start to level off near these levels, unless the bulls get greedy.

One of the world’s “big four” accountancy firms – Deloitte – has been hacked. The hackers compromised confidential emails and plans of some blue-chip clients. In addition to emails, the hackers had potential access to usernames, passwords, IP addresses, architectural diagrams for businesses and health information.

Some emails had attachments with sensitive security and design details. The breach is believed to have been US-focused and was regarded as so sensitive that only a handful of Deloitte’s most senior partners and lawyers were informed. It is possible the hack compromised data for 6 months or more.

Deloitte says only a small number of its clients had been “impacted”. Deloitte provides auditing, tax consultancy and high-end cyber-security advice to some of the world’s biggest banks, multinational companies, media enterprises, pharmaceutical firms and government agencies. Another day, another hack. I think we are seeing a trend here.

Intel unveiled its latest Core desktop processors today, proclaiming up to 25 percent frame-rate improvements for PC gaming versus the previous models. The processors will be available for sale on Oct. 5. It wasn’t enough to lift Intel shares today, but it did help push competitors AMD and Nvidia sharply lower.

Target is raising the minimum hourly wage for its workers to $11 starting next month and then increasing it to $15 by the end of 2020. The retailer said the move will help it better recruit and retain top-quality staff and provide a better shopping experience for its customers. Target quietly raised entry-level hourly wages to $10 last year, from $9 from the previous year, following initiatives by Wal-Mart and others to hike wages.

But Target’s hike to $15 per hour far exceeds not only the federal minimum of $7.25 per hour but the hourly base pay at Wal-Mart and plenty of its other retail peers whose minimum hourly pay now hovers around $10. Target said the pay hike will affect thousands of its more than 300,000 workers, but it declined to quantify the percentage of its workforce. It said the increase to $11 per hour will apply to the more than 100,000 hourly workers that Target will be hiring for the holiday season.

Brown University has initiated a $120 million campaign to drop all loans from financial aid packages awarded to their undergraduates. Student debt is at an all-time high — the average outstanding balance is $34,144, up 62 percent over the last 10 years — and Brown will become the sixteenth U.S. institution, and the sixth in the Ivy League (excluding Cornell and Dartmouth), to offer all its undergraduates a loan-free education.

In 2016, the average Brown student graduated with a debt of $23,810, compared with $8,908 for Princeton, which adopted the no-loans policy in 2001. The plan aims to replace financial aid packages with grants that do not have to be repaid.

Financial Review

One-Two Punch

Sinclair Noe — September 7, 2017

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

Subscribe: Android | RSS

DOW – 22 = 21,784
SPX – 0.44 = 2465
NAS + 4 = 6397
RUT – 3 = 1398
10 Y – .05 = 2.06%
OIL – .07 = 49.09
GOLD + 15.10 = 1349.60

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	4,604.6	$76.07B	$1.76B	31.71%	1	-0.20%	-2.52%
	Ethereum	ETH	331.97	$30.95B	$641.90M	11.54%	0.0708804	-0.74%	-15.14%
	Bitcoin Cash	BCH	660.01	$10.69B	$1.02B	18.42%	0.139625	-0.89%	9.42%
	Ripple	XRP	0.22644	$8.56B	$89.89M	1.62%	0.00004833	-0.03%	-10.85%
	Litecoin	LTC	80.660	$4.15B	$448.41M	8.06%	0.0170024	+0.54%	8.40%
	NEM	XEM	0.28998	$2.63B	$4.16M	0.07%	0.00006329	-0.15%	-11.52%
	Dash	DASH	343.55	$2.59B	$22.70M	0.41%	0.0742512	-1.03%	-9.55%
	Monero	XMR	122.59	$1.83B	$62.20M	1.12%	0.026256	+0.09%	-12.89%
	IOTA	MIOTA	0.62553	$1.74B	$27.26M	0.49%	0.00013528	-3.45%	-27.00%
	Ethereum Classic	ETC	18.3265	$1.69B	$150.91M	2.71%	0.00384088	-0.66%	8.22%

Hurricane Irma has been ripping up the Caribbean. With Category 5 winds of around 175 mph, the storm lashed several small islands in the northeast Caribbean, including Barbuda, St. Martin and the British Virgin Islands, tearing down trees, flattening homes and causing widespread damage.

The eye of the hurricane did not directly hit Puerto Rico, passing north early this morning, but doing serious damage and knocking out power for about two-thirds of the island. Because of budget problems, the power may be out for months in some areas.

Trump approved emergency declarations for Florida, Puerto Rico and the U.S. Virgin Islands, mobilizing federal disaster relief efforts. Irma’s eye was forecast to pass over the Turks and Caicos Islands, a British territory, and the Bahamas before moving towards Cuba’s keys. One of the big concerns, in addition to the wind, is a storm surge that could be 20 feet high.

The exact path is uncertain but Miami is a likely target. There is a massive evacuation effort underway in Florida. Irma will likely hit Florida as a very powerful Category 4 storm on Sunday morning, marking the first time the mainland has been hit by two Category 4 hurricanes in the same season – and this is back-to-back with Harvey.

And something else – Hurricane Jose is gaining strength out in the Atlantic, while Hurricane Katia has formed over the southwest Gulf of Mexico.

The Senate today overwhelmingly backed a $15.3 billion aid package for victims of Harvey, nearly doubling Trump’s emergency request. The Senate added a temporary extension of the federal flood insurance program, which otherwise would have expired at the end of the month. The 80-17 vote sends the massive package to the House for a Friday vote.

The must-do legislation would provide money to government agencies through Dec. 8, eliminating the threat of a government shutdown when the new fiscal year starts next month. The aid money comes as Harvey recovery efforts are draining federal disaster aid coffers.

This is just a down payment. Texas Gov. Greg Abbott estimated that Texas will ultimately need between $150 billion and $180 billion in federal aid to rebuild in the aftermath of Hurricane Harvey.

We don’t yet know the costs of Hurricane Irma.

Harvey is likely to cost the insurance industry as much as $10 billion-$15 billion. European reinsurers like Swiss Re and Munich Re have the most exposure to Harvey-hit areas. One bit of good news for insurers: the firms are sitting on enough excess capital that the hurricane impact is likely to dent their earnings, not their balance sheets, even if the price tag hits $20 billion.

Insurers also rely on catastrophe bonds which are essentially securities designed to protect insurers from payouts for natural disasters by passing on the risk to investors. The catastrophe bond market was largely spared from Hurricane Harvey. That’s because most of the policies backing the bonds aren’t tied to flooding. Hurricane Irma won’t be so forgiving. Barclays estimates Irma will inflict as much as $130 billion on insurers in a worst-case scenario.

A California geophysicist says the sheer weight of the torrential rains brought by Harvey has caused Houston to sink by 2 centimeters. Chris Milliner, a postdoctoral fellow at NASA’s Jet Propulsion Laboratory at the California Institute of Technology, says water weighs about a ton per cubic meter and the flooding was so widespread that it “flexed Earth’s crust.”

The Energy Information Administration said weekly crude stocks increased 4.6 million barrels last week, topping analysts’ forecast for a 4.0-million-barrel build. The impact of Hurricane Harvey is clearly visible in the report. The data scrambles the recent trend of declining crude inventories and further rises are likely in the weeks ahead. As refineries try to ramp back up production the big drop in refinery utilization “almost assures” crude stockpiles will continue to rise in coming weeks.

Make no mistake, natural disasters have a huge impact on financial markets. We know the oil and petrochemical industry was slammed in the Houston area, and cruise lines (which use Miami as a hub) are disrupted. Even if you aren’t planning a cruise, Irma will likely affect your grocery bill.

Florida is the biggest producer of oranges in the country, but it’s also a key producer of tomatoes, grapefruits, watermelons and sugar cane; broccoli, potatoes, beans—and even timber—are also produced in the state.

Cotton markets are also nervous because Harvey did an as yet uncalculated amount of damage in Texas, which is the country’s top grower of cotton. And if Irma affects Georgia, the country’s number three producer of cotton, the U.S. cotton industry will be dealt a serious blow.

The aftermath of hurricanes, or any natural disaster are difficult to predict. The after-effects ripple out through the economy in a variety of ways. One sector that should benefit from the destruction of Hurricane Harvey – automakers. The storm flooded 1 million vehicles and the rush is on in states near and far to acquire and ship new ones into the city.

While Harvey dragged on auto sales in August, the stocks of carmakers have rallied on expectations that post-storm replacement demand could boost deliveries this fall and into early 2018.

Comcast shares dropped about 6% today. Comcast expects to lose up to 150,000 video subscribers in the third quarter due to competition and the impact of recent hurricanes.

Walt Disney’s chief executive, Bob Iger, said the company’s earnings per share for the current fiscal year ending Oct. 1 will be roughly in line with a year ago, when it earned $5.72 per share. Analysts had been expecting the company to earn $5.88 this year. Disney shares were down about 5%.

The European Central Bank wrapped up its policy meeting today, reaffirming its ultra-easy stance. The bank kept its growth and inflation outlooks unchanged. Then ECB head Mario Draghi announced the central bank was looking at how to wind down its 60 billion-euro-a-month buying program. No timeline yet.

The Euro surged. European stocks saw their day’s gains halved. The Euro Index is already up about 9% since the start of the year. Against the dollar, the euro has surged to as high as $1.20 in recent days from $1.03 in early January – about a 15% gain.

The productivity of American firms and workers rose somewhat faster in the second quarter than originally estimated, though the long-term trend remained weak. The government said productivity increased at a 1.5% annual pace in the spring, up from an initial 0.9% estimate.

Productivity rises when workers supply more goods and services in the same amount of time. The upward revision stemmed entirely from workers producing more goods and services. Output was revised up to show a 4% increase instead of 3.4%.

Amazon is headquartered in Seattle, where it is a major employer, on course to have 10 million square feet of office space, more than 15 percent of the city’s inventory. Now, the company is looking to build a second headquarter to rival the Seattle headquarters, at a cost of over $5 billion over the next 15 years.

Amazon’s Seattle office houses over 40,000, and many of the jobs for Amazon’s second home will be new hires. Look for municipalities to promise the sky and the stars to lure Amazon. It does not look like Phoenix would make the short list of sites for HQ2.

Late yesterday, Facebook said it had found evidence that fake accounts “likely operated out of Russia” purchased thousands of ads during the US presidential election designed to amplify divisive political messages. The announcement represents a sharp turnaround from the company’s previous remarks on its role in the spread of fake news during the election.

Facebook said the ads were part of elaborate “information operations” in which “organized actors,” including governments, used social media to deceive the public and distort political sentiment. Facebook conducted an examination of ads purchased over the past two years in response to mounting concern over “Russian interference in the electoral process” and Facebook’s role in spreading misinformation leading up to the election.

The company discovered roughly $100,000 in ad buys between June 2015 and May 2017 “associated with roughly 3,000 ads” and connected to nearly 500 affiliated fake accounts. The “vast majority” of ads related to the fake Russian accounts didn’t target a political candidate and instead focused on “amplifying divisive social and political messages across the ideological spectrum.” So, internet advertising really does work.

Equifax, which supplies credit information and other information services, said a cybersecurity incident could have potentially affected 143 million consumers in the US. Equifax said it discovered the breach on July 29.

Leaked data includes names, birth dates, social security numbers, addresses and potentially drivers' licenses. 209,000 U.S. credit card numbers were also obtained, in addition to “certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers.” Equifax said it is now alerting customers whose information was included in the breach via mail, and is working with state and federal authorities.

Britain’s most iconoclastic sports car brand is finally caving to peer pressure. Jaguar Land Rover announced today that starting in 2020, all of its new vehicles will have a fully electric or hybrid option. In July, Volvo committed to electrifying all of its car by 2019; in August, Aston Martin said it will go completely hybrid by 2025.

Promptly following JLR’s announcement today, BMW promised to create 12 all-electric and 13 hybrid models by 2025. Volkswagen has announced plans to launch 30 all electric models by 2025.

So, the race to electric cars is on, and American carmakers are in the back of the pack.

Financial Review

Decision Day

Sinclair Noe — July 26, 2017

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

DOW + 97 = 21,711
SPX + 0.7 = 2477
NAS + 10 = 6422
RUT – 8 = 1442
10 Y – .05 = 2.28%
OIL – .08 = 48.67
GOLD + 10.50 = 1261.10
BITCOIN + 0.70% = 2568.14 USD
ETHEREUM – 2.22% = 197.74

The major U.S. stock indexes set all-time highs again.

The Federal Reserve Federal Open Market Committee wrapped up its two-day meeting on monetary policy. They left interest rates unchanged and in a statement, said they would begin running off their $4.5 trillion balance sheet “relatively soon”.

The Fed’s language was not dovish, but perhaps a bit less hawkish. That pushed Treasuries higher. The Euro jumped to a 2-1/2 year high against the dollar. The next scheduled FOMC meeting is September 19-20, and there is a good chance the Fed will announce the onset of the balance-sheet reduction after the September meeting, effective on the first of October.

The Fed has raised interest rates 4 times since they began removing emergency policy in December 2015, and project another increase before the end of this year – most likely at the December meeting. As the Fed starts selling securities from their balance sheet, they will start small and gradually increase the sales, which should allow markets to adjust, at least in theory.

The FOMC said it’s “monitoring inflation developments closely.” There isn’t much inflation to monitor right now, the PCE gauge is running at about 1.4%, and seems to be stuck in a rut, despite the Fed’s targets. At this point in the economic cycle, with the unemployment rate at a 16-year low, you would expect to see wages increasing, which would push prices higher.

But prices aren’t going up, and that raises questions about the real strength of the labor market and the economy. Whatever it is, it is a symptom of an economy that just keeps slogging along but can’t really take off.

Get ready for “vote-a-rama”, where Senate GOP leaders will throw everything they have that resembles a health care bill at the wall to see what sticks. Today they voted on a straight repeal of Obamacare – that vote failed (which was expected), there will be a voting frenzy for senators on a series of amendments.

Next up, votes on various amendments to repeal bits and pieces of Obamacare, or what is known as a skinny repeal that would throw the issue to a Senate-House of Representatives negotiating committee. Republicans hope the they can find some amendments which pass and can then be cobbled into some sort of bill which repeals a portion of Obamacare, in some way, shape, or form.

This morning President Trump tweeted that he would ban transgendered people from serving in the military. Who knows whether Trump will follow up his tweets with an actual order. That would normally come from the Pentagon, which was reportedly surprised by the announcement. If there is an actual order, the matter will quickly move to the courts.

New single-family home sales increased in June as purchases in the West surged 12.5 percent to a near 10-year high, but downward revisions to the sales pace for the prior three months pointed to a housing market that is struggling to gain momentum. The Commerce Department said new home sales gained 0.8 percent to a seasonally adjusted annual rate of 610,000 units last month. The sales pace for March, April and May was revised lower. Sales rose 9.1 percent on a year-on-year basis.

Copper rose again, closing at the highest price in two years and bringing its year-to-date gain to 14 percent. While some of the rally has been fueled by the usual fundamentals –  a stronger Chinese economy and labor disputes at mines –  the latest lurch higher may be caused by momentum and a short squeeze. The way that prices have been gaping higher in a straight line up suggests that somebody had some painful options positions to cover.

Earnings reporting season continues to take center stage on Wall Street and most of the news is good. Consider though, that we’re comparing second quarter 2017 to second quarter 2016, when earnings were in a recession. Are corporate earnings genuinely wonderful? It may depend on your perspective.

For example, after-tax corporate profits have grown at an annualized pace of less than 1% over the last five years. You won’t find many five-year periods that have been as anemic as that. You might assert that the only thing of importance is earnings acceleration since the fourth quarter of 2016.

After the closing bell, Facebook reported better than expected profit and revenue. Instagram, the company’s photo-sharing app, helped second-quarter sales climb 45 percent to $9.3 billion. Net income rose to $3.9 billion, or $1.32 a share, from $2.3 billion, or 78 cents, a year earlier.

There are now 2.01 billion monthly active users, and two-thirds of the monthly users are on Facebook every day. Shares dipped roughly 4% in after-hours trading over apparent confusion related to the company’s recent switch to reporting GAAP numbers. But the confusion was soon sorted out and Facebook shares are up about 1%.

PayPal reported a better-than-expected quarterly profit. The company’s shares were up 2.4 percent in trading after the bell.

General Dynamics posted higher-than-expected quarterly profits driven by increased sales in the unit that makes tanks, but projected slightly lower aerospace sales. Its stock fell 4.4 percent

Boeing swung to a net profit of $1.76 billion, or $2.89 a share, from a loss of $234 million, or 37 cents a share, in the same period a year ago. Boeing raised its 2017 adjusted EPS outlook. The stock shot up more than 8%, its largest percentage gain since August 2009, to a record high of $230.43.

Coca-Cola earned $1.3 billion in the last quarter, slightly better than estimates. Revenue came in at $9.7 billion, beating estimates. Sales of sodas and non-soda drinks improved. Then they announced changes to Coke Zero, which will soon be Coke Zero Sugar, and that’s when I sort of stopped caring.

Shares of Buffalo Wild Wings fell nearly 10 percent in extended trading after the company reported sizable misses in its earnings and revenue.

Whole Foods Market reported third quarter earnings that beat estimates. Revenue was flat. The company said its same-store sales fell 1.9 percent in the quarter, not as bad as expected. Amazon reports earnings tomorrow.

Ford Motor reported higher-than-expected second-quarter profits, and in the next breath warned of a rougher ride for the rest of the year. Ford said full-year pre-tax profit, automotive operating margins and cash flow would be lower than 2016 results, sending the company’s shares down 2.1 percent. Ford reported second-quarter net income of $2.04 billion, or 51 cents per share, up from nearly $2 billion, or 49 cents per share, a year earlier.

Britain will ban the sale of new gas and diesel cars by 2040. The UK joins France, which recently announce it would go electric by 2040. The mayors of Paris, Madrid, Mexico City and Athens have said they plan to ban diesel vehicles from city centers by 2025. Electric cars currently account for less than 5 percent of new car registrations in Britain. The shift to electric will require a substantial build-out in charging stations, and for auto manufacturers – who have already started the move to electric.

In Europe, so called ‘green cars’ benefit from subsidies, tax breaks and other perks, while combustion engines face mounting penalties including driving and parking restrictions. Britain’s move will accelerate the decline of diesel and gas cars. Turning away from oil will add to discussions about whether the world is reaching peak oil demand and how additional electric power can be generated.

It also raises questions about leadership; right now, European auto manufacturers are leading both industry and government in the move to electric; Japanese car-makers are strong electric competitors, and the US is lagging. Also, the ability to generate electricity, especially distributed generation of clean energy will be a huge and growing area.

Soon, it will just be an economically easy move for consumers, as improved technology lowers costs. For example, a $1,000 car battery today is expected to cost just $73 within the next 12 years. Given the rate of improvement in battery and electric-vehicle technology over the last 10 years, by 2040 small-combustion engines in private cars could well have disappeared without any government intervention.

Financial Review

Take 65

Sinclair Noe — June 22, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 12 = 21,397
SPX – 1 = 2434
NAS + 2 = 6236
RUT + 5 = 1404
10 Y – .01 = 2.15%
OIL + .21 = 42.74
GOLD + 3.70 = 1251.00

BITCOIN – 0.11% = 2709.21 USD
ETHEREUM – 2.77% = 328.37

BITCOIN + 1.13% = 2771.78 USD
ETHEREUM – 1.81 % = 330.40

BITCOIN – 0.11% = 2709.21 USD
ETHEREUM – 2.77% = 328.37

The Senate health care bill was unveiled today. The 142-page bill was written entirely behind closed doors and today is the first time the public and most senators have seen the bill. The latest version of Trumpcare is officially titled as the Better Care Reconciliation Act of 2017, which is a rewrite of the House of Representatives American Health Care Act, which is a rewrite of the Affordable Care Act.

The bill would repeal Obamacare’s individual mandate, drastically cut back federal support of Medicaid, and eliminate Obamacare’s taxes on the wealthy, insurers and others.

The bill will have to undergo scrutiny to ensure that it meets the strict requirements on what can or can’t be included in a bill under the budget reconciliation process. The non-partisan Congressional Budget Office, will analyze and score the bill and present its findings early next week.

The CBO analysis will shed light on how much money the bill would cost and how many people would be covered. Senate Republicans hope to see better headlines from this CBO report than the one that the House GOP legislation received. CBO said the House bill would result in 23 million fewer people insured in 2026 than under Obamacare.

Here are some of the key points that we know. The Senate bill would require insurers to cover those with pre-existing conditions and charge everyone the same regardless of health history. But it would allow states to waive the federal mandate on what insurers must cover, known as the essential health benefits.

This would allow insurers to offer less comprehensive policies, so those with pre-existing conditions may not have all their treatments covered.

The bill would continue the enhanced Medicaid expansion funding from Obamacare until 2021 and then phase it out over three years. The Senate bill would keep the House plan to send a fixed amount of money to states each year based on enrollment or as a lump sum block grant.

But it would shrink the program even more over time by pegging the annual growth rate of those funds to standard inflation, rather than the more generous medical inflation, starting in 2025.

This would likely force states to cut enrollment, benefits or provider payments. Several independent analyses have concluded that this funding structure would lead to large-scale shortfalls in every state, which would need to be closed by reducing enrollment or benefits, and cutting capacity to respond to disasters and public-health crises.

Those affected most would be poor children, people with mental-health issues, and disabled people.

The Senate bill would also largely maintain Obamacare’s premium subsidies structure, but tighten the eligibility criteria starting in 2020. Fewer middle class folks would get help because only those earning up to 350% of the poverty level would qualify, rather than the 400% threshold contained in Obamacare.

It also allows even less generous plans to stand as benchmarks for exchange and employer coverage, which could likewise contribute to disruptions and deductible increases. In recognition of the disruptions to the state-level exchanges through which individuals purchase coverage, the House bill set up a “Patient and State Stability Fund,” which would inject over $100 billion into state high-risk pools and reinsurance funds.

The Senate largely replicates this approach with slightly less funding, although it does add an additional $2 billion fund for fighting the opioid crisis in 2018.

The bill would also aim to shore up the existing Obamacare market by allocating funds for the cost-sharing subsidies until 2019. This might placate insurers, who were upset by Trump’s refusal to commit to continue making these payments, leading many carriers to hike rates or drop out of the exchanges for 2018.

The draft bill proposes repealing the 3.8 percent net investment income tax on high earners retroactively to the start of 2017, not at some point in the future. The tax cut will be offset by reducing aid to the poor to cut costs. We’ll have to wait for the CBO score to see if the math works, and how many people would see higher premiums or see coverage eliminated. That could be followed by a vote on the bill as soon as next week.

Democrats appear to have a solid bloc of opposition; if 3 Republicans oppose the bill, it will not pass. The bill could be changed over the next few days. Sens. Rand Paul of Kentucky, Ron Johnson of Wisconsin, Ted Cruz of Texas and Mike Lee of Utah said in a joint statement they’re “not ready to vote for this bill.”

Many other GOP senators are avoiding outright supporting the new health care bill, saying they need more time to read the fine print before taking a stand. The CBO score will be key – if it is not significantly better than the score of the House version, this bill could be DOA.

Hospital stocks traded sharply higher after the bill was released, adding to gains from earlier in the session. HCA Healthcare Inc rose 3.8 percent, while Tenet Healthcare Corp surged 8.4 percent. Health insurers also traded broadly higher, with large players Aetna and UnitedHealth Group each up more than 1 percent. Insurers that specialize in Medicaid also gained, with Centene up 3.4 percent and Molina Healthcare rising 2.6 percent.

About those tapes President Donald Trump suggested (or warned) that he (or someone) may have had of his one-on-one conversations with then–FBI Director James Comey: They don’t exist. Or, if they did, he didn’t make them. Trump took to Twitter today to say: “I have no idea… …whether there are “tapes” or recordings of my conversations with James Comey, but I did not make, and do not have, any such recordings.”

Thirty-four of the largest banks operating in the U.S. cleared a Federal Reserve stress test of their ability to withstand economic shocks. Every bank subject to the annual tests’ first phase exceeded minimum thresholds, though Morgan Stanley trailed the rest of Wall Street on a key measure of leverage — the second year it performed worse than peers on one of the test’s main metrics.

The Conference Board’s leading economic index climbed 0.3% in May and offered further proof the U.S. continues to grow at a steady clip, suggesting the economy is likely to remain on, or perhaps even moderately above, its long-term trend of about 2% growth for the remainder of the year.

Mortgage rates are keeping close pace with U.S. Treasury yields, and the yield on the 10-year Treasury note is hovering around the lowest levels of the year, and the lowest since the November election. Mortgage rates fell to one of the lowest levels of the year in the most recent week, following a short-lived rebound. Freddie Mac said  the 30-year fixed-rate mortgage averaged 3.90% in the June 22 week. The 15-year fixed-rate mortgage averaged 3.17%

The number of Americans filing for unemployment benefits increased 3,000 to a seasonally adjusted 241,000 last week.

Qatar Airways, the Gulf country’s state-owned airline, has expressed interest in buying as much as a 10 percent stake worth at least $808 million in American Airlines Group. The potential investment comes against the background of diplomatic and competitive turbulence for Qatar Airways, its home country and U.S. airlines.

Operations at Qatar Airways were disrupted after four Arab nations cut diplomatic and economic ties with Qatar this month in the worst diplomatic crisis in the region in years. Separately, American, United Continental, and Delta have pressed the U.S. government to act to curb U.S. flights by Qatar Airways and rival Gulf carriers Emirates Airline and Etihad Airways. The U.S. carriers charge that their Gulf rivals have received billions of dollars in unfair state subsidies.

Qatar Airways said in a statement that it sees a “strong investment opportunity” in American and that it “intends to build a passive position in the company with no involvement in management, operations or governance.” American said its rules prohibit “anyone from acquiring 4.75 percent or more of the company’s outstanding stock without advance approval from the board.”

As expected, Sears Canada has filed for bankruptcy protection and 2,900 employees countrywide are losing their jobs.

Warren Buffett’s Berkshire Hathaway is extending a 1.5 billion credit facility to Home Capital Group, Canada’s largest non-bank lender. Berkshire also agreed through its Columbia Insurance unit to buy up to $300 million of Home Capital shares for a 38.4 percent stake, pending shareholder and regulatory approvals. The credit line carries an interest rate of at least 9 percent.

Reuters reports Staples is in advanced talks to be acquired by Sycamore Partners in a $6 billion deal.

After leading the stock market for months, the big name tech stocks hit pause to catch a breath. And that allowed an old name to sneak into rally mode. Oracle was late to the cloud revolution, allowing upstarts like Salesforce.com Inc. to find significant market share with software delivered over the internet, and has suffered while making an acquisition-fueled push into the space.

But it looks like Oracle is figuring out the cloud. Late yesterday, they reported fiscal fourth quarter earnings, and today, shares topped $50, sending the market cap over $200 billion. Oracle posted full-year revenue growth of 1.8% and profit growth of 4.9%, and raised guidance.

Facebook CEO Mark Zuckerberg revised the world’s largest online social network’s mission statement. The previous mission was “to give people the power to share and make the world more open and connected.” Facebook’s new mission is to “give people the power to build community and bring the world closer together.”

Financial Review

Settling a Score

Sinclair Noe — May 24, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 74 = 21,012
SPX + 5 = 2404 (record)
NAS + 24 = 6163
RUT + 1 = 1382
10 Y – .02 = 2.26%
OIL – .15 = 51.32
GOLD + 7.90 = 1259.60
BITCOIN + 4% = 2537.16
ETHEREUM + 1.83% =  185.00

After 5 straight winning sessions, the S&P 500 closed at a new record high. The Nasdaq Comp is near a record.

The Federal Reserve released minutes of their May 3^rd FOMC policy meeting. The statement points toward a rate hike as soon as the Fed’s meeting in mid-June. According to minutes: “Most participants judged that if economic information came in about in line with their expectations it would soon be appropriate for the committee to take another step in removing some policy accommodation.”

Officials opted at the May meeting to leave the target range for their benchmark lending rate unchanged at 0.75 percent to 1 percent. They have projected three rate increases in 2017. They made the first rate hike in March. If they follow with 2 more hikes this year, we would be looking at rates around 1.25% to 1.5% by the end of the year, with a strong possibility for 4 more hikes next year.

Fed officials discussed a brightening global economic picture and viewed recent soft inflation and output data as likely caused by transitory factors. Growth slowed in the first quarter to an annualized pace of 0.7 percent, although the Fed expects the economy to bounce back in the second quarter.

Unemployment continued to decline. Labor Department data released two days after the meeting showed the jobless rate in April fell to 4.4 percent, the lowest reading since 2007 and beneath most economists’ estimates of the lowest sustainable level, or what might be considered full employment.

Policy makers have also said they would like to start shrinking their $4.5 trillion balance sheet by year-end, a move that may lift longer-term borrowing costs and dampen growth. It sounds scary to think that the Fed will soon reduce its war chest of bonds. Still, today after the minutes were released, Treasury values rose and longer-term yields fell.

One interpretation is that traders aren’t taking the Fed seriously. But another is that investors just received an unexpectedly concrete sense of the Fed’s methodology for unwinding its balance sheet, and it clearly indicates moving at a slow, gradual, incremental pace.

Fed members said they favored a method that included allowing a certain amount of their holdings to pay down without reinvesting the proceeds. The Fed would cap the amount of debt they’d allow to roll off at a certain level, and then would adjust that level every three months. Officials agreed they should provide additional details of the plan “soon.”

The dollar weakened slightly. Oil prices posted their first decline in six sessions. US crude supplies fell a seventh week in a row. Following the supply data, the price action became a function of positioning ahead of the OPEC meeting tomorrow. OPEC is expected to extend production cuts for 9 months, until March of 2018.  Data from the U.S. Energy Information Administration Wednesday showed that domestic crude supplies fell by 4.4 million barrels for the week ended May 19.

The last time the Congressional Budget Office scored the Republican health care bill back in March, it forced lawmakers to make major changes in order to prevent millions of Americans from losing their health coverage and lower premiums for the elderly. Amendments were added and another vote was held, this time without waiting for a CBO analysis – and the bill passed in the House.

The Congressional Budget Office today released their updated score for the American Health Care Act (AHCA), and the results are just as ugly as the first time. The report from the CBO on the amendments added just before the AHCA was passed by the House shows that 23 million more Americans could be uninsured by 2026 compared to the current healthcare system, slightly lower than the 24 million estimated under the previous iteration of the bill.

The CBO estimates that 14 million people who are currently covered would be uninsured as soon as the House plan were to be signed into law. And another nine million people would lose coverage over the course of the next decade. The AHCA, would also spike coverage costs in many states for people with pre-exiting conditions, especially for older Americans.

Importantly, the score projects that the AHCA will cut the federal deficit by $119 billion, $32 billion less than the $151 billion cut in the previous report. This was key because Republicans plan to consider the bill under the reconciliation process in the Senate. By these rules, the bill must shave off at least $2 billion from the federal deficit to be considered.

The Senate is expected to craft their own version of a healthcare bill instead of using the current form of the AHCA. The practical ramifications of the CBO’s latest report were more limited than its immediate political implications.

The House bill, as written, will not become law. Whatever proposal the Senate comes up with will have significant differences and will need a separate assessment by the CBO before a vote.

President Trump today continued his overseas tour with a visit to the Vatican. Pope Francis gave Trump a medallion engraved with the image of an olive tree – a symbol of peace, he explained.

Francis also presented Trump a signed copy of “Laudato Si’: On Care for Our Common Home”, the first papal encyclical focused solely on the environment. The two men spoke privately for about an hour-and-a-half. Next stop, Brussels.

Testifying to the House Budget Committee, Office of Management and Budget Director Mick Mulvaney suggested the government’s borrowing limit may need to be raised earlier than originally anticipated, citing “slower-than-expected” tax receipts.

The latest monthly budget report from the Treasury shows receipts are up almost 1% for the fiscal year to date. The year before, receipts were up about 1.2% through April, and the year before that, nearly 9%.

Sales of previously-owned homes sputtered in April after a strong first quarter. Lean inventory continued to constrain demand. The National Association of Realtors said existing-home sales ran at a seasonally adjusted annual rate of 5.57 million.

That was a 2.3% decline from March’s selling pace, which was revised down a tick but still stood at a 10-year high, though 1.6% higher compared to a year ago in April.

The median national sales price was $244,800 in April, a gain of 6% compared to a year ago. It was the 62nd-straight month of annual price gains. Despite that, first-time buyers managed to stage a small comeback.

They represented 34% of all buyers in April, up from 32% in March, though still below their long-time average of about 40%. NAR’s report also showed that 52% of homes sold in April were on the market for less than a month, which is a new high.

Sentier Research reports that median annual household income, adjusted for inflation, was $59,361 in April, a big 1% gain from March and a statistically significant move. For the first time since the U.S. entered the worst recession of the post-war era, the typical U.S. household has more income than it did when the century started.

Moody’s Investors Service downgraded China’s sovereign rating one notch to A1, which is two grades above junk status. The previous ratings cut was in November 1989 in the wake of Tiananmen Square.

In a statement, Moody’s said, “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows.” China’s total debt is estimated at around 220% of gross domestic product as of 2015, with a large chunk of it owed by corporations.

Global financial markets shrugged off the news because it is more confirmation than revelation.

Ministerial buildings were set ablaze in the Brazilian capital today as tens of thousands of protesters took to the streets to demonstrate against government corruption, renewing calls for Brazilian President Michel Temer to step down.

The federal government filed a lawsuit against Fiat Chrysler, accusing it of using illegal engine-control software to enable its diesel-powered vehicles to pass emissions tests. The filing occurred days after Fiat Chrysler proposed a modification to the software to ensure correct test results in hopes of resolving the issue.

The Environmental Protection Agency accused Fiat Chrysler in January of installing the software on about 104,000 Ram pickup trucks and Jeep Grand Cherokee sport utility vehicles sold from 2014 through 2016.

The Fiat Chrysler problem is very like the legal woes of Volkswagen, which admitted to using “defeat device” software to enable its cars to pass emissions tests while spewing far more pollutants than allowed in normal driving. Volkswagen ended up paying billions of dollars in fines, several of its executives have been investigated or charged with crimes.

Facebook has signed deals with news and entertainment creators Vox Media, BuzzFeed, ATTN, Group Nine Media and others to make shows for its upcoming video service, which will feature long and short-form content. It is an attempt to deliver on Facebook Chief Executive Mark Zuckerberg’s remarks to investors earlier this month that the company was looking for so-called “anchor content” that would draw people to the video tab on Facebook’s app.