Financial Review

Merger Monday

Sinclair Noe — November 6, 2017

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

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DOW + 33 = 23,572 (Record)
SPX + 5 = 2592 (Record)
NAS + 26 = 6790 (Record)
RUT + 2 = 1497
10 Y – .02 = 2.32%
OIL + 1.73 = 57.37
GOLD + 12.10 = 1282.50

Cryptocurrency

• Number of Currencies: 900
• Total Market Cap: $198,808,049,989
• 24H Volume: $5,965,696,801

 Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,177.7	$120.50B	$2.94B	49.23%	1	+3.20%	+16.68%
	Ethereum	ETH	299.79	$28.86B	$584.77M	9.80%	0.0420586	+0.98%	-2.21%
	Bitcoin Cash	BCH	613.10	$10.50B	$620.92M	10.41%	0.0872149	+4.27%	+40.16%
	Ripple	XRP	0.20150	$7.94B	$102.58M	1.72%	0.00002874	-0.73%	+1.59%
	Litecoin	LTC	55.530	$3.01B	$143.55M	2.41%	0.00780061	+1.68%	-0.86%
	Dash	DASH	291.81	$2.29B	$83.21M	1.39%	0.0415611	+5.85%	+5.41%
	NEO	NEO	26.018	$1.69B	$40.60M	0.68%	0.00361811	-0.61%	-10.77%
	NEM	XEM	0.18316	$1.64B	$6.79M	0.11%	0.00002544	-1.43%	-7.70%
	Monero	XMR	98.06	$1.52B	$125.95M	2.11%	0.0138411	-2.89%	+12.38%
	Ethereum Classic	ETC	14.2100	$1.42B	$308.84M	5.18%	0.00204059	+2.61%	+35.12%

Merger mania. We have a list of merger news to talk about. First, Broadcom has offered to buy Qualcomm for $105 billion, or $70 a share in cash and stock. That’s a 28 percent premium over the stock’s closing price on Nov. 2, before we heard reports about talks of a deal.

The proposed transaction is valued at approximately $130 billion on a pro forma basis, including $25 billion of net debt. Buying Qualcomm would make Broadcom the third-largest chipmaker, behind Intel and Samsung Electronics. The combined business would instantly become the default provider of a set of components needed to build each of the more than a billion smartphones sold every year.

The deal would dwarf Dell’s $67 billion acquisition of EMC in 2015 – then the biggest in the technology industry. This is not a done deal, and there is a strong chance that Qualcomm will try to fend off the unsolicited offer. Qualcomm will likely argue that the proposal is an opportunistic move to buy the chipmaker on the cheap, and it will likely recommend that shareholders reject it.

If Broadcom can pull off a deal, it could help smooth things over with Qualcomm’s biggest adversary – Apple, over chip royalties. Apple is demanding discounts on intellectual property royalties, which Qualcomm charges for its patents even if a company buys chips elsewhere. Qualcomm filed lawsuits seeking to ban the sale and manufacture of iPhones in China, which, if granted, would cut off Apple from the world’s largest phone market and cripple production.

Last week, Qualcomm executives said the legal process would “proceed under the court’s schedule,” indicating no resolution soon. Broadcom is already a major Apple supplier, and if they can broker a peace deal it could slow Apple’s ongoing efforts to seek other suppliers for its modem chips, such as Intel.

There is also the question of what now happens with Qualcomm’s ongoing effort to buy NXP Semiconductors. Broadcom has said its offer stands whether the NXP deal is completed at the current price of $110 per NXP share, or not. In other words, take it or leave it. Qualcomm rose 2.3%. Broadcom dropped 0.7%.

Apple gained 1.2% – but that was probably because of the rollout of the new iPhone X, which was met with long lines of buyers over the weekend. Also today, the US Supreme Court rejected a Samsung appeal of a patent loss to Apple and let stand a lower court ruling that reinstated a jury award of about $120 million in favor of Apple.

Sprint and T-Mobile called off merger talks. This marks the second time the third- and fourth-largest wireless carriers have failed to reach a deal. Sprint and T-Mobile said talks ended because they “were unable to find mutually agreeable terms.” A combination with T-Mobile, the third-largest US wireless carrier, would have enabled No. 4 Sprint to cut costs and forge a bigger competitor to take on AT&T and Verizon.

Another reason the deal seemed possible is that Sprint has a boatload of debt. About half of Sprint’s debt and obligations is coming due over the next four years and the company is also facing costly investments into next-generation wireless technology.

One clue to what the future holds is an agreement announced Sunday that allows cable operator Altice USA to sell wireless service using Sprint’s network. Under the deal, Sprint will use Altice’s broadband infrastructure to strengthen its nationwide network. Sprint dropped 10%. T-Mobile dropped 6%.

The media corporation 21st Century Fox has been in talks to sell most of itself to Disney. An acquisition would leave 21st Century Fox with a smaller, more focused portfolio of news and sports networks. A deal would exclude the Fox broadcast network because Disney could not own two broadcast networks. (Disney acquired ABC in 1996.)

Disney was reportedly interested in buying Fox assets including its studio division, partial ownership of the UK telecoms company Sky, and networks such as National Geographic and FX. Both companies aren’t in talks now but could resume them.

Disney could benefit from 21st Century Fox’s television properties as it gets ready to launch a streaming service. Disney announced in August that it would end its exclusive movie deal with Netflix in 2019 and launch an ad-free, Disney-branded streaming service.

Rivals Intel and Advanced Micro Devices (AMD) are teaming up to produce a laptop computer chip that uses an Intel processor and an AMD graphics unit. The partnership will pit the two companies against competitor Nvidia.

The new chip will be made for laptops that are designed to be thin and portable, but still powerful enough for gamers who need a stronger option to play intensive games. It’ll be part of Intel’s eighth-generation Intel Core line and marks Intel and AMD’s first partnership since the 1980s. Intel gained 1.2%. AMD added 7%. Nvidia was up slightly.

Companies continue to report their quarterly earnings. With more than 400 of S&P 500 companies having reported, earnings for the third quarter are expected to have climbed 8 percent, compared to an expectation of a 5.9 percent rise at the start of October, according to Thomson Reuters.

Michael Kors jumped 15% after the fashion accessories maker raised its 2017 revenue forecast. The stock was the biggest percentage gainer on the S&P.

Republican lawmakers began revising their proposed overhaul of the tax code. No surprise. Although Republicans generally support the bill’s broader themes, including a sharp reduction in the corporate income tax, they are torn over other elements, including the repeal of the deduction for state and local income tax (SALT) payments.

Kevin Brady, chairman of the tax-writing House Ways and Means Committee, pledged to change the bill’s approach to the “carried interest” loophole by lengthening the time an asset would have to be held to qualify for the lower rate.

Carried interest is a share of an investment fund’s profits – typically about 20 percent beyond the return guaranteed to investors – that goes to the general partners of private equity, venture capital and hedge funds. The Senate is developing its own version of the tax legislation which would have to eventually be reconciled with the House version before it is sent to Trump for signing.

Still, more bad news for the tax plan. The House Republican tax proposal would on average reduce taxes for all income groups next year, but within 10 years nearly 30 percent of taxpayers would see taxes rise, according to a report released Monday.

The majority of deductions eliminated, however, come on the individual side of the tax code. Among the breaks eliminated include the state and local income tax deduction, breaks for medical expenses, the deduction of student loan interest and adoption expenses.

The Tax Policy Center said that in 2018, individual taxes would be cut by $1,100 on average across income groups, with higher income taxpayers getting a bigger boost. Taxpayers making less than $48,000 would see what they called “modest” tax cuts of 0.3 to 0.5 percent while those in the top 1 percent would see a cut of 2.5 percent, or $37,000 on average, according to the analysis. For the lowest 20 percent of earners, that’s about a cut of $40 in annual taxes paid. For the top 20 percent, that’s a cut of about $4850 in taxes paid.

Still, a group of taxpayers, some 12 percent, would see taxes rise in 2018. By 2027, the average tax cut would be about $700 or 0.7 percent, with those earning less than $55,000 seeing a slight increase in their taxes and those in the top 1 percent seeing a 2.2 percent boost to their after-tax income — nearly 50 percent of the total benefit.

A campaign of mass arrests of Saudi Arabian royals, ministers and businessmen expanded today after a top entrepreneur was reportedly detained in the biggest anti-corruption purge of the kingdom’s affluent elite in its modern history. The detentions, framed as part of a sweeping crackdown on corruption following a royal decree that mandated a Supreme Committee headed by Mohammed bin Salman to address the issue, represent the latest in a series of bold moves by a youthful crown prince who has centralized authority to a degree unprecedented in recent Saudi history.

The roll-call of the detained reads like a who’s who of the Saudi policymaking community. The kingdom has pared back important but painful domestic economic reforms and been distracted by its blockade of Qatar and long-running war in Yemen. Now the abrupt internal purge has left experts wondering whether it is truly aimed at corruption or at Mohammed’s political rivals. the upcoming transition from the current king, Salman, to his son, Mohammed bin Salman, will be a unique one.

The crown prince, who will be the first of the next generation to rule, is only 32. The current king is 81 and reportedly struggles with health problems—both physical and mental—so the transition could come soon, either through Salman’s death or his abdication. But Mohammed’s elevation over more senior and experienced uncles and cousins—he’s the third heir apparent since Salman’s reign began in 2015— has undoubtedly ruffled some feathers, and he has a lot of competition.

The arrests are likely a signal that the young king-in-waiting is not waiting until he inherits the throne to start exercising power. No telling how all this plays out, and if the crown prince will be successful, but we’ll probably look back on the events of the past few days as the beginning of a new era – one way or the other.

Financial Review

Again and Again

Sinclair Noe — February 21, 2017

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

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DOW + 118 = 20,743
SPX + 14 = 2365
NAS + 27 = 5865
RUT + 10 = 1410
10 Y + .01 = 2.43%
OIL + .61 = 54.39
GOLD + 2.20 = 1236.60

Stock prices across the world climbed to record highs. Dow, S&P, Nasdaq, and Russell hit record highs again.

Walmart reports same-store sales in the US rose 1.8% for the quarter, the 10th straight quarterly increase. Meanwhile, e-commerce sales were up 29%, boosted by the purchase of online retailer Jet.com in September as well as online grocery. But profit fell 18% in the fourth quarter as the company invests in its online platforms; still, Walmart beat top and bottom-line estimates.

Amazon just lowered its free-shipping minimum to $35 from $49 for customers who aren’t members of its Prime membership program. The change appears to be a response to Walmart’s recent rollout of free two-day shipping for all customers on orders over $35.

Macy’s reports net income was $475 million, or $1.54 per share, down from $544 million, or $1.73 per share last year, but they beat estimates. Revenue also dropped, missing estimates.  Same-store sales fell 2.1%. The company also released preliminary guidance for 2017, expecting sales to decline by 2% to 3% for the full year at all owned and licensed stores. Macy’s plan is to sell its real estate; $637 million sold last year, more to come this year.

Home Depot reported higher-than-expected profit and sales helped by a strong housing market in the United States and set a $15 billion share buyback plan. The company reported a 5.8 percent rise in quarterly sales to $22.2 billion – beating estimates. Profit rose to $1.7 billion in the fourth quarter from year ago $1.4 billion – also beating estimates.

Verizon Communications and Yahoo! say they will go forward with their proposed acquisition but Verizon cut the price by $350 million from the original cost of 4.8 billion. The revised deal comes after months of speculation as whether talks would break down because of two massive data breaches at Yahoo.

Restaurant Brands International has agreed to acquire Popeyes Louisiana Kitchen for $1.8 billion in cash. Under the terms of the agreement, Restaurant Brands, operator of Burger King and Tim Hortons, will pay $79 per Popeyes’ share.

Kraft Heinz dropped its $143 billion bid to buy Unilever – a deal that would have created the largest food company in the world. Already this year, more than $205 billion in proposed deals have been withdrawn.

Reuters reports SoftBank is prepared to cede control of Sprint to T-Mobile to clinch a merger of the two U.S. wireless carriers. SoftBank is expected to approach T-Mobile parent Deutsche Telekom for negotiations when an ongoing auction of airwaves ends in April and a ban on talks between rivals is lifted.

TransferWise, a London-based startup, has launched a service that allows users to make international transfers with Facebook’s chat application. Facebook already allows its users to send money domestically in the United States via its Messenger app, but has not yet launched similar services internationally.

Growth in eurozone business activity surged in February to its highest level in almost six years, per the latest survey by IHS Markit. The overall flash composite index of services and manufacturing spiked to 56.0, up from 54.4 in January. Growth in Germany’s private sector reached its highest level in nearly three years, while French business activity surged to near a six-year high.

Overall, the PMIs showed that private sector manufacturing and service sector activity in the euro zone this month was its strongest since April 2011.Eurozone stocks pushed to a 14-month high this morning.

HSBC’s pretax profit tanks. Europe’s biggest bank by assets saw pretax profit for 2016 fall to $7.1 billion from $18.8 billion the previous year. The UK-based bank reported a net loss of $4.2 billion in the fourth quarter of 2016. The biggest single hit to its battered bottom line came from a $2.4 billion write-down of the value of its private banking business in Europe. HSBC announced a new $1 billion share-buyback program.

BHP Billiton reports a surge in profits. The world’s largest miner said profits surged seven-fold to $3.1 billion during the six months that ended in December. The extra cash helped BHP boost its dividend and pay down debt.

China has halted all coal imports from North Korea for the rest of 2017, effectively slicing the country’s exports by about half, as it steps up efforts to implement U.N. sanctions against the country. Per BMI Research, China imported 22 million tons of coal from North Korea in 2016, representing 12.3% of its total imports.

Philadelphia Federal Reserve Bank President Patrick Harker said over the weekend that he would likely support raising interest rates at the central bank’s upcoming March meeting if he sees more evidence that economic growth and inflation are accelerating. Federal Reserve Bank of Cleveland President Loretta Mester who said she would be “comfortable” with the central bank raising rates.

Minneapolis Fed President Neel Kashkari said the U.S. labor market has “more room to run,” suggesting he does not believe the central bank should raise rates quickly to head off inflation. Kashkari said it has been a “big surprise” that so many workers have returned to the workforce over the past year and a half, and he is “cautiously optimistic” that the pattern will continue.

Over the past few weeks, Federal Reserve Chairwoman Janet Yellen and a host of other Fed officials have suggested that an interest-rate increase at the policy-setting Federal Open Market Committee’s meeting on March 14-15 remains on the table.

It’s that time of year again – when refinery maintenance season kicks in and the market makes a shift to cleaner-burning gasoline, disrupting production and lifting prices for the fuel at the pump. If prices see the average five-year increase they usually do during the spring, retail gasoline could cost an average $2.85 a gallon around Memorial Day.

Crude oil prices have been moving higher and OPEC said it was sticking to its agreement to cut production by about 1.8 million barrels per day to drain a glut that has depressed prices for over two years. OPEC compliance is helping keep prices afloat, but rising US oil production is acting as a counterweight; the result is a glut of crude supplies.

Here’s the hitch: the glut of gasoline is now the worst in 27 years. At 259 million barrels, US gasoline storage levels are now at their highest level since the Energy Information Administration began tracking the data back in 1990.  If both crude and refined product inventories are going up at the same time, then there should be some reasons for worry.

Part of the reason for the glut, of course, are high levels of production, around 9 to 10 million bpd. But that increase came to satisfy rising demand (which, of course, was stoked by lower prices). More demand should have soaked up that excess supply.

However, US demand has faltered. US gasoline demand plunged to just 8.2 million barrels per day in January, and sales were down 4 percent from a year earlier. It was also the lowest level in four years. Weak demand is raising some red flags for the market.

Demand is seasonal, with softer demand in winter months, but this winter’s ‘valley’ is lower than any other since 2012. The glut of gasoline has led to tankers being turned away at New York Harbor in recent weeks, diverted to ports in the Caribbean.

If demand does not rebound, inventories will rise, pushing prices lower. So, while OPEC production cuts are important, keep an eye on US demand, not just for oil prices but also as a barometer of overall economic activity.

The Department of Homeland Security issued a sweeping set of orders today that implement President Trump’s plan to increase immigration enforcement, placing the clear majority of the nation’s 11 million undocumented immigrants at risk of deportation. The memos instruct all agents — including Customs and Border Protection and Immigration and Customs Enforcement — to identify, capture and quickly deport every undocumented immigrant they encounter.

The memos require undocumented immigrants caught entering the country to be placed in detention until their cases are resolved, increase the ability of local police to help in immigration enforcement, call for the hiring of 10,000 more immigration agents and allow planning to begin on an expansion of the border wall between the United States and Mexico.

The memos make undocumented immigrants who have been convicted of a crime the highest priority for enforcement operations. But they make clear that ICE agents should also arrest and initiate deportation proceedings against any other undocumented immigrant they encounter.

These new guidelines, however, leave untouched the executive order signed by former President Barack Obama in 2012 on deferred action for childhood arrivals, which shields from deportation immigrants who were brought to the US as children.

Financial Review

Merger Monday

Sinclair Noe — October 24, 2016

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

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DOW + 77 = 18,223
SPX + 10 = 2151
NAS + 52 = 5309
10 Y + .02 = 1.76%
OIL – .36 = 50.49
GOLD – 1.30 = 1265.40

Merger Monday is alive and well. AT&T announced it will acquire Time Warner for $85 billion; or at least it will try. The biggest deal in the world this year will give AT&T control of cable TV channels HBO and CNN, film studio Warner Bros and other media assets.

The deal is subject to regulatory approval, and right now it looks like it will face opposition. The Justice Department has the power to reject such a deal if it violates antitrust laws. AT&T said it is unclear if the Federal Communications Commission will also have jurisdiction to review the deal. Remember that regulators blocked Comcast’s planned acquisition of Time Warner.

AT&T has described the deal as a “vertical merger” because there is no overlap between the two companies and hopes that such a tie-up will get the regulatory green light by the end of 2017. The reason we are seeing this deal now is because in the next couple of years, wireless will be changing over to 5G, the next generation technology which will provide high-speed broadband and television service and allow wireless companies to compete with cable companies.

Toronto-Dominion Bank and TD Ameritrade are buying Scottrade Financial Services for $4 billion in a deal that would combine two of the biggest U.S. discount brokerages. TD Ameritrade, the largest U.S. discount brokerage by trade executions, said it would pay $2.7 billion for Scottrade’s brokerage business. Toronto-Dominion Bank, TD’s largest shareholder, is acquiring Scottrade Bank for $1.3 billion.

Rockwell Collins has struck a deal to buy aircraft interior maker B/E Aerospace for $62 a share in cash and stock. The acquisition, valued at $6.4 billion plus the assumption of $1.9 billion in debt, expands the range of products Rockwell Collins supplies to major commercial and business aircraft and broadens its customer base internationally. The acquisition, which is expected to be completed next spring, allows both companies to sell to each other’s customers and to deploy Rockwell’s capability with on-board connectivity to make internet-enabled seats, galleys, lavatories and other cabin systems that B/E Aerospace provides.

Chinese aviation and shipping conglomerate HNA Group said it would buy a stake of about 25 percent in hotel operator and manager Hilton Worldwide Holdings from biggest shareholder Blackstone Group for $6.5 billion. HNA will buy the stake for $26.25 per share, representing a premium of 14.6 percent to Hilton’s closing price on Friday and valuing the hotel company at about $26 billion.

Genworth Financial, a dominant carrier in U.S. long-term-care insurance, agreed to sell itself for $2.7 billion, to a Chinese investment firm, China Oceanwide Holdings Group. The deal comes as China Oceanwide has been pouring hundreds of millions of dollars into U.S. commercial and residential properties in the past two years. Genworth has struggled since the financial crisis, one of the insurers hardest hit by the bursting of the real-estate bubble and later by ultra-low interest rates.

American Midstream Partners LP said it would buy JP Energy Partners LP in an all-stock deal, creating a $2 billion midstream master limited partnership. The combined company will own and operate more than 3,100 miles of gathering and transportation pipelines.

According to S&P Global Market Intelligence, October 2016 currently stands as the third-strongest month ever for US M&A announced deal value. To date, October has seen $279 billion in announced M&A involving US companies, the highest since July 2015. It’s good news for Wall Street banks, which could bring in up to $200 million in fees from advising on the mergers. You add in financing costs and just the AT&T- Time Warner deal could top $400 million.

Iraq doesn’t want to participate in the OPEC freeze. Iraq, OPEC’s second largest oil producer, says it wants to be exempt from the OPEC production freeze, which is expected to be decided at the November 30 meeting in Vienna, Austria. Comments from Iran’s deputy oil minister, however, helped to push prices higher earlier in the session. He said Tehran would encourage other OPEC members to join an output freeze, adding that $55-$60 a barrel is a fair price to bring stability to the market. All the talk of capping production has managed to push oil above $50 a barrel, but in the past, OPEC has not been able to deliver on holding firm to output cuts.

Credit card giant Visa said its fiscal fourth-quarter results rose 28 percent from a year earlier, as the company processed more payments. The company’s results were also lifted by the recent purchase of Visa Europe. Visa reported net income of $1.9 billion for the period ended Sept. 30, compared with $1.5 billion in the same period a year earlier.

T-Mobile reported a better-than-expected quarterly profit and raised its forecast for customer additions for the year as heavy discounting helped attract subscribers. T-Mobile said it benefited from the launch of the iPhone 7 in the quarter and an increase in branded prepaid customer migrations to postpaid plans.

Earnings season is in full swing with Apple, Alphabet, Amazon.com, Exxon Mobil and Caterpillar among big names scheduled to announce third quarter results this week.

Apple reports earnings on Tuesday and we’ll see if the new iPhone 7 sales live up to expectations; on Thursday, Apple will unveil a new line of Mac computers, which are long overdue for an update and have seen only sluggish sales in recent quarters. And just to drive home the importance of constant updating and reinvention – yesterday the iPod turned 15 years old.

Google has been given an extra week to respond to European antitrust charges that some of the company’s advertising products hampered consumer choice. Google denies any wrongdoing. But it represents the first of three separate responses that Google must give to European competition authorities by early November to allegations that some of its services and products, including the popular Android smartphone operating system, hindered rivals and limited competition in Europe. Alphabet reports quarterly earnings on Thursday.

Tesla reports third quarter earnings on Wednesday – more accurately, Tesla will report a loss. Tesla previously disclosed that deliveries rose 70 percent to 24,500 cars in the July-to-September period. But a loss is likely because the company is spending heavily to introduce a new car, the Model 3, and to start up its gigantic Gigafactory in Nevada, where it will produce batteries.

We’ll also hear from the major car-makers; GM, Ford, and Fiat Chrysler report this week. Today, Consumer Reports said General Motors’ Buick has become the first domestic car brand in more than 30 years to be among the top three most reliable brands; trailing Toyota and Lexus.

Goldman Sachs analysts have cut their outlook for S&P 500 earnings through 2018. They now see earnings per share climbing 5% to $105 (from $110) in 2016, 10% to $116 in 2017 (from $123), and 5% to $122 (from $130) in 2018. The analysts blame disappointing earnings growth from the financials and information technology sectors. Furthermore, they blame the impact of low interest rates on telecom sector pension liabilities.

This week we will also see third quarter reports from most of the major Euro-banks, including BNP Paribas, Santander, UBS, Barclays, Lloyd’s, the Royal Bank of Scotland, and Deutsche Bank. We’ll keep an eye on Deutsche Bank for any update on its negotiations with the Justice Department, which has proposed a $14 billion fine for the bank’s underwriting of mortgage backed securities during the financial crisis.

And as we work our way through earnings the market is holding up relatively well. We’ve talked about a strong level of support for the S&P 500 at the 2120 level, which represents both the highs from June and the lows from September. So far, 2120 is holding up quite well, and we are consolidating in October, a month that can be quite scary. Although right now, the scariest event on the horizon is the election in November.

This Friday we get the first estimate of third quarter GDP growth; look for 2.5% growth. Last month, the Commerce Department reported that GDP grew 1.4 percent in the second quarter of 2016, up from 0.8 percent in the first quarter of 2016.

James Bullard, president of the Federal Reserve Bank of St. Louis and a voting member of the Federal Open Market Committee says low interest rates will likely be the norm during the next two to three years. Bullard’s comments come one month after he voted against hiking the federal funds rate.

The Fed continues to grapple with deciding when it will increase rates from the current target range of 0.25 to 0.50 percent. The last time the Fed raised rates was in December 2015, when it did so for the first time in nine years. Fed watchers expect the next increase to come by year end. Fed fund futures show implied odds of nearly 70 percent for a December rate hike.

And while Bullard seems to indicate rates can be nudged slowly higher, Chicago Fed President Charles Evans said today that the Fed needs to “demonstrate commitment to achieving the inflation target sustainability, symmetrically, and sooner rather than later.” This might require undershooting the unemployment rate and overshooting the 2% inflation target. Even so, Evans expects 3 rate hikes by the end of 2017.

Financial Review

Show Me the Data

Sinclair Noe — November 12, 2015

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

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DOW – 254 = 17,448
SPX – 29 = 2045
NAS – 61 = 5005
10 YR YLD – .02 = 2.32%
OIL – 1.28 = 41.65
GOLD – 1.70 = 1085.50
SILV – .11 = 14.34

Crude oil fell below $42 a barrel, its lowest price since August, while copper, gold and silver reached six-year lows. Energy, mining and metals companies fell. Caterpillar, Exxon Mobil and Chevron had the biggest losses in the Dow Jones Industrial average. The Dow and the Standard & Poor’s 500-stock index are now negative for the year.

The Energy Information Administration just released its latest weekly look at the US oil market, and it shows that US crude stockpiles are just 3 million barrels off the record 490 million barrel record in April.  Crude stockpiles grew by 4.2 million barrels last week. A private report released Wednesday had shown an even larger increase. The biggest factors have been a slowdown in demand, and China’s slowdown is a big part of that equation. Meanwhile, oil producers just keep pumping; US shale production has slowed and will likely slow more, even though it remains stubbornly high; OPEC refuses to cut production and the more oil prices fall, the faster they pump.

Prices for copper and other commodities were slumping as investors anticipated that the dollar would become even stronger. The price of silver has fallen for nine consecutive days and is down 10 percent since late October. The price of copper fell 2 percent to $2.17 a pound. It is down 22 percent this year, hitting six-year lows. The copper producer Freeport-McMoRan dropped 4.5 percent.

We had a couple of reports on the labor market this morning. First up, initial claims for state unemployment benefits were unchanged at a seasonally adjusted 276,000 for the week ended Nov. 7. Claims are not too far from levels last seen in the early 1970s. They have now held below the 300,000 threshold for 36 consecutive weeks, the longest stretch in years. Claims below this level are usually associated with a healthy jobs market.

Next on deck, the JOLT survey, Job Openings and Labor Turnover, showed job openings rose in September to the second-highest level in the history of the series, going back to 2000. Job openings rose to a seasonally adjusted 5.53 million from 5.38 million in August, though that’s short of the 5.67 million peak reached this summer. The quits rate was 1.9% for the sixth consecutive month, which is slightly below the 2.1% rate before the downturn in 2007.

The quits rate is important because someone who is working, needs to quit their current job to take a new job, which in theory anyway is a better job. So, why aren’t we seeing a higher quits rate in light of more job openings? One reason is that employers aren’t offering high enough pay to fill these spots. Another possible reason is that employers can’t find skilled workers to fill the job openings. The hiring rate ticked down a notch to 3.6%.

Recent jobs data gives the Federal Reserve a reason to boost interest rates from near zero, where they have been since 2008.Today we heard speeches from Janet Yellen and four regional Fed presidents, as well as Vice Chairman Stanley Fischer this afternoon. St. Louis Fed President James Bullard said this morning that he is still concerned about inflation. Bullard is a known hawk. The most important thing Bullard said in his speech titled “Permazero” is that the US may be entering a permanent period of lower inflation and interest rates. But he still wants to raise rates. Welcome to Fedspeak 2015.

But most of the communication was straightforward, even if the arguments were, at times convoluted. Federal Reserve officials generally said that rates will go up, probably in December and they stressed that policy should be tightened only gradually after interest rates are increased. They have now done everything short of ringing bells and handing out engraved invitations.

Still, the International Monetary Fund published a paper today saying not so fast. In a report prepared for the upcoming Group of 20 meeting, the IMF said spare economic capacity and very low inflation justified keeping monetary policy loose in most major advanced economies. The IMF wrote: “The FOMC decision should remain data-dependent, with the first increase in the federal funds rate waiting until continued strength in the labor market is accompanied by firm signs of inflation rising steadily toward the Federal Reserve’s 2 percent medium-term inflation objective.” And the IMF has a point. The Fed may be anxious to raise rates but for all their talk they haven’t rolled out the data to back that position.

Meanwhile, ECB President Draghi told members of the European Parliament in Brussels that signs of a turnaround in low inflation “have somewhat weakened.” Low annual inflation – currently zero in the 19 countries that use the euro currency – points to weak demand and makes it harder for indebted companies and countries to recover. The ECB is purchasing $1.2 trillion in bonds with newly printed money through September, but inflation remains low. Draghi said at the ECB’s last policy meeting on Oct. 22 that the bank would review whether more stimulus was needed. The euro dropped on Draghi’s remarks.

Angry Greeks, fed up after six years of austerity, are taking to the streets again. The country came to a halt today after employees in both the public and private sector walked off their jobs to protest against yet more spending cuts and tax rises. Earlier this week, Eurozone finance ministers denied Athens the first $2.2 billion tranche of a third foreign aid package, stating the country had not gone far enough on the issue of home foreclosures.

According to Moody’s Investor Service, Puerto Rico is likely to default on at least some of its $355 million in debt payments due Dec. 1. The U.S. commonwealth, facing around $70 billion in total debt, is struggling to breathe life into a stalled economy with a roughly 45% poverty rate. Moody’s, which has Puerto Rico rated at Caa3 negative, said the island “continues to operate with extremely limited internal liquidity and no access to external sources of financing.”

VW has set a November 30 deadline for staff with knowledge about its diesel emissions test cheating to come forward. Workers who get in touch with internal investigators by then will be exempt from dismissal, although whistleblowers might be re-assigned to different jobs. The offer does not apply to managers. So if it turns out that deception was authorized at a high level, those responsible can still expect to be punished.

Government access to personal data from Web companies is still on the rise, building on a contentious privacy issue being debated across the globe. In its biannual report, Facebook said government requests for data jumped 18% in the first half of 2015 to 41,214 accounts, up from 35,051 requests in the second half of 2014.

A new plan from T-Mobile USA to allow unlimited streaming of some video services may become the first test of the federal government’s rules to prevent favoritism on the Internet. T-Mobile, the nation’s third-largest wireless carrier, said customers could stream as many videos as they want, regardless of their data plan limits, from more than two dozen video providers, including Hulu and Netflix. Now if you like streaming videos, you likely cheered, but it also raises some challenges to net neutrality rules and some people are now asking the FCC to consider taking up the issue.

The new rules leave open the possibility for wireless carriers to offer services that do not count against their data limits, a practice known as “zero rating.” The FCC has said that was intentional, to encourage Internet service providers to experiment with new business models. However, the FCC has also warned that it will investigate zero rating of data caps that appeared to harm consumers and hamper competition, leaving it somewhat vague where it would step in. T-Mobile said its new plan did not play favorites. Any video provider can join the program after meeting certain technical requirements.

Alibaba’s astronomical Singles Day sales failed to boost its stock price. Alibaba chief Jack Ma made some cautionary comments about growth expectations in China and the impact on Alibaba. A broad economic slowdown is worrisome in the longer term and offsets any short-term boost from Singles Day revenue. The e-commerce giant handled $14.3 billion in sales over the 24-hour shopping period, a 60% increase compared to 2014. And just to put that in perspective, the Single Day sales are more than the annual revenue of Facebook, or Viacom, or the GDP of Laos.

Walmart is remaking Black Friday by ditching doorbusters as part of a strategy to make holiday shopping easier for customers. The retailer will once again open its doors at 6 p.m. on Thanksgiving, but it won’t be rolling out hourly deals on different items. Instead, it plans to simplify the crazed shopping period by providing nearly all of its deals both online and in stores at once.  Online deals will start at 12:01 a.m. Pacific time on Thanksgiving, while all in-store deals will be available once stores open that evening.

S&P Closes At Highest Level In 3 Weeks, Oil Jumps

Financial Review

Close Calls

Sinclair Noe — October 7, 2015

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DOW + 122 = 16,912
SPX + 15 = 1995
NAS + 42 = 4791
10 YR YLD + .03 = 2.06%
OIL – .47 = 48.06
GOLD – 1.80 = 1146.80
SILV + .17 = 16.15

The S&P 500 closed at its highest level in three weeks. The S&P 500 has been up for 6 out of the past 7 sessions.  The S&P is down 3.09 percent for the year and the Dow is off by 5.11 percent ytd.

Yesterday, oil prices jumped nearly 5% as the American Petroleum Institute reported a 1.2 million barrel decrease in crude stocks last week. The International Energy Agency has said it expects world oil demand to increase by around 1.7 million barrels per day this year, one of the fastest rates for years as consumers respond to much lower fuel prices. The tightening market balance comes as U.S. production starts to decline. This morning, the Energy Information Administration reports global oil demand should increase by its fastest rate in six years in 2016, suggesting a surplus of crude is easing more quickly than expected. The EIA forecasts U.S. oil output will fall to 8.8 million barrels per day from an average of 9.25 million in 2015. But the EIA report also showed U.S. crude inventories rose by 3.1 million barrels in the last week, compared with analysts’ expectations for an increase of 2.2 million barrels.

The Bank of Japan has held off on expanding its record stimulus, signaling a belief that inflation will hit a 2% target despite troubling signs in the economy. Although the central bank left its annual asset purchases at ¥80-trillion-yen, they could still announce additional easing at a policy meeting on October 30, when the Bank of Japan is expected to cut its long-term economic and price forecasts.

China’s foreign exchange reserves posted their largest quarterly decline on record in July-September, as the central bank intervened to stabilize the yuan after its unexpected devaluation jolted global markets. The country’s foreign reserves, the world’s largest, dropped $43 billion to $3.5 trillion last month (the lowest since July 2013), and were down by about $180 billion for the third quarter.

The International Monetary Fund has published its Global Financial Stability Report and they are warning emerging market economies to protect their financial systems from possible instability as the U.S. Federal Reserve prepares to raise interest rates, saying shocks or policy missteps risk derailing the global economy and triggering equity market sell-offs. Meanwhile, problems lingering from the financial crisis still pose risks to advanced nations, including elevated public and private debt, and the risk of insufficient liquidity in the bond market when interest rates rise.

Tomorrow afternoon the Fed will release the minutes of their September FOMC meeting where the Fed did not raise interest rates. That decision has been described as a close call. Tomorrow we’ll get a better idea just how close.

One more day until Alcoa’s third-quarter results; marking the unofficial start of earnings reporting season. They could kick off the weakest set of earnings reports in six years. S&P 500 companies are now expected to report a 4.4 percent fall in third-quarter profit, according to Thomson Reuters data. The index is trading around 15.5 times expected earnings.

The world’s biggest smartphone maker by shipments, Samsung, handed out some positive guidance, suggesting its earnings may have bottomed out. While the mobile phone business isn’t likely to see a significant rebound as growth in global demand for smartphones cool amid saturated markets, Samsung’s earnings are being powered by strong growth in its chip business due to tight supply and firm pricing.

Monsanto, one of the world’s largest seed and agrichemical companies, said it will cut 2,600 jobs and restructure operations to cut costs in a slumping commodity market that it expects to squeeze results well into 2016. At the same time the company announced a $3 billion accelerated share repurchase program.

Volkswagen’s supervisory board held crisis talks today, facing deadlines from German regulators to explain its rigging of diesel emissions tests and what it is doing to tackle the scandal. The U.S. congress has launched its own investigation. The company has said it may have to refit up to 11 million cars and vans worldwide. Recalls are expected to start in January and would be completed by the end of 2016.

United Auto Workers members are planning a strike at U.S. manufacturing plants of Fiat Chrysler Automobiles ahead of the current four-year contract extension expiration at midnight.

Anheuser-Busch InBev  is raising its bid for SABMiller to $104 billion. This marks the third takeover proposal to combine the two biggest beer brewers in the world. And it looks like SABMiller will reject this latest offer.

Ahead of its annual Adobe MAX conference yesterday, Adobe issued an outlook for its coming fiscal year that was way lower than Wall Street expected.

Twitter and Alphabet have launched an open source code that allows faster loading of content-heavy Web pages on smartphones and tablets. The code, called accelerated mobile pages, or AMP, will help load content with heavy content such as video, animations and graphics faster.

Pure Storage made its trading debut today on Wall Street. Ticker symbol is PSTG. The flash storage company’s initial public offering price was $17 a share, but it actually opened around $16.74 then slipped lower throughout the session.

American Apparel is planning to revamp its struggling fashion business under a restructuring plan that would give ownership to Standard General, the same hedge fund involved in the RadioShack bankruptcy earlier this year. Shares in American Apparel, the country’s largest “Made in the U.S.A” brand, were suspended from trading on Tuesday ahead of their delisting from the NYSE.

Deutsche Bank expects to report a third-quarter net loss of $7 billion and may eliminate its dividend for the year after writing down the value of its two biggest divisions and boosting its reserve for legal costs. The German bank reports earnings October 29.

Pharmacy benefits manager Express Scripts has settled an investor debate about which pricey cholesterol drug it will cover – by saying it will cover both of them. Regeneron and Sanofi’s Praluent and Amgen’s Repatha will now both be included on Express Scripts’ formulary. Each of the PCSK9 inhibitors is at least $14,000/year, significantly higher than the cost of generic statins.

In theory, 3D printing offers a future where you could easily print just about anything you want. In reality, we’re not there yet. Eric Sprunk, Nike’s COO, recently attended a summit held by tech news site GeekWire, and based on what Nike is already doing Sprunk says the ability for consumers to 3D print a pair of sneakers is close at hand. The way it might work goes something like this: You could head to Nike’s website, customize a sneaker to your specifications, and buy a file containing the instructions for the 3D printer. If you have a printer at home, you could print it yourself and have a new pair of sneakers in a matter of hours. If you don’t, you could take the file to a Nike store and have them print it for you.

Airbus has called off talks with Bombardier over supporting the troubled CSeries jet, leaving the Canadian plane maker with few options to break into the 100-160 seat airplane market. Under a proposed tie-up, Airbus would have helped Bombardier complete development of the troubled CSeries in exchange for a controlling stake in the program. Bombardier, which has so far received a total of 243 firm orders for the jet, was unable to win a single order for the plane at the Paris airshow in June.

American Airlines Group is joining the Dow Jones Transportation Average effective October 15. The Dow Transports will then include 6 airline companies: United, Southwest, Delta, JetBlue, and Alaska Air. American Airlines replaces Con-way, the trucking firm being acquired by XPO Logistics.

Headed out of town for the holidays? Better book now. Whether you’re taking to the skies for Thanksgiving, Christmas or New Year’s, one week is better than any other to purchase your airfares – and according to Orbitz.com – this is the week. The online airfare booking site suggests that flights booked this week are 5 percent cheaper than regular fares. Using data from past holidays, the report also projects that Christmas fares should be purchased on Oct. 9 for the best price and flights for a New Year’s holiday are cheapest on Oct. 10.

DuPont was found liable for a woman’s kidney cancer in the first of 3,500 lawsuits over a toxic Teflon ingredient found in Ohio and West Virginia water. A federal jury in Ohio found that DuPont was liable for negligence and infliction of emotional distress and should pay $1.6 million in damages. The jury found the company didn’t act with actual malice in the way it handled C-8, the toxic chemical used to make Teflon at the company’s plant in West Virginia, which eventually was dumped into the Ohio River. Dupont won’t actually pay damages; they spun off the Teflon business and associated liabilities, to a company they call Chemours.

Last week we learned T-Mobile had been hacked and 15 million customers’ data had been breached. Cue the lawyers; at least five lawsuits are under way against T-Mobile and Experian, all seeking class-action status to represent everyone affected by the breach. A sixth lawsuit named only Experian. Experian Information Solutions held the data on its servers to perform credit checks on current and potential T-Mobile customers. The hackers stole names, addresses and Social Security numbers. People who submitted credit applications from Sept. 1, 2013, to Sept. 16, 2015, were affected. The great irony here is that Experian holds itself out as an expert in the field of data protection; they took in $4 billion in revenue last year to protect customers’ data.

Tuesday, July 01, 2014 - The Good, the Bad, and the Depressing

Financial Review with Sinclair Noe

DOW + 129 = 16,956
SPX + 13 = 1973
NAS + 50 = 4458
10 YR YLD + .05 = 2.56%
OIL - .13 = 105.24
GOLD - .80 = 1327.10
SILV + .02 = 21.08

 

Record high closes for the Dow and the S&P.

The record setting bull market run refuses to stumble. The S&P 500 has not seen a correction, a drop of 10%, for 1,002 days, and counting. This marks the fifth longest stretch without a correction since 1928. The average time between corrections is about 18 months; we’ve now gone 33 months without a 10% pullback.  

The Institute for Supply Management said its manufacturing index registered 55.3% in June, down slightly from May’s reading of 55.4%. Any number above 50% signals expansion. Separately, the research firm Markit said its final reading of US manufacturing conditions in June totaled 57.3, compared with a preliminary reading of 57.5; still the highest reading since May 2010. So the manufacturing sector has expanded for 13 consecutive months, but it wasn’t a month over month increase, and we have to remember that manufacturing was expanding in the first quarter as the broader economy was contracting by 2.9%. Today’s reports were decent news for manufacturing, but hardly great.

The Commerce Department reports construction spending increased 0.1% in May, following a 0.8% increase in April. Construction activity totaled $958 billion at a seasonally adjusted annual rate in May, up 6.6% from a year ago. Single-family home construction was down 1.4% while apartment construction dropped 0.6%. The hotspot for construction was a 4.3% rise in construction of power generating facilities.

The upshot is that the economy is continuing to improve from the deep freeze of old man winter, even if the recovery is tepid. Most economists and analysts had called for 3% growth in the first quarter, not a 2.9% contraction. Now that the weather and the economy have thawed, we’re hearing talk of 3% growth going forward.

The strongest S&P 500 sector this year has been Utilities, up 17%. The S&P 500 Energy sector is up 13%, with the following subsectors: Oil & Gas Equipment and Services rising 28%, Oil & Gas Storage and Transportation up 25% and Oil & Gas Exploration up 22%.The weakest S&P 500 sector so far this year has been Retailing.

June auto sales beat expectations with Chrysler, Nissan, Toyota and Hyundai all posting healthy gains compared with the same month a year earlier. General Motors had a small increase and Ford’s sales declined. June new car sales approached 1.4 million, about the same as a year earlier. Most analysts were forecasting a 2% to 3% decline for the month. GM recalled an additional 8.5 million cars yesterday, which means that GM has now recalled 29 million cars since the start of the year, more than the total number of vehicles it sold in 2011, 2012, and 2013 combined. It’s also more than the 22 million vehicles recalled by all automakers last year.

AAA predicts that nearly 35 million Americans will take a road trip of 50 miles or more on the Independence Day weekend. The current national average price for a gallon of regular gasoline is $3.68, compared with $3.48 a year ago. According to AAA, gasoline prices are 20 cents a gallon higher due to “market fear about Iraq”.

Sunnis and Kurds walked out of the first session of Iraq's new parliament after Shi'ites failed to name a prime minister to replace Nuri al-Maliki; so, the prospects are poor for a new unity government that might prevent Iraq from collapsing. Meanwhile, the ISIS rebels continue fighting; they control suburbs  just west of Baghdad; they have been waging fierce battles in Tikrit, north of Baghdad, and there have been clashes to the south of the capital, leaving the city surrounded on three sides. The United Nations says more than 2,400 Iraqis had been killed in June alone, making the month by far the deadliest since the US "surge" offensive in 2007.

Geopoltical hotspots continue to flare up. Ukrainian forces struck pro-Russian separatists bases in eastern Ukraine with air and artillery strikes. The ceasefire came and went, and won’t be renewed. Russian president Putin accused the Ukrainian prime minister of shunning the road to peace; while Russian foreign minister Lavrov warned of a “new round of bloodshed”.

 A follow-up on yesterday’s Supreme Court ruling in the Hobby Lobby case, which dealt with a closely held corporation’s objection to paying for contraceptives in employees’ health care under the Affordable Care Act mandate. The Supremes said corporations are people, my friend, and they have religious beliefs, and so they are exempt from the mandate. There had already been exemptions for churches and non-profit organizations; in those situations the government determined that contraceptives would be paid by the government. This was the solution put forth in 2012, and revised in 2013, whereby taxpayers could pick up the tab for contraceptive coverage, instead of religious employers, as a solution to the First Amendment issues in question.

Writing for the majority in the Hobby Lobby case, Justice Alito wrote: “[the White House] could extend the accommodation that HHS has already established for religious nonprofit organizations to non-profit employers with religious objections to the contraceptive mandate. That accommodation does not impinge on the plaintiffs’ religious beliefs that providing insurance coverage for the contraceptives at issue here violates their religion and it still serves HHS’s stated interests.”

In other words, while the government can’t compel Hobby Lobby to finance contraceptives, it can compel taxpayers to do so. Another name for taxpayer funded healthcare is “single payer”. I’m not sure if the Supremes intended this, but they just justified the government to establish a single payer health plan, at least for contraceptives.

There was a time when a majority of Americans were confident in the Supreme Court, but according to a new Gallup poll just 30% say they are confident in the highest court. That’s the good news; people have more confidence in the Supremes than in any other arm of government, but that may not be saying that much when confidence in the presidency stands at 29% and in the Congress at 7%. Which means Congress is even less popular than head lice, or T-Mobile, or Facebook.

The Federal Trade Commission says T-Mobile made money the old fashioned way, by charging customers hundreds of millions of dollars in bogus charges. The practice is often referred to as "cramming"; businesses stuff a customer's bill with bogus charges associated with a third party. In its complaint filed in federal court, the Federal Trade Commission claimed that T-Mobile billed consumers for subscriptions to premium text services such as $10-per-month horoscopes that were never authorized by the account holder. The FTC alleges that T-Mobile collected as much as 40% of the charges, even after being alerted by other customers that the subscriptions were scams.

Facebook has its own little scam. It modified hundreds of thousands of users' accounts by prioritizing 'positive emotional content' to see if it could make them happier or sadder, without telling them what it was doing.

Researchers from Cornell University and the University of California filtered information going into the news feeds of 689,000 users; that includes the constant flow of links, videos, pictures, and comments by friends. When positive emotional content from friends was reduced, users would post more negative content themselves, essentially becoming unhappier. The opposite happened when negative emotional content was reduced. The process has been dubbed “emotional contagion”.

The study, published in the journal “Proceedings of the National Academy of Sciences of the USA”, concluded: “Emotions expressed by friends, via online social networks, influence our own moods, constituting, to our knowledge, the first experimental evidence for massive-scale emotional contagion via social networks.”

A spokesman for Facebook said the research was conducted over a single week and none of the data was associated with a specific person's account. Instead, they said the site wanted to make its content more “relevant and engaging”.

Just to be clear, another name for emotional contagion is empathy, something that is in short supply at Facebook. What we really learned from this experiment is that the people at Facebook have spent so much time staring at a computer screen that they have become disconnected from emotional reality, and have to rely on scientists to run secret experiments on hundreds of thousands of lab rats, I mean customers, to discover that people get upset when their friends are unhappy. Even worse, the experiment confirms that social networks now have the power to change the emotional well-being of millions of lab rats, I mean customers, on a whim; just to see what happens; devoid of empathy.

Now that’s depressing.

Wednesday, June 04, 2014 - An Airtight Defense

Financial Review with Sinclair Noe

DOW + 15 = 16,737
SPX + 3 = 1927 (record close)
NAS + 17 = 4251
10 YR YLD + .01 = 2.60%
OIL - .27 = 102.39
GOLD – 1.30 = 1244.60
SILV - .01 = 18.90

Eight times a year the Federal Reserve gathers economic updates from the 12 districts and publishes the information about two weeks before its FOMC meetings. The data is published in a beige folder, and that is why it is called the Beige Book, although it might actually refer to the writing style. Anyway, economic activity expanded all across the country, with most districts reporting moderate or modest growth. Consumer spending expanded across almost all districts. Tourism was another bright spot and manufacturing activity expanded across the country. Home sales were described as “mixed across the country” even as home prices continue to rise. Labor markets were described as steady. Inflation was tame, with a slight exception for higher food prices in some areas.

In other words, when the Fed meets in a couple of weeks, there won’t be any big changes in monetary policy.

The Institute for Supply Management said its services index rose to 56.3%, its highest level since August, from 55.2% in April. That’s the number and they’re sticking with it.

The US trade deficit grew to $47 billion in April, up from $44 billion in March. Exports slowed in April, down slightly to $193 billion. Imports, meanwhile, surged by nearly $3 billion to $237 billion, mainly driven by increased spending in consumer goods and cars.

A new survey from the MacArthur Foundation finds 70% of Americans still feel a housing crisis remains today and the worst is yet to come; that’s down from 77% a year ago, but still it doesn’t look like there’s much confidence in a housing recovery. Half the respondents think housing represents a good long term investment, while 43% says that’s not the case; two-thirds say it’s harder to build wealth through home ownership than 20 or 30 years ago. Over half of Americans, 52%, have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years.

In line with the survey on housing, a new poll from CNN and ORC International finds 59% of adults think the American Dream has become impossible for most to achieve, up from 54% in a poll conducted in 2006. What’s more, 63% of those surveyed believe most children in the US will grow up to be worse off than their parents. While most Americans say they’re better off than the prior generation, they also feel gains in living standards are grinding to a halt. One problem is that the survey didn’t define exactly what the American Dream is supposed to be.

ADP, the payroll processing firm, issues a monthly payroll report ahead of the Labor Department each month. The ADP report is not always an accurate predictor of the government report but it is still closely watched for any hints. ADP says the economy added 179,000 private sector jobs in May; that’s significantly below the consensus estimate of 200,000 to 215,000 jobs for the Friday jobs report.

According to the latest revisions from the Labor Department, productivity in the first quarter declined at a 3.2% annual rate, the worst in six years, as workers spent more time on the job producing fewer goods during an unusually stormy weather.

A new research study published today from the Economic Policy Institute shows a sharp disconnect in the late 1970s between the overall productivity of the US economy and wage gains for the average worker. Normally, when workers make more things during a work day, they get paid more for that day’s work. From 1948 to 1979, both hourly wages and productivity roughly doubled. But from 1979 to 2013, productivity rose 65% while average hourly compensation rose just 8%; those at the bottom and middle of the income ladder saw little of those gains.

Wages for everyone at or below the 30th percentile of the income distribution have essentially been flat, while wages for the poorest 10% of workers have fallen during that time period. At all income levels, women earn less on average than men do.  Most wage growth has flowed to the top 1% of earners, posting a 153% increase in wages. Since wages for the lowest income group have fallen while wages at the highest income group have grown, income inequality has also increased.  Piketty was right.

The S&P 500 index hit another record high close today, and even at that it’s just up about 5% year to date. The best performing market year to date is in Dubai; posting a 56% return since the start of the year and posting a 117% return for the past 12 months. The strongest S&P 500 subsectors this year include oil & gas equipment and services, which is up 17%; oil & gas exploration and production, up 15%; real estate investment trusts, up 15%; natural gas utilities, up 21%; and electric utilities, which have risen 14%, largely on the back of some big mergers.

The top performing stocks in the S&P year to date include: Forest Labs, up 60%, a takeover target; Nabors Industries, a contract oil driller based in Bermuda is up 54% year to date; Electronic Arts, the video game developer is up 51%; Keurig Green Mountain has returned 50% this year, this is the coffee company that makes those little single serve containers of coffee; Newfield Exploration, an oil and gas exploration and development company out of Texas is up 49% since the start of the year; Delta Airlines is up 47% after rejoining the S&P 500 index; and Pepco, the Washington DC based utility is up 47% YTD, after agreeing to be acquired by Exelon. Probably nobody picked those stocks as the top performers at the start of the year.

After the close of trade today, comes word that Sprint is nearing an agreement price to acquire T-Mobile for about $40 a share, or around $32 billion, a 17% premium to the closing price today. There will be regulators to deal with. An announcement and an actual deal are still down the road. If you are unhappy with the service and price you pay for your mobile phone, this won’t help.

A federal appeals court has overturned a decision by Judge Jed Rakoff to reject a federal settlement deal with Citigroup. Judge Rakoff had considered the Citigroup-SEC settlement to be little more than a slap on the wrist. The original case accused Citigroup of duping investors into buying tainted CDO’s, Collateralized Debt Obligations. The bank agreed to pay $285 million to settle the civil fraud case, without admitting wrongdoing.

Judge Rakoff called the fine “pocket change” for the bank and said the settlement deprived the public “of ever knowing the truth in a matter of obvious public importance.” And now the court of appeals decision is going to rein in judicial discretion even more. The ruling essentially says that a judges job is not to search for the truth.  One small victory for Judge Rakoff: the SEC last year reversed its longstanding yet unofficial policy of allowing companies to neither “admit nor deny wrongdoing,” signaling that it would force admissions in particularly egregious cases.

If only the SEC had the backbone to pursue a particularly egregious case.

The G-7 or Group of 7 is meeting today and tomorrow; it used to be the G8 until Putin invaded Crimea, and so Russia was kicked out of the clubhouse. A draft of the G7 communique calls on Russia to "accelerate withdrawal of military forces from the eastern border with Ukraine" and "exercise its influence among armed separatists to lay down their weapons".

More important is how Europe will deal with energy security as the continent relies on Russia for about a third of its oil and gas, a fact that gives Putin considerable leverage over the EU. The G7 draft communique says: "The use of energy supplies as a means of political coercion or as a threat to security is unacceptable." Euro leaders say they are committed to diversifying energy sources away from Russia, but it won’t happen overnight. Complacency on the energy front seems like a really big mistake.

As the G7 meeting wraps up, the various leaders will head to France on Friday to mark the 70^th anniversary of the D-Day invasion at Normandy. Putin will be there. No negotiations or diplomatic level talks are planned but it should make for some interesting photo ops.

And before the D-Day anniversary there will be an uncomfortable dinner between President Obama and French President Hollande, who will make the case that the French bank, BNP Paribas should not be fined $10 billion for money laundering. Naturally, this has BNP clients nervous about what all this means for business, and the upper echelons of BNP management nervous about how their employees might respond to questions about money laundering.

Once upon a time BNP thought they could beat the rap. BNP showed prosecutors a memo that the bank thought would explain and possibly mitigate the conduct. The memo, drafted around 2004 by an outside law firm, essentially authorized the bank to process certain transactions for Sudan, as long as BNP’s employees in New York were not involved in the arrangement. BNP argued that it lacked the intent to commit a crime, saying that it followed the law firm’s directive. That legal argument, known as the “advice of counsel” defense, prompted prosecutors to pore over the single-page memo and weigh the bank’s argument. Ultimately the prosecutors concluded that the memo alleviated only a small fraction of the wrongdoing. Apparently hiring lawyers to tell you that you can do whatever you want turns out to be a little bit less than an airtight legal strategy.