Financial Review

Wild Ride

Sinclair Noe — November 29, 2017

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

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DOW + 103 = 23,940 (Record)
SPX – 0.97 = 2626
NAS – 88 = 6824
RUT + 29 = 1542
10 Y + .04 = 2.38%
OIL – .72 = 57.39
GOLD – 10.00 = 1284.40

Cryptocurrency

• Number of Currencies: 1,361
• Total Market Cap: $313,200,409,865
• 24H Volume: $25,745,255,963

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	24H Volume	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	10,440.0	$176.94B	$12.43B	48.17%	1	+6.76%	+28.76%
	Ethereum	ETH	447.67	$44.05B	$2.91B	11.27%	0.0445032	+6.04%	+21.31%
	Bitcoin Cash	BCH	1,389.00	$24.35B	$2.55B	9.88%	0.140411	+3.95%	+4.72%
	Ripple	XRP	0.24450	$10.06B	$559.05M	2.17%	0.00002528	+4.44%	+9.00%
	Dash	DASH	701.27	$5.64B	$460.44M	1.78%	0.0708762	+6.09%	+27.36%
	Bitcoin Gold	BTG	298.72	$5.34B	$277.71M	1.08%	0.0310805	+6.27%	+28.06%
	Litecoin	LTC	91.090	$4.96B	$827.06M	3.20%	0.00890424	+5.06%	+27.98%
	IOTA	MIOTA	1.37200	$3.83B	$309.61M	1.20%	0.00013365	+8.28%	+54.35%
	Monero	XMR	184.21	$2.91B	$191.79M	0.74%	0.0183086	+11.31%	+15.15%
	Cardano	ADA	0.114583	$2.87B	$207.27M	0.80%	0.00001074	+3.15%	+291.80%

The Dow Industrials hit another record high, even as the Nasdaq suffered a sharp drop.

The U.S. economy’s growth rate last quarter was revised upward to the fastest in three years on stronger investment from businesses and government agencies than previously estimated. Third quarter GDP grew at a 3.3% annualized rate (est. 3.2%), revised from 3%.

The performance, achieved despite two devastating hurricanes, marked the fastest expansion in gross domestic product since a 5.2 percent annual spurt in the third quarter of 2014. Consumer spending, which accounts for about 70 percent of the economy, continues to be the main driver of growth, though revisions showed it was slightly weaker than previously estimated on purchases of both durable and nondurable goods.

The biggest improvement came in business investment, which made a 1.2 percentage-point contribution to growth. In addition to greater spending on transportation equipment, the data also reflected more software spending. Nonresidential structures were revised to a bigger decline. While the first look at third-quarter gross domestic income showed a pickup, the prior quarter was revised downward by 0.6 percentage point, reflecting a smaller gain in wages and salaries.

Price data in the GDP report showed inflation remains behind the Fed’s 2 percent goal. Excluding food and energy, the central bank’s preferred price index tied to personal spending rose at a 1.4 percent annualized rate last quarter. Gross domestic income, adjusted for inflation, rose 2.5 percent after a downwardly revised 2.3 percent gain in the prior three months; second-quarter wages and salaries were revised downward by $26.5 billion.

The GDP report is the second of three estimates for the quarter; the third is due in December.

The pending home sales index, which measures signed contracts to buy existing homes, rose 3.5 percent for the month, but is still 0.6 percent lower than October 2016. That is the highest level since June. Sales were strongest in the South, jumping 7.4 percent for the month and 2 percent compared with a year ago. That was likely due to pent-up demand after two major hurricanes.

Federal Reserve Chair Janet Yellen delivered her final testimony before the Joint Economic Committee on Capitol Hill. Yellen said the country’s economic expansion had broadened and strengthened, and that she expected the growth to continue. Yellen was careful to say that the economy could be doing better. She noted that the pace of economic growth remained slow by historical standards.

The two major determinants of growth, the number of workers and the productivity of the average worker, are rising slowly. She said, “Congress might consider policies that encourage business investment and capital formation, improve the nation’s infrastructure, raise the quality of our educational system, and support innovation and the adoption of new technologies.”

She did not offer an opinion on tax policy but warned that debt-to-GDP ratios – around 75% – were high, though not excessive.  She added, “It’s the type of thing that should keep people awake at night.” In response to a question, Yellen added, “The equity of the tax code is important and should be taken into account.”

She also said changes in fiscal policy could affect how quickly the Fed raises rates. Fed officials have drawn a careful distinction between tax cuts that increase economic capacity — for example, by encouraging business investment — and tax cuts that provide a short-term sugar high, such as cuts in personal income taxes that would likely increase spending.

The Fed estimates that the economy is already growing at something close to the maximum sustainable pace. A short-term stimulus, therefore, would likely raise inflation. In turn, the Fed could seek to offset faster inflation by raising interest rates more quickly.

Also, today, at the ASU Economic Forecast Luncheon in Phoenix, San Francisco Fed President John Williams delivered an upbeat assessment of the economy, and falling unemployment is expected to put pressure on inflation… eventually, Williams anticipates the Fed will keep raising interest rates gradually.

Williams said, “The next time you see a headline about stubbornly low inflation, you can smile to yourself, knowing that the mystery isn’t all that mysterious after all. With the economy doing so well this year and based on the historical pattern, I expect to see a rise in inflation in 2018.” In a Q&A session, Williams said the Fed does not have plans to issue digital currency, but the central bank is interested in the underlying technology and is actively researching it.

Yesterday, Bitcoin hit $10,000. This morning it hit $11,000 – but by the end of the day it was back around $9,290. Wild ride doesn’t begin to describe it. Trading volume was a whopping $9.75 billion over the last 24 hours, according to CoinMarketCap, compared to $2.26 billion for digital currency Ethereum. The heaviest selling came amid reports of service outages and delays on some of the largest online exchanges. If it looks like a bubble, and walks like a bubble, and charts like a bubble….

If bitcoin is a bit too crazy for you, starting in 2018, investors can dump their money into deeply unBogle-like, totally non-passive Vanguard exchange-traded vehicles with flavors like volatility, momentum, value, and, for some reason, low liquidity. That’s right, actively managed ETFs.

Members of the Organization of the Petroleum Exporting Countries and other key producers, including Russia, meet on Nov. 30 to discuss whether to continue to limit production to drain global inventories to help push up prices. They cut production by 1.8 million barrels per day (bpd) in January and agreed to hold down output until March. The market had expected OPEC to extend the limits by another six to nine months, but this is now less certain.

The Supreme Court heard arguments today on whether police need a warrant for cellphone location data in a case that could reshape digital privacy protections. The defendant in the case was convicted of participating in a series of robberies, based in part on records provided by his cellular carrier showing his movements over several months. The defense lawyer said prosecutors had violated the Fourth Amendment, which bars unreasonable searches, by failing to get a warrant for the information.

The court’s decision in the case, Carpenter v. United States, will apply the Fourth Amendment, drafted in the 18th century, to a world in which people’s movements are continually recorded by devices in their pockets and cars, by toll plazas and by transit systems. A ruling in Mr. Carpenter’s favor could revise a fundamental Fourth Amendment principle: that people have no reasonable expectation of privacy when they voluntarily turn over information to a third party, like a phone company.

Recent Supreme Court decisions have expressed uneasiness with allowing the government to have unfettered access to vast amounts of digital data. By the end of arguments, at least five justices seemed prepared to limit the government’s power to obtain records from cellphone companies showing their customers’ locations over long periods of time. But there was no consensus about a rationale for a decision or about how far the court was prepared to go to reshape longstanding constitutional doctrines that allow the government to obtain business records held by third parties.

The Office of the Comptroller of the Currency has advised Wells Fargo’s board of directors that it is weighing a formal enforcement action against the bank over improprieties in its auto-insurance and mortgage operations. In a letter this month, the OCC said Wells had willingly hurt customers in the two businesses and had until Nov. 24 to respond. The OCC letter said Wells repeatedly failed to fix problems in a broad span of areas, not just auto insurance and mortgage-lending.

Nokia is reportedly in talks to buy Juniper Networks.  The offer would value Juniper at around $16 billion.

A scheduling glitch that allowed American Airlines pilots to take vacation at the same time has left thousands of flights during the busy holiday travel period next month without pilots assigned to them. Pilots loaded up their schedules with flights in early December, but many opted to take days off around the holidays, after the system allowed it.

American Airlines is now offering pilots 150 percent of hourly pay to work those dates. It was unclear how much the scheduling problem will cost American Airlines. Whoops.

Financial Review

Pottery Barn Rules

Sinclair Noe — October 13, 2017

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

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DOW + 30 = 22,871
SPX + 2 = 2553
NAS + 14 = 6605 (Record)
RUT – 2 = 1502
10 Y – .04 = 2.28%
OIL + .80 = 51.40
GOLD + 10.20 = 1304.30

Cryptocurrency

• Number of Currencies: 878
• Total Market Cap: $174,223,159,809
• 24H Volume: $6,182,297,096

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,691.3	$94.45B	$2.96B	47.93%	1	+0.97%	+30.33%
	Ethereum	ETH	339.63	$32.22B	$1.21B	19.62%	0.059464	+0.64%	+9.88%
	Ripple	XRP	0.26146	$10.11B	$349.29M	5.65%	0.00004604	+0.43%	+11.40%
	Bitcoin Cash	BCH	325.94	$5.45B	$264.35M	4.28%	0.057233	+1.68%	-10.28%
	Litecoin	LTC	59.220	$3.17B	$249.71M	4.04%	0.0104192	+0.54%	+14.35%
	Dash	DASH	311.77	$2.37B	$67.24M	1.09%	0.0546181	+1.06%	+1.04%
	NEM	XEM	0.20990	$1.88B	$5.16M	0.08%	0.00003664	-1.15%	-0.03%
	NEO	NEO	29.105	$1.46B	$67.41M	1.09%	0.00513938	-1.00%	-13.10%
	Monero	XMR	94.67	$1.43B	$59.07M	0.96%	0.0165036	-0.19%	+3.51%
	BitConnect	BCC	198.286	$1.42B	$17.34M	0.28%	0.0348017	-0.24%	+40.39%

The Dow Industrials hit an intraday high but then faded to close just below Wednesday record closing high. The Nasdaq closed at a record high.

For the week, the Dow was up 0.4 percent and the S&P 500 was up 0.2 percent, pushing the Dow and the S&P 500 to a fifth straight week of gains. The Nasdaq rose 0.2 percent for the week, registering a third week of gains.

The consumer price index rose 0.5% in September, the second big increase in a row and the largest in eight months. Three-fourths of the increase in the cost of living stemmed from higher prices at the gas pump as Hurricane Harvey knocked refineries off line. If food and energy are stripped out, core CPI rose a much smaller 0.1%.

The recent energy-driven rise in CPI pushed the yearly rate of inflation to 2.2% from 1.9% to match a six-month high. Yet the more closely followed core rate was unchanged at 1.7% for the fifth month in a row. Adjusted for inflation, hourly wages fell 0.1%. Over the past year “real” wages have risen just 0.7%.

The Social Security Administration announced today that more than 65 million recipients will get a 2% cost-of-living adjustment (COLA) in 2018, after receiving a measly 0.3% boost in 2017 and no increase for inflation in 2016. That means the average benefit for a retired worker will rise by $27 a month to $1,404 in 2018 while the average benefit per retired couple will grow $46 a month to $2,340.

But many recipients will find most or all of that increase eaten up by a jump in the Medicare Part B premiums deducted from their monthly Social Security checks. The COLA affects benefits for more than 70 million U.S. residents, including Social Security recipients, disabled veterans and federal retirees. That’s about one in five Americans.

Retail sales in the U.S. leapt 1.6% in September—the largest increase in 2½ years. The boost came from new autos and trucks. Excluding autos, sales rose 1%. And sales excluding autos and gasoline climbed a smaller but still robust 0.5%. Sales of cars and trucks surged last month after a disappointing August.

Part of the rebound reflected the purchase of replacement vehicles after many were damaged by hurricane-related flooding in Texas and Florida. Home-supply stores also got a bump in the cleanup that followed the storms. Higher gasoline prices lifted sales at gas stations dealers as well. We weren’t buying more gas, just paying more.

The University of Michigan said its consumer sentiment index climbed to a 13-year high of 101.1 in October from 95.1 in September. There were big gains in both the index for current economic conditions, which rose to 116.4 from 111.7, and expectations, which rose to 91.3 from 84.4.

Yesterday we told you that Trump had signed an executive order that makes it easier for individuals and small businesses to buy alternative types of health insurance with lower prices, fewer benefits and weaker government protections.

Yes, the policies would cost less, but they are basically don’t get sick plans. Still, these junk plans sold through associations could siphon young and healthy patients out of the ACA’s exchanges and create an individual-market death spiral. But the order is vague and subject to likely legal challenges.

The administration announced late last night that Trump will immediately halt cost-sharing reductions. These $7 billion in annual subsidies to health insurers allow around 7 million low-income Americans to afford coverage. The ACA requires that insurers subsidize the out-of-pocket health-care costs of some low-income patients, and the government reimburses them — until now. You might think that ending the subsidies to insurers would cut costs, but no.

The move could force the government to dole out almost $200 billion more on health insurance over the next decade. Here’s why: The insurer payouts Trump cut off aren’t the only government funds financing the program. Consumers also can get help with their insurance premiums.

When the insurer subsidies are discontinued, those premiums are pushed higher — and because the consumer subsidies are far bigger than those given to insurers, that’s a costly trade. More than eight in ten individuals who buy Obamacare plans get help paying their premiums directly from the federal government. Those subsidies effectively cap how much people must pay for insurance as a percentage of their income.

Even if premiums climb, people who receive those benefits won’t pay more out of their own pockets. The subsidies are available to people making as much as four times the federal poverty level, or just over $97,000 for a family of four. That means that those most likely to be hurt by the president’s action aren’t low-income people who will still get help with their costs.

Instead, consumers who make too much money to qualify for subsidies will now have to pay a much higher price for their health plans. It all adds up to a hefty bill for taxpayers for as long as the Affordable Care Act is the law of the land. The Congressional Budget Office estimated that ending the cost-sharing payments would increase the U.S. fiscal shortfall by $194 billion over the next decade as subsidy outlays jump.

The uncertainty about what Trump would do has already driven premium prices higher for 2018. Now it’s going to get worse. The fifth year’s open-enrollment season for consumers to buy coverage through ACA exchanges will start in less than three weeks, and insurers have said that stopping the cost-sharing payments would be the single greatest step the Trump administration could take to damage the marketplaces.

Ending the payments is grounds for any insurer to back out of its federal contract to sell health plans for 2018. After the failure to repeal and replace Obamacare, there was some talk about trying to find ways to make the ACA better, but instead, this is intentionally destroying the marketplace. Obamacare had its problems but it was working and he had a chance to fix those problems. Yes, this is a bargaining tactic to try to revive repeal and replace – the problem is the GOP has not been able to come up with a better replacement.

And as a bargaining position, it might not work. The Congressional Budget Office ran projections for just such a possibility. They figure about one million people could lose insurance coverage and the price hikes will be passed along to the federal government. But they also calculate that individual states will figure out schemes to overcome the loss of subsidies.

An unusually broad alliance of interests has urged Congress to appropriate the money, signaling just how disruptive their loss could be. Or Congress could decide to just pay the subsidies. Trump tried to shift blame, tweeting that the Democrats Obamacare is imploding. Not true. Remember the Pottery Barn rules: Yes, the plate you just shattered had some cracks in it. But if you throw it on the ground, the store is going to blame you. You break it, you own it.

Meanwhile, Trump’s campaign against the Iran nuclear deal came to a head today, when he refused to certify that Iran was in compliance with the agreement. Trump stopped short of withdrawing from the deal or of reimposing sanctions on Iran himself, instead sending the deal back to Congress, which will have 60 days to decide whether to re-implement sanctions or alter legislation that covers US participation in the accord.

Bank of America picked up where JPMorgan Chase and Citigroup left off on Thursday when it reported strong core banking numbers and lackluster trading revenue. Bank of America reported earnings per share of 48 cents on revenue of $22.07 billion.

Both numbers topped consensus analyst estimates of 45 cents and $21.97 billion, respectively. BAC also reported a 22 percent decline in fixed-income trading revenue, which dropped to $2.152 billion. Bank trading revenues have suffered in 2017 thanks to historically low volatility in global financial markets.

Wells Fargo reported third quarter revenue that missed expectations Friday. The bank reported: Earnings per share of $1.04, ex-items, vs. the $1.03 a share expected by analysts. Revenue of $21.93 billion, vs. $22.4 billion expected. Revenue fell 2 percent from the same quarter last year. Shares fell more than 3 percent in trading Friday.

The adjusted earnings per share excludes 20 cents of charges related to litigation for a mortgage-related regulatory case from before the financial crisis – not related to the fake account schedule. The litigation cost of $1 billion contributed to an operating loss of $1.3 billion in the third quarter.

BASF has agreed to buy seed and herbicide businesses from Bayer for $7 billion in cash, as Bayer tries to convince competition authorities to approve its planned acquisition of Monsanto. BASF, the world’s third-largest maker of crop chemicals, has so far avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licenses out to seed developers. But Bayer’s $66 billion deal to buy Monsanto, announced in September 2016, has created opportunities for rivals to snatch up assets that need to be sold to satisfy competition authorities.

And finally, for triskaidekaphobics, we finish with a story from Finland, where FinnAir – the airline of Finland – has been routinely flying for several years from Copenhagen Denmark to Helsinki Finland. The one-hour flight had somehow been assigned the Flight number 666. The airport code for Helsinki is HEL.

Well, that left a more than a few travelers nervous, and so FinnAir is changing the Flight number to AY954. Today, Friday the 13^th was the last time to catch flight 666 to HEL

Financial Review

When It Rains It Pours

Sinclair Noe — September 19, 2017

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

Subscribe: Android | RSS

DOW + 39 = 22,370
SPX + 2 = 2506
NAS + 6 = 6461
RUT – 0.68 = 1440
10 Y + .01 = 2.24%
OIL – .06 = 49.85
GOLD + 3.60 = 1311.70

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	3,908.8	$64.92B	$1.56B	37.66%	1	+0.43%	-3.98%
	Ethereum	ETH	283.50	$26.71B	$643.03M	15.53%	0.0722237	+0.31%	-1.68%
	Bitcoin Cash	BCH	524.76	$8.60B	$800.36M	19.33%	0.132646	-0.75%	2.96%
	Ripple	XRP	0.18400	$7.03B	$53.73M	1.30%	0.000047	-0.33%	-11.57%
	Litecoin	LTC	53.050	$2.80B	$280.54M	6.78%	0.0135243	+0.32%	-16.96%
	Dash	DASH	322.71	$2.44B	$34.29M	0.83%	0.082652	-0.70%	1.18%
	NEM	XEM	0.23856	$2.14B	$5.07M	0.12%	0.00006087	+0.10%	-3.03%
	IOTA	MIOTA	0.56389	$1.56B	$12.86M	0.31%	0.00014337	+0.76%	-0.14%
	Monero	XMR	98.35	$1.47B	$48.69M	1.18%	0.0249811	+0.52%	-11.23%
	Ethereum Classic	ETC	11.5000	$1.09B	$68.20M	1.65%	0.00292037	-0.35%	-20.25%

The fun never stops. The Dow hit another record high close. The S&P 500 hit another record high close. The Nasdaq Composite hit a record high close. For the Dow Industrial average, this is the sixth record high. The S&P has a streak of three record highs.

The Fed will wrap up its two-day meeting tomorrow and release an announcement on monetary policy at 2:00 p.m. Eastern – 11:00 a.m. in Arizona. Although we don’t see any surprise rate increase this month, the betting at the Chicago Merc is for a 57% likelihood of a rate increase at the December meeting.

There’s no meeting in November, and after December, the next planned Fed get-together is March. And Fed Chair Janet Yellen’s term expires in February, so December seems like the time to increase rates a quarter point.

At the current meeting, traders are expecting talk of downsizing the Fed’s $4.5 trillion bond portfolio. The Fed has outlined its plan and will only be taking baby steps at first. At first, it will sell Treasuries and mortgage backed securities to reduce its holdings by only $10 billion per month and, as time and conditions warrant, it will work up to $50 billion per month. Wall Street typically likes economic stimulus and typically throws a tantrum when the punch bowl is taken away. We’ll see.

President Trump delivered his first speech to the United Nations General Assembly this morning. Trump escalated his standoff with North Korea over its nuclear challenge, threatening to “totally destroy” the country of 26 million people and mocking its leader, Kim Jong Un, as a “rocket man.”

A bipartisan group of 10 governors — including the Republican governors of Alaska and Nevada –  expressed opposition to a last-ditch Republican effort to repeal and replace most of Obamacare. The bill must pass by a Sept. 30 deadline under a process known as reconciliation, that makes it possible for Republicans to get around any filibuster attempt from Senate Democrats.

Senate Majority leader Mitch McConnell says he’ll only bring the legislation to the floor if it has the needed 50 votes to pass. So far, a vote has not been scheduled. Meanwhile, negotiations to stabilize the ACA market exchanges have broken down.

After Senate Republicans failed to repeal Obamacare in July, talks began on fixing the law rather than dismantling it. Trump has threatened to withhold billions in Obamacare subsidies, which would upend private insurance markets.

Top Republicans on a key Senate panel have reached a tentative agreement on a tax plan that would add about $1.5 trillion to the government’s $20 trillion debt over 10 years. The figure would allow deeper cuts to tax rates than would be allowed if Republicans followed through on earlier promises that their upcoming tax overhaul wouldn’t add to the deficit.

The divide between the Senate GOP’s deficit hawk and “supply side” wings must overcome before action on this fall’s tax measure can commence in earnest. Unlike the House, Senate Republicans aren’t planning to pair the tax measure with spending cuts. The work of the budget panel is critical since Republicans need to agree on a Capitol Hill budget plan to pass a follow-up tax bill.

Both House and Senate Republicans are divided and the budget debate is months behind schedule. Many Republicans in Washington promise that cutting corporate and individual rates and ridding the code of inefficient tax breaks, deductions, and preferences will boost the economy and cause a burst of new revenue.

But the outlines of their tax plan itself remain secret, and it’s not clear how successful they will be in cleaning up the loophole-choked tax code. Congress’ impartial scorekeepers have accepted the premise of such “dynamic scoring,” but past studies by the Joint Tax Committee and Congressional Budget Office have been cautious about how much economic growth and tax revenues would follow tax cuts.

If, as it appears, the tax plan would add to the deficit, the development also means, under the Senate rules governing fast-track debate on the budget and taxes, some of the provisions in the upcoming tax measure would have to be temporary.

The House Financial Services Committee has published a report entitled: “Did the CFPB let Wells Fargo ‘beat the rap’?” The report claims the Consumer Financial Protection Bureau could have fined Wells Fargo $10 billion instead of $100 million last year for the unauthorized customer accounts fraud. The regulator settled for so much less to resolve the matter quickly.

The Equifax hack just keeps getting worse. A security failure exposed the personal information of 143 million Americans. Equifax now says about 100,000 Canadian consumers may have had their personal information compromised.

The SEC is investigating the sale of company stock by 3 executives, days after the breach and before it was publicly announced. There are multiple lawsuits in the pipeline. Now, Equifax says it had a security breach earlier this year that involved a different part of the company than the one accessed in the larger hack.

That breach involved TALX, which is Equifax’s human resources and payroll service. The company said there’s no evidence that the TALX breach, which happened between March and April this year, and the wider breach are related.

Hurricane Maria is expected to hit Puerto Rico tomorrow morning with Category 5 winds of up to 160 miles per hour. There is also concern about flooding from heavy rains and storm surge. Puerto Rico is still suffering from Hurricane Irma, which grazed the island, knocking out power and communications. If Maria retains its strength, it would be the most powerful hurricane to hit Puerto Rico in 85 years.

A magnitude 7.1 earthquake rocked central Mexico today, centered just south of Mexico City, killing at least 44 people as buildings collapsed in plumes of dust and thousands fled into the streets in panic. The quake came less than two weeks after another quake left 90 dead in the country’s south, and it occurred as Mexicans commemorated the anniversary of a 1985 quake that killed thousands.

Construction on new houses slipped 0.8% in August to an annual rate of 1.18 million from an upwardly revised 1.19 million in July. Although housing starts fell 7.9% in the South, Hurricane Harvey had very little impact. The storm only made landfall at the end of the month. And Hurricane Irma did not batter Florida until September.

Permits to build new homes jumped 5.7% to a 1.3 million rate, matching the level in January and marking the second highest amount since 2007.

Post Holdings will buy refrigerated foods producer Bob Evans Farms in a deal with an equity value of about $1.5 billion. Under terms of the deal, Post, a consumer goods holding company, will pay $77 for each Bob Evans share outstanding, which is 5.6% above Monday’s closing price.

Shares of Sprint gained more than 6% after a CNBC report reignited speculation that the mobile company is in talks to merge with T-Mobile.  Shares of T-Mobile were up more than 3%, and shares of other mobile carriers also saw a bump.

The Federal Trade Commission signed off on a deal for Walgreens Boots Alliance to buy 2,186 Rite Aid stores for $5.19 billion. That amounts to a much smaller deal than the companies originally sought when Walgreens pushed to buy Rite Aid. The companies abandoned that deal following opposition from regulators.

As expected, Toys R Us filed for Chapter 11 bankruptcy protection. The court allowed Toys R Us to borrow up to $2 billion to start paying suppliers so it can stock up on toys for the holiday season. As part of its restructuring, the company plans to spend around $1 billion over the next 5 years to transform its big box stores by adding event space, increasing staff and wages for in-store product demonstrations and combining its flagship stores with Babies ‘R’ Us stores.

FedEx reported a lower quarterly net profit due to service disruptions following June’s Petya cyber-attack on its Dutch delivery unit TNT Express and the impact of Hurricane Harvey. FedEx shares trade lower in after-hours.

Bed Bath & Beyond reported earnings far below expectations, citing restructuring- and hurricane-related issues. Share closed down almost 12%.

Financial Review

In the Wake of the Storm

Sinclair Noe — August 31, 2017

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

Subscribe: Android | RSS

DOW + 55 = 21,948
SPX + 14 = 2471
NAS + 60 = 6428
RUT + 13 = 1405
10 Y – .02 = 2.12%
OIL – .18 = 47.05
GOLD + 12.70 = 1320.80

Top Cryptocurrencies

	Name	Symbol	Market Cap	Vol.	Total Vol. %	Price USD	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	$77.56B	$1.98B	35.76%	$4,690.37	1	1.74%	7.78%
	Ethereum	ETH	$36.49B	$751.90M	13.55%	$386.67	0.0821199	1.94%	16.85%
	Bitcoin Cash	BCH	$9.76B	$280.18M	5.05%	$589.80	0.12526	2.01%	-7.03%
	Ripple	XRP	$9.51B	$477.69M	8.61%	$0.25	0.00005269	9.33%	13.24%
	Litecoin	LTC	$3.87B	$666.87M	12.02%	$73.46	0.0156005	13.35%	45.50%
	Dash	DASH	$2.85B	$35.08M	0.63%	$378.73	0.0804347	2.40%	20.91%
	NEM	XEM	$2.82B	$17.23M	0.31%	$0.31	0.0000665	-3.00%	18.89%
	IOTA	MIOTA	$2.38B	$15.78M	0.28%	$0.86	0.00018222	-4.15%	-1.26%
	Monero	XMR	$2.08B	$121.15M	2.18%	$138.28	0.0293683	1.66%	50.00%
	NEO	NEO	$1.60B	$46.11M	0.83%	$31.94	0.00678321	-6.08%	-23.46%

For the month, the S&P edged up 0.05 percent while the Dow gained 0.28 percent and Nasdaq rose 1.27 percent.

Even after a late-July Federal Reserve meeting made it clear that policy makers would begin reducing the bank’s $4.5 trillion balance sheet in short order, 10-year Treasury yields have dropped 16 basis points in August, the steepest monthly decline since June 2016.

Here’s the latest on Harvey: In Beaumont, about 70 miles east-northeast of Houston, flooding shut down the system that supplies running water to the entire city, prompting a hospital to evacuate. Most roads in and out of Beaumont are under water.

In Houston, officials ordered mandatory evacuation of areas around the Barker Reservoir, as flooding from that overwhelmed basin, and the nearby Addicks Reservoir, continued to pour into neighborhoods on the city’s western edge. In other parts of the city, floodwaters receded.

A series of small explosions shook the Arkema chemical plant in Crosby, northeast of Houston and more blasts were expected, after floodwaters shut down the cooling systems that kept the chemicals stable. An area of 1.5 miles was evacuated around the plant. More explosions are expected.

Houston is known as the energy capital of the world; all that oil and gas passing through has spawned a second industry of petrochemicals. It should be no surprise that a storm of this magnitude is causing chemical accidents.

There are also reports of damaged tanks at an Exxon Mobil facility and a Phillips 66 facility, with gas leaking out of tanks. In public statement after public statement, companies working with hazardous materials or processes in Houston declare that their engineers have anticipated every eventuality, that the public has nothing to fear. Go away, they say, nothing to see here.

Yet since Hurricane Harvey struck, Houston area companies have filed 32 air emission event reports with the Texas Commission for Environmental Quality. The Coast Guard’s National Response Center has listed chemical or gas leaks in at least 20 locations in Greater Houston.

Two million pounds of dangerous chemicals were released in Houston when they shut down refineries and petrochemical plants between Monday and Wednesday. More has been released since then, and millions more will be released when the plants restart. Harvey has revealed a lot in its wake.

Gasoline futures surged 10 percent today as almost a quarter of U.S. refining capacity remained offline and traders scrambled to reroute millions of barrels of fuel. Gasoline futures have rallied roughly 26 percent from the previous week to a two-year high.

Hurricane Harvey has paralyzed at least 4.4 million barrels per day (bpd) of refining capacity. Analysts at Goldman Sachs and Stifel said they expected infrastructure outages to last several months but said it was difficult to estimate the exact damage.

The shutdowns led the U.S. government to tap its strategic oil reserves for the first time in five years on Thursday, releasing 1-million barrels of crude to a working refinery in Louisiana. Colonial Pipeline announced it would shut down because Harvey forced the closure of refineries.

Colonial is one of the most critical pieces of energy infrastructure in the U.S., able to transport about 2.5 million barrels a day of products such as gasoline and distillate from the Gulf Coast to the East Coast, supplying big demand centers stretching from Atlanta to New York City. Gasoline shortages are expected up and down the East Coast.

In all, 53 Texas counties issued emergency declarations – an area that’s home to around 11.4 million people. It is going to take some time to sort out. Meanwhile, the remnants of Harvey are headed for Tennessee and should be dumping rain on Kentucky and Ohio tomorrow.

Harvey makes landfall in Washington as soon as next week, when President Trump is expected to ask for what could be tens of billions of dollars in storm relief. And paying for storm recovery — probably with few offsetting spending cuts — will be but the first blow to fiscal discipline in what looks to be a particularly active, and calamitous, spending season.

After Harvey comes the debt ceiling, and there are rumblings that the vote to raise the limit could be used to increase spending. (In the past, such votes were used by fiscal hawks to cut spending.) At the same time come negotiations to fund the government for fiscal year 2018, and indications are that lawmakers will try to avoid a shutdown with a short-term spending deal.

Trump and Republicans have given clear signs they are moving away from tax reform (a simplification of the tax code that doesn’t necessarily reduce revenue) toward all-out tax cuts, financed by deficit spending.

Treasury Secretary Steven Mnuchin said today that Hurricane Harvey could bring forward the deadline by which the nation’s debt ceiling needs to be raised and that he is open to the borrowing cap being dealt with as part of a wider bill.

Mnuchin also said the administration has a “very detailed” tax plan ready and “couldn’t be more excited” about its prospects. He said the plan has been presented to members of Congress and will be released to the public by the end of September.

On Wednesday, Trump reiterated his call for a corporate tax rate cut to 15 percent from 35 percent. Senate Majority Leader Mitch McConnell has indicated he plans to use the same “reconciliation” resolution he used on the failed attempt to repeal Obamacare to allow for a party-line vote on a tax cut. That process would balloon the deficit — but they could avoid such concerns by using the well-worn gimmick of having the tax cut expire before 10 years.

The core personal consumption expenditures (PCE) price index increased 1.4 percent in the 12 months through July, its smallest year-on-year increase since December 2015. For the month, core prices rose just less than 0.1%. The PCE is the Fed’s preferred inflation measure.

Core PCE has undershot the Fed’s 2 percent target for the past five years. Chances of a rate hike in December have fallen to about 36 percent, from 43 percent a month ago, according to CME Group’s FedWatch tool. So, the new term to describe this pricing action is soft-flation. When we look at weak wage growth, combined with ongoing sluggish economic growth, we have an old term for that – stagflation.

Labor Department data showed the number of Americans filing for unemployment benefits rose slightly last week. The weekly data precedes the more comprehensive monthly jobs report on Friday. The median projection ahead of Friday’s jobs report is 180,000, that’s been about the average so far, this year. Tomorrow’s report will not include jobs lost from Hurricane Harvey.

A congressional hearing on net neutrality that was slated for September 7 isn’t happening after several major tech companies did not accept invitations for their CEOs to testify. Executives from Amazon, Google, Facebook, Netflix, and Verizon were invited to address the House Energy and Commerce Committee, but—even after the committee extended the deadline to wait for their responses—apparently no one agreed to go.

Many tech companies rallied in support of net neutrality during an internet-wide day of action last month, but executives were less thrilled about appearing before the committee. The Federal Communications Commission has been pushing for a rollback of Obama-era net neutrality protections that prevent internet service providers from selectively throttling data or creating fast lanes and slow lanes on the internet.

But even though the FCC has been flooded with public comments in support of those protections, chairman Ajit Pai has remained steadfast in his stance that the rollback is necessary. Assuming the FCCs proceeds as expected and dismantles existing net neutrality rules, both sides of the debate are expected to lobby congress to establish new net neutrality laws—hence, the purpose of the September 7 hearing, to kickstart a public debate.

But tech CEOs and the broader public clearly think the repeal of net neutrality is a non-starter.

The bogus bank account scandal at Wells Fargo appears to be a lot worse than originally known. Just how much worse? Newly reported figures show that the number of unauthorized accounts created by employees is up from 2.1 million to now close to 3.5 million.

The expanded review also uncovered about 528,000 potentially unauthorized online bill-pay enrollments Repercussions for Wells Fargo since the scandal broke a year ago have been severe — it paid a $185 million fine to the federal government, and fired more than 5,000 employees for improperly creating accounts without customers’ consent.

Bank insiders blamed the scandal on an internal high-pressure sales culture; it underwent Congressional hearings, its CEO quit and it has since been dogged by a dozen investigations and public backlash. But the new revelations brought the bank to new lows. And this is on top of other scandals, such as unauthorized auto insurance policies more than 800,000 customers didn’t need or agree to purchase.

This is not the first scandal for Wells Fargo, it won’t be the last, and they are still dealing with other scandals, such as sexual harassment claims, wrongful termination claims, retaliation against whistle-blowers, excessive charges for various fees – (that has been ongoing for about 10 years).

Today’s report was not totally unexpected, the bank warned a couple of weeks ago that there would be more bad news. At some point, you would think all this criminal activity would result in jail time. After all, the United States incarcerates more people than any other nation on earth, but for some reason the banksters walk.

Financial Review

What a Plan

Sinclair Noe — August 22, 2017

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

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DOW + 196 = 21,899
SPX + 24 = 2452
NAS + 84 = 6297
RUT + 14 = 1371
10 Y + .03 = 2.21%
OIL + .28 = 47.65
GOLD – 6.90 = 1285.40
BITCOIN + 0.17% = 4144.78 USD
ETHEREUM + 0.44% = 324.14

The stock market is overvalued. Price to earnings ratios are too high. Investors are too complacent; the volatility index is still below historic average. The Federal Reserve isn’t just planning to raise interest rates but plotting a reduction of its $4.5 trillion balance sheet, which can add to the effect of monetary-policy tightening, further increasing borrowing costs.

All good reasons why the stock market could collapse. Instead the Dow Industrial Average has the best single day of trading since April. Here is the key point, the thing that really does matter – the trend is up. The trend has been up for 8 years. A trend in place is more likely to continue than it is to reverse.

A trend can keep going for a long, long time. At some point, the trend will indeed reverse but that was not the case today. The market has slogged along the past 2 weeks with a minor pullback – yesterday we called that a pause and sure enough, today the market hit the play button – but we have not seen anything yet to confirm a trend reversal.

Individual stocks may have already reversed but the major bull market trend remains in place.

Markets do not go up in a straight line, they fluctuate. It may seem totally irrational that the market can keep rolling along like this but the market can remain irrational far longer than individual investors can remain solvent. That does not mean that we should disregard the recent pullback.

The recent declines should remind us that the relentless bull market will not last forever. When that fateful day finally comes and stocks begin their painful unwind, will you be ready? Probably not. Just as you develop a plan for what and when to buy, you should also have a plan for when to sell.

Maybe you are in it for the short-term or the long-term. Maybe you can handle 5% risk, or 10% or 20%. Whatever your plan, make sure you have a plan and that you stick to it.

The holy grail of successful investing is not buying momentum stocks in an uptrend; it is not investing in a bull market when stocks pull back. The holy grail is discipline. A good plan, executed with discipline will beat a brilliant plan with no discipline.

Last night, Trump laid out his strategy for Afghanistan. Confronted with a series of bad options, he chose one and explained it to the public in a national address short on details. We don’t know how many more troops will be on the ground. We don’t know what those soldiers will do. We don’t know when it will be over or if it will ever be over.

Best guess is that 4,000 troops will be added to the 8,000 troops in country. Trump singled out Pakistan for harboring Afghan Taliban insurgents and other militants. Trump’s call for India to play a greater role in Afghanistan may constrain Pakistan and lead to the opposite of what he wants.

After 16 years, it is hard to guess what difference that will make. He did not lay out a timeline – which might be a smart move. The one thing Afghan fighters do know is how to wait out occupying forces.

Trump says we will stay until there is peace and victory. Identifying peace is subjective. What will determine whether we are winning or losing? The plan seems to be that the war will continue until something good happens. In Afghanistan that might be a very long time indeed.

Shares of U.S. defense companies rose – Northrop Grumman, Boeing, Lockheed.

The next stop for Trump is Arizona, where he will address a rally (and perhaps protesters) about his border wall, and other issues. Large protests are expected near President Trump’s rally in downtown Phoenix. The rally, scheduled for 7 p.m. local time at the Phoenix Convention Center, is Mr. Trump’s first visit as president to Arizona.

According to the Arizona Republic, more than 3,900 people had indicated on Facebook that they would attend one event, Protest Trump Downtown Phoenix, across the street from the convention center. Another 2,700 said they planned to attend White Supremacy Will Not Be Pardoned, organized by the Puente Human Rights Movement.

Other protests are also scheduled. Gov. Doug Ducey was planning to greet Mr. Trump but not to attend the rally. Trump has discussed a pardon for former Sheriff Joe Arpaio. But some of his advisers are reportedly concerned that such a move would add fuel to the firestorm surrounding the president’s recent comments about race and further divide the country.

Arpaio had committed a crime by refusing to stop detaining suspected undocumented immigrants despite a court order. He faces up to six months in prison and is to be sentenced in the fall. Arpaio said on Monday night that he would not attend the rally.

House Speaker Paul Ryan said Monday night tax reform should be easier to pass than a health-care overhaul.  Politico reports, meanwhile, that Trump’s top aides and congressional leaders have made significant strides in shaping a tax overhaul.

Sources familiar with the talks told Politico that there’s broad consensus on some of the best ways to pay for cutting both the individual and corporate tax rates. Options include capping the mortgage interest deduction for homeowners, scrapping peoples’ ability to deduct state and local taxes, and eliminating businesses’ ability to deduct interest, while also phasing in what’s known as full expensing for small businesses. That allows them to immediately deduct investment like new equipment.

The Senate Health Committee will hold two hearings next month on stabilizing premiums in the individual insurance market, the panel’s chairman and top Democrat said Tuesday. The first, scheduled for Sept. 6, will feature state insurance commissioners, and the second, on Sept. 7, will have testimony from governors.

The hearings come in the wake of the Senate’s failure last month to repeal and replace the Affordable Care Act, or Obamacare. Obamacare plans are sold on the individual market.

Bloomberg gathers up what we know so far about what will be new in the iPhone 8. The new smartphone arrives with lofty expectations. After all, this is the 10th anniversary of the original iPhone. Apple plans to release three new phones: successors to the iPhone 7 and iPhone 7 Plus as well as a new, revamped model that sits at the high-end.

All will have the usual upgrades like faster processors. The display will use a technology called OLED, which makes for better color reproduction and deeper blacks and whites. The screen will also take up nearly the entire front of the phone, save for thinner bezels and a notch at the top of the front to fit in the camera and new sensors. But don’t expect lots of new stuff, rather look for improvements to existing stuff.

Wells Fargo CEO Timothy Sloan said that forthcoming results from the bank’s review of its consumer sales scandal could cause more negative attention. Sloan also said that “within a few weeks” the bank will announce the completion of an expanded review by a third party of the fake consumer accounts workers had opened. They were pressured by aggressive sales goals; a practice Wells Fargo has since ended.

In an Aug. 4 quarterly 10-Q filing required by the SEC for public firms, Wells Fargo said it expanded the review period to 2009 through 2016 and that could reveal a “significant increase” in unauthorized accounts. The bank will also send notices about the process for customers to make claims against the bank and is compiling a list of additional customers who complained an account was opened without their consent, Sloan said in the memo.

Yesterday, Berkshire Hathaway’s $9 billion all-cash deal for power transmission company Oncor was terminated after Sempra Energy emerged as the victor. Warren Buffett’s conglomerate had been battling for Oncor with the hedge fund Elliott Management.

Berkshire has a nearly $100 billion war chest of cash to make deals. S&P affirmed Berkshire’s AA rating and a stable outlook. Berkshire had been on review since July, after bidding $9 billion in cash for the Texas power transmission operation of Energy Future Holdings. Berkshire A shares hit $270,960, and B shares rose to $180.61, both all-time highs. Even when Buffet loses, he wins.

Here is a reminder about the National Park Service’s Lifetime Senior Pass. I mentioned this about a month ago, but the deadline is next Monday. The passes grant lifetime entry for citizens who are older than 62 to more than 2,000 sites and parks across the country. Due to legislation passed in Dec. 2016, these lifetime passes will jump from $10 to $80 on Aug. 28. If you go to just one park, the $10 pass pays for itself. Just a reminder.

The solar eclipse was bigger for Facebook than any of the last four Super Bowls. Facebook says that 66 million people worldwide created 240 million interactions about the eclipse. Last year’s Super Bowl pulled in 64 million to Facebook. Monday’s obsession with the eclipse shows that Facebook doesn’t need a massive TV event to draw Super Bowl-sized crowds.

The social network has long pitched advertisers that it can deliver a “Super Bowl-sized” audience every day, but now we know it can deliver a Super Bowl-sized audience for events that have nothing to do with sports or football or traditional TV.

Millions and millions of people took tens of millions of photos, and like 20 of them are good. (In that sense, it was just like every other day.)