Financial Review

9 Months

Sinclair Noe — October 20, 2017

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DOW + 165 = 23,328 (Record)
SPX + 13 = 2575 (Record)
NAS + 23 = 6629 (Record)
RUT + 6 = 1508
10 Y + .06 = 2.38%
OIL + .37 = 51.66
GOLD – 9.70 = 1281.00

Cryptocurrency

• Number of Currencies: 875
• Total Market Cap: $173,502,181,290
• 24H Volume: $4,521,356,959

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	6,080.0	$101.40B	$2.66B	58.98%	1	+1.60%	+7.51%
	Ethereum	ETH	297.71	$28.44B	$431.85M	9.57%	0.0491008	-1.62%	-13.01%
	Ripple	XRP	0.20260	$7.90B	$139.84M	3.10%	0.00003372	-2.97%	-21.81%
	Bitcoin Cash	BCH	321.00	$5.40B	$158.45M	3.51%	0.0531441	-1.23%	+0.71%
	Litecoin	LTC	58.220	$3.12B	$170.80M	3.78%	0.00959001	-3.16%	-2.81%
	Dash	DASH	285.50	$2.20B	$44.77M	0.99%	0.0474201	-1.53%	-7.67%
	NEM	XEM	0.20684	$1.88B	$4.82M	0.11%	0.0000343	-5.49%	-0.13%
	BitConnect	BCC	216.039	$1.56B	$13.66M	0.30%	0.035516	+8.32%	+9.32%
	NEO	NEO	27.860	$1.38B	$34.87M	0.77%	0.00454346	+0.14%	-4.24%
	Monero	XMR	87.50	$1.33B	$33.12M	0.73%	0.0142987	-3.12%	-8.33%

Record highs for the Dow, S&P and Nasdaq – marking the 24^th time this year that all 3 major indexes hit records on the same day. The Dow has posted 53 record highs this year, while the S&P has notched 49, although the number of highs is almost irrelevant. More important is the strength and duration of the trend.

The S&P has been extremely steady – notching 241 days without a decline of 3% or more. If the S&P can continue this calm trading, it would break a record going back to 1995. the S&P 500 is on pace for its ninth consecutive year in the green, which would match a similar streak from 1991 to 1999.

For the week, the Dow gained 2%. The S&P 500 was up 0.9 percent for the week while the Nasdaq added 0.4 percent. The Dow and S&P have now posted gains for 6 consecutive weeks. The Nasdaq is up for 4 weeks.

What about valuation? At Friday’s close, the S&P 500 traded at 19.5 times forecast earnings, the highest since the dot-com era. It represents an earnings yield of 5.1 percent, more than double the payout from 10-year Treasury bonds.

While third-quarter profit growth is forecast to drop to 2.6 percent for S&P 500 companies from around 10 percent in the first half, we need to remember the impact from hurricanes on third quarter results, and expect a rebound in coming quarters. While earnings have been good, enthusiasm today was focused on tax cuts.

In a Thursday evening vote, the Senate voted to approve a spending blueprint that will allow Republicans to pass a $1.5 trillion tax cut without Democratic votes and without concern of a possible Democratic filibuster. The vote went along party lines, except for Senator Rand Paul, who voted no.

The Senate budget authorizes lawmakers to blow a gaping hole in the deficit, roughly twice the size of the 2009 stimulus package that 38 then-Senate Republicans opposed, despite earlier pledges to offset its cost. The House version prescribed a deficit-neutral approach, but House Republicans now are likely to accept the Senate plan in the interest of accelerating work on a tax overhaul. So, all the deficit hawks who wailed and moaned about the country going into debt have now come down with amnesia.

The biggest thing — which senators from both parties emphasized this week — is the passage of “reconciliation instructions” that tell the Senate Finance Committee that a tax bill cannot be filibustered if it adds $1.5 trillion or less to the deficit. Over the next 10 years, the budget calls for $473 billion in cuts from Medicare and $1 trillion from Medicaid.

Filibusters require 60 votes to break, which means Democrats could derail the tax bill even though they are in the minority. A bill brought up under reconciliation requires only 51 votes to pass, and Republicans hold 52 seats (plus, they have Vice President Pence to break a 50-50 tie).

The budget also includes reconciliation language that the energy committee could use to ease restrictions on oil drilling in the Arctic, so a bill that is brought up to do that also may not be filibustered. And that is what last night’s vote was about – setting a process for avoiding a filibuster. It doesn’t create a budget, even though the 2018 fiscal year has already begun. It doesn’t lay out details of what might be in the budget. In other words, the budget is not really about the budget.

In fact, as senators debated the budget resolution this week, they have focused on the merits of the coming tax bill, not spending levels and programs to fund and defund. In that sense, it has been a legislative debate about legislation that does not yet exist.

Republicans have released a framework for their tax plans, but don’t waste your time reading it because whatever happens in the coming weeks will not have anything to do with that initial framework.

Members of the House Ways and Means Committee are huddling next week to debate final, unresolved questions in their bill. Discussions continue among members of the Senate Finance Committee as well. Once a bill drops – in about a week or two, maybe – House Ways and Means members will meet for what is called a markup, where representatives offer amendments. This will be about the only chance for Democrats to have any input.

The bill will eventually work its way to the Congressional Budget Office, and the CBO will make sure not increase deficits by more than the amount allowed in the budget resolution. And the only way that happens is if they use dynamic scoring, meaning farfetched projections for economic growth to offset the cuts – economic growth that most economist say is nearly impossible.

Today marks 9 months of the Trump administration, so it’s a good time to look at how the markets and the economy have been performing. Thanks to Rex Nutting at MarketWatch for putting together the research over the past 25 years. The stock market, as you know, is doing quite well in comparison with past periods.

Since Jan. 20, the S&P 500 is up 12.8%. It’s been better than that over a nine-month period about a third of the time since 1992. The best nine-month period was between April and December 2009, when the S&P soared 46.7%. The worst period was in the nine months just before that, from July 2008 to March 2009, when it fell 43.6%.

The market was better than it is now about 46% of the time while Bill Clinton was president, 34% under Barack Obama, and 14% under George W. Bush. So, the market is good but hardly unprecedented.

The job market has also been strong, averaging 140,000 net jobs a month since January, which works out to 0.8% growth. Job growth has been better over an eight-month period about two-thirds of the time since 1992. It was better 97% of the time under Clinton, 73% of the time under Obama, and 37% of the time under George W. Bush.

The economy grew at a 2.1% annual rate in the first half of the year and is expected to maintain that trend (perhaps a tick higher) for the foreseeable future. It’s grown faster than that about two-thirds of the time since 1992, but most of those faster periods were in the 1990s.

The best two-quarter period was at the end of 1999, when it grew at a 6.1% pace. The worst two-quarter growth was the 6.8% decline at the end of 2008 and the beginning of 2009. Growth was faster than the recent 2.1% growth half of the time under both Obama and Bush 43. Growth was faster 91% of the time when Clinton was president. The conclusion: the markets, jobs, and economic growth are good, but not the greatest.

The National Association of Realtors reports sales of existing or previously owned homes rose 0.7% in September to an annual rate of 5.39 million, breaking a three-month losing streak. The number of homes available for sale climbed 1.9% in September, but total housing inventory was still down 6.4% compared to a year ago at 1.9 million. The median price of an existing home increased 4.2% to $245,100.

Arizona’s seasonally adjusted unemployment rate decreased from 5.0% in August to 4.7% in September. That compares to a 4.2% unemployment rate at the national level. Arizona gained 36,400 Nonfarm jobs (1.3%) in September, a little better than average. Government added 26,100 jobs while the Private Sector gained 10,300 jobs. Arizona Nonfarm employment grew by 1.3% (35,900 jobs) over the year in September.

According to a new report from the British medical journal Lancet, pollution in all its forms killed 9 million people in 2015 and, by one measure, led to economic damage of $4.6 trillion. Diseases caused by pollution account for about one in six deaths worldwide.

As Halley’s Comet continues its eternal processional through the solar system, it occasionally gives those of us who are Earthbound a pretty good show—and one of them, the Orionid Shower, is taking place this weekend. So, if you are looking for shooting stars, you could see up to 20 per hour tonight and tomorrow night. All you need is a clear sky, and a spot as far away from light pollution as possible, and a little patience – enjoy.

Financial Review

Back-to-Back Hat Trick

Sinclair Noe — September 13, 2017

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

Subscribe: Android | RSS

DOW + 39 = 22,158
SPX + 1 = 2498
NAS + 5 = 6460
RUT + 2 = 1426
10 Y + .02 = 2.19%
OIL + 1.16 = 49.39
GOLD – 8.90 = 1323.50

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	3,902.2	$64.61B	$2.21B	41.76%	1	+1.36%	-14.17%
	Ethereum	ETH	279.47	$26.37B	$909.52M	17.21%	0.0714781	+1.45%	-14.93%
	Bitcoin Cash	BCH	514.71	$8.39B	$339.79M	6.43%	0.129744	+1.73%	-19.26%
	Ripple	XRP	0.19988	$7.71B	$101.57M	1.92%	0.0000515	+0.95%	-9.81%
	Litecoin	LTC	62.510	$3.28B	$494.06M	9.35%	0.01587	+1.13%	-20.89%
	Dash	DASH	301.50	$2.28B	$27.52M	0.52%	0.0773939	+1.25%	-11.71%
	NEM	XEM	0.23201	$2.10B	$9.07M	0.17%	0.00005972	+0.52%	-21.64%
	Monero	XMR	115.00	$1.73B	$102.05M	1.93%	0.0294635	+4.65%	-3.81%
	IOTA	MIOTA	0.55283	$1.53B	$31.14M	0.59%	0.00014149	-2.31%	-22.97%
	Ethereum Classic	ETC	14.3866	$1.35B	$100.72M	1.91%	0.00363666	+2.64%	-22.47%

Stocks closed near session highs. Most of the day the S&P and Nasdaq traded in negative territory, while the Dow Industrials flipped from positive to negative in a tight range. And the S&P 500 is now pushing 2500. That seems pretty high; some might say overvalued.

Although the dollar index is up for the past 3 days, since the start of the year, the Dollar Index is down about 11%, so from an international investors view, investing in the S&P 500 has been a losing proposition.

In real numbers, stocks are rising, which is what matters most. Going back to the lows of 2009, the S&P 500 is now up 269%, surpassing the 266% advance notched during the 1949 to 1956 bull market, and that means the current bull market is the third strongest in US history.

At 8 1/2 years, the bull market is already the second longest ever, trailing only the 1990-2000 run during the dot-com era. If you look at annualized returns, the market has been running at a less-than red hot 17%.

Trump kicked off his morning with a pair of tweets urging lawmakers to pass tax cuts and reform. Trump hosted a bipartisan round table with lawmakers at the White House to discuss big issues including tax reform and infrastructure.

It’s mid-September and Republicans still can’t pass a budget. That’s because the budget fight is really about tax reform: a clash between Republican leadership and a caucus of arch-conservatives who see this moment — months before any major tax bill is likely to come before the full House — as their best chance to force deep cuts to both tax rates and social welfare spending.

The only way to get any deal passed is through reconciliation. In budget reconciliation, each committee is instructed on how much savings it must produce to pass a “reconciliation bill.” So, how do you solve a problem like cutting taxes without blowing up the deficit? In any scenario, Republicans are relying on projections of increased economic growth from tax cuts to offset the revenue losses from those cuts.

But under most projections, growth alone won’t be enough to offset the full losses from the deepest tax cuts, and that leaves spending cuts. But Republican leadership has promised an increase in defense spending, so that means big spending cuts elsewhere. Democrats and Republicans are unlikely to work together, and the Republican Party is polarized between its own moderates and conservatives.

No budget resolution means no tax reform. Do you know the tax reform plan? No, and you are not alone. The tax reform plan has not seen the light of day. House Speaker Paul Ryan said a tax-reform “outline” will be released the week of Sept. 25 that reflects the consensus of the two congressional tax committees and the Trump administration. Ryan said the House Ways and Means Committee and the Senate Finance Committee would take input after the outline is released and produce bills “in the weeks ahead.”

Congress won’t vote again this year to raise the debt ceiling, Senate Majority Leader Mitch McConnell says. He said the deal passed by Congress to extend the borrowing limit to December 8 doesn’t eliminate the so-called “extraordinary measures” the Treasury secretary can use to keep borrowing.

Meanwhile, the Treasury Department reported this morning that the federal government ran a budget deficit of $108 billion in August, just slightly more than in the same month a year ago. For the fiscal year to date, however, the shortfall is running well ahead of where it was in August of last year. Through this August, the deficit is $674 billion, up 9% from the year-ago period. So far, this fiscal year, spending is up 3% compared to a year ago, and receipts are up 2%.

A handful of Republican senators will fight to repeal Obamacare until the last possible moment. They have less than three weeks. Sens. Bill Cassidy and Lindsey Graham have unveiled the latest version of their health care bill to repeal and replace Obamacare; they have until the end of September to pass the bill using the special budget procedure that allows the legislation to advance without any Democratic votes.

The bottom line is cuts to federal health care spending, in the name of more state flexibility. On its face, this new legislation would encounter many of the same problems that earlier Republican health care bills did: Medicaid cuts and coverage losses. Meanwhile, bipartisan talks have gotten underway for a narrow bill to help stabilize, not roll back, the health care law.

Senator Bernie Sanders unveiled the 2017 version of his “Medicare-for-all” legislation, shifting talk of single payer on Capitol Hill from an abstract conversation over whether the government should provide universal health coverage to a concrete discussion of a specific bill.

Everything from primary care to hospital stays would be covered under the plan without a requirement for out-of-pocket spending on deductibles and co-payments. And patients could still use private insurance programs to cover services deemed not medically necessary by doctors, like cosmetic surgery.

With Republicans in control of Congress, single payer won’t pass, but the idea of single-payer universal health care is gaining popular approval, a recent poll from the Kaiser Family Foundation finds 53% of Americans support the idea.

Inflation at the wholesale level rebounded toward the end of summer, but most of the increase reflected higher gasoline prices. The producer price index, or PPI, rose 0.2% last month. A nearly 10% jump in the cost of gas accounted for most of the increase in wholesale inflation last month. Wholesale food costs, on the other hand, posted the biggest decline in more than two years.

The latest snapshot on wholesale prices, however, indicated that inflation is still muted. Aside from fuel, prices of most other goods and services were little changed. The price of fuel could remain elevated for a while after all the damage caused to refining operations in the Houston area after Hurricane Harvey.

What’s more, Hurricane Irma caused widespread fuel shortages in Florida that could keep pressure on fuel costs nationwide as supplies are rushed to the state. The increase in prices in August pushed the 12-month rate of wholesale inflation to 2.4% from 1.9%, just a tick below a five-year high. The yearly change in the so-called core rate of inflation, however, was unchanged at 1.9%.

Gasoline prices nationwide have surged to $2.65 a gallon from $2.34 in mid-August as flooding from Harvey disrupted fuel supplies, according to American Automobile Association data. The rise in gasoline prices is one reason why bond markets are starting to price in faster inflation.

Hurricane Irma just went from bad to worse. Eight people are dead and more than 100 have been evacuated to hospitals from a nursing home that had no air conditioning. The nursing home, the Rehabilitation Center at Hollywood Hills, had electricity but the transformer that powered the air conditioning failed. The police and state authorities were conducting a criminal investigation into the deaths. Florida Power and Light was alerted to the power outage on Tuesday but they did not send help.

An apology from Equifax CEO in USA Today about the company’s massive cybersecurity breach wasn’t enough. Shares dropped 15% today. Equifax’s stock is now down 30% since the company first revealed the data breach, which exposed sensitive personal information of 143 million Americans, last Friday.

Equifax CEO Richard Smith wrote in an op-ed piece in USA Today  that Equifax is “devoting extraordinary resources to make sure this kind of incident doesn’t happen again.” But Smith did not address the fact that three Equifax executives, including its chief financial officer, sold nearly $2 million in shares in August — just after Equifax learned of the security breach but weeks before it decided to tell consumers and investors.