Barbarians at the Gate with Toothpaste

Sinclair Noe — October 10, 2017

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

Cryptocurrency

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

Top Cryptocurrencies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Review

Fired Up

Sinclair Noe — August 26, 2015

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DOW + 619 = 16,285
SPX + 72 = 1940
NAS + 191 = 4697
10 YR YLD + .04 = 2.17%
OIL – .44 = 38.87
GOLD – 15.00 = 1126.40
SILV – .58 = 14.21

Stocks finally snapped a week-long string of severe declines. The gain was the third-highest point gain in history for the Dow Jones Industrials but, on a percentage basis, the 4% gain was not even in the top 20 historically. The Dow opened with a 443-point surge, pulled back and then rallied again to finish near its highs of the day, unlike yesterday when stocks surrendered their entire early gains and turned negative in the final hour of trade.

In China, the Shanghai Composite Index fell 1.3%, despite a new $22 billion injection from Beijing to shore up growth. Chinese equities have now extended their steepest five-day drop since 1996, losing half their value, or $5 trillion, since mid-June. Shares elsewhere in Asia ended mixed; European stocks were deep in the red.

We started with some strong economic data. Durable-goods orders rose a seasonally adjusted 2% last month after a 4.1% gain in June. Bookings for new cars and trucks and military hardware led the way. Orders rose 4% for autos and 22.3% for large defense goods such as fighter jets, missiles and tanks. Orders for aircraft dropped 6%. Durable goods orders minus transportation rose 0.6%. Business investment outside the volatile defense and transportation industries rose for the second straight month. So-called core orders climbed 2.2%, the biggest gain since June 2014.

The Federal Reserve’s summer symposium in Jackson Hole, Wyo., often has provided a stage for central bank officials to signal an imminent policy change. Along with several other FOMC members, Fed Chair Janet Yellen is planning to skip the annual gathering of monetary policymakers in Jackson Hole this year, marking the second time in three years the Fed’s top official won’t be traveling to Wyoming. Yellen’s predecessor, Ben Bernanke, skipped the 2013 gathering.

The topic for the Aug. 27-29 conference will be inflation dynamics and monetary policy. In reality everyone will be looking for a hint about a possible rate hike in September, and even though Yellen isn’t speaking, Vice-Chairman Stanley Fischer will speak on Saturday.  Fischer is considered more hawkish than Yellen, so his statements or his silence will telegraph a message.

The truth is that a small interest rate hike doesn’t really change the economy in a major way for most Americans. It isn’t going to make much difference to mortgage rates, which are tied more to long-term bond yields. Nor will it mean much for rates on credit cards, auto loans and other consumer loans.

William Dudley, president of the Federal Reserve Bank of New York, told reporters that “from my perspective at this moment” raising rates now “seems less compelling to me than it was a few weeks ago.” But he quickly noted that that “could become more compelling by the time of the meeting as we get additional information on how the U.S. economy is performing.”

Dudley said economic reports this week “have actually been pretty positive.  Consumer confidence showed a good increase, new-home sales were solid, the durable-goods orders report was quite strong. But you also have to look at all the other things that potentially could affect the economic outlook.” That includes China and the markets’ volatility; “international developments and financial-market developments do have relevance because they can impinge and affect the economic outlook.”

South Korea is willing to discuss North Korea’s demand for an end to sanctions, and is preparing a new channel of dialogue with the North, just a day after the rivals struck a landmark pact that defused a standoff between their forces. Tuesday’s accord saw North Korea express regret over a landmine incident that wounded South Korean soldiers and the South agree to stop broadcasting anti-North propaganda over border loudspeakers. South Korea’s KOSPI Index closed up 2.6% on the news.

In the latest escalation of Yemen’s five-month war, Houthi rebels said they’ve fired a Scud missile into Saudi Arabia while a Saudi official acknowledged sending forces into northern Yemen in a bid to stop border attacks. A Saudi-led coalition recently stepped up its ground offensive after months of airstrikes against the Houthis.

Schlumberger is acquiring oilfield equipment maker Cameron International in a stock and cash transaction valued at $14.8 billion. Cameron shareholders will receive 0.71 shares of Schlumberger stock and a cash payment of $14.44 for each share held. The deal represents a 56% premium to Cameron’s closing stock price on Tuesday.

Despite Schlumberger’s new announcement, the recent market selloff and plunging oil prices are increasing concerns that some of this year’s largest takeover deals are at risk of falling apart, including Shell’s $70 billion offer for BG Group and Halliburton’s $35 billion bid for Baker Hughes. Over the past week, the gap between the agreed price of several takeovers and the market price of the target companies’ shares has widened, which usually is interpreted as a signal of declining confidence that the transaction will be completed as planned.

Microsoft’s Windows 10 has reached more than 75 million devices in almost a month since the operating system was released. Microsoft has promised shareholders that Windows 10 would reach 1 billion users within three years, which would be its fastest adoption rate ever. If you have installed Windows 10 you may have noticed a nasty tendency for notifications to upgrade Office. It’s an advertisement really, and it’s really annoying. And no, you do not have to upgrade. The culprit is the new Get Office app that comes preinstalled on Windows 10. Simply open the Start menu’s All Apps list, right-click on the Get Office app, and select Uninstall. You’ll be asked to confirm the deletion; do so. Boom. Done.

If all this market volatility has you feeling a bit overwhelmed, you can head over to gaming.youtube.com. That’s the new gaming site on YouTube. Announced in July, the streaming service will rival Amazon-owned Twitch, boasting more than 25,000 games and channels from various publishers and YouTube creators. The gaming site launches sometime today.

Amazon will begin delivering wine, beer and spirits to US customers for the first time through its Prime Now program; this follows a trial program in the Seattle area. The move will continue testing the online alcohol delivery market, which is estimated to increase to $1.4 billion in sales by 2020. Amazon already provides quick alcohol delivery in London and offers wine sales across the US.

Fiat Chrysler Chief Sergio Marchionne presented plans for new products to a gathering of auto dealers. The new lineup will include a plug-in minivan, an updated Dodge Charger and new Jeep SUVs with improved gas mileage.

Toyota is beginning trial production of cars at the China plants that were shut following the recent explosions in Tianjin, the first step in reopening the facilities following a two-week closure. The blasts killed at least 123 people and injured 67 Toyota workers living in the area.

The US Army and Marine Corps have chosen Oshkosh Defense for a $6.7 billion contract to start light production of a replacement for the aging Humvee. Oshkosh was considered the favorite for the pact vs. AM General, the privately held maker of the original Humvee, and Lockheed Martin, which has less experience building military ground transport. The contract covers 17,000 Joint Light Tactical Vehicles.

The City of Phoenix held an election yesterday. Phoenix Mayor Greg Stanton was re-elected along with four incumbent council members; all five ballot measures passed, including Prop 104, also known as the light rail expansion, which will impose a 0.7% sales tax until 2050 to fund 42 new miles of light-rail tracks, more bus routes, and street improvement.

Wildfires continue to ravage the West. California has been suffering through a long-running drought, now the state is on fire; there are 42 active fires in California; the largest scorched over 134,000 acres. Oregon has 19 ongoing wildfires; the largest is more than 105,000 acres and only 10% contained. Washington State has 27 active fires; the largest is over 240,000 acres and only 10% contained. At some points the Columbia River is about one-mile wide, and that has not been enough to serve as a firebreak; embers lifted on 40-mile-per-hour gusts of wind have jumped the river to ignite dried grass on the opposite shore.

Firefighters have been brought in from Canada, Australia, and New Zealand; National Guard troops have received quicky training and are sent out to battle blazes; active duty Army troops have been deployed; and 4,000 prisoners are being used in California; 32,000 firefighters in all – and it still isn’t enough. Three firefighters died fighting in Washington, thousands of residents have been displaced, hundreds of buildings have burned, and more than 7.5 million acres have burned nationwide this season.

Accounting for insurance costs, damages to businesses and infrastructure, this year’s fires will likely cost taxpayers $25 billion—and that’s if a whole town or city doesn’t burn, which is a distinct possibility. Some of the costs are hard to assess. Seattle City Light shut down power generation at 3 dams on the Skagit River because transmission lines were damaged. The utility is losing $100,000 in revenue each day that the lines are down. The smoke from wildfires creates a health hazard, and it is not confined to the immediate area. Hospitals across California are seeing an uptick in admissions for respiratory-related complaints, particularly asthma, which is exacerbated by exposure to smoke.

Beyond the fires, the southwest faces the prospect of El Niño in the next few months. A Niño generally produces heavy rains and higher temperatures. The rains will help ease drought conditions in California but not much; the higher temperatures mean there is a slim chance for snowpack, and snowpack is more important than rain. If this El Niño lives up to its potential, this thing can bring a lot of floods, and in areas burned bare by fire we can look for mudslides and mayhem.

Tuesday, May 06, 2014 - Quickly Aging Here

Financial Review with Sinclair Noe

DOW – 129 = 16,401
SPX – 16 = 1867
NAS – 57 = 4080
10 YR YLD  - .02 = 2.59%
OIL + .38 = 99.86
GOLD – 1.80 = 1308.90
SILV - .04 = 19.65

There was a pretty broad selloff on Wall Street today. AIG posted lousy earnings late yesterday, and today they dragged down most of the financials. Twitter proved a drag on the tech stocks. Twitter reached the 6 month expiration of a lock-up period that had restricted sale of about 82% of its outstanding stock. Share prices dropped about 18% today, but home prices in Silicon Valley are likely to move a bit higher in the next month. After the close, Disney posted better than expected earnings.

Let’s start with economic data; the trade deficit narrowed in March, down 3.6% to $40.4 billion. March exports came in at about $193 billion and imports were around $234 billion, resulting in a $40 billion shortfall. Exports are 17% above the pre-recession peak, while imports are about 1% above the pre-recession peak. Exports of capital goods, industrial supplies and materials, and automobiles increased in March. Exports of services hit a record high, while those of non-petroleum goods were also the highest on record. Exports to Canada, South Korea and Germany all touched all-time highs in March. Imports of food and non-petroleum products hit record highs in March.

Last week we saw the estimate for first quarter gross domestic product showing 0.1% growth; that estimate worked with an assumption that the trade deficit for March would come in at $38.9 billion, not the $40.4 billion reported today. So, this implies that the GDP number could be re-estimated by two-tenths, which would mean a negative -0.1% GDP for the first quarter, or maybe just a bit worse. There will be other data considered in the final GDP number, but it now looks like a negative number. And most economists are calling for a bounce back in the second quarter.

Corelogic reports home prices nationwide, including distressed sales, increased 11.1% in March 2014 compared to March 2013. This change represents 25 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 1.4% in March 2014 compared to February 2014.

Excluding distressed sales, home prices nationally increased 9.5% in March 2014 compared to March 2013 and 0.9% month over month compared to February 2014. So, home price increases are slowing, and this might also prove a drag on GDP, but it doesn’t necessarily mean the housing market is in the dumps. One of the bright points in the report is that there are fewer distressed sales, that means there is also less inventory, and there is less negative equity.

A separate report from Black Knight Financial, a mortgage research firm finds the number of mortgages on which lenders initiated foreclosure in March fell to the lowest level in more than 7 years. Banks initiated foreclosure on 88,000 properties in March, down more than 27% from a year ago, and well below the high of more than 316,000 in March 2009.

Foreclosures should continue to trend down because the share of mortgages that are behind on their payments is also declining. Around 2.1% of all loans were in some stage of foreclosure in March, the lowest level since late 2008, and another 5.5% of all borrowers were 30 days or more past due on their loans but not yet in foreclosure, the lowest since late 2007. Both of those are still well above pre-crisis levels but they are down sharply from a few years ago.

Growth in the services sector accelerated in April, rising at the fastest pace in eight months as new orders jumped and overall activity quickened by the most since early 2008. The ISM said its services sector index rose to 55.2 in April from 53.1 in March, topping expectations for a read of 54.1. The data provides further evidence that economic activity is regaining momentum after lagging through much of the winter.

Today is the anniversary of one of the scariest days in market history. On May 6, 2010, the Dow plunged nearly 1,000 points in a matter of minutes in what became known as the flash crash. The crash wiped out $1 trillion in wealth in the blink of an eye, only to recover, kinda, sorta. High-frequency computerized trading was believed to at least be part of the cause of the technical breakdown. And the regulators have not figured it out to this day, and yes it could happen again.  

Last week, SEC Chair Mary Jo White testified before Congress that the markets were not rigged. Today, the SEC announced they have sent out subpoenas demanding records from brokerage companies to try and figure out how customers’ orders are routed, and how firms are being paid for order flow. The good news is the SEC is investigating; the bad news is that dark pool and high frequency trading has been going on for years and the SEC appears totally clueless.

Institutional Investor released its Rich List, a list of the 25 top income generating hedge fund managers. David Tepper of Appaloosa Management topped the list with $3.5 billion in earnings. Second on the list was Steven Cohen of SAC Capital, who might have fared better if his firm hadn’t been guilty of insider trading. Just for reference, $3.5 billion works out to $400,000 an hour.

I also ran across an article that puts the Fed’s QE into perspective. The Federal Reserve has spent approximately $3.2 trillion in the post-Crisis era, with most of the money being dropped from helicopters hovering over Wall Street banks. The Fed mainly bought Treasuries and mortgage backed securities, but they could have mailed a check for $10,223 to every person in the US; they could have bought back all the US debt owned by China, Japan, and Belgium; they could have created 12.8 million jobs in 2009, each paying $50k a year, and still be making payroll for them today – which actually would have met their mandate. And that’s just based upon large scale asset purchases under QE; by some estimates the Fed has dished out my than $17 trillion to prop up the financial order. A trillion here, a trillion there, pretty soon it adds up to real money.

The Census Bureau released a report on the demographic makeup of the US; the population is aging rapidly; about 1 in 5 Americans (21%) will be 65 years old and up by 2050, compared with just 13% in 2010 and less than 10% in 1970. It sounds like a lot of old people, but it seems less so when compared with other countries. In 2050, around 40% of Japan’s population will be 65-plus, up from 24% in 2012. In Germany, Italy, Spain, and Poland over 30% will be 65 plus. China will have about 26% of its population over the age of 65, which amounts to more old people in China than the entire population of the US.

The concern with an aging population is that there will be a much slower economy: less spending, less saving, lower economic output, and slower growth; fewer working age people paying taxes, less money going into social programs like Social  Security and Medicare, and more money coming out of those programs. But the Census report also finds that the working age population will increase, mainly due to immigration.

The White House today released the 2014 National Climate Assessment, written by 300 climate experts and reviewed by the National Academy of Sciences. The full report, at more than 800 pages, is the most comprehensive look at the effects of climate change in the US to date. Don’t worry, they also provided a Cliff Notes version that weighs in at a mere 137 pages, thereby killing fewer trees. The short and sweet is that we’re all going to fry; it’s too late, climate change is here and now, and it will just get worse and worse.

Average temperatures in the US have increased 1.3 degrees to 1.9 degrees Fahrenheit (depending on the part of the country) since people began keeping records in 1895, and about 80% of that warming has come in the past 20 years. The period from 2001 to 2012 was warmer than any previous decade on record, across all regions of the country. And it will keep getting hotter. If we really get very serious about cutting emissions, temperatures will rise by 3 to 5 degrees, depending on location, over the next 80 years; if we keep going the way we’re going, temperatures will rise 5 to 10 degrees, and maybe by 15 degrees in some places. That means 115 degree days in the desert southwest could be 125 to 130 degrees.

In addition to extreme heat, you can add wildfires, and drought, and hurricanes, and extreme downpours – real gulley washers, plus rising sea levels. The report says that in much of the US, especially the Midwest and Northeast, more rain is falling in short-duration, heavy bursts, leading to more flooding. The Northeast and Midwest may continue to get wetter, while the Southwest becomes even more parched, raising water supply and energy concerns there.

The report warns the Southwest to prepare for major disruptions ahead due to climate change: "Increased heat and changes to rain and snowpack will send ripple effects throughout the region’s critical agriculture sector, affecting the lives and economies of 56 million people –- a population that is expected to increase 68% by 2050, to 94 million. Severe and sustained drought will stress water sources, already over-utilized in many areas, forcing increasing competition among farmers, energy producers, urban dwellers, and plant and animal life for the region’s most precious resource."

The report says the Southwest will be plagued by drought, which is not really uncommon, but the droughts will be hotter and drier and longer and will lead to a big increase in wildfire activity, which has already started to take place.

The report notes that American society and its infrastructure were built for the past climate, not the future. It highlights examples of the kinds of changes that state and local governments can make to become more resilient. One of the main takeaways is that you don't want to look at the weather records of yesteryear to determine how to set up your infrastructure.