Financial Review

Falling Leaves

Sinclair Noe — September 25, 2017

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

Top Cryptocurrencies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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