Financial Review

Summer’s End

Sinclair Noe — September 21, 2017

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DOW – 53 = 22,359
SPX – 7 = 2500
NAS – 33 = 6422
RUT – 1 = 1444
10 Y un = 2.28%
OIL + .02 = 50.71
GOLD – 9.90 = 1291.60

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	3,616.0	$60.59B	$1.37B	39.51%	1	+0.35%	12.19%
	Ethereum	ETH	260.11	$24.78B	$613.25M	17.66%	0.0719044	+1.30%	15.66%
	Bitcoin Cash	BCH	420.59	$7.04B	$327.18M	9.42%	0.116637	+1.15%	7.41%
	Ripple	XRP	0.17210	$6.62B	$45.61M	1.31%	0.00004747	+0.64%	-0.56%
	Dash	DASH	344.00	$2.64B	$170.99M	4.92%	0.0960248	+4.56%	39.76%
	Litecoin	LTC	47.100	$2.51B	$230.10M	6.63%	0.0129956	+0.88%	6.33%
	NEM	XEM	0.21598	$1.91B	$3.40M	0.10%	0.00005837	+3.27%	13.40%
	IOTA	MIOTA	0.49721	$1.39B	$17.05M	0.49%	0.00013703	-0.26%	9.29%
	Monero	XMR	87.00	$1.32B	$34.20M	0.99%	0.0240579	+1.49%	-2.39%
	Ethereum Classic	ETC	10.2330	$979.34M	$40.10M	1.15%	0.00281232	+1.44%	2.09%

We knew the record highs on Wall Street wouldn’t last and today, finally, we saw a dip. Not enough to change the trend, not yet anyway. It’s been a good run. The net worth of households climbed by $1.7 trillion in the second quarter.

The Federal Reserve said that the net worth of households and nonprofits rose by 1.7%, to $96.2 trillion, as the value of equities rose by $1.1 trillion and the value of real estate rose by about $600 billion. Those gains aren’t distributed evenly. American households’ total wealth is about $96 trillion. That’s more than three-quarters of a million dollars for every American household. But roughly 50% of households have zero or negative wealth.

So, the headline numbers don’t tell the full story. An earlier report from the Federal Reserve said that less than half of all families hold stocks. Meanwhile, household debt grew at a 3.7% rate, again driven by student and auto loans. Mortgage debt excluding charge-offs rose 2.8%. State and local government debt meanwhile contracted by 1%, the second contraction in a row.

Businesses continue to pile on debt, as non-financial borrowing grew at a 5.3% rate – and despite more borrowing, corporate America is flush with cash. Non-financial companies’ liquid assets, which include foreign deposits, currency as well as money-market and mutual fund shares, reached a record of almost $2.3 trillion in the second quarter. That’s up nearly 60 percent since the recession ended in mid-2009.

Initial claims for state unemployment benefits declined 23,000 to a seasonally adjusted 259,000 for the week ended Sept. 16. Any data on the labor market is likely to be sketchy due to Hurricanes Harvey and Irma.

Yesterday, Hurricane Maria hit Puerto Rico. Today, we are getting an idea of the damage. Maria was a devastating storm; 3.4 million people are without electrical power. The hurricane dumped up to 3 feet of rain on parts of the island; flooding is a big problem; roads and bridges are washed out; buildings are splintered. Complicating matters, more than 95 percent of the island’s wireless cell sites were out of service.

The death toll has risen to at least 15 on the small Caribbean island of Dominica. Two people were also killed on the French Caribbean island of Guadeloupe. And there is one reported fatality in Puerto Rico.

This month’s storms came roughly four months after the island filed for bankruptcy protection  – no longer able to pay its $123 billion in pension obligations and bond debt. That roughly comes out to $34,000 owed for each of the island’s 3.4 million citizens. The island’s economy isn’t likely to generate the tax revenue needed to pay these massive bills.

If Puerto Rico is without power for months after Hurricane Maria, as authorities now warn, many investors in the $9 billion of Puerto Rico’s outstanding electric utility bonds risk never seeing their money. Prepa, Puerto Rico’s main supplier of electricity, filed for bankruptcy in July after Promesa, the congressionally appointed federal oversight board addressing Puerto Rico’s overall debt woes, rejected a $9 billion restructuring deal between Prepa and an ad hoc group of bondholders and insurance companies.

Prepa’s bonds, $9 billion worth, are revenue bonds whose funding stream is based on collecting customer fees. Even before Hurricane Maria knocked power out for good, bondholders were worried that Prepa would deliberately force some plants offline, jeopardizing the collateral, creating justification for a privatization plan that could leave current bondholders high and dry. Proponents argue that a brand new electric authority, free of debt, would be a huge boon to the Puerto Rican economy.

The Securities and Exchange Commission, the regulator of Wall Street was hacked last year. The SEC says EDGAR, its corporate filing system, was hacked in 2016 and information was potentially used for illegal stock trades.

EDGAR is where Corporate America goes to file statements on their businesses. It’s where the important stuff is stored: quarterly earnings reports, market-moving news, IPOs, mergers and acquisitions, it all goes into the EDGAR system, and is often filed before the news is made public.

Suppose a company was going to announce that their fourth quarter earnings were going to be well below expectations due to some outside event. They must notify the SEC of this, and they would do it through a filing in the EDGAR system. Think about this: if a company was going to issue a warning on Friday morning that may affect its stock price, would it be helpful if someone had the news the day before?

We don’t know what data was retrieved, only that there was “access to nonpublic information.” We don’t know who did it. We don’t even know the date of the hack. The SEC said it occurred in 2016, but they only discovered it last month. The SEC did say that they had “promptly” fixed the source of the breach. Here’s a simple rule about these breaches: it’s always worse than initially reported.

There’s a big reason for Wall Street to worry about hackers at the SEC: they are about to begin implementing a system that will track every trade made, and if hackers get into it would reveal a treasure-trove of secret trading information. It’s called the Consolidated Audit Trail (CAT), and it’s been under discussion for seven years.

After the Flash Crash in May 2010, the SEC realized they could not reconstruct trading activity to get at the real cause of the crash, or even who might have caused it. They did not have all the data they needed. The answer was to develop the CAT, a giant data base that would include all trades a company made.

The first implementation stage for the CAT is set to begin in November. The SEC hack throws a monkey wrench in the gears. It also serves to remind that all that information we provide to the inter-webs is treated in a very cavalier manner – whether it’s personal information gathered by Equifax, or information on our portfolios, or information about how Wall Street trades – and the very security of all those trades are very much in question. The SEC revealed that its database is decades old.  With trillions of dollars at stake, it might be a good idea for somebody to get serious about security.

Standard & Poor’s downgraded its rating on China, saying the country’s strong economic growth has been fueled by heavy borrowing — and that it expects that borrowing to continue. That could hurt China’s ability to handle potential financial shocks, like a crisis among its banks, and could lead to longer-term growth problems.

State-controlled banks have been funneling big loans to wasteful, chronically unprofitable state-run companies. Indebted local governments have been borrowing heavily as well. Even China’s national government, cautious in its previous borrowing, has been running budget deficits lately, and the country’s famously frugal households have begun using more credit.

Trump announced new U.S. financial sanctions that target North Korea and foreign companies or individuals that do business with North Korea. And today, according to Reuters, the People’s Bank of China, the country’s central bank, told banks to “strictly implement United Nations sanctions against North Korea.”

Chinese banks were “told to stop providing financial services to new North Korean customers and to wind down loans with existing customers.” China is North Korea’s chief ally and economic lifeline. Some 90 percent of North Korean economic activity involves China, and Chinese entities are the main avenue for North Korea’s very limited financial transactions in the global economy.

China is also suspected of turning a blind eye to some of the smuggling and sanctions-busting operations that have allowed Pyongyang to rapidly develop sophisticated long-range missiles despite international prohibitions on parts and technology.

Senate Majority Leader Mitch McConnell’s office said that the leader would bring the Graham-Cassidy healthcare bill to the floor for a vote next week, although nobody seems certain the bill would pass. Still, there is pressure and a deadline, because Republicans are attempting to use budget reconciliation to pass the bill, a process that would allow them to avoid a Democratic filibuster and pass the bill with only a simple majority.

But the rules that allow Republicans to use reconciliation will expire at the end of September, per a ruling from the Senate parliamentarian. That deadline means the bill will not receive a full score ahead of its introduction from the nonpartisan Congressional Budget Office. The score measures the effects on insurance coverage and costs for Americans. The CBO has said, though, that it will release a truncated score that examines the effect on the federal budget.

Republicans hold 52 seats in the Senate; that means if 3 GOP senators vote “no”, the repeal bill fails. So far, there is not much public support for the Graham-Cassidy health bill. The groups opposing the measure include: America’s Health Insurance Plans, the group that represents health insurers; the American Hospital Association, which represents thousands of hospitals and health systems; the American Academy of Pediatrics, which represents 66,000 pediatricians; the American College of Physicians, which represents 148,000 internal medicine physicians and medical students; plus ALS Association, American Cancer Society Cancer Action Network, American Diabetes Association, American Heart Association, American Lung Association, Arthritis Foundation, Cystic Fibrosis Foundation, Family Voices, JDRF, Lutheran Services in America, March of Dimes, National Health Council, National Multiple Sclerosis Society, National Organization for Rare Diseases, Volunteers of America, WomenHeart, and AARP.

The UK has gone from the fastest growing economy in the G7 – at 3.7% growth rate in 2014, to the slowest – projected at 1% in 2018.

Each year, an estimated 12.6 million people die from pollution, according to the UN’s World Health Organization. That’s the equivalent of more than three jumbo jets crashing every hour for an entire year.