Financial Review

Ain’t That a Shame

Sinclair Noe — October 25, 2017

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DOW – 112 = 23,329
SPX – 11 = 2557
NAS – 34 = 6563
RUT – 6 = 1493
10 Y + .04 = 2.44%
OIL – .30 = 52.17
GOLD + .90 = 1278.20

Cryptocurrency

• Number of Currencies: 877
• Total Market Cap: $169,285,401,598
• 24H Volume: $3,480,700,406

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,724.2	$95.79B	$1.96B	56.46%	1	+3.89%	+3.75%
	Ethereum	ETH	295.25	$28.50B	$324.79M	9.35%	0.0521385	-0.35%	-3.81%
	Ripple	XRP	0.20140	$7.89B	$75.54M	2.17%	0.00003573	-0.90%	-4.77%
	Bitcoin Cash	BCH	328.42	$5.56B	$151.70M	4.37%	0.0579792	+1.87%	-0.16%
	Litecoin	LTC	56.330	$3.03B	$114.68M	3.30%	0.00985888	+1.29%	-5.54%
	Dash	DASH	287.59	$2.21B	$43.80M	1.26%	0.0504281	-0.88%	-2.25%
	NEM	XEM	0.20435	$1.86B	$4.19M	0.12%	0.00003598	+0.22%	-5.94%
	BitConnect	BCC	206.31	$1.51B	$16.86M	0.49%	0.0359821	+6.59%	+6.15%
	NEO	NEO	28.650	$1.43B	$35.32M	1.02%	0.00498411	-4.06%	-2.93%
	Monero	XMR	87.90	$1.34B	$59.61M	1.72%	0.0153379	-0.63%	-1.22%

The Dow and S&P 500 suffering their worst day in seven weeks. Even though overall earnings results have been beating estimates, we had a string of disappointments today.

Burrito chain Chipotle and chip maker AMD (that’s computer chips – not chips and salsa) were the S&P 500’s two biggest losers. Chipotle posted weaker-than-expected earnings late Tuesday, sinking 15%, while AMD’s results beat expectations, but investors seemed more concerned about the company’s outlook, which may not have been as strong as hoped. AMD shares dropped 13%.

Well, that’s how it goes during earnings reporting season. Yesterday investors cheered the early results from third-quarter corporate earnings, equity investors had a change of heart. Third quarter earnings are not expected to shine; with consensus forecasts of profit growth coming in at less than half the 10 percent or so seen in the first two quarters of 2017.

As we move through earnings – pay attention to guidance. The actual earnings have already happened. The market tries to look to the future.

Amgen reported higher-than-expected third quarter profit as lower research and other costs and improved operating margins helped offset sales declines in some of its biggest established products. The world’s largest biotechnology company also raised its full-year adjusted earnings forecast.

Nike posted its weakest quarterly sales growth in nearly seven years in September. Nike said it expects earnings per share to grow in the mid-teens over the next five years, driven by online sales and new product categories, sending its shares up by about three percent. The stock was the top gainer on the Dow today.

Coca-Cola topped profit and revenue estimates for the third quarter on a 3 percent rise in North American sales, gaining market share over arch rival Pepsi. Over the course of several years, both companies have shifted their strategy, focusing on selling low-calorie versions of their colas and buying healthier beverage brands, as consumers move away from sugary sodas.

But Coke seems to be winning the so-called cola-wars by adopting a more aggressive approach to selling juices, teas and vitamin water and taking the lead on franchising its bottling operations to cut costs.

Boeing racked up a further $329 million charge for its troubled KC-46 aerial refueling tanker program. Boeing raised its full-year earnings and cash flow forecasts as it beat third-quarter earnings estimates and reported higher margins in its main commercial airlines segment and overall business.

But the new charge on the air tanker, which some analysts had speculated could return to haunt Boeing despite assurances to the contrary in April, meant the program has now lopped a total of about $1.9 billion off the company’s net income after tax. Boeing share dropped about 4%.

Durable-goods orders rose 2.2% in September. Excluding transportation orders increased 0.7%. Business investment advanced 1.3% for the third month in a row, based on a closely followed measure known as core capital-goods orders. These orders have climbed 7.8% in the past year, the fastest pace since early 2012. The rise in orders last month was concentrated in commercial aircraft, military hardware and electronics.

New-home sales ran at a 667,000 annual pace in September, an 18.9% increase compared with August, and a 17% increase compared with a year ago. This is one of those economic reports that tends to include month-to-month static. For the year to date, sales are 8.6% higher compared to the same period last year.

In September, the median sale price was $319,700, compared to $314,700 a year ago. At the current sales pace, it would take 5 months to exhaust all available supply. More homes are crucial for a market starved for inventory.

Tomorrow, the European Central Bank unveils its plan to scale back purchases of bonds under its quantitative easing program. The consensus is that monthly bond purchases will be cut in half to 30 billion euros ($35 billion) for most of next year. So, any amount that differs from that number is likely to roil markets. Investors will also be listening for President Mario Draghi’s comments on the future path of interest rates.

Nobody expects the ECB’s Governing Council to announce a rate hike tomorrow, suggesting that the central bank is likely to reiterate that rates will “remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.” The longer the QE horizon the stronger the guidance will be, but a rate hike is unlikely before mid-2019 regardless of whether QE is extended for six or nine months.

Legislation to fund cost-sharing reduction payments – or CSRs – to health insurers would save the U.S. government $3.8 billion over a decade – that, according to a new analysis from the Congressional Budget Office. Trump signed an executive order to cut off CSR funding this month, citing concerns about their legality.

The CBO score of the bill may improve passage odds for the bipartisan legislation authored by Sens. Lamar Alexander, a Tennessee Republican, and Patty Murray, a Washington Democrat. The bill would reinstate cost-sharing reduction payments owed to insurers for lowering deductibles for the next two years.

It would also allow more customers to purchase a cheaper high-deductible plan and make some small changes in the way states can apply for federal waivers to tweak their health care system. Insurers have already signed contracts to offer plans with significantly higher premiums in 2018 in response to the White House’s ambiguity on CSR payments.

The CBO previously found that ending CSR payments permanently would increase deficits by $194 billion over a decade, since insurers would raise premiums for Obamacare exchange plans by 20 percent in response and the government would have to spend more on subsidies to help customers pay them. The savings are lower in the new Alexander-Murray score largely because it uses a baseline that assumes the CSR payments will be made.

Also tomorrow, The House of Representative is slated to vote to formally back the Senate’s budget resolution, fast-tracking the GOP’s effort to advance a tax overhaul with a simple majority in the Senate. With passage, Republicans would unlock the powerful legislative tool known as reconciliation, which replaces the Senate’s 60-vote threshold with a simple majority in some circumstances.

Opposition from some moderate House Republicans to a proposal that would abolish state and local tax deductions is inserting some last-minute drama. Bloomberg reports Representative Tom MacArthur of New Jersey said he thinks there are more than 20 House Republicans who would vote against a key budget resolution, if a “reasonable” compromise isn’t reached on preserving the state and local tax break in some form.

MacArthur added that he didn’t think the House should hold its scheduled vote on the budget Thursday unless an agreement on the so-called SALT deduction has been reached. House GOP members concerned about the break are supposed to meet with Republican leaders this evening.

House Republicans hold 239 seats and need 217 votes to adopt the budget — a critical step to passing tax changes without Democratic support. That means 23 defections could sink the budget resolution — assuming no absences or Democratic support.

When it comes to tax reform, SALT (or state and local tax) deductions may be just one of many stumbling blocks. Once Obamacare repeal failed, the only major item on Republicans’ agenda for the rest of the year was supposed to be tax reform.

But then Trump announced his administration planned to sunset the Deferred Action for Childhood Arrivals program, and that it would end the Affordable Care Act’s subsidy payments, a move that will increase premiums for Americans and dig a deeper hole in the national deficit. Congress also keeps putting off negotiations on key policies, like the now-expired federal Children’s Health Insurance Program (CHIP). With so many policy deadlines, the possibility of a shutdown can’t be dismissed.

In the final hours of Tuesday night, the Senate voted to nullify a rule that would’ve allowed customers of banks, credit-card companies, and other financial institutions to join together in class-action lawsuits if they felt they’d been wronged.

The rule—which was introduced in July by the Consumer Financial Protection Bureau (CFPB), but was not yet in effect—would have prevented financial institutions from forcing customers with legal grievances to resolve them out of court with the company’s lawyers, in a process called arbitration.

Buried in the fine print for credit card applications and banks accounts and such is a clause that requires consumers to submit to arbitration if there is a problem. But the problem for consumers is that arbitration can be cumbersome and costly. The mandatory arbitration clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up.

The Senate’s nullification of the rule came about even as recent major financial-industry scandals have harmed consumers. Wells Fargo, even with its fake-account and auto-lending scandals, utilized mandatory-arbitration clauses in some of the agreements they have customers sign.

The nullification of the CFPB’s rule means that people who suffered financial harm or identity theft as a result of either of these large companies’ lapses may not have the right to take them to court. It was a huge win for banks, who feared a flood of costly lawsuits.

But for financial firms already under the spotlight for poor treatment of customers, the bad publicity may make it difficult for them to avoid court. For example, Equifax initially turned to arbitration clauses in the face of its cyber hack but public pressure and threats from state attorneys general forced it to drop the requirement for 145.5 million consumers affected by the breach.