Financial Review

How the Net Dies

Sinclair Noe — November 21, 2017

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DOW + 160 = 23,590 (Record)
SPX + 16 = 2599 (Record)
NAS + 71 = 6862 (Record0
RUT + 15 = 1518 (Record)
10 Y – .01 = 2.36%
OIL + .70 = 57.12
GOLD + 4.00 = 1281.00

Cryptocurrency

• Number of Currencies: 914
• Total Market Cap: $241,204,261,304
• 24H Volume: $8,939,291,607

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	8,133.4	$135.92B	$4.20B	46.93%	1	+0.67%	+20.13%
	Ethereum	ETH	360.70	$34.71B	$923.27M	10.33%	0.0443685	+0.24%	+7.57%
	Bitcoin Cash	BCH	1,178.80	$19.88B	$737.15M	8.25%	0.14492	+0.64%	-7.95%
	Ripple	XRP	0.23480	$9.03B	$209.98M	2.35%	0.00002865	+1.58%	+11.73%
	Dash	DASH	503.22	$3.86B	$182.14M	2.04%	0.0613699	+2.15%	+16.47%
	Litecoin	LTC	70.630	$3.80B	$228.36M	2.55%	0.00863742	+0.90%	+11.70%
	IOTA	MIOTA	0.89000	$2.52B	$123.20M	1.38%	0.00011133	+1.01%	+45.73%
	NEO	NEO	34.600	$2.26B	$107.73M	1.21%	0.00426002	+0.95%	+16.41%
	Monero	XMR	141.74	$2.19B	$76.82M	0.86%	0.0174976	-0.18%	+16.47%
	NEM	XEM	0.20368	$1.84B	$9.07M	0.10%	0.0000251	+0.28%	+5.01%

Record high closes for the Dow, S&P, Nasdaq, and Russell 2000. The S&P technology index gained 1.2 percent, helped by a nearly 1.9 percent rise in Apple. The index has risen 38.6 percent this year, by far more than any other sector.

The S&P 500 is up 16.1 percent for the year so far. Healthcare stocks also rose after bullish results from medical device maker Medtronic, whose shares rose 4.8 percent after the company reported better-than-expected results and backed its full-year forecast.

Shares of Urban Outfitters gained 3.7 percent while Hormel Foods was up 3.4 percent. Both reported quarterly results.

Signet Jewelers tanked 30.4 percent after reporting a surprise quarterly loss. Shares of HP fell 4% late Tuesday after the company reported fiscal fourth-quarter earnings and sales above expectations.

Hewlett Packard Enterprise managed to close out its year with an earnings beat Tuesday, but the company’s forecast for the first quarter of its new fiscal year and Chief Executive Meg Whitman’s impending departure sent shares down more than 5%.

Facebook was up more than 1%, but it managed to drop in ranking. Tencent is now valued at $534.5 billion in market capitalization, making it the fifth most valuable public company globally. Facebook falls to number 6.

Goldman Sachs raised its earnings estimate for S&P 500 companies in 2018 and 2019 based on expectations of U.S. corporate tax reform, above-trend global and U.S. economic growth and slowly rising interest rates from a low base.

The Justice Department sued to block AT&T’s planned $85 billion acquisition of Time Warner. The move is unusual because the government does not typically challenge so-called vertical mergers like this one, which do not involve the combination of direct competitors.

The government hasn’t challenged a vertical merger since 1973 in a case involving Fruehauf Corporation, then the nation’s biggest maker of truck trailers. And in that case, an appeals court ruled for Fruehauf.

Many mergers that have sparked criticism for hurting consumers — like those of airlines — have involved direct competitors. But, as the Justice Department alleges in its complaint against AT&T and Time Warner, vertical mergers can arguably raise prices for consumers, too. Guidelines for these types of vertical mergers have not been updated since 1984, and they favor companies that want to merge rather than antitrust regulators.

AT&T will now try to get a court to allow the merger, but there are no guarantees they will prevail. Usually, these problems result in some sort of settlement but that might not happen here. The DOJ had reportedly warned AT&T that it would need to sell either Turner Broadcasting—CNN’s parent company—or DirecTV to receive approval for the merger.

AT&T said that was a non-starter. DOJ then filed suit. And that raises the question of why the Department of Justice is trying to block this case. Many other larger mergers seem to get rubber stamped for approval. Makan Delrahim, the DOJ’s chief antitrust enforcer, publicly stated in 2016 that an AT&T–Time Warner merger would pose no serious legal problems, declaring: “I don’t see this as a major antitrust problem.”

Now he has completely reversed his position. Why the change of heart? Did Delrahim engage in a sincere re-evaluation of the data and doctrines? Or was he acting on pressure from the White House?

The Trump administration’s sudden and selective antitrust enforcement may very well be a front for an unconstitutional effort to punish expression it opposes. AT&T will have ample opportunity to make this objection in court. And if it argues this position persuasively, it may obtain access to government records to prove that Trump’s bias against CNN illegally influenced the DOJ’s antitrust crackdown.

Once again, Trump’s own words may wind up undermining his administration’s legal position in court. Bloomberg reports that AT&T will request access to communications between the White House and the Justice Department regarding the merger, apparently to determine whether Trump exerted improper influence.

If the president did use antitrust as a pretense for penalizing CNN, he likely ran afoul of the First Amendment’s protection against government retaliation for protected expression. Even if AT&T could not find direct evidence of retaliation, any documentation of political motive would fatally undermine the DOJ’s antitrust arguments. Trump’s own comments about Muslims persuaded courts to block his first and second travel bans, holding that his words undermined the legal justifications for both executive orders.

Even more glaringly, Trump’s FCC just eliminated regulations that might have blocked Sinclair Broadcast Group’s proposed merger with Tribune Media. Thanks to the FCC, Sinclair, a vigorously pro-Trump company, will now be able to buy 42 new TV stations, allowing the firm to dominate local media markets in many regions.

In its complaint, the Justice Department argues that AT&T, which already owns DirecTV, would “use its control of Time Warner’s popular programming as a weapon to harm competition.” Specifically, the government argues, AT&T would use the merger to strong-arm its competitors into paying hundreds of millions more per year for Time Warner’s networks. This could ultimately lead to higher bills and fewer options for American families, the Justice Department argues.

The government also alleges that a merged AT&T/Time Warner would have the power to stymie the growth of online TV options that it views as a threat to traditional TV.

Under Trump-appointed chairman Ajit Pai, the FCC plans to repeal net neutrality – the principle that all traffic on the internet is treated equally. Repeal of net neutrality rules would allow internet service providers to favor their own content and block or throttle access to their competitors’ material, a move that could allow a company like AT&T to charge websites a fee to reach users at faster speeds, or even block content.

In other words, the FCC wants to permit what the DOJ purportedly wants to prohibit by blocking the AT&T-Time Warner merger. The move to kill net neutrality is likely to spark a furious battle before the FCC’s vote on the proposals on 14 December. About 21-million comments were submitted to the regulator as it discussed the proposals, and activists have flooded legislators with more than 250,000 calls condemning Pai’s plans. The FCC’s plans will be challenged in court.

Meanwhile, media merger and acquisition activity is probably on hold until this deal is worked out through the courts or some other resolution. Whatever happens – it has suddenly become one of the most interesting and important mergers in years.

The National Association of Realtors says sales of previously-owned homes jumped 2% to a seasonally adjusted annual pace of 5.48 million in October. The median sales price was $247,000, up 5.5% from 12 months ago, and October marked the 68th-straight month in which prices rose compared to a year ago. First-time buyers made up 32% of the total, up from 29% in September but still well below long-time averages.

At the current sales pace, it would take 3.9 months to exhaust the available supply of homes, down from 4.4 months a year ago. October’s inventory, when seasonally adjusted, was the second-lowest on record going back to 1999. Inventory declined 3.2% during the month, to 1.80 existing homes. That’s 10.4% lower than a year ago, the 29th month of lower inventory versus the year-earlier period.

NAR expects only a 3.7% increase in existing-home sales in 2018, but continues to warn that the tax reform bills working their way through Congress would “disincentivize” homeownership.

A recent White House report claims that corporate tax cuts would boost the economy and result in GDP growth  of as much as five percentage points. The Initiative on Global Markets at the University of Chicago’s Booth School of Business asked 42 economists if they agreed or disagreed that GDP – gross domestic product would be “substantially higher” in 10 years if a tax bill like the one congressional Republicans and the White House are pushing is enacted.

Of those 42, only one economist said that cutting corporate tax is likely to grow GDP. Most others — 22 economists — disagreed. Fifteen said they were uncertain and four didn’t answer.

Financial Review

Tax Plan Puffery

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DOW + 72 = 23,430
SPX + 3 = 2582
NAS + 7 = 6790
RUT + 10 = 1503
10 Y + .02 = 2.37%
OIL – .32 = 56.23
GOLD – 17.40 = 1277.00

Cryptocurrency

• Number of Currencies: 912
• Total Market Cap: $242,651,274,595
• 24H Volume: $8,257,485,175

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	8,083.4	$135.23B	$3.68B	44.57%	1	-1.96%	+22.72%
	Ethereum	ETH	372.17	$35.70B	$841.59M	10.19%	0.0457184	+1.22%	+16.29%
	Bitcoin Cash	BCH	1,219.00	$20.46B	$816.53M	9.89%	0.149375	-2.23%	-5.14%
	Ripple	XRP	0.24100	$9.29B	$208.90M	2.53%	0.00002952	+0.25%	+16.61%
	Litecoin	LTC	71.540	$3.89B	$182.29M	2.21%	0.00884957	-1.35%	+17.62%
	Dash	DASH	475.10	$3.67B	$173.21M	2.10%	0.0584733	-0.51%	+12.63%
	IOTA	MIOTA	0.94100	$2.67B	$96.62M	1.17%	0.00011773	-1.83%	+66.39%
	NEO	NEO	35.353	$2.30B	$249.48M	3.02%	0.0043399	-1.75%	+24.43%
	Monero	XMR	137.36	$2.13B	$63.47M	0.77%	0.016987	+0.44%	+13.23%
	NEM	XEM	0.20779	$1.88B	$14.50M	0.18%	0.00002568	-2.78%	+8.70%

It was a light volume session on Wall Street today. Stocks moved higher but closed well off session highs. This will be a holiday shortened week with the markets closed on Thursday and just a half session for stocks on Friday. We should all be thankful to take a few days away from the debate over the tax plan.

Sen. Susan Collins of Maine objects to the last-minute decision by Republican tax writers to include a repeal of Obamacare’s individual mandate — a critical source of revenue for the bill. Alaska Sen. Lisa Murkowski, another swing Republican, also has voiced objections to scotching the individual mandate. And Sen. Ron Johnson of Wisconsin wants more generous treatment for pass-through businesses.

Meanwhile, Sens. Bob Corker of Tennessee and Jeff Flake of Arizona, among others, have said the bill’s deficit impact could cost their support. If 3 Republican senators vote against a tax plan, it will not pass; that number might dip down to just 2 defectors depending on how the special election in Alabama swings. We don’t know if some of these senators have solid objections or if they are just negotiating.

This weekend, the White House indicated it might be willing to give in on repealing the individual mandate. But yanking the provision would exacerbate a problem troubling other potentially critical Republican votes in the Senate. It generates more than $300 billion in sorely needed revenue. Deficit hawks are working to wrench the bill in the other direction.

Corker, for one, has been categorical in declaring he’ll oppose a tax bill that adds “one penny” to the deficit. Late last week, he said he is working with like-minded colleagues to rein in the Senate version’s cost, now estimated at $1.4 trillion. In fact, the bill costs much more than that, thanks to expiring provisions for wage earners.

The White House budget director claims the bill will more than pay for itself through the economic growth it unleashes. But that’s just puffery. The administration so far has failed to produce an analysis justifying the claim. No independent study backs it up, either, and some paint a dire picture of the tax package’s impact on the nation’s fiscal health.

For example, even factoring in new economic growth from lower rates, the Penn-Wharton Budget Model found the measure would add up to $6.9 trillion to the debt by 2040.

Federal Reserve Chair Janet Yellen said she will step down from its Board of Governors once her successor, Jerome Powell, is sworn into the office. The announcement was expected, although Yellen could have stayed on as a governor even after stepping down as the chair, because her term as governor does not end until January 31, 2024.

Her decision to leave will give Trump an additional fourth spot to fill on the Fed’s seven-person Board of Governors in Washington, including for a vice chairman. This Wednesday, we’ll get the minutes of the last Fed FOMC meeting.

The Department of Justice will file a lawsuit today to block AT&T’s $85 billion acquisition of Time Warner. The No. 2 U.S. wireless carrier struck a deal in October 2016 to buy Time Warner, which also owns the premium channel HBO and movie studio Warner Bros, to compete with emerging technology companies by bundling video entertainment on its mobile service. The deal is opposed by an array of consumer groups and smaller television networks because it would give AT&T too much power over the content it would distribute to its wireless customers.

The legal challenge comes after AT&T rejected a demand by the Justice Department earlier this month to divest its DirecTV unit or Time Warner’s Turner Broadcasting – which contains news network CNN – to win antitrust approval. AT&T’s chief executive said then that he would defend the deal in court to win approval if necessary. Time Warner ended down 1.1 percent today.

Nebraska regulators today approved a Keystone XL oil pipeline route through the state, breathing new life into the long-delayed $8 billion project, although the chosen pathway is not the one preferred by the company that hopes to build it and could mean more time is needed to study the changes.

The Nebraska Public Service Commission’s vote also is likely to face court challenges and may even require another federal analysis of the route, if the project’s opponents get their way. Environmental activists, American Indian tribes and some landowners have fiercely opposed the project since it was proposed by TransCanada Corp in 2008. It would carry oil from Canada through Montana, South Dakota and Nebraska to meet the existing Keystone pipeline, where it could proceed as far as the U.S. Gulf Coast.

TransCanada has said that it would announce in late November or early December whether it planned to proceed with building the pipeline — which would carry an estimated 830,000 barrels of oil a day. Approval of the route gives TransCanada the ability to gain access to the land of holdout landowners through eminent domain proceedings.

North Korea is back on the list of state sponsors of terrorism, a designation that allows the United States to impose more sanctions. The designation came a week after Trump returned from a 12-day, five-nation trip to Asia in which he made containing North Korea’s nuclear ambitions a centerpiece of his discussions.

The Treasury Department will announce additional sanctions against North Korea on Tuesday. The designation will be largely symbolic, as North Korea is already heavily sanctioned by the United States. The United States has designated only three other countries – Iran, Sudan and Syria – as state sponsors of terrorism.

There is a possibility the move could backfire. North Korea could respond in several ways, including renewing missile or nuclear tests. The move also could undercut Trump’s efforts to solicit greater Chinese cooperation in pressuring North Korea to halt its nuclear and ballistic missile tests. In any case, it will do little to open the way for US dialogue with North Korea.

Chancellor Angela Merkel of Germany faced the greatest crisis of her career after negotiations to form a new government collapsed. The breakdown abruptly raised the prospect of new elections in Germany. Merkel said she was hopeful about forming a majority government. But if forced to choose, she would prefer to go through new elections rather than try to lead a minority government.

At a time when the European Union is facing a host of pressing problems, from Brexit negotiations with Britain, to the rise of right-wing populism, to separatism in Spain’s Catalonia region, the possibility of political instability in a normally reliable Germany prove disconcerting.

The potential for instability in Germany would be a major blow to the European Union. The political instability stems from the elections in Germany on Sept. 24, when Merkel’s Christian Democrats finished first. But their share of the overall vote dropped significantly, while the far-right Alternative for Germany scored a record vote, entering Parliament for the first time as the third-biggest grouping. Merkel was unable to form a coalition among the remaining parties.

Today’s emerging-market disaster comes courtesy of Chile. The nation had the world’s worst-performing stock market and major currency today due to some political turmoil. The prospect of a clear victory for billionaire Sebastian Pinera in next month’s run-off election evaporated following a poor performance in the first round on Sunday.

Many investors had taken for granted that Pinera would win the second round on Dec. 17, with the benchmark IPSA index rallying 39 percent this year through Friday in dollar terms on hopes the tax cuts he pledged would revive investment, growth and corporate profits. But that’s now in doubt, and the IPSA index retreated as much as 4.8 percent to 5,134.58 in Santiago on Monday, its biggest intraday loss since January 2012.

Chipmaker Marvell Technology Group said it would buy smaller rival Cavium for about $6 billion, as it seeks to expand its wireless connectivity business. In the last two years, the chip industry has witnessed a series of deals as companies try to gain market share in emerging areas such as automotive technologies and connectivity. The most recent is a bid by Wi-Fi chipmaker Broadcom for rival Qualcomm for $103 billion, in what could be one of the biggest technology deals ever.

The opioid crisis has ravaged some communities across the country. Of the estimated 50,000 Americans who died of drug overdoses in 2015, some 63% involved opioids. That same year, more than 33,000 Americans died of drug overdoses involving opioids. It’s estimated more than 54,000 people died from opioids in 2016.

According to a new report from The Council of Economic Advisers, an agency that is part of the Executive Office of the President, the economic cost of the opioid crisis in 2015 was $504 billion, much higher than previous estimates. One study from the Beth Israel Deaconess Medical Center in Boston found that the average cost of treating an opioid overdose victim in intensive care units jumped 58% between 2009 and 2015.

As the addiction persists, patients arrive in a worse condition and require longer stays. In 2015, average cost among 162 academic hospitals was $92,400 per patient in intensive care. The U.S. spent nearly $8 billion on criminal justice-related costs due to selling and consuming opioids, which was almost entirely a cost to state and local governments.

The cost in lost productivity is about $20 billion. Some seven in 10 employers have felt some effect of prescription drug usage among their employees. And fatal overdoses cost nearly $22 billion in health care and lost productivity costs.

Financial Review

Carving a Turkey

Sinclair Noe — November 8, 2017

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

Subscribe: Android | RSS

DOW + 6 = 23,563 (Record)
SPX + 3 = 2594 (Record)
NAS + 21 = 6789 (Record)
RUT + 2 = 1481
10 Y + .02 = 2.33%
OIL – .38 = 56.82
GOLD + 6.00 = 1281.80

Cryptocurrency

• Number of Currencies: 903
• Total Market Cap: $205,794,764,215
• 24H Volume: $9,066,047,752

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,356.5	$122.81B	$4.59B	50.65%	1	-1.22%	+8.30%
	Ethereum	ETH	310.87	$29.81B	$994.05M	10.96%	0.0425565	+1.13%	+7.00%
	Bitcoin Cash	BCH	636.99	$10.66B	$889.93M	9.82%	0.0867183	+2.43%	+20.78%
	Ripple	XRP	0.21847	$8.40B	$161.55M	1.78%	0.00002976	+1.12%	+12.71%
	Litecoin	LTC	62.660	$3.36B	$321.17M	3.54%	0.00853435	+0.30%	+17.37%
	Dash	DASH	313.43	$2.40B	$102.65M	1.13%	0.0427506	-0.50%	+16.34%
	NEO	NEO	31.589	$2.04B	$126.94M	1.40%	0.00428639	+3.81%	+21.15%
	Monero	XMR	116.60	$1.78B	$87.91M	0.97%	0.0158386	+3.74%	+37.89%
	NEM	XEM	0.19280	$1.71B	$6.41M	0.07%	0.00002599	+0.33%	+12.06%
	Ethereum Classic	ETC	14.0500	$1.37B	$123.11M	1.36%	0.0019165	+2.09%	+36.30%

The Dow Industrial Average carved out yet another record high close – not a big gain at all but any gain adds to the record. The S&P 500 also closed at a record high. And a record high for the Nasdaq – All three at records. In hockey parlance that’s a hat trick; bowlers might call it a turkey.

On the one-year anniversary of Trump’s win in the presidential race, the Dow Jones Industrial Average is showing its biggest post-Election Day gain in more than 70 years. The Dow has advanced 28.50% since Nov. 8, 2016. That represents its best performance after a White House contest since 1945, when the blue-chip gauge was up 29.83% in a year following the election of Franklin D. Roosevelt.

The S&P 500 is up 21% over the past 12 months. Trump has taken full credit for the equities rally, offering this assessment this week: “The reason our stock market is so successful is because of me.”

There may have been a few other factors involved: strong corporate earnings, historically low interest rates, solid job growth, a surging global economy, and an established bull market that saw the S&P nearly quadruple since its financial crisis low in March 2009. You can place credit wherever you wish, just remember the market can be a fickle mistress.

The gains in the past 12 months have been primarily concentrated within two sectors: technology stocks, up 42.2% over the past 12 months, and financials, up 37.5%. You can narrow it down even further, and look at the crazy good performance of the FAANG stocks.

Maybe the real credit should go to Tim Cook. Last week, Apple earnings crushed Wall Street estimates with Chief Executive Tim Cook saying he expected this to be “the best holiday season yet.” Apple share are up more than 52% year to date.

Today, Apple closed up 0.8% at a record $176.21 today, its fourth consecutive record close, passing the $175.29 mark needed to hit $900 billion in market capitalization based on 5,134,312,000 shares outstanding. At the close, Apple is now valued at just over $904 billion. For Apple to reach the $1 trillion mark, shares need to trade above $194.77

Democrats claimed big gains in Virginia’s statehouse and flipped Republican-held seats in other local races across the United States on Tuesday, in the party’s first big wave of victories since Republican Donald Trump’s surprise White House win a year ago.

A ticket filled with candidates making their first bids for elected office propelled the party to a 16-seat gain in the Virginia House of Delegates, the state party said, its largest pickup in at least a century. There are still 5 seats where the race is tight enough to trigger recounts.

In the governor’s race, Democratic Lieutenant Governor Ralph Northam defeated Republican Ed Gillespie. Voters also replaced a Republican governor in New Jersey with a Democrat and increased the party’s majorities in the state legislature. In Georgia, Democrats picked up three seats in special state legislative elections. Republicans still hold majorities in the legislature.

In Washington state, one race was enough to flip the state Senate blue, giving Democrats full control over state government. Further down the ballot, Democrats captured the mayor’s office in New Hampshire’s largest city, Manchester, while the Democratic mayor of St. Petersburg, Florida, beat a former Republican mayor.

Democrats also notched a win in Maine, where voters approved a referendum to expand Medicaid coverage for the poor and disabled under the Affordable Care Act, rebuking Republican Governor Paul LePage, who had vetoed similar measures.

House Speaker Paul Ryan left the door open to a possible delay in implementing a huge corporate tax cut, following a media report that his fellow Republicans in the Senate are exploring the option. Republicans in Congress are working on separate tax plans.

The latest version of the House Republicans’ tax bill would add $1.7 trillion to the federal budget deficit over 10 years, more than the $1.5 trillion they initially announced, according to the nonpartisan Congressional Budget Office. The threshold for the process known as reconciliation is $1.5 trillion. The CBO’s assessment gives more impetus to the Senate’s bill.

The Senate could include a one-year delay in its version of the bill to make it easier to comply with the chamber’s rules that aim to limit any legislation’s impact on the deficit. Ryan said both chambers of Congress would work on their own tax cut package and iron out the differences in a conference committee. But for now – based on the CBO assessment – lawmakers will need to significantly scale back their tax plan.

Also today, analysis from the Urban Institute and Brookings Institution’s Tax Policy Center found that the Tax Cuts and Jobs Act (TCJA) would result in higher taxes for around 7% of Americans in 2018 and 25% of people in 2027.

The Tax Policy Center found that much of the TCJA’s benefits would go toward wealthier Americans; 76% of people would get a tax cut, 7% would see a tax increase, and 13% would see little change. A cut of $700 for the average American, increasing after-tax income by an average of 0.7%.

A $10 cut for people in the lowest quintile, increasing average incomes by less than 0.1%. A $320 cut for people in the middle quintile, increasing average incomes by 0.4%. An average $52,780 cut for people in the top 1%, increasing average incomes by 2.2%. Nearly 50% of the bill’s total benefits would go to the 1% in 2027.

The findings are similar to those from the nonpartisan Joint Committee on Taxation, a nonpartisan congressional committee, that found roughly 20% of people would pay more in 2027.

The Saudi purge continues. Saudi Arabian authorities have made further arrests and frozen more bank accounts in an expanding anti-corruption crackdown on the kingdom’s political and business elite. Saudi Arabian authorities have made further arrests and frozen more bank accounts in an expanding anti-corruption crackdown on the kingdom’s political and business elite.

Today, there were even more arrests. The number of people targeted by the crackdown was expected eventually to rise into the hundreds. The number of domestic bank accounts frozen because of  the purge is over 1,700 and rising, up from 1,200 reported on Tuesday.

Marriott International reported a 43% increase in third quarter revenue. Net income rose to from $392 million, or $1.04 per share, in the quarter, from $70 million, or 26 cents per share. Marriott became the world’s largest hotel company after it completed the acquisition of Starwood Hotels & Resorts in September last year.

Take-Two Interactive Software jumped 10.8 percent after the videogame maker offered a stronger-than-expected revenue forecast for the holiday quarter. That sparked a rally among its competitors, with Activision Blizzard surging 5.80 percent and Electronic Arts adding 1.9 percent.

Snapchat-owner Snap fell 16.6 percent a day after reporting much-slower-than expected advertising revenue and user growth. Snap said China’s Tencent bought a 12-percent stake in the company.

The fast food chain Wendy’s shares fell 1.6% after the fast-food chain reported third-quarter earnings and revenue that came in weaker than consensus.

Shares in peer-to-peer lending company LendingClub tumbled 19% after reporting a disappointing full-year earnings outlook late Tuesday.

Fossil Group shares tumbled 15% after the accessories seller gave a disappointing outlook.

Health insurer Humana said third-quarter revenue fell 3.0, missing estimates. Shares of health-care company were down 5%.

Regeneron Pharmaceuticals rose 2.6% after the biotechnology company reported third-quarter profit and revenue that rose above expectations.

MGM Resorts added 5% even as the company reported third-quarter profit that was below Wall Street expectations.

iHeartMedia, the biggest operator of radio stations in the U.S., reiterated doubts about its ability to remain a “going concern” in its latest filing with the Securities and Exchange Commission. Its shares were down 2.3%.

The Department of Justice is pushing AT&T to sell Turner Broadcasting, parent of CNN cable network, or its DirecTV satellite television unit to satisfy antitrust concerns over its purchase of Time Warner. AT&T is reportedly prepared to fight any divestitures required to win regulatory approval of the $85 billion deal.

The development was a surprise to investors. Shares of Time Warner fell 6.5 percent, while AT&T shares were down 0.2 percent.

Another Sluggish Day on the Street

Charles Schwab: On the Market

Posted: 11/8/2017 4:15 PM EST

Another Sluggish Day on the Street

 

With little in the way of news to sway the U.S. equity markets soundly in one direction or the other, stocks finished with modest gains, led again by the tech sector, after spending most of the day crowding the unchanged mark. Tax reform continued to garner attention as the Senate is expected to deliver its bill this week, while global trade was also in focus as President Trump continues his Asian tour and China posted mixed trade data. Crude oil prices came under pressure following a bearish government oil inventory report and gold was higher. Treasury yields ticked slightly higher and the U.S. dollar was little changed.

The Dow Jones Industrial Average (DJIA) gained 6 points to 23,548, the S&P 500 Index was 4 points (0.1%) higher at 2,594, and the Nasdaq Composite gained 21 points (0.3%) to 6,789. In moderate volume, 881 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.39 to $56.81 per barrel and wholesale gasoline was unchanged at $1.82 per gallon. Elsewhere, the Bloomberg gold spot price was $5.32 higher at $1,280.62 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 94.88.

Take-Two Interactive Software Inc. (TTWO $118) reported a fiscal Q2 loss of $0.03 per share, or earnings-per-share (EPS) of $1.61 ex-items, versus the FactSet estimate calling for EPS of $0.74, as net bookings grew 20.3% year-over-year (y/y) to $577 million, above the expected $516 million. The video game company raised its full-year outlook and issued net bookings guidance for the holiday season that easily topped expectations. Shares were sharply higher.

Humana Inc. (HUM $243) posted Q3 profits of $3.44 per share, or $3.39 ex-items, compared to the forecasted $3.26, on revenues of $13.3 billion, roughly in line with expectations, but premiums were a bit shy of expectations. HUM raised its full-year earnings outlook but offered little in terms of guidance for next year. Shares were sharply lower.

Snap Inc. (SNAP $13) announced a Q3 loss of $0.36 per share, compared to the $0.33 per share shortfall that the Street had anticipated, with revenues rising 62.0% y/y to $208 million, below the projected $236 million. The social media company's global daily active users and average revenue per user both missed expectations. Shares fell sharply. Separately, SNAP disclosed that China's Tencent Holdings Ltd. (TCEHY $50) has taken a 10% stake in the company.

Wendy's Co. (WEN $15) reported Q3 EPS of $0.06, or $0.09 ex-items, versus the projected $0.12, as revenues declined 15.4% y/y to $308 million, just shy of the expected $310 million, due to lower ownership of company-operated restaurants. The fast-food chain's North American same-store sales rose 2.0% y/y, south of the estimated 2.6% gain. WEN lowered its full-year profit outlook and shares were solidly lower.

Mortgage applications flat

The MBA Mortgage Application Index was flat last week, following the prior week's 2.6% decline. The unchanged reading came as a 0.5% decrease in the Refinance Index was offset by a 0.5% gain in the Purchase Index. The average 30-year mortgage rate fell 4 basis points (bps) to 4.18%.
Treasuries dipped, as the yields on the 2-year and 10-year notes, along with the 30-year bond, all inched 1 bp higher to 1.64%, 2.32% and 2.79%, respectively.

Treasury yields and the U.S. dollar remained subdued as a positive global economic backdrop continues to be met with looming Fed leadership changes, and market grappling with uncertainty regarding the long road to tax reform.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, One Thing Leads to Another: Productivity's Rebound, although there remains a long runway between the House bill put forth on tax reform and a bill that could pass through the Senate, a more competitive tax code would likely grow the capital stock, which should boost productivity.

Schwab's Chief Fixed Income Strategist Kathy Jones and Vice President of Trading and Derivatives, Randy Frederick discuss in the video, Should a Change in Fed Leadership Matter to Investors?, while Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest commentary, House Tax Reform Bill: What Investors Need to Know.

Tomorrow's economic calendar will remain light, beginning with weekly initial jobless claims, forecasted to rise modestly to 232,000 from the prior week's 229,000, followed by wholesale inventories, with economists expecting a 0.3% month-over-month increase for September, matching that seen in August.

Europe and Asia mixed on global trade focus and U.S. tax reform uncertainty
European equities finished mixed, with banking stocks being hamstrung by disappointing quarterly results from the sector in the region. The markets also grappled with global trade uncertainty as U.S. President Donald Trump remained on his tour of Asia and China posted a mixed trade report. U.S. tax reform scrutiny festered to keep conviction in check. The euro was little changed, while the British pound added to recent losses versus the U.S. dollar. Bond yields in the region traded mixed. In economic news, Spanish industrial output for September came in stronger than expected. With the global markets pausing from their rally, Schwab's Liz Ann Sonders and Randy Frederick note in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about.

Stocks in Asia finished mixed as the markets focus on global trade relations as U.S. President Trump continued his tour of the region and as China's October trade data painted a divergent picture as exports missed expectations and imports continued to rise solidly. For a look at the global trade picture, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Top Five Trade Issues Investors Should Be Watching. Japanese equities dipped, with the yen gaining some ground, while Australian securities finished flat. Mainland Chinese stocks ticked higher and those traded in Hong Kong declined, while listings in India were also lower and South Korean markets saw a modest gain.

More data from China will take center stage on tomorrow's international economic calendar, including the Asian nation's CPI, PPI, and lending statistics, while Germany and the U.K. will report trade figures.

Financial Review

Go Placidly

Sinclair Noe — May 19, 2017

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DOW + 141 = 20,804
SPX + 16 = 2381
NAS + 28 = 6083
RUT + 6 = 1367
10 Y + .01 = 2.23%
OIL + 1.18 = 50.53
GOLD + 8.80 = 1256.60

Stocks finished with triple digit gains but well off session highs as news headlines once again rattled traders. The Dow gave back more than 50 points and the S&P 500 saw gains cut in half following an afternoon news dump. The Washington Post is reporting that a current White House official is a significant person of interest in the law enforcement investigation.

Separately the New York Times reported that Trump told Russian officials at the White House that firing FBI Director James Comey relieved “great pressure” from an ongoing probe into Russia and the election. The Times report cited a document summarizing the meeting.

Trump is on the first leg of a ten-day overseas trip that starts in Saudi Arabia, then moves to Israel, the Vatican, Brussels (for a NATO summit), and then Sicily for a G7 summit. The Trump administration planned to announce $110 billion in sales of advanced military equipment and training to Saudi Arabia this weekend.

Despite the firing of James Comey, and a general sense from the mainstream media that the Trump White House is in disarray, and the lowest public approval ratings since the inauguration, Wall Street continues to trade near record highs.  For the week, the Dow and S&P dropped 0.4 percent and Nasdaq was down 0.6 percent.

The dollar index lost 1.6 percent in the five days, the worst week since July 2016. Gold capped its best week in a month. The yield on 10-year Treasuries climbed less than one basis point to 2.23 percent, after rising as much as three basis points earlier in the session. It fell nine basis points this week.

Oil prices rose. West Texas crude rose 2.2 percent to settle at $50.53 a barrel in New York, for a weekly increase of 5.4 percent, the most since March and the second week of gains, on growing expectations that OPEC and other producing countries will agree next week to extend output cuts.

OPEC and other producers including Russia are scheduled to meet on May 25. They are expected to extend output cuts of 1.8 million barrels a day until the end of March 2018. U.S. crude production has climbed 10 percent since mid-2016 to 9.3 million barrels per day as shale producers have taken advantage of higher prices to boost activity.

Iran holds its first round of presidential elections this weekend. If President Hassan Rouhani remains in office, it should encourage Western investment and boost Iranian oil production. If the winner is Ebrahim Raisi, a critic of Iran’s nuclear deal with the West, then it is possible that new sanctions could be imposed, which could reduce the oil supply from Iran.

After two weeks chock full of retailers’ earnings — largely disappointing Wall Street and missing analysts’ expectations — the S&P 500’s Retail ETF (XRT) finished the week down about 3.5%. Leading the declines were names like Ascena Retail Group, Foot Locker, American Eagle and Sears.

Ascena — the parent of clothing companies such as Ann Taylor and dressbarn — saw its shares plunge more than 30 percent earlier in the week, after it adjusted its second-half outlook to reflect worse-than-expected business conditions. Meanwhile, Foot Locker’s same-store sales fell short of expectations.

Off-price retailer TJX, which operates T.J. Maxx, Marshalls and HomeGoods stores, was expected to be an upbeat outlier for the week, but even its first-quarter comparable sales couldn’t match Street estimates. Gap reported a surprise rise in quarterly same-store sales, bucking the trend of dismal results in the U.S. retail industry, as the company benefited from the robust performance at its Old Navy brand.

Campbell Soup’s quarterly sales and profit missed analysts’ estimates, hurt by higher promotions and weak demand for its condensed soups, broths and V8 vegetable juices, and the company warned that its full-year sales could decline.

Deere & Co raised its full-year sales and profit forecast for the second time, as demand improves for its farm and construction equipment, particularly in South America, sending its shares to a record high of $122. The company said it expected fiscal 2017 industry sales of tractors and combined harvesters in South America to be at the high-end of its earlier forecast of about 15-20 percent rise.

While farmers in South America have been complaining about low prices, they have enjoyed big gains in corn and soybean output.

Brazil’s Supreme Court released explosive plea-bargain testimony today accusing President Michel Temer, along with former presidents Lula da Silva and Dilma Rousseff, of receiving millions in bribes. The testimony raises serious doubts about whether Temer, who replaced the impeached Rousseff last year, can maintain his grip on the presidency.

The testimony implicates both ruling and opposition parties and indicates that Temer, a conservative, accepted $4.6 million in bribes from JBS, which ranks as the world’s largest meat processor. It also alleges that Lula, who is already facing five corruption trials, received $50 million in bribes in offshore accounts from JBS, while Rousseff took $30 million in bribes.

Temer said he would not resign from the presidency. The Supreme Court released an audio tape of Temer, approving the payment of hush money to former lower house speaker Eduardo Cunha, who last year orchestrated Rousseff’s impeachment and was later convicted for corruption.

Many politicians fear that if Cunha should turn state’s witness, his testimony could implicate scores of congressmen and members of the executive branch.

About 37,000 AT&T workers, or less than 14 percent of the company’s total workforce, began a three-day strike after failing to reach an agreement with the No. 2 U.S. wireless carrier over new contracts. This is the first time that AT&T wireless workers are on strike, which could result in closed retail stores during the weekend.

The workers on strike are members of the CWA Communications Workers of America union. The workers are demanding wage increases that cover rising healthcare costs, job security against outsourcing, affordable healthcare and a fair scheduling policy.

Slightly over half of the workers on strike are part of the wireless segment and the rest wireline workers, including a small number of DirecTV technicians.

Fiat Chrysler plans to update software that it expects will resolve the concerns of U.S. regulators about excess emissions in 104,000 older diesels. The software update would begin rolling out once the Environmental Protection Agency and California Air Resources Board approved.

In January, the EPA and California accused Fiat Chrysler of illegally using undisclosed software to allow excess diesel emissions in 104,000 U.S. 2014-2016 Jeep Grand Cherokees and Dodge Ram 1500 trucks in a notice of violation.

The Environmental Protection Agency and California Air Resources Board announced approval of a fix for about 84,000 older Volkswagen diesel vehicles that can emit excess emissions. Volkswagen agreed last year to offer to buy back up to 475,000 2.0-liter diesel vehicles that had been sold in the United States or offer fixes if regulators approved.

Friday’s announcement covers a fix for 84,000 2012-2014 Passat diesel vehicles with automatic transmissions. A fix for vehicles with manual transmissions has not yet been approved. In January, regulators approved a fix for 67,000 2015 model diesels, leaving around 325,000 older vehicles still awaiting approval for a fix.

The federal government has, in recent years, paid debt collectors close to $1 billion annually to help distressed borrowers climb out of default and scrounge up regular monthly payments. New government figures suggest much of that money may have been wasted.

Nearly half of defaulted student-loan borrowers who worked with debt collectors to return to good standing on their loans defaulted again within three years, according to an analysis by the Consumer Financial Protection Bureau. For their work, debt collectors receive up to $1,710 in payment from the Department of Education each time a borrower makes good on soured debt through a process known as rehabilitation.

They keep those funds even if borrowers subsequently default again. What constitutes rehabilitation? Nine months of on-time payments, even if the borrower only pays $5 a month. That means that in many cases, the government pays $38 to collect one dollar. The department has earmarked more than $4.2 billion for payments to its debt collectors since the start of the 2013 fiscal year.

Seven years into an economic recovery, nearly half of Americans didn’t have enough cash available to cover a $400 emergency. That’s according to the latest findings from the Federal Reserve’s annual economic well-being of U.S. households, which found 44% in 2016 said such an expense would have to be covered by borrowing or selling something.

That’s a similar percentage to what was found in past Fed surveys. Of the group that can’t pay in cash, 45% would use a credit card to pay off the expense over time, about a quarter would borrow from friends of family, another 27% just couldn’t pay the expense and smaller fractions would turn to selling items or using a payday loan.

We now know where all the money is hiding. Retirees who are usually expected to spend that hard-earned nest egg are instead cutting their spending and living frugally, according to a University of Michigan survey analyzed by software company United Income. The median retiree spends 8 percent less than they comfortably could afford; the result, retirees now hold assets totaling more than $25 trillion.

Spending money, besides being a boost for the economy, could help retirees be more active, if they physically get out of the house to do it. Meanwhile, younger Americans, whose incomes are falling behind those of previous generations, aren’t saving enough.

So, the moral of the story is get out and spend some money this weekend, you might feel younger.

Financial Review

Oh Canada

Sinclair Noe — April 25, 2017

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

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DOW + 232 = 20,996
SPX + 14 = 2388
NAS + 41 = 6,025
RUT + 13 = 1411
10 Y + .05 = 2.33%
OIL + .13 = 49.36
GOLD – 12.00 = 1265.00

This has been a very strong start to the week. The Dow Industrial Average has added about 460 points in the past two sessions and traded above 21,000. The S&P 500 has gained about 40 points. Both the Dow and the S&P are now back above their 50-day moving averages.

The Nasdaq Composite broke through 6,000 for a record high. To put this in perspective, the Nasdaq broke above the 5,000 milestone on March 9, 2000 – 17 years ago. Simple math tells you that the Nasdaq has returned just over 1% per year, on average, for the past 17 years. Of course, there was nothing average about the past 17 years.

The week started with somewhat positive news about the French elections, which translated to a risk-on trade for global markets; combined with easing geopolitical tensions; plus, the hope for some sort of tax cut measure to be announced tomorrow.

The threat of a US government shutdown this weekend appeared to recede after President Trump backed away from a demand that Congress include funding for his planned border wall with Mexico in a spending bill. However, even if the fight over wall funding is over, Republicans and Democrats still have some difficult issues to resolve as they face a Friday night deadline.

The big driver in the 2-day rally has been earnings, coming in much stronger than estimates. With half of the Dow 30 Industrial companies reporting earnings, with 11 beating earnings expectations, according to FactSet. That 73% beat rate is above the 5-year average of 68% for S&P 500 companies.

I know that is a little of an apples-to-oranges comparison, but still, it has been a good earnings reporting season so far.  The shares of the Dow companies that have revealed results have gained a combined total of $21.80 in price since the reports were released through Tuesday afternoon, with 10 winners rising a combined $36.33 and five losers falling $14.46.

The combined price gains are adding about 149 points to the Dow, which is a price-weighted index. That would represent about 36% of the Dow’s 417-point gain since earnings season started. The stocks of the five Dow companies that reported results today were adding about 125 points to the Dow’s price. Caterpillar and McDonald’s combined to add 100 points to the Dow today.

McDonald’s reported first-quarter earnings and sales that topped analysts’ most bullish estimates amid declining visits to restaurants industry-wide. McDonald’s cut prices and offered a smaller Big mac and a bigger Big Mac, plus they are doing well with all-day breakfast – that helped lift sales in the US by 1.7%. Global sales at stores open for at least one year — so-called comparable store sales — rose by 4%. Earnings and revenue beat estimates.

Caterpillar announced higher-than-expected earnings and revenue. In a press release, noted strong cost cutting measures, while downplaying guidance, writing: “While Caterpillar had strong first-quarter performance and is seeing signs of recovery in several of the industries it serves, geopolitical and market uncertainty along with volatility in commodity prices continue to present risks for the rest of the year.”

Coca-Cola reported a smaller-than-expected quarterly profit due to higher costs related to refranchising its North America bottling operations. Global soda sales fell 1 percent in the first quarter. Coke missed earnings estimates but beat revenue estimates.

AT&T’s quarterly revenue missed estimates on lower equipment sales, as customers held onto their phones longer and did not buy new replacement phones. AT&T lost 61,000 wireless subscribers who pay a monthly bill. Earnings also missed estimates. AT&T, which is in the process of acquiring Time Warner, also said it would no longer give a full-year revenue forecast due to the unpredictability of wireless handset sales.

3M, which makes Scotch tape and Post-it notes, raised its 2017 profit forecast and reported better-than-expected quarterly results, helped by growth across its major businesses. 3M beat earnings and revenue estimates.

Chipotle Mexican Grill reports same store sales rose almost 18 percent in the first quarter.  Sales by that measure had previously declined for five straight quarters following an E. coli outbreak and other food-poisoning incidents that began in 2015. Chipotle is still grappling with higher labor costs and a tight market for restaurant employees.

The chain raised menu prices at about 440 of its 2,200 locations earlier this month to cope with escalating expenses. Still, they managed to beat revenue and earnings estimates. Chipotle opened 57 new restaurants during the quarter, and it reiterated plans to add as many as 210 this year.

Panera Bread plans to hire 10,000 new employees by the end of the year as they expand their delivery services. Some 75 percent of the new hires will be delivery drivers, while the remaining 25 percent will be in-cafe jobs. Panera has already rolled out delivery to 15 percent of its system, including 20 percent of its company-owned locations.

By the end of 2017, it hopes to expand delivery to 35 percent to 40 percent of system-wide locations. The delivery option is expected to add about $250,000 in revenue per restaurant. Panera is in the process of being acquired by privately held JAB Holding in a deal valued at about $7.5 billion.

Earnings season kicked off with the big banks and today Wells Fargo and Citigroup held their annual shareholders’ meetings. It did not go well. Wells’ meeting ran nearly three hours, was repeatedly interrupted by angry shareholders seeking answers about how and why thousands of bank employees could open 2.1 million fake accounts in customers’ names without their permission.

Several shareholders were physically escorted out of the meeting. Proxy adviser Institutional Shareholder Services (ISS) argued the Wells Fargo directors failed in their oversight duties. All directors were re-elected but several, including Chairman Stephen Sanger, barely had a majority of votes. Hardly a show of confidence, and an indicator that we could see a shakeup in the board soon.

Citigroup is one of four lead banks in a group of 17 which have provided project financing for the Dakota Access Pipeline. The pipeline crosses land of the Standing Rock Sioux whose members are concerned about possible ground water contamination if the pipeline breaks.

Citigroup’s shareholder meeting was disrupted by protesters, prompting a rare apology from Chairman Mike O’Neill, who said, “We wish we could have a do-over on this.” CEO Mike Corbat said Citigroup had not given enough early consideration to the concerns of the indigenous people.

The Trump administration announced a 20% tariff on lumber imported from Canada, to be applied retroactively. The trade agreement that governed imports of Canadian lumber expired at the end of 2016, and prices have been on the rise since then. The National Association of Home Builders said higher input costs had already added almost $3,600 to the price of a new home, and the tariff will add $1236 to the price of the average single family home.

The NAHB also says the proposed tariff could cost as many as 8,241 jobs and over $350 million in taxes and other revenues for U.S. governments in 2017 alone. The US lumber industry alleges Canadian wood is heavily subsidized and imports are harming U.S. mills and workers. Canada is the world’s largest softwood lumber exporter, and the U.S. is its biggest market.

Canadian lumber companies called the tariff unfair and Canadian prime minister Justin Trudeau vowed to fight back. International tribunals have considered the issue of whether Canada provides unfair subsidies to lumber exports and ruled that it does not. Log costs are lower in some parts of the US than in some regions of Canada.

The US does not produce enough lumber to meet domestic demand. Homebuilders such as Lennar, Pulte, and DRHorton all dropped today. May lumber futures dropped $10.00 at $385.10, go figure.

Meanwhile, on the southern border, Mexico and the US have been fighting for years over dolphin safe tuna. Mexico says its fisherman play by the rules. The US government disagrees. Today, the World Trade Organization ruled in Mexico’s favor, allowing it to impose trade sanctions worth $163 million a year against the US. The WTO says that’s how much money Mexico has lost from the US unfairly penalizing Mexican tuna.

A US judge has blocked President Trump’s executive order that sought to withhold federal funds from sanctuary cities. The ruling said Trump’s order targeted broad categories of federal funding for sanctuary governments and that plaintiffs challenging the order were likely to succeed in proving it unconstitutional.

The Conference Board said its consumer confidence index fell to 120.3 this month from 124.9 in March, which was the highest reading since December 2000. The index in April was the second highest reading since 2000. Consumers’ assessment of labor market conditions was slightly less favorable than in March. That measure closely correlates to the unemployment rate in the Labor Department’s employment report.

House prices continued to show no signs of slowing, hitting their highest in nearly three years. The S&P/Case-Shiller 20-city index rose 5.9% in the three-month period ending in February compared to the same period a year ago, an acceleration from its 5.7% yearly increase in January. This is the highest rate since July 2014. The 20-city index was up 0.4% for the month, or a 0.7% gain when seasonally adjusted. Phoenix saw a 0.4% gain in the last month, and 5.3% over the past year.

The Commerce Department said new home sales jumped 5.8 percent to a seasonally adjusted annual rate of 621,00 units last month, the highest level since July 2016. New home sales were up 15.6 percent compared to March 2016. They have now increased for three straight months.