FINANCIAL REVIEW

War, Inversions, and Climate

Sinclair Noe — September 23, 2014

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Financial Review

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

DOW – 116 = 17,055
SPX – 11 = 1982
NA – 19 = 4508
10 YR YLD – .03 = 2.53%
OIL + .06 = 91.62
GOLD + 8.10 = 1223.90
SILV + .05 = 17.88

First up: war. You’ve probably heard by now that the US launched several airstrikes against ISIS targets inside Syria and, separately, in potentially averting an imminent threat to the homeland from an al Qaeda group called Khorasan. Many of the targets were in and around Raqqa, Syria, believed to be an ISIS stronghold. Several Arab nations took part in the US-led operation: Jordan, Saudi Arabia, Bahrain, Qatar and the United Arab Emirates. A spokesman for the Pentagon said they are still assessing the effectiveness of the bombing campaign but the Pentagon believes they were “successful in hitting what we were aiming at.”

The airstrikes against Khorasan was in response to threats, however officials so far have provided no details about the terrorists’ planned attack or the credibility of the intelligence they had on it. A Pentagon spokesman said “the individuals plotting and planning it were eliminated.”

The Syrian government says the US told it of plans to carry out airstrikes. The State Department immediately denied that it gave prior notification. Reuters reports Iranian officials were informed of the airstrikes in advance, but not specific targets. Meanwhile, the Israeli military said that it had shot down a Syrian fighter jet that had “infiltrated into Israeli airspace,” the first such incident in at least a quarter of a century. It is thought that the jet wandered into Israeli airspace accidentally. Maybe, but it also illustrates the possibility of unintended entanglements coming out of the conflict.

In economic news: manufacturing activity is near a 4-1/2 year high in September and factory employment is up, but housing prices were sluggish in July.

Financial data firm Markit said its preliminary or “flash” factory purchasing managers index came in at 57.9, unchanged from August when it touched its highest level since April 2010. A reading above 50 indicates expansion. Manufacturing activity in the third quarter was the strongest since Markit started tracking it in mid-2007. Factory jobs rose for a second straight month, and new orders held steady above 60 for the third time in the last 4 months.

The Federal Reserve Bank of Philadelphia said its new general activity index for non-manufacturing firms in the mid-Atlantic region jumped sharply. The increase in activity reflected more new orders, sales and full-time hiring. Service sector employees also worked longer hours, while firms increased their capital spending.

The Federal Housing Finance Agency said home prices increased 0.1% in July, and 4.4% in the 12 months through July, the smallest gain since September 2012.

Further data showed euro zone business activity in September was the weakest this year, while factory activity in China picked up only slightly.

The Treasury Department today announced new rules to crack down on corporate tax inversions. The idea behind inversions is that a US business merges with or is acquired by a foreign company in a country with a lower tax rate; by redomiciling, or moving their headquarters to the lower tax rate country, they can lower their tax bill, even if they keep most of their business in the US. Obama applauded the Treasury for taking steps to reverse the trend of companies seeking to “exploit this loophole” to avoid paying their fair share in taxes. Yet he said he was still calling on Congress to pursue broader tax reform that would reduce the corporate tax rate, close loopholes and make the tax code simpler.

The new rules will mean little for companies that have already inverted, but for at least 10 companies in the midst of completing such deals, and for those considering inversions, the impact will be significant. Most pending deals could become more costly for the buyers, such as AbbVie, and its $54 billion deal to acquire Ireland’s Shire, as well as Medtronic and its $42 billion takeover of Covidien. Neither of these transactions, the biggest of the year, was expected to fall apart completely, partly because paying a break-up fee to walk away would likely be even more costly. AbbVie would have to pay Shire a $1.6 billion penalty if it were to renege on their merger agreement. Medtronic has a contract that lets it or Covidien walk away from their deal if the US Congress changes tax law. The Treasury’s new rules fall short of that, so a break-up fee likely would loom in this case, too, if the merger were called off. Burger King said it will proceed with its $11 billion deal with Canada’s Tim Hortons, stressing that the transaction was not about tax benefits.

There are also some new rules unveiled by the Treasury today, and some of these tax evasion schemes have names that sound like they came right off the playground. One rule will prevent inverted companies from using “hopscotch” loans that allow them to avoid dividend taxes when tapping tax-deferred foreign profits. Another rule will bar inverters from gaining access to offshore profits by using “decontrolling” strategies that restructure foreign units so they are no longer US-controlled. The Treasury is also tightening limits on the levels of ownership that the former US investors can have in an inverted company for it to qualify for foreign tax treatment under US law, a move that will make it harder to do the deals. And then there’s the “spinversion” which is a partial inversion where the US company transfers some of its assets to a newly formed foreign corporation. That corporation is then spun off to public shareholders. New rules would treat the spun-off company as a domestic corporation.

Ultimately, this is an issue that will require legislative action, but for now, it will be more difficult for companies to skip out on their tax obligations by moving offshore; more difficult but not impossible. I suspect there are a lot of tax attorneys working overtime today.

The United Nations Climate Summit kicked off today in New York. The summit was convened to lay the groundwork for nations to sign a binding emissions treaty late next year during climate negotiations in Paris. In speeches delivered at the summit, diplomats from 120 countries laid out a series of new, nonbinding climate commitments. Here is an overview of what world leaders have pledged so far: President Obama delivered an address at the summit this afternoon where he announced an executive order requiring federal agencies to take climate change into account when doling out dollars for international aid and investment abroad. The US has previously pledged to curb emissions 17% from 2005 levels by 2020.

The EU unveiled a new commitment to slash greenhouse-gas emissions 40% from 1990 levels by 2030. British Prime Minister David Cameron said that the U.K. is on track to cut emissions by 80% by 2050. Cameron did not, however, announce any new targets not already agreed to by the country. China’s Vice Premier repeated China’s previously stated goal of cutting carbon emissions by 40 to 45% from 2005 levels by 2020. Iceland said that it aims to power its economy entirely with clean energy, but did not set a date. Mexico announced that it aims to generate more than one third of its electricity from zero-emissions sources by 2018. Costa Rica will be powered purely from clean energy by 2016. And a whole bunch of countries pledged hundreds of million to the Green Climate Fund.

Sounds familiar, right? But maybe this time will be different, and the reason is because this time it might actually pay to go green. All things considered, the cost of curbing carbon emissions may be considerably cheaper than earlier estimates had suggested. For all the fears that climate change mitigation would put the brakes on growth, it might actually enhance it.

Last week, an international commission published the “New Climate Economy” report concludes that efficient investments could deliver at least half of the emission cuts needed by 2030 to keep global temperatures in check. And they could do so while delivering extra economic gains on the side. Side benefits include things like lower health costs.

And it looks like corporations are getting on the climate change bandwagon. Tim Cook, CEO of Apple was in New York, and he said: “The long-term consequences of not addressing climate are huge,” he said. “I don’t think anyone can overstate that.” Google executive chairman Eric Schmidt announced Google would stop funding the American Legislative Exchange Council, or ALEC, claiming the Council had been “literally lying” about the reality of climate change. Schmidt said: “The company has a very strong view that we should make decisions in politics based on facts — what a shock,” said Schmidt. “And the facts of climate change are not in question anymore. Everyone understands climate change is occurring and the people who oppose it are really hurting our children and our grandchildren and making the world a much worse place. And so we should not be aligned with such people — they’re just, they’re just literally lying.”

The basics of climate change have been understood for a long time, don’t seem to be budging much and yet remain challenged by many non-specialists. What’s significant then, in such a public debate, is who acknowledges those basics, as much as what is said. That’s why it was news when former Treasury Secretary Hank Paulson called for a carbon tax, when the Rockefellers, the first family of oil pulled out of oil sands or, the head of the world’s largest company by market cap endorses a brand new climate and business initiative by showing up and saying absolutely anything at all. Tim Cook also challenged the still-common fallacy that good business and environmentalism are mutually exclusive. “Too many people believe you can do this or that,” he said. “If you innovate and you set the bar high you will find a way to do both.”

The World Bank yesterday released a list of 73 countries and more than 1,000 companies that support a price on carbon dioxide pollution. Apple, which now powers 73% of its facilities with renewable energy and has raised its environmental profile, was not among the signatories.

We Have Met the Enemy

Financial Review with Sinclair Noe — September 11, 2014

Podcast: Play in new window | Download (Duration: 13:15 — 6.1MB) 

 

DOW – 19 = 17,049
SPX + 1 = 1997
NAS + 5 = 4591
10 YR YLD – .01 = 2.53%
OIL + 1.38 = 93.05
GOLD – 8.80 = 1241.20
SILV – .27 = 18.77

I’m fairly certain that at some point during this day you have taken at least a moment to recall where you were 13 years ago, how you heard the news, how you responded to the news. Maybe you can recollect specifics or maybe some of the memories have faded in time. What you knew exactly 13 years ago is probably quite different than what you know today.

Last night I watched the president announce another war; this one will be different than the last one; so we are told. The plan is to expand the airstrikes against ISIS and take the fight to their base in Syria. It is no longer just about protecting American embassies and limited humanitarian efforts. The new plan is open-ended, and will likely be long-term. We won’t have combat troops on the ground, but we will have troops in Iraq; about 1600 US troops; I’m fairly certain they are capable of combat if pushed. Boots on the ground combat will come from Iraqi forces and Syrian rebels, apparently.

House Speaker John Boehner says the country should unite behind the administration, even if we don’t know all the details of the plan. Some opposition has come from both the left and right wings. Congress will vote on it next week, and it will likely pass, but there are no guarantees of passage; it may be the only thing Congress can agree on.

Even if nobody actually knows what the threat is or why it’s imminent. American intelligence agencies have concluded that ISIS poses no immediate threat to the United States. Some officials and terrorism experts believe that the actual danger posed by ISIS has been distorted in hours of television punditry and alarmist statements by politicians, and that there has been little substantive public debate about the unintended consequences of expanding American military action in the Middle East. One thing that politicians are good at is spinning the public into a panic.

The big issue in Washington is how war might affect the midterm elections; which is entirely the wrong reason for doing anything. Administration officials told lawmakers in a closed briefing that the new counter-terrorism campaign is covered by the broad authority Congress granted President George W. Bush in 2001, after the 9-11 attacks, and in 2002, to enter the Iraq War.

Secretary of State John Kerry is traveling the region this week to build the international coalition Obama is seeking to take on ISIS. Today, Arab states vowed to “do their share” to destroy ISIS. A joint communiqué issued by the United States and 10 Arab states endorsed a broad strategy to stop the flow of volunteers to ISIS, curtail its financing and provide aid to communities that had been “brutalized” by the militants. It also called for a coordinated military campaign in which nations would contribute “as appropriate.” None of the Arab participants said precisely what they would do, and it remained unclear whether any would join in the actual fighting.

Kerry hopes to sign up as many as 100 countries, which would make for some strange bedfellows. Decades of entrenched autocratic mismanagement and abusive rule in the Middle East and North Africa cannot be erased overnight; I am not confident they can be reversed by foreign intervention. Populations in the region will have to chart their own course in struggles that are likely to be volatile and deadly. The US and others cannot do it for them. Maybe we can help in some way, but our help tends to have unintended consequences and high price tags.

I don’t know how this will all play out over time, but my guess is that it will be a nasty, slow-motion train wreck. And 13 years from now, we’ll look back and be amazed at where we are and how we got there. Yes, I remember where I was on 9/11. I think where we ended up is more important.

Meanwhile, America’s NATO allies face other security challenges, foremost of them Russia’s aggression against Ukraine. Despite the current ceasefire in Ukraine, the US will unveil new sanctions against Russia’s financial, energy and defense sectors. President Obama said that the US “has yet to see conclusive evidence that Russia has ceased its efforts to destabilize Ukraine.” If Russian President Vladimir Putin pulls out of Ukraine, the sanctions could be rolled back, but if “instead Russia continues its aggressive actions and violations of international law, the costs will continue to rise.”

Russia offered up some of the strongest reaction to the plan to go after ISIS. Remember, Russia is Syrian President Bashar Assad’s main international ally. A Russian Foreign Ministry statement said such military action without a UN Security Council resolution “would be an act of aggression and flagrant violation of international law.”

You might think that the geopolitical problems might give Wall Street a pause, but that doesn’t seem to be the case. The Wall Street Journal’s monthly forecasting survey polled economists on whether their outlook for the world’s largest economies had improved or deteriorated. The survey of 48 economists showed that a resounding majority believe things in the US are likely to improve over the coming year, versus the first half of 2014. But their attitudes towards the eurozone, Japan and China were mixed. One-quarter of economists said their outlook for China had improved, versus nearly 40% that said it had deteriorated. Around 40% said their outlook for Japan had improved, while around one in eight said it had deteriorated. For Europe, about one-third said their outlook had improved, roughly balanced with the share seeing a worse outlook. There was no apparent concern about geopolitical hotsppots.

If anybody is going to end the bull market party, it’s more likely that we will just make a mess of things all by ourselves.

Corporate America celebrates 9-11… no, that’s not the right word, they commemorate…., no that’s not the right word either; they stupidly think they are required to send out social media messages marking the day. That’s it, they’re marking the day: CVS Pharmacy says: We Remember. White Castle hamburger also says: We remember. The Vitamin Shoppe says: We pause and remember. Bikram Yoga says: 9 + 11 = 20% off! Patriot Day Sale. If you ever needed absolute proof that corporations are not people, just check the corporate 9-11 tweets.

And as for the idea that corporations are patriotic, well, tax inversions destroyed that myth. You might think the shame would push them to do the right thing, which is funny. But now we find out it is bad business. Standard & Poor’s Rating Services warned tax-dodging deals known as “tax inversions” could hurt the credit ratings of the companies that do them. When humans have lower credit ratings, they have a harder time borrowing money for new Camaros or iPhone 6 Pluses or whatever. When companies have lower credit ratings, they have a harder time buying computers or private jets or whatever.

But wait, you might be thinking, isn’t the whole point of dodging taxes to get more money, which usually means better credit ratings? Sure, but it doesn’t always work out that way. Here’s why S&P thinks tax inversions are bad: Companies will often borrow a bunch of money today to buy a company to get that sweet tax-free cash in the future. That’s not good for credit ratings. And sometimes they’ll buy another company just for the tax break and then realize, too late, that merging with that other company makes no actual business sense. Everybody suffers, business suffers, credit ratings suffer, and those tax breaks don’t seem so sweet any more.

Companies will also do kind-of-stupid things once they get their hands on money. Tax-inversion deals let them tap all the cash they’ve been hiding offshore from Uncle Sam. Then they give it all away to shareholders and their executives, or maybe they place a bet at the racetrack. Next thing you know, the money’s gone. That’s also bad for the credit rating.

Now you might think that the bad PR would be another reason why companies should not do tax inversion deals, but that would be wrong. There might be some fallout from a boycott of Walgreens or Burger King, but you know and I know and corporations know the consuming public is an unorganized mess. And the threat of boycott or angry speeches from politicians threatening to actually do something, which we all know is just bluster; that has just encouraged the companies to hurry up and do deals while they still can.

Ever notice how the stock market and corporate profits are at all-time highs, while our wages are flat and roughly half of us still think the economy is in recession? America’s capitalists take every chance they get to remind us that they are our “job creators,” but it turns out that their least-favorite thing on earth to do is create jobs. Most U.S. business leaders would rather build robots, outsource work or use part-time employees than hire workers full-time, according to a new Harvard Business School survey; 46 percent of our job creators would rather spend money on technology than employ humans, compared with a sad 26 percent who prefer people to robots, and another 29 percent who were confused or indifferent about the question or fell asleep while the survey taker was talking. Forty-nine percent would rather outsource than hire, compared with 30 percent who’d rather hire.

This is also bad news for the future of the economy because it means fewer workers are getting the training they need for our super-awesome, high-tech, no-job economy, Harvard pointed out: “Firms invest most deeply in full-time employees, so preferences for automation, outsourcing, and part-time hires are likely to lead to less skills development.” This will give business leaders, who already think we lack the necessary skills for their precious jobs, even less reason to hire us in the future.

Pogo said it best: We have met the enemy and he is us.

Tuesday, August 26, 2014 - A Few Old Sayings

Financial Review with Sinclair Noe

DOW + 29 = 17,106
SPX + 2 = 2000.02 (record)
NAS + 13 = 4570
10 YR YLD + .01 = 2.40%
OIL + .55 = 93.90
GOLD - .70 = 1280.90
SILV - .08 = 19.38

The S&P 500 notched its 30th record of the year and closed above 2000 for the first time ever. The Dow also rose but fell short of its record closing high after setting an all-time intraday high earlier in the session.

There are a few old sayings about the market that seem to fit. The first is, “the trend is you friend”; we have seen a few minor pullbacks since the bottom in 2009, but since the start of 2013 there has been a strong and steady uptrend. “A trend in place is more likely to continue than it is to reverse, until it reverses” and today marked a continuation of the trend, not a reversal.

Why is the market going up? Who knows? There are plenty of problems around the world. The US economy looks sluggish, but “stocks climb a wall of worry to march into bullish territory”; that’s a phrase that’s been thrown around for more than 60 years, but was made popular by Joe Granville in the 1980s.  Another financial proverb claims “Worry is interest paid on trouble before it falls due.” And the opposite of the “wall of worry” is “Bear markets slide down a slope of hope.”

And then there is the very, very old saying “buy low, sell high.” Any idiot off the street could repeat this phrase to you as if they had the secret recipe for investing success. Honestly, it’s good advice, because the overwhelming top indicator for investors and traders is price. You can’t spend volume or moving averages or stochastics or relative strength, and eventually, inevitably the trend will change.

If you want to look at a chart of an uptrend, just look at the S&P 500. If you want to see a chart of a downtrend look at the past four months’ worth of charts for wheat and corn and soybeans. As we near the end of summer, farmers are preparing for record crops in the Midwest. Wheat crops are forecast at a record 273 million bushels, up from 235 million last year; this year’s  soybean harvest is also expected to be a record, and corn will be a near record. But there is a problem. In many areas, such as the Dakotas, where agriculture has been a mainstay, the energy boom has taken over, and most of that oil travels by rail, and that means grain shipments have been held up, right as we head to harvest.

Reports the railroads filed with the federal government show that for the week that ended Aug. 22, the Burlington Northern Santa Fe Railway, North Dakota’s largest railroad, had a backlog of 1,336 rail cars waiting to ship grain and other products. Another railroad, Canadian Pacific, had a backlog of nearly 1,000 cars. Agriculture Department officials estimate that Canadian Pacific would not be able to fulfill nearly 30,000 requests from farmers and others for rail cars before October.

We have a couple of reports on home prices. The Federal Housing Finance Agency’s home price index shows house prices rose just 0.8% in the second quarter of 2014. This is the twelfth consecutive quarterly price increase for the FHFA index, but it also shows a slowdown. The FHFA index is based on home sales prices from conforming mortgages through Fannie Mae and Freddie Mac. Home prices are up 5.2% from the second quarter a year ago. Arizona ranked 5^th in annual appreciation.

In another indicator of a housing slowdown, the S&P/Case-Shiller National Home Price Index gained just 6.2% in the 12 months ending June 2014, while the 10-City and 20-City Composites gained 8.1%. That’s a dramatic shift from the double-digit, year-over-year price increases that had become the norm in the second half of 2013 and the first part of this year. All three indices saw their rates slow significantly from last month. To be clear, home prices are not dropping, simply rising at a slower rate.

The 20-city composite rose 1% in June. Phoenix posted a 0.6% gain for June, and a 6.9% gain from June of last year. Nationally, prices are still 17% below their peak. In Phoenix, the peak was measured to June 2006; from that point prices dropped 56%, and although prices have recovered, we are still 35% below peak prices.  

The takeaway from the housing reports is that price gains are slowing, and home supply has increased with higher prices and more people renting; consumers are slowly losing their ability to finance large purchases as home price appreciation continues to outpace wages. Absent a big increase in wages, you might expect home prices to remain flat or even decrease a bit in coming months.

Orders for durable goods jumped 22.6% in July; that is a record move, but much of the increase is because Boeing saw a jump in signed contracts for the 777X; it will take years before those planes are flying. Along with Boeing, automakers also turned in a strong performance. Demand for cars and small trucks climbed by 10.2%. Orders excluding the transportation sector, however, fell 0.8% with widespread weakness. Orders for primary metals, machinery, computers and defense goods all declined. Another key measurement of business investment, a category known core capital goods, dropped 0.5% in July. Orders for durable goods are volatile, and can jump around from month to month. While business investment has fallen in three of the past four months, it’s increased by an annual pace of 9% so far this year.

The Conference Board’s consumer confidence index jumped to 92.4 in August, the highest level since October 2007, from a revised 90.3 in July. Confidence has now increased for four straight months, and consumers remain quite positive about the short-term outlooks for the economy and labor market, even as the future expectations index declined from 91.9 to 90.9.

It’s official, minus the approval of regulators; Burger King will buy Tim Hortons for $11.4 billion and move the corporate headquarters to Canada, except they will keep corporate offices in Miami; and even though the deal would make sense without the tax dodging; it is a tax inversion deal. Warren Buffett’s Berkshire Hathaway is providing $3 billion in financing for the acquisition. Berkshire will earn 9% annual interest by taking a preferred equity stake.

The Department of Veterans Affairs says investigators have found no conclusive proof that delays in care caused any deaths at a VA hospital in Phoenix. That may be technically accurate, or not, but a troubled health care system in which veterans waited months for appointments while employees falsified records to cover up the delays, certainly did not serve those veterans with the care they deserved. The inspector general's final report has not yet been issued.

The VA is preparing a whole host of fixes for its healthcare system. Congress approved $17 billion to expand health care resources at the VA. Across the entire VA system, $400 million must be spent on staff overtime or private doctors to ensure veterans are treated quickly. As of Aug. 6, the VA had allocated $128 million in private care costs for 83,000 veterans; 8,248 VA schedulers across the country have been trained in appropriate ways of scheduling patients, including 764 Phoenix workers; an internal investigation board will be created to identify managers at the Phoenix hospital responsible for wrongdoing and what disciplinary actions should be taken; nearly $17 million has been spent in Phoenix to send veterans to private doctors for speedier care.

Also, mental health resources have been expanded in Phoenix by filling all but three of 13 psychiatric vacancies and six of seven psychologist positions and adding four social workers. The hospital's primary care staff has been expanded by 53 doctors, nurses and other caregivers. Twenty-seven temporary examination rooms have been opened, and two new outpatient clinics are planned with an additional 30,000 square feet of space.

President Obama went to Charlotte North Carolina today to address the national convention of the American Legion; and he announced steps to expand veterans’ access to mental health care and an initiative with financial companies to lower home loan costs for military families.

The US has begun surveillance flights over Syria to gather intelligence that might lead to airstrikes against ISIS militants in Syria. Military action inside Syria has not been approved yet. Pentagon officials have been drafting potential options for the president, including airstrikes.

Here’s a thought, before we send any more troops back into Iraq, or approve any airstrikes in Syria, we should make sure the VA has figured out a way to provide the best medical care to veterans. No excuses.

Ukraine has captured 10 Russian soldiers, though it did not state how they were caught. Weapons and fighters are able to cross the porous border freely, but until now there has never been confirmation that serving Russian soldiers were active inside Ukraine, despite repeated claims from Kiev. Russian President Vladimir Putin and Ukrainian President Petro Poroshenko held one-one-one talks today in Minsk, aimed at defusing the situation, which is positive, but the Russian POWs undoubtedly makes talks a bit awkward.

After 50 days of fighting, Egypt has brokered a ceasefire between Gaza and Israel. Palestinian and Egyptian officials said the deal called for an indefinite halt to hostilities, the immediate opening of Gaza's blockaded crossings with Israel and Egypt and a widening of the territory's fishing zone in the Mediterranean.

The United Nations has produced a new study on climate change; it includes a summarization of hundreds of scientific papers and is considered to present the best scientific and economic analysis on global warming, and is designed to provide policymakers with a scientific foundation for dealing with global warming. Bloomberg says it has received a leaked copy of the report which highlights the dangers from rising temperatures including damage to crop production, rising sea levels, melting glaciers and more pervasive heatwaves. The report mentions the word “risk” more than 350 times; “vulnerable” or “vulnerability” are written 61 times; and “irreversible” comes up 48 times.

The study, called the “Synthesis Report”, says global warming already is impacting “all continents and across the oceans,” and further pollution from heat-trapping gases will raise the likelihood of “severe, pervasive and irreversible impacts for people and ecosystems”. And the longer we wait to address the problems the more it will cost.

Monday, August 25, 2014 - Tax Weasels

Financial Review with Sinclair Noe

DOW + 75 = 17,076
SPX + 9 = 1997.92 (record)
NAS + 18 = 4557
10 YR YLD - .02 = 2.38%
OIL - .27 = 93.38
GOLD – 4.60 = 1277.20
SILV - .05 = 19.45

The S&P 500 crossed above 2000 intraday, closing off the high for the day, but still closing in record territory. We recognize it but we don’t have a big celebration. It’s just a number, a nice big round number. For reference, the S&P 500 topped 1,000 back in February 1998.

Economic data today includes:

Sales of new single family homes dropped for a second month in June. New home sales slipped 2.4%, but data from the past 3 months was revised to show 33,000 more new homes were sold than previously reported. The median sales price increased 2.9% from a year ago. At July’s sales pace it would take 6.0 months to clear the supply of houses on the market, the highest since October 2011. Tomorrow, we’ll see the latest data on existing home sales from S&P/Case-Shiller.

Separately, financial data firm Markit said its preliminary services Purchasing Managers Index dipped to 58.5 this month from 60.8 in July.A reading above 50 indicates expansion.

Last Friday ECB President Mario Draghi delivered the luncheon speech at the Jackson Hole Symposium; Draghi said the ECB had done all it could for now and the governments of the EU needed to step up. Today a survey was published from the National Association for Business Economics and the conclusions show most economists surveyed think the Federal Reserve’s monetary policy is on track but the US needs to enact structural policies in order to stimulate stronger economic growth.  The Fed’s expansionary monetary policy has been at odds with a sharply restrictive fiscal stance that saw budget deficits declining from 11% of GDP in 2009 to less than 3% this year.

Economists overwhelmingly expect the Federal Reserve to hold off raising short-term interest rates until at least 2015. But nearly a third say doing so would mean the central bank waited too long. While many economists appear at ease with the “steady-as-she-goes perspective” from the Fed, “almost 40% say the stimulus policies are no longer necessary and should be curtailed or sunset.” On other topics, business economists say immigration reform is one of their top priorities, and the US needs to let more immigrants in. Meanwhile, the economists surveyed support the idea of lifting the ban on exports of US-produced crude oil and nat gas. The industry is pushing for the right to export more fuel overseas to ease the threat of overproduction, a move that could also help reduce the US trade deficit. The White House moved this summer to loosen restrictions on crude exports, but an outright end to the ban faces higher hurdles, and would require Congressional approval.

A new academic paper from economists from the University of Chicago and the University of Maryland suggest the weakness in employment is not just a result of the Great Recession, but a longer-term structural change in the economy; the share of Americans with jobs has declined because the labor market has stagnated in recent decades; fewer startups creating new jobs; fewer people losing or leaving jobs, fewer people landing new ones. This suggests the US has been headed to higher unemployment even before the financial crisis, and even if we add jobs, we still have problems that can’t be overcome by Federal Reserve monetary policy alone. The paper says that a 1 percentage point decline in the churning of the labor market lowers the employment rate by 0.77 of a percentage point, a huge effect.

It’s Monday, and so we have some mergers to cover. The Swiss drug maker Roche agreed to buy InterMune for $8.3 billion. InterMune is based in California; it has one drug called pirfenidone to treat idiopathic pulmonary fibrosis, a fatal scarring of the lungs. It is licensed to sell the drug in Europe, and hopes to get approval in the US later this year. About $87 billion in pharmaceutical acquisitions were made in the first half of this year, eclipsing the total for all of 2013.

If you are Canadian or have ever been to Canada or know Canadians, then you probably know Tim Hortons; it’s a chain of coffee and donut shops; kind of like Starbucks but the coffee is actually good. And it may be the new home of the Whopper. Burger King wants to buy Tim Hortons. If completed, the deal would mean Burger King’s corporate headquarters would move to Canada, where it would qualify for a corporate inversion, with the idea of lowering Burger King’s corporate tax bill. The actual headquarters and the executives go nowhere, but the nominal address changes so the company can avoid US tax rates. Burger King says the deal is not about the taxes, but about the coffee, and the fast food breakfast business. Coffee may be an especially important attraction for Burger King and its majority owner, the Brazilian investment firm 3G Capital. In Tim Hortons, Burger King would be getting a restaurant chain that is essentially synonymous with coffee in Canada. Yea, that’s the reason; it’s the coffee, not the taxes; or maybe they’re trying to create a new donut-burger. Yea, that’s it. They’re just trying to compete with waffle tacos and sausage pancakes.

With the 15% nominal rate in Canada, this is absolutely a move about taxes; rooted in the lie that American corporations pay the highest tax rates in the world, which is not true when you consider the effective rates rather than nominal rates. When it comes to effective rates, what corporations actually pay, the US ranks 17^th out of 27 developed countries. Walgreens recently scrapped an inversion deal because of public blowback. Once one of these brands pulls off an inversion deal without blowback that actually hurts sales, it will be a run for the exits.

There are so many companies trying to weasel out of taxes that the inversion trend is the hot new thing on Wall Street, so hot that JPMorgan is backing a new online broker that has bundled up 25 companies seen as inversion targets. The basket of companies is called the Tax Inversion Targets, or TIT; I am not making this up. Count on JPMorgan to go for the most weasely product and then tack on a bit of tacky.

Late Friday, Goldman Sachs agreed to buy back $3.15 billion in mortgage bonds from Fannie Mae and Freddie Mac to end a lawsuit filed in 2011 by the Federal Housing Finance Agency. The FHFA accused Goldman of dumping low-quality mortgage bonds during the run-up to the financial crisis. Goldman is not paying a penalty, but it is estimated the bonds are worth only about $2 billion today. Last month, lawyers for the FHFA presented evidence showing that Goldman was aware of weakness in the subprime mortgage market but did not pass that info to clients buying subprime bonds, even as Goldman was shorting the bonds. Just to be clear, Goldman was selling the bonds and simultaneously betting the bonds would fail.

AP is reporting that a column of Russian tanks and armored cars crossed into Ukraine’s far southeast, which is away from the fighting that has been taking place. The markets have been worried about a Russian invasion of Ukraine; now it looks like it is happening, and the markets seem to discount it.

ISIS, has been fighting in Iraq, and even though US airstrikes are inflicting damage, they are still entrenched. Meanwhile, they have taken over a key government airbase in Syria. BBC says government forces evacuated the airbase. Syrian state television confirmed that government troops had lost control of the base. The US has not been targeting airstrikes against ISIS in Syria.

Twice in the last seven days, Egypt and the United Arab Emirates have secretly teamed up to launch airstrikes against Islamist-allied militias battling for control of Tripoli, Libya. Responsibility for the airstrikes was initially a mystery. After the first set, several American officials initially said that signs pointed to the United Arab Emirates, but clearly American intelligence was surprised.

Workers are assessing quake damage and starting to clean up after a 6.0 magnitude quake in Napa California; it was the strongest quake in the San Francisco area in 25 years. Approximately 172 people were treated for mainly minor injuries; two people had serious injuries; no deaths have been reported. Several building were badly damaged and a mobile home park caught fire. The biggest economic damage may come to wineries.

Meanwhile, a large 6.9-magnitude earthquake has struck a sparsely populated area of central Peru. There were no immediate reports of damage or injuries, and authorities were still surveying the region.

Hackers again showed how powerful electronic attacks can be when they forced Sony's PlayStation Network and Blizzard's Battle.net offline over the weekend. The same group responsible for shutting down the gaming platforms, which calls itself the Lizard Squad, also claimed credit for sending a bomb threat via Twitter that grounded a plane carrying Sony Online Entertainment president John Smedley. The plane was traveling from Dallas to San Diego but was diverted to Phoenix. No bomb was found.

Earlier this month, the computer systems at 51 UPS stores were found to have been infected with malware that could potentially allow criminals to gain access to consumer data. The FBI says that up to 1,000 retailers could have malicious software on their sales systems, potentially exposing sensitive information to identity theft and financial fraud.

And that raises the question of why companies continue to get hacked? The most probable answer is that corporate executives just don’t want to spend the money on security because they consider it a cost without a financial benefit; at least until after the fact.

And finally, John Sperling has died at the age of 93. Back in 1978, Sperling founded the University of Phoenix. The University of Phoenix has a presence in 38 states and in Puerto Rico, and at one point touted 242,000 students, although that number has significantly dropped. Sperling became a billionaire, and he used his wealth on several philanthropic projects, including research into seawater agriculture and anti-aging medicine. He was also an outspoken critic of the government's war on drugs, advocating for treatment instead of criminalization.