Financial Review

Carving a Turkey

Sinclair Noe — November 8, 2017

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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.

Financial Review

Sparring

Sinclair Noe — July 20, 2017

Podcast: Play in new window | Download (Duration: 11:25 — 6.5MB)

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DOW – 28 = 21,611
SPX – 0.38 = 2473
NAS + 4 = 6390 (record)
RUT + 0.58 = 1442 (record)
10 Y – .01 = 2.27%
OIL – .39 = 46.73
GOLD + 3.00 = 1245.00
BITCOIN – 1.93% = 2821.99 USD
ETHEREUM – 0.26% = 227.99

Sen. John McCain tweeted a message of gratitude for the outpouring of support that greeted news Wednesday of his brain-cancer diagnosis. He tweeted: “I greatly appreciate the outpouring of support – unfortunately for my sparring partners in Congress, I’ll be back soon, so stand-by!”

The Dow and the S&P fell slightly from record highs, while the Nasdaq and Russell 2000 squeaked out new record highs. It was close, but the MSCI Emerging Markets Index of stocks managed to eke out its ninth straight increase. That’s the longest rally since April 2015. The 0.02 percent rise in the index was the smallest of the current streak. Still, that brought the index’s gain for the year to 23 percent.

Europe’s economy is experiencing a pickup in both current and forward indicators of growth. Improvements in household and corporate sentiment and activity have been reinforced by a decline in perceptions of political risk following the victory of Emmanuel Macron in the presidential and legislative elections in France.

The European Central Bank may not make a decision on the future of its bond-buying program until October. Policy makers are currently committed to spending 60 billion euros ($70 billion) a month on debt until at least December, and have repeatedly said any winding down must be gradual.

The ECB Governing Council met in Frankfurt today, ECB President Mario Draghi told reporters that policy makers unanimously agreed to put off a formal debate until the fall, but that they opted not to set a precise date for talks.

If you missed out on the euro’s rally because you thought European Central Bank President Mario Draghi was leaning dovish at today’s news conference after policy makers decided to keep interest rates unchanged, you’re forgiven. After all, Draghi emphasized several times the need for patience and evidence that wages and inflation are on the rise before winding down stimulus measures.

All that would normally weigh on a currency. But what Draghi didn’t do was dwell on the recent strength of the euro, other than to say it had received “some attention.” For traders, that was a green light to push it above $1.16 for the first time since May 2016. The euro is spiking because Draghi has not been able to put ‘FX’ and ‘policy’ into the same sentence.

The Fed is on a course of gradual rate increases. Bond guru Bill Gross is warning about looming interest rate increases and the damage they can do to a debt-laden global economy. In his monthly investor outlook, the Janus Henderson Advisors fund manager said the course of global central banks toward tightening policy could be perilous for the economic recovery. Raising interest rates will increase the cost of short-term debt that corporations and individuals hold.

In the U.S. alone, households have $14.9 trillion in debt while businesses owe $13.7 trillion. Gross said, “While governments and the U.S. Treasury can afford the additional expense, levered corporations and individuals in many cases cannot. ”

A broad measure of how well the U.S. economy is performing surged in June after a strong gain in May, suggesting growth could speed up in the months ahead. The leading economic index jumped 0.6% last month after a revised 0.4% increase in May.

The improvement in the index was spearheaded by strong housing permits after several months of weakness. Home builders plan to step up construction to meet rising demand as the economy enters is ninth year of expansion.

The U.S. got off to a slow start in 2017, and although growth accelerated in the spring, the economy is still not expanding full bore despite the strongest labor market in more than a decade.

The Congressional Budget Office has release its analysis of the latest version of Senate Republicans’ legislation to repeal and replace the Affordable Care Act. CBO says it would leave 22 million Americans without health insurance coverage by 2026. Yesterday, the CBO said that a repeal-only version would result in 32 million uninsured by 2026.

The number of Americans who applied for unemployment benefits sank in mid-July and hovered near a 44-year low, reflecting the healthiest jobs market in more than a decade. Initial jobless claims in the period running from July 9 to July 15 fell by 15,000 to a seasonally adjusted 233,000.  That matches the second-lowest level since the 2007-09 recession.

Arizona’s seasonally adjusted unemployment rate remained the same at 5.1% in June. The US unemployment rate was 4.4% in June. A year ago, the Arizona seasonally adjusted rate was 5.3% and the US rate was 4.9%. Arizona lost 42,800 Non-farm jobs in June. The Private Sector lost 5,700 jobs. Government lost 37,100 jobs. Arizona Non-farm employment grew by 2.4% (62,700 jobs) over the year in June.

With tech stocks at a record high — and stalwarts like Microsoft having doubled their market cap in just about three and a half years — some may worry that we’re setting up for a repeat of the tech bubble. Others may point to research that shows tech earnings are rising in-line with the index’s overall march higher.

Sometimes, things are different. And, on cue, Microsoft reported a better-than-expected quarterly profit and revenue. Microsoft said revenue from its cloud unit, which includes the flagship Azure platform and server products, rose about 11 percent to $7.4 billion in the quarter.

The company’s net income more than doubled to $6.5 billion, or 83 cents per share, from $3.1 billion, or 39 cents per share, a year earlier. Excluding one-time items, Microsoft earned 98 cents per share beating estimates of 71 cents. On an adjusted basis, revenue rose 9 percent to $24.7 billion – also beating estimates.

Microsoft shares hit an intraday record price of $74.30 and closed at an all-time high of $74.22. Microsoft reported after the closing bell, and share were up about 1.5% in after-hours trade.

Visa reported a better-than-expected quarterly profit and raised its full-year earnings forecast. Consumer spending has been on the rise in the United States, and shoppers pay with plastic. Visa’s payment volumes in the US rose 12.1 percent on a constant dollar basis to $840 billion in the quarter.

More than half of the company’s total volume of transactions comes from the United States. Net income rose to $2.06 billion, or 86 cents per share – beating estimates of 81 cents, and up from $412 million, or 17 cents a year ago. Visa also raised its forecast for full-year profit.

EBay reported a nearly 94 percent fall in quarterly profit. Net income fell to $27 million, or 2 cents per share, in the second quarter, from $435 million, or 38 cents per share, a year earlier. They did have about $400 million in income tax provisions that dented profits… still, not good.

As part of its review of Amazon’s agreement to buy Whole Foods, the Federal Trade Commission is considering allegations that Amazon misleads customers about its pricing discounts. The FTC is probing a complaint brought by the advocacy group Consumer Watchdog, which looked at some 1,000 products on Amazon’s website in June and found that Amazon put reference prices, or list prices, on about 46 percent of them.

And for 61 percent of products with reference prices, Amazon’s reference prices were higher than it had sold the same product in the previous 90 days.

Retailers and appliance makers fell after Sears said it would sell its Kenmore home appliances on Amazon and integrate the brand’s smart gadgets with the Alexa digital assistant. Sears was up 10.6 percent at $9.60 and Amazon shares rose 0.2 percent.

Once a dominant force, Sears Holdings appliance sales account for about 15 percent of its total sales of $3.3 billion in fiscal 2016. So, you no longer need to go to Sears for Kenmore appliances or Craftsman tools – so, why would you go to Sears?

Home Depot fell 4.1 percent, shaving off 40 points from the Dow and weighing the most on the S&P 500. Retailers Lowes and Best Buy, as well as appliance maker Whirlpool, were down between 3.9 and 5.6 percent. The market cap loss in Home Depot, Lowe’s, Whirlpool and Best Buy was about $12.5 billion by the end of the day.

Financial Review

Quads

Sinclair Noe — July 19, 2017

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

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DOW + 66 = 21,640
SPX + 13 = 2473
NAS + 40 = 6385
RUT + 14 = 1441
10 Y + .01 = 2.27%
OIL + .69 = 47.09
GOLD – 1.00 = 1242.00
BITCOIN + 1.75% = 2334.63 USD
ETHEREUM – 2.36% = 209.06

The Dow Industrials, S&P 500, Nasdaq Composite and Russell 2000 all closed at record highs today. This is the first time all 4 indexes closed at a record high on the same day since March 1^st.

ETFs have seen net new inflows of $250 billion thus far this year, and more than half of that inflow has gone to just 20 ETFs, or about 1% of the ETF universe. The most popular ETF this year, in terms of flows, has been the iShares Core S&P 500 ETF (IVV), which has taken in $18.5 billion.

Two other iShares equity products—the iShares Core MSCI EAFE ETF (IEFA) a market-cap-weighted index of developed-market stocks in Europe, Australasia and the Far East, and excludes the US and Canada, and the iShares Core MSCI Emerging Markets ETF (IEMG), —rounded out the top three.

According to a Bank of America Merrill Lynch survey of 207 investors with a total of $586 billion under management, money managers are a net 20 percent underweight U.S. stocks. That’s despite the major averages setting new records on an almost weekly basis.

There are a few takeaways here, all supportive of equities. One is that the survey suggests there is lots of money that could be put to work in stocks. Another is that there aren’t a lot of natural sellers left, since anybody who wanted to sell has already done so. And finally, the most successful investors say that the time to buy is when everyone else is selling.

Investors will focus on quarterly earnings to see if high valuations are justified in the face of mixed economic data, tepid inflation and policy gridlock in Washington.

Analysts estimate an 8.7 percent rise in second-quarter earnings and a 4.6 percent increase in revenue for the S&P 500 companies from a year earlier. The S&P tech sector has been the best performing sector this year despite concerns about stretched valuations as investors look for growth sectors immune to policy uncertainties.

The exception is IBM, down 4.2 percent today to a one-year low after the company’s quarterly revenue came in below expectations – that’s 21 consecutive quarters of declining revenue for Big Blue. The stock was the biggest drag on the Dow and the S&P 500.

Wall Street has a new bond trading king. Morgan Stanley rose 2.1 percent after the Wall Street bank reported better-than-expected profit and bond trading revenue declines that were modest compared with arch-rival Goldman Sachs. Goldman was down 0.5 percent.

While revenue from fixed income fell during a quiet second quarter, Morgan Stanley still reported fixed income sales and trading revenue of $1.2 billion – and while that is down 4 percent from last year, it was better than the stunning 40 percent drop reported Tuesday by rival Goldman Sachs over the same period.

Morgan Stanley has bested Goldman in fixed income revenue for two quarters now, with $2.9 billion of fixed income trading revenue in the first half of the year versus Goldman’s $2.8 billion.

CSX fell 6.5 percent after the third-largest U.S. railroad operator’s forecast missed expectations. Other railroad companies such as Union Pacific fell 2 percent, while Kansas City Southern edged down 0.7 percent.

American Express’ profit fell less than expected in the second quarter, as higher spending by card members made up for increased costs from offering rewards. AmEx said card member spending was up 8 percent in the second quarter ended June 30. Revenue was flat and net income came in better than estimates. American Express dropped 1% in trading today.

T-Mobile beat revenue and profit estimates, and added more customers than expected in the most recent quarter. Shares gained 5%.

Vertex Pharmaceuticals jumped as much as 26 percent to an all-time high after the company reported positive results for its cystic fibrosis treatment. The stock was the biggest boost on the S&P and the Nasdaq.

Spices maker McCormick & Co has won the battle to buy Reckitt Benckiser’s North American food business, paying a higher than expected $4.2 billion. Reckitt said in April it was reviewing options for the unit, which includes French’s mustard and Frank’s RedHot sauce, to cut debt following its $16.6 billion purchase of baby formula maker Mead Johnson.

The Senate Republican plan to repeal and replace Obamacare could not muster enough support for a vote Monday. Yesterday, President Trump said he wanted to just repeal the Affordable Care Act, and come up with a replacement down the road. Today, the Congressional Budget Office released an estimate saying that just a repeal would result in 17 million more uninsured within a year, and 32 million more uninsured within 9 years.

Today, it is back to repeal and replace, and Trump wants the senators to stay in Washington until they get it done. Polling shows just 12% of Americans support the Senate healthcare bill.  Meanwhile, their counterparts in the House looked to reset matters with a fresh budget proposal.

The House Republicans’ spending plan aims to balance the federal budget within a decade, reducing the deficit by $6.5 trillion, partially by cutting billions of dollars from entitlement programs such as Medicare and Social Security. Like the proposal the White House released in May, the House proposal is a blueprint, not a bill set in stone. It also assumes the Senate health package will become law, an increasingly unlikely outcome.

But even if this budget is not passed as written, it puts House Republicans’ financial priorities on full display. The House budget proposes increasing the base national defense budget by $70 billion, from $551 billion in fiscal year 2017 to $621 billion in fiscal year 2018. That’s more than the $574 billion in base defense spending recently proposed by the White House.

Also included in the proposal is $75 billion to fight terrorism, as well as “significant funding” on resources for border security, which includes construction on a controversial border wall between the U.S. and Mexico.

The House budget proposes reducing spending on entitlement programs such as Medicare by $203 billion next year, instructing 11 House committees to find ways to reduce spending. These cuts would in part come from programs like Medicare, which could face $487 billion in cuts over the next decade, and Social Security, which faces $4 billion in cuts in that same time frame.

The proposal assumes that the Senate GOP health bill will become law, resulting in what the Congressional Budget Office estimates would be $834 billion in Medicaid cuts over the next decade.

The House proposal also recommends reducing funding for food stamp programs, noting that spending on such initiatives doubled between 2001 and the start of the financial crisis. Spending on the Supplemental Nutrition Assistance Program, or SNAP, increased from about $18 billion in 2001 to about $33 billion in 2009, according to the USDA.

The House proposal mandates that the chamber’s Ways and Means Committee pass a tax reform bill that does not increase the deficit, reduces overall tax rates and simplifies the tax code. The budget also stipulates that such a bill should repeal the alternative minimum tax and reduces the corporate tax rate. The budget instructs the committee to pass this reform through a process called reconciliation, which was primarily designed to pass budgetary laws.

This means that if a tax reform plan is passed by the House, it would only need majority support in the Senate, and won’t be subject to a filibuster. That gives the Senate’s Republican leadership additional wiggle room to pass the measure; with 52 Senators, the GOP can afford two defections.

However, the same strategy did not help avoid the internal party discord that derailed their efforts to repeal and replace the Affordable Care Act.

Supreme Court rejected parts of Trump’s travel ban. The three-sentence order by the justices,  widened the definition of which citizens from six mostly Muslim countries covered by the travel ban are still eligible to travel in the US. And that will include grandparents, cousins and other relatives of a person in the US.

The court plans to hear arguments on the travel ban on Oct. 10; the latest scuffle centered on the rules that will apply in the interim.

Crude closed above $47 a barrel for only the second time since early June as US inventories fell by 4.73 million barrels last week as measured by data from the Energy Information Administration. Gasoline supplies shrank 4.44 million barrels, the most since March.

Financial Review

Heading into the Holiday

Sinclair Noe — June 29, 2017

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

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DOW – 167 = 21,287
SPX – 20 = 2419
NAS – 90 = 6144
RUT – 9 = 1416
10 Y + .05 = 2.27%
OIL + .12 = 44.86
GOLD – 3.40 = 1246.40
BITCOIN – 0.21% = 2556.09 USD
ETHEREUM – 4.42% = 289.77

We had a nice trend so far, this year. The stock market has been moving forward in small, steady gains. Volatility has been low, almost imperceptible. The markets just kept moving higher. When we have had a pullback, it was followed the next day by a rally, even if there was no conviction.

That was the case this week. Down on Tuesday, back up on Wednesday. Today throws a wrench in the pattern, with the S&P 500 and the Dow industrials suffering their worst daily percentage drops in about six weeks. The tech sector was the worst performing group today. There’s a lot more volatility in tech this month and that’s in part due to stretched P/Es.

At this point, it’s just a couple of down days, and we are heading into a long holiday weekend, a good time to take profits off the table and enjoy a barbeque without worries. Still, valuations are high and it’s one of the longest bull markets in history. Bull markets don’t last forever.

June has not been kind to the FAANG stocks, – Facebook, Apple, Amazon, Netflix, and Google, which were market leaders and then hit a down draft. There is no question the FAANGs have become pricey. The market caps are so huge they dominate the indexes. But markets can stay exuberant and irrational for a very long time. And this is not the first time we have seen a sell-off in the FAANGs, only to watch them move higher.

Today, money was rotating from tech and into the financials after the big banks passed the Fed stress tests and now can offer bigger dividends and buybacks. JPMorgan, the nation’s largest lender, said it’s boosting its quarterly dividend 12 percent and may increase share repurchases to $19.4 billion over the next 12 months — roughly 90 percent more than in the prior year.

Citigroup plans to double its dividend and may purchase up to $15.6 billion. Bank of America hiked its dividend 60 percent and will buy back up to $12 billion. Shares of all three rose at least 2 percent in early trading in New York. They, along with Wells Fargo and Morgan Stanley, may collectively buy as much as $64 billion in stock. Goldman Sachs has yet to make an announcement.

The Commerce Department posted its third and sort of final revision to first quarter Gross Domestic Product, and the revision came in higher; up 0.2% to 1.4%, instead of the 1.2% reported last month. The government had pegged first-quarter growth at a paltry 0.7% in its first estimate in April.

First-quarter economic growth was boosted by an upward revision to consumer spending, which accounts for more than two-thirds of U.S. economic activity. Consumer spending rose at a 1.1 percent pace, the weakest reading since the second quarter of 2013 but almost double the 0.6 percent reported last month. A sustained average growth rate of 3 percent has not been achieved in the United States since the 1990s.

The U.S. economy has grown an average 2 percent since 2000 and it expanded only 1.6 percent in 2016, which was the weakest growth in five years. Initial signs that economic growth re-accelerated sharply in the second quarter have also faltered in the face of recent disappointing data on retail sales, manufacturing production and inflation. Housing data has also been mixed.

Exports for the period were revised to show a 7.0 percent rate of growth from the previously reported 5.8 percent. Exports in the fourth quarter fell at a rate of 4.5 percent. Business spending on equipment was revised to show it increasing at a rate of 7.8 percent in the January-March period rather than the 7.2 percent previously estimated.

The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments fell at an annual rate of 2.7 percent in the first quarter after rising at a 2.3 percent pace in the prior three months.

The Bank of International Settlements, or BIS, is the central bank for the central bankers of the world. According the BIS’s annual report, the global economy faces four risks, “(i) financial cycle risks for financial stability; (ii) risks to consumption growth from household debt; (iii) risks to investment from weak productivity growth and high corporate debt; and (iv) risks from rising protectionism.”

From the report:
“These risks may appear independent, but they are not. For instance, policy tightening to contain an inflation spurt could trigger, or amplify, a financial bust in the more vulnerable countries… Indeed, an overarching issue is the global economy’s sensitivity to higher interest rates given the continued accumulation of debt in relation to GDP, complicating the policy normalization process.

“As another example, a withdrawal into trade protectionism could spark financial strains and make higher inflation more likely. And the emergence of systemic financial strains yet again, or simply much slower growth, could heighten the protectionist threat beyond critical levels.”

Of all those risks, protectionism is the only one a government can fully control. A government can choose to engage in global free market capitalism, or it can aggressively try to distort the market by blocking competing goods and services. It can either work amicably with neighbors and allies, or it can create tension felt across the globe.

A revised version of President Trump’s travel ban approved by the Supreme Court is set to take effect at 8:00 p.m. ET on Thursday. The justices implemented an exemption for travelers from six-Muslim majority countries with a “bona fide relationship” to people or entities in the US.

The Trump administration has adopted a narrow definition of “bona fide relationship.” According to guidelines the Trump administration has sent to US embassies and consulates, only a family member who is a parent, spouse, child, adult son or daughter, son-in-law, daughter-in-law, or sibling of US residents will be allowed to enter the country.

Fiancées, grandparents, grandchildren, aunts, uncles, nieces, nephews, cousins, and other extended family members are not considered to have “close familial ties”. And if you think this might lead to mass confusion, well…

The Congressional Budget Office has come out with a long-term analysis of Senate Republicans’ health-care legislation found that the bill would slash spending on Medicaid by about 35 percent over the next 20 years. The analysis follows a 10-year look by the agency released earlier this week.

The new CBO estimate doesn’t include a projection of how many people would be covered under the Republican bill. The CBO estimate shows that states would be forced to make trade-offs in how to allocate their far more limited funds.

Drugstore chain Walgreens Boots Alliance scrapped its deal to buy Rite Aid after failing to win antitrust approval, but said it would instead buy nearly half of the smaller rival’s U.S. stores for $5.18 billion. Rite Aid’s shares plunged about 28 percent to $2.85, while Walgreens shares were up 1 percent at $77.97.

Walgreens also ended a related deal to sell as many as 1,200 Rite Aid stores to Fred’s, sending Fred’s shares down 19 percent. Walgreens’ plan to buy 2,186 Rite Aid stores accomplishes many of the same goals as the merger – including eliminating Rite Aid as a rival – but does so in a way that makes it harder for the FTC to take the companies to court to stop the transaction.

The FTC will review the new deal. Walgreens also reported better-than-expected profit and sales for the third quarter, helped by a rise in prescription volumes in its U.S. pharmacy business. The company also authorized a $5 billion buyback program and raised the lower end of its full-year profit forecast.

Nike reported quarterly revenue and profit that topped Street estimates as the company kept a lid on costs and saw greater demand in Western Europe, China and emerging markets. Shares of the Dow component were up nearly 3 percent.

Britain intends to subject Rupert Murdoch’s takeover of European pay-TV group Sky to a lengthy in-depth investigation after finding that Twenty-First Century Fox’s $15 billion deal risks giving the media mogul too much power over the news agenda.

The proposed entity would have the third largest total reach of any news provider – lower only than the BBC and ITN – and would, uniquely, span news coverage on television, radio, in newspapers and online. Regulators will make a final decision on July 14, giving Fox two weeks to address concerns.

Blue Apron shares debuted today. The IPO stumbled but did not fall. Blue Apron’s 30-million share offering was priced at $10 per share late on Wednesday, after the company slashed its valuation expectations by a third. Shares gained 1% in the first day of trading.

Blue Apron spent roughly 18 percent of its $795 million revenue in 2016 on marketing, posting a net loss of $54 million. It has also faced steep costs of building out delivery infrastructure for fresh food. The biggest problem for Blue Apron might be Amazon-Whole Foods, which looks well-positioned to offer competition.

This should be a very interesting Fourth of July celebration in Las Vegas. Recreational marijuana becomes legal to buy Saturday in Nevada. That doesn’t mean it can be smoked everywhere only in private homes, yards or porches.

It’s prohibited in casinos, bars, restaurants, parks, concerts and on any federal property. You can’t walk down the street, or the Strip, smoking a joint. Also, prohibited in all forms at airports. No driving while stoned. And what’s smoked in Vegas stays in Vegas.

Financial Review

Scored

Sinclair Noe — June 26, 2017

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

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DOW + 14 = 21,409
SPX +0.77 = 2439
NAS – 18 = 6247
RUT + 1 = 1416
10 Y UN = 2.14%
OIL + .42 = 43.43
GOLD – 12.10 = 1245.50

Another quiet day on Wall Street. That is the new normal. The S&P 500 this year has been more likely to move less than 0.1 percent than to move more than 0.5 percent in a trading session. The index has closed at least 1 percent higher or lower a mere four times this year.

The CBOE volatility index has fallen to 23-year lows. And still the market keeps inching higher. The market is still hovering near record highs.

The non-partisan Congressional Budget Office has released its score of the Better Care Reconciliation Act, this is the Senate version of legislation to repeal and replace Obamacare. The Senate Republican health care bill would leave 22 million fewer Americans with health insurance by 2026 than under Obamacare.

And while that is a slight improvement on 23 million that would lose insurance under the House version, it is still a dreadful number. Next year, 15 million more people would be uninsured compared with current law. Like the House bill, the Senate’s version would end enhanced funding for Medicaid expansion, though at a slower pace, while overhauling the entire Medicaid program.

It would eliminate the mandates that require nearly all Americans to have coverage and companies with more than 50 workers to provide health benefits. And it would jettison Obamacare’s taxes on the wealthy, insurers and others, while allowing insurers to charge more to older policyholders.

However, the Senate bill would maintain much of Obamacare’s subsidy structure to help people pay for individual coverage, but make it less generous, particularly for older enrollees. And it would keep more of Obamacare’s insurance regulations than the House legislation. The Senate version also provides funds to stabilize the Obamacare market over the next few years, including money for a key set of subsidies for insurers.

The legislation is wildly unpopular. Before the budget office released its report this afternoon, the American Medical Association officially announced its opposition to the bill, and the National Governors Association urged the Senate to slow down. The AARP slammed the Senate GOP bill, calling efforts to repeal and replace ObamaCare “harmful” and denouncing what it calls an “Age Tax” affecting the nation’s senior citizens.

The GOP plan allows insurance companies to charge older adults up to five times more than younger people, while under ObamaCare older Americans can only be charged three times as much as younger people. The lobbying group for seniors accused Senate GOP leaders of crafting legislation in “secrecy” that “would hit millions of Americans with higher costs and result in less coverage for them.”

Here are a few other key findings from the CBO:
Premiums would increase in 2018 and 2019 compared to the current baseline, but decline thereafter: According to the CBO, premiums would increase 30% more than the current projection in 2018 and 10% higher than the current baseline in 2019. From 2020 and beyond, the change in the risk pool with older and poorer Americans likely priced out would bring these premiums down.

Deductibles and out of pocket costs would increase substantially: The benchmark plan on the individual insurance market would have an actuarial value of 58%, meaning insurance was obligated to cover 58% of the total costs. That is down from the current 70% benchmark value. According to the CBO, that opens the door for higher deductibles and out-of-pocket costs.

Earlier today, Republicans released changes to their healthcare bill, adding a measure that would penalize people who let their insurance coverage lapse. The revised bill would impose a six-month waiting period for anyone who lets their health insurance lapse for over 63 days and then wants to re-enroll in a plan in the individual market.

The legislation would decrease federal deficits by a total of $321 billion over a decade; more than the $119 million in savings in the House bill, between 2017 and 2026. The savings are made possible by cutting $862 billion in spending over that time-frame while also reducing tax revenue by $541 billion. It represents a big tax cut for wealthy taxpayers, but even bigger spending cuts, mainly to Medicaid.

That means the legislation can continue under the budget reconciliation process, which only requires 51 votes to pass. As of today, it does not have enough votes to pass. Five Republican senators have said they would not vote for the BCRA, several others have indicated they are leaning in the direction of a vote against and it doesn’t look like the CBO score will help turn those to support the bill.

Senate Majority Leader Mitch McConnell is insisting on a vote this week before lawmakers leave town for the July 4th recess, but a vote could be delayed, especially if it looks like it will go down in flames. Look for tweaking, name calling, arm twisting and much more over the coming days or weeks.

The Supreme Court will allow most of the Trump administration’s travel ban to go forward before it hears a case on the matter in October. The ruling grants a stay of lower court rulings that had piled up against the administration. The court’s decision found that the lower courts’ preliminary injunctions, which fully halted the key provisions of the executive order, were too broad.

So, the court narrowed these injunctions, ruling that the travel ban “may not be enforced against foreign nationals who have a credible claim of a bona fide relationship with a person or entity in the United States.”

That would apply to people who have family members stateside, those who have been admitted to a college or hired by an employer. However, “all other foreign nationals are still subject to the provisions” of the order.

In practice, the court’s ruling means Trump’s travel ban won’t be able to affect the great majority of foreign nationals who were trying to get to the U.S. from the six countries. It was already extremely difficult to get a visa from these countries unless you had family ties or a specific invitation.

The court also set arguments on the merits of the case for the first day of its next term in early October. The government may now exclude citizens from six Muslim-majority countries from coming into the United States unless they have some meaningful connection with a “person or entity” in the country. The court’s order also allows the government to exclude refugees, even those who are already vetted and poised to resettle here, unless they have the required connections.

SCOTUS agreed to consider whether employees who report misconduct at their companies are entitled to protections as “whistleblowers” if they report the alleged wrongdoing only internally, not to the Securities and Exchange Commission.

The announcement is welcome news for corporate defendants that have lamented the broad way in which the SEC and some federal courts have interpreted the 2010 Dodd-Frank financial overhaul, which is ambiguous about whether employees who only make internal corporate reports of securities fraud are protected under federal law.

The Supreme Court also agreed to consider whether the Constitution’s religion clauses allow a bakery to deny service to gay couples. In a separate ruling, the Supremes ruled that the Constitution requires states to list married same-sex couples on their children’s birth certificate. The decision marks a landmark victory for gay rights, confirming that the court’s decision in Obergefell v. Hodges protects all rights relating to marriage, not simply the recognition of marriage itself.

The Supreme Court ruled that taxpayer-funded grants for playgrounds available to nonprofits under a state program could not be denied to a school run by a church.

The Supreme Court declined to hear a Second Amendment challenge to a California law that places strict limits on carrying guns in public. The California case essentially bans carrying guns openly in public and allows carrying concealed weapons only if applicants can demonstrate good cause.

Orders for durable goods such as planes and computers fell in May for the second month in a row and registered the biggest drop in six months. Durable-goods orders slipped 1.1% last month following a similar decline in April. A key measure of business investment known as core capital-goods orders, meanwhile, fell 0.2% to mark the first decline of 2017. Businesses that were eagerly anticipating tax and regulatory relief may be taking a wait-and-see attitude.

Government websites in Ohio, Maryland and New York have been hacked with what appears to be pro-ISIS propaganda. It was not immediately clear who the group is — or whether it is genuinely affiliated with ISIS. The Ohio sites were back to normal this morning.

Twitter, Facebook, YouTube and Microsoft have formed the Global Internet Forum to Counter Terrorism. The group will share technical tools for combating extremist content, such as violent imagery and terrorist propaganda, and commission research to guide future resources. It’ll also work with academic and policy experts to learn more about terrorism.

Martin Shkreli, the former pharmaceutical executive is going to trial. In 2017, Shkreli sparked outrage in 2015 for increasing the price of Daraprim, a drug used by AIDS patients, by more than 5,000% from $13.50 to $750 a pill while he was CEO of Turing Pharmaceuticals. But the trial deals with charges of securities fraud, wire fraud and conspiracy for allegedly cheating investors out of more than $11 million between 2009 and 2014 in what federal prosecutors called a “Ponzi scheme.”

Financial Review

Take 65

Sinclair Noe — June 22, 2017

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

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DOW – 12 = 21,397
SPX – 1 = 2434
NAS + 2 = 6236
RUT + 5 = 1404
10 Y – .01 = 2.15%
OIL + .21 = 42.74
GOLD + 3.70 = 1251.00

BITCOIN – 0.11% = 2709.21 USD
ETHEREUM – 2.77% = 328.37

BITCOIN + 1.13% = 2771.78 USD
ETHEREUM – 1.81 % = 330.40

BITCOIN – 0.11% = 2709.21 USD
ETHEREUM – 2.77% = 328.37

The Senate health care bill was unveiled today. The 142-page bill was written entirely behind closed doors and today is the first time the public and most senators have seen the bill. The latest version of Trumpcare is officially titled as the Better Care Reconciliation Act of 2017, which is a rewrite of the House of Representatives American Health Care Act, which is a rewrite of the Affordable Care Act.

The bill would repeal Obamacare’s individual mandate, drastically cut back federal support of Medicaid, and eliminate Obamacare’s taxes on the wealthy, insurers and others.

The bill will have to undergo scrutiny to ensure that it meets the strict requirements on what can or can’t be included in a bill under the budget reconciliation process. The non-partisan Congressional Budget Office, will analyze and score the bill and present its findings early next week.

The CBO analysis will shed light on how much money the bill would cost and how many people would be covered. Senate Republicans hope to see better headlines from this CBO report than the one that the House GOP legislation received. CBO said the House bill would result in 23 million fewer people insured in 2026 than under Obamacare.

Here are some of the key points that we know. The Senate bill would require insurers to cover those with pre-existing conditions and charge everyone the same regardless of health history. But it would allow states to waive the federal mandate on what insurers must cover, known as the essential health benefits.

This would allow insurers to offer less comprehensive policies, so those with pre-existing conditions may not have all their treatments covered.

The bill would continue the enhanced Medicaid expansion funding from Obamacare until 2021 and then phase it out over three years. The Senate bill would keep the House plan to send a fixed amount of money to states each year based on enrollment or as a lump sum block grant.

But it would shrink the program even more over time by pegging the annual growth rate of those funds to standard inflation, rather than the more generous medical inflation, starting in 2025.

This would likely force states to cut enrollment, benefits or provider payments. Several independent analyses have concluded that this funding structure would lead to large-scale shortfalls in every state, which would need to be closed by reducing enrollment or benefits, and cutting capacity to respond to disasters and public-health crises.

Those affected most would be poor children, people with mental-health issues, and disabled people.

The Senate bill would also largely maintain Obamacare’s premium subsidies structure, but tighten the eligibility criteria starting in 2020. Fewer middle class folks would get help because only those earning up to 350% of the poverty level would qualify, rather than the 400% threshold contained in Obamacare.

It also allows even less generous plans to stand as benchmarks for exchange and employer coverage, which could likewise contribute to disruptions and deductible increases. In recognition of the disruptions to the state-level exchanges through which individuals purchase coverage, the House bill set up a “Patient and State Stability Fund,” which would inject over $100 billion into state high-risk pools and reinsurance funds.

The Senate largely replicates this approach with slightly less funding, although it does add an additional $2 billion fund for fighting the opioid crisis in 2018.

The bill would also aim to shore up the existing Obamacare market by allocating funds for the cost-sharing subsidies until 2019. This might placate insurers, who were upset by Trump’s refusal to commit to continue making these payments, leading many carriers to hike rates or drop out of the exchanges for 2018.

The draft bill proposes repealing the 3.8 percent net investment income tax on high earners retroactively to the start of 2017, not at some point in the future. The tax cut will be offset by reducing aid to the poor to cut costs. We’ll have to wait for the CBO score to see if the math works, and how many people would see higher premiums or see coverage eliminated. That could be followed by a vote on the bill as soon as next week.

Democrats appear to have a solid bloc of opposition; if 3 Republicans oppose the bill, it will not pass. The bill could be changed over the next few days. Sens. Rand Paul of Kentucky, Ron Johnson of Wisconsin, Ted Cruz of Texas and Mike Lee of Utah said in a joint statement they’re “not ready to vote for this bill.”

Many other GOP senators are avoiding outright supporting the new health care bill, saying they need more time to read the fine print before taking a stand. The CBO score will be key – if it is not significantly better than the score of the House version, this bill could be DOA.

Hospital stocks traded sharply higher after the bill was released, adding to gains from earlier in the session. HCA Healthcare Inc rose 3.8 percent, while Tenet Healthcare Corp surged 8.4 percent. Health insurers also traded broadly higher, with large players Aetna and UnitedHealth Group each up more than 1 percent. Insurers that specialize in Medicaid also gained, with Centene up 3.4 percent and Molina Healthcare rising 2.6 percent.

About those tapes President Donald Trump suggested (or warned) that he (or someone) may have had of his one-on-one conversations with then–FBI Director James Comey: They don’t exist. Or, if they did, he didn’t make them. Trump took to Twitter today to say: “I have no idea… …whether there are “tapes” or recordings of my conversations with James Comey, but I did not make, and do not have, any such recordings.”

Thirty-four of the largest banks operating in the U.S. cleared a Federal Reserve stress test of their ability to withstand economic shocks. Every bank subject to the annual tests’ first phase exceeded minimum thresholds, though Morgan Stanley trailed the rest of Wall Street on a key measure of leverage — the second year it performed worse than peers on one of the test’s main metrics.

The Conference Board’s leading economic index climbed 0.3% in May and offered further proof the U.S. continues to grow at a steady clip, suggesting the economy is likely to remain on, or perhaps even moderately above, its long-term trend of about 2% growth for the remainder of the year.

Mortgage rates are keeping close pace with U.S. Treasury yields, and the yield on the 10-year Treasury note is hovering around the lowest levels of the year, and the lowest since the November election. Mortgage rates fell to one of the lowest levels of the year in the most recent week, following a short-lived rebound. Freddie Mac said  the 30-year fixed-rate mortgage averaged 3.90% in the June 22 week. The 15-year fixed-rate mortgage averaged 3.17%

The number of Americans filing for unemployment benefits increased 3,000 to a seasonally adjusted 241,000 last week.

Qatar Airways, the Gulf country’s state-owned airline, has expressed interest in buying as much as a 10 percent stake worth at least $808 million in American Airlines Group. The potential investment comes against the background of diplomatic and competitive turbulence for Qatar Airways, its home country and U.S. airlines.

Operations at Qatar Airways were disrupted after four Arab nations cut diplomatic and economic ties with Qatar this month in the worst diplomatic crisis in the region in years. Separately, American, United Continental, and Delta have pressed the U.S. government to act to curb U.S. flights by Qatar Airways and rival Gulf carriers Emirates Airline and Etihad Airways. The U.S. carriers charge that their Gulf rivals have received billions of dollars in unfair state subsidies.

Qatar Airways said in a statement that it sees a “strong investment opportunity” in American and that it “intends to build a passive position in the company with no involvement in management, operations or governance.” American said its rules prohibit “anyone from acquiring 4.75 percent or more of the company’s outstanding stock without advance approval from the board.”

As expected, Sears Canada has filed for bankruptcy protection and 2,900 employees countrywide are losing their jobs.

Warren Buffett’s Berkshire Hathaway is extending a 1.5 billion credit facility to Home Capital Group, Canada’s largest non-bank lender. Berkshire also agreed through its Columbia Insurance unit to buy up to $300 million of Home Capital shares for a 38.4 percent stake, pending shareholder and regulatory approvals. The credit line carries an interest rate of at least 9 percent.

Reuters reports Staples is in advanced talks to be acquired by Sycamore Partners in a $6 billion deal.

After leading the stock market for months, the big name tech stocks hit pause to catch a breath. And that allowed an old name to sneak into rally mode. Oracle was late to the cloud revolution, allowing upstarts like Salesforce.com Inc. to find significant market share with software delivered over the internet, and has suffered while making an acquisition-fueled push into the space.

But it looks like Oracle is figuring out the cloud. Late yesterday, they reported fiscal fourth quarter earnings, and today, shares topped $50, sending the market cap over $200 billion. Oracle posted full-year revenue growth of 1.8% and profit growth of 4.9%, and raised guidance.

Facebook CEO Mark Zuckerberg revised the world’s largest online social network’s mission statement. The previous mission was “to give people the power to share and make the world more open and connected.” Facebook’s new mission is to “give people the power to build community and bring the world closer together.”

Financial Review

Settling a Score

Sinclair Noe — May 24, 2017

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

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DOW + 74 = 21,012
SPX + 5 = 2404 (record)
NAS + 24 = 6163
RUT + 1 = 1382
10 Y – .02 = 2.26%
OIL – .15 = 51.32
GOLD + 7.90 = 1259.60
BITCOIN + 4% = 2537.16
ETHEREUM + 1.83% =  185.00

After 5 straight winning sessions, the S&P 500 closed at a new record high. The Nasdaq Comp is near a record.

The Federal Reserve released minutes of their May 3^rd FOMC policy meeting. The statement points toward a rate hike as soon as the Fed’s meeting in mid-June. According to minutes: “Most participants judged that if economic information came in about in line with their expectations it would soon be appropriate for the committee to take another step in removing some policy accommodation.”

Officials opted at the May meeting to leave the target range for their benchmark lending rate unchanged at 0.75 percent to 1 percent. They have projected three rate increases in 2017. They made the first rate hike in March. If they follow with 2 more hikes this year, we would be looking at rates around 1.25% to 1.5% by the end of the year, with a strong possibility for 4 more hikes next year.

Fed officials discussed a brightening global economic picture and viewed recent soft inflation and output data as likely caused by transitory factors. Growth slowed in the first quarter to an annualized pace of 0.7 percent, although the Fed expects the economy to bounce back in the second quarter.

Unemployment continued to decline. Labor Department data released two days after the meeting showed the jobless rate in April fell to 4.4 percent, the lowest reading since 2007 and beneath most economists’ estimates of the lowest sustainable level, or what might be considered full employment.

Policy makers have also said they would like to start shrinking their $4.5 trillion balance sheet by year-end, a move that may lift longer-term borrowing costs and dampen growth. It sounds scary to think that the Fed will soon reduce its war chest of bonds. Still, today after the minutes were released, Treasury values rose and longer-term yields fell.

One interpretation is that traders aren’t taking the Fed seriously. But another is that investors just received an unexpectedly concrete sense of the Fed’s methodology for unwinding its balance sheet, and it clearly indicates moving at a slow, gradual, incremental pace.

Fed members said they favored a method that included allowing a certain amount of their holdings to pay down without reinvesting the proceeds. The Fed would cap the amount of debt they’d allow to roll off at a certain level, and then would adjust that level every three months. Officials agreed they should provide additional details of the plan “soon.”

The dollar weakened slightly. Oil prices posted their first decline in six sessions. US crude supplies fell a seventh week in a row. Following the supply data, the price action became a function of positioning ahead of the OPEC meeting tomorrow. OPEC is expected to extend production cuts for 9 months, until March of 2018.  Data from the U.S. Energy Information Administration Wednesday showed that domestic crude supplies fell by 4.4 million barrels for the week ended May 19.

The last time the Congressional Budget Office scored the Republican health care bill back in March, it forced lawmakers to make major changes in order to prevent millions of Americans from losing their health coverage and lower premiums for the elderly. Amendments were added and another vote was held, this time without waiting for a CBO analysis – and the bill passed in the House.

The Congressional Budget Office today released their updated score for the American Health Care Act (AHCA), and the results are just as ugly as the first time. The report from the CBO on the amendments added just before the AHCA was passed by the House shows that 23 million more Americans could be uninsured by 2026 compared to the current healthcare system, slightly lower than the 24 million estimated under the previous iteration of the bill.

The CBO estimates that 14 million people who are currently covered would be uninsured as soon as the House plan were to be signed into law. And another nine million people would lose coverage over the course of the next decade. The AHCA, would also spike coverage costs in many states for people with pre-exiting conditions, especially for older Americans.

Importantly, the score projects that the AHCA will cut the federal deficit by $119 billion, $32 billion less than the $151 billion cut in the previous report. This was key because Republicans plan to consider the bill under the reconciliation process in the Senate. By these rules, the bill must shave off at least $2 billion from the federal deficit to be considered.

The Senate is expected to craft their own version of a healthcare bill instead of using the current form of the AHCA. The practical ramifications of the CBO’s latest report were more limited than its immediate political implications.

The House bill, as written, will not become law. Whatever proposal the Senate comes up with will have significant differences and will need a separate assessment by the CBO before a vote.

President Trump today continued his overseas tour with a visit to the Vatican. Pope Francis gave Trump a medallion engraved with the image of an olive tree – a symbol of peace, he explained.

Francis also presented Trump a signed copy of “Laudato Si’: On Care for Our Common Home”, the first papal encyclical focused solely on the environment. The two men spoke privately for about an hour-and-a-half. Next stop, Brussels.

Testifying to the House Budget Committee, Office of Management and Budget Director Mick Mulvaney suggested the government’s borrowing limit may need to be raised earlier than originally anticipated, citing “slower-than-expected” tax receipts.

The latest monthly budget report from the Treasury shows receipts are up almost 1% for the fiscal year to date. The year before, receipts were up about 1.2% through April, and the year before that, nearly 9%.

Sales of previously-owned homes sputtered in April after a strong first quarter. Lean inventory continued to constrain demand. The National Association of Realtors said existing-home sales ran at a seasonally adjusted annual rate of 5.57 million.

That was a 2.3% decline from March’s selling pace, which was revised down a tick but still stood at a 10-year high, though 1.6% higher compared to a year ago in April.

The median national sales price was $244,800 in April, a gain of 6% compared to a year ago. It was the 62nd-straight month of annual price gains. Despite that, first-time buyers managed to stage a small comeback.

They represented 34% of all buyers in April, up from 32% in March, though still below their long-time average of about 40%. NAR’s report also showed that 52% of homes sold in April were on the market for less than a month, which is a new high.

Sentier Research reports that median annual household income, adjusted for inflation, was $59,361 in April, a big 1% gain from March and a statistically significant move. For the first time since the U.S. entered the worst recession of the post-war era, the typical U.S. household has more income than it did when the century started.

Moody’s Investors Service downgraded China’s sovereign rating one notch to A1, which is two grades above junk status. The previous ratings cut was in November 1989 in the wake of Tiananmen Square.

In a statement, Moody’s said, “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows.” China’s total debt is estimated at around 220% of gross domestic product as of 2015, with a large chunk of it owed by corporations.

Global financial markets shrugged off the news because it is more confirmation than revelation.

Ministerial buildings were set ablaze in the Brazilian capital today as tens of thousands of protesters took to the streets to demonstrate against government corruption, renewing calls for Brazilian President Michel Temer to step down.

The federal government filed a lawsuit against Fiat Chrysler, accusing it of using illegal engine-control software to enable its diesel-powered vehicles to pass emissions tests. The filing occurred days after Fiat Chrysler proposed a modification to the software to ensure correct test results in hopes of resolving the issue.

The Environmental Protection Agency accused Fiat Chrysler in January of installing the software on about 104,000 Ram pickup trucks and Jeep Grand Cherokee sport utility vehicles sold from 2014 through 2016.

The Fiat Chrysler problem is very like the legal woes of Volkswagen, which admitted to using “defeat device” software to enable its cars to pass emissions tests while spewing far more pollutants than allowed in normal driving. Volkswagen ended up paying billions of dollars in fines, several of its executives have been investigated or charged with crimes.

Facebook has signed deals with news and entertainment creators Vox Media, BuzzFeed, ATTN, Group Nine Media and others to make shows for its upcoming video service, which will feature long and short-form content. It is an attempt to deliver on Facebook Chief Executive Mark Zuckerberg’s remarks to investors earlier this month that the company was looking for so-called “anchor content” that would draw people to the video tab on Facebook’s app.