Financial Review

Get Out Now

Sinclair Noe — August 29, 2017

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

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DOW + 56 = 21,865
SPX + 2 = 2446
NAS + 18 = 6301
RUT + 2 = 1384
10 Y – .02 = 2.14%
OIL – .11 = 46.33
GOLD – .90 = 1309.60

Top Cryptocurrencies

	Name	Symbol	Market Cap	Vol.	Total Vol. %	Price USD	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	$75.55B	$2.47B	39.17%	$4,570.05	1	4.16%	11.44%
	Ethereum	ETH	$34.80B	$1.23B	19.50%	$368.92	0.0804136	6.04%	16.67%
	Bitcoin Cash	BCH	$9.19B	$378.75M	6.00%	$555.00	0.120972	-6.85%	-18.03%
	Ripple	XRP	$8.36B	$263.40M	4.18%	$0.22	0.00004749	-0.95%	-14.85%
	Litecoin	LTC	$3.31B	$289.75M	4.59%	$62.90	0.013705	0.71%	34.86%
	Dash	DASH	$2.71B	$47.44M	0.75%	$359.73	0.0783784	-0.03%	23.92%
	NEM	XEM	$2.55B	$7.86M	0.12%	$0.28	0.00006186	1.07%	14.68%
	IOTA	MIOTA	$2.27B	$28.66M	0.45%	$0.82	0.00017765	-5.96%	-4.43%
	Monero	XMR	$2.00B	$173.82M	2.76%	$133.00	0.0289786	-6.70%	48.45%
	NEO	NEO	$1.70B	$169.91M	2.69%	$34.06	0.00742472	-10.70%	-4.74%

A pair of 70-year-old reservoir dams that protect downtown Houston and a levee in a suburban subdivision began overflowing Tuesday, adding to the rising floodwaters from Harvey. The dams did not break, but they are overflowing, meaning the flooding is just getting worse.

Brazoria County authorities posted a message on Twitter – “GET OUT NOW!!!” (all caps – 3 exclamation points).

A weather station southeast of Houston reported 49.32 inches of rain as of Tuesday morning. Already 14 sites in Houston have recorded more than 40 inches of rain and 36 different locations have recorded more than 3 feet. Harvey now officially holds the US record for most total rainfall from a tropical system, and it hasn’t left the area yet.

Rivers around Houston crested last night and today, several areas are reporting water 25 feet above flood level. At least 14 people are reportedly dead in the Houston area, including a family of six who are thought to have drowned in a van and a police officer who drowned in his patrol car. Many folks have lost touch. Undoubtedly, the death count will rise.

The phase of immediate recovery, still unfolding in Houston, includes search-and-rescue and providing temporary shelters. The latest estimates are that more than 30,000 will need temporary shelter.

Immediately after a large-scale disaster, infrastructure known to engineers as “lifeline systems” – power, transit and communications – must be restored. In Houston, as many as 100,000 are without power, and all service was suspended on the local public transit system. Major roadways are underwater and will remain impassable for several weeks to several months.

Also among the near-term challenges are securing critical facilities and bringing them back online, including fire and police stations, hospitals, nursing homes and schools. Water and sewer systems and debris clearance are next on the list. Something as simple as trash collection has stopped for the past 5 days.

Early estimates suggest the financial damage has already run into tens of billions of dollars, and one forecaster has predicted the final bill could be as high as $100 billion. Trump is visiting Texas today and he said the cost of recovery from Harvey – the first natural disaster during his presidency – would be “very expensive” but pledged that “the federal government stands ready, willing and able to support that effort”.

Trump also made some impromptu remarks, saying “We love you, you are special, we are here to take care of you. It’s going well…What a crowd, what a turn out.”

So, the ripples from Harvey will hit the economy in several ways, including higher gas prices at the pump, higher commodity prices for building supplies – also look for construction labor to focus on the Houston area, meaning localized shortages, and higher insurance rates, and then consider the mortgage backed securities for residential and commercial, and the overall economic slowdown means the Federal Reserve will likely take a more dovish position on removing accommodation.

The markets started today’s trading in negative territory on news that North Korea had fired a missile that crossed over Japan. South Korea responds by having four F-15K jet fighters conduct bomb-dropping drills. Japan asks the United Nations Security Council to hold an emergency meeting. Kim Jong Un doesn’t seem to be backing down. This morning, Trump repeated the Washington cliché that “all options are on the table”, a warning that’s been issued time and again for more than a decade.

Kim, “smart cookie” that he is, has probably acquired enough evidence at this point to realize that the U.S. is unlikely to take military action to stop him as long as he has literal guns to the heads of 25 million people in Seoul. But if nothing explodes, Wall Street rolls merrily along.

Today the Dow Industrials opened down 134 points, then slowly and surely turned positive, marking a 200 point intraday swing from low to high. Many investors sought safe haven plays, pushing gold higher and pushing yields on ten-year Treasury notes to the lowest levels of the year. The bond market is certainly sending a clear signal that it expects the pace of Fed rate increases to slow dramatically.

Just two months ago, derivatives were showing that traders expected the target federal funds rate to rise to 2 percent over the next three years. Now, they see a rate of 1.6 percent, implying a little more than one boost from the current range of 1 percent to 1.25 percent.

It’s also notable that even though yields on benchmark 10-year Treasuries dropped to their lowest level of the year, touching 2.08 percent. About 75 percent of the respondents to JPMorgan’s widely followed weekly client survey say they are neutral on the bond market. That implies they anticipate no big changes in current conditions for the foreseeable future, which is a remarkable referendum on an economy that many expect to gather strength.

As the dollar declined to two-and-a-half-year lows, companies that do a lot of business outside the U.S. climbed. A weaker dollar boosts their sales and helps their profits when they are converted back into dollars. The dollar has weakened in part because a lot of economies in other regions are getting stronger, which boosts their currencies. The dollar is down almost 10 percent in 2017, at its lowest point in more than a year and the euro is at two-year highs.

Apple hit another record high today. The new iPhone launch is about 2 weeks away, maybe. While Apple has not confirmed a new iPhone will launch this year nor invited media to an event, it is expected to do something on September 12. Whatever happens, the tech rally isn’t dead yet.

Meanwhile, Apple and professional services company Accenture said they will team up to help businesses build better applications for iOS, the operating system that powers Apple’s iPhone and iPad.

The S&P/Case-Shiller 20-city index rose a seasonally adjusted 5.7% in the three-month period ending in June, compared with a year ago, the same rate of change as in May. The national index rose 5.8%, compared with a year ago, up from a 5.7% annual increase in May. Demand remains strong and inventories are tight. The Phoenix market for existing home sales is right in line with the national numbers. Phoenix prices were up 0.8% in the June period, and up 5.8% over the past 12 months.

The Conference Board’s consumer confidence index rose to 122.9 in August, up from a revised 120 in the prior month. The index hit a 16-year high of 124.9 in March. Consumers are feeling better given rising home prices, a healthy job market and stocks close to record highs. This bodes well for consumer spending in the third quarter. The present situation index, a measure of current conditions, jumped to a cycle high of 151.2 in August from 145.4.

The future expectations index rose marginally to 104 from 103. We feel good about things right now but we are not optimistic about the future. The gap between current conditions and future expectations is the widest since 2008. The growing divergence likely reflects the perception that the best days of the recovery are behind us, and that there is not much of a chance of further substantial improvement on the horizon. Still, both measures are elevated enough that consumers don’t appear concerned about an economic downturn.

Freeport–McMoRan announced that it was signing over 51% ownership interest in the Grasberg mine to the Indonesian government. Grasberg is one of the most valuable chunks of land in the world, the world’s largest gold mine and second-largest copper mine. The deal essentially rewrites an arrangement that began in 1972, when a Freeport predecessor began mining operations there under an agreement with a military dictatorship.

In exchange, the Indonesian government agreed to extend Freeport’s permit to export copper from the mine. That gives Freeport a measure of certainty as it makes plans to invest $20 billion to expand the mine and shift much of the work underground.

The Department of Justice is considering whether Uber violated laws involving the bribery of foreign officials. The DOJ is examining allegations that Uber may have violated the Foreign Corrupt Practices Act. The law makes it illegal for individuals and organizations to pay foreign government officials to obtain or retain business. It’s not clear exactly what incidents or countries the DOJ is looking at, or when the alleged violations may have occurred.

Airplane-equipment giant United Technologies is closing in on a more than $20 billion buyout of competitor Rockwell Collins.  Discussions are reportedly ongoing, but negotiations have focused on a deal price of less than $140 per share for Rockwell. The company was trading up about 2% to $130 per share late today morning, giving it a market cap of $21.7 billion.

Warren Buffett’s Berkshire Hathaway has become Bank of America’s largest shareholder by exercising its right to acquire 700 million shares at a steep discount, more than tripling an investment it made six years ago. Berkshire is now the largest shareholder in the second- and third-largest U.S. banks, with stakes of roughly 6.6 percent in Bank of America and 10 percent in Wells Fargo.

Berkshire exercised warrants to acquire its shares for roughly $7.14 each, well below their closing price of $23.58. To pay for the shares, Berkshire swapped $5 billion of Bank of America preferred stock it had bought in August 2011. Its new common shares are worth roughly $16.5 billion, giving Berkshire a roughly $11.5 billion profit.

Financial Review

Close But No Cookies

Sinclair Noe — July 25, 2017

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

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DOW + 100 = 21,613
SPX + 7 = 2477 (record)
NAS + 1 = 6412 (record)
RUT + 12 = 1450 (record)
10 Y + .07 = 2.33%
OIL + .61 = 48.50
GOLD – 5.40 = 1250.60
BITCOIN – 1.70% = 2547.12 USD
ETHEREUM – 2.57% = 201.76

The S&P 500 index, the Nasdaq Composite and the Russell 2000 all closed at record highs. The Dow is close but no cookies.

It is earnings season and there were plenty of good earnings and a few bad. 3M marked its sharpest-ever drop on a dollar-basis, off $11.43, or down 5.4%, cutting about 80 points from the price-weighted Dow. 3M’s share slide came after disappointing earnings.

The Post-it Notes-and-Scotch tape maker’s share decline, however, was more than offset by a tandem of firm rallies in McDonald’s and Caterpillar which reported second-quarter results that outstripped Street estimates. A drop in Google parent, Alphabet, weighed on the Nasdaq Composite, but the Nasdaq still managed to eke out a record high.

Before we dig into earnings news, there was a lot going on today. The Senate voted on healthcare legislation, in a way. Senate Republicans narrowly agreed to open debate on a bill to end Obamacare, but efforts to repeal or repeal and replace the law still face significant hurdles. Senator John McCain, who was diagnosed this month with brain cancer and has been recovering from surgery at home in Arizona, made a dramatic return to the Capitol to cast a crucial vote in favor of proceeding.

McCain received a standing ovation as he entered the chamber. The Senate vote was deadlocked at 50-50 and Vice President Mike Pence cast the deciding vote. Despite the successful procedural vote, there is no obvious path for any of the GOP’s various proposals to pass out of the Senate in the coming days.

Republicans who voted yes to begin debate warned that they still planned to oppose final passage if the amended legislation was not to their liking. The Senate will now move to an amendment process, but if none of the ensuing proposals can get 50 Republican votes, the party will be stuck again. The Better Care Reconciliation Act has already drawn public opposition from at least four Republicans.

In a speech on the Senate floor, McCain criticized both the underlying proposal and the secretive, partisan process Majority leader Mitch McConnell used to write it. McCain said he would not vote for the bill as it is today. He said the proposal must include changes demanded by Arizona’s governor, Doug Ducey, to win his vote.

The Senate’s next step is to vote on a full repeal of Obamacare – which will probably fail without a proposed bill to replace it. Then it will try an amended version of the Better Care Reconciliation Act, the latest Senate proposal; this will also likely fail since it hasn’t yet been scored by the Congressional Budget Office and thus needs 60 votes to pass rather than just 51.

Then we might be looking at a skinny repeal – a more limited repeal that only gets rid of Obamacare’s insurance mandates and some of its taxes, without eliminating Obamacare’s expansion of Medicaid. However, eliminating the mandates would result in much, much higher premiums for everybody who doesn’t opt out.

Today’s vote means there will be various amendments offered and there will be votes on the amendments, until the Senate can agree on something that seems to be a complete piece of legislation and then there will be a vote on that, maybe by the end of the week, if there is enough support. That means the next few days are going to be a whirlwind.

President Trump says they’ll come up with something really, really wonderful. At this point I’m just hoping I can get coverage for confusion.

The Conference Board said its consumer confidence index rose to 121.1 this month from 117.3 in June. The confidence index is now at its second highest level in 16 years. A big reason is the creation of millions of jobs since 2010 that’s driven the unemployment rate down to as low as 4.3%. That’s the lowest level since the turn of the century.

The difference between those who say jobs are “plentiful” (34.1%) and those who say jobs are “hard to get” (18%) was 16.1 points. Based on that measure, the last time the labor market was just as good was in August 2001.

A “present” situation index that tracks how consumers view the economy now rose to 147.8. That’s the highest level since mid-2001. A future expectations index that tracks how consumers think the economy will perform six months from now increased to 103.3.

Sales of existing homes continued to show solid growth. The S&P/Case-Shiller 20-city index rose 5.7% in the three-month period ending in May compared to a year ago, down from 5.8% in the prior period. The broader national index rose 5.6% for the year in May, the same as in April. Phoenix was right in line – posting 0.6% growth in resale home prices in May, and 5.7% in the 12 months through May.

Meanwhile, oil prices continue to rally. Saudi Arabia said at a meeting in Russia that it would cut August exports to 6.6 million barrels a day—a million barrels less than a year earlier. Separately, Nigeria, which isn’t part of the production-cut agreement led by the Organization of the Petroleum Exporting Countries, also promised to limit its daily production to 1.8 million barrels.

Oil traders have taken these developments as bullish for prices, though many do point out that the Saudis normally lower exports at this time of year because of stronger domestic demand for oil, and Nigeria’s output would still have to rise from its current level of just over 1.6 million barrels a day before the West African nation would cap its output.

Meanwhile, Halliburton forecast a flat rig count in the US; that implies a potential slowdown in oil production. Anadarko Petroleum, cut its investment guidance by $300 million for the full year after posting a larger than expected second quarter loss.

Copper is back to its highest levels in 2 years, as base metals extended a rally in the past month brought on, in part, by economists having become more upbeat about China’s economy;  coupled with the fact that a very strong housing market is creating strong demand for the physical copper. Freeport-McMoRan shares jumped 14.7 percent.

It wasn’t a very good day in the bond market, where the benchmark 10-year Treasury note fell the most in a month. A couple of possible reasons: bond investors expect only modest economic growth and inflation that is stuck well below the Fed’s 2 percent target, and bond traders don’t expect the Fed to increase rates anytime soon – as in maybe December, maybe next year – certainly not tomorrow.

The Federal Open Market Committee, the FOMC, started its 2-day meeting today; tomorrow they will issue a statement that they are standing pat on rates for now. Anything else from the Fed would be a major shock. The Fed’s policy is one of “normalizing” interest rates with a real emphasis that it continues to err on the side of market ease – that is, it does not want to make a mistake of disrupting markets and causing a correction.

That is, it wants to see the stock market continue to rise, the policy it has been following for most of the current economic recovery. The Fed will likely indicate that it is getting closer to trimming its $4.5 trillion balance sheet and selling off Treasuries and mortgage backed securities, but the big unwinding won’t really start to kick in until sometime in 2018, so for now the rally continues.

In earnings news: the markets looked past a 3% drop in Alphabet, which reported after the close yesterday. Alphabet was hit with a $2.7 billion dollar fine from the Euro Union, but looking past that, the parent of Google is still reporting impressive revenue and profit growth.

3M disappointed on earnings and it was punished. That seems to be the theme. Misses are punished. Slightly better than expected earnings get no love, but there is still plenty of good to great earnings news to lift the market to new highs.

With more than one-fourth of the S&P 500 having reported results, earnings are now expected to have climbed 9.1 percent in the second quarter, up from a projection of an 8-percent rise at the start of the month.

McDonald’s posted its biggest jump in global sales at established restaurants in five years, helped by stronger traffic worldwide. McDonald’s has also focused on value for U.S. customers with discounts on soft drinks and offering custom burgers.

And it seems to be working. Global same-restaurant sales climbed 6.6 percent in the second quarter, and sales at U.S. restaurants open at least 13 months rose 3.9 percent. Net income rose to $1.40 billion, beating estimates. Revenue was down slightly but still beat estimates. McDonald’s shares were up 4% and hit an all-time high and were the top gainer on the Dow Jones Industrial Average today.

Caterpillar shares jumped almost 6%, hitting a 5-year high. Earnings and revenue beat estimates and Cat raised its guidance.

AT&T’s quarterly profit topped estimates. Shares rose 2.5 percent. AT&T is locked in battle Verizon and Sprint and T-Mobile for customers in a market where most people already have cell phones. AT&T, which is in the process of buying Time Warner for $85 billion, has sought to compete by bundling mobile service with entertainment.

AT&T lost 89,000 U.S. phone subscribers who pay a monthly bill – that was better than expected.

Financial Review

Delayed Not Dead

Sinclair Noe — June 27, 2017

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DOW – 98 = 21,310
SPX – 19 = 2419
NAS – 100 = 6146
RUT – 13 = 1403
10 Y + .06 = 2.20%
OIL + .34 = 43.72
GOLD + 2.20 = 1247.70
BITCOIN – 1.73% = 2548.23 USD
ETHEREUM – 1.73% = 287.89

Last week, Senate Majority Leader Mitch McConnell unveiled Trumpcare, the Better Care Reconciliation Act of 2017, the Senate version of the American Health Care Act, which was the House version of a plan to repeal and replace Obamacare. Yesterday, the Congressional Budget Office published its analysis, or score for Trumpcare and it was ugly.

The Senate legislation would repeal Obamacare’s taxes and insurance mandates and phase out its Medicaid expansion, but it drew criticism from Republican senators on both ends of the ideological spectrum. Conservatives were miffed that it did not fully repeal the 2010 health law, while moderates opposed its deep cuts to Medicaid and blanched at a projection from the Congressional Budget Office that it would result in 22 million fewer people having insurance over a decade.

McConnell said he wanted a vote by Thursday or Friday, before senators recessed for the July 4^th holiday. But that won’t happen. Today, McConnell says the vote will be delayed; they will try to make adjustments to the bill to make it acceptable. GOP leaders had argued that more time would not help the public perception of the bill, which is broadly like legislation the House passed last month that polls show is deeply unpopular.

Now, lawmakers will go home for the holiday, and they are going to hear from constituents. And it will get loud. The president invited all 52 Republican senators to the White House for a meeting this afternoon after initially having little involvement in the Senate’s deliberations. Under the reconciliation process, the bill only needs 51 votes to pass; 50 senators plus the vice president.

That means if 3 Republicans vote against the bill, it does not pass. But at least 6 GOP senators—Susan Collins of Maine, Dean Heller of Nevada, Ron Johnson of Wisconsin, Mike Lee of Utah, Rand Paul of Kentucky, and Ted Cruz of Texas – said they would vote against even bringing the bill up for debate this week unless changes were made.

And there are others stepping up: Senator Jerry Moran of Kansas tweeted that he, too, was against the bill. Senators Rob Portman of Ohio and Shelley Moore Capito of West Virginia followed suit soon afterward.  Senators Cory Gardner of Colorado and Lisa Murkowski of Alaska are likely to jump ship, or at least press for a better deal. That’s at least 11 republican senators who are not on board.

Conservatives like Johnson, Paul, and Cruz were pushing for amendments that would lower premiums and eliminate—or allow states to opt out of—Obamacare insurance regulations, including the provision prohibiting companies from charging higher rates to people with preexisting conditions.

Portman and Capito, meanwhile, wanted tens of billions of dollars more to help states fight the opioid epidemic and changes that would soften the billions in cuts to Medicaid. So far, McConnell has not open the bill to negotiation.

For now, the plan is to squeeze holdouts, but it doesn’t seem to be working. Yet it would be premature to consider the bill dead. House Republican leaders were also forced to put off a vote on their bill earlier this year only to work out a compromise that allowed it to pass weeks later.

While the delivery of health care is of vital social importance, Wall Street is focused on the next thing – tax reform. But to get there, the administration must work through health care first so that its impact on the budget can be determined. Without a deal on health care, representing one-fifth to one-sixth of GDP, it is difficult to figure out taxes.

Wall Street has generally risen since President Donald Trump’s election in November, in large part due to hopes that his economic agenda—including massive tax cuts and deregulation—would accelerate economic growth. However, his administration has seen few legislative successes, raising questions about whether the broader market’s valuations are justified if the thesis that drove them higher fails to come to fruition.

This does not mean that tax reform is dead, just slightly delayed. This means that GOP donors are going to turn up the heat on senators over the coming days pushing for health care and/or tax reform, and the donors will be pushing hard.

Fed Chairwoman Janet Yellen told an audience in London that asset valuations are “somewhat rich.” She repeated plans to hike interest rates gradually. Fed Vice Chairman Stanley Fischer told an International Monetary Fund event that price-to-earnings ratios now stand in the top quintiles of their historical distributions.

Fischer also said rising valuations in equities and in other parts of the global market are partly explained by a brighter economic outlook but also by elevated risk appetite. San Francisco Fed President John Williams gave the bluntest assessment, telling an Australian television station that the stock market is running on “fumes.”

Both Yellen and Fischer touted the capital built up at the nation’s biggest banks. Ahead of the release of the second stage of the stress tests due Wednesday, Fischer pointed out that regulatory capital at large banks is now at multidecade highs.

Yellen went further and said another crisis like the one that caused the Great Recession isn’t likely in our lifetimes. And of course, Chair Yellen will be absolutely and totally correct, if we all die by Friday.

The Fed famously was not particularly contrarian in identifying risks before the Great Recession.

The IMF, coincidentally, blessed the Fed’s rate hike cycle in their annual review of the US. The IMF isn’t terribly optimistic on the US economy, projecting 2.1% growth this year and seeing growth slow from there. The IMF also said there were “larger than usual” risks to the US economy, given policy uncertainties.

They threw some shade on Trump’s pro-growth agenda, say that even with an “ideal constellation of pro-growth policies,” the Trump administration’s forecast that it would boost GDP by 1 percentage point is “unlikely.” The IMF said the US dollar is moderately overvalued, by 10% to 20%.

Home prices pulled back slightly in the latest Case Shiller report. The S&P/Case-Shiller 20-city index rose 5.7% in the three-month period ending in April compared to a year ago, down two ticks from the 5.9% annual gain notched in March.

Despite those decelerations, prices continued to reflect sturdy demand. Only one metro in the 20-city index, Cleveland, saw a monthly decline, while in Seattle, prices surged 2.6% for the month. Phoenix posted a 0.8% increase for the month and a 5.7% gain over the past 12 months.

European Union antitrust regulators have leveled a $2.7 billion fine against Google. EU antitrust regulators said Google abused its dominance in search to promote its own comparison shopping service while demoting those of competitors. Alphabet said it disagreed with the decision and would consider an appeal.

Alphabet had $92 billion in cash or equivalents at the end of the first quarter. That means the fine represents less than 3% of Alphabet’s cash position. Considering the company generated an average of about $68 million a day in cash during the first quarter, it could raise the cash to pay for the fine in just 40 days, or by Aug. 8.

The market hit was bigger, Alphabet lost about $16 billion in market capitalization today. Regulators promised Google was in for years of monitoring to guard against further abuses. And Google will have to prove that rivals have made substantial inroads into its businesses before there is much chance of it being let off the regulatory hook.

Google does not want to change its search business model but the economics of continuing the fight aren’t really in Google’s favor. Google has 90 days to comply or face an additional daily fines.

A ransomware cyberattack has hit Europe and spread to the US. The “Petya” ransomware attack was first reported in Ukraine, where the government, banks, state power utility and Kiev’s airport and metro system were all affected. The radiation monitoring system at Chernobyl was taken offline, forcing employees to use hand-held counters to measure levels at the former nuclear plant’s exclusion zone.

The food giant Mondelez, legal firm DLA Piper, Danish shipping and transport giant AP Moller-Maersk and Heritage Valley Health System, which runs hospitals and care facilities in Pittsburgh, also said their systems had been hit by the malware.

Brazil is bracing for a fresh bout of political turmoil after the president, Michel Temer, became the country’s first sitting head of state to be formally charged with a crime. Less than a year after taking power following impeachment of Dilma Rousseff, the deeply unpopular leader was formally accused of corruption by the attorney general Rodrigo Janot and could now face a lower house vote on whether he should be tried by the supreme court for taking bribes.

In a damning indictment to the supreme court, Janot alleged Temer took millions of dollars in bribes from meat-packing giant JBS. The attorney general said the president had “fooled Brazilian citizens” and compromised the image of the country.

These allegations followed the release of a secret recording of a conversation earlier this year between Temer and the JBS executive Joesley Batista, in which the president appeared to endorse hush money payoffs to former house speaker Eduardo Cunha, a member of Temer’s party who is serving a 15-year sentence for corruption.

Temer’s predecessor Dilma Rousseff – who was ousted in an impeachment plot in May 2016 – was quick to note that her former running mate was now accused of greater crimes than those for which she was removed from office last year. She tweeted: “The result of the 2016 coup: leaving the country in the hands of the only president indicted for corruption.”

Financial Review

Slipping from Highs

Sinclair Noe — May 30, 2017

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

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DOW – 50 = 21,029
SPX – 2 = 2412
NAS – 7 = 6203
RUT – 11 = 1371
10 Y – .03 = 2.22%
OIL – .04 = 49.62
GOLD – 4.00 = 1263.80
BITCOIN + .89% = 2261.89
ETHEREUM + 18.73% = 232.85

Stocks inched lower, with the S&P 500 retreating slightly from a record, as weakness in the energy and financial sectors outweighed gains in technology shares.

Aided by rising incomes and tax refunds, Americans boosted spending in April at the fastest clip since the end of 2016 and monthly inflation rebounded but remained fairly low due to lower oil prices. Personal income rose 0.4 percent in April, in line with expectations, and consumer spending increased by 0.4 percent.

Americans spent far less in the first three months of 2017, inducing the economy to slow to a paltry 1.2% rate of growth. Although spending in March was revised up to show a 0.3% increase instead of no change, outlays barely rose in the first two months of the year.

The personal consumption expenditures price index, the Federal Reserve’s preferred measure of inflation, rose 0.2 percent. The rate of inflation over the past 12 months slowed to 1.7% in April from a multiyear high of 2.1% in February. The core rate of inflation dipped to a 1.5% pace from 1.6% in March.

The average credit score nationwide hit 700 in April – the highest level since 2005 – according to Fair Isaac, the creator of FICO credit scores. Meanwhile, the share of consumers deemed to be riskiest, with a score below 600, hit a new low of roughly 40M, or 20% of U.S. adults who have FICO scores.

Meanwhile, U.S. home prices rose 5.8 percent in March, according to the S&P/Case-Shiller U.S. National Home Price Index. The gains were enough to reach a 33-month high, climbing at the strongest rate in nearly three years. The inventory of homes for sale remains “unusually low.”

Prices are rising across the country. Half of the 20 cities tracked by the S&P Corelogic Case-Shiller rose more than 6% from March 2016 to March 2017. The smallest gain of 4.1%, in New York, was roughly double the rate of inflation. The index is based on a three-month average. For March, Phoenix posted a 0.6% gain, with a 5.6% gain for the past 12 months.

And the consumer confidence reading for May, came in at 117.9, slightly below a consensus estimate of 119. Just three months earlier, consumer confidence hit its highest level in more than 16 years, but heading into summer, the bloom is off the rose.

An index that measures current economic conditions edged up to 140.7 from 140.3, but a gauge that looks out six months dipped to 102.6 from 105.4.

The economic data, while not overwhelming, still points to firming domestic demand that could allow the Federal Reserve to raise interest rates next month. Fed Governor Lael Brainard said a hike is probably coming soon, though the central bank may want to delay if inflation remains soft.

The Fed has also signaled it plans later this year to begin shedding some of its $4.5 trillion in bond holdings, most of which it amassed in the wake of the financial crisis and recession. It would initially set a low cap on the securities allowed to run off, and raise that every three months, under the plan.

Brainard largely agreed, saying the process should be set on “autopilot” and be “calibrated” to the differences between maturing Treasury- and mortgage-backed assets. She also suggested it would likely begin this year, noting the process could be halted and even reversed if the U.S. economy faced an “adverse shock.”

Dallas Fed head Robert Kaplan told CNBC that while he was concerned about the recent economic data, he expected two more rate hikes in 2017 and a start to the process of unwinding the Fed’s $4.5 trillion bond portfolio, most of which was accumulated after the financial crisis.

However, he doesn’t think that’s because the economy is about to take off. Instead, Kaplan sees growth likely continuing the path of about 2 percent and not the 3 percent or more boom in gross domestic product that the administration has been forecasting.

Fed Bank of St. Louis President James Bullard said the path of inflation in the U.S. is “worrisome”, speaking in Tokyo on Friday. The Fed’s plan for raising interest rates in the coming years is also too aggressive. Bullard suggested the financial markets’ view of the upcoming rate hike trajectory is currently out of lockstep with that of the Fed. Fed futures are currently pricing in around a 65 percent chance of a rate hike in June.

Amazon.com became the second of the current S&P 500 components to hit the $1,000 price mark. Priceline was the first S&P 500 stock to hit $1,000, doing so in September 2013. Alphabet’s Class A shares were close behind, hitting a record of $997.62 before ending the session up 0.3 percent at $996.17.

Shares of Amazon have risen 33 percent so far in 2017 alone, adding roughly $120 billion to its market value. Among the other four largest U.S. companies by market cap, Apple and Facebook share prices have also risen nearly 33 percent this year while Alphabet has gained 26 percent and Microsoft has added 13 percent.

The combined market cap of the top five is near $3 trillion, or more than 13 percent of the S&P 500 index stocks’ capitalization. Amazon, the only one of the top five not in the technology sector, accounts for 17 percent of the market cap of the S&P 500 consumer discretionary sector.

British Airways’ flights are back to their normal schedule, following an IT glitch over the long weekend that saw thousands of people stranded around the world. Explaining the disaster over the weekend, CEO Alex Cruz told the BBC: “There was a power surge and there was a back-up system, which did not work at that particular point in time.”

Customers are entitled to compensation under EU law if their flights are delayed by at least 3 hours for reasons within an airline’s control. So, this glitch will likely cost British Airways about $130 million just in customer compensation.

Payless ShoeSource is preparing to launch a second round of store closings, seeking court approval to trim its retail business by closing up to 408 stores if negotiations with landlords fail to result in rent concessions. The latest closings would bring the total number of recently closed Payless stores to nearly 800.

Payless is already in the process of closing nearly 400 of its locations. The Kansas-based retailer had more than 4,000 stores, employing some 22,000 people, when it sought chapter 11 protection last month.

As traditional retail stores close and vacancies mount, landlords across the country appear newly receptive to leases as short as a week. The upswing in pop-up stores, as the short-term placements are called, is playing out in all sorts of ways, and in all sorts of places — including dark malls, former grocery stores and shuttered art galleries, according to real estate brokers, landlords and tenants.

The rise in pop-up stores is adding another element of change to a retail industry facing upheaval from profound shifts in consumer habits and powerful new competitors, especially online. In the past, short-term tenants focused on holidays like Halloween: Costumes were hot items in October, but sales evaporated once the calendar turned to November.

For retailers, the stores can offer lower rents and far less commitment. For the landlords, the reason is just as clear: A short-term tenant is better than no tenant at all.

The Brazilian Supreme Court has order President Michel Temer must respond within 24 hours to federal police questions about his alleged involvement in a sprawling political graft probe. Executives from the world’s biggest meatpacker JBS SA said in plea-bargain testimony to police that Temer condoned bribing a potential witness in the “Car Wash” corruption case and they paid the president nearly $5 million in bribes in recent years.

Goldman Sachs has confirmed it has bought $2.8 billion worth of bonds from Venezuela’s central bank. According to the Wall Street Journal, Goldman paid just $865 million for bonds valued at $2.8 billion – paying about 31 cents on the dollar for the bonds. Venezuela is experiencing the worst financial crisis in its history and has been rocked by months of violent demonstrations that have led to at least 55 deaths.

Inflation has soared past 400%, there are widespread shortages of essential supplies including food and medicines, a quarter of the country is unemployed. The bond sale will likely help finance the administration of the embattled president Nicolas Maduro.

The Federal Reserve said it had fined Deutsche Bank $41 million for failing to ensure its systems would detect money laundering regulations and it said the lender agreed to increase its controls. The New York Fed found that the German bank had faulty systems to detect suspicious transactions between 2011 and 2015

The Supreme Court today placed sharp limits on how much control patent holders have over how their products are used after they are sold. The case concerned Lexmark International, which makes toner cartridges for use in its printers. The court ruled that the company could not use patent law to stop companies from refilling and selling the cartridges.

Lexmark sold the cartridges on the condition that they not be reused after the ink ran out. Impression Products, a small company in West Virginia nonetheless bought Lexmark cartridges in the United States and abroad, refurbished and refilled them and sold them more cheaply than Lexmark does.

Lexmark sued for patent infringement. Chief Justice John Roberts wrote: “The purchaser and all subsequent owners are free to use or resell the product just like any other item of personal property, without fear of an infringement lawsuit.”

Financial Review

Oh Canada

Sinclair Noe — April 25, 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Review

Cleaning Up

Sinclair Noe — March 28, 2017

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

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DOW + 150 = 20,701
SPX + 16 = 2358
NAS + 34 = 5875
RUT + 9 = 1367
10Y + .04 = 2.41%
OIL + .71 = 48.44
GOLD – 2.50 = 1252.30

Yesterday, we noted that the Dow Industrial Average had been down for 8 straight sessions – the longest losing streak since 2011. We also noted that the market seemed to be taking a break or a pause; the losses during that time were not big enough to reverse the uptrend.

Sure enough, the uptrend resumed today. Even though stocks wobbled out of the opening gate, they gained their footing with the help of some good economic reports.

Consumer confidence surged to a more than 16-year high in March. The Conference Board said its consumer confidence index jumped 9.5 points to 125.6 this month, the highest reading since December 2000.

Consumers’ assessment of both current business and labor market conditions improved sharply in March. They also anticipated an increase in their incomes. The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001.

When consumers feel good about their jobs or job prospects, their confidence goes up. And then the hope is that the confidence translates into increased spending, especially for a retail sector that has been underperforming in the first quarter.

Separately, the Commerce Department said in its advance economic indicators report the goods deficit fell 5.9 percent to $64.8 billion last month as imports and exports fell. It also said inventories at retailers and wholesalers both rose 0.4 percent last month.

And another report showed the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5.7 percent in January on a year-over-year basis after increasing 5.5 percent in December. The 10-City Composite posted a 5.1% annual increase, up from 4.8% the previous month. The National Index was up 5.9% year-over-year in January, setting a 31-month high.

House prices are being driven by tight inventories. The recent interest rate hikes from the Fed didn’t seem to affect home buyers – at least not yet; 2 or 3 more hikes this year could pinch affordability.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last 12 months. In January, Seattle led the way with an 11.3% year-over-year price increase. In Phoenix, home prices were flat in January, but up 5.1% over the past 12 months.

Hospital stocks dropped today as Republicans in the House of Representatives said they were considering a renewed push to repeal and replace Obamacare, after the effort failed last week. Shares of Community Health Systems dropped 7.6 percent and Tenet Healthcare shares fell 4.8 percent. HCA Holdings, Universal Health Services and Envision Healthcare were all down around 2 percent.

A full-blown push at the repeal and replace is going to be extremely difficult to pull off, but there are other ways to attack the ACA. Health and Human Services Secretary Tom Price already stalled the rollout of mandatory Medicare payment reform programs for heart attack treatment, bypass surgery and joint replacements.

Hospitals and physician groups have been counting on support from Medicare – the federal insurance program for the elderly and disabled – to continue driving payment reform policies built into the ACA that reward doctors and hospitals for providing high quality care at a lower cost. Repeal may be difficult but death by a thousand cuts, that’s another story.

After failing to repeal and replace the Affordable Care Act, President Trump said it was time to move on; and he is. Yesterday, behind closed doors and without his typical fanfare, Trump signed Congress’s repeal of Obama’s Fair Pay, Safe Workplaces executive order that would have mandated that companies with substantial federal contracts be required to disclose past violations of federal labor laws – such as wage and hour laws and workplace safety standards.

The rule aimed at raising standards across the economy by leveraging the federal government’s purchasing power; companies with federal contracts employ roughly one in five American workers.

President Trump has signed an executive order to undo a slew of Obama-era climate change regulations. The decree’s main target is the Clean Power Plan that required states to cut carbon emissions from power plants – a critical element in helping the United States meet its commitments to a global climate change accord reached by nearly 200 countries in Paris in 2015.

The so-called “Energy Independence” order does not directly address the Paris accord, but it reverses a ban on coal leasing on federal lands, undoes rules to curb methane emissions from oil and gas production, and reduces the weight of climate change and carbon emissions in policy and infrastructure permitting decisions.

Trump has denied climate change, calling it a Chinese hoax. While Trump’s administration has said reducing environmental regulation will create jobs, some green groups have countered that rules supporting clean energy have done the same. The number of jobs in the US wind power industry rose 32 percent last year while solar power jobs rose by 25 percent, per a Department of Energy study.

The benefits of energy-efficiency rules and clean-power programs are passed to workers, too; clean-energy jobs surpassed oil and gas-drilling jobs in the US for the first time last year, and job growth in the solar energy sector was 12 times faster than that of overall economy. Several groups have already announced plans to challenge the order in the courts, so there will be a few jobs for attorneys.

The Clean Power Plan required states to collectively cut carbon emissions from power plants by 32 percent below 2005 levels by 2030. Some 85 percent of US states are on track to meet the targets despite the fact the rule has not been implemented.

Wind and solar accounted for more than half of the new capacity added to U.S. grids in the past two years, thanks to two economic trends. The first is low natural gas prices, which have driven down the price of electricity and forced record numbers of aging coal-fired generators to close. The second is that wind and solar farms have become much cheaper to build, making them an attractive replacement for shuttered fossil-fuel plants.

Power prices have already dipped to historic lows, forcing conventional power-plant owners including FirstEnergy and NRG Energy to write down billions in assets. Utilities know that coal and nuclear just aren’t competitive in this era of low gas prices and increasing renewables, absent special treatment to keep them running. And even then, it is not enough to build any new coal powered plants.

State laws requiring utilities to source a portion of their electricity from renewables play an important role. So do federal tax credits for wind and solar farms that were extended in 2015 with support from Republican lawmakers. And these policies remain intact, at least for now. Today’s executive order will probably have little impact on the US wind and solar industries.

After years of being supported by subsidies, prices have plunged so much that renewables can compete with fossil fuels. That’s why energy companies are pushing forward with long-term plans to generate power with clean alternatives, even as Trump vows to breathe life back into coal country. Nobody believes that coal is the future of energy.

Elon Musk has managed to start up an electric car company, Tesla. Then he bought into a solar power company and he’s building a gigantic battery factory, so he can capture power from the sun and store it. Then he started Space X, a re-usable rocket company to launch satellites, with eventual plans to colonize Mars.

And while all that is mildly entertaining, you are probably asking if he can come up with something new and innovative. How about this: Neuralink – what Musk calls “neural lace” technology, implanting tiny brain electrodes that may one day upload and download thoughts. In other words, hook your brain into a computer.

Business filings suggest that Neuralink would build devices designed to treat or diagnose neurological conditions, and conceivably augment human cognitive powers, maybe a way to alleviate brain disorders like epilepsy. In a Vanity Fair article published online today, Musk discussed the idea of merging biological intelligence with machine intelligence, saying: “For a meaningful partial-brain interface, I think we’re roughly four or five years away.”

Compared to neural lace, the debut of yet another new smartphone seems downright pedestrian, but it is still kind of a big deal for Samsung. Tomorrow they are expected to unveil the new Galaxy S8. Look for two different sizes; big and bigger; curved screens, fingerprint scanner, faster processor, and better camera. And a new AI assistant called Bixby. And while it is cool new technology, the most important thing is that the battery does not explode.

The Scottish independence referendum, could be facing a re-run as a direct result of Brexit. By a 69-59 vote, members of Scottish Parliament backed First Minister Nicola Sturgeon’s pursuit of a new independence referendum.

Sturgeon wants to hold a vote between fall 2018 and spring 2019, which she says would give enough time for Brexit negotiations (set to start Wednesday and likely to last for two years) to make substantial progress, but would also leave time for Scotland to leave the UK and still remain in the EU

Tomorrow, a letter personally signed by UK Prime Minister Theresa May will be deliver to European Union President Donald Tusk. The instant the letter exchanges hands marks the moment the UK has officially served its partner of four decades with divorce papers.

The invocation of Article 50 of the EU’s Lisbon Treaty triggers two years of negotiations to secure Britain’s departure from the bloc. May herself considers it “one of the most important documents” in Britain’s recent history. Exactly what is in the letter remains a mystery, at least until tomorrow.

Financial Review

The Streak Ends

Sinclair Noe — February 28, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

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DOW – 25 = 20,812
SPX – 6 = 2362
NAS – 36 = 5825
RUT – 21 = 1386
10 Y – .01 – 2.36%
OIL – .13 = 53.92
GOLD – 4.30 = 1248.80

After 12 straight record high closes, the Dow Industrials finally posted a losing session. No milk and cookies today. It was the best run of record highs since 1987.

After topping out at 103.82 on January 3, the US dollar has weakened against a basket of its peers, pulling back into the 100 area. Dollar weakness is good news for the multinationals that dominate the S&P 500. Stocks rallied right after the election, bonds sold off for roughly the same reasons.

Yields on the benchmark 10-year Treasury note rose to a high of 2.64% in the middle of December (yields move opposite to prices) – reflecting expectations for faster growth, but in the past month buyers returned to bonds, pushing yields down as low as 2.32% and today finishing at 2.36%.

The rally in bonds might be explained by recent headlines that Trump’s proposed stimulus plans will take longer to implement than previously expected and that the stimulus will be less expansionary than first thought. Today, the market paused ahead of President Trump’s address before Congress; and the markets will be looking for specifics with specific timelines.

President Trump speaks to a joint session of Congress tonight, where investors hope for more details on the administration’s plans for tax reform, deregulation and infrastructure spending. The future of the Affordable Care Act could also be a subject, as well as updates on the Border Tax Adjustment.

Trump said he believes the extra $54 billion dollars he has proposed spending on the US military will be offset by a stronger economy as well as cuts in discretionary spending. Still to be answered – what will be cut, and how will the military spend an extra $54 billion, and how will it be accounted for.

Today, Trump signed an executive order that asks new EPA Administrator Scott Pruitt to begin the long process of repealing the Clean Water Rule (also known as the “Waters of the US rule”) and replacing it with… something else. Here’s the catch: Rolling back this rule won’t be easy to do.

By law, Pruitt must go through the years-long federal rulemaking process and replace the Obama-era regulation with his own version – and then defend it in court as legally superior. And, as Pruitt’s about to find out, figuring out which bodies of water deserve protection is a maddeningly complex task that could take years and years.

Gross domestic product increased at a 1.9 percent annual rate, per the Commerce Department’s second estimate for the fourth quarter, confirming the estimate published last month. Output increased at a 3.5 percent rate in the third quarter. The economy grew 1.6 percent for all of 2016, its worst performance since 2011, after expanding 2.6 percent in 2015.

Consumer spending was revised from 2.5 percent to 3.0 percent. Economic data early in the first quarter has been mixed, with retail sales rising in January but home-building and business spending on capital goods easing.

The US trade deficit for goods widened in January, as Americans snapped up consumer goods made abroad. The advance look at the trade deficit widened 7.6% to $69 billion. Imports widened by $4.4 billion while exports fell by $400 million. Imports of consumer goods jumped 4.8% in January and climbed 7.8% over 12 months.

The S&P/Case-Shiller 20-city index rose 5.6% in the three-month period ending in December compared to a year ago, up from a 5.2% annual gain in November. The broader national index rose 5.8% for the year in the December period, the strongest gain in 30 months.

In December, the hottest markets were again in the West. Seattle prices rose 10.8% compared to a year ago. In Phoenix, home prices rose 0.2% in December, and 4.9% compared to a year ago.

The Conference Board’s survey of consumer confidence rose to 114.8 in February from 111.6 in January. That’s the highest level since July 2001. Only 20% of survey respondents said jobs are “hard to get,” that is an 8-year low. In February, the present situation index rose to 133.4 from 130.0. The index measures how Americans feel now. The expectations index that looks six months ahead increased to 102.4 from 99.3 last month.

The Senate has confirmed billionaire investor Wilbur Ross as Commerce secretary, clearing another one of Trump’s economic team members. Ross has agreed to divest from much of his business empire.

Dallas Fed President Rob Kaplan says the financial market is pricing in the probability of an interest-rate hike by the Federal Reserve in either March, May or June and that is “likely in the neighborhood of where we are heading.” Kaplan said, “I don’t think the exact timing is the most important thing. I think the path of rates is.”

Kaplan, who is a rate-policy voter this year, said the economy is making good progress toward the Fed’s goals of full employment and a stable 2% rate of inflation. Meanwhile, Philadelphia Fed President Patrick Harker, another rate-policy voter said today, “I see three hikes as appropriate for 2017, assuming things stay on track.”

Well, if the Fed does raise rates in 2 weeks, we have been warned. Those comments helped push the 2-year yield to its highest since December. Interest rate futures implied traders saw a nearly 57 percent chance the Fed will raise rates at its next meeting on March 14-15, up from roughly 31 percent late on Monday, per Reuters data.

Morgan Stanley gave some wealth management clients incorrect tax information that caused some to underpay and others to overpay. The bank is setting aside $70 million to cover the costs and is in discussions with the IRS over the errors that occurred in tax years 2011 through 2016.

South Korean authorities have formally charged the heir of Samsung – Jay Y. Lee – with bribery and embezzlement in the corruption scandal that has rocked the country’s political establishment. Samsung Electronics President Park Sang-Jin has also resigned, as well as Vice Chair Choi Gee-Sung.

YouTube viewers worldwide are now watching more than 1 billion hours of videos a day, threatening to eclipse US television viewership, which is estimated at 1.25 billion hours. YouTube surpassed the figure, which represents a 10-fold increase since 2012, late last year. By comparison, Facebook and Netflix, as of January 2016, counted 100 million and 116 million hours of daily video views, respectively.

It goes to show… Comcast has announced a deal that will allow customers with the latest gear to search for and watch YouTube videos through their cable boxes. The deal follows a similar tie-up with Netflix unveiled last July. YouTube apps are available through many smart TVs and internet-connected boxes like Roku, but those don’t allow for an integrated search across traditional TV networks and Netflix.

YouTube is getting ready to take on traditional cable companies, today unveiling Unplugged, a live TV service streamed over the internet. Unplugged will be similar to Dish’s Sling TV and AT&T’s DirecTV Now, allowing you to subscribe to a so-called “skinny bundle” of popular pay TV channels at a cost of around $30 to $40 per month.

A large swath of the internet went down today when Amazon’s cloud-based Simple Storage Service, or S3, went offline. Amazon’s service provides website and image hosting and storage capabilities for a variety of companies including Imgur, Dropbox, Slack, Snapchat’s Bitmoji, parts of Amazon itself and a slew of others.

UBS published a research report on Apple, writing: “the company may have over 1,000 engineers working on a project in Israel that could be related to AR [augmented reality]. Augmented reality is an area where Apple could leapfrog competition in providing a superior user experience. This could result in sustained iPhone retention rates and more switchers.”

However, if you really want the skinny on Apple, they were holding their annual shareholder meeting today, and Apple CEO Tim Cook predicts tons of revenue from “future stuff I can’t talk about.”

Target forecast a drop in full-year sales at established stores and reported a steeper-than-expected fall in holiday-quarter sales due to “unexpected softness” at its stores. Target’s net sales have now declined for six quarters in a row as shoppers increasingly gravitate to online retailers. Target said it expects sales at stores open for at least a year to decline in the low-single digit percentage range, and they cut earnings guidance 16% to 24%.  Target shares down about 13% at a 2-year low.

Valeant Pharmaceuticals  posted better-than-expected earnings and revenue for the fourth quarter as it cut costs and saw strength in its Bausch & Lomb eye care business. However, revenue fell 13% from a year ago. The company has been struggling to regain investor confidence after it came under investigation over its accounting and drug pricing practices last year.

Priceline Group hit a 52-week high after reporting a beat on both its top and bottom lines for the fourth quarter. Revenue was up 17% thanks to a jump in hotel reservations.

Saudi Aramco will buy a 50% equity stake in Malaysian firm Petronas’ major refining and petrochemical project for $7 billion. The deal will boost Aramco’s downstream business ahead of a planned initial public offering next year.

OneWeb Ltd, a US satellite startup backed by Japan’s SoftBank Group, and debt-laden satellite operator Intelsat SA agreed to merge in a share-for-share deal.  SoftBank will buy voting and non-voting shares in the combined company for $1.7 billion in cash.

Starbucks will locate one of its ultra-luxurious coffee “roasteries” in Milan, Italy, marking the chain’s first entry into the Italian coffee market where founder and CEO Howard Schultz originally drew inspiration for the company. Starbucks plans to open 20 to 30 Roastery locations worldwide, where customers are treated to personalized small-batch brews of Starbucks Reserve coffee.