Financial Review

Not Happening

Sinclair Noe — July 17, 2017

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DOW – 8 = 21,629
SPX – 0.13 = 2459
NAS + 1 = 6314
RUT + 2 = 1431
10 Y – .01 = 2.31%
OIL – .54 = 46.00
GOLD + 5.30 = 1234.70
BITCOIN – 1.51% = 2210.29 USD
ETHEREUM + 6.95% = 187.67

Sen. John McCain revealed over the weekend that he had surgery to remove a blood clot from above his eye. His doctors also said the surgery went “very well,” and the senator is resting at home. As a result, he will not be returning to Washington this week and there is no guarantee he’ll be back after this week, and his absence has suddenly brought consideration of the Senate health care bill to a halt.

Here’s what McCain’s absence does to McConnell’s whip count: There were already two Senate Republicans who have said they would vote “no” on motion to proceed on this bill — Sens. Rand Paul and Susan Collins. McCain’s absence means there is not a Republican majority on the healthcare legislation.

Leadership was pushing for a first procedural vote on the Senate health care bill for as early as Tuesday. That’s no longer happening. We were expecting an updated score from the Congressional Budget Office on the revised Senate bill today. That is also not happening. No guidance from the CBO on when we’ll see that score.

Regardless of the timing, Republicans hope the report will look better than an earlier version, which said the Republican plan would cause 22 million Americans to lose insurance by 2026. It’s not guaranteed, though, that the fresh analysis will show dramatically better effects.

Meanwhile, the delay on healthcare legislation is likely to spill over to tax reform. It would be difficult to address taxes without understanding the potential impact of healthcare.

Before the opening bell, Blackrock, the world’s largest asset manager reported second-quarter adjusted earnings per share of $5.24 on revenue of $2.96 billion, missing estimates on both the top and bottom lines. The firm’s second-quarter assets under management rose 16 percent year over year to $5.689 trillion, topping analyst expectations.

BlackRock also said assets under management for its exchange-traded fund business iShares topped $1.5 trillion, helped by record net inflows of $74 billion.  Blackrock dropped over 3% today.

After the closing bell, Netflix reported earnings – although for Netflix the attention is on subscribers, rather than traditional top line, bottom line numbers. Netflix added more than 5 million subscribers in the June quarter, bringing its total subscriber base to about 104 million. Most new subscribers — more than 4 million — came from its overseas markets.

In fact, Netflix’s international subscriber base is now larger than the U.S. for the first time. The strong growth beat Netflix’s own estimates and caused the stock to spike 10% in after-hours trading. Oh yeah, revenue came in at $2.79 billion, a little better than estimates. Earnings were 15 cents per share missing estimates of 16 cents.

A moat is a deep, wide ditch surrounding a castle or fort, typically filled with water and intended as a defense against attack. An economic moat refers to a business’ ability to maintain competitive advantages over its competitors to protect its long-term profits and market share from competing firms.

Blue Apron Holdings does not have a moat. Shares of the meal-kit delivery company sank as low as $6.51, a 35 percent drop since its initial public offering. Amazon filed a July 6 trademark application for “prepared food kits composed of meat, poultry, fish, seafood, fruit and/or vegetables . . . ready for cooking and assembly as a meal.”

Blue Apron has been telling investors that its offering is different than basic grocery delivery. Amazon’s interest in meal kits directly undermines that pitch. The barbarians are at the drawbridge.

A mix of financial services, entertainment, transportation and technology companies are reporting earnings this week. JPMorgan Chase, Citigroup and Wells Fargo all posted higher-than-expected second-quarter earnings on Friday, even though they had weak trading revenue. That trend is expected to continue this week when Bank of America and Goldman Sachs post results.

The FAANG stocks (Facebook, Apple, Amazon, Netflix, and Alphabet-Google) are expected to be an overall drag on second quarter earnings growth despite their stock performance. The FAANG companies’ earnings growth is expected to be 6 percent for the second quarter. But the overall earnings growth for the S&P is expected to be north of 8 percent. The overall earnings growth for FAANG stocks contrasts with their stock performance.

The market cap of the FAANGs increased by $119.85 billion during the second quarter, or about 22.2 percent of the overall increase in market cap of the S&P 500. Each of the FAANG stocks has significantly outperformed the S&P 500 this year.

Business activity grew modestly in New York State. The July 2017 Empire State Manufacturing Survey general business conditions index fell ten points to 9.8. The new orders index moved down to 13.3, and the shipments index fell to 10.5, suggesting that orders and shipments continued to grow, though at a somewhat slower pace than in June.

China’s gross domestic product grew 6.9% in the second quarter, according to government data released Monday, the same figure as the previous quarter and marginally higher than most forecasts. The latest numbers position the economy above Beijing’s stated growth target for 2017. But China’s speedy growth – an uptick from the 6.7% it recorded last year –  will be difficult to sustain in the months to come.

The Chinese government announced last week it would change the way it calculated economic growth for the first time in 15 years, adding healthcare, tourism and the “new economy” to the overall figure. It was not immediately clear whether those additions had an impact on growth.

The latest growth numbers will also likely reinforce skepticism among analysts about the reliability of official statistics. But, there’s a bigger story, which is that emerging-market finances are their best in years, bolstering confidence that they can withstand monetary policy tightening in developed economies.

The 12-largest emerging-markets now have foreign-exchange reserves totaling $3 trillion, up from $2.92 trillion in late 2015 and the most since 2014. Emerging-market stocks posted their best performance in a year last week, gaining 4.45 percent as the MSCI Emerging Markets Index rose for five straight days. So, time for a breather, right? Not exactly. The market for developing-nation stocks plowed ahead again on Monday, bringing its year-to-date gain to 21.9 percent.

Brexit negotiations between the UK and the EU officially kicked off today. Over the course of the next few years the UK’s entire relationship with the rest of Europe is likely to be totally reshaped. Nowhere is that truer than in British industry, where firms are almost certain to have to adjust to life outside the European Single Market and to an entirely new trading relationship with what is for most industries, their biggest trading partner.

The Office for National Statistics dropped a whole heap of data about the British industries that are likely to be most impacted by Brexit, as well as where those industries are clustered. This helps to create a reasonable picture of the parts of the UK where Brexit could have the largest impression.

For example, one of the industries likely to suffer most at the hands of Brexit is the UK’s automobile industry. Financial services are another area where the Brexit negotiations could cause trouble, causing problems for London, where the sector is heavily concentrated.

Tens of thousands of people who took out private loans to pay for college but have not been able to keep up payments may get their debts wiped away because critical paperwork is missing. The troubled loans, which total at least $5 billion, are at the center of a protracted legal dispute between the student borrowers and a group of creditors who have aggressively pursued them in court after they fell behind on payments.

Judges have already dismissed dozens of lawsuits against former students, essentially wiping out their debt, because documents proving who owns the loans are missing. A review of court records by The New York Times shows that many other collection cases are deeply flawed, with incomplete ownership records and mass-produced documentation.

Some of the problems playing out now in the $108 billion private student loan market are reminiscent of those that arose from the subprime mortgage crisis a decade ago, when billions of dollars in subprime mortgage loans were ruled uncollectable by courts because of missing or fake documentation.

And like those troubled mortgages, private student loans — which come with higher interest rates and fewer consumer protections than federal loans — are often targeted at the most vulnerable borrowers, like those attending for-profit schools.

One of the nation’s largest owners of private student loans and one of the most aggressive at collecting delinquent loans, the National Collegiate Student Loan Trusts, is struggling to prove in court that it has the legal paperwork showing ownership of its loans, which were originally made by banks and then sold to investors.

Judges throughout the county, including recently in cases in New Hampshire, Ohio and Texas, have tossed out lawsuits by National Collegiate, ruling that it did not prove it owned the debt on which it was trying to collect.

The White House is highlighting products Made in America. They have compiled a list of products from each state. Some are obvious: wine from California and Stetson cowboy hats from Texas. Other picks were less obvious: North Carolina’s product is Cheerwine soda. I’ve never heard of Cheerwine soda.

Meanwhile, Georgia’s product is Chik-fil-a sandwiches, not Coca-Cola.  So, go figure. Arizona’s Made in America product is Ping golf clubs.

Financial Review

Tug of War

Sinclair Noe — January 19, 2016

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DOW + 27 = 16,016
SPX + 1 = 1881
NAS – 11 = 4476
10 Y un 2.04%
OIL – 1.13 = 28.29
GOLD – 1.30 = 1088.50

Just a reminder that last Friday saw the Dow drop 390 and the S&P too down 41, taking out the August lows of 1867 with an intra-day low of 1857. This morning Wall Street started the session with a bounce, but it didn’t hold; in the afternoon the major averages turned negative; the S&P went back down to test support at 1865. We are seeing an important level of support at 1857 to 1867 on the S&P.

We told you on Friday that we would need to see confirmation in the form of a close below 1867. It did not happen today. The Nasdaq Composite did close below the September low of 4487. The Dow Industrials are still above the August lows off 15,666. You don’t even want to look at charts of the Russell 2000 index or the Dow Transports; they are just ugly.

And then if you move away from Wall Street, the economy doesn’t look too bad: 70 consecutive months of job growth, the unemployment rate at 5%, GDP growth probably around 2% to 2.5% (not great but compared to the rest of the world it looks decent), oil prices falling, which should be a big positive for the largest consumer of energy in the world.

Back on Wall Street, everything we know about everything is reflected in price. And prices have been shocked. Eventually prices will drag down the broader economy or the broader economy will lift prices. Right now, it is a tug of war. In time we will see which side carries the most weight.

Global markets were mainly higher, including Japan, most of Europe and the UK. The Shanghai Composite gained 3.2% today. China’s economy grew at its weakest pace in a quarter of a century last year. Growth for 2015 as a whole hit 6.9 percent after the fourth quarter slowed to 6.8 percent. There was relief in the markets, however, that growth at least matched forecasts, and a growing expectation that the People’s Bank of China would provide further stimulus.

China’s slowdown, along with the slump in commodity prices, prompted the International Monetary Fund to cut its global growth forecasts again on Tuesday, and it said it expected the world’s second-largest economy to see growth of only 6.3 percent in 2016. The IMF expects the global economy to grow at 3.4 percent in 2016 and at 3.6 percent in 2017. The numbers for both the years are 0.2 percentage points less than what IMF had estimated in October.

The International Energy Agency says unseasonably warm weather and rising supply will keep the crude oil market oversupplied until at least late 2016. The IEA left its estimate of growth in global demand for 2016 unchanged from its previous monthly report at around 1.2 million barrels per day.

The US and other major powers have removed sanctions on Iran’s exports after the previously isolated Islamic republic complied with the nuclear deal. According to Reuters, the sanctions removed about 2 million barrels per day of production, dropping Iran’s output to just more than 1 million barrels a day. On Monday, Iran issued an order to increase its production by 500,000 barrels a day.

I’ve talked with you about the idea that oil in the ground might be worth-less at some point in the future. It has happened (much faster than I imagined). Bloomberg reports Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it offered to pay $1.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude. It had previously posted a price of negative 50 cents for a barrel.

This is for a low quality of crude that is expensive to refine and it comes from an area where it is expensive to transport, but still this sends a pretty clear message to oil producers to shut down their wells, or at least some of them. Producers outside the US are also feeling pain. The price for Canadian bitumen – the thick, tar-like oil at the center of the debate over the Keystone XL pipeline – fell to $8.35 last week, down from as much as $80 less than two years ago.

Puerto Rico is running out of money faster than expected, leaving an increasing hole in the amount needed to operate and pay back investors. According to an updated fiscal plan, the island now estimates it is $16 billion short of the money it needs to cover debt payments over the next five years, a 15% bigger figure than the one released in September. The gap over 10 years is almost $24 billion, even with planned fiscal adjustments.

Earnings reporting season this week will feature a bunch of the big tech names, including:  IBM, Verizon, SAP and Apple. Netflix and IBM reported after the closing bell today.

Netflix posted fourth-quarter adjusted earnings of 7 cents per share, down from 10 cents a share in the previous year, but they still beat analysts’ estimates of 2 cents. Revenue was $1.8 billion compared to $1.4 billion a year ago. Netflix added 5.5 million total net subscribers in the quarter, up from 4.3 million additions in the previous year, beating expectations. Netflix has been popular, up 124% over the past year.  NFLX up 3.85 today, and in after-hours it gained 7.36 to 107.89.

IBM reported fourth quarter earnings of $4.84 a share on $22.06 billion in revenue; topping estimates for profit and revenue, even though earnings were down 17% from the year earlier period.  IBM’s cloud, analytics, mobile, social and security businesses grew 26 percent to $29 billion in 2015; those units now represent 35 percent of IBM’s total revenue. IBM down 1.92 and then down another .91 in after-hours at 127.20

UnitedHealth earned $1.22 billion in the final three months of the year, down from $1.51 billion in the previous year’s quarter. Earnings totaled $1.40 per share, topping estimates by 3-cents. Total revenue jumped 30 percent to $43.6 billion, beating estimates.

UnitedHealth is struggling to make money on the ACA health exchanges, but they are making up for it with their Optum division where earnings jumped 50% in the quarter. Optum runs the company’s pharmacy benefits management business. UNH up 3%

Johnson & Johnson is planning to cut about 4% to 6% of the global workforce in its medical devices business over the next two years, as part of a restructuring that aims to save $800 million to $1.0 billion by the end of 2018. JNJ gained 50 cents to 97.50.

Although it expects “tougher market conditions” in 2016, Unilever reported fourth-quarter sales that beat estimates amid higher prices for its goods in Latin America. Revenue rose 4.9%, while core operating profit increased 12%. UNL up 3.9%.

Morgan Stanley posted earnings of $908 million, or 39 cents a share. That compares with a loss of $1.6 billion, or 91 cents a share, in a year-earlier period that included a $2.6 billion settlement over the sale of mortgage bonds. Profit and revenue beat estimates. Morgan Stanley previously announced big cuts to their fixed income business; today they announced the cuts will be even deeper. MS up 1.1%

Bank of America said its fourth-quarter profit rose to $3.3 billion, or 28 cents a share. Revenue rose to $19.5 billion. Profit and revenue beat estimates. Bank of America said its provision for credit losses in global banking increased by $264 million in the quarter ended Dec. 31, mainly due to higher energy-related charge-offs and reserve increases for energy exposure. The bank has $21.3 billion in energy-related loans, representing about 2 percent of total loans. BAC down 1.5%.

Already troubled by lawsuits and official investigations, Deutsche Bank is facing another challenge – it’s about to be sued in British court for using high-speed trading software. That lawsuit asserts the lender used a platform known as Autobahn to take advantage of millisecond changes in exchange rates to give clients worse prices than they were entitled to. Deutsche Bank has denied the claims.

WhatsApp is scrapping its subscription fee and will explore other ways to allow businesses to interact with its users (but will not introduce third-party ads) to make up for the lost revenue. The Facebook-owned app had previously charged an annual renewal fee of $0.99 for all users after their first year.

For the third time in roughly a year, Elon Musk’s SpaceX on Sunday failed to successfully land the main part of a spent rocket on a floating ocean platform, although it came pretty close. The booster maneuvered back to its destination as intended, but touched down harder than planned, causing it to tip over and explode. Last month, SpaceX made a successful, first-of-its-kind return of a used booster that hurtled back from space and made a pinpoint touchdown on land without incurring any significant damage.

French carmaker Renault will recall more than 15,000 vehicles to tweak their engines to ensure that they comply with emissions standards. The company committed to the recall after it was found that the filtration system in some of its vehicles did not comply with emission standards under real world conditions. The announcement comes after French investigators raided Renault’s headquarters near Paris earlier this month. French authorities widened their probe following the Volkswagen emissions cheating scandal, and later found discrepancies between real-world tests and lab results in four Renault models.

The world’s political and business leaders, plus the usual smattering of celebrities are heading to Davos, the Swiss Alpine resort where the World Economic Forum’s annual conference begins this evening. The official theme of the 2016 meeting is “mastering the fourth industrial revolution.” In WEF-speak, that means the “fusion of technologies that is blurring the lines between the physical, digital and biological spheres.” Which raise the question: Has anything worthwhile and meaningful ever come out of the World Economic Forum in Davos?

Glenn Frey, the prolific guitarist, singer, songwriter and founding member of the Eagles, died on Monday at age 67. Frey and Don Henley co-founded the Eagles in 1971 in Los Angeles after playing backup for rock singer Linda Ronstadt. The Eagles album, “Their Greatest Hits 1971-1975,” is the second-best-selling record of all time in the United States.

Financial Review

Slow to Patch

Sinclair Noe — April 15, 2015

 

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DOW + 75 = 18,112
SPX + 10 = 2106
NAS + 33 = 5011
10 YR YLD un = 1.90%
OIL + 2.67 = 55.96
GOLD + 9.60 = 1202.50
SILV + .18 = 16.41

The Federal Reserve reports industrial production dropped 0.6% in March. The biggest drop since August 2012. For the first quarter, industrial production was down at 1% annual rate, the first quarterly decline since the end of the recession.

The National Association of Home Builders/Wells Fargo index of home builder confidence increased to 56 in April from 52 in March. Readings over 50 indicate that more builders see sales conditions as good rather than poor. All three components of the index improved in the month: sales expectations, buyer traffic, and the component gauging current sales conditions all moved higher.

China grew at its slowest pace last quarter since the global financial crisis in 2009; GDP expanded 7% in the three months to March from the year ago period, down from 7.3% the prior quarter. Retail sales and industrial output data broadly missed expectations, however, with the latter expanding at the slowest pace since 2008.

Japan overtook China as the top foreign holder of US government debt for the first time since the global financial crisis. Each country holds a little more than $1.22 trillion in US Treasuries, but Japan has about $7 billion more than China.

Saudi Arabia pumped close to a record amount of crude oil last month, leading the biggest surge in OPEC output in almost four years just as the US shale boom shows signs of slowing. The International Energy Agency said average US oil production of 12.6 million barrels a day in the first six months of 2015 will slide to 12.5 million by the fourth quarter as companies curb drilling.

Meanwhile, Saudi Arabia and other OPEC producers raised output by 890,000 barrels a day to 31 million a day in March. Demand for oil will be higher this year than previously thought, according to the International Energy Agency report. The IEA’s expectation for a “notable acceleration” in demand for oil in 2015 comes as Iran called on fellow OPEC members to cut production. If you think you know where oil prices are going just consider the International Energy Agency’s conclusion to their Oil Market Report; they say, “The outlook is only getting murkier.”

There has been a lot of talk about oil prices and supply and demand; most of the talk is short-term and it can be confusing. We know that many drillers have shut down rigs but then we hear that North Dakota’s Bakken production is expected to surge in the second and third quarters of this year, as that state puts the screws on companies to complete wells and rolls out some new tax incentives.

According to the new annual energy outlook by the Energy Information Administration, the government appears to be even more bullish about U.S. oil production this year than it was last year. Despite a nearly 50% drop in the price of crude-oil since then, the government’s expectation for oil production growth is even more robust than in last year’s energy forecast.

Where it gets more interesting is in the long-term outlook; there we are seeing a fundamental shift. The EIA report says longer-term, US crude oil production will peak at 10.6 million barrels per day in 2020, a million barrels more than the high forecast a year earlier. Crude production will then moderate to 9.4 million barrels per day in 2040, 26% more than expected a year ago. Despite lower prices, higher production will result mainly from increased onshore oil output, predominantly from shale formations.

Perhaps the most interesting long-term idea is that the US could become a net energy exporter over the next 2 to 15 years. And it’s not just a result of more drilling, but rather advanced technologies that are reshaping the energy economy, including the greater use of renewable energy sources, along with conservation efforts, including more efficient cars and trucks. The report found that solar is the fastest growing source of renewable energy with an annual growth rate of 6.8%. The report predicts that 77GW of renewable generation capacity will be added up until 2040 with 44% of that (33.9GW) from solar. Of this 31GW will be solar PV. Only 9GW of nuclear and 1GW of coal capacity is expected to be added in the same period.

This afternoon the Federal Reserve published its Beige Book, a collection of anecdotal reports from the 12 Fed districts; the report is published 8 times a year, just a couple of weeks before the FOMC meetings to determine monetary policy. Once again, the districts reported that the economy continues to grow moderately or modestly.

Nonfinancial firms saw rising activity across all districts with demand picking up for high-tech services such as cybersecurity and web development. The Boston and Richmond Fed districts saw an increase in healthcare services, and Service providers in Boston, Philadelphia, Kansas City, and Dallas were optimistic about near-term growth trends for their firms. Many districts said that savings from lower gas prices was fueling consumer sales. Auto sales rose in most districts, and all districts expected corporate and leisure travel to be up in 2015. Most Fed districts reported a tight supply of residential real estate, and only New York reported softening conditions in the residential real estate market. In Chicago, inventories of homes were near historic lows, especially for lower-priced homes. And the Fed says banking conditions are generally favorable.

Agricultural conditions worsened slightly across the nation, thanks to wet fields, persistent drought, and a cold winter. Weather was an important consideration in the Beige Book, mentioned 71 times, and it was mostly bad weather.  Energy market conditions declined in the oil patch. Falling oil prices hurt new orders to energy supplier companies. Manufacturing activity was mixed, hurt by the soaring value of the dollar, which makes US goods more expensive overseas.

Another big day for earnings reports. Bank of America reported a better-than-expected first-quarter profit, reversing from a year-earlier loss, as legal costs fell to $370 million for the quarter. BofA has paid at least $70 billion so far to settle legal issues related to the financial crisis. It turns out that throwing away tens of billions of dollars on legal problems is a flawed business model. Who knew?

CSX beat estimates with earnings, while revenue was essentially in line. The rail operator also announced a $2 billion stock buyback, and raised its dividend by 13 percent to 18 cents per share.

Delta Air Lines posted better-than-expected earnings. The carrier said it plans to cut seating capacity later this year on international routes as the strong dollar and declining oil prices damps overseas travel demand.

Charles Schwab said its first-quarter profit fell 7.4%, as the company was hurt by higher one-time costs and a slowdown in trading.

Netflix, the online video-streaming service, reported revenue of $1.57 billion in its first quarter, on earnings of 38 cents per share. Analysts expected earnings of 69 cents per share, but share price moved higher in after-hours trading because they added 4.9 million new subscribers, topping estimates of 4 million.

Keep in mind that this week we’ve seen several of the big financial institutions reporting earnings, and they were expected to turn in good results. Starting next week, we’ll start to see other sectors reporting, and as we get into the energy sector or the manufacturing sector, we are more likely to see ugly numbers.

The European Union has accused Google of anti-trust violations; cheating competitors by distorting Internet search results to favor its shopping service; and regulators also launched another antitrust investigation into its Android mobile operating system. Google now has an opportunity to explain itself and the case might be settled by the company making commitments to change its products.  The EU regulator can demand sweeping changes to Google’s business practices and might impose fines up to $6.6 billion. Google plans to defend the charges.

Nokia has agreed to acquire telecom equipment company Alcatel-Lucent for $16.6 billion, in a deal that would solidify its ambitions to become a major provider of networking equipment. The deal is expected to close in the first half of 2016. The combined company will have about 114,000 employees and combined sales of around 26 billion euros. The new Nokia will have stronger exposure to the North American market, with key contracts with AT&T and Verizon.

With the FCC’s new net neutrality rules published in the Federal Register – let the lawsuits begin. AT&T and three industry trade groups representing cable companies and wireless carriers have filed separate lawsuits challenging the rules. AT&T is the first large individual challenger, joined by the National Cable and Telecommunications Association, wireless group CTIA and the smaller American Cable Association.

After months of negotiations, Target is close to a settlement with MasterCard that would reimburse banks with roughly $20 million for costs they incurred from its massive data breach two years ago. In 2013, Target said at least 40 million credit cards were compromised by a hack during the holiday shopping season, and the attack might have resulted in the theft of personal information. Target also faces a big payout in its negotiations with Visa.

Verizon has published its annual report on cyber security. The report was based on the details of 79,790 “security incidents” given to Verizon’s researchers by 70 organizations, and that’s just for the past year. Phishing may be the oldest trick in the hacker’s book, but it’s still the method behind many of the breaches we’ve seen in recent months. Nearly a quarter of people who receive phishing e-mails open them, according to the report, and 11 percent proceed to download file attachments.

The Verizon report also suggests that companies adopt “improved detection and response capabilities.” Put simply, companies rarely figure out on their own that they’ve been breached. Security professionals often fail to update their systems with patches for known vulnerabilities, and hackers take full advantage of those weaknesses. According to the report, “71 percent of vulnerabilities had a patch available for more than a year prior to the breach.” In other words, many paths hackers took to break into networks last year could have been rendered dead-ends if someone had installed these updates. Worse yet, the issuance of a patch may be a green light for hackers to attack, because it highlights a vulnerability and the hackers know most organizations are slow to patch.