Financial Review

Aggressively Flat

Sinclair Noe — June 1, 2016

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DOW + 2 = 17,789
SPX + 2 = 2099
NAS + 4 = 4952
10 Y + .01 = 1.84%
OIL – .22 = 48.88
GOLD – 2.30 = 1213.70

It turned out to be an aggressively flat day on Wall Street. The Dow kicked off the morning with a 120-point drop and the S&P 500 index posted an early 22-point slide, followed by clawing and scratching back to slightly positive territory.

Manufacturing activity grew in May but at a very slow pace that suggests the sector is unlikely to speed up anytime soon. The Institute for Supply Management said its manufacturing index rose to 51.3% last month from 50.8% in April. Readings over 50% indicate more companies are expanding instead of shrinking.

The index has been above the cutoff mark for three straight months after slipping below 50% for five straight months. The big improvement came in how fast companies delivered goods to buyers and replenishing of inventories, a sign that demand may have picked up a bit.

JPMorgan’s Global Manufacturing Purchasing Managers’ Index (PMI), produced with Markit, came in at 50.0 last month, right on the level that separates growth from contraction, compared to 50.1 in April.

Construction spending dropped 1.8% in April. The monthly data followed an upward revision to March data of about 1.5%. Weakness in April was widespread. Residential construction declined 1.5%, while public construction spending fell 2.8%. Outlays for highways were down 6.6%. Many categories are stronger than they were a year ago, however, and overall all spending is 4.5% higher than in April 2015.

The U.S. auto industry looks set for another record year, even as May new-vehicle sales showed a decline. General Motors, the largest U.S. automaker, reported a 14.3 percent drop. Ford Motor said its sales fell 6 percent. Fiat Chrysler said sales rose 1 percent. In 2015, vehicle sales were a record 17.47 million vehicles. Overall, sales hit an annualized sale pace of 17.45 million units in May.

Toyota, Fiat Chrysler, Volkswagen and Mitsubishi are still selling new vehicles with defective air bags that will eventually have to be recalled. According to a report from the Senate Commerce Committee, the automakers confirmed they are continuing to sell some vehicles with ammonium-nitrate inflators without a drying agent.

The vehicles are legal to sell but must be recalled by 2018. The report also said that 11 automakers have replaced more than 2.1 million older Takata airbags with newer versions that would also need to be replaced. It just seems so incredibly stupid.

Prime Minister Shinzo Abe is postponing an increase to Japan’s sales tax (from 8% to 10%) by two-and-a-half years until 2019. Additionally, Abe will announce a new stimulus package in the fall aimed at sparking private demand and accelerating infrastructure projects. The decision marks an about-face for Abe, who already pushed off the hike once, and repeatedly said that only an economic shock on the scale of the Lehman Brothers collapse or a major earthquake would prompt another delay.

The OECD, which has a history of cutting its growth outlooks, has done it again, warning global policymakers of a self-fulfilling “low-growth trap” where ultra-loose monetary policy risks doing more harm than good. The organization lowered its world growth forecast by some 0.3%, predicting the global economy to expand by 3% in 2016 and “by only” 3.3% in 2017.

Looking at other major events on the calendar, tomorrow the ECB and OPEC meet, separately of course. The European Central Bank is not expected to announce any new stimulus measures. OPEC is expected to talk about caps on output but OPEC is not expected to announce an actual freeze on production.

Saudi Arabia has already said it won’t freeze production unless Iran freezes production, which Iran says it won’t do. Six months after OPEC left its high-production policy in place, some of the cartel members who called loudest for output cuts are feeling the most pain.

Friday brings the monthly jobs report, and we are looking for a repeat of the April numbers, somewhere around 160,000; any numbers significantly below 150,000 or above 200,000 could change the outlook for Federal Reserve decisions on interest rate policy; the FOMC meets on the 15^th.

One week later, there is a referendum in the UK and voters will decide whether to stay in the Euro Union or exit. Right now the Brexit is a toss-up. The official scolding seems to be backfiring.

Two weeks before a FOMC meeting, the Federal Reserve publishes the Beige Book, an anecdotal collection of observations on the economy from the 12 Fed districts. Today’s Beige Book noted tight labor markets in most districts despite modest job growth, growing price pressures. More generally, the Fed reported modest or moderate economic growth in the majority of its 12 districts.

Consumer spending was “up modestly on balance” in many regions. Reports on the factory economy were mixed, and banks generally saw higher demand for loans. Crop conditions were described as “promising in many districts,” though “low commodity prices continued to put pressure on agricultural incomes.”  The energy sector “remained weak” (no surprise) and everything else is good news for American workers.

Also today, we learned that Fed Chair Janet Yellen will deliver her semiannual testimony before Congress on June 21, about a month earlier than usual. This means we’ll hear from Yellen on June 6, June 15, and June 21. So, plenty of Fedspeak from the most important member of the FOMC ahead of a July 27 policy announcement that could include the Fed’s next rate hike.

Or the Fed could hike rates in June, and Yellen could try to explain how the Fed has been hacked at least 50 times in the past 4 years. The disclosure of breaches at the Fed comes at a time when cybersecurity at central banks worldwide is under scrutiny after hackers stole $81 million from a Bank Bangladesh account at the New York Fed.

French commuters are facing more travel disruptions as rail workers go on strike and President Hollande seeks to contain the labor unrest that caused many gas stations to run dry over the past week. About half of the nation’s train services have been canceled across the country, and there are concerns that the Euro 2016 soccer tournament, which France hosts from next week, may be disrupted.

Michael Dell and Silver Lake Partners underpriced their 2013 $24.9 billion buyout of Dell by about 22 percent and may have to pay tens of millions to investors who opposed the deal for the computer maker. The court ruling applies to about 5.5 million Dell shares. Dell shareholders claimed the Dell buyout took advantage of a dip in the company’s stock price and its board never determined the intrinsic value before negotiating. A Delaware judge was asked to make an appraisal of the fair value of the deal.

Cloud-based software maker Salesforce.com said it would buy Demandware, whose software is used by businesses to run e-commerce websites, for about $2.8 billion, or a 56 percent premium to Demandware’s Tuesday closing. The deal will help Salesforce open a new front as it looks to take away more market share from traditional software providers such as Oracle and SAP, both of which already offer cloud-based e-commerce services.

The Demandware deal follows Salesforce’s formula: Buy fast-growing companies that have the dual benefit of propping up Salesforce’s growth rate and opening new business lines. Salesforce is paying about 11 times Demandware’s revenue in the past year – more than double the median multiple offered in similar transactions over the last decade.

Who knows, maybe Salesforce will actually turn a profit someday. Meanwhile, consider that Salesforce and Google went public about the same time in 2004, and even though Salesforce has trouble posting earnings, the share price has outperformed Google.

Freeport McMoRan has wrapped up the sale of a 13% interest in its Morenci unincorporated joint venture to its Japan-based partner, Sumitomo Metal Mining Co for $1 billion in cash.  Freeport is taking aggressive actions, including asset sales and deferral of capital spending in an effort to cope with the weak commodity pricing environment.

Boeing has secured a more than $3 billion U.S. Air Force contract for Joint Direct Attack Munitions tail kits that use GPS to make conventional bombs into precision-guided weapons. Boeing’s contract was raised from an initial $1.75 billion awarded in October 2014, due to warfighter demand and the need to replenish depleted inventories.

Doctors at Hackensack University Medical Center in New Jersey have confirmed the birth of a child suffering from Zika-linked microcephaly, a condition wherein the child’s brain and head are partially developed. Reports indicate she is the first baby born with complications from the virus in the tri-state area. The mother is said to have contracted Zika while in Honduras and was admitted to Hackensack while vacationing in the U.S.

Following the lead of Britain and Australia, Canada is making plain packaging of cigarettes compulsory in a bid to cut the rate of smoking. Although the country already obliges firms to slap large graphic warning labels on cigarette boxes, the new measures would require a uniform, standardized color and font on packs and restrict the use of logos and trademarks.

The Food and Drug Administration proposed voluntary guidelines for the food industry to reduce salt. Though the guidelines are not mandatory, consumer advocates said they are meaningful because they will serve as a benchmark by which companies can be measured.

Americans eat almost 50 percent more sodium than what most experts recommend. More than 70 percent of sodium consumed is already in food before it reaches the table, according to the Centers for Disease Control and Prevention, and health advocates say the guidelines could help reduce that.

Financial Review

Watching and Waiting

Sinclair Noe — October 13, 2015

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DOW – 49 = 17,081
SPX – 13 = 2003
NAS – 42 = 4796
10 YR YLD – .04 = 2.05%
OIL – .53 = 46.57
GOLD + 5.00 = 1169.90
SILV + .09 = 16.01

Anheuser-Busch InBev and SABMiller have agreed on terms for a takeover, with the world’s largest brewer set to pay $106 billion. The deal brings one out of every three beers sold worldwide under a single company. Under terms of the agreement, AB InBev would pay a $3 billion break-up fee to SABMiller should the transaction fail to clear regulatory hurdles or shareholders don’t approve of it.

If the deal goes through, it would be the biggest acquisition of the year, and the largest in British history. SABMiller’s two largest shareholders, Altria Group and Bevco Ltd., can receive cash and stock for their stakes, which account for 41 percent of the company. They won’t be able to sell the shares for five years; a move that might have tax benefits.

Dell’s $67 billion buyout of EMC appears to be a win for nearly everyone involved – except EMC bondholders. Investors in EMC’s $5.5 billion of bonds are down about $338 million since news of the deal first became public last week. Why’s that? Dell’s plan to raise about $50 billion in debt for the acquisition will push existing bondholders down the capital structure (the notes lack protections that would’ve allowed for early repayment in the event of an ownership change). Further, consider that Dell will now have to service that debt, to the tune of about $2.5 billion per year; money that won’t be going into capital expenditures or research and development.

Pepsi is competing against Coca-Cola for an investment in Chobani that could value the Greek yogurt maker at $3 billion including debt. Chobani is looking to sell a minority stake to someone who could help it with distribution and production. The company ran into liquidity issues last year before an investment from private-equity firm TPG.

Wells Fargo agreed to buy $32 billion in assets from General Electric and take on about 3,000 employees as GE retreats from financial services. The sale includes commercial-distribution and vendor-finance units, and a portion of the corporate-finance business from GE Capital.  The transaction is expected to be completed in the first quarter of 2016. Wells Fargo previously agreed to buy commercial real estate assets and GE’s railcar-leasing division.

This is part of a major shift for GE; from financial services to its manufacturing and industrial roots; to this end, GE has now divested $126 billion worth of financial operations. GE had previously said it would seek some time in 2016 to apply to remove its designation as a “systemically important” financial institution.

In the past 24 hours or so, we’ve seen more than $210 billion in acquisitions announced. Mergers and acquisitions are on track for a record year. So far in 2015, there have been nearly $3.5 trillion worth of transactions

China’s trade slump has extended into September, adding more evidence that the world’s second largest economy is stalling. Dollar-denominated imports plunged 20.4% Y/Y last month, while exports slipped 3.7%, translating into a trade surplus of $60.34B. In yuan terms, imports fell 17.7%, while exports dropped 1.1%. China’s official GDP data is due on October 19. Separate data shows auto sales expanding at the slowest pace in three years. Much of the import decline reflects this year’s commodity price slump. Miners and metals were coming under pressure again today, with Glencore dropping as much as 5.5 percent in London.

The U.K. inflation rate turned negative again last month, dropping 0.1% year-to-year due to a smaller than usual rise in clothing costs and falling gasoline prices. Although the Consumer Price Index rate has been at or close to zero for most of 2015, the last time it was in negative territory was April. The Bank of England said this past week it did not expect inflation to reach its 1% target until spring 2016.

The International Energy Agency, which represents some of the world’s largest oil consumers, is warning that oil markets would likely remain oversupplied next year, as oil demand growth slows and Iranian oil adds to supplies. The IEA cut its forecast for oil demand growth for next year by about 200,000 barrels a day compared to its previous assessment in September. The IEA said Iran’s production could ramp up towards 3.6 million barrels a day from 2.9 million barrels a day currently once international sanctions are terminated early next year.

Russia’s economy could shrink 3.8% this year on the back of lower oil prices and international sanctions. The country’s finance minister told CNBC that trade restrictions may not be removed any time soon. Despite a GDP contraction this year, the Russians expect their economy to turn to positive growth of 0.7% in 2016.

Investigators in the Netherlands have concluded that Malaysia Airlines Flight 17 was shot down by a Russian-made anti-aircraft missile, causing the jetliner to break apart in midair, killing all 298 people on board. The Boeing 777 was heading from Amsterdam to Malaysia when it was shot down on July 17, 2014, over Ukrainian territory controlled by pro-Russian separatists. The report does not say who fired the missile.

Small business optimism continues to be stagnant. The National Federation of Independent Business said its small business optimism index was little changed in September, edging up 0.2 points to 96.1. That’s still below the 42-year average of 98. Small business owners expect sales to decline and the highest share since 2007 say they cannot find qualified workers.

Switzerland’s finance ministry will require Swiss banks maintain capital reserves of 5% of total assets, in line with the U.S. leverage ratio for its biggest banks and above the 3 percent minimum set in a global agreement by the Basel Committee on Banking Supervision.

Since the summer, trading has been largely driven by negative reaction to growing evidence of a global slowdown. Last week, virtually every economically sensitive asset advanced despite a slew of evidence confirming everyone’s suspicions the global economy is indeed decelerating. Instead, investors looked past the soft data and focused on Fed reaction to that weak data, as expressed in the minutes from the September 17^th FOMC meeting. If the Fed obsession seems extreme, consider that fiscal policy is almost non-existent.

In a speech today at the National Association for Business Economics, Federal Reserve Governor Lael Brainard said that the risks to the U.S. economy are now to the downside and that it is important to “nurture” the recovery. Brainard said these risks “argue against prematurely taking away the support that has been so critical to [the U.S. economy’s] success.” Brainard said there was a risk-management argument in favor of a policy of “watching and waiting.”

Also today Federal Reserve Governor Daniel Tarullo said he doesn’t expect conditions to be appropriate to raise interest rates this year. We’ve heard several different Fed policymakers offering differing opinions on the state of the economy and the motivation to raise interest rates; and the only thing we know with any certainty is that Fed policymakers are not unanimous in their positions. And that means it is unlikely that we will see a rate hike at the October meeting.

Michael Novogratz, the CIO of Fortress Investment Group’s macro fund, will step down at the end of this year. His $2.3 billion fund will be closed down, and assets will be returned to investors. Investors redeemed $800 million from the fund at the end of fourth-quarter 2014, a quarter of its total assets. More redemptions followed throughout the year as key bets, like Novogratz’s long call on Brazil, went sour. Fortress’ macro fund was down about 17.5% through the end of September; still, Novogratz will leave with a $255 million golden parachute.

Earnings reporting season kicks into high gear this week, trying to avoid a second consecutive quarter of negatives. Earnings for S&P 500 companies are expected to have dropped nearly 5 percent year over year, which would be the worst quarter for earnings in six years.

Johnson & Johnson reported net income of $3.36 billion, or $1.20 per share, below $4.75 billion, or $1.66 per share, in the year-earlier period. Adjusted earnings per share beat estimates. The company said international sales decreased 13.7% and it had a negative currency impact of 15.8%. J&J also announced it would double its share buyback program to $10 billion. The company will finance the repurchases with debt.

CSX Corp., the third largest railroad in the country, reported third-quarter net income of $507 million or 52 cents per share, down from $509 million or 51 cents per share a year earlier. Results beat estimates, even as revenue declined on lower coal shipments; the company countered by cutting costs.

JPMorgan Chase said third-quarter profit rose 22% as the firm cut expenses and had $2.2 billion in tax benefits. Net income climbed to $6.8 billion, or $1.68 a share, from $5.57 billion, or $1.36, a year earlier. Adjusted earnings came in at $1.32 a share, six cents south of estimates. BofA and Wells Fargo report tomorrow; Citigroup and Goldman Sachs report Thursday.

Intel reported better than expected earnings and revenue, even though both profits and revenue declined. Net income fell to $3.11 billion, or 64 cents per share, from $3.32 billion, or 66 cents per share, a year earlier. Net revenue fell to $14.47 billion from $14.55 billion.

FINANCIAL REVIEW

More Worthwhile Pursuits

Sinclair Noe — October 12, 2015
Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)
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DOW + 47 = 17,131
SPX + 2 = 2017
NAS + 8 = 4838
10 YR YLD closed
OIL – 2.10 = 47.53
GOLD + 7.50 = 1164.90
SILV – .01 = 15.92

The Dow Industrials posted a gain for the seventh consecutive session, and ninth gain in the past 10 sessions. During the rally, the Dow has gained 1,130 points. Crude oil futures settled 5.1 percent lower after gaining almost 9 percent last week. The dollar was down slightly.

Dell and private-equity firm Silver Lake will buy EMC Corp. for roughly $67 billion in cash and stock, marking one of the largest technology-industry takeovers ever. The $33.15 a share price tag represents a 19% premium over Friday’s closing price. EMC also owns about an 80% stake in VMware, which will remain a publicly traded company. EMC holders will receive $24.05 a share in cash and in addition to tracking stock linked to a portion of EMC’s economic interest in the VMware business. VMware has a market value of about $33 billion.

The Dell deal is the largest in tech history, and it may be the biggest tech deal in terms of debt. Dell will add about $50 billion in debt to complete its proposed acquisition, bringing the closely held company’s total debt to about $60 billion.

Budweiser must really like Miller. Anheuser Busch InBev upped the ante again, making its fourth bid in the past few weeks for SABMiller, saying it’s willing to pay $103 billion in cash and stock. Under British takeover rules Anhesuer Busch InBev must make a formal offer by Wednesday or sit on the sidelines for at least 6 months. SABMiller, the world’s second largest brewer, has rejected three prior proposals since news first emerged in September that Anheuser-Busch InBev was interested in a merger.

The deal, if it were to be completed, would create a combined company with $64 billion in annual revenue that commands 30 percent of global beer sales. Any deal between the brewing giants would most likely face significant regulatory scrutiny.

Separately, the Justice Department is investigating allegations that Anheuser-Busch InBev is trying to cut competition by buying distributors, making it harder for fast-growing craft brewers to get their products on store shelves. In the past few months, A-B InBev has made deals for five distributors in three states. Many states require brewers to use distributors to sell their product, and once AB InBev buys a distributor, craft companies say they find that they can’t distribute their beer as easily and sales growth stalls.

A demonstration in Berlin on Saturday involved hundreds of thousands of protesters against the Transatlantic Trade and Investment Partnership being negotiated between the U.S and EU. The broad trade accord is seen as picking up momentum following last week’s Trans-Pacific Partnership deal, along with some gentle nudging from large multinationals. Groups in Europe are taking issue with TTIP’s lack of transparency and the potential impact on labor and safety.

Standard & Poor’s has cut its ratings on Catalonia by one notch to BB-, saying it expects increasing political tension following last month’s regional elections.

Greece’s new government faces a major test this week when several new economic reforms and austerity measures demanded by international creditors need to be voted on to become law. The Greek parliament will vote this week on an omnibus bill cutting pensions, raising the retirement age and increasing punishments for tax evasion ahead of the country’s first bailout review later this month. The reforms will need to be approved to unlock a fresh -euro loan installment from the country’s €86-billion-euro bailout.

Several dozen Republican congressmen have signed a petition that will force the House to vote on whether to revive the Export-Import Bank that helps American companies sell goods overseas. After the House votes on the Ex-Im Bank bill later this month, the Senate would still have to approve the measure.

The interest rate watch goes on. Here’s the latest twist. U.S. Federal Reserve policymakers are still likely to raise interest rates this year but that is “an expectation, not a commitment,” – so says Fed Vice Chairman Stanley Fischer at a weekend International Monetary Fund (IMF) meeting in Peru. Fischer also said “Considerable uncertainties” still surround the U.S. economic outlook, including the drag on exports from slowing global growth, low investment caused by the decline in oil prices and the recent “disappointing” drop in U.S. jobs.

This morning, Atlanta Federal Reserve Bank President Dennis Lockhart says the Fed will have plenty of new economic data to make a decision in December. And San Francisco Federal Reserve Bank President John Williams said that even “a little bit” more economic data could convince him to support a rate hike at the Fed’s next meeting, in October. Over the weekend Chicago Federal Reserve Bank President Charles Evans said the Fed that globally low inflation makes it “challenging” for the U.S. central bank to lift domestic inflation to its 2 percent goal.

Social Security recipients shouldn’t expect an increase in benefits next year. Adjustments are based on increases in inflation, however falling gasoline prices over much of the last year mean the cost-of-living adjustment, set to be announced Thursday, will likely be zero. The COLA adjustment affects payments to around 70 million Americans. This is just the third time in the past 40 years that Social Security would get no increase in next year’s benefits.

Much of the stock market is sensitive to the economic ramifications of Fed decisions, of course. But perhaps the sector with the most near-term sensitivity is the financial sector. The big banks are scheduled to report earnings this week, including: GS, BAC, WFC, C, JPM, and MS. While the broader market has recovered from losses sustained in the latter half of August, banks are still struggling. Other major earnings reports on the calendar this week include, Intel, GE, and Alphabet (formerly known as Google).

General Electric is in advanced talks to sell a specialty finance portfolio, worth more than $30 billion, to Wells Fargo. Reuters reports Wells Fargo has so far outbid other parties for General Electric’s vendor financing, commercial distribution finance and direct lending assets. A deal could be announced by the time Wells Fargo publishes its third-quarter earnings on Wednesday.

Glencore halted trading of its Hong Kong-listed shares overnight pending the announcement of an asset sale. The embattled mining giant then confirmed the sales process for its wholly-owned Cobar copper mine in Australia and Lomas Bayas copper mine in Chile. The deals are part of a broader plan Glencore has outlined to cut $30 billion in net debt, weather a slump in commodity prices and revive its shares (which have dropped 57% this year).

Copper rose 0.4 percent following a near 4 percent gain last week after production cuts by Glencore boosted base metals. Glencore plans to cut zinc production by a third. Zinc capped the biggest one-day gain in at least 26 years on Friday and copper jumped 3.1 percent.  The shift in output may not be enough to offset weak demand growth in China. Demand has been disappointing, but supply has also been worse than expected.

Fiat Chrysler  has disclosed the price range of Ferrari’s initial public offering that could value the luxury unit at close to $10 billion. The company will sell up to 10% of Ferrari in the IPO at a price of between $48-$52 per share and use the proceeds of the offering to help pay for its own turnaround plan.

Looking to secure a larger slice of the world’s biggest auto market, Ford is investing $1.8 billion over the next five years to expand research and development in China. The company also expects to introduce the C-MAX Energi, a plug-in hybrid, to the Chinese market next year. Beijing has been trying to encourage more electric vehicles to combat pollution, but progress has been slow due to the lack of infrastructure.

Angus Deaton, a Princeton economist, was awarded the Nobel Memorial Prize in Economic Science. The award committee said Deaton’s research has “shown other researchers and international organizations like the World Bank how to go about understanding poverty at the very basic level.” Deaton has criticized the widening income gap between rich and poor in the U.S.

In his 2013 book, “The Great Escape,” Deaton wrote that “inequality can sometimes be helpful” in promoting prosperity by giving people incentives to work harder and more efficiently. But last year Deaton wrote that he worried that high-paying jobs in finance and other fields were diverting talented young people from “more worthwhile pursuits.” He also warned that the very rich might be using their disproportionate influence to “write the rules in their favor, and they may work against the public provision of health care or education, for which they pay a large share but have little personal need.”

In a 2003 essay, Deaton wrote about the difficulty in determining how we define poverty. He wrote: Even if you have enough goods, they are worth little if you are not healthy enough to enjoy them. Children who live in an unsanitary environment will obtain little nutritional benefit from the food that they eat if they continually suffer from diarrhea. More broadly, girls who are denied the opportunity to go to school experience yet another type of poverty, the poverty of not being able to read and to participate in activities that are only open to the literate. People are also poor in another sense if they lack the resources to participate fully in the society in which they live, who in Adam Smith’s term “are afraid to appear in public,” even if their incomes would be sufficient in some other society.

Financial Review

Anticipation of Consequences

Sinclair Noe — October 8, 2015

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

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DOW + 138 = 17,050
SPX + 17 = 2013
NAS + 19 = 4810
10 YR YLD + .05 = 2.11%
OIL + 1.86 = 49.67
GOLD – 6.80 – 1140.00
SILV – .39 = 15.77

This morning was full of anticipation: earnings season scheduled to kick off after the closing bell, the FOMC scheduled to release minutes from their September policy meeting, the House of Representatives scheduled to select a new Speaker of the House. Wisdom consists of the anticipation of consequences.

Earnings season is underway; the unofficial start is when Alcoa reports; ticker symbol AA, they lead the pack alphabetically, and then it just became tradition. The company reported adjusted third-quarter earnings of 7 cents a share on revenue of $5.57 billion. Analysts surveyed by FactSet had estimated earnings of 13 cents a share on revenue of $5.66 billion. Alcoa indicated that China’s industrial economy is slowing more rapidly than expected, as the aluminum producer slashed its production outlook for the country for cars, trucks and construction. And just like that, we have a trend.

Short interest has hit a peak. Short interest on companies listed on the New York Stock Exchange (NYSE) just hit a seven-year high, going back to the 2008 financial crisis. Short interest, or a bet that prices will drop, tends to increase as stocks are falling, and peak when they’ve bottomed; and so a peak in short interest is often seen as a contrarian indicator. Of course, short interest could still increase from these levels.

The Fed published the minutes of its September FOMC meeting. Most Federal Open Market Committee members still think an interest rate hike is possible this year. According to the Minutes from the September meeting, the Fed decided to wait on concerns about sluggish inflation and global economic growth, particularly in China. It also did not want to hike rates with inflation below its 2% target, as this could have hurt its credibility. The Fed remarked that the pullback in equities in August was likely because investors believed stocks were expensive.

Most thought that their goal of healthy labor market had been met or would be met by the end of the year. That view may be different now that the September jobs report, released after the Fed meeting, showed slowing growth. Fed officials decided it would be “prudent” to wait for more data to confirm the economy was growing at a moderate rate and labor market conditions had improved further.

House Republicans were scheduled to gather today to elect a new Speaker after John Boehner abruptly announced two weeks ago that he plans to retire from Congress at the end of October. House Majority Leader Kevin McCarthy was expected to be the front-runner for the Speaker’s job, but before the vote this morning, McCarthy dropped out of the race.

Yesterday  the Freedom Caucus, a group of about 40 of the House’s most conservative members announced it was throwing its support behind Rep. Daniel Webster, a Florida sophomore considered a longshot challenger to McCarthy. That comes three days after Jason Chaffetz, a three-term Utah Republican and Chair of the Oversight Committee announced he, too, was challenging McCarthy. A full House vote is scheduled for the end of the month. House Republicans tweeted that the leadership election would be postponed.

As the politicians sort through the chaos, there is still work to be done.  The Treasury Department has said it will exhaust its authority to borrow money to fund the government on Nov. 5. If Congress does not raise or suspend the government’s statutory borrowing limit, the government would default on its debt days later, risking economic chaos, soaring interest rates and plunging stock prices. Then, on Dec. 11, a stopgap spending bill expires. Without congressional action, much of the government will shut down. And don’t forget an October 29 deadline to replenish the Highway Trust Fund, which funds many construction projects across the country. With leadership elections occupying much attention, the window to get something done grows smaller.

Brazil is facing political and economic crisis; Brazil’s Federal Accounts Court has ruled President Dilma Rousseff manipulated government budget figures in 2014, and the nation’s highest court permitted a lawsuit to annul last year’s presidential election. The move paves the way for a possible impeachment, although any ouster would likely take months and has no guarantee of succeeding.

Jobless claims fell by 13,000 to 263,000 in the week ended Oct. 3, the fewest since July 18. The four-week average of claims, a less-volatile measure than the weekly figure, dropped to 267,500.

Revolving credit continues to show life, up a solid $4.0 billion in August for a sixth straight gain. Gains in this reading, which have been scarce this recovery, perhaps suggest that consumers are growing less reluctant to run up their credit cards.

The United Auto Workers union has reached a tentative deal with Fiat Chrysler Automobiles on a new four-year contract, averting a strike of the automaker’s U.S. operations. Local UAW leaders will gather in Detroit on Friday to hear details of the deal, while Fiat Chrysler’s 40,000 union workers will have to vote again to finalize the agreement. If the pact is ratified, the UAW will likely use it as a template for negotiations with General Motors and Ford.

A Congressional hearing into the Volkswagen emissions cheating scandal continued today. Volkswagen’s top U.S. executive, Michael Horn, repeatedly apologized but didn’t reveal details of who was behind the scam or who knew what, when.  Horn was grilled on questions he claimed to not have answers to and the lawmakers didn’t get the answers they were looking for. In Germany, police and prosecutors swooped in on Volkswagen factories and employees’ private homes in an early morning raid to gather evidence about who was behind the carmaker’s decision to cheat on diesel emissions tests.

Doubts have been raised over the level of Volkswagen reported death and injury claims in the U.S. over the last decade as the numbers have been so good as to make some industry experts question their validity. Already this year, Honda has been fined in the U.S. for underreporting claims and Volkswagen’s reported claims are significantly below the number Honda was fined for.

Dell, the world’s third largest PC maker, and the cloud storage company EMC Corp. are in discussions about a potential merger, for what could be one of the biggest technology deals in history. An agreement could be reached within a week, according to the New York Times. Of course, it’s also possible the talks won’t lead to any deal at all. It remains unclear if the two companies are discussing a full or partial takeover. EMC has a market capitalization of $50 billion, and it owns the software-development company Pivotal and enterprise-security firm RSA, as well as 80% of the virtualization company VMware.

After triggering a buy-sell clause in a deal with Michael Jackson’s estate, Sony appears ready to sell its half of the world’s biggest music publisher – Sony/ATV Music Publishing (a company worth about $2 billion). Sony and Jackson – and after his 2009 death, his estate – have jointly owned the company since 1995, each with a 50% stake. The publisher has a catalog that has copyrights to most of the Beatles’ songs, among many others including those by the Rolling Stones and Taylor Swift.

Just a few days after Google officially became a subsidiary of Alphabet, its new holding company, Alphabet has acquired the domain name abcdefghijklmnopqrstuvwxyz.com. Google announced its restructuring in August. At the time, Google unveiled its website with a URL of abc.xyz. A Google spokesperson said, “We realized we missed a few letters in abc.xyz, so we’re just being thorough.” The purpose of the new domain is unclear given that the page did not load on this morning.

Netflix is raising prices for the second time in two years. The company’s “standard” tier of service will increase by $1, to $9.99 a month, starting November 18. Prices for its “basic” and “premium” tiers remain the same.

Remember Etsy, the online site for handcrafted stuff? Amazon is looking to crush Etsy by announcing its own marketplace specifically targeted at factory free, handmade goods.

Urban Outfitters has asked salaried workers at the company’s home office to “volunteer” for extra weekend shifts at a new fulfillment center. The picking, packing and preparing that’s required of voluntary workers are, in fact, jobs that normally pay wages. Urban Outfitters says many wage employees offered to pitch in, but hourly-wage workers were excluded from the voluntary work because it might violate labor laws.

Bill Gross sued his former employer, Pimco, for improperly firing him. Gross says his ouster was driven by greed. Gross, a billionaire, is demanding a jury trial and damages of no less than $200 million.

Belarusian writer Svetlana Alexievich won the Nobel Prize in literature. Swedish scientist Tomas Lindahl, American Paul Modrich and U.S.-Turkish national Aziz Sancar won the Nobel Prize in chemistry on Wednesday for showing how cells repair damaged DNA, work that can be used to develop new cancer treatments. The Nobel Prize in medicine was awarded to Irish-born William Campbell, Satoshi Omura of Japan and Tu Youyou – the first-ever Chinese medicine laureate for discovering drugs against malaria and other parasitic diseases that affect hundreds of millions of people every year.

Takaaki Kajita of Japan and Arthur McDonald of Canada won the Nobel Prize in physics on Tuesday for discovering that tiny particles called neutrinos change identities as they whiz through the universe, proving that they have mass; by uncovering the “chameleon-like” nature of neutrinos, the laureates had solved a long-standing puzzle in particle physics that could alter our grasp of the cosmos. Tomorrow, the Nobel Peace Prize will be announced. Anticipation builds.