Financial Review

T Minus One

Sinclair Noe — January 19, 2017

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DOW – 72 = 19,732
SPX – 8 = 2263
NAS – 15 = 5540
RUT – 12 = 1345
10 Y + .07 = 2.46%
OIL + .33 = 51.41
GOLD + .50 = 1204.50

The Dow Industrials erased its gains for 2017 as it fell for the fifth day in a row. The Russell 2000 also turned negative year to date.

The European Central Bank left its quantitative-easing program unchanged at €60-billion-euro per month. Policy makers also kept the main refinancing rate at zero and the deposit rate at minus 0.4 percent.

There is little sign that the Governing Council is ready to endorse more hawkish language just yet, even after a jump in inflation to 1.7 percent in Germany. The U.S. dollar rose against its major rivals, recovering off earlier weakness after ECB President Mario Draghi said he didn’t see any “convincing” pickup in Eurozone inflation.

The ECB’s renewed commitment to stimulus comes a day after Federal Reserve chair Janet Yellen said the American economy is strong enough to warrant higher interest rates.

Trump’s pick for Treasury Secretary Steve Mnuchin began his confirmation process today. Meanwhile, Energy Secretary-designate Rick Perry also went before lawmakers. Trump has chosen former Georgia Gov. Sonny Perdue to lead the Department of Agriculture, rounding out the president-elect’s Cabinet selections.

The Senate has not scheduled a single confirmation vote for Trump’s Cabinet.

On Wednesday, retired Defense Secretary designate General James Mattis became the first nominee to win approval at the committee level.  Senate Republicans still hope to confirm members of Trump’s national-security team on Friday, and the likeliest to receive votes are Mattis, retired General John Kelly as homeland security secretary, and Representative Mike Pompeo as CIA director.

Elaine Chao, the nominee for transportation secretary, could also win Senate approval on Friday. So could Ben Carson, Trump’s pick for housing secretary, though he is considered less likely to get a Friday vote. None of the five have generated significant opposition from Democrats, and all of them sailed through their confirmation hearings last week.

Trump may have more luck with the Senate than his immediate predecessors, and he has Democrats to thank. When they held the majority in 2013, they changed the rules so that executive-branch nominations are no longer subject to the 60-vote threshold for filibusters. That means Trump could conceivably win Senate approval of his entire Cabinet without a single Democratic vote.

In rally after rally, and speech upon speech, Donald Trump built a verbal skyscraper of campaign promises about what he would do on his first day in the White House. Begin building a wall at the nation’s southern border. End the “war on coal.” Label China a currency manipulator. The list went on and on. Tomorrow is Day One.

During a break in inauguration festivities, Trump is poised to wield one of the most powerful tools of his office, the presidential pen, for executive actions that can be implemented without the input of Congress. Trump’s advisers vetted more than 200 potential executive orders for him to consider signing on healthcare, climate policy, immigration, energy and numerous other issues, but it was not clear how many orders he will initially approve.

The number of workers being laid off each week has plunged again back to a more-than-40-year low. Initial jobless claims sank by 15,000 to 234,000 in the week ended Jan 14, just a hair above the post-recession low. Initial claims have been under 300,000 for 98 straight weeks, a streak last replicated in 1970 and one that shows no sign of ending.

Arizona’s seasonally adjusted unemployment rate decreased two-tenths of a percentage point from 5.0% in November to 4.8% in December. The U.S.  unemployment rate stands at 4.7% in December. A year ago, the Arizona unemployment rate was 5.9% and the U.S. rate was 5.0%.

Arizona gained 6,300 jobs in December; breaking that down, 10,900 new jobs in the private sector, minus 4,600 jobs cut from government. Arizona employment grew by 1.2% (32,000 jobs) for the year. The Private Sector accounted for 33,100 jobs (1.4%). Government employment declined by 1,100 jobs. The sectors with the largest gains included Education and Health Services (14,300 jobs); Leisure and Hospitality (10,300 jobs); and Construction (6,300 jobs).

Builders broke ground on more homes in December, as confidence in the economy and demand for properties stays strong. Housing starts ran at a seasonally adjusted annual pace of 1.23 million in December, 11.3% higher than in November but about flat compared to the year-ago rate.

The federal control board overseeing Puerto Rico’s finances might accept a revised fiscal plan by Feb. 28 and extend a debt moratorium until May 1, which would give the U.S. territory more time to negotiate restructuring deals. Both requests will be taken up later this month, but would be conditioned on the government agreeing to turn over more financial information and not taking on extra liquidity loans.

A court in South Korea turned down prosecutors’ request to arrest Samsung’s Jay Y. Lee on alleged bribery, perjury and embezzlement, letting him stay in place atop the country’s most powerful company while they continue their investigation.

The de facto head of the Samsung Group and vice chairman of Samsung Electronics is being investigated for allegedly providing tens of millions of dollars to benefit a close friend of South Korean President Park Geun-hye in exchange for approval of a merger between two Samsung affiliates. The deal helped Lee consolidate control over the sprawling conglomerate founded by his grandfather.

Brazilian Supreme Court Justice Teori Zavascki was killed in a plane crash today. Zavascki was overseeing a massive corruption investigation related to the state oil company, Petrobras. Dozens of politicians and some of Brazil’s wealthiest businessmen have been arrested as part of the inquiry, known as Operation Car Wash, over the past two years. The political crisis triggered by the Petrobras investigation eventually led to the impeachment of President Dilma Rousseff in September, on unrelated charges.

The US Justice Department announced a deal with a $5.28 billion settlement with the Swiss banking giant Credit Suisse, for misleading investors in residential mortgage-backed securities it sold in the run-up to the 2008 financial crisis. Credit Suisse will pay a $2.48 billion cash penalty and provide $2.8 billion in consumer relief, including loan forgiveness and financing for affordable housing.

Credit Suisse has admitted that between 2005 and 2007 it knowingly deceived investors in the sale of complex securities derived from residential mortgages. Credit Suisse employees knowingly packaged poor quality loans for sale, referring to them in some instances as “utter, complete garbage” and “complete crap.”

Goldman Sachs is considering moving 1,000 workers in its London offices to Frankfurt because of concerns over Britain’s vote to leave the EU. Yesterday, UBS said that about 1,000 of the bank’s 5,000 employees based in London may be affected by Brexit, while HSBC announced it could relocate 1,000 staff to Paris.

American Express reports quarterly profit fell 8.2 percent to $825 million, or 88 cents per share, from 89 cents per share, a year earlier. Total revenue fell to $8.02 billion from $8.39 billion last year.

IBM forecast full-year earnings above Wall Street estimates and reported better-than-expected quarterly revenue, helped by growth in newer areas such as cloud-based services and analytics. Still, IBM’s revenues declined for the 19^th straight quarter.

We’ve often heard we should be smart consumers when it comes to health care; we should shop for the best prices on things like medicine. So, here is a test. Suppose your family needs the EpiPen for emergency allergy treatment.

Mylan makes EpiPen but they raised the price more than 500% to $609 list price for a two-pack of the lifesaving treatments; that prompted a hearing in Congress last September.  In response, Mylan began selling an authorized generic for about $300 for a two-pack.

Last week, CVS Health Corp. said it would sell a twin-pack of the Adrenaclick auto-injector, from Impax Laboratories Inc., for $110, and offer a $100 discount for low-income families.

Today, privately held Kaleo, the maker of the Auvi-Q injectors, said it would list a twin pack for $4,500. But there is a twist. Kaleo, Auvi-Q’s manufacturer, will charge patients who have commercial insurance $0 for the product, if the insurance company pays for it.

That means that for insured patients, Auvi-Q would be the cheapest option. It will also give the product away to families with an income of less than $100,000. For those paying cash who do not qualify to get Auvi-Q for free, the product will cost $360.

If all this sounds like a big pricing scam concocted in the laboratories of Drs. Jekyll and Moreau, well, that is a possibility.

Paul McCartney sued Sony’s music-publishing division seeking a judgment validating his efforts to take back his copyrights in Beatles songs he mostly co-wrote with John Lennon.

McCartney began serving termination notices to Sony/ATV Music Publishing in 2008, intending to reclaim his copyright interests in the music catalog, composed between 1962 and 1971. The termination notices, which McCartney wants the court to validate, are supposed to take effect starting in October 2018.

Financial Review

Worse for Our Kids

Sinclair Noe — January 13, 2017

Podcast: Play in new window | Download (Duration: 12:16 — 5.6MB)

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DOW – 5 = 19,887
SPX + 4 = 2274
NAS + 26 = 5574
RUT + 10 = 1372
10Y + .02 = 2.38%
OIL – .54 = 53.30
GOLD + 1.80 = 1197.80

For the week, the Dow and S&P posted slight declines, but the Nasdaq rose nearly 1 percent; posting its sixth record high close of 2017.

The Commerce Department says retail sales increased 0.6 percent last month. November’s retail sales were revised up to show a 0.2 percent rise instead of the previously reported 0.1 percent gain. Sales were up 4.1 percent from December 2015. They rose 3.3 percent for all of 2016, up from 2.3 percent in 2015.

Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.2 percent after being flat in November. For the 11th straight year, sales at department stores fell. They dropped 5.6% in 2016 to mark the second-largest decline since the government began keeping track in the early 1990s. They’ve dropped in 15 out of the last 17 years.

At the same time, sales at so-called non-store retailers soared 11.4% in 2016 — the largest gain in 10 years. That category also includes some fuel dealers that benefited from higher gasoline prices, but online sales have been growing rapidly since the late 1990s.

Wholesale inflation rose in December, and the yearly increase surged. The producer price index rose 0.3% in December. Compared to a year ago, the index rose 1.6%, the strongest gain since September 2014. Excluding food, energy, and trade, prices were up 1.7%.

China has stepped up efforts to restrict yuan outflows by asking some banks to stop processing cross-border payments until they’re balanced on both sides. Data released overnight showed that the country’s exports remain tepid, with overseas shipments dropping 6.1 percent while imports rose 3.1 percent, leaving a $40.8 billion trade surplus.

Federal Reserve Chair Janet Yellen said that she sees no serious short-term obstacles to the U.S. economy and that inflation is “pretty close” to policy makers’ 2 percent target. She also defended the 2010 Dodd-Frank act, which the incoming administration have said they will seek to dismantle.

The House voted 227-198 to instruct committees to draft legislation by a target date of Jan. 27 that would repeal Obamacare. The Senate approved the same measure early Thursday.

This earnings season marks a break with a long-held tradition: Aluminum giant Alcoa, (ticker AA) will no longer be the first company to post earnings, following its split into two companies. This is a big day for the big banks to report fourth quarter earnings. Thomson-Reuters tracked consensus estimates for the fourth quarter of 2016 are calling for a 6.1% year-over-year increase in S&P 500 earnings.

And while we still watch individual earnings reports, stock exchanges are increasingly getting out of the stock trading business. Individual shares no longer are the most actively traded securities in the market. That distinction goes to exchange-traded funds, which took in a record $400 billion in the past year to become a $3.8 trillion industry.

There are nearly 2,000 ETF listings, an all-time high. The SPDR S&P Bank ETF (KBE) rose 1.1 percent, helping lift the broader financial sector. That said, the most-traded security is a stock: 108 million shares of Bank of America change hands on average per day, more today.

Bank of America this morning reported adjusted quarterly earnings that beat estimates, but revenue that missed. BofA posted a near-50-percent jump in fourth-quarter profit due to cost cuts and higher trading revenue.

Dow component JPMorgan beat on earnings and revenue. Earnings per share rose to $1.71 from $1.32, on revenue of $23.95 billion. Revenue from fixed-income trading – JPMorgan’s most volatile business – rose 31 percent to $3.4 billion, while stock trading revenue increased 8 percent to $1.2 billion.

Wells Fargo posted fourth-quarter results that missed on the top and bottom lines. The bank is coming off one of the most difficult years in its 165-year history, posting its fifth consecutive decline in quarterly earnings. The bank has been dealing with multiple lawsuits and a sharp drop in account openings after it settled with regulators in September over charges that its employees created 2 million accounts without customers’ consent.

One troubling line from the earnings report showed December credit card openings fell by a whopping 43% from a year earlier, and a 7% drop from the previous month. This echoes the similarly bad third-quarter performance. On the deposit account side, checking account openings were similarly down 40% from December 2015.

Morgan Stanley lays off bankers and cuts bonuses. The investment bank laid off an undisclosed number of senior bankers and slashed bonuses by 15% because of a decline in revenue generated by deal making.

BlackRock, the world’s biggest asset manager, reported adjusted quarterly earnings the beat expectations, while revenue missed. Investors poured $88 billion into the company’s market-tracking index investments and its iShares exchange-traded funds during the quarter, while pulling $546 million from funds managed actively by portfolio managers.

What emissions cheating? Fiat’s shares rebounded. After dipping 16% on Thursday in the wake of a US regulator’s accusation that it had violated emissions laws. The EPA accused Fiat Chrysler of using software to allow excess diesel emissions. The notice affects over 100,000 cars, including trucks and SUVs, and the maximum fine that could be imposed would total $4.6 billion. Fiat Chrysler shares bounced back up by more than 6% this morning on the Stoxx 600.

Six current and former Volkswagen managers were indicted and arrested in the United States this week for their role in the German carmaker’s diesel test-cheating scheme. VW has a solution to the problem – they’re telling senior managers to stop traveling to the US.

Tesla announced in November it was doing away with unlimited free charging at its Supercharger stations, but it just revealed the new pricing guidelines for those who purchase vehicles after January 15, 2017. Tesla owners will get 400 kWh of Supercharging credits (about 1,000 miles) for free each year; however, pricing for anything more than that will be dependent on the state or country. A trip from San Francisco to LA would cost about $15, while LA to NY will cost about $120.

Tomorrow, SpaceX is hoping to get back to launching — and landing — its rockets again, a little over four months after one of its Falcon 9 vehicles exploded on a Florida launchpad. Last week’s planned launch was postponed due to inclement weather.

The Environmental Protection Agency is finalizing ahead of schedule Greenhouse Gas (GHG) emissions standards that call for automakers to achieve a fleetwide average of 54.5 mpg, which is only about 40 mpg in combined city or highway driving, by 2025. The mileage rules, which were issued initially by the EPA in 2012 in conjunction with the U.S. Department of Transportation’s Corporate Average Fuel Economy (CAFE) standards, were set to be subject to review by April 2018.

The new emission standards began to take effect with the 2017 model year. The final years of the mandate will see a required average of more than 55 mpg for cars and about 40 mpg for trucks in 2025.

Shares in the Japanese airbag maker Takata surged by 16.5% today as investors expect that the company is close to settling a case with the U.S. Department of Justice over its deadly airbags for $1 billion. The announcement could come later today. The company’s faulty airbags have led to at least 11 deaths.

CVS is now selling a rival, generic version of Mylan’s EpiPen at about a sixth of its price. You may recall, a few months ago, Mylan execs were called before Congress and ripped for price gouging on the life-saving allergy treatment. Mylan had raised the price more than 500% since 2007.

After the bad press, Mylan cut the price to $300 for a two-pack for its own generic version, but still charges $600 for the EpiPen version. CVS says it will charge $109.99 for a two-pack of the authorized generic version of Adrenaclick, and for some customers who still need financial assistance, they are offering a coupon for a $100 discount.

Baby Boomers: your millennial children are worse off than you. With a median household income of $40,581, millennials earn 20 percent less than boomers did at the same stage of life, despite being better educated. According to new research from the Federal Reserve: Millennials have half the net worth of boomers. Their home ownership rate is lower, while their student debt is drastically higher.

Financial Review

Sleepwalking Higher

Sinclair Noe — September 7, 2016

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

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DOW – 11 = 18,526
SPX -0.32 = 2186
NAS + 8 = 5283
10 Y – .01 = 1.54%
OIL + 1.34 = 46.80
GOLD – 4.40 = 1346.00

World stocks hit their highest in more than a year and the dollar fell against the yen. Emerging market shares led the charge, touching their strongest levels since July 2015. European shares reversed early losses. The Stoxx 600 index edged up 0.1 percent towards eight-month highs hit on Monday, led by a rise of almost 1 percent in oil and gas shares.

Euro zone government bond yields fell as some investors bet the weak U.S. data, which followed weaker-than-expected jobs numbers on Friday, would pressure the European Central Bank to ease monetary policy further. The ECB meets tomorrow. While US markets were mixed, the Nasdaq Composite hit another record high close.

In a follow-up to last Friday’s Jobs Report, the Labor Department released the JOLT survey, or Job Openings and Labor Turnover, which provides detail on the labor market. Job openings jumped to 5.87 million openings, an all-time high, while hires increased to 5.23 million from 5.17 million in June. The number of people quitting jobs voluntarily was flat at 2.98 million, but that’s still up substantially from the depths of the recession, signaling more worker confidence in the ability to find another job.

The Fed published its Beige Book, an anecdotal look at economic conditions around the country, designed to provide guidance two weeks ahead of the next FOMC policy meeting. Overall, the Beige Book had the same modestly positive tone seen in the last few surveys. The latest report gave no hint of a second-half surge in growth or any reason for urgency to raise interest rates. Six Fed districts reported tight labor markets but overall “wage pressures remained fairly modest.” Three districts reported businesses are cautious ahead of the elections.

It “makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later,” San Francisco Fed President John Williams announced late Tuesday. He also said the economy was in “good shape,” predicting unemployment, now at 4.9%, to fall to 4.5% in 2017 and inflation to rise to the Fed’s 2% target in the next year or two.

Richmond Fed President Jeffrey Lacker and Kansas City Fed President Esther George testified at a congressional hearing this morning. Lacker said, “It looks like the case for a rate increase is going to be strong in September.” George said during the hearing she believes the US labor market is at or near full strength. We keep hearing from Fed officials that a September hike is possible but nobody seems to believe what we hear, in part because the data doesn’t seem to support a hike.

British manufacturing fell sharply in the wake of Brexit. Data from the Office for National Statistics showed manufacturing production fell 0.9% in July, missing expectations of a 0.4% decline. While the reading was disappointing, it should be noted that production fell 0.2% in June and 0.6% in May.

Today is an Apple Event Day. I know you’re all excited, so here are the details: the iPhone 7 has two camera lenses (wide angle and telephoto), it does not have a headphone jack but it will ship with a headphone adapter, they also introduced their own wireless headphone, it is water resistant – so go ahead and toss your $649 phone into 50 meters of water without trepidation.

If nothing else, the iPhone 7 packs a punch. With 256 gigabytes of storage for its most powerful version, Apple’s new iPhone has 64 times the amount of space as the company’s original smartphone nine years ago. Increased storage is a critical piece in convincing consumers to upgrade, as anyone with a 12 gig iPhone 5 can attest.  They also unveiled an iPhone 7 Plus for people who don’t want a phone that can fit in their pocket; plus, an Apple Watch 2 for some reason.

Separately, Ireland’s parliament today debated the government’s decision to appeal the €13-billion-euro tax ruling against Apple by the European Commission. They will collect the tax but they will hold the revenue in escrow while they appeal the decision.

South Korea’s Hanjin Shipping has won a temporary order from a U.S. judge extending bankruptcy protections so its vessels can dock at American ports without fear creditors will try to seize its ships. The world’s seventh-largest container carrier and its clients are scrambling to move an estimated $14 billion worth of cargo off ships that are no longer operating normally in the wake of its collapse last week.

More than half of Hanjin’s ships have been blocked from docking at ports and denied service from lashing firms on fears they will not be paid while some vessels have been seized by creditors. With expectations high that Hanjin will eventually be liquidated, there is little clarity on just how the problem of cargo stranded ahead of the peak-year end shopping season will be resolved.

Poland is seeking formal U.S. approval to buy eight Patriot missile defense systems from Raytheon, marking a key move toward closing the estimated $5 billion deal. If cleared, the country will become the 6th NATO Patriot country and the 14th Patriot partner nation. Raytheon has agreed to perform at least half the value of the work in Poland.

Bill Ackman’s Pershing Square hedge fund has taken a 9.9% stake in Chipotle Mexican Grill, the once high-flying company battered by food-safety issues. Pershing Square says the stock was undervalued and attractive. Chipotle shares have dropped about 40% over the past year. Ackman also left the board of Canadian Pacific on Tuesday, marking the end of a four-year tenure that helped overhaul the ailing railroad company.

Apache Corp. stock was among the top gainers today after the oil and gas company revealed an “immense” oil and gas reserve in west Texas. Apache estimated that its more than 300,000 contiguous acres in the region hold about 3 billion barrels of oil and 75 trillion cubic feet of natural gas. It called the field Alpine High.

New York has opened a probe into whether Mylan broke antitrust law under its EpiPen4Schools program, which gives many schools the devices for free, but may have barred institutions from buying rival products for a year. Meanwhile, new reports suggest Mylan pays no more than $30 per EpiPen, while some patients are forced to pay a little over $600 for a two-pack of the lifesaving medication.

Department of Justice prosecutors are considering criminal charges against HSBC related to conduct on its foreign-exchange desk, possibly upending an earlier deal that let the bank avoid prosecution. The new investigation could lead to a step that has often been threatened but rarely taken: prosecutors tearing up a deferred-prosecution agreement if a company fails to comply with the reform plan laid out by the Justice Department. HSBC is essentially on probation: It admitted in 2012 that it helped Mexican drug cartels launder money and did business with Iran and other sanctioned nations.

To avoid charges, it signed the so-called DPA, which required it to improve its internal controls and submit to an outside monitor. If HSBC is found to have broken the terms of the deferred prosecution, then the bank could find itself pulled back into the money laundering and sanctions case that it thought it had put behind it four years ago; prosecutors could invoke a section of the deal that says HSBC could be held responsible for the conduct it admitted to in 2012.

Prosecutors will consider many factors before deciding whether to file a criminal charge against the bank in the currency case, including the severity of the conduct on the foreign-exchange desk and the extent to which the bank moved to address it. A significant argument against charging the bank is that the foreign-exchange conduct on which the charge would be based appeared to be a one-time event that has not been linked to a wider pattern of behavior. Also, the conduct on the foreign-exchange desk predated the 2012 agreement.

Last year, the Justice Department voided a similar deferred prosecution agreement with UBS Group after the bank acknowledged unlawful conduct on its foreign-exchange desk. In 2012, UBS signed a non-prosecution agreement related to accusations that it and other banks attempted to rig benchmark Libor interest rates that affected trillions of dollars of derivatives and loans. But UBS was granted immunity because it self-reported the forex rigging, so…

The nation’s largest investment bank is barring its top employees from contributing to certain political campaigns. The new rules, which went into effect last week, prohibit partners at Goldman Sachs from donating to politicians running for state or local office, or to state officials who are seeking federal office. That applies to Indiana Gov. Mike Pence, Trump’s running mate, which means that the Goldman Sachs partners can’t contribute to the Republican ticket.

The policy, which was spelled out in a memo obtained by The Associated Press, is meant to remove any implication of a “pay for play” scandal. Four years ago, the bank paid $12 million to settle charges that a Boston-based banker had a bond underwriting business in the state while contributing funds to and working for the campaign of Massachusetts gubernatorial candidate Tim Cahill.

The memo specifically highlights the Trump-Pence ticket – and Super PACs supporting the Republicans – as a campaign to which the partners at the New York-based firm can’t donate. But the rules do not apply to the Democratic ticket, since neither Hillary Clinton nor her running mate, Sen. Tim Kaine, are currently state officeholders, though Kaine is a former governor. The new rules apply to 467 Goldman partners and not the approximately 30,000 other employees.

Financial Review

M&A Boatload

Sinclair Noe — September 6, 2016

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

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DOW + 46 = 18,538
SPX + 6 = 2186
NAS + 26 = 5275
10 Y – .05 = 1.54%
OIL – .06 = 44.38
GOLD + 22.70 = 1350.40

Stocks posted modest gains but it was good enough for a record high close for the Nasdaq Composite. Also, the Russell 2000 index briefly touched a 52-week high of 1,254, and closed up fractionally just above 1,253.

We have a boatload of M&A activity:
Bayer has raised its offer for Monsanto to $127.50 a share, bringing the total value of the potential deal to over $65 billion, which would be the largest all cash takeover on record. It’s the second time Bayer has raised its bid, having started at $122 a share back in May before offering $125 in July.

Any merger would still be subject to regulatory approval.  It’s also the latest in a string of deal activity in the chemical sector: ChemChina looks to buy Syngenta for about $43 billion, while Dow Chemical and DuPont are in the process of a $130 billion tie-up.

ChemChina has secured commitments from 17 lenders on a $12.7 billion loan for its purchase of Syngenta. ChemChina agreed to buy Syngenta for $43 billion earlier this year in a deal that would transform it into the world’s largest supplier of pesticides and agrochemicals. It received takeover approval from the U.S. last month, though the deal is still subject to antitrust review by regulators worldwide.

General Electric has agreed to acquire two European 3-D printing companies for a combined $1.4 billion, tapping into manufacturers’ growing demand for digital technologies. Both Arcam and SLM Solutions make machines that can print metal parts used in aircraft components such as turbines. While GE’s Aviation unit has so far been the most active in using the 3D printing technology, parts are also being designed in its Power, Oil & Gas and Healthcare units, as well as across GE’s services businesses.

Volkswagen’s trucks division announced a partnership with Navistar. VW plans to invest $256 million in Navistar at $15.76 a share — a 12% premium to Friday’s closing price — for a 16.6% stake in the company. Navistar said cost savings will come from procurement and technology collaboration, rather than job cuts.

Enbridge, Canada’s largest pipeline company, said it would buy Spectra Energy Corp in an all-stock deal valued at about $28 billion to create the largest North American energy infrastructure company. Enbridge’s biggest-ever deal comes as the company has been steadily expanding its North American pipeline network, which carries the bulk of Canadian crude oil to the United States.

EOG Resources said it would buy privately held Yates Petroleum Corp for $2.5 billion in stock and cash, acquiring acreage in the Permian Basin, one of the country’s most cost-effective oil fields.

Danaher Corp said it would buy molecular diagnostics company Cepheid in a deal valued at $4 billion, including debt, to strengthen its diagnostics business. Danaher will pay $53 per share in cash, a premium of 54 percent to Cepheid’s closing share price on Friday. Danaher develops technology for the dental, life sciences, diagnostics and environmental industries. Sunnyvale, California-based Cepheid develops molecular systems and tests for institutions to perform genetic testing for organisms and genetic diseases.

Navidea Biopharmaceuticals shares jumped as much as 76% this morning after the company said it had agreed to sell its Lymphoseek product to Cardinal Health for all current and future oncology diagnostic applications in North America. Under the deal, Navidea will receive additional payments of up to $310 million, tied to Lymphoseek sales.

Avolon Holdings, part of China’s acquisitive HNA Group is nearing a deal to buy the aircraft leasing assets of U.S. lender CIT Group for between $3 billion and $4 billion. CIT’s commercial air unit is one of the world’s top 10 lessors with about 330 aircraft.

Carl Icahn is buying out Federal-Mogul Holdings, the maker of Champion spark plugs. Icahn Enterprises already owns 82% of the company. The price of $9.25 a share is 86 percent more than Southfield, Michigan-based Federal-Mogul’s closing share price of $4.98 on Feb. 26, the day before Icahn Enterprises’ original proposal of $7. The bid was increased to $8 in June. Icahn also owns service and retail chains Pep Boys and Auto Plus.

MasterCard is expanding its deal with payment processor PayPal Holdings. PayPal’s partnership follows a similar deal with MasterCard’s larger rival Visa in July. PayPal will allow users to select a credit or debit card as the default payment method and share data on transactions made through MasterCard’s tap-and-pay feature, which allows the shopper to wave a card or mobile phone over a reader to pay. As part of the deal, MasterCard will allow PayPal users to withdraw cash from their accounts using a debit card and also waive the digital wallet fee it currently charges PayPal.

Last week, the ISM’s August report on the manufacturing sector came in weak, with the index falling below the 50 mark that delineates expansion from contraction. This morning the ISM’s nonmanufacturing index fell to 51.4 in August from 55.5 in July, and while it remained above the 50 mark, it was a sharp drop and the lowest reading since 2010.

The ISM reports undercut the whole theory of a second half rebound and it’s also undercutting the odds of a Fed rate hike in September. The Atlanta Fed’s GDPNow tracker pegs third quarter GDP at 3%, but the ISM report implies GDP for the quarter at about 0.5%. There is still plenty of talk that the Fed should not keep rates at emergency levels but the data makes that a tough move.

Congress returned from a seven-week recess today with only a few weeks to pass a stopgap spending bill to keep the government running before funding runs out on September 30. So, 3 weeks to come up with a budget – what could go wrong?  Lawmakers will likely clash over money to fight the Zika virus, as well as a bill to restore full lending authority to the U.S. Export-Import Bank.

The Reserve Bank of Australia held rates unchanged overnight in what was Glenn Stevens’ final meeting after 10 years as governor of the central bank. The Aussie dollar rose after the decision. On Thursday the European Central Bank is due to make its latest monetary policy decision, and expectations are low for any meaningful change in policy.

The ECB has passed the €1-trillion-euro mark for its purchases of government bonds, putting pressure on policymakers to address the scarcity of available assets when they meet in Frankfurt this week. Despite being well beyond the halfway point of the €1.7-trillion-euro program, inflation remains virtually non-existent. The latest figure from Eurostat showed euro area prices rising by 0.2% in the year to August – well below the central bank’s inflation target of just under 2%.

South Korea’s Hanjin Shipping plans to file for court protection in about 10 countries, including Canada, Germany and the U.K., this week, and later expand that to 43 jurisdictions to protect its ships from being seized by creditors. The world’s seventh-largest container operator by capacity filed for bankruptcy protection on Friday in the U.S. under Chapter 15, which deals with international insolvency matters. Hanjin’s court hearing is scheduled for today.

ITT Educational Services has shut down its for-profit technical schools, closing more than 130 campuses and leaving as many as 40,000 students stranded in one of the largest college closures in American history. ITT has been under investigation for misleading students. Last month, the feds demanded the company produce an additional $153 million in collateral, nearly double its $78 million in cash on hand, to cover possible losses that the government might incur if the company were to suddenly fail. ITT said it terminated the “overwhelming majority” of its more than 8,000 employees.

Students now enrolled at the company’s technical schools will be able to cancel any federal student debt they incurred for their education if they decide against transferring their credits elsewhere. Other former students are pushing to have their debts canceled by alleging that the company defrauded them into taking out the debt by advertising false job-placement rates.

21st Century Fox said it has settled a lawsuit with former anchor Gretchen Carlson, whose allegations that former Fox News chief Roger Ailes sexually harassed her led to his exit from the company. Terms of the settlement weren’t disclosed, but it is believed the settlement is in the range of $20 million. Also it is reported that a “handful” of settlements with other women who came forward alleging harassment have also been reached.

An Ohio woman has filed a proposed class action lawsuit against Mylan Pharmaceuticals in an Ohio county court, claiming sharp price hikes for the company’s EpiPen device violated the state’s consumer protection law and amount to price gouging. Mylan has raised the US price of EpiPen from less than $100 when it acquired the product in 2007 to more than $600

Apple has a big event scheduled for tomorrow; they are expected to unveil their new iPhone 7; they will do this amid much fanfare and hoopla. The new iPhone 7 will have several new features but still be very similar to the iPhone 6, with the major exception that it will be new and shiny.

A new skyscraper in downtown Los Angeles has become the tallest building west of the Mississippi River. Construction workers on Saturday placed a 10-ton spire atop the Wilshire Grand Tower. The spire looks like scaffolding, or maybe a radio tower, but it adds 160 feet to the 73-story building, making it 1,099 feet high. The tower is 81 feet higher than the nearby US Bank Tower, which had held the tallest building record since 1989.

The Wilshire Grand still has some construction work scheduled. When the $1billion building opens in early 2017, it will include an observation deck, a shopping mall, an Intercontinental Hotel, several luxurious high-altitude restaurants and office space.

Really tall buildings, earthquakes – brilliant.

Financial Review

Mylan Digs a Deeper Hole

Sinclair Noe — August 25, 2016

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

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DOW – 33 = 18,448
SPX – 2 = 2172
NAS – 5 = 5212
10 Y + .02 = 1.58%
OIL + .61 = 47.38
GOLD – 2.20 = 1322.60

The number of Americans who applied for unemployment benefits last week fell by 1,000 to 261,000 and remained near post-recession lows. Claims fell below the key 300,000 threshold in early 2015 and have remained there for 77 straight weeks, the longest streak since 1970.

Orders for durable or long-lasting goods made in the U.S. surged 4.4% in July to mark the biggest gain since last fall. Higher demand for passenger jets led the way as expected. The Pentagon also put in a bunch of new orders. Stripping out the volatile transportation sector, orders rose a smaller 1.5%. Still, that matches the biggest increase of the year.

Kansas City Fed President Esther George said Thursday she thought it was time to raise interest rates. George, who is a voting member of the Fed’s policy committee this year, said she didn’t know if anything would cause her to change her mind at the Fed’s meeting next month. But she indicated that decision-making remains data-dependent. George has a hawkish track record. Still, she joins Dallas Fed President Robert Kaplan, FOMC Vice Chair Stanley Fischer and New York Fed President William Dudley on the list of Fed officials calling for rate hikes.

Fed chair Janet Yellen delivers a speech at Jackson Hole tomorrow; she is expected to address possible rate hikes. Fed Funds futures are currently predicting only a 53% chance of a rate hike in calendar year 2016, which, of course is only a bit higher than coin flip. So, given the current overbought condition and the complacency seen in many indicators, the bears tell us that stocks are now “set up” for disappointment if Ms. Yellen’s speech takes on a more hawkish tone than expected tomorrow.

Central bankers sit down with their critics. In what is a first for the high-profile policy conference at Jackson Hole, Wyoming, eight central bankers, including William Dudley, president of the New York Fed, will meet with 120 activists from the Fed Up Campaign, which wants to see change at the Federal Reserve.

Mylan is responding to backlash over price increases for its EpiPen emergency allergy treatment by promising to reduce the costs that some patients pay, though the drug maker stopped short of saying it would roll back prices or limit future increases. EpiPen is a lifesaving treatment for millions whose allergies can send them into severe shock, including many schoolchildren who are advised to keep an injector handy at all times. The price has increased 548% since 2007. After widespread criticism recently, Mylan will “double eligibility” for its EpiPen patient assistance program to 400% of the poverty level, saying that a family of four making $97,200 would now pay nothing out of pocket for a prescription.

What the discount does change is how much people with commercial insurance and a high deductible pay. If you were at on the hook for about $600 before, that will now be cut to about $300. For people without insurance, however, the card won’t apply; they’d fall under a separate patient assistance program. It also won’t apply to people under government insurance programs such as Medicare or Medicaid.

Mylan CEO Heather Bresch, who happens to be the daughter of US Senator Joe Manchin, was making the rounds of TV business interviews today, trying to explain that there was nothing she could do about the price increases; she claimed the health care system is broken; she claimed she can’t lower the price because there are many layers, or middlemen, each taking a cut along the supply chain; even if Mylan cut the price, it wouldn’t result in lower prices for consumers. Well, she’s partially correct – the health care system is broken. The rest is pure hogwash.

The cost of a two-pack of EpiPens – shots of epinephrine that relieve symptoms from severe allergies that restrict breathing and can cause death – has risen from $103.50 in 2009 to $608.61 today, despite no changes in the chemical formula. Two vials of the proper dosage of epinephrine and manual syringes would cost only $20; some put the cost of the dosage in each EpiPen at as little as $1.

In 2012, the company behind the EpiPen settled a lawsuit by agreeing to allow a generic competitor into the market in 2015, potentially cutting into a big part of its business. Mylan had already been steadily increasing the price of EpiPen, an injector containing a drug that can save people from life-threatening allergy attacks. After the settlement, it started to raise the price even faster. The increasing price hikes reek of a greedy last grab for profits and an attempt to subvert the court’s ruling.

Bresch can lower the price, just as easily as she raised the price; or for that matter, even easier than the corporate “inversion” merger with Abbott Labs that moved Mylan’s headquarters to the Netherlands last year, so the company could dodge US taxes.

Brazil’s Senate has started the impeachment trial of suspended President Dilma Rousseff for violating budget laws, with the chances strong that she will be removed from office. Brazilian markets have rallied lately over the prospect of the Vice President Michel Temer permanently taking over from the Rouseff, although Temer was recently found guilty of violating campaign finance limits, a case that could make him ineligible to run for office for eight years.

Colombia’s government and the Marxist rebel group the Revolutionary Armed Forces of Colombia (FARC) have reached a peace deal after 52 years of war that has killed over 220,000 people. In return for giving up its arms, FARC members will be allowed to reintegrate into civilian life and stand for elections. The agreement will be put to a referendum in October, when it is expected to pass.

As one war ends…, Turkey has launched its first major ground assault into Syria since the country’s civil war began, sending in tanks and special forces backed by U.S. airstrikes to help Syrian rebels retake a border town from ISIS. The assault marks a dramatic escalation of Turkey’s role in Syria’s war, but there is more to the move than just fighting ISIS in Syria. Turkey is also aiming to contain expansion by Syria’s Kurds, who are also backed by the United States and have used the fight against ISIS and the chaos of the civil war to seize nearly the entire stretch of the border with Turkey in northern Syria.

Phoenix-based ON Semiconductor has won antitrust approval to buy Fairchild Semiconductor International. ON will sell its Ignition IGBT business to Chicago-based manufacturer Littelfuse. ON Semi and its rivals’ power-management circuits are used in everything from aircraft to home appliances and automobiles to computers. The deal was valued at about $2.4 billion. The FTC, in a statement, said that without the sale the merged company would have controlled more than 60 percent of the market for insulated-gate bipolar transistors, or IGBTs – a type of semiconductor used in automotive internal combustion engines’ ignition systems. That likely would have driven up prices and curbed innovation.

HP Inc., the hardware business of the former Hewlett-Packard Co, reported higher-than-expected quarterly revenue and profit as demand recovered for its notebooks. However, HP forecast current-quarter profit below analysts’ estimates, reflecting weak sales of its printers as companies cut costs across industries.

Sears Holdings is in really bad shape as its earnings report shows. The struggling owner of Sears and Kmart reported a staggering second-quarter loss of $2.03 a share. Same-store sales at discounter Kmart fell 3.3%, representing the seventh straight quarterly decline. Same-store sales at discounter Sears fell 7%, representing the eighth straight quarterly decline. And Sears is running out of money to stay afloat. Cash and equivalents declined to $276 million from $1.8 billion a year ago.

The ride-hailing giant Uber Technologies is not a public company, but every three months, dozens of shareholders get on a conference call to hear the latest details on its business performance. Uber’s losses in the first half of 2016 totaled at least $1.27 billion. For a private business to raise as much capital as Uber is unprecedented. It is also tough to find a tech company that can lose this much money this fast.

The first driverless taxi began work today in a limited public trial on the streets of Singapore. Developer nuTonomy invited a select group of people to download their app and ride for free in its “robo-taxi” in a western Singapore hi-tech business district, hoping to get feedback ahead of a planned full launch of the service in 2018. The trial rides took place in a Mitsubishi i-MiEv electric vehicle, with an engineer sitting behind the steering wheel to monitor the system and take control if necessary.

Over 300 Airbnb hosts have opened up their homes for free to people wracked by earthquakes, floods and fires in central Italy, Louisiana and California. Homes in central Italy, hit by a 6.2 magnitude earthquake Aug. 23, are on free offer on the website’s urgent accommodation page between Aug. 23 and Sept. 11. Airbnb accommodation could serve as an alternative to temporary relief camps for the 1,000 residents, whose homes were destroyed. Accommodation is also available to those affected by floods in Louisiana and prolonged wildfires threatening two Californian counties.