Financial Review

M&A Media Mayhem

Sinclair Noe — November 17, 2017

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

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DOW – 100 = 23,358
SPX – 6 = 2578
NAS – 10 – 6782
RUT + 5 = 1492
10 Y – .01 = 2.35%
OIL + 1.54 = 56.68
GOLD + 15.10 = 1294.40

Cryptocurrency

• Number of Currencies: 907
• Total Market Cap: $234,132,708,353
• 24H Volume: $10,050,026,221

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,810.0	$130.16B	$3.69B	36.76%	1	+1.72%	+24.52%
	Ethereum	ETH	347.82	$33.16B	$615.23M	6.12%	0.0443825	+4.95%	+10.56%
	Bitcoin Cash	BCH	1,250.80	$21.26B	$3.12B	31.07%	0.161821	+6.40%	-11.49%
	Ripple	XRP	0.22750	$8.81B	$145.99M	1.45%	0.00002925	+1.34%	+8.98%
	Litecoin	LTC	69.090	$3.70B	$164.46M	1.64%	0.00879685	+2.34%	+10.55%
	Dash	DASH	453.36	$3.48B	$144.22M	1.43%	0.0580253	+7.17%	+31.26%
	NEO	NEO	41.150	$2.66B	$436.25M	4.34%	0.00523784	+1.91%	+44.47%
	IOTA	MIOTA	0.82220	$2.28B	$57.87M	0.58%	0.00010516	+3.92%	+39.22%
	Monero	XMR	131.00	$2.01B	$63.19M	0.63%	0.0167686	+3.56%	+9.07%
	NEM	XEM	0.19553	$1.75B	$7.02M	0.07%	0.00002498	+2.25%	+3.59%

It has been a wild week on Wall Street, with the biggest gain and the largest drop in two months after touching records a week earlier. Investors are trying to gauge whether benchmarks will continue a march to all-time highs on strong earnings and faster growth spurred by corporate tax cuts or if they will be pulled down amid lofty valuations, the flattest yield curve in a decade and a selloff in junk bonds.

For the week, the Dow lost 0.3%. The S&P lost 0.1%. The Nasdaq gained 0.5% for the week.

Yesterday, the House passed its version of a tax cut plan. The Senate is still debating its own plan, trying to reduce the 10-year debt impact below $1.5 trillion. A Reuters poll showed that nearly two-thirds of more than 60 economists said they were not confident the Trump administration would get the legislation passed this year.

The biggest problem for the tax plan is that it is widely despised. The latest survey from Quinnipiac out this week found that just 25 percent of voters approve of the GOP tax-cut plan while 52 percent disapprove. Most voters, 61 percent, believe the plan will benefit the wealthy, while just 24 percent view it as good for the middle class.

With 95 percent of S&P 500 companies having reported third-quarter results, earnings are on pace to grow 6.2% from a year earlier, according to FactSet. That’s up from the 3.1% growth rate expected at the end of period.

Technology companies drove much of the growth. The sector reported a 19.7 percent increase in earnings and was the biggest contributor to earnings growth rate. If the tech sector was excluded, the overall growth rate would fall to 2.8% from 6.2%.

Profits at companies that generate more that 50% of their sales outside the United States, grew more than 13% in the third quarter. Earnings at firms that get a majority of their revenue from within the U.S., rose only 2.3%.

The energy sector reported the largest increase in earnings of the S&P 500’s 11 sectors at 135%. The increase reflects how hard the roughly two-year slide in oil prices had hit the industry; 74 percent of companies have reported profits above analysts’ expectations, above the five-year average of 69 percent; Financial firms reported the biggest decline in profits, down 8.3%. That decline can largely be blamed on Hurricanes Harvey and Irma. Insurance companies in the sector reported 63% decrease in profits.

The Commerce Department on Friday said October housing starts surged, rising 13.7% to a seasonally adjusted annual rate of 1.29 million. That’s the second-highest level of the economic recovery. Building permits, a less volatile series, rose 5.9% to 1.3 million.

Big double-digit gains came from both the South and the Midwest, with at least some of that attributed to the recovery from the hurricanes that ravaged Texas and Florida. On a percentage basis, the Northeast was the biggest mover, up a whopping 42%, but that’s the smallest region for activity. It’s possible warm weather proved to be a boost in the Northeast region. Single-family starts rose 5.3%, and starts with five or more units leaped 37.4%.

The Federal Communications Commission (FCC) on Thursday rolled back media ownership regulations under the guise of trying “to modernize its broadcast ownership rules and to help promote ownership diversity.”

The approved order: Eliminates newspaper/broadcast and radio/television cross-ownership rules, which imposed restrictions on owning multiple media outlets in the same market; Relaxes rules about local television ownership—including joint sales agreements, which allow a company to control news operations at several stations in one market, where stations would typically compete against each other; and formally requests “comment on how to design and implement” an FCC diversity incubator program. In other words, this is the beginning of the end of local media.

The new rules are expected to help Sinclair Broadcasting move forward with a proposed a $3.9 billion merger with Tribune Media, which would enable the company to reach 72 percent of the U.S. population. The merger must be approved by the FCC.

There are also longer-term forces at work: traditional media companies are struggling with more customers canceling pricy cable contracts while Netflix and Amazon.com are spending billions of dollars on making shows and movies. More viewers now stream programming on smartphones or other devices, diverting the flow of advertising dollars away from traditional media companies.

And so now, everybody is trying to buy or sell a media company. It started a year ago when AT&T announced it had reached an agreement to buy Time Warner. Then things really turned upside down when 21st Century Fox — just three years after trying to buy Time Warner — signaled it wanted to sell some assets to Disney.

Then on Thursday, it was reported that Comcast might buy some of Fox. Or Verizon might. It might even be sold off piecemeal. Hulu may be the single most important piece of Fox’s pie as Disney and Comcast look to compete with streaming services from Netflix and Amazon.

Comcast currently holds a 30 percent ownership stake in Hulu. Acquiring Fox’s 30 percent stake would give Comcast a majority holding. Disney, which also holds a 30 percent ownership stake in Hulu, is in the same position.

Charter Communications director John Malone says 4 firms have talked to the cable company about a potential merger or acquisition. And of course, President Trump might not allow AT&T to buy Time Warner. Meanwhile, Meredith Corp is considering a bid for Time Inc and Discovery Communications is acquiring Scripps Networks Interactive.

But wait, there’s more! The Federal Communications Commission will drive a stake through its own net neutrality rules roughly this time next month. Net neutrality is the concept that the internet should be an even playing field. Whether it’s your cousin’s blog or Google, net neutrality proponents argue all data should flow the same, meaning no persons or companies can be favored by the networks on which the data flows. That keeps big companies from paying for preferential treatment.

This is how the internet has generally operated, but as more services move online, concerns have grown that internet service providers will want to start charging for better access. Net neutrality supporters argue that this would turn the internet into a pay-to-play world, hampering innovations and leaving people to the whims of major companies. The rules could be voted on by mid-December, leaving the door open for internet providers to begin manipulating traffic.

FCC Chairman Ajit Pai has made no secret of his wish to undo the benchmark rules. Pai has been working to repeal the FCC’s net neutrality rules since the start of his time as chairman. Pai floated initial rules in May, which led into the usual comment period that FCC rule changes go through. That process was a disaster for the FCC. There appears to be almost unanimous support – exception for some telecom companies – for existing net neutrality rules.

Elon Musk built a truck, a big-rig. It is all electric. It does not drive itself, but the Tesla Semi is equipped with Enhanced Autopilot. The big reveal was last night in California. The truck has a 500-mile range, roughly twice what Reuters claimed in August. It’s also more than double what Cummins and Daimler have promised so far in their planned electric trucks.

That figure, and the promise of solar-powered “Megachargers” to give 400 miles of range in 30 minutes — supplementing the existing Supercharger network — should help put to rest concerns that an electric truck is impractical for hauling outside of cities.

For Tesla, this was a fundraising event – looking for pre-orders, and it looks like some of the big trucking firms were ready to buy. Walmart preordered 15. Here’s the sales pitch: electric trucks can go for a million miles before requiring a major overhaul. The operating cost is $1.26 per mile vs. $1.51 per mile for traditional diesel. And they can be linked in a convoy, dropping the cost down to $0.85 a mile.

The big question is whether Tesla can build the trucks before they run out of money. The actual production is proving to be quite a challenge for Tesla. After the big truck display, Tesla unveiled a new version of its Roadster, sports car, which comes with a $200,000 price tag.

Musk boasted of the Roadster’s 0–60 mph time of 1.9 seconds and top speed of at least 250 mph. And it comes with a 650-mile range – that’s Los Angeles to San Francisco and back in one charge, a significant milestone for an electric car.

And in today’s edition of “Banks Behaving Badly” – Swiss financial markets authority FINMA has found that the Swiss subsidiary of U.S. investment bank JPMorgan broke anti-money laundering rules. FINMA ruled on June 30 that JPMorgan Switzerland had “seriously infringed” regulatory oversight provisions.

The case involved a “violation of obligations of diligence on questions of money-laundering.” Both FINMA and JPMorgan declined to comment on FINMA’s ruling and it was unclear what action, if any, the regulator had taken against JPMorgan. FINMA is not authorized to levy fines, but may confiscate unlawfully realized gains.

It is important to remember that JPMorgan is a really big bank, and with hugeness come the inevitable slips and blunders. But it must take some real effort ot get busted for money laundering lapses by the Swiss. That’s just sloppy.

Financial Review

Black Hole Sun

Sinclair Noe — May 18, 2017

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

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DOW + 56 = 20,663
SPX + 8 = 2365
NAS + 43 = 6055
RUT + 5 = 1361
10 Y + .02 = 2.23%
OIL – .01 = 49.34
GOLD – 14.10 = 1247.80

Yesterday the stock market had a little panic attack. As is often the case, these things pass. Therefore, it is important to see confirmation of a major move.

Today we did not see confirmation. Equities did not take kindly to news of Trump influencing or impeding an FBI investigation. The S&P 500 closed at the lows, down 1.8%, and the Nasdaq wiped out 18 days of gains in one session.

So, yesterday was not insignificant, but looking back over the last half year, it is not enough, in and of itself to change the trend, which is still up.

The news of the week is important, and it was a catalyst for the big sell-off yesterday, but while the term ‘impeachment’ may appear more frequently in the press today, the process is initiated by a vote in the House, where Republicans hold a 45-seat majority.

A House impeachment of President Trump would look unlikely. But that doesn’t mean Trump’s problems have been resolved, just slow-tracked. Late yesterday, a special prosecutor was named – former FBI Director Robert Mueller – and whatever the outcome of his investigation, nothing will happen immediately.

Meanwhile, Rep. Jason Chaffetz said today that he will resign from Congress next month, a move that calls into question the future of the House Oversight Committee’s investigation of President Donald Trump and his campaign’s ties with Russia.

Washington can make a slug look like a speed demon. Nothing is imminent and so the markets rebooted. Traders bought the dips. That said, this is proving a distraction from the president’s agenda, including what should be a more detailed budget released next week.

After months of major stock markets posting record highs and historically low volatility across a range of asset classes, something was bound to snap and nobody knows whether it was a one-off or an omen. We’ll get clues in the days and weeks ahead, but a day like yesterday should jolt us from our lethargy and remind us that volatility hasn’t died.

The VIX index was jolted from its slumber yesterday and chalked up its seventh-biggest rise in percentage terms since its launch in 1990. This is an appropriate time to look at risk levels and reassess where we are as investors.

The dollar, two- to 10-year Treasury yield curve and yields on 10-year Treasury Inflation-Protected Securities (TIPS) are all back where they were before Trump was elected in November. The spread between two- and 10-year Treasury yields is its smallest since before the presidential election.

This so-called yield curve flattening suggests investors are losing faith in the economy’s ability to withstand higher interest rates. Money markets have slashed the probability of the Federal Reserve raising rates next month to less than 60 percent from over 90 percent last week.

The U.S. economy is already into its third-longest expansion ever, and a recent fall in the U.S. economic surprises index suggests it is running out of steam. That does not mean a recession is in the offing but it might point to slightly slower growth.

Any time we see a shift, the fast money will look for fresh opportunities. The gap between the U.S. and European surprises indexes is the widest in two years, U.S. corporate earnings growth is double-digit but still lagging the euro zone, and the political turmoil that was supposed to beset Europe this year is concentrated in the United States.

Yesterday was not enough to push investors to cash or run scared but today many investors reconsidered their tactical positions, and rethink their appetite for risk.

Earlier in the day the Philadelphia Federal Reserve said business activity index rose in May after declining for two months. Weekly unemployment data also pointed to strength in the labor market.

Brazilian markets took a big hit, the benchmark Bovespa dropped about 9%. One of the country’s largest newspapers reported that a secret recording exists of President Michele Temer approving a payment to Eduardo Cunha, the former House speaker and mastermind behind last year’s impeachment of former President Dilma Rousseff.

The tape was submitted to the Supreme Court by two senior executives from meat-packing giant JBS as part of a plea bargain deal, according to O Globo newspaper, in which information is offered in exchange for reduced sentences. Though the president’s office confirmed the meeting between Temer and a JBS executive took place in March, it denied Temer asked for payments to silence Cunha.

Temer is far from the only politician to be tied to the corruption scandal, dubbed “Operation Car Wash,” which has implicated nearly all of Brazil’s political class, including every senior member of the ruling party.

Earnings reports from major brick and mortar retailers have been a long list of disappointments, with the occasional exception of Home Depot or Target, and today Walmart reported. Wal-Mart said sales at U.S. stores open at least a year rose 1.4 percent, better than estimates. Investments to bring more customers into the discount retailer paid off and a bigger push into e-commerce boosted online purchases.

Online sales rose 63 percent in the first quarter, which was higher than 29 percent growth in the fourth quarter and 20 percent in the third quarter. Walmart said it is benefiting from a $2.7 billion investment to increase entry-level wages and enhance the training of its workforce, which has led to better stocked shelves and cleaner stores.

Walmart earned $1 per share, topping estimates of 96 cents. Consolidated net income fell to $3.04 billion from $3.08 billion due to a higher tax rate. Revenue rose 1.4 percent to $117.5 billion, slightly lower than analysts’ expectations of $117.7 billion due to a stronger dollar, which reduces the value of overseas sales. Revenue grew 2.8 percent on a currency neutral basis.

Walmart shares flirted with 52-week highs.

Alibaba Group beat first-quarter revenue forecasts but fell short of earnings estimates. The Chinese company, which is targeting new business lines such as cloud computing, big data, entertainment and offline retail as it expands beyond e-commerce, also announcing it will buy back $6 billion shares over the next 2 years.

Salesforce.com reported better-than-expected earnings and raised its full-year revenue guidance. The cloud-software company reported a net loss of $9.2 million on revenue of $2.39 billion for its fiscal first quarter. After adjustments for stock-based compensation and other effects, the company claimed a profit of 28 cents a share, which topped estimates.

Facebook celebrates its fifth anniversary as a publicly traded company. The IPO was 5 years ago today, and it was a mess, but since then the stock is up 279%.

The Telecommunications Services sector was the S&P’s biggest percentage gainer with a 1.2-percent rise. The Federal Communications Commission has officially begun undoing net neutrality rules the agency passed two years ago. The FCC voted 2-1, along political party lines to begin a rule-making process to replace the Open Internet order, or net neutrality rules, adopted in 2015.

The rules won’t disappear overnight but FCC chair Ajit Pai has made it clear that, barring a successful legal challenge, the agency will give up its authority to enforce net neutrality regulations. The rules, first passed in 2015, ban internet service providers from blocking, slowing down, or otherwise discriminating against lawful content.

Without these rules in place, your home internet provider would be free to slow down your Netflix connection to try to keep you paying for cable TV. Your mobile carrier would be allowed to block Skype to promote its own voice plan. Naturally, the country’s largest broadband providers say you have nothing to worry about.

In fact, the industry now claims to love net neutrality. But what the industry is calling “net neutrality” doesn’t really fit the full definition. It’s a version of net neutrality that doesn’t cover the loopholes internet providers have already discovered. If the FCC decides to drop its own protections, you probably won’t wake up one day to find YouTube or Slack blocked. But the principles that made the internet what it is today could still erode over time.

We are already seeing a “toll road’ version of internet service. AT&T, for example, allows users to watch as much video as they want from its own DirecTV Live streaming service without having it count toward their data caps. Competing services like Dish’s Sling, on the other hand, will count against those caps unless the companies behind them pay AT&T to “sponsor” that data.

Verizon has a similar system in place. These data exemptions, known as “zero rating,” may sound innocent enough. Everyone loves getting free stuff. But critics argue that they will end up harming competition.

Although the telecommunications industry group US Telecom sued the FCC to try to reverse its net neutrality protections, most big internet providers say they support net neutrality in principle. Their beef, they say, is just that the FCC went too far in reclassifying broadband access as a “Title II” common carrier service, much like telephone services.

The telecoms say they don’t mind a little regulation if there are great big loopholes. The problem is that without Title II, the FCC won’t be able to enforce net neutrality. And that means that the big, beautiful, collaborative mosaic of the internet could soon be missing many of the smaller tiles that add so much color to the overall picture.

Financial Review

Hat Trick

Sinclair Noe — July 14, 2016

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

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DOW + 134 = 18,506
SPX + 11 = 2163
NAS + 28 = 5034
10 Y + .07 = 1.54%
OIL + .75 = 45.50
GOLD – 7.70 = 1335.60

The S&P and Dow closed at record highs. The S&P hit 2,168.99, its fourth straight intraday record peak, while the Dow hit 18,537.57 to mark its third straight intraday record high.

The Bank of England took markets by surprise, making no change to interest rates. The call to leave rates unchanged at 0.5% was largely unexpected by investors, as traders had priced in a more than 80% chance of a rate cut to a record low of 0.25%. The BOE said in a statement that most of the policymakers expect to loosen monetary policy by August; apparently they just need a little more time to put together a package of measures to stimulate growth. Maybe they are just trying to keep their powder dry.

U.S. producer prices jumped 0.5% in June — the biggest increase in more than a year — largely owing to higher oil prices and margins for financial services. Yet inflation overall remains muted. In the past 12 months, the producer price index has advanced 0.3%, the first year-over-year increase since the end of 2014. Core prices – stripping out food, energy, and trade margin categories – core prices rose a smaller 0.3% in June.

The number of applications for U.S. unemployment benefits last week held at the lowest level since mid-April. Jobless claims were unchanged at 254,000 in the week ended July 9. Companies having trouble finding qualified and skilled workers are hesitant to dismiss employees. Weekly claims have been below 300,000 for 71 straight weeks, the longest period since 1973 and consistent with robust employment conditions.

Sales of new single-family homes likely grew at a seasonally adjusted annualized rate of 530,000 units in June, up 8.6 percent from a 488,000 annualized pace in May. The Mortgage Bankers Association said June’s estimated pace of sales was up 7 percent from a year earlier. Without adjusting for seasonal factors, there were likely 47,000 new homes sold last month, unchanged from May.

JPMorgan Chase reports second quarter profit slipped 1% versus the same period a year earlier, but that beat estimates. JPMorgan’s second-quarter net income slipped to $6.2 billion in the second quarter ended June 30 from $6.3 billion a year earlier. Net revenue rose 3 percent to $25.2 billion from $24.5 billion. Six major banks report earnings on Friday.

BlackRock, the world’s largest money manager, said second-quarter profit fell 3.7 percent as performance fees declined and clients shifted money from stocks to lower-fee fixed income and cash investments. Net income in the three months through June declined to $789 million, or $4.73 a share, from $819 million, or $4.84 a share, a year earlier.

BlackRock is the first big U.S. money manager to report second-quarter earnings, giving a glimpse of how firms navigated financial markets that were rattled by Britain’s vote to leave the European Union.  Larry Fink, chairman and CEO of BlackRock, weighed in on the recent stock market rally, saying the data on fund flows don’t support the moves. He said the recent rally has been supported by institutional investors covering shorts.

That is probably an oversimplification of what we are seeing. Institutions bet big before the Brexit vote that the markets would skyrocket and that the UK would not leave the EU and unfortunately the exact opposite result happened, forcing these same institutional players to then scramble and go short the market. Well everyone went short at the same time and thus whenever markets move in a herd mentality, one way or the other, it creates opportunities for others to take advantage of the situation.

Certainly short covering is part of the story, but I think we are also seeing a long term bull that went through 13 months of sideways action, or consolidation, and now is breaking out on a bit of decent news. Consider that Brexit did not result in a Lehman moment; central bankers around the globe are pumping money into the system; the Federal Reserve is not hiking rates; the June jobs report showed a strong rebound; earnings season will beat expectations even if it is slightly negative for a fifth consecutive quarter.

The market has been running, a full-fledged sprint to record highs. And even though overbought indicators are flashing a warning sign, remember that the market climbs a Wall of Worry. In situations like this, the market can surprise and just keep running.  Eventually and inevitably, there will be a pause, maybe even a pullback, but I don’t know when; maybe tomorrow, maybe two weeks, maybe longer. Sure, there is plenty that could go wrong but they aren’t going wrong right now.

KFC owner Yum Brands rose 3 percent to $88.27 a day after its key China business showed signs of strength.

Delta’s higher-than-expected quarterly profit sent its shares 3.6 percent higher. An airline industry index has risen almost 12 percent over the past six sessions.

Line Corp. rose in its U.S. trading debut after the Japanese messaging company raised more than $1 billion in the biggest technology initial public offering of the year. Shares opened at $42, after pricing at $32.84 apiece. The company, which is listing shares in Japan and the U.S., will start trading in Tokyo on Friday. Shares closed up 26.6 percent at $41.58.

Monsanto is considering a deal with BASF. The seed giant is considering the acquisition of BASF’s agriculture-solutions unit. While the price tag of the potential deal is unknown, Monsanto would probably pay in newly issued shares. The talks come after Monsanto rejected a $62 billion takeover bid by Bayer in May, and today Bayer sweetened the offer to $64 billion. Global agrochemicals companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes.

The Federal Communications Commission voted unanimously today to open nearly 11 gigahertz of high-frequency spectrum for mobile, flexible and fixed-use wireless broadband; that made the United States the first country to set aside an ample amount of airwaves for so-called 5G wireless applications and networks. New 5G networks are expected to provide speeds at least 10 times and maybe 100 times faster than today’s 4G networks.

5G technology could have a broad impact beyond things like speeding up movie downloads. It could also improve road traffic by monitoring sensors in streetlights, roadside architecture and cars. It could even help detect air pollution using sensors in trees. In other words, this is the platform for the Internet of Things. Verizon and AT&T have said they will begin deploying 5G trials in 2017, and the first commercial deployments at scale are expected in 2020.

California regulators have again rejected Volkswagen’s plan to fix diesel vehicles that were programmed to cheat on air pollution tests, saying the idea was “incomplete” and “substantially deficient.” The proposal would have covered about 16,000 3.0-liter diesel cars for model years 2009 to 2016. About 85,000 VW 3-liter diesel vehicles that cheat on emissions are on roadways nationwide.

Google faces a new antitrust attack from European Union regulators who allege the search engine skews results in its own favor and unfairly restricts rival online advertising platforms. The European Commission announced a new round of charges against Google, claiming that some of the company’s advertising products restricted consumer choice. The new charges relate to some of Google’s online advertising tools — the main engine for $75 billion in annual revenues — and parts of the company’s search business linked to online shopping.

Financial Review

What Are the Odds?

Sinclair Noe — June 14, 2016

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

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DOW – 57 = 17,674
SPX – 3 = 2075
NAS – 4 = 4843
10 Y – .01 = 1.61%
OIL – .39 = 48.49
GOLD + 1.70 = 1286.50

The rally for sovereign debt has passed an important milestone, with the yield on Germany’s benchmark 10-year bonds hitting zero for the first time and closed slightly negative, -0.01%. And as German bond yields slide into negative territory, the European Central Bank is running out of German debt to buy for its asset-purchase program. The central bank may have to consider scrapping the minimum yield limit or dropping a rule that prevents it from holding more than a third of any bond issue.

The strong demand is standing out in cautious trade ahead of a series of policy meetings at major central banks and rising uncertainty over whether the UK will stay in the EU. Four polls put the “Leave” campaign ahead of “Remain”. The latest polls show as much as a 7-point lead for the exit camp. The polls might be wrong; they were wrong about the vote for Scottish independence.

While a significant numbers of voters say they want to leave the EU, when it comes time to actually cast their vote, fear over the potential political and economic impact might steer them to take the safer course. British betting parlors still have odds of a Brexit at just 40%.

One month ago, the odds makers were placing a 20% chance on the possibility of the UK leaving the EU. Betting doesn’t tell what the future will be, it tells us what the probable future will be. The bookies are usually right.

Reuters is reporting the ECB would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union. The preparations illustrate the heightened state of alert ahead of the June 23 referendum. An official announcement from the ECB would come on June 24 if an early-morning result showed that British voters had chosen to leave the EU.

The aim is to underpin investor confidence across Europe and contain further market jitters. Providing extra funds to banks after a Brexit vote would ease pressure on them and reduce the potential for panic as financial markets digest the result on Friday, June 24, shortly before closing for the weekend. The Bank of England has already sought to avert any liquidity squeeze by providing injections of cheap funding for banks ahead of the vote.

Investors have amassed their largest cash pile since 2001 and cut equity holdings to a four-year low. Even though world bond yields have never been lower and many bank deposit rates around the world are now negative, investors are willing to hold more cash in their portfolios than at any time since November 2001.

According to a Bank of America Merrill Lynch report, risk appetite fell to its lowest level in four years, consistent with recession, although growth and profit expectations hit a six-month high and inflation expectations a one-year high. Fund managers held an average 5.7 percent of their portfolio in cash, up from 5.5 percent in May. If you are looking for the pony, consider that there is a lot of cash that can come off the sidelines fast.

The cost of imported goods rose 1.4% in May, the biggest increase in four years, largely because of a rebound in oil prices, which jumped 17.4%. Although import prices are still 5% lower compared to a year ago, they are no longer falling. Excluding fuel, import prices rose a much smaller 0.3% in May. That was still the largest gain since March 2014. The price of goods exported by the US to other nations, meanwhile, climbed 1.1% in May.

Shoppers increased their spending in May. The Commerce Department reports retail sales rose a seasonally adjusted 0.5 percent last month, the second straight increase after a 1.3 percent gain in April. Online and non-store purchases climbed 1.3 percent in May. Sporting goods stores, restaurants, clothiers and auto dealers also enjoyed higher sales.

Rising gasoline costs fueled a 2.1 percent jump in spending at gas stations; we didn’t buy more gas, we just paid more. Sales declines hit building material stores, furnishers and department stores last month. Total retail sales have risen 2.5 percent from a year ago.

The Federal Open Market Committee meeting for June kicked off today, with the interest rate decision and press conference due tomorrow. Market implied odds of a rate hike at this meeting have dropped to zero in the aftermath of the latest jobs report. They were higher than 30 percent as recently as May 26. Of course, the FOMC could hike rates or take other action; not likely but not totally impossible. The more probable move is that the Fed continues jawboning.

Today’s retail sales report would probably be enough to justify a rate hike, were it not for the May jobs report, which came in at a very weak 38,000 jobs. Federal Reserve Chair Janet Yellen said in a June 6 speech in Philadelphia, “We are now close to eliminating the slack that has weighed on the labor market since the recession.”

And the unemployment rate now stands at 4.7%; if you think back 7 years ago, or even 2 years back, you would think that 4.7% unemployment would indicate full employment, but it doesn’t.

Payrolls have increased by an average of 116,000 per month over the past 3 months; well below last year’s 229,000 per month pace of job growth. The Labor Department reported on June 8 that job openings rose to 5.8 million in April from 5.7 million in March. Hires, meanwhile, fell to 5.1 million, from 5.3 million.

Businesses complain that there is a shortfall of qualified workers. Usually this might indicate that we are near an inflection point in the labor market. Business needs workers, even if that means paying up and even training candidates for the position; the scales might be tipping from employers to employees, but the transition is slow.

The National Federation of Independent Business’s optimism index rose 0.2 point to 93.8. Most of the index’s sub-gauges rose or stayed neutral. Fewer owners expect to invest in capital expenditures, and the number of job openings and earnings trends both declined.

Oil prices are down this morning, pushed lower for the fourth consecutive day, despite a bullish report from the International Energy Agency. The IEA revised its demand forecast upward for this year by 100,000 barrels a day, to 1.3 million barrels a day from 1.2 million barrels a day.

The possibility of a Brexit is also weighing on oil; if the UK leaves the EU, the British pound will likely take a hit and the greenback will appreciate. As oil trading is conducted in dollars, a stronger dollar would push down oil prices in the US.

Moody’s has placed Microsoft’s ‘AAA’ credit rating under review for downgrade following the software giant’s deal to buy LinkedIn for $26 billion, citing concerns that it would be funded through new debt. Why is Microsoft taking out such a big loan if it has enough cash to buy LinkedIn 4x over? Taxes. Microsoft can avoid paying a 35% tax rate to repatriate cash from overseas and could also deduct interest payments.

Marriott International is on track to win unconditional EU antitrust approval for its cash and share purchase of Starwood Hotels and Resorts Worldwide. The deal $12.5 billion deal will combine Marriott’s Ritz-Carlton and Starwood’s Sheraton and Westin chains together to create the world’s largest hotel company.

Zenefits announced another layoff today. It’s cutting about another 106 people, about 9% of its salesforce, and it is shutting down its Arizona sales office, though it is not pulling out of Arizona altogether.

Iran is preparing to unveil an agreement for Boeing jetliners within days that could be valued at about $25 billion. The transaction would be the first struck by the plane maker since sanctions were lifted in January and would require US government approval. An order listed at $27 billion announced by Europe’s Airbus Group SE also needs a US Treasury Department license before it can be finalized.

Boeing is poised to land a comparable deal if they can get the appropriate government permissions. Iranian officials say the country needs to invest about $50 billion to bolster its fleet with 400 mid- and long-range jetliners and 100 short-haul planes.

High-speed internet service can be defined as a utility, a federal court has ruled in a sweeping decision clearing the way for more rigorous policing of broadband providers and greater protections for web users. The decision affirmed the government’s view that broadband is as essential as the phone and power and should be available to all Americans, rather than a luxury that does not need close government supervision.

Today’s 2-to-1 decision from a three-judge panel at the United States Court of Appeals for the District of Columbia Circuit came in a case about rules applying to a doctrine known as net neutrality, which prohibit broadband companies from blocking or slowing the delivery of internet content to consumers.

The court’s decision upheld the FCC on the declaration of broadband as a utility, which was the most significant aspect of the rules. For now, the decision limits the ability of broadband providers like Comcast and Verizon to shape the experience of internet users. Without net neutrality rules, the broadband providers could be inclined to deliver certain content on the web at slower speeds, for example, making the streams on Netflix or YouTube buffer or shut down.

Such business decisions by broadband providers would have created fast and slow lanes on the internet, subjecting businesses and consumers to extra charges and limited access to content online. Cable and telecom companies say they will continue to fight the rule, and the next step would be to take the case to the Supreme Court; which you will recall is short one justice.

Financial Review

More Exciting Than Soccer

Sinclair Noe — April 15, 2016

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

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DOW – 28 = 17,897
SPX – 2 = 2080
NAS – 7 = 4938
10 Y – .03 = 1.75%
OIL – 1.07 = 40.43
GOLD + 6.50 = 1235.10

It was a pretty good week on Wall Street, even though it feels like some of the recent gains were the result of a short squeeze. On Thursday, the Dow and S&P 500 closed at their highest levels of the year so far. The S&P 500 has recovered about 14% from the February lows. The S&P has posted gains in 7 of the past 9 weeks. The Dow posted a 1.8% gain for the week, its best since the week ended March 18. The S&P 500 added 1.5% for the week.

The world’s second-largest economy grew 6.7% in Q1, the slowest pace of expansion since the financial crisis. But the figure suggested China’s target range of 6.5%-7% growth for 2016 is possible as long as it continues using its vast stimulus toolbox. Other data also reinforced previous signs the country may be finding traction with better-than-expected growth in retail sales, industrial output, fixed asset investment, export figures, and capital outflows.

The biggest oil meeting in decades takes place on Sunday. Major oil producers will gather in Doha, Qatar on Sunday to discuss a potential oil production freeze. Expectations for a deal are low.  Notably, Iran has said it won’t send its oil minister to the meeting, which could pose a problem as Saudi Arabia has suggested it won’t agree to a deal unless Iran is involved. Russia’s finance minister has said that even if a deal is reached to freeze production, it might not result in higher prices. The 18 nations set to gather in Doha on Sunday to discuss a production freeze have spent $315 billion of their foreign-exchange reserves, about a fifth of their total, since the oil slump started in November 2014.

The other big event for investors to watch this weekend will be political developments in Brazil, where a last minute attempt to block an impeachment vote against President Dilma Rousseff in the Supreme Court has failed. The vote will now go ahead on Sunday, with markets viewing the removal of Rousseff as a positive development for the country and the global economy. The vote is so important in Brazil that soccer matches are being rescheduled and huge outdoor screens to broadcast proceedings have been set up.

One big problem is that some of the most vocal lawmakers pushing to impeach Rousseff are facing serious charges of graft, electoral fraud and human rights abuses. If Rousseff is impeached, the vice president Michel Temer is not expected to take over because he has been accused of involvement in an illegal ethanol-purchasing scheme. The House Speaker Eduardo Cunha, the third in the line of succession, has been charged with accepting millions in bribes. Altogether, 60 percent of the 594 members of Brazil’s Congress face serious charges like bribery, electoral fraud, illegal deforestation, kidnapping and homicide. I would have to agree – this is more exciting than soccer.

In the wake of the Panama Papers scandal, the EU’s five biggest economies have struck a deal to crack down on tax avoidance, agreeing to exchange information on the beneficial owners of companies and trusts. The IMF says tax avoidance is a global risk. At the annual IMF meeting in Washington, Britain’s George Osborne said, “Today we deal another hammer blow against those who hide their illegal tax evasion in the dark corners of the financial system.” The UK, Germany, France, Italy and Spain are now pushing for the rest of the G20 to follow suit.

US manufacturing output declined in March by the most since February 2015. The 0.3 percent drop at factories, which make up 75 percent of production, followed a revised 0.1 percent decrease the prior month. Utility output decreased 1.2 percent after a 3.6 percent slump the previous month. Mining production, which includes oil drilling, decreased 2.9 percent. The Federal Reserve reports total industrial production, including mines and utilities, slumped by a weaker-than-estimated 0.6 percent for a second month.

The University of Michigan’s preliminary consumer sentiment index for this month fell to 89.7, the lowest since September, from 91 in March. Steady employment gains haven’t yet translated into solid wage increases. About a fifth of those surveyed mentioned the election or government policy as likely to have negative implications for future economic growth.

Earnings season kicks into high gear next week; it’s shaping up to be the worst quarter for earnings since 2009. The first quarter, should it come in as expected, would mark a third straight quarterly decline in earnings and a fifth straight fall in revenue. This week saw earnings reports from the big banks, and the results were bad but they could have been worse.

Citigroup reported a big drop in earnings this morning. Citi’s revenue fell 11% year-over-year to $17.6 billion. Meanwhile, net income plunged 27% to $3.5 billion or $1.10 per share. That bottom line beat the $1.05 expected by analysts. Citi’s trading revenue fell to $3.79 billion, the fourth straight year that fixed-income and equities trading operations declined in what is typically the industry’s strongest quarter. This has been a common theme among the big banks (JPMorgan, BofA, and Wells Fargo) that reported earnings this week.

Other common themes include cost cutting to prop up profits (Citi really added to the bottom line by firing a whole lot of people), also all the banks have big problems with energy loans. Citi set aside about $455 million for energy loans in the first quarter; in all, the bank said provisions were $2.05 billion.

One more thing we learned this week is that the big banks are still too big to fail; five of the 8 biggest banks flunked the Federal Reserve test; seven out of 8 did not have “credible” plans for how they would wind themselves down in a crisis without sowing panic or requiring bailouts. Citi passed the test, barely; regulators said their plan had shortcomings.

The Dodd-Frank Act of 2010 told large financial institutions to draw up “living wills”, or plans for dismantling the enterprises if they go bust. The big banks are struggling to comply. Part of the plan calls for the banks to have cash and liquid assets to keep operations operating. That might not be enough to avoid a meltdown. Ultimately, the only way to be sure a bank is not too big to fail, and melt down the economy, is to make the big banks smaller. It’s the difference between eating a bite size piece of steak and trying to swallow the entire cow.

The Federal Communications Commission is working on a new rule that would forbid cable companies from requiring customers rent their set-up boxes directly from their providers. Renting the boxes can run upwards of $240 a year per box, and consumers don’t have a choice between boxes. The price of buying a box outright could easily be less than the fees customers pay over the course of a year.

Among the supporters of the set-top box proposal are technology companies like Google, Amazon and Apple, which are eager to establish a broader foothold in the TV market. The cable industry is opposed, calling it a giveaway to wealthy tech companies. If you’re looking for precedent to breaking up the cable industries lock on set top boxes, look back to a time when Americans rented their phones from Ma Bell.

And set top boxes might not be the only industry facing a shakeup. The Council of Economic Advisers issued a report today saying that competition was declining in many industries and argued that the decrease was having a harmful effect on consumers and workers.

As Yahoo prepares to accept first-round bids for its core Internet division on Monday, potential buyers have found themselves facing one big problem: How do you value a firm with a declining business when the company appears reluctant to share vital financial details? According to the NYT, Yahoo executives have refused to discuss the outlook for 2017 or answer questions about crucial aspects of the business in meetings and phone calls with potential bidders.

General Motors is recalling more than one million newer pickup trucks for a seat belt flaw. GM said the recall of the 2014-15 Chevrolet Silverado and GMC Sierra 1500 pickups is not linked to any crashes or injuries.

Pre-orders for the Tesla Model 3 are approaching 400,000. Tesla plans to expand its lineup following the Model 3, likely including a Tesla pickup truck that’s been talked about before by CEO Elon Musk.

You know all those fees that airlines have added over the last several years? Delta is taking one away. Delta will drop the fee for U.S. consumers who buy tickets over the phone or at a ticket counter to make things simpler for customers. The phone fee was $25 and the fee for a ticket bought at an airport or other ticket counter was $35. So now Delta and Southwest are the only major airlines that do not charge these particular fees.

What has caused Delta to seemingly have a change of heart? Delta says that in-person ticketing gives them a chance to engage with their customers. Yea..., that’s not it. The simple fact is that everybody hates this fee; it made the airline look greedy, very greedy. But the real reason for cutting the fee: airlines are swimming in profits thanks to lower fuel prices.

And whether you fly or drive or find some other means of transportation, the next week might be a good time to get away. The U.S. National Park Service is celebrating its 100th birthday in 2016. And during National Park Week, April 16 through April 24, you can join in on the celebration by enjoying free admission to any of the 58 national parks in the country.

Financial Review

Flip Flop Fedspeak

Sinclair Noe — February 18, 2016

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

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DOW – 40 = 16,413
SPX – 8 = 1917
NAS – 46 = 4487
10 Y – .06 = 1.76%
OIL – .12 = 30.54
GOLD + 22.30 = 1231.70

After spending 2015 calling for rate hikes St. Louis Fed President James Bullard said Wednesday evening in a speech on monetary policy that it would be unwise for the Federal Reserve to continue raising interest rates given declining inflation expectations and recent equity market volatility.

Bullard, who is a voting member of the Fed’s rate-setting committee this year, said he now feels key assumptions supporting higher rates have been undermined. Bullard’s big concern is inflation expectations, and inflation has been trending lower, and Bullard believes stock market expectations have a big impact on inflation. In contrast to Fed Chairwoman Janet Yellen or Fed Vice Chairman Stanley Fischer, Bullard doesn’t think labor market conditions have much impact on inflation as the traditional “Phillips curve” suggests.

Today, San Francisco Fed President John Williams gave a speech in LA, where he said the economy “is, all in all, looking pretty good.” Williams said his views of the economy haven’t changed much from December: “When I look at my December forecast and compare it with my outlook for unemployment and core inflation today, there’s virtually no change” Williams said he was aware of potential risks facing the economy but added that that watching a stock ticker “isn’t the way to gauge America’s economic health.”

The Federal Reserve’s next policy move is much more likely to be a rate hike than a rate cut, although over the next two years a return to zero rates is a rising possibility – that according to a New York Fed survey of primary dealers. The regular monthly survey of 22 primary dealers, or those that do direct trading with the Fed, see about a 75 percent chance that the Fed’s next policy move will be a rate hike, with just over half expecting that rate hike to take place at the Fed’s March meeting; an 8 percent chance the next move will be a rate cut, and a 17 percent chance of no change in rate in 2016.

Ray Dalio, founder of hedge fund Bridgewater Associates, in a new letter to investors says history is in the making, as central banks have backed themselves into a corner with monetary policies that are about to run out of steam. Dalio expects central banks to keep trying new ideas to stimulate economies, including negative interest rates and more money printing. Dalio says investors should expect to experience lower than normal returns with greater than normal risk.

The Organization for Economic Growth and Development say governments in the US, Europe and elsewhere should take “urgent” and “collective” steps to raise their investment spending and deliver a fresh boost to flagging economic growth. In its most forceful call to action since the financial crisis, the OECD said the global economy is suffering from a weakness of demand that can’t be remedied through stimulus from central banks alone.

The OECD cut its global growth forecasts, saying global gross domestic product will expand 3.0 percent in 2016, the same pace as in 2015 and 0.3 percentage point less than predicted in November. The OECD urged governments that can borrow at very low interest rates to boost their spending on infrastructure. The OECD said that if governments work together, fresh borrowing could have such a positive impact on growth that it would reduce rather than increase their debts relative to economic output.

The number of Americans filing for unemployment benefits unexpectedly declined last week to a three-month low. Initial jobless claims dropped by 7,000 to 262,000 in the week ended Feb. 13. Last week coincided with the period that the government surveys businesses and households to calculate payrolls and the jobless rate for February.

High stake talks to keep Britain in the European Union will take place over the next 36 hours, as Prime Minister David Cameron heads to Brussels to hammer out a deal he can sell to British voters. He has called for reform in four areas: measures to curb migration, safeguards to protect London’s financial district, Britain to be excluded from an “ever closer union” and for greater competition in the bloc. Most officials expect a referendum to be held in late June.

The US government’s Energy Information Administration said crude stockpiles rose 2.1 million barrels last week, to a peak of 504.1 million barrels in the third week of hitting record highs in past month. The EIA also cited record high gasoline inventories.

Standard & Poor’s has downgraded the credit ratings of several Middle East nations, in its second mass cut of large oil producers in almost exactly a year. Citing pressures from the drop in crude prices, the ratings agency lowered Saudi Arabia by two notches to A- stable, and stripped Bahrain of its investment grade status. S&P also cut the ratings of Bahrain and Oman to reflect lower oil price assumptions.

Anglo American’s credit rating was cut to junk by Standard & Poor’s, following similar downgrades by Moody’s Investors Service and Fitch Ratings this week. Anglo became the first major London-based miner to be rated junk. They are trying to sell off coal and iron ore assets to pay down debt.

Bloomberg is reporting Citigroup plans to exit retail banking in Argentina and Brazil, where the company has maintained operations for more than 100 years.  Citi announced plans in October 2014 to drop consumer banking in 11 markets, including Peru, Costa Rica and four others in Central and South America.

Marriott and Starwood have scheduled separate shareholder meetings to consider Marriott’s $12.2 billion buyout bid that will create the world’s largest hotel business. If approved, the transaction could close in mid-2016. After the bell yesterday, Marriott posted earnings; revenue fell short of estimates.

Chinese conglomerate Tianjin Tianhai is acquiring electronics distributor Ingram Micro for $6 billion, or $38.90/share in cash (representing a 31% premium to Ingram Micro’s close on Wednesday). Ingram Micro will maintain its headquarters in California, but they will suspend their dividend and buyback programs.

IBM has agreed to purchase Truven Health Analytics for $2.6 billion, its fourth health data-related acquisition in less than a year. Closely held Truven provides cloud-based data management and analytics to more than 8,500 health-care clients, including hospitals, insurers and government agencies

Boeing engineers and technical workers approved a six-year contract extension that brings better salary, plus vacation, layoff and retirement benefits. Boeing reaffirmed its outlook for strong growth and cash flow over the next five years, and defended accounting practices for the 787 Dreamliner.

This morning Walmart reported fourth quarter profit topped projections, and revenue fell as sales growth slowed at its US stores during the holiday quarter. The 0.6 percent increase in sales at U.S. stores open more than a year marks the chain’s sixth straight three-month period of growth after a long run of decreases.

Walmart lowered its annual sales forecast, saying it now expects to see flat sales instead of 3 to 4 percent growth. The chain said the change in expectations is because of the continued strength of the U.S. dollar and the impact of the decision it announced it January to close 269 of its stores across the globe.

Walmart has been ramping up its efforts in the last year to become a more serious rival in e-commerce to Amazon.com. And yet, some of the numbers in today’s earnings report only serve to showcase how much Amazon is still pummeling Walmart in the category. Walmart said its online sales growth for the full year was 12 percent, with a total e-commerce sales haul of $13.7 billion.

That may sound like a healthy increase, until you consider that Amazon’s total e-commerce sales during the same period were north of $83 billion. Walmart reported $130 billion in revenue in the quarter, a 1.4 percent decrease from the same quarter last year. Profit dipped 8 percent to $4.5 billion. Earnings per share were $1.49, slightly better than the $1.46 that analysts had expected.

Also before the opening bell, MGM Resorts reported a $1.4 billion loss for the fourth-quarter; that compares to a loss of $287 million in the year-earlier period.

In other earnings news: Barrick Gold shares dropped despite a smaller quarterly loss. Newmont Mining posted weaker than expected earnings. CF Industries reported fertilizer prices weakened. GoDaddy said a strong dollar weighed on results. Noble Energy posted an unexpected profit. Nvidia reported higher chip demand, and offered strong guidance. Priceline said hotel bookings increased.

And T-Mobile tripled profits. Virgin America reported a higher fourth-quarter profit that met analysts’ estimates amid lower fuel costs, and said it expects passenger unit revenue to continue to decline in the first quarter. Nestle missed forecasts with a 4.2 percent rise in annual underlying sales and predicted only a similar outcome this year, saying it was getting harder to raise prices in a tough economic environment. DISH Network reported lower net income in 2015 from a year earlier, as pay-tv subscriptions dropped. Dish shares down more than 4 percent.

The FCC has just voted to break the chains that bind you to your cable TV set top box. The FCC vote allows third-party manufacturers to make set-top boxes that deliver cable television. The proposal also requires cable and satellite companies to make their content available for these alternative boxes. According to a July Senate study, more than 99 percent of cable customers in the United States currently rent a box from their cable company for $231 per year on average.

The idea of the FCC proposal is that third-party devices like Nexus Players or Apple TVs could eventually provide cable alongside other streaming apps and Internet services. You can see why the cable industry isn’t keen on this change. Opening the market could drive down cable box prices and push cable companies to spend money improving their set-top tech. Don’t return your cable box just yet though. The rule will now go into the comment period—in which businesses and customers can now weigh in—before the final vote.

Financial Review

Neutrality Matters

Sinclair Noe — February 26, 2015

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

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DOW – 10 = 18,214
SPX – 3 = 2110
NAS + 20 = 4987
10 YR YLD + .05 = 2.01%
OIL – 2.01 = 48.98
GOLD + 5.00 = 1210.20
SILV – .01 = 16.63

The Federal Communications Commission has voted to regulate broadband Internet service as a public utility. Tom Wheeler, the commission chairman, said the FCC was using “all the tools in our toolbox to protect innovators and consumers” and preserve the Internet’s role as a “core of free expression and democratic principles.”

The new rules, approved 3 to 2 along party lines, are intended to ensure that no content is blocked and that the Internet is not divided into pay-to-play fast lanes for Internet and media companies that can afford it and slow lanes for everyone else. Those prohibitions are hallmarks of the net neutrality concept.

Mobile data service for smartphones and tablets, in addition to wired lines, is being placed under the new rules. The order also includes provisions to protect consumer privacy and to ensure that Internet service is available for people with disabilities and in remote areas.

The FCC is taking this big regulatory step by reclassifying high-speed Internet service as a telecommunications service, instead of an information service, under Title II of the Telecommunications Act. The Title II classification comes from the phone company era, treating service as a public utility. But the new rules are an à la carte version of Title II, adopting some provisions and rejecting others. The FCC will not get involved in pricing decisions or the engineering decisions companies make in managing their networks.

The impact of the new rules will largely hinge partly on details that are not yet known. The rules will not be published for at least a couple of days, and will not take effect for probably at least a couple of months. Lawsuits to challenge the commission’s order are widely expected.

Also today, the FCC approved an order to pre-empt state laws that limit the build-out of municipal broadband Internet services. The order focuses on laws in two states, North Carolina and Tennessee, but it would create a policy framework for other states; about 21 states have laws that restrict the activities of community broadband services.

The FCC says state laws unfairly restrict municipal competition with cable and telecommunications broadband providers. This order, too, will surely be challenged in court.

What does net neutrality mean for you? Well, you will still get your internet service from your provider; they just won’t be able to charge you more for high bandwidth, they can’t discriminate, and they can’t just block or slow access to content on a whim – which has happened in the past. That means that some geek in a garage has the same access to the internet as a big company like Netflix or Hulu; and as we’ve learned over the years, geeks in garages sometimes come up with some brilliant stuff. And nothing in today’s FCC action will raise your taxes.

We’ve been hearing from certain pundits for years now about how high inflation was just around the corner; how the Federal Reserve’s low interest policy and massive monetary stimulus would inevitably lead prices to spike, undermining the economic recovery. The hyper-inflationistas were dead wrong. Consumer prices fell again in January and inflation turned negative year over year. The consumer price index dropped a seasonally adjusted 0.7% last month, marking the third decline in a row. Over the past year prices have actually declined by an unadjusted 0.1%, the first time consumer inflation has been negative since the fall of 2009. Energy prices slumped 9.7%, as the cost of most fuels including gas decreased. Food prices were unchanged. Excluding food and energy, so-called core consumer prices rose 0.2% in January. Core prices are also up 1.6% in the past year, mainly reflecting rising prices for housing. Deflationary pressure from the cost of energy and commodities falling has turned into deflation. Whether this is temporary or a longer-term trend remains to be seen.

As a reminder, the Federal Reserve has that 2.0% inflation target, which is nowhere in sight. Until inflation ticks back up, it is hard to imagine that Janet Yellen and her team will raise interest rates rapidly. Even if they start raising rates sooner than expected, it is hard to fathom that this interest rate hiking cycle will be anywhere as severe as what we saw during the 1990s and in other rate hike cycles. Still, the Fed doesn’t expect energy prices to stay low forever. There is little fear that it will lead to an insidious debt-deflation spiral.

For the moment, lower prices, especially lower energy prices are a good thing. Today, oil prices dropped to the lowest levels in a month; a combination of a stronger dollar and a report yesterday showing record high crude supplies in the US. And it’s not just lower prices at the pump and lower energy bills, the cost of inputs, from plastic bottles to detergent, are edging down. Some of the savings are being passed on: food, which is costly to transport and requires a lot of packaging, is cheapening. These are the hallmarks of a positive supply shock: cheap oil means economies can provide more goods at lower prices. In the services sector, which relies much less on energy, transport and oil-based inputs, prices are still rising.

For companies that sell durable goods deflation can be more of a concern, but so far it hasn’t been a problem.  Orders for durable goods rose a seasonally adjusted 2.8% in January, beating expectations. Orders minus transportation edged up 0.3%. Orders for core capital goods, a proxy for business investment, surged 9.5%.

For many industries, however, falling prices are not new, but a way of life; think about how prices have dropped for technology like phones, cameras, and computers. So deflation is unlikely to shock shoppers. Indeed, the boost in purchasing power from a short period of falling prices is welcome, especially for workers that have seen wages stagnate for decades.

Unemployment rates are now below pre-crisis levels and that should have triggered rising wages but we haven’t seen it yet. The number of people who applied for unemployment benefits jumped by 31,000 to 313,000 in the week ending Feb. 21. It was the biggest weekly increase since December 2013. Next week’s jobs report will likely show another solid gain, but there is still slack in the labor market. Jobs may be up but workers’ bargaining power is not.

Even if it is short-lived, this sort of deflation can dull an economy. Companies are sitting on mountains of cash, about $2 trillion more or less; A little inflation would serve as a prod to put that money more quickly to use. This raises a question about how to spark inflation. Over time, the answer is more jobs; more people with paychecks spend more money, creating more demand; and increased demand is the best incentive to invest.

If falling prices endure, then debts, fixed in nominal terms, are harder to pay. And the whiff of deflation is everywhere, not just in the US but around the globe. And we have seen central bankers responding: with Abenomics in Japan, stimulus in China, QE from the ECB, and negative interest rates across much of Europe. If these attempts fail, then the glee at cheap food and fuel will be short-lived, as debt-ridden economies find themselves using up all the savings from falling prices to keep creditors at bay. And the side effect of central bank stimulus is to devalue the local currency, which has resulted in a much stronger US dollar, which means our exports have to be priced competitively and imports are cheaper; which all means that deflation, even a little deflation can be a tricky thing. Enjoy it while you can.

Earnings season is winding down with reports from retailers. JC Penney reported sales rose 4.4%, topping estimates; that was not enough. JC Penney reported a loss of $59 million, or 19 cents a share.

Sears Holdings lost money for an 11th straight quarter. The company lost $1.50 per share, beating the expected loss of $1.89 per share. Sales dropped 24% to $8.1 billion, short of the $8.3 billion estimate.

Gap said profit rose nearly 4% to $319 million, or 75 cents a share, while sales increased nearly 3% to $4.7 billion. Gap offered a muted earnings forecast for the year, blaming the impact of the stronger dollar and shipping delays at West Coast ports. Separately, Gap said it is increasing its annual dividend and that it is setting aside $1 billion to buy back shares.

Google is making its largest bet yet on renewable energy, a $300 million investment to support at least 25,000 SolarCity rooftop power plants.  Google is contributing to a SolarCity fund valued at $750 million, the largest ever created for residential solar. Google has now committed more than $1.8 billion to renewable energy projects, including wind and solar farms on three continents. What really makes the deal interesting is that technology companies are now taking advantage of investment formats once reserved only for banks. The Google deal is structured as a tax-equity transaction, meaning Google gets tax breaks that flow from solar systems financed by the fund. Renewable-energy projects are entitled to various tax benefits, including a credit for 30% of the installed cost of a solar power system. Unprofitable companies, such as SolarCity, often can’t use the credits and provide them instead to tax-equity investors.

Just a week after apologizing for bundling computers with an encryption-breaking adware program known as Superfish, Lenovo said a cyberattack took down its website, although it was not clear who was behind the breach. Hacker group Lizard Squad, which has taken credit for several recent high-profile outages, including Sony’s PlayStation Network and Microsoft’s Xbox Live, has claimed responsibility for the attack.

(I guess we can file that one under “K” for karma, or maybe “P” for payback.)