Financial Review

Ultra Violet

Sinclair Noe — December 7, 2017

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DOW + 70 = 24,211
SPX + 7 = 2636
NAS + 36 = 6812
RUT + 11 = 1520
10 Y + .05 = 2.38%
OIL+ .66 = 56.62
GOLD – 16.00 = 1247.80

Cryptocurrency

• Number of Currencies: 1,364
• Total Market Cap: $443,799,771,860
• Volume (24h): $29,879,496,699

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	16,012.0	$290.56B	$17.67B	59.15%	1	-3.56%	+74.30%
	Ethereum	ETH	413.58	$41.34B	$2.10B	7.02%	0.0250542	-0.34%	-1.99%
	Bitcoin Cash	BCH	1,378.80	$26.18B	$1.55B	5.20%	0.0906213	+11.89%	+15.99%
	IOTA	MIOTA	3.71990	$10.57B	$1.14B	3.80%	0.00022174	-9.27%	+196.54%
	Ripple	XRP	0.23500	$10.09B	$553.84M	1.85%	0.00001519	+15.71%	+6.01%
	Dash	DASH	660.52	$5.36B	$242.77M	0.81%	0.0403684	-0.34%	-11.54%
	Litecoin	LTC	97.110	$5.31B	$644.07M	2.16%	0.00571542	-0.85%	+13.95%
	Bitcoin Gold	BTG	238.73	$4.52B	$146.44M	0.49%	0.0157946	+11.30%	-7.79%
	Monero	XMR	251.29	$4.32B	$281.56M	0.94%	0.0163026	-3.27%	+59.69%
	Cardano	ADA	0.112903	$2.98B	$64.74M	0.22%	0.0000067	+1.62%	-1.36%

Stocks closed higher. The S&P 500 snapped a 4-day losing streak. Tech stocks made something of a comeback after taking a battering earlier this week. From Friday through Tuesday, the Nasdaq fell 1.6%, with analysts largely blaming the drop on profit-taking after a big rally and on concerns about how the U.S. tax overhaul will impact the tech sector. Whatever rotation away from tech happened in the past few days, it was minor.

Hamas urged Palestinians to abandon peace efforts and launch a new uprising against Israel in response to Trump’s recognition of Jerusalem as the Israeli capital. Palestinian factions called for a “Day of Rage” on Friday, and today a wave of protest in the West Bank and Gaza brought clashes between Palestinians and Israeli troops.

Sen. Al Franken said he will resign in the coming weeks, in a speech on the Senate floor that put him face to face with dozens of Democratic colleagues who called for him to step down over mounting allegations of sexual misconduct.

General Electric plans to cut 12,000 jobs in its power division as the new CEO institutes sweeping changes and the company grapples with a decline in business for coal and natural gas products. The company will cut nearly one in five positions in its GE Power unit. Overall, the layoffs equal about 4% of the company’s workforce of about 295,000 employees at the end of 2016.

New CEO John Flannery is aiming to make GE more efficient. He has already earned a reputation for taking a microscope to GE’s global business to identify opportunities for savings and changes. GE said the cuts would contribute to its plans to slash $3.5 billion in “structural costs” in 2017 and 2018. That includes a $1 billion cost-cutting plan in 2018 by the GE Power division, which makes gas and steam turbines, electrical transmission products, nuclear plant infrastructure and other items.

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 236,000 for the week ended Dec. 2. Last week marked the 144th straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was smaller.

This only tells part of the story about the strength of the economy. Yes, the unemployment rate is at 4.1%, a level considered near full employment. But many workers who leave or lose a job are not eligible for unemployment benefits. That is why the claims number has been so low for so long.

The bitcoin boom continued today, zipping past $17,000. Since its low of $11,450 on Tuesday to its peak Thursday, Bitcoin has rallied 45% in a roughly 48-hour span. Bitcoin soared above $19,500 a coin on Coinbase’s GDAX exchange at about 11:30 a.m. ET, three hours after it blew past $16,000.

The massive tear upward seems to have put pressure on Coinbase’s infrastructure — the exchange said on Twitter that users were experiencing issues logging into their accounts because of record traffic. Other exchanges had other prices. Pick one and wish.

If you placed a wager on bitcoin, congratulations. Don’t forget to cash in. If you didn’t put money in bitcoin and you are starting to feel tempted, just remember that you probably didn’t win the lottery this week either. So, what?

The only thing hotter than bitcoin is inflation in Venezuela, now running at 1,369 percent between January and November. The Venezuelan central bank reported inflation of 180 percent and 240 percent in 2015 and 2016, which had been the highest on record. It has since then stopped providing figures.

S&P Global analysts said a partial government shutdown would cost the economy about $6.5 billion per week, or about 0.2 percent of gross domestic product growth in the fourth quarter of 2017, as the impact of furloughing federal employees ripples across the country.

Lawmakers have until the end of Friday to reach an agreement to avert the shutdown. The House is slated to vote Thursday on a short-term extension to keep the government going a couple of more weeks while lawmakers try to work out the problems.

If a shutdown were to take place so far into the quarter, fourth-quarter GDP would not have time to bounce back, which could shake investors and consumers and, as a result, possibly snuff out any economic momentum. The bad news, is that even in a partial shutdown, Congress would continue to get paid for taking a holiday recess.

A faction of conservative Republicans is raising warnings about federal spending, two weeks after backing tax-cut legislation that would raise federal deficits by $1 trillion over the next decade. They say that compromises struck with moderate Senate Republicans, as well as negotiations to keep Democrats from filibustering spending bills, will contain measures that increase government spending.

As Congress turns attention to funding the government after months devoted to passing the tax cut package, some of the lawmakers who dismissed Congress’s own analysis that the tax cuts would add deficits are raising alarms about spending.

That may threaten some of the deals Senate Republican leaders cut to secure votes for the tax plan, including heading off cuts to Medicaid and legislation to stabilize Obamacare insurance markets. Killing your parents and then complaining about being an orphan.

Wildfires in Los Angeles have burned more than 120,000 acres, and it will get worse. Schools are closed, roadways are shut and nearly 200,000 people have been told to evacuate their homes. Winds were strengthening on Thursday, with warnings that gusts of 80 miles per hour. The high winds will continue at least through tomorrow.

Brush fires broke out this morning in Malibu, Oxnard and Huntington Beach; that in addition to the fires burning, basically out of control in Sylmar, Santa Clarita, Bel-Air and Ventura.

The Federal Reserve reports net worth of households and nonprofits hit a record of $96.9 trillion after a $1.74 trillion increase, or 1.8%, gain in the third quarter. Total debt grew at the fastest rate in nearly two years, 6.2% annualized, after the federal government was allowed to borrow again following the end of a debt-limit impasse. The stock market rally continued in the third quarter, and that $1.1 trillion gain was the big driver of the gain in net worth. Rising house prices added another $400 billion.

On the borrowing front, the story continued to be the rise in corporate debt, rising 6.4% annualized, as well as the continued auto- and student-loan driven rise in consumer credit, which rose 4.9% annualized. Cash on corporate balance sheets rose to $2.36 trillion from $2.29 trillion. So, tax cuts.

Goggle and Amazon are fighting. Google on Tuesday said it would pull its YouTube apps from Amazon’s Fire TV and Alexa-powered Echo Show starting next month. Why? Google pointed a finger at Amazon, which hasn’t been selling some products from Google and Nest, which is also owned by Google’s parent company.

Amazon also doesn’t allow Google products to have access to its Prime Video streaming service. These kinds of conflicts can be confusing for consumers who probably just want to watch the things they like on the devices they’ve bought. It’s childish that companies as big as Amazon and Google can’t work out a deal that makes sense for both, thereby helping the industry to grow and, instead, let consumers and content owners suffer.

Meanwhile, another long-standing streaming media tiff is getting (somewhat) resolved. As of Wednesday, Apple TV owners are finally able to add Amazon’s Prime Video to their devices — about six months after Apple chief executive Tim Cook promised the service was on its way. The two companies reportedly had trouble negotiating while wearing the hats of both partners and competitors.

With the holiday shopping season approaching and bankruptcy proceedings underway in federal court, Toys R Us just received court approval to pay 17 executives about $14 million in incentive bonuses, as long as the company hits its target of $550 million in earnings. It must hit a minimum of $484 million in adjusted earnings before any bonuses are awarded.

Attorneys for the company argued in court papers that the bonuses would help encourage executives to focus on driving up sales as the holidays approach. Because if they don’t get bonuses, they might not do a good job?

The national student loan debt is currently $1.4 trillion, an amount owed by more than 44 million borrowers. The average student loan borrower owes $27,857 in educational debt upon graduation.

The Student Loan Report polled 1,000 student loan borrowers currently in repayment to find out if they would rather receive a gift or an equally-valued student loan payment this holiday season, and 69% said they would like the money to go toward paying down the student loan debt.  Just trying to help you work through your shopping list.

Wildfires torching California, sexual-harassment scandals toppling powerful men and a splintered political landscape — and that’s only a trickle of the headlines. It’s the sludge of earthbound news that has Pantone, the design world’s arbiter of color, looking to the night sky and the future for its 2018 color of the year.

Ultra Violet 18-3383, it is — a dramatically provocative and thoughtful shade. Pantone says the hue, a blue-based purple, expresses “originality, ingenuity and visionary thinking that points us toward the future.” Apparently this is an annual event.

Financial Review

Big Tech Rolls

Sinclair Noe — October 27, 2017

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

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DOW + 33 = 23,434
SPX + 20 = 2581
NAS + 144 = 6701 (record)
RUT + 10 = 1508
10 Y – .02 = 2.43%
OIL + 1.39 = 54.03
GOLD + 7.00 = 1274.20

Cryptocurrency

• Number of Currencies: 881
• Total Market Cap: $169,584,853,512
• 24H Volume: $3,030,726,031

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,763.0	$96.48B	$1.38B	45.66%	1	+0.06%	-4.89%
	Ethereum	ETH	294.13	$28.39B	$260.01M	8.58%	0.0515573	-0.63%	-0.26%
	Ripple	XRP	0.19869	$7.78B	$26.00M	0.86%	0.00003499	-0.41%	-1.55%
	Bitcoin Cash	BCH	389.71	$6.62B	$642.56M	21.20%	0.0684542	+6.64%	+22.31%
	Litecoin	LTC	54.550	$2.94B	$69.39M	2.29%	0.00950861	-1.27%	-5.37%
	Dash	DASH	270.00	$2.09B	$44.65M	1.47%	0.0474148	-3.66%	-2.04%
	NEM	XEM	0.19693	$1.79B	$4.75M	0.16%	0.0000344	+0.48%	-4.75%
	BitConnect	BCC	213.397	$1.56B	$11.33M	0.37%	0.0369607	+0.59%	+0.95%
	NEO	NEO	27.740	$1.38B	$22.50M	0.74%	0.00477785	-3.95%	+1.75%
	Monero	XMR	85.71	$1.32B	$24.67M	0.81%	0.014969	-0.45%	-1.82%

For the week, the Dow rose 0.5%, the S&P 500 gained 0.2% and the Nasdaq advanced 1.1%. The S&P has notched gains for seven straight weeks, its longest weekly winning streak in three years. The Russell 2000 index was down 0.1% for the week. Who needs small caps, when the big tech stocks are going crazy?

For the year to date: The S&P 500 is up 342.24 points, or 15.3%. The Dow is up 3,671.59 points, or 18.6%. The Nasdaq is up 1,318.15 points, or 24.5%. The Russell 2000 is up 151.19 points, or 11.1%.

We knew this was going to be a big day for the tech sector after several companies reported strong earnings after the closing bell yesterday. The S&P technology index led the way higher, up 2.9%. The index notched its best day since March 1, 2016 and is up nearly 35% on the year versus the 15-percent gain in the S&P 500.

Google-parent Alphabet gained 4.2% as its revenue got a boost from advertising sales. Microsoft jumped 6.4% after the world’s largest software company reported further gains from its cloud computing services.

Apple rose 3.5% after the company allayed concerns of muted demand for its 10th anniversary phone. The iPhone X, unsurprisingly, sold out of its pre-orders within ten minutes. Or, at least, the pre-orders it allocated to its website. Likely pre-orders are also sold out at its retail operations at this point, too.

Intel soared 7.3% after its quarterly results topped estimates and the chipmaker raised its full-year forecasts. And Amazon, gained 13.2% after reporting a quarterly sales surge and better than expected earnings. Amazon of course is already ubiquitous—an estimated two-third of US households subscribe to its Prime membership program.

But aside from the packages that come to your door and a few forays into hardware, the company can still grow sales by 35% in North America and their cloud business saw sales jump 42%. For Jeff Bezos, this was about a $7 billion day, meaning he may now be the world’s richest man.

Both Amazon and Google now trade above $1,000. Apple, Amazon, Alphabet, Microsoft; these are the new blue chips. Maybe toss in Facebook, Netflix, and Nvidia.

Today, the FAANG stocks added $181 billion in market capitalization in just a few hours of trading. For the sake of comparison, Goldman Sachs has a market cap of $93 billion. This year so far has been a big one for these companies, which have added nearly $1 trillion in value. They might top that mark next week, when Facebook and Apple report earnings.

If you own at least a few of these stocks, and you have just been holding, you have been rewarded. Even as these stocks have grown massively they can still deliver growth that seems more like a small cap stock sprinting out the gate. That does not mean they will continue to go up in a nearly straight line – they all face certain challenges but they all remain innovative and profitable until further notice.

Trump likes to claim credit for the record highs on Wall Street, even though we have been in a bull market for more than 8 years. And what he doesn’t mention is that the rest of the world has gotten richer, faster at the same time. American equities are now worth $28.4 trillion, having swelled by almost $3 trillion since he took office in January. But they’ve lost ground against the rest of the world.

All stocks across the globe are valued at $89.9 trillion. US shares make up only 31.6 percent of that total. That’s the lowest proportion since November 2011, or a few months after the U.S. flirted with default. And it’s sunk from the 11-year high of 38.3 percent set in December under then-President Obama.

Earnings growth for the third quarter is now 6.7 percent, according to Thomson Reuters data. Of the 273 companies that have posted earnings, 74 percent have topped expectations, compared with the 72 percent beat rate over the past four quarters. Not all earnings were positive, however. Chevron’s 4.14 percent fall weighed on the S&P and the Dow after the oil company’s profit missed estimates.

The nation’s gross domestic product expanded at an annual rate of 3 percent in the third quarter, according to the Commerce Department’s first estimates. Economists initially expected that Hurricanes Harvey and Irma would deal a blow to the country’s steady growth, but destruction wrought by the storms was outweighed by the continued spending of consumers and businesses.

The economy is experiencing its fastest growth spurt in two consecutive quarters since 2014, but it is highly unlikely that growth for the year will reach 3 percent. The first quarter was tepid, and projections for the current quarter hover around 2.8 percent.

Personal consumption, although down from the previous quarter, grew at a 2.4 percent rate, and nonresidential fixed investment, a measure of business spending, expanded at a robust rate of 3.9 percent.

Spending on equipment increased at a rate of 8.6 percent, as companies poured money into capital improvements. Businesses may be investing in computers and industrial equipment in response to a tight labor market.

It can be hard to accurately measure the full effect of a natural disaster immediately after it occurs. Hurricanes Harvey and Irma left 600,000 to one million vehicles needing replacement. Car sales spiked in September, reaching their highest level since 2005.

Those car purchases are counted toward GDP growth, but the destruction of all those cars is not subtracted. The 3% GDP growth figure released was the government’s first estimate of economic output for the quarter, and it will be revised twice.

The government in Madrid, Spain sacked Catalonia’s president and dismissed its parliament, hours after the region declared itself an independent nation. A new regional election will be held in Catalonia on Dec. 21.

As well as removing Carles Puigdemont as head of the autonomous region, Prime Minister Mariano Rajoy also fired its police chief and said central government ministries would take over the Catalan administration. Several European countries, including France and Germany, and the United States also rejected the independence declaration and said they supported efforts to preserve Spain’s unity.

The crisis has now reached a new and possibly dangerous level as independence supporters have called for a campaign of disobedience. The main secessionist group, the Catalan National Assembly, called on civil servants not to follow orders from the Spanish government and urged them to follow “peaceful resistance”.

CVS Health has made an offer to acquire Aetna for more than $200 per share, or over $66 billion, making it the biggest deal of the year. Yesterday Amazon.com has received wholesale pharmacy licenses in several states and is planning to move into online prescription drug sales, potentially posing an existential threat to brick-and-mortar pharmacies.

That possibility has hit shares of most drugstore operators on fears that the online retailer would leverage its vast ecommerce platform in prescription drug sales. A CVS-Aetna deal could create a one-stop shop for customers’ health care needs – ranging from employer healthcare and government plans to managing benefits and running drug stores.

This has not been an easy year for brick and mortar retailers and today, JC Penney took a hard hit, down 15% after warning of a deeper-than-expected loss in the third quarter. The retailer is trying to revamp its apparel inventory by liquidating less popular items. While the effort will lead to a comparable-store sales gain, it was a costly endeavor, resulting in a loss last quarter.

The move spotlighted key problems for the department-store field: hard-to-sell inventory and a reliance on deep discounts to move stock. J.C. Penney also has been shuttering poor-performing stores in a bid to better match supply with demand.

It has been a very bad week for General Electric. GE cut cash and profit forecasts while reporting earnings that fell well short of Wall Street estimates. Investors are also bracing for a possible dividend cut. Shares dropped every day this week pushing the stock down 13% on the week. That was GE’s worst weekly drop since March 2009. With about $26 billion of market value wiped out over the past five days, the loss for GE shareholders this year has now reached $100 billion

Volkswagen reported net profit in the third quarter fell about 50 percent, to 1.1 billion euros, or $1.3 billion, after the company set aside €2.6 billion to cover the unexpectedly high cost of repairing diesel cars in the United States that contained illegal, emissions-cheating software. VW had warned last month that the emissions scandal would cut into earnings.

After VW admitted to the scandal, the company vowed it will make electric cars affordable for the masses. One way that Volkswagen was able to still report a profit in the quarter, though, was by cutting spending on research and development. So, in a twisted sort of way, the cost of the scandal is hurting the transition to clean electric cars.

National monuments in Utah are shrinking. The Trump administration has decided to reduce the size of the Bears Ears National Monument and Grand Staircase-Escalante National to make way for more industrial activity on the land they occupy. A coal deposit lies beneath Grand Staircase, but an archeological site where two dozen new species of dinosaurs have been discovered is located there, too, and paleontologists are now worried it could be destroyed if the monument’s size is reduced.

Navajo Nation Attorney General Ethel Branch, said: “The Navajo Nation stands ready to defend the Bears Ears National Monument. We have a complaint ready to file upon official action by the President.”

Financial Review

Focus on Earnings

Sinclair Noe — July 21, 2017

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

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DOW – 31 = 21,580
SPX – 0.91 = 2472
NAS – 2 = 6387
RUT – 6 = 1435
10 Y – .03 2.23%
OIL – 1.25 = 45.67
GOLD + 10.50 = 1255.50
BITCOIN + 1.33% = 2703.19 USD
ETHEREUM + 3.41% = 221.94

Stocks pulled back from record highs earlier this week.  For the week, the Dow fell 0.3% but the S&P 500 is up 0.5% and the Nasdaq added 1.2%. The Nasdaq is coming off a 10-day string of gains, matching its longest streak since Feb. 24, 2015 – so a pullback today was overdue.

At long last, tech stocks have finally recovered all the losses they suffered during the bursting of the dotcom bubble in 2000. It only took 17 years. The S&P 500 Information Technology Index closed Wednesday at an all-time high of 992.3. In doing so, it broke the previous record of 988.5, which was set back in March 2000.

In the intervening years, tech shares had lost as much as 80% of their value before beginning the slow ascent back to the top of the market. That ultra-slow recovery highlights how long it can take stocks to come back from bubbles. Tech stocks in the S&P 500 index now trade at a price/earnings ratio of 18.4, according to FactSet, based on projected sector profits in the coming 12 months.

That means tech is now trading at a 28% premium to tech companies’ valuations over the past decade. To be sure, that’s nothing compared to the triple digit P/Es seen in the late 1990s.

The FANG stocks, (Facebook Apple, Amazon, Netflix, and Alphabet-Google) have rocketed up this year, rising nearly 40 percent, four times the gain of the S&P 500. And the trend doesn’t seem to be ending. The technology heavy Nasdaq Composite Index raced ahead of the broader S&P 500 again this week.

And yet as investors pile into the FANG stocks, one measure of the return investors can expect from those stocks has shrunk to a new low. As of the end of the second quarter, the average free cash-flow yield of the FANG stocks, based on the past 12 months, slid to just 1.4 percent. That’s less than half of what that measure was just two years ago and now nearly a full percentage point below the yield on a 10-year Treasury.

Tech is back to being the biggest sector in the market, representing about a quarter of the S&P 500. That’s still well below the one-third share of the market that tech stocks occupied in the late 1990s. But remember that this figure does not include several big stocks that the public regards as “tech” but that S&P classifies as “consumer discretionary” stocks — a list that includes Amazon, Priceline, and Netflix. Moreover, Tesla isn’t even in the S&P 500, despite being valued at more than $53 billion.

If you want to make money in the stock market, you’d better nail earnings season. The reason is simple: Quarterly results are exerting unprecedented influence over stock returns and, by extension, portfolio performance. In recent quarters, reporting companies have seen their shares move four times the normal daily average, the most in the past 18 years, according to data compiled by Goldman Sachs.

The punishment for missing earnings is also the harshest in almost two years. In the first quarter of this year, companies that fell short dropped more than 2.5% in a single day, on average, according to Wells Fargo data.

One possible explanation is the rise of passive investment vehicles such as exchange-traded funds and quant funds. By trading large swaths of the equity market, rather than individual stocks, participating investors are diluting the effects of specific company fundamentals during non-earnings periods. Then, once earnings season rolls around, stock prices are spring-loaded to react more sharply to any new information.

This ETF effect is compounded by how price-insensitive the traders who use them can be — buying and selling based on what their models tell them and ignoring valuations that might otherwise raise red flags. Goldman finds that the FAAMG group that has led the stock market’s latest rally to new highs — consisting of Facebook, Amazon, Apple, Microsoft, and Google — has been realizing more than 50% of its quarterly return during earnings week.

In addition, the tech, materials, and consumer discretionary sectors are also seeing more than 30% of their quarterly returns generated in the five days surrounding releases.

General Electric reported quarterly profits fell 57% to $1.2 billion, as sales in its oil and gas, transportation and lighting divisions fell. Outgoing GE boss Jeffrey Immelt said the company was working in a “slow-growth, volatile environment”. He said a cost-cutting plan and other measures should put the firm on track to hit profit targets for the year. GE is down about 19% year to date.

Honeywell reported a better-than-expected quarterly profit. Net income attributable to Honeywell increased 5.5 percent to $1.3 billion, or $1.80 per share, above expectations of $1.78 per share. Revenue rose about 1 percent to $10 billion, topping expectations of $9.8 billion.

Honeywell also raised the low end of its 2017 earnings per share forecast by 10 cents. Sales in Honeywell’s aerospace business, which activist investor Daniel Loeb wants to be spun off, fell about 3 percent to $3.67 billion in the quarter, but the drop was much smaller than forecast.

The Department of Labor ordered Wells Fargo to pay $575,000 and to rehire a whistleblower the bank had dismissed in September 2011 after the former employee raised concerns over the opening of customer accounts without their knowledge. Despite news reports and lawsuits claiming the bank had retaliated against whistle-blowers, an investigative report by the bank’s board of directors released in April found no pattern of retaliation.

The U.K. cabinet will accept the free movement of EU citizens for up to four years after Brexit as part of a transitional deal. The news comes after a meeting between Prime Minister Theresa May and British businesses, in which companies stepped up pressure to avoid a so-called hard Brexit.

Bank of America has chosen Dublin as its future European Union hub, the latest major financial services firm to outline its plans to deal with Brexit, Britain’s departure from the 28-nation bloc.

Many banks and financial firms have concentrated their European operations in London, taking advantage of deep and liquid markets as well as the wide variety of support industries that have built up in the British capital, including accountants and lawyers. But those companies now face the distinct possibility that they may no longer be able to serve European clients from London after Britain leaves the Euro Union.

With Britain as a member of the EU, companies based in the country have been able to sell financial products across the Continent under “passporting” rules, which allow a lender licensed in one member state to work throughout the European Union. That is no longer guaranteed when Britain leaves in 2019, so financial companies have been moving forward with contingency strategies, and Bank of America is the latest lender to announce its plans.

American and European authorities have shut down two of the largest online black markets, AlphaBay and Hansa Market, and arrested their operators. AlphaBay, the largest so-called dark net market, was taken down in early July at the same time the authorities arrested the reported founder of the site, Alexandre Cazes, a Canadian man who was living in Bangkok.

Cazes committed suicide in his jail cell shortly after he was arrested. After AlphaBay went down, users streamed to one of its largest competitors, Hansa Market. But on Thursday, the Dutch national police announced that they had taken control of Hansa Market in June and had been operating the site since then, monitoring the vendors and customers and gathering identifying details on those involved in the 50,000 transactions that took place.

AlphaBay and Hansa Market were successors to the first and most famous market operating on the so-called dark net, Silk Road, which the authorities took down in October 2013.

You’ve undoubtedly heard that, in reaction to the hiring of Anthony Scaramucci as communications director, Sean Spicer has resigned as White House Spokesperson (leaving the White House to find someone else to not give press briefings).

Sarah Huckabee Sanders will replace Spicer. Given the nature of Trump coverage—and Spicer’s outsized role in it—you probably heard about the resignation within ten seconds of it happening. Scaramucci said he hopes that press secretary Sean Spicer will go on “to make a tremendous amount of money.”

Financial Review

Monday, Monday

Sinclair Noe — June 12, 2017

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

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DOW – 36 = 21,235
SPX – 2 = 2429
NAS – 32 = 6175
RUT – 2 = 1419
10 Y + .01 = 2.21%
OIL + .17 = 46.00
GOLD – .90 = 1266.50
BITCOIN + 0.39% = 2720.80
ETHEREUM + 16.83% = 398.58

The Dow Industrials fell from record highs, with an inside trading session that does not look like a reversal, not yet anyway. The Nasdaq Composite confirmed its sharp downturn on Friday. Really, it was just five mega-tech stocks that accounted for 75% of the Nasdaq’s drop.

Apple, Microsoft and Goggle parent Alphabet account for nearly 30 percent of the index’s weighting, and their outsize impact has driven the gauge lower even though the bulk of the stocks are doing fine. What has sparked the so-called tech wreck isn’t exactly clear, but Goldman Sachs issued a report last Friday entitled, “Is FANG Mispriced?”

More important is whether this is a short-term correction or the sign of something more ominous. One or two days down does not make a trend, but a trend can start with a couple of down days. At this point, most analysts see this as a pause after a very strong and fast rally in the mega-tech names.

The good news is that money is not leaving stocks, just rotating to different sectors. On a net basis, investors sent $1.9 billion to ETFs focused on U.S. equities Friday, five times the money sent to fixed income. While tech ETFs experienced withdrawals of about $510 million (and the Fang stocks lost $126 billion in market cap), financials had inflows of almost $1 billion and energy took in $120 million.

Tomorrow will kick off a busy week for economic data – we’ll get the latest producer price index, which is expected to be flat. Wednesday morning brings the consumer price index and retail sales data. Wednesday afternoon brings a statement from the Federal Reserve on monetary policy.

A federal funds rate increase is widely expected, so the more market-sensitive elements of the Fed’s meeting will relate to signals regarding future policy action — either the path for the rates going forward or plans regarding a reduction in the central bank’s $4.5 trillion balance sheet.

The British pound sterling continued falling today, marking its worst two-day decline since October. Last week’s election saw Prime minister Theresa May’s Tories falling short of a majority in Parliament. While the Tories are expected to cobble a slim coalition, May will now govern from a position of weakness.

Some of May’s most senior ministers are plotting to soften her approach to leaving the bloc, potentially keeping the country in the single-market and customs union. By contrast, hardline Brexit supporters are determined to force through the prime minister’s plans for a clean break.

Treasury Secretary Steven Mnuchin  had previously set an August deadline for the federal government to avoid a default. Mnuchin said he still prefers that Congress increase the government’s authority to borrow before lawmakers leave on a five-week break in August. However, he said he is “comfortable” that the Treasury Department can meet the government’s financial obligations through the start of September.

The 9th US Circuit Court of Appeals panel unanimously upheld an earlier decision by a federal judge in Hawaii to block the government from enforcing Trump’s executive order for a “travel ban” that would restrict refugees and people from six predominantly Muslim countries from entering the US. The Supreme Court asked two groups challenging the travel ban to file legal papers by Monday. Once it receives the briefs it sought, the court could act at any time.

Attorney General Jeff Sessions will testify publicly to a Senate panel tomorrow. It had been unclear whether Sessions would testify in an open or closed setting. Sessions is likely to face tough questioning from Senate Intelligence Committee members over his dealings with Russian officials during the campaign and whether he had a role in the firing of former FBI Director James Comey, who testified last week before the same panel.

Along with testifying before the Senate Intelligence Committee this week, Attorney General Jeff Sessions can expect a subpoena from lawyers for a former Maricopa county Sheriff Joe Arpaio. Arpaio is presently being prosecuted by the U.S. Justice Department for allegedly violating a federal judge’s order to cease immigration enforcement. Arpaio’s trial is scheduled to begin June 26.

Sessions could challenge the subpoena to testify. The defense attorneys hope to use Sessions to underscore the irony of Arpaio being prosecuted by the very entity that is using the threat of pulling federal funds to get cities to do essentially what their client is accused of doing.

The case will be before Judge Susan Bolton, the very one who upheld SB 1070, the Arizona state law that requires cops to act on a “reasonable suspicion” that someone they have detained is in the country illegally. As it now stands, the outcome will be decided solely by Bolton, not by a jury.

Puerto Rico voted overwhelmingly in favor of statehood on Sunday in a referendum that begins the steps toward sending representatives to Washington, DC. It was a landslide, with 97 percent voting for statehood, though turnout was only about 23 percent.

Puerto Rico previously voted in favor of becoming a state in 2012, but statehood opponents said the voter turnout was not high enough to accurately reflect will of the Puerto Rican people. Some fear that they will make the same case this time around.

The Supreme Court cut the time it will take for copycat versions of biologic drugs to get to market. In a unanimous ruling, the justices overturned a lower court’s decision that had prevented Swiss pharmaceutical company Novartis from selling its copycat version of Amgen’s Neupogen until six months after the US Food and Drug Administration approved it.

The decision has major implications for the pharmaceutical industry because it will dictate how long brand-name makers of biologic drugs can keep near-copies, called biosimilars, off the market. Even the six months at issue in the case can mean hundreds of millions of dollars in sales. Health insurers expect biosimilars to be cheaper than original brands, like generics, saving consumers billions of dollars each year.

In a separate case, the Supreme Court ruled in favor of Microsoft in its bid to fend off class action claims by Xbox 360 owners who said the videogame console gouges discs because of a design defect. In an 8-0 ruling, the court overturned a 2015 decision by the 9th US Circuit Court of Appeals that allowed console owners to appeal the dismissal of their class action lawsuit by a federal judge in Seattle in 2012.

Typically, parties cannot appeal a class certification ruling until the entire case has reached a conclusion. But the 9th Circuit allowed the console owners to voluntarily dismiss their lawsuit so they could immediately appeal the denial of a class certification. The court ruled such a move was not permitted because a voluntary dismissal of a lawsuit is not a final decision and thus cannot be appealed.

Jeffrey Immelt is stepping down as chairman and chief executive of General Electric. Amid mounting pressure from activist investor Trian Fund Management for operational changes, GE said Immelt will be replaced by John Flannery, a 30-year company veteran who oversaw a jump in profits at the health-care unit.

Of all companies that remain in the Dow Jones Industrial Average since Sept. 7, 2001, when Jeffrey Immelt took over as chief executive officer of GE. GE’s stock has been by far the worst performer, and one of only two that have declined. GE’s stock has plunged 29.6% since Immelt took control through Friday.

Meanwhile, GE won US antitrust approval to merge its oil and gas business with Baker Hughes to form a new publicly traded company. GE and Baker Hughes announced the deal in October, months after Halliburton’s effort to buy Baker Hughes collapsed under pressure from the Justice Department.

Under the agreement, GE will combine Baker Hughes with its oil and gas business, creating a company with $23 billion in annual revenue, the companies said. GE will pay existing Baker Hughes shareholders $7.4 billion for a special dividend.

Meanwhile, another CEO with a rocky tenure — Travis Kalanick of Uber — may be taking a leave of absence. Uber’s board of directors met Sunday to mull over how to reverse the ride-hail company’s slow-motion implosion. Board members voted to unanimously adopt all the recommendations from a recent investigation into Uber’s culture of pervasive sexism and harassment.

They also discussed the fate of two of the company’s top executives, CEO Travis Kalanick and senior vice president of business Emil Michael. Michael is out. We’ll learn Kalanick fate tomorrow, maybe.

Time for today’s edition of Retail Armageddon, featuring Gymboree. The children’s clothing retailer announced it was seeking Chapter 11 bankruptcy protection. Gymboree has been in discussions with lenders since the beginning of the year as it grapples with a heavy debt load, much of which stems from Bain Capital’s $1.8 billion leveraged buyout of the retailer in 2010.

In conjunction with the filing, the company said it secured commitments for up to $308 million in additional financing. Public filings show Gymboree has more than $1 billion in outstanding debt, of which about $872 million is due in less than a year.

The U.S. Air Force has temporarily canceled flying operations of Lockheed Martin’s F-35 jets at Luke Air Force base in Arizona. The move comes after a series of five incidents in which pilots experienced hypoxia-like symptoms – in other words, they weren’t getting enough oxygen. Since May 2, pilots of five F-35A Lightning II aircraft assigned to the air force base have reported physiological incidents while flying

Financial Review

War on Drugs Again

Sinclair Noe — May 12, 2017

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

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Financial Review by Sinclair Noe for 05-12-2017
DOW – 22 = 20,896
SPX – 3 = 2390
NAS + 5 = 6121
RUT – 7 = 1382
10Y – .07 = 2.34%
OIL – .01 = 47.82
GOLD + 2.90 = 1228.70

The Dow industrials and S&P 500 both snapped a streak of three weeks of gains Friday, closing lower for the session and week, while the Nasdaq finished higher for a fourth week of gains. For the week, the Dow dropped 0.5%, the S&P 500 ended the week down 0.4%. The Nasdaq posted a weekly gain of 0.3%.

After months of bashing China for its trade practices, the Trump administration said it had agreed with Beijing on a broad range of measures aimed at improving the access of American beef producers, electronic-payments providers and natural-gas exporters, among others.

The U.S. has been lobbying for China to open its market to American beef for years — it was banned in China in 2003 after a mad cow disease scare. The perception among some businessmen in the country has been that the Chinese have been sitting on the beef issue until the U.S. agreed to buy cooked poultry products made in China.

Other measures include credit card companies are trying to move into Chinese electronic payment platforms, Credit ratings agencies are looking to expand their presence in China, and the big agriculture firms will try to get genetically modified seeds to be reviewed by Chinese Ag officials – no sales yet, just consideration.

General Electric’s chief executive, Jeffrey Immelt today praised Mexico as a big part of its future growth and said the company is “very supportive” of the North American Free Trade Agreement (NAFTA).

GE plans to double its purchases from Mexican suppliers next year, according to a statement from the office of Mexican President Enrique Pena Nieto. “We’re optimistic about Mexico,” Immelt told Mexican officials at the inauguration of an expansion of GE’s operations in Monterrey. “We’re very supportive of NAFTA.”

General Electric announced that it won a contract to supply two new gigawatts of power in Mexico and had also signed a separate $120 million, multi-year deal to provide service to gas and steam turbines in Mexican power plants.

Consumer prices rebounded as expected in April as the cost of gasoline rose. The consumer price index, a basket of consumer goods that reflects price changes at the retail level, rose 0.2% from March. Compared to the prior year, CPI rose by 2.2%. Higher gasoline and heating gas costs helped lift the index. Used cars, clothes, and medical care all declined from March.

When the volatile costs of food and energy are excluded, core CPI increased by 0.1% month-on-month, and by 1.9% year-on-year, a 19-month low. Good to know for everybody who doesn’t consume energy or eat food.

Inventories at U.S. businesses continued to pile up in March. Business inventories rose 0.2% in March, the Commerce Department said Friday. This is the fifth straight month of inventory gains. Business sales were flat in March. The inventory-to-sales ratio, an indication of demand, remained steady at 1.35 in March.

Consumer sentiment brightened in an early May reading as Americans turned more bullish on their income expectations. The University of Michigan’s confidence gauge jumped to 97.7 from 97.0 in April. The survey’s tracker of current conditions was unchanged at 112.7, but the expectations gauge rose more than a point, to 88.1 from 87.0.

Consumer spending intentions were mixed: plans to buy household durables were the strongest in a decade, while plans to buy a vehicle were at a three-year low. Americans’ views are still sharply divided by political affiliation

The American consumer is alive and well. Sales at US retailers rose in April, and March sales were stronger than originally estimated. Retail sales increased 0.4% and were 4.5% higher compared to a year ago. A 0.2% monthly decline for March was revised up to show a 0.1% increase.

Sales have risen in three of the first four months of 2017. Sales at gasoline stations were 12.3% higher in April than a year ago, as the cost of oil strengthened. With motor vehicles and gas stripped out, sales were up 0.3%, after a 0.4% increase in March.

J.C. Penney said in its earnings report said “adjusted” net income was 6 cents a share. On the surface, that appeared to be a big positive surprise, because analysts were expecting a loss of 21 cents per share.

But the company snuck into its report that the “adjusted” number for the latest quarter “includes the sale of operating assets,” (specifically the sale of one of its distribution centers) which totaled $117 million. Strip that out because it is a nonrecurring item, and the result was a first quarter loss. Same-store sales declined 3.5%.

Investors weren’t fooled, and the stock plummeted 14% to a record low close of $4.55.

Dick’s Sporting Goods disclosed an accounting error. In a filing with the SEC, Dick’s said a computation error caused it to overstate earnings in its fourth quarter and full-year results by $23.4 million. Down 4.5% today.

Nordstrom dropped 10.8% after weak quarterly same-store sales. Macy’s fell 3%, bringing its loss to more than 19% in the past two sessions following its dismal quarterly report.

Amazon is now the second largest U.S. apparel retailer, behind only Wal-Mart, with Amazon taking share from department stores and Target as it rises in prominence. Nearly half of 1,000 adults surveyed in Morgan Stanley’s latest Alphawise survey (46%) reported having bought clothing from Amazon in the past year.

About the same percentage (47%) said they expected to buy more clothes from Amazon and fewer clothes from other retailers in the next 12 months. Traditional retailer should be very nervous. When online sales hit 20% of all purchases in each retail category, a surge in Amazon growth is sure to follow.

The 20% level is a threshold indicating Amazon is going to displace a legacy retailer. Twenty percent is when Amazon steps on the gas … when consumer behavior is changing. This pattern has held true for Amazon since the very first sector CEO Jeff Bezos disrupted, books, which passed the 20% mark between 2007 and 2008.

Amazon’s rapid expansion into a “store for everything” continued as online sales passed 20% for consumer electronics between 2010 and 2011, and cloud services, which Amazon dominated from the moment it launched Amazon Web Services in 2006, each time, 20% sector penetration proved the tipping point.

It’s the scandal that won’t go away. Attorneys for victims of Wells Fargo fake account scam are now saying that the bank may have been responsible for more unauthorized accounts than previously thought.

In a legal filing, plaintiffs’ attorneys in a class action lawsuit say: “Based on public information, negotiations, and confirmatory discovery, the parties estimate the number of unauthorized accounts for the period 2002-2017 is approximately 3.5 million. This number may well be over-inclusive, but provides a reasonable basis on which to estimate a maximum recovery.”

A huge cyber attack leveraging hacking tools widely believed to have been developed by the U.S. National Security Agency is spreading …, well, like a virus. Ransomware is scrambling data on computers and causing major IT disruptions.

In England, the virus hit health care facilities. Routine appointments had been canceled and ambulances were being diverted. Hospitals and surgeries across England were forced to turn away patients. People in affected areas were being advised to seek medical care only in emergencies. Scottish health boards were also hit.

Telecommunications giant Telefonica was among many targets in Spain, though it said the attack was limited to some computers on an internal network and had not affected clients or services. Sweden’s Civil Contingencies Agencies put out a warning saying that “a large-scale ransomware campaign is being carried out in several countries.

FedEx said on Friday it was experiencing issues with some of its Microsoft Windows systems. At last count, the worm has infected computers in 99 countries and it is still growing.  It is believed that a Russian hacking group known as Shadow Brokers pilfered the worm and other hacking tools from the National Security Agency’s servers.

The actual ransomware is a worm called WannaCry. If you see that file, do not click.

Attorney General Jeff Sessions made it official. The federal government will now reboot its war on drugs. The official word came down in the form of memos from Sessions that ordered federal prosecutors to cease and desist on the soft approach former Attorney General Eric Holder took toward prosecuting petty drug offenders.

Now prosecutors must demand the harshest sentence, must use the threat to pile on sentence enhancements to browbeat drug offenders into copping a guilty plea, and they must itemize the drugs an offender uses to insure they are slapped with the minimum mandatory sentence. Sessions isn’t just talking about cracking down on the use of the hard stuff, he is directing law enforcement to get tough on pot.

Sessions’ “tough on crime” attitude, which he has espoused since the beginning of his tenure, is being widely compared to the 1970s “War on Drugs” that wreaked havoc on minority communities in previous decades. That effort really ramped up in the late 1980s with the introduction of mandatory minimums for drug crimes, and peaked with the Clinton-era 1994 crime bill that established further harsh sentences and funneled billions into the nation’s prisons.

Reactions from criminal-justice reform circles have been unanimous, from lawmakers and law enforcement leaders to advocacy groups and criminologists. Prosecutors and law-enforcement leaders reacted with dismay to Sessions’ memo. Law Enforcement Leaders to Reduce Crime and Incarceration, an organization of nearly 200 current and former police chiefs, sheriffs, and prosecutors, called the move an “ineffective way to protect public safety.”

Financial Review

C’est l’économie stupide

Sinclair Noe — April 21, 2017

Podcast: Play in new window | Download (Duration: 20:24 — 11.7MB)

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DOW – 30 = 20,547
SPX – 7 = 2348
NAS – 6 = 5910
RUT – 4 = 1379
10 Y – .01 = 2.24%
OIL – 1.17 = 49.54
GOLD + 2.20 = 1284.90

For the week, the Dow Industrials were down 3 days and up 2, but the 2 gainers were big. The S&P 500 managed to notch its first weekly gain in three. For the week, the Dow rose 0.5 percent, the S&P gained 0.8 percent and the Nasdaq advanced 1.8 percent, notching a record high along the way. Small caps in the Russell 2000 provided out-sized gains of 2.6% on the week.

Oil prices dropped more than 2 percent today, notching the biggest weekly decline in more than a month on mounting evidence that US production and inventory growth were offsetting OPEC’s attempts to reduce the global crude glut. WTI crude lost 6.7 percent for the week.

The U.S. Commodities Future Trading Commission showed total long positions in U.S. crude rose in the week to April 18 to their highest in more than a month at 355,077 contracts. But oil has sagged in recent days, much as it did in March. Many in the market still expect OPEC to renew its production cuts for another six months. Still, shipment data shows more oil transiting world oceans than when cuts were put in place.

According to AAA, 43 states have seen prices at the pump increase over the past week. The national average is $2.42 a gallon, which reflects an increase of 13 cents in the last month, and 30 cents (or around 14%) compared to last year. A bump in gas prices is typical around this time of year, as oil refineries switch over from their winter blend to the summer blend.

The United States currently has an oversupply of gas, and as the weather warms up, demand will likely rise in June, sapping up supply and pushing prices up. AAA expects the national average for gas to peak at around $2.70 a gallon in June. In 2016, summer gas prices peaked at an average of $2.38 a gallon.

Johnson says that a handful of states will even see gas prices over $3 a gallon this summer, especially on the West Coast. In fact, two states already hit that benchmark this week: Hawaii ($3.06) and California ($3.01). The cheapest gas in the nation can currently be found in South Carolina ($2.13).

Of the 95 companies in the S&P 500 that have reported earnings through Friday morning, about 75 percent have topped expectations, according to Thomson Reuters data, above the 71-percent average for the past four quarters. Overall, profits of S&P 500 companies are estimated to have risen 11.2 percent in the quarter, the most since 2011.

Markets were hesitant today, in advance of Sunday’s French elections; this is just the first round of elections, winnowing a field of 11 candidates down to 2, who will face off in 3 weeks. Still, a lot is at stake. We’ll dive into details in just a bit.

President Trump told the Associated Press he’ll unveil a tax-reform package next week and promised a “massive tax cut” for individuals and businesses. He said it would be released “Wednesday or shortly thereafter” but declined to give details. He said the cuts will be “bigger I believe than any tax cut ever.”

The Tax Policy Center in Washington says, “The plan would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income.”

Treasury Secretary Steven Mnuchin reiterated the administration is planning to unveil its tax reform plan in the near future. He said the administration is “very close” to releasing a proposal. Mnuchin said corporate inversions will be part of an overall review of tax regulations. Inversions involve US firms that move their legal address abroad to cut their tax bills through mergers with foreign companies.

President Trump’s budget director Mick Mulvaney said the administration plans to include $200 billion for new infrastructure spending in its full fiscal year 2018 budget. In a moderated discussion at the Institute of International Finance conference, Mulvaney said this is all the money needed to fund $1 trillion in projects, if leveraged properly. Mulvaney said there will not be any specific votes on infrastructure spending until the fall.

The White House ordered federal agencies to begin preparations for a potential partial government shutdown; it shouldn’t come to that but they need to be prepared. The White House said it wants to see money for Trump’s border wall included in the spending bill Congress must pass next week.

Democrats are opposed to the wall and consider including it in the budget bill to be something of a poison pill. The Senate needs 60 votes to pass the budget. Look for a possible short-term extension while they work it out. The push to reach an agreement on spending is complicated by White House efforts to try again for a House vote on replacing Obamacare next week.

If ongoing congressional budget battles force a government shutdown next week, home-buyers and sellers could be subject to more headaches than usual before their deals close.  That’s because buyers looking for mortgage approval could hit paperwork roadblocks if the shutdown furloughs workers at the IRS or Social Security Administration.

That’s what happened in October 2013, the last time budget gridlock forced a 16-day shutdown that sent millions of government workers on furlough and gummed up the works of the U.S. housing market.

The National Association of Realtors says existing-home sales ran at a seasonally adjusted annual rate of 5.71 million, a 4.4% monthly increase. That was the strongest selling pace since February 2007 and was 5.9% higher than a year ago.

Tight inventory is still the biggest factor in the marketplace: supply was 6.6% lower compared to a year ago. That nudged the national median sales price to $236,400 – a 6.8% gain compared to a year ago. March’s price increase marks the 61^st consecutive month of year-over-year gains.

Unemployment rates were lower in March in 17 states and stable in 33 states.  Colorado had the lowest unemployment rate in March, 2.6 percent. New Mexico, at 6.7%, had the highest state unemployment rate. Arizona’s seasonally adjusted unemployment rate decreased from 5.1% in February to 5.0% in March.

The U.S. seasonally adjusted unemployment rate decreased from 4.7% in February to 4.5% in March. A year ago, the Arizona seasonally adjusted rate was 5.4% and the U.S. rate was 5.0%. The Private Sector gained 11,200 jobs; government cut 2,400 jobs, for a net gain of 8,800. The sector with the strongest growth was Leisure and hospitality.

Federal Reserve Vice Chairman Stanley Fischer isn’t worried about the economy. In an interview today, Fischer said weak growth in the US economy in the first quarter will likely be temporary and interest-rate hikes should be able to proceed as planned. The Fed has penciled in two more rate hikes this year and Fischer said this remains his forecast, depending on data, of course.

In the past few years, the economy has shown weakness in the first quarter, followed by stronger growth in the second and third quarters. First quarter growth was probably running at 1%. The government will release an advance estimate of first-quarter GDP April 28. Economists expect a rebound to a 2.7% rate in the second quarter.

The United States will not make an exception for American companies, including Exxon Mobil, seeking to drill in areas prohibited by U.S. sanctions on Russia. The United States and European Union imposed economic sanctions on Russia over its annexation of the Crimea region in 2014 and its role in the conflict in eastern Ukraine.

The sanctions forced Exxon to wind down drilling in Russia’s Arctic in 2014. Exxon had asked for and received in 2015 and 2016 waivers to operate a joint venture with Russian oil producer Rosneft in Russia. European Union sanctions do not keep European oil companies from operating in Russia, a point of annoyance for Exxon.

In recent months, Exxon applied for a Treasury Department waiver to drill with Rosneft – and today the waiver request was denied.

A federal judge in Detroit sentenced Volkswagen to three years’ probation for the German automaker’s diesel emissions scandal as part of a $4.3 billion settlement announced in January. The plea agreement called for “organization probation” in which the company would be overseen by an independent monitor.

General Electric reported quarterly sales and adjusted earnings results that beat analysts’ estimates, but its shares fell on concerns about some of its industrial businesses and its $1.6 billion in negative cash outflow. Adjusted earnings of 21 cents a share were unchanged from a year ago and beat analyst estimates of 17 cents. Revenue fell 1 percent to $27.66 billion. GE down 2.4%.

Subway Restaurants closed 359 U.S. locations in 2016, the first time that Subway had a net reduction. The store count dropped 1.3 percent to 26,744, but Subway remains the nation’s most ubiquitous eatery. Subway is coping with sub-par sales in the U.S., made worse by the emergence of newer fast-casual rivals and the industry’s heavy reliance on discounts and promotions.

Subway also has lost some of its luster as a healthier-food option. Sales fell 1.7 percent last year to about $11.3 billion. Subway is still growing internationally, though. Last year, sales outside the U.S. rose 3.7 percent to $5.8 billion as it continued to open locations.