Financial Review

Peace Out

Sinclair Noe — February 17, 2017

DOW + 4.28 = 20,624
SPX + 3.94 = 2351
NAS + 23.68 = 5839
RUT + .73 = 1399
10 Y – .03 = 2.42%
OIL + .04 = 53.37
GOLD – 5.60 = 1236.00

Starting Presidents’ Day a bit early, so today’s review is a bit on the light side. Thanks for your patience.

US stocks have spent the past week setting new record after new record. The S&P 500 and the Nasdaq posted 5 consecutive record high sessions before slipping yesterday. The Dow managed to hang on for a small gain and a sixth straight record.  European markets are sinking in early trading. The majority of Asian markets closed the week with small losses.

Samsung’s chairman is in jail. Jay Y. Lee will be indicted tomorrow, per South Korea’s special prosecutor, after he was arrested over his alleged role in the nation’s widening corruption scandal. It throws the firm into a leadership crisis for the first time in its corporate history, and is a huge blow to Samsung Electronics, the key unit where Lee serves as vice chairman. Other Samsung executives may also be arrested.

All that remains of Hanjin Shipping will be liquidated following a South Korean court order which pulled the plug on the company. Previously the world’s seventh-largest container shipper, Hanjin applied for court receivership in late August after its creditor banks halted further support.

Eurozone finance ministers and the International Monetary Fund seem likely to miss next week’s deadline to agree on a €7-billion-euro bailout for Greece. The two sides remain at loggerheads over an IMF demand that Athens be granted debt relief and easier surplus targets, meaning a pact may now be months away. While Greece won’t face bankruptcy trouble until July, Eurozone officials were racing to strike a deal so the drama wouldn’t be forced into the upcoming Dutch and French elections.

Complications in restructuring Saudi Arabia’s state-owned oil company and segregating its finances from those of the government are slowing the march toward what is expected to be the biggest IPO in history. The Wall Street Journal reports the listing of a minority stake in Saudi Aramco is now unlikely to happen until late 2018 at the earliest.

S&P Global said it could cut its rating of Toshiba credit by several notches should the Japanese firm receive financial support that includes debt restructuring.

Unilever has rejected a proposed $143 billion-dollar merger offer from Kraft Heinz, saying the bid was too low and it fundamentally undervalues the company.

Mmm, Mmm, NOT good. Campbells Soup said earnings for the latest quarter fell to $205 million, or 33 cents per share, from $414 million, or 85 cents per share in the year-earlier period. Revenue also fell. Topline was a miss; bottom line was a beat.

Deere & Company posted better than expected earnings, even as revenue slipped. Agriculture and turf and construction and forestry sales topped expectations. Deere shares have rallied about 20% in the past 3 months.

Wells Fargo will give investors a peek into its efforts to rebound from its fake account scandal when it releases monthly customer account numbers and holds a conference call later today. The bank has reported a dramatic decline in consumer checking account openings in recent months. It’s now looking to shut more than 400 branches.

The Justice Department has joined a 2011 lawsuit accusing UnitedHealth of gaming the Medicare program and fraudulently collecting hundreds of millions of dollars by claiming patients were sicker than they really were.

The five-year investigation, unsealed yesterday says UnitedHealth, the nation’s largest Medicare Advantage insurer, allegedly collected payments from false claims that it treated patients for conditions they didn’t have, for more severe conditions than they had, conditions that had already been treated, or diagnoses that didn’t meet the requirements for risk adjustment.

General Motors chief Mary Barra visited Opel’s German headquarters and gave assurances the GM unit would remain independent and current management would remain in place in any deal with Peugeot parent PSA Group. The two companies previously said they were in talks regarding a PSA purchase of GM’s European car operations.

AT&T opened its unlimited wireless data plan to all customers, a few days after a similar move by Verizon. Previously, AT&T had only offered such plans to customers of its DirecTV service. The move leaves all four national wireless carriers, including T-Mobile and Sprint, offering similar unlimited plans and leaving price and network claims as the major differences.

A muzak-streaming service launched its global offensive. The Spotify-backed “Soundtrack Your Brand” plans to push into global markets with its own music catalog and $22 million in fresh, outside funding. It already has deals to pipe its music into McDonald’s and Tag Heuer stores, and is now going up against Canada’s Mood Media, the market leader in commercial background music.

Amazon was awarded a patent earlier this week for a system in which a package would be “forcefully” propelled from a drone, and would be helped to land by measures including a parachute.

SpaceX launches a Falcon 9 rocket on Saturday. The mission, taking off from the Kennedy Space Center in Florida, will carry a Dragon supply ship to the International Space Station.

US markets will be closed Monday in observance of Presidents Day.

Financial Review

Times Are Changing

Sinclair Noe — October 13, 2016

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DOW – 45 = 18.098
SPX – 6 = 2132
NAS – 25 = 5213
10 Y – .04 = 1.74%
OIL + .37 = 50.55
GOLD + 2.90 = 1258.80

Today’s trading started with a sharp dive, followed by a slow drift higher (still finishing in negative territory). At one point, the Dow dropped to 17,959, or a 185-point decline. The S&P 500 index dropped as low as 2114, taking out the lows set in early September. And that is where some support came in. The question is whether support can hold.

With the holidays coming up, bears would need to strike during the next couple of weeks. Otherwise, we’ll go into the low-volume year-end mode and the window for a correction would close until the New Year.

Minutes from the September FOMC meeting… Many members thought raising rates would be warranted “relatively soon” if the U.S. economy continued to strengthen, but internal divisions remained over the timing of the next move. Relatively soon probably means a December rate hike. Some Fed hawks thought that waiting too long to hike could lead to a recession, I guess maybe they think more people with more jobs is problematic?

China’s exports tumbled 10% in September, causing China’s trade surplus to narrow to $42 billion, the smallest since March; imports also declined. The disappointing trade figures pointed to weaker demand both at home and aboard, and deepened concerns over the latest depreciation in China’s yuan currency, which hit a fresh six-year low against a firming US dollar. Asian stocks tumbled to three-week lows.

The number of people who applied for unemployment benefits was flat at 246,000 in the first week of October. Initial jobless claims have been under 270,000 for 15 straight weeks. The last time claims were that low for that long was in 1973.

Yesterday we reported on the JOLT survey, the Job Opening and Labor Turnover report which offers extra detail about the labor market. One interesting stat emerged from breaking down the quits rate. Quits are linked with a tight labor market and the thinking being that if someone quits their job it means they feel confident about finding another one.

The rate of workers quitting government jobs is near an all-time high. As wage pressures build up in the private sector and lead to pay raises, many government workers may be feeling more secure about leaving a job in the public sector and going after higher wages and a greater possibility of raises in the future.

The US Energy Information Administration reported that domestic crude supplies rose by 4.9 million barrels in the week ended Oct. 7. This was the first weekly rise in crude supplies in 6 weeks. The American Petroleum Institute late Wednesday reported a rise of 2.7 million barrels.

And while that was happening…The U.S. military launched cruise missile strikes overnight on three coastal radar sites in rebel-controlled areas of Yemen, retaliating after failed missile attacks this week on a U.S. Navy destroyer. The strikes represent a potentially significant step for the U.S. in Yemen, where a bloody civil war has pitted Iranian-backed Houthi rebels against a Saudi-led coalition supported by the US.

There is a strong bond between Iran and the Houthi uprising working to overthrow the government in Yemen. Houthi leaders go to Iran for ideological and religious education, and Iranian and Hezbollah leaders have been spotted on the ground advising the Houthi troops. It is fairly likely that Iranian advisers are responsible for training the Houthis to use the type of sophisticated guided missiles fired at the US Navy.

For Iran, supporting the revolt in Yemen is a good way to bleed the Saudis, Iran’s regional and ideological rival. For the most part, the US has avoided direct involvement in the fight, until last night; and even then, the US limited its response; as much as cruise missile strikes can be considered limited.

Insured property losses for both residential and commercial properties from Hurricane Matthew are estimated to be between $4 billion and $6 billion from wind and storm surge damage according to analysis from Corelogic; 90% of the insurance claims are expected to be related to wind and 10% is expected to be related to storm surge – this does not include insured losses related to flooding. And it does not include uninsured losses and economic disruption.

With all of that considered, Moody’s analytics reportedly predicts the total economic cost could rival the $70 billion worth of damage caused by Superstorm Sandy. And the worst is yet to come, at least in North Carolina.

Flooding after a hurricane can be a slow-moving, if predictable, affair. Rainwater collects into streams that feed into tributaries that feed into rivers, and several days later, all the rainfall over hundreds of square miles is flowing down one swollen river. Post-Matthew, rivers in North Carolina are not expected to crest until as late as Friday or Saturday. And to make it even worse, North Carolina is the second largest pork producer in the country, with lots of industrial scale pig farms that dispose of waste in open-pit lagoons.

Wells Fargo CEO John Stumpf has resigned, effective immediately; Stumpf does not leave empty-handed, his retirement comes with a golden parachute totaling $137 million. COO Tim Sloan has been named the new CEO and he has an immediate test – Wells Fargo reports third-quarter results tomorrow. Sloan will surely try to sell the idea that Wells has put the problems of the past behind it.

However, one of the themes of the recent Congressional hearings was that Wells was systemically flawed, its corporate culture was rotten through and through. And Stumpf’s failure to recognize and act on problems was confirmation of the disease. After all, opening fake accounts to meet unrealistic sales quotas was not the first wrongdoing at the bank. And Stumpf’s replacement, Tim Sloan was in the chain of command that could have dealt with the problem – but didn’t.

Other big banks reporting tomorrow include JPMorgan Chase and Citigroup.

Deutsche Bank is implementing a company-wide hiring freeze as CEO John Cryan seeks to lower costs and shore up investor confidence. The bank is struggling to reverse a slide in shares that eroded almost half of its market value this year, amid concerns about mounting legal costs after the DOJ requested $14 billion to settle a probe into faulty securities.

HP Inc. expects 3,000 to 4,000 employees to exit between fiscal 2017 and fiscal 2019. The company’s board said the restructuring plan is expected to save $200 million to $300 million beginning in fiscal 2020.

Delta Air Lines reported adjusted quarterly profit of $1.70 per share, beating estimates by 5 cents. However, revenue was below forecasts. Delta also said an August outage cost the airline $100 million.

CSX reported quarterly profit of 48 cents per share, 3 cents above estimates. Revenue also beat. The railroad operator’s results were hurt by a drop in freight volumes, which were still able to exceed estimates.

Pfizer lost its appeal in a patent case over its pain drug Lyrica in a U.K. court, but said it would seek a further appeal.

Although sales of high-end virtual reality headsets have been slow, Sony released a virtual reality “add-on” for its Playstation 4, priced at $399. Best Buy and GameStop opened doors early to meet the high demand. Amazon was already selling out.

Facebook and Alphabet are working with a Chinese company, Pacific Light Cable, to lay an ultrafast internet cable between Los Angeles and Hong Kong. The 12,800-kilometer cable will use new fiber-optic technology.  Facebook, Microsoft, and Alphabet have invested hundreds of millions of dollars in the underwater cables that carry most of the world’s internet traffic, an effort by the technology companies to ensure they have enough network capacity to cheaply shuttle information between their data centers. The investments have pushed aside the telephone companies that have dominated the capital-intensive market for more than a century.

Amazon is hiring more than 120,000 seasonal employees across its fulfillment centers, sortation centers and customer service sites in the United States for the upcoming holiday season. More than 14,000 seasonal positions were transitioned to regular, full-time roles after the holidays last year, and Amazon expects to increase that number in 2016.

The bankruptcy court handling Hanjin Shipping’s insolvency proceedings plans to put the firm’s Asia-U.S. operations up for sale as early as tomorrow, in an effort to raise funds and help rehabilitate the indebted company. The sale would reportedly involve the employees, customers and some of the assets, including vessels, in Hanjin’s trans-Pacific network. Hanjin shares closed up 30% on the news.

Uber’s business model of classifying workers as independent contractors may have received a blow from New York State regulators, who ruled that two former drivers are eligible for unemployment payments. Unlike contractors, employees are entitled to a variety of rights and protections, including a minimum wage and workers’ compensation insurance, and are typically costlier for companies to rely on.

The decision could make it more difficult for Uber, its rival Lyft and other new businesses operating in what is known as the gig economy by raising their costs and challenging their business model. The rulings by the New York State Department of Labor were sent to the two Uber drivers (one also worked for Lyft) in August and September but have not previously been reported.

Bob Dylan has won the Nobel Prize for Literature in a surprise decision that made him the only singer-songwriter to win the award. (Clearly, the times are a changing.) The Swedish Academy recognized Dylan for “having created new poetic expressions within the great American song tradition.” More than 50 years on, Dylan is still writing songs and is often on tour.

Financial Review

Accept Responsibility

Sinclair Noe — September 22, 2016

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

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DOW + 98 = 18,392
SPX + 14 = 2177
NAS + 44 = 5339
10 Y – .05 = 1.62%
OIL + .74 = 46.08
GOLD + 1.80 = 1337.70

The Federal Reserve kept policy on hold, yesterday. The Fed held its key interest rate unchanged at a range of 0.25% to 0.50%, saying, “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” The Federal Reserve’s long-term outlook added to optimism over stimulus policies from global central banks.

For traders it was a cue to don their rally caps.  Risk on! Stocks climbed with bonds as the dollar fell. The S&P 500 tallied its best two-day performance in more than two months, while the Nasdaq closed at a record high. Oil rallied, leading commodities higher. Global equities extended a four-day advance, and Treasuries rose to a two-week high.

Filings for U.S. unemployment benefits dropped last week to match the lowest level since April. Jobless claims declined by 8,000 to 252,000 in the week ended Sept. 17. Applications for unemployment insurance are close to a four-decade low as companies focus more on filling available positions than on trimming staff. Filings have been below 300,000 for 81 straight weeks — the longest streak since 1970.

The National Association of Realtors reports existing-home sales declined 0.9% to a seasonally adjusted annual rate of 5.33 million. That was only 0.8% higher than a year ago, although year to date figures are 3% higher. First-time homebuyers comprised 31% of the market in August. As inventory tightened, it pressured prices higher. The median sales price was $240,000, which is 5.1% higher than in August 2015.

Weakness in the manufacturing sector dragged the Conference Board’s leading economic index down 0.2%. The index, which weights 10 different economic indicators, was hurt by a decline in the average workweek of production workers as well as the new-orders component of the Institute for Supply Management’s manufacturing index. While the U.S. LEI declined in August, its trend still points to moderate economic growth in the months ahead, with the economy growing at about a 1.8% rate.

Wall Street wants the UK to delay Brexit for as long as possible. At a meeting in New York, Wall Street heads asked Prime Minister Theresa May for a “long lead time” of up to two years to prepare for a Brexit.

Yahoo has confirmed a really big hack.  Information associated with at least 500 million user accounts was stolen. Yahoo confirmed that a data breach in late 2014 revealed information that may have included names, email addresses, telephone numbers, dates of birth, and some passwords and security questions and answers. Verizon, which agreed to buy Yahoo earlier this year, confirmed it was notified of the Yahoo breach within the last two days, but has “limited information” on the attack and will evaluate as the investigation continues. It is time to change your passwords.

Hanjin Shipping got some good news. The board of Korean Air Lines, Hanjin’s biggest shareholder, approved a 60 billion won $54 million loan to the shipper. After that, Korea Development Bank, the main lender to Hanjin, offered a conditional credit line of $45 million to help ease supply-chain disruptions caused by the collapse of the nation’s biggest container mover.

Mark Zuckerberg, Facebook’s chief executive, and his wife, Dr. Priscilla Chan, last year said they would give 99 percent of their Facebook shares to charitable causes. Now they are putting a large chunk of that money to work.

The Chan Zuckerberg Initiative, into which Mr. Zuckerberg and Dr. Chan put their Facebook shares, said it would invest at least $3 billion over the next decade toward preventing, curing or managing all diseases by the end of the century. While the Chan Zuckerberg Initiative has already made investments in charter schools and education start-ups, the money toward curing diseases represents the group’s first major initiative in science.

Zuckerberg said that if his organization’s plan to cure or manage all disease worked, it should increase human life expectancy to 100 years. “That doesn’t mean no one will ever get sick,” he said. “But they should be able to treat it and manage it.”

America is not the greatest country in the world, at least we are not the healthiest. We are number 28, when it comes to health goals set by the United Nations, according to a report published in the Lancet. Using the UN’s sustainable development goals as guideposts, which measure the obvious (poverty, clean water, education) and less obvious (societal inequality, industry innovation), more than 1,870 researchers in 124 countries compiled data on 33 different indicators of progress toward the UN goals related to health.

The U.S. scores its highest marks in water, sanitation, and child development. That’s the upside. Unsurprisingly, interpersonal violence (think gun crime) takes a heavy toll on America’s overall ranking. Response to natural disasters, HIV, suicide, obesity, and alcohol abuse all require attention. The US is No. 64 in the rate of mothers dying for every 100,000 births, and No. 40 when it comes to the rate children under age five die.

The federal fiscal year ends on Sept. 30 and Congress must pass a spending measure by then to keep the government open. In recent years, lawmakers have seldom been able to agree on a full federal budget and instead have relied on stop-gap measures. Today a stop gap measure was introduced and immediately rejected. They have a full week to work it out. What could go wrong?

A couple of weeks ago, Wells Fargo agreed to pay $185 million in penalties for perpetrating a massive fraud on customers; for years they had been opening bogus accounts in customers names’ without customers’ permission and charging fees to do it. Millions of phony accounts. Fake bank card PIN numbers. Fictitious email accounts. Wells Fargo admitted to firing 5,300 employees for engaging in these shocking tactics.

CEO John Stumpf was called before Congress to testify. Stumpf claimed the bank had an ethics hotline, a phone employees could call anonymously to report any type of unethical behavior; exactly the kind of safeguards put in place to prevent illegal activity from taking place and provide refuge to employees from dangerous work environments. Stumpf told lawmakers, “Each team member, no matter where you are in the organization, is encouraged to raise their hands.” He mentioned the anonymous ethics line, adding, “We want to hear from them.”

Well, CNNMoney has been hearing from some former Wells Fargo employees, and they are saying that attempts to report bad behavior got them fired. One former Wells Fargo banker not only refused orders to open phony bank and credit accounts. He called an ethics hotline and sent an email to human resources in September 2013, flagging unethical sales activities he was being instructed to do.

Eight days after that email, a copy of which CNNMoney obtained, he was fired. The stated reason? Tardiness. One former Wells Fargo human resources official even said the bank had a method in place to retaliate against tipsters. He said that Wells Fargo would find ways to fire employees “in retaliation for shining light” on sales issues.

Stumpf told the Congressional committee that the bank fired 5,300 employees involved in the fake accounts starting in 2011, not in response to the Consumer Financial Protection Bureau, which revealed the scandal earlier this month. However, there was no indication Stumpf or anyone at Wells Fargo notified regulators about the problems.

The bank did hire consultants at PricewaterhouseCoopers to help determine the scope of the problem — but that happened in August 2015. Nor has the bank ever disclosed in its public filings to the SEC that its activities were under investigation. He said the bank has been refunding fees charged for fake accounts, but that’s nowhere near sufficient. Some customers could face decades of higher mortgage or loan payments because lenders downgraded their creditworthiness based on the fake accounts. This is the untold disaster.

Meanwhile, Stumpf’s personal stock-holdings increased in value by more than $200 million while the scam was ongoing — thanks in part to Wells Fargo’s boasts about its cross-selling skills. Stumpf said several times that he accepted “personal responsibility” and “he’s accountable”. I think we can all learn a valuable lesson here. We all need to stand up and accept personal responsibility for our actions – just like John Stumpf.

If you get caught speeding, don’t argue with the cop; just say “I accept full responsibility” and then zoom off. If the IRS says you owe a boatload of back taxes, don’t even bother to take your tax returns to the audit; just tell them you take full responsibility for those errors, assure them that you are accountable, and then hang up the phone, and wait for your refund check.

Other banks have done pretty much the same thing. Just last year, the Justice Department charged five other big banks, Citibank, JPMorgan Chase, Barclays PLC, Royal Bank of Scotland, and UBS, with felony fraud for illegally manipulating the international currency markets. Their top executives all took “responsibility.” Nobody went to jail and most of them collected multi-million dollar bonuses. I tell you, this scam of accepting responsibility and being accountable, it is a money-maker!

And if you murder someone in cold blood, just tell the judge, “Your honor, I take full responsibility for that murder. I’m accountable.” Why that judge will surely grant you freedom to continue with your life of crime. Now, just be certain you say “I accept responsibility.” Do not, repeat, do not admit your guilt. You have to do it just like John Stumpf.

Financial Review

Waiting on the Fed

Sinclair Noe — September 19, 2016

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DOW – 3 = 18,120
SPX – 0.04 = 2139
NAS – 9 = 5235
10 Y un – 1.70%
OIL + .16 = 43.19
GOLD + 2.80 = 1313.80

The Federal Reserve’s Federal Open Market Committee meets tomorrow and will issue a statement on Wednesday. A string of disappointing results on the U.S. economy in the past several weeks has all but ensured that interest rates will remain ultra-low for consumers and businesses for another few months.

That doesn’t mean the economy is in horrible shape, just more of the slow, consistent, sluggish, steady growth that we’ve seen for quite some time. Is it enough to move the Fed? Wall Street investors only see somewhere between a 9% to 15% chance that the Fed will hike rates. Still, the Fed could hike rates; they have certainly said a hike is on the table. Of course we won’t know for sure until the Fed makes its announcement.

The major stock indices started the day in positive territory. The Dow had an early gain of 100 points. Last week, the bulls and the bears faced off. As much as the bulls tried last week, they could never get the market back above a key hurdle. The threat of a September rate hike just continued to circulate, and never gave the buyers a chance to get traction. Then again, the bears didn’t make any progress either. As well as the S&P 500 held up last week, we’re still closer to a technical breakdown than a breakout.

Most likely, traders will not place big bets before Wednesday’s interest rate decision. After the Fed statement comes out, look for traders to trade, probably with enough commitment to break either support or resistance; a sizeable movement to finish out the week.

The Bank of Japan is also holding a meeting this week and they will issue their monetary policy a few hours before the Fed. The BOJ remains the most aggressive major central bank when it comes to quantitative easing—its program of bond and other asset purchases as well as negative interest rates that are designed to reflate Japan’s stubbornly sluggish economy.

Negative rates have failed to weaken the Japanese yen.  Year to date, the yen is up nearly 18% versus the dollar and 15% versus the euro. There is speculation the Bank of Japan may try to flatten the yield curve by buying long-term debt and selling short term debt. (Which sounds a lot like “Operation Twist”.)

Excessive credit growth in China is signaling an increasing risk of a banking crisis in the next three years, according to the Bank of International Settlements’ quarterly review. The central bank of central bankers also called the recent equity rally “more stick than carrot,” but stopped short of warning of a bubble, with policy makers questioning whether market prices fully reflect potential risks.

Global bond issuance is running at its fastest pace in nearly a decade as companies, countries and U.S. agencies such as Fannie Mae and Freddie Mac binge on debt. According to Dealogic, a total of $4.88 trillion of debt has been sold since the year began as issuers take advantage of rock-bottom borrowing costs. The figure is a hair below that of 2007, when $4.91 trillion of bonds were issued during the same period.

It seems more likely that London will lose its “passporting rights” with a hard Brexit. Some leading Conservative party members are currently pushing for a so-called hard Brexit option, which would end free movement between the U.K. and the EU and cut trading ties with the remaining 27 member states. But Jens Weidmann, the president of Germany’s central bank says if the U.K. exits the single market, the passport rights for London-based financial firms “would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.” Passporting allows British banks, including insurers and funds to sell their services seamlessly in any EU member state, without having to obtain a local license.

Losing the right means any financial institution using London as their EU headquarter would have to move to another country and “passport” their services into the rest of the union from there. They could also stay based in the U.K, and instead apply for regulatory approval in each country it wishes to continue to do business. In any case, the industry has warned it will cost billions of pounds in office relocations, staff transfers, added paperwork and new capital requirements. There are also concerns jobs will be lost to other European financial hot spots, such as Frankfurt, Paris, Dublin and Luxembourg.

Venezuelan President Nicolas Maduro said that OPEC and non-OPEC countries are close to an agreement to stabilize markets ahead of an informal meeting in Algiers next week. The uncertainty ahead of that meeting has seen oil investors head for the sidelines, cutting wagers on both falling and rising crude prices.

The National Association of Home Builders index on builder confidence regarding newly built, single-family homes climbed to 65 points in September from a downwardly revised 59 in August. As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers.

Contract negotiations between Canada’s Unifor union and General Motors are continuing around the clock, with the two sides divided over new investment, ahead of a looming strike deadline that could see 3,900 workers walk off the job by midnight tonight. A strike would halt powertrain and vehicle production in at least two Canadian plants and potentially start a ripple effect for GM production in the U.S. that relies on those parts.

Although approval had been expected by the end of August, Iran has been told the U.S. will issue export licenses for the purchase of more than 200 Boeing and Airbus aircraft by the end of September. The US Treasury can veto sales of modern aircraft to Iran, including non-U.S. aircraft, due to the high proportion of US parts.

Sarepta Therapeutics shares jumped up as much as 82% in early morning trade after the Food and Drug Administration granted its Duchenne muscular dystrophy drug accelerated approval. The drug – the first treatment for the degenerative disease – has had a long and controversial history with the FDA. The agency voted against approval, then delayed review.

Duchenne muscular dystrophy, which mostly affects boys, typically kills patients before the age of 30. Patients and their families were particularly outspoken advocates for the approval of the drug, pushing back against the agency’s concerns at meetings open to the public. Sarepta shares are up about 160% over the last three months.

Salesforce is embedding artificial intelligence into its software, making it the latest firm to enhance workplace tools with human-like abilities. Called Einstein, the new offering is a set of online A.I. services designed to automate tasks, predict behavior and spotlight relevant information. Salesforce will demonstrate the software at its annual user conference next month in San Francisco.

The announcement also allowed Salesforce to pre-empt an announcement from Oracle, which also is holding its annual customer event in San Francisco. High on Oracle’s list of new features: real-time analysis of enormous amounts of data. Oracle calls its product Oracle A.I. Elsewhere, General Electric is pushing its A.I. business, called Predix.

IBM has ads featuring its Watson computer talking to various celebrities. More than 30 private companies working to advance artificial intelligence have been acquired in the past five years, and Salesforce has been among the most active buyers along with Alphabet, Intel and Apple.

And it’s all kind of cool and exciting and maybe a little creepy. So, what’s really happening?

And the answer is that it is probably too soon to say for certain. For Salesforce the idea is to provide its customers sales tools. Who are the best prospects to call this week? Which leads are most likely to become prospective clients? Why am I getting outsold by my competitors in certain markets? How long will it take a deal to close?

We don’t know what value A.I. can provide because people are still trying to figure out how to use it. At its core, A.I. is just a series of advanced statistics-based exercises that review the past to indicate the likely future, or look at current customer choices to figure out where to put more or less energy. People are going to have to experiment, most likely first on pain points like security and product marketing.

Technology matures when we don’t pay much attention to it, or only notice when it fails; think of electricity in your house, or your phone (which has enough computing power to fly a rocket to the moon). Of course, by the time A.I. becomes ubiquitous and fades into the fabric of everyday life, we’ll have some new technology to worry about.

Nearly one-third of Hanjin Shipping container ships that have been waiting to dock at ports around the world have offloaded their cargo, raising hopes that the disruption in the global supply chain will ease ahead of the year-end holiday season. Meanwhile, a South Korean judge has ruled that all Hanjin vessels that have unloaded must cancel their charter agreements and return the ship to their owners.

After rolling out a similar hub in the US, UPS is expanding its 3D printing services to Asia with a new facility in Singapore run by its partner Fast Radius. The company sees 3D printing as a potential threat to its warehousing business – where it stores parts for manufacturers – so it has looked to incorporate the technology into its business model.

As it grapples with a massive global smartphone recall that is estimated to cost more than $1 billion, Samsung Electronics is moving swiftly to sell stakes in other tech companies to raise cash. The firm said Sunday it disposed of shares in ASML, Seagate, Rambus and Sharp. Total proceeds from the sales were nearly $900 million.

Financial Review

Probably a Preview

Sinclair Noe — September 14, 2016

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

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DOW – 31 = 18,034
SPX – 1 = 2125
NAS + 18 = 5173
10 Y – .04 = 1.69%
OIL – 1.26 = 43.64
GOLD + 4.20 = 1323.60

Wall Street edged lower, and trading seemed calm compared to the past few days. The S&P 500 remains down almost 3 percent from before a steep selloff on Friday, even though interest rate futures indicate expectations for a rate hike at the Fed’s Sept. 20-21 meeting are still low. What we are seeing is probably a preview for what will happen when the Fed does raise rates.

Monsanto has finally agreed to a takeover offer from Bayer, valuing it at $128 per share or a total of more than $66 billion, ending months of wrangling after increasing its bid for a third time. The deal would be the largest all-cash transaction on record and put a quarter of the combined world market for seeds and pesticides under one roof. Bayer has also settled on a $2 billion break-up fee for the deal, which could close by the end of 2017.

The Monsanto-Bayer deal will face anti-trust scrutiny. Last year Monsanto tried to buy Syngenta, but the Swiss company fended off the attempt, only to agree later to a takeover by China’s state-owned ChemChina. Elsewhere in the industry, U.S. chemicals giants Dow Chemical and DuPont plan to merge and later spin off their respective seeds and crop chemicals operations into a major agribusiness.

Here’s why it matters to you: the consolidation of two big industry players into one of the world’s largest agrochemical firms may limit farmers’ choices and bargaining power, with increasing seed prices expected to be passed on to the grocery aisles. Regulators are likely to take a dim view of so many Big Ag deals happening at once.

If the 3 deals go through, it would result in just 3 companies selling 59% of all the globe’s seeds, with Monsanto/Bayer control 30% of the total; and 64% of the world’s pesticides. There will be strong opposition in the US and around the globe. Regulators will likely demand the sale of some soybeans, cotton and canola seed assets as a condition for approving the deal, at the very least. And it is possible that all three deals will be shot down.

Vitae Pharmaceuticals shares more than doubled to $20.85 after Allergan said it would buy the company for $639 million.

U.S. import prices fell for the first time in six months in August on declining petroleum and food costs. The Labor Department says import prices decreased 0.2 percent in August after an unrevised 0.1 percent gain in July. Last month’s drop was the first since February. Import prices have been constrained by a strong dollar and cheap oil.

That, together with sluggish wage growth have left inflation persistently running below the Fed’s 2 percent target. Imported petroleum prices declined 2.8 percent last month after decreasing 3.6 percent in July. Import prices excluding petroleum were unchanged after climbing 0.5 percent in July. The report also showed export prices fell 0.8 percent in August.

You’ve heard that old line “we fought a War on Poverty, and poverty won.” Well, maybe poverty hasn’t won, but it is still too high. New data from the Census Bureau shows median middle-class wages rose 5.2% between 2014 and 2015, the first annual increase since 2007. But the median household income was still lower than it was in 2007.

The official poverty rate decreased to 13.5 percent for last year, a drop of 1.2 percentage points. That represents 3.5 million people who are no longer in poverty and is the largest annual percentage point drop since 1999. And the uninsured rate continued to fall. The percentage of Americans without health insurance for the entire year dropped by 1.3 percentage points, to 9.1 percent.

Since 2013, the uninsured rate is down 4.3 percentage points. Still, the Census Bureau reports that 11.2 million individuals were pushed below the poverty line last year because of medical expenses. The latest data found that 29 million people went uninsured last year, including 3.7 million children, and that deductibles and other out-of-pocket costs have continued to rise well after the Affordable Care Act (ACA) went into law in 2010. The quickest path to the poor house is to get sick.

Americans all grew richer pretty much across the board last year, but they also stayed relatively unequal. The Gini coefficient, which the Census uses to track the gap between the rich and poor, was unchanged in the last year, despite all those wage gains and declining poverty. In fact, it’s up 5.5% since 1993, when the government first began tracking the data.

Women might be earning more today, but the gap between what they earn and what men expect to earn hasn’t narrowed significantly since 2007. Despite the many positive trends in the report, there are also still lingering signs of an uneven recovery. To date, only one income group is actually earning any more than they were in 2007: the top 5%.

In his annual State of the Union speech, European Commission President Jean-Claude Juncker warned the EU was facing an “existential threat,” but insisted that Brexit doesn’t mean “the disintegration of the European Union.” He also said the U.K. could not expect access to the EU’s internal market without the free movement of people.

European officials will unveil new technology rules today aimed at reining in many of the world’s largest tech firms. Under the proposals, which will take years to complete, European publishers may be given powers to charge internet companies whenever their content shows up in online results or other services. Chat apps will also be more heavily policed by extending rules which currently only cover telecoms providers.

With plans to launch by the end of October, Facebook and Twitter have joined a network of over 30 companies to tackle fake news and improve the quality of reporting from social media. Google-backed First Draft Coalition will create a voluntary code of practice, promote news literacy among social media users, and establish a platform where members can verify questionable stories.

Walmart is working on a self-driving shopping cart that customers would be able to hail like an Uber – possibly through a smartphone app. Not only has the retailer filed a patent for a cart that has a motor and video cameras, but it would be able to return itself from customers’ cars to the store. The system may also help Walmart manage inventory by scanning store shelves to ensure products are there.

Ford Motor CEO Mark Fields says that all of the company’s small-car production would be leaving U.S. plants and heading to lower-cost Mexico. Ford also rolled out plans today to expand into robo-taxi fleets and other autonomous-car services. Ford says the move into new business services will deliver 20% profit margins once rolled out — far higher than the low single-digit return typical for car manufacturers. Ford told investors that its 2017 financial performance would decline from this year’s levels.

Uber launched its self-driving pilot program in Pittsburgh today; the unveiling of the company’s secretive work in autonomous vehicles and the first time self-driving cars have been so freely available to the U.S. public. But it is not as if robots are taking over the Steel City. There will be only four self-driving vehicles available to passengers, to start, and two people will sit in the front to take over driving when the car cannot steer itself.

Uber’s Pittsburgh fleet consists of Ford Fusion cars outfitted with 3D cameras, global positioning systems (GPS) and a technology called lidar that uses lasers to assess the shape and distance of objects, mounted somewhat crudely to the vehicle’s roof. The company is also outfitting Volvo SUVs that will be added to the fleet.

SpaceX hopes to start launching its rockets again in November, a mere three months after the company’s Falcon 9 exploded on a launch pad at Cape Canaveral. But given the significant repairs needed for Launch Complex 40 – the site of the explosion – SpaceX’s next flight will likely take off from the Vandenberg Air Force Base or an alternate launch site at the Kennedy Space Center.

The Hanjin Shipping Co. terminal at South Korea’s largest port used to be one of the world’s busiest. Dozens of container carriers would line up to ferry boxes to and from the giant cranes that loaded and unloaded the world’s biggest ships. Last week the terminal, as big as 100 football fields, came to a virtual standstill. Whatever capital is tied up in those containers isn’t moving, any more than the container are. Hanjin is not alone. Of the biggest 12 shipping companies that have published results for the past quarter, 11 have announced huge losses. Several weaker outfits are teetering on the edge of bankruptcy.

Apple’s stock hit a 2016 high today, with its market value peaking above $600 billion for the first time since April. Reports of strong early orders for the iPhone 7 as well as arch-rival Samsung Electronics’ widely-publicized recall of potentially exploding Galaxy Note 7 smartphones, pushed shares of Apple up 10 percent in the past three days.

JPMorgan is now the biggest bank in the world by market capitalization. Shares of Wells Fargo slid 3.3% on Tuesday, giving the company a market capitalization of $239.7 billion, compared with JPMorgan’s $242.8 billion. Federal prosecutors are investigating Wells Fargo in connection with the bank’s sales practices after it agreed to pay $185 million in fines for opening more than 2 million unauthorized accounts. According to a report in the Wall Street Journal, the probe by U.S. Attorneys in New York and San Francisco is in its early stages and could lead to a criminal inquiry

Financial Review

Inside the Stagecoach

Sinclair Noe — September 13, 2016

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

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DOW – 258 = 18,066
SPX – 32 = 2127
NAS – 56 = 5155
10 Y + .06 = 1.73%
OIL – 1.39 = 44.90
GOLD – 9.00 = 1319.40

Stocks opened in negative territory and then slipped further. Any rallies were half-hearted at best. Two months of tranquility was pierced Friday when the S&P 500 tumbled in its worst rout since the Brexit vote.

Things aren’t any better in the $13.6 trillion Treasury market. Ten-year notes were stuck in their tightest monthly range in a decade up until September.

Stocks exited the tightest trading range in history last week when European Central Bank President Mario Draghi downplayed the need for more measures to boost growth and Boston Fed President Eric Rosengren warned against waiting too long to raise interest rates. Fed rate-hike expectations are falling.

Dovish commentary from Federal Reserve Governor Lael Brainard has pushed back expectations for a September interest-rate hike. In a note out late Monday, economists at Goldman Sachs cut their forecast for a rate increase at the Sept. 20-21 meeting to a probability of 25% from 40% previously. It also lifted the odds for a December tightening to 40% from 30%. This is the third time this month the Goldman economists have changed their stance on the September meeting.

But don’t expect the volatility to just vanish. Abrupt breaks in calm have not been easily resolved in the past. In the five prior instances when turbulence spiked as it did Friday, the S&P 500’s daily swings averaged 1.5 percent in the next 20 days. That’s 2.5 times the move in the previous 20 days.

Oil futures dropped after the International Energy Agency cut its crude forecast, warning that supply will continue to outpace demand well into 2017. Global oil consumption growth sagged to a two-year low in the third quarter as demand faltered in China and India, while record output from OPEC’s Gulf members is compounding the glut.

As recently as last month, the IEA had expected the market to return to equilibrium this year. The agency downgraded its global oil demand predictions by about 100,000 barrels a day for this year to growth of 1.3 million barrels a day and cut its forecast for 2017 by 200,000 barrels to growth of 1.2 million a day. And as demand weakens, “Global inventories will continue to grow: stockpiles in July smashed through the 3.1-billion-barrel wall.”

With its first long-range electric car, General Motors has released figures that show it’s focused on beating Tesla at its own game. The new Bolt will be rated at 238 miles on a single charge when it comes to showrooms later this year, giving it a longer range than the Model 3, which is expected to have a range of least 215 miles and isn’t expected to go on sale until 2017. The Bolt is also likely to be priced at about $37,500, close to the same price point as Tesla’s first mass-market car.

The record-breaking installations of solar panels in the U.S. continues with 2 gigawatts installed in just the second quarter of this year, according to new data from GTM Research and the Solar Energy Industries Association (SEIA).

The solar industry installed 2,051 megawatts between April and June, marking the eleventh consecutive quarter in which the U.S. saw more than a gigawatt of solar capacity added to the grid. The volume of installations also marks 43 percent growth from the same quarter in 2015.

Nevada regulators are set to decide this week on a settlement between Berkshire Hathaway’s utility, NV Energy, SolarCity and the state’s consumer advocate to roll back rate increases for customers who installed rooftop solar systems prior to this year.

The three-member Nevada Public Utilities Commission has scheduled a September 16 vote on a proposal to shield more than 32,000 rooftop solar customers from increases that took effect in January.

Last year, NV Energy proposed increased charges and reduced payments to rooftop solar customers, saying the existing model forced non-solar customers to subsidize those who did use the green power. SolarCity, Sunrun and other solar installers stopped taking customers in the state soon after a December decision by the commission to raise rates on all solar homes.

They sued after regulators denied an appeal of the ruling. The proposal would put existing solar homes back onto the rates they paid before the increases started. NV Energy asked the PUC to grandfather those rates for as many as 20 years.

Phoenix-based Freeport-McMoRan will sell its deep-water Gulf of Mexico assets to Anadarko Petroleum for $2 billion. The deal is expected to close before year’s end. Freeport’s sale all-but ends a disastrous diversification from copper and gold mining into energy drilling, a move that received widespread investor criticism and is at the heart of the company’s 66% share price collapse over the past three years and the suspension of its quarterly dividend.

Fewer Americans lived in poverty in 2015 and median incomes charted their first increase since the Great Recession, according to data released today by the Census Department. The official poverty rate fell 1.2 percentage points between 2014 and 2015 to 13.5%, and the number of people in poverty fell by 3.5 million.

The threshold for a family of two adults and two children to be considered living in poverty was $24,036. Real median household income rose 5.2% during the year, the first annual increase in median household incomes since 2007. Earnings also increased: 1.5% for full-time year-round male workers, and 2.7% for female workers. That was the first significant annual increase in median earnings for either gender since 2009.

A measure of small-business sentiment declined in August as owners became more hesitant, with election worries at the forefront. The National Federation of Independent Business small-business optimism index fell 0.2 points to 94.4. The outlook for business conditions in the next six months had the most dramatic change, dropping seven points.

Boeing reports Chinese airlines are likely to purchase 6,810 planes worth just over $1 trillion in the next 20 years as they expand fleets to cater to growth in tourism.  Boeing will also unveil its T-X trainer plane today, designed jointly with Sweden’s Saab AB. The company is counting on the model to train generations of U.S. fighter pilots, and keep alive its St. Louis manufacturing base.

A second Hanjin vessel will dock and unload at the Port of Los Angeles after more than a week stranded off the Southern California coast. The move raised hopes that gridlock could be easing after a U.S. bankruptcy judge issued an order Friday allowing the financially ailing Hanjin Shipping Co. provisional protection from creditors so vessels could dock and unload products.

Meanwhile, the South Korean government is sticking to its hard-line stance on Hanjin Shipping. Government money will not be used to bail out the shipping company, although aid may be extended to small-to-medium sized businesses jolted by the process.

Starting in 2011, Wells Fargo employees opened 2 million bank and credit card accounts in customers’ names without their knowledge. The goal was to generate fees for the company and hit aggressive sales targets for employees.

After an investigation, the bank was accused of improperly opening accounts by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Los Angeles prosecutor. Last week we told you the bank and regulators had settled for $185 million. But wait, there’s more.

The Senate Banking Committee has scheduled a hearing for September 20^th to investigate the matter. Moody’s, a credit rating agency, issued a warning that the settlement may have a negative effect on Wells’ debt because of image concerns and called the incident “highly disturbing.” Today, Treasury Secretary Jack Lew said Wells Fargo had participated in “bad behavior,” and that the accusations showed bank regulation should not be rolled back.

Wells CEO John Stumpf, in an interview with the Wall Street Journal, said that there “was no incentive to do bad things” at Wells and laid the blame on the employees rather than the culture of the firm.

CFO John Shrewsberry said the fraudulent accounts were not opened in order to generate revenue for the bank. Instead, a few employees opened them to boost their performance. The bank claims that 5,300 lower level employees were fired in relation to the cross-selling shenanigans, however that number is now in question.

That figure covers terminations over the period that the regulators investigated, from 2011 through 2015. The regulators did not start investigating until 2014.

Most of the firings were probably not related to the scandal. Or if they were firing employees for opening phony accounts, it means upper management was aware of fraudulent activity and failed to report it.

But wait, there’s more. Wells Fargo executive Carrie Tolstedt tendered her resignation in June and is scheduled to leave the bank at the end of the year. Wells Fargo says her retirement is not a result of the findings of the investigation.

She is in line to receive roughly $125 million in stock and other compensation from the bank; a golden parachute. Tolstedt was in charge of community banking during the entire time the “sandbagging” operation took place.

Her success in cross selling was repeatedly cited in annual proxies as the reason for her $9 million a year in compensation, plus the retirement package. When she resigned, John Stumpf said Tolstedt had been one of the bank’s most important leaders and “a standard-bearer of our culture and a champion for our customers.”

I’m not sure what kind of culture Stumpf champions, but it looks like modern day bandits are more likely to be inside the stagecoach than outside it.

Financial Review

We Got Your Volatility Right Here

Sinclair Noe — September 9, 2016

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

Subscribe: iTunes | Android | RSS

DOW – 394 = 18,085
SPX – 53 = 2127
NAS – 133 = 5125
10 Y + .05 = 1.67%
OIL – 1.95 = 46.31
GOLD – 10.40 = 1328.80

Over the 41 days, through Thursday, the S&P 500’s highest and lowest closes have been just 1.75 percent apart. It’s the first time that has ever happened in the history of S&P data, which goes back to 1928.

Heading into today’s session the S&P 500 had gone more than 50 trading days without a drop of 1% or more, only the 48th time that has happened since 1950. The last time the Dow Industrials moved over 1% was July 8^th, more than 2 months. We got your volatility right here.

Federal Reserve Bank of Boston President Eric Rosengren moved more firmly into the camp of hawkish policy makers, warning that waiting too long to raise interest rates threatened to overheat the US economy and could risk financial stability. Delivering a speech this morning, Rosengren said, “A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”

Rosengren’s stance on raising rates are significant because he is a voting member of the FOMC, he has been a longtime dove and someone that is calling for a rate hike even after the recent string of weak economic data. After Rosengren’s comments, futures traded lower, and the major indices opened in negative territory.

Later in the morning, Federal Reserve Bank of Dallas President Robert Kaplan said it isn’t urgent for the central bank to raise interest rates and it can afford to be “patient and deliberate in its actions.” Also Fed Governor Daniel Tarullo made some dovish comments during an interview on CNBC (more on Tarullo in a bit).

So, the Fed is not unanimous on rate hikes, but we’ll get one more piece of the puzzle on Monday, when Fed Governor Lael Brainard, will be delivering a previously unannounced speech in Chicago; the final day Fed officials can speak before the blackout period ahead of the Fed’s September 21 policy statement. Brainard has been one of the most dovish policymakers in the Fed. If she comes out in favor of a rate hike, it would be a clear signal that there will be a very strong push at the September FOMC meeting.

Jeff Gundlach, the widely followed bond investor who runs DoubleLine Funds held a cautious webcast last night. Gundlach said US corporate bonds are highly overvalued and added that many folks have come around to believe that interest rates can never rise, particularly as consensus around the ineffectiveness of negative interest rates solidifies. Gundlach went on to say, “In the investment business, when you hear the word ‘never,’ that means it’s about to happen.”

Global equities were also lower after the European Central Bank held interest rates at record lows and refrained from adding new stimulus. While President Mario Draghi said the ECB was looking at options to continue its money-printing program, investors were looking for more immediate action, including an extension or expansion of the current plan, or at least clearer hints of future actions.

Meanwhile, the yield on the 10-year German bond, known as the bund, turned positive Friday for the first time since June 23, the day of the U.K.’s vote to leave the European Union. A sharp global bond selloff that also pushed Treasury yields to their post-Brexit highs.

Hours after multiple global agencies detected a magnitude 5.3 earthquake near North Korea’s nuclear test site, the government in Pyongyang said it has hit the button on its fifth and potentially most powerful nuclear test this morning, claiming to have successfully detonated a nuclear warhead that could be mounted on ballistic rockets.

This is the North’s second nuke test in eight months and its fifth since 2006. The announcement drew immediate condemnation from the United States, South Korea, China and Japan. The test violates United Nations resolutions. And the Security Council called an emergency meeting.

Korean Air Lines, the biggest shareholder in Hanjin Shipping, has delayed a decision on a funding plan for the troubled shipping company for a second time, adding to the uncertainty of around $14 billion of cargo stranded at sea. With Hanjin’s future in doubt, carriers have announced they will hike container freight rates by as much as 50% beginning next month as retailers scramble to secure shipping ahead of the peak year-end holiday season.

The FAA, is asking very politely, in a not-at-all-freaked-out way, asking passengers toting the new Samsung Galaxy Note 7 around to keep them switched off on airplanes. Oh, and don’t charge them either. And do not store them in your checked baggage. Seriously. Do not do it.

What’s the problem you ask? The new Samsung smartphone seems to have a slight technical problem where it literally explodes. And then it catches fire. The problem appears to be linked to charging the phone. Passengers are still able to carry the phone on flights. It’s unclear why an exploding cellphone would be a problem in the cargo hold but not in the overhead compartment, but we can’t expect airplane mode to bail us out of everything. Samsung has issued a recall of 2.5 million of the phones, so the best move is to just get the phone replaced.

U.S. wholesale businesses left their inventories unchanged as their sales fell in July. The Commerce Department says wholesalers left their stockpiles alone in July after increasing them 0.3 percent in June. Their sales fell 0.4 percent in July, reversing a 1.7 percent increase in June. It was the biggest sales drop since January.

The July numbers show stress in the energy industry. Weak inventory restocking has been a drag on U.S. economic growth. From April through June, businesses overall reduced inventories at the fastest pace since the fall of 2011. That’s one reason second-quarter economic growth came in at a lackluster 1.1 percent.

Federal regulators say employees at Wells Fargo created millions of fake bank accounts and credit card numbers over the past five years in an illegal bid to boost their sales figures. The bank has been fined $185 million for the practices, including a record $100 million by the Consumer Financial Protection Bureau. Wells Fargo has also fired at least 5,300 employees who were involved in the scam.

Customers didn’t know what happened until they received statements, often charging unauthorized fees on unwanted and unknown credit cards. And when those customers attempted to seek legal redress? Wells Fargo fought back and judges dismissed the cases. Unbelievably, the mandatory arbitration agreements customers signed when they opened their original accounts also covered the fraudulent activity.

Now, it can be tough to get one or two people do something, so you might wonder what kind of elaborate criminal scheme was concocted to get more than 5,000 Wells Fargo employees to fabricate millions of fake accounts. It appears that Wells Fargo paid employees to open accounts – bonuses; they also set quotas; so, open accounts or get fired. It was part of a plan to cross-sell, like bundling for bank accounts; salespeople are urged to encourage existing bank customers to use multiple bank products.

This was a large scale effort and it was a systemic problem.  It is virtually impossible for senior executives not to have known what was going on. And Wells Fargo even promoted the aggressive sales scheme in their annual reports. In other words, there is no way to defend the lack of punishment of executives in a fraud of this scale that extended over five years. Either they were in on it, or somehow more than 5,000 lower level employees cooked this up and were able to hide it from the top brass.

Under Sarbanes Oxley, the CEO and CFO are required to certify the adequacy of financial and operational controls. There is no way Wells Fargo’s can have it both ways. Either they were in on the scam or they were criminally negligent.

You may recall a couple of weeks ago, Wells Fargo was fined $4 million for illegally misleading student loan borrowers and resulted in some paying unnecessary fees; charging on-time payers with late fees, failing to inform borrowers of steps they could take to minimize fees and leaving credit report errors uncorrected. A few months ago, Wells Fargo was hit with a $70 million penalty by The Office of the Comptroller of the Currency as the bank failed to correct the shortcomings identified in the 2011 consent orders related to mortgage practices in a “timely fashion.”

Four million there, $185 million here – it’s just small change for Wells Fargo, and the truth is that Wells is probably not the worst bank when it comes to cheating customers or rigging exchanges – they are just the example of the day, the “bankster du jour”.

Federal Reserve Governor Daniel Tarullo said this morning that the latest scandal involving Wells Fargo shows that bank behavior hasn’t “changed enough” since the financial crisis. Tarullo said too many banks still only respond to particular ethical lapses instead of putting in place comprehensive compliance programs. In an interview on CNBC, the Fed governor said he wanted regulators to hold individuals at banks responsible for inappropriate behavior rather than simply have firms pay fines. Even criminal prosecution of bank officers should be pursued “in order to make the point that there is individual culpability.”

Just a reminder for Governor Tarullo the Federal Reserve does more than print money; the Fed’s Division of Banking Supervision and Regulation is responsible for the oversight of banks. Says so right on their website.

Financial Review

Sleepwalking Higher

Sinclair Noe — September 7, 2016

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

Subscribe: iTunes | Android | RSS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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