Financial Review

Merger Monday

Sinclair Noe — November 6, 2017

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

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DOW + 33 = 23,572 (Record)
SPX + 5 = 2592 (Record)
NAS + 26 = 6790 (Record)
RUT + 2 = 1497
10 Y – .02 = 2.32%
OIL + 1.73 = 57.37
GOLD + 12.10 = 1282.50

Cryptocurrency

• Number of Currencies: 900
• Total Market Cap: $198,808,049,989
• 24H Volume: $5,965,696,801

 Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,177.7	$120.50B	$2.94B	49.23%	1	+3.20%	+16.68%
	Ethereum	ETH	299.79	$28.86B	$584.77M	9.80%	0.0420586	+0.98%	-2.21%
	Bitcoin Cash	BCH	613.10	$10.50B	$620.92M	10.41%	0.0872149	+4.27%	+40.16%
	Ripple	XRP	0.20150	$7.94B	$102.58M	1.72%	0.00002874	-0.73%	+1.59%
	Litecoin	LTC	55.530	$3.01B	$143.55M	2.41%	0.00780061	+1.68%	-0.86%
	Dash	DASH	291.81	$2.29B	$83.21M	1.39%	0.0415611	+5.85%	+5.41%
	NEO	NEO	26.018	$1.69B	$40.60M	0.68%	0.00361811	-0.61%	-10.77%
	NEM	XEM	0.18316	$1.64B	$6.79M	0.11%	0.00002544	-1.43%	-7.70%
	Monero	XMR	98.06	$1.52B	$125.95M	2.11%	0.0138411	-2.89%	+12.38%
	Ethereum Classic	ETC	14.2100	$1.42B	$308.84M	5.18%	0.00204059	+2.61%	+35.12%

Merger mania. We have a list of merger news to talk about. First, Broadcom has offered to buy Qualcomm for $105 billion, or $70 a share in cash and stock. That’s a 28 percent premium over the stock’s closing price on Nov. 2, before we heard reports about talks of a deal.

The proposed transaction is valued at approximately $130 billion on a pro forma basis, including $25 billion of net debt. Buying Qualcomm would make Broadcom the third-largest chipmaker, behind Intel and Samsung Electronics. The combined business would instantly become the default provider of a set of components needed to build each of the more than a billion smartphones sold every year.

The deal would dwarf Dell’s $67 billion acquisition of EMC in 2015 – then the biggest in the technology industry. This is not a done deal, and there is a strong chance that Qualcomm will try to fend off the unsolicited offer. Qualcomm will likely argue that the proposal is an opportunistic move to buy the chipmaker on the cheap, and it will likely recommend that shareholders reject it.

If Broadcom can pull off a deal, it could help smooth things over with Qualcomm’s biggest adversary – Apple, over chip royalties. Apple is demanding discounts on intellectual property royalties, which Qualcomm charges for its patents even if a company buys chips elsewhere. Qualcomm filed lawsuits seeking to ban the sale and manufacture of iPhones in China, which, if granted, would cut off Apple from the world’s largest phone market and cripple production.

Last week, Qualcomm executives said the legal process would “proceed under the court’s schedule,” indicating no resolution soon. Broadcom is already a major Apple supplier, and if they can broker a peace deal it could slow Apple’s ongoing efforts to seek other suppliers for its modem chips, such as Intel.

There is also the question of what now happens with Qualcomm’s ongoing effort to buy NXP Semiconductors. Broadcom has said its offer stands whether the NXP deal is completed at the current price of $110 per NXP share, or not. In other words, take it or leave it. Qualcomm rose 2.3%. Broadcom dropped 0.7%.

Apple gained 1.2% – but that was probably because of the rollout of the new iPhone X, which was met with long lines of buyers over the weekend. Also today, the US Supreme Court rejected a Samsung appeal of a patent loss to Apple and let stand a lower court ruling that reinstated a jury award of about $120 million in favor of Apple.

Sprint and T-Mobile called off merger talks. This marks the second time the third- and fourth-largest wireless carriers have failed to reach a deal. Sprint and T-Mobile said talks ended because they “were unable to find mutually agreeable terms.” A combination with T-Mobile, the third-largest US wireless carrier, would have enabled No. 4 Sprint to cut costs and forge a bigger competitor to take on AT&T and Verizon.

Another reason the deal seemed possible is that Sprint has a boatload of debt. About half of Sprint’s debt and obligations is coming due over the next four years and the company is also facing costly investments into next-generation wireless technology.

One clue to what the future holds is an agreement announced Sunday that allows cable operator Altice USA to sell wireless service using Sprint’s network. Under the deal, Sprint will use Altice’s broadband infrastructure to strengthen its nationwide network. Sprint dropped 10%. T-Mobile dropped 6%.

The media corporation 21st Century Fox has been in talks to sell most of itself to Disney. An acquisition would leave 21st Century Fox with a smaller, more focused portfolio of news and sports networks. A deal would exclude the Fox broadcast network because Disney could not own two broadcast networks. (Disney acquired ABC in 1996.)

Disney was reportedly interested in buying Fox assets including its studio division, partial ownership of the UK telecoms company Sky, and networks such as National Geographic and FX. Both companies aren’t in talks now but could resume them.

Disney could benefit from 21st Century Fox’s television properties as it gets ready to launch a streaming service. Disney announced in August that it would end its exclusive movie deal with Netflix in 2019 and launch an ad-free, Disney-branded streaming service.

Rivals Intel and Advanced Micro Devices (AMD) are teaming up to produce a laptop computer chip that uses an Intel processor and an AMD graphics unit. The partnership will pit the two companies against competitor Nvidia.

The new chip will be made for laptops that are designed to be thin and portable, but still powerful enough for gamers who need a stronger option to play intensive games. It’ll be part of Intel’s eighth-generation Intel Core line and marks Intel and AMD’s first partnership since the 1980s. Intel gained 1.2%. AMD added 7%. Nvidia was up slightly.

Companies continue to report their quarterly earnings. With more than 400 of S&P 500 companies having reported, earnings for the third quarter are expected to have climbed 8 percent, compared to an expectation of a 5.9 percent rise at the start of October, according to Thomson Reuters.

Michael Kors jumped 15% after the fashion accessories maker raised its 2017 revenue forecast. The stock was the biggest percentage gainer on the S&P.

Republican lawmakers began revising their proposed overhaul of the tax code. No surprise. Although Republicans generally support the bill’s broader themes, including a sharp reduction in the corporate income tax, they are torn over other elements, including the repeal of the deduction for state and local income tax (SALT) payments.

Kevin Brady, chairman of the tax-writing House Ways and Means Committee, pledged to change the bill’s approach to the “carried interest” loophole by lengthening the time an asset would have to be held to qualify for the lower rate.

Carried interest is a share of an investment fund’s profits – typically about 20 percent beyond the return guaranteed to investors – that goes to the general partners of private equity, venture capital and hedge funds. The Senate is developing its own version of the tax legislation which would have to eventually be reconciled with the House version before it is sent to Trump for signing.

Still, more bad news for the tax plan. The House Republican tax proposal would on average reduce taxes for all income groups next year, but within 10 years nearly 30 percent of taxpayers would see taxes rise, according to a report released Monday.

The majority of deductions eliminated, however, come on the individual side of the tax code. Among the breaks eliminated include the state and local income tax deduction, breaks for medical expenses, the deduction of student loan interest and adoption expenses.

The Tax Policy Center said that in 2018, individual taxes would be cut by $1,100 on average across income groups, with higher income taxpayers getting a bigger boost. Taxpayers making less than $48,000 would see what they called “modest” tax cuts of 0.3 to 0.5 percent while those in the top 1 percent would see a cut of 2.5 percent, or $37,000 on average, according to the analysis. For the lowest 20 percent of earners, that’s about a cut of $40 in annual taxes paid. For the top 20 percent, that’s a cut of about $4850 in taxes paid.

Still, a group of taxpayers, some 12 percent, would see taxes rise in 2018. By 2027, the average tax cut would be about $700 or 0.7 percent, with those earning less than $55,000 seeing a slight increase in their taxes and those in the top 1 percent seeing a 2.2 percent boost to their after-tax income — nearly 50 percent of the total benefit.

A campaign of mass arrests of Saudi Arabian royals, ministers and businessmen expanded today after a top entrepreneur was reportedly detained in the biggest anti-corruption purge of the kingdom’s affluent elite in its modern history. The detentions, framed as part of a sweeping crackdown on corruption following a royal decree that mandated a Supreme Committee headed by Mohammed bin Salman to address the issue, represent the latest in a series of bold moves by a youthful crown prince who has centralized authority to a degree unprecedented in recent Saudi history.

The roll-call of the detained reads like a who’s who of the Saudi policymaking community. The kingdom has pared back important but painful domestic economic reforms and been distracted by its blockade of Qatar and long-running war in Yemen. Now the abrupt internal purge has left experts wondering whether it is truly aimed at corruption or at Mohammed’s political rivals. the upcoming transition from the current king, Salman, to his son, Mohammed bin Salman, will be a unique one.

The crown prince, who will be the first of the next generation to rule, is only 32. The current king is 81 and reportedly struggles with health problems—both physical and mental—so the transition could come soon, either through Salman’s death or his abdication. But Mohammed’s elevation over more senior and experienced uncles and cousins—he’s the third heir apparent since Salman’s reign began in 2015— has undoubtedly ruffled some feathers, and he has a lot of competition.

The arrests are likely a signal that the young king-in-waiting is not waiting until he inherits the throne to start exercising power. No telling how all this plays out, and if the crown prince will be successful, but we’ll probably look back on the events of the past few days as the beginning of a new era – one way or the other.

Tech Earnings Power Market Gains

Charles Schwab: On the Market

Posted: 10/27/2017 4:15 PM EDT

Tech Earnings Power Market Gains

 

U.S. equities finished out the week higher, as technology issues jumped on a number of favorable earnings reports, including Google's parent Alphabet and Dow members Microsoft and Intel. Meanwhile, the consumer discretionary sector got a boost from Amazon's strong report. Treasury yields were lower, with Fed leadership uncertainty overshadowing favorable reads on Q3 GDP and consumer sentiment. Crude oil and gold prices were higher, and the U.S. dollar added to its recent run. 

The Dow Jones Industrial Average (DJIA) rose 33 points (0.1%) to 23,434, the S&P 500 Index increased 21 points (0.8%) to 2,581, while the Nasdaq Composite soared 145 points (2.2%) to 6,701. In moderate-to-heavy volume, 892 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil jumped $1.26 to $53.90 per barrel and wholesale gasoline gained $0.02 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price rose $5.98 to $1,272.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 94.87. Markets were nicely higher for the week, as the DJIA increased 0.5%, the S&P 500 Index gained 0.2% and the Nasdaq Composite advanced 1.1%.

Amazon.com Inc. (AMZN $1,101) reported Q3 earnings-per-share (EPS) of $0.52, well above the $0.07 FactSet estimate, as revenues rose 34.0% year-over-year (y/y) to $43.7 billion, topping the expected $41.6 billion. The results included the contribution from its recent acquisition of Whole Foods. AMZN issued Q4 revenue guidance with a midpoint below expectations. Shares rallied.

Google parent Alphabet Inc. (GOOGL $1,034) posted Q3 EPS of $9.57, exceeding the projected $8.35, with revenues excluding traffic acquisition costs (TAC) growing 21.9% y/y to $22.3 billion, north of the forecasted $21.9 billion. Shares were decisively higher.

Dow member Microsoft Corp. (MSFT $84) announced fiscal Q1 earnings of $0.84 per share, versus the expected $0.71, as revenues rose 12.0% y/y to $24.5 billion, above the projected $23.5 billion. Shares were solidly higher.

Dow component Intel Corp. (INTC $44) reported Q3 EPS of $0.94, or $1.01 ex-items, compared to the forecasted $0.80, with revenues rising 2.0% y/y to $16.1 billion, topping the expected $15.7 billion. INTC issued Q4 guidance that bested estimates, while it raised its full-year outlook. INTC moved solidly higher.

With the flurry of key earnings reports from the tech sector, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of our outperform rating we have held for some time on the group in his latest, Schwab Sector Views: Technology Trick or Treat?. Brad notes that the technology sector’s strong run could continue, with improving global growth prospects and continued high consumer confidence providing support. But risks for the sector have risen and investors should be careful not to get overly concentrated in the tech sector.

Dow member Merck & Co. Inc. (MRK $58) posted a Q3 loss of $0.02 per share, or a profit of $1.11 per share ex-items, compared to the estimated $1.03, as revenues declined 2.0% y/y to $10.3 billion, below the forecasted $10.5 billion. MRK increased its full-year guidance. Shares of MRK came under heavy pressure.

Dow component Exxon Mobil Corp. (XOM $84) announced Q3 EPS of $0.93, north of the expected $0.86, on revenues of $66.2 billion, versus the projected $62.8 billion. Shares are ticked higher.

Dow member Chevron Corp. (CVX $114) achieved Q3 earnings of $1.03 per share, while excluding one-time items reflecting asset sales and write offs, EPS was $0.85, but it is unclear if it is comparable to the anticipated $0.98. Revenues were $36.2 billion, versus the forecasted $34.5 billion. Shares were lower.

First read on Q3 GDP tops forecasts, consumer sentiment remains at 13-year high

The first look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 3.0%, after the unrevised 3.1% expansion in Q2, and above the 2.6% growth forecasted by Bloomberg. Personal consumption gained 2.4%, topping forecasts of a 2.1% rise and following the unadjusted 3.3% increase recorded in Q2.

Private inventory investment, nonresidential fixed investment, exports and federal government spending joined personal consumption to contribute to the stronger-than-expected growth, and more than offset negative contributions from residential fixed investment, as well as state and local government spending.

On inflation, the GDP Price Index came in at a 2.2% rise, well above expectations of a 1.7% gain and the unrevised 1.0% increase seen in Q2, while the core PCE Index, which excludes food and energy, moved 1.3% higher, matching expectations, and following the unadjusted 0.9% advance in Q2.

The GDP report suggests that business capital spending (capex) continues to gain steam and Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle, that an even sharper recovery could be in the cards for 2018, while tax reform—if we get it—would be an additional kicker. She adds that the pick-up in capex is a relatively new bright spot for the U.S. economy; and in 2018 it will likely be a shining characteristic of the latter innings of an economic expansion.

The final October University of Michigan Consumer Sentiment Index (chart) was revised lower to 100.7, matching forecasts, from the preliminary level of 101.1. The index was up solidly versus September's level of 95.1 and sits at a level not seen since January 2004. Compared to last month, the expectations and current conditions components of the survey both improved decisively. The 1-year inflation outlook fell to 2.4% from September's 2.7% rate, and the 5-10 year forecast remained at 2.5%.

Treasuries were higher as the data was met with Fed leadership speculation, as the yield on the 2-year note dropped 3 basis points (bps) to 1.60%, while the yields on the 10-year note and the 30-year bond fell 4 bps to 2.42% and 2.93%, respectively.

The U.S dollar continues to climb, bolstered by global economic and earnings optimism, along with the euro's extended drop following yesterday monetary policy decision by the European Central Bank and relative optimism of U.S. tax reform as it appears to be nudging down the long road to fruition.
Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick, discuss tax reform in the video, Where Does Tax Reform Stand?, while Chief Fixed Income Strategist, Kathy Jones delivers the video with Randy about Should a Change in Fed Leadership Matter to Investors?.

Europe mixed on data and Spanish political turmoil, Asia higher

European equity markets finished mixed, with global earnings optimism rising in the wake of the host of upbeat results from U.S. tech sector heavyweights. Also, a positive global economic backdrop was bolstered by the stronger-than-expected U.S. Q3 GDP growth. The euro added to yesterday's drop that came courtesy of the European Central Bank's monetary policy decision to cut and extend its stimulus measures, which appeared to foster a dovish takeaway. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, and talks with Randy Frederick in the video about Is An Optimistic Outlook for Global Equities Warranted?. The British pound also saw some pressure as Brexit uncertainty lingered, while bond yields in the region traded mixed. Spanish stocks fell amid ramped up political uncertainty as tensions with Catalonia remain elevated, with the Catalan parliament declaring independence from Spain.

Stocks in Asia finished mostly higher following the flood of upbeat earnings reports out of the U.S. tech sector after yesterday's close, while the markets continued to digest the dovish takeaway from the European Central Bank's monetary policy decision to trim and extend its stimulus measures. Japanese equities rallied to extend their recent run to highs not seen since 1996, with the yen losing ground and a report showing the nation's consumer price inflation rose in September. Improved global earnings sentiment helped lift mainland stocks in China and Hong Kong, while those traded in South Korea also gained solid ground. However, markets in Australia declined amid flared-up political uncertainty after Prime Minister Turnbull lost his parliamentary majority, and securities in India finished flat. Schwab's Liz Ann Sonders discusses with Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?.

Stocks grind out another positive week

Stocks managed to squeak out a seventh-straight weekly gain, with upbeat Q3 GDP, durable goods, new home sales, and business activity reports preserving global economic optimism, though action was choppy as a ramped-up earnings season fostered mixed responses. The technology sector was a standout winner, buoying the markets amid a glut of positive earnings reports from heavyweights in the group, while telecommunications and healthcare issues fell solidly, bogged down by AT&T Inc's (T $34) results and guidance from Celgene Corp. (CELG $97). Energy stocks dipped as Dow member Chevron's results appeared to fail to live up to lofty expectations for the sector and offset the continued climb in crude oil prices. With earnings season more than half way done, of the 273 S&P 500 companies that have reported, 68% have topped revenue forecasts and 79% have bested profit projections, per data compiled by Bloomberg. Treasury yields climbed to support financials amid the improved economic sentiment, which also helped the U.S. dollar extend a rally, along with the euro tumbling in the wake of a seemingly dovish takeaway from the European Central Bank's monetary policy decision.

Next week, earnings season will remain robust, but a fully-loaded economic calendar will likely go a long way in shaping market direction, headlined by the midweek Federal Open Market Committee (FOMC) monetary policy decision, the ISM Manufacturing and non-Manufacturing Indexes, monthly auto sales, and the nonfarm payroll report. Other releases that deserve a mention include: personal income and spending, Consumer Confidence, Q3 nonfarm productivity and labor costs, the trade balance, and factory orders.

As noted in the latest Schwab Market Perspective: Stocks Aren't so Spooky, along with new records being set by stocks, investor sentiment measures are showing widespread optimism; yet households’ exposure to equities is not at an extreme. We believe the bull market will continue, and suggest investors remain at their target allocations, but worry a bit about complacency. Third quarter earnings season has been solid so far and economic growth has picked up. But the pick of the next Fed chair could cause an uptick in volatility. Globally earnings have been strong as well and are helping to support stocks, but geopolitical and trade issues could cause some consternation.

International reports due out next week to keep an eye on include: Australia—trade balance, building approvals and retail sales. China—Manufacturing and non-Manufacturing PMIs. India—Manufacturing and Services PMIs. Japan—retail sales, household spending, industrial production, and the Bank of Japan monetary policy decision. Eurozone—Q3 GDP and consumer price inflation, along with German unemployment change. U.K.—Bank of England monetary policy decision.

Financial Review

The Parade Passing By

Sinclair Noe — October 26, 2017

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

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DOW + 71 = 23,400
SPX + 3 = 2560
NAS – 7 = 6556
RUT + 3 = 1497
10 Y + .01 = 2.45%
OIL + .63 = 52.81
GOLD – 11.00 = 1267.20

Cryptocurrency 

• Number of Currencies: 879
• Total Market Cap: $172,874,344,662
• 24H Volume: $3,346,529,813

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,991.9	$99.63B	$1.94B	57.98%	1	+1.73%	+5.04%
	Ethereum	ETH	298.18	$28.44B	$265.63M	7.94%	0.0500608	+1.04%	-3.22%
	Ripple	XRP	0.20235	$7.88B	$37.75M	1.13%	0.0000341	+0.17%	-5.97%
	Bitcoin Cash	BCH	339.20	$5.69B	$238.21M	7.12%	0.0571329	+0.96%	+2.97%
	Litecoin	LTC	55.840	$3.00B	$79.47M	2.37%	0.00935417	+0.59%	-6.11%
	Dash	DASH	285.57	$2.20B	$49.83M	1.49%	0.0483665	+0.47%	-2.46%
	NEM	XEM	0.20044	$1.80B	$4.71M	0.14%	0.00003352	+0.74%	-10.18%
	BitConnect	BCC	219.37	$1.60B	$15.80M	0.47%	0.0368101	+5.91%	+9.88%
	NEO	NEO	28.500	$1.42B	$35.29M	1.05%	0.00475357	+0.28%	-1.88%
	Monero	XMR	88.80	$1.36B	$22.90M	0.68%	0.0148741	0.00%	-0.39%

Up 100, down 100, up 100 then drifting lower. The Dow and the S&P moved higher today. The Nasdaq closed in the red as biotech took a beating. Welcome to earnings reporting season. After the closing bell, we watched a parade of the biggest tech companies report better than expected earnings. Tomorrow, Apple launches iPhone X.

Also, tomorrow the Commerce Department releases its first look at gross domestic product for the third quarter. The consensus is that the economy likely expanded at a 2.6 percent annualized rate in the three months ended Sept. 30, which is in-line with recent history.

Republicans pushed a $4 trillion budget through the House today by a thin margin. For now, Republicans sidestepped divisions within the party by voting 216-212 to permit them to begin work on a $1.5 trillion tax cut without fear of a filibuster by Democrats.

This is just a first step, GOP tax-writers pick winners and losers among interest groups, business sectors and rank-and-file voters. The goal is a full rewrite of the inefficient, loophole-laden tax code in hopes of lower rates for corporations and other businesses and a burst of economic growth.

But evidence is growing that some of their steps — such as eliminating the deduction for state and local taxes or eliminating 401K retirement plans – will face opposition from both sides of the aisle. For the most part, plans for ending various tax breaks — which are key to helping to offset the deep tax-rate cuts that Trump and congressional leaders want to achieve — have been kept under wraps.

Now that the budget blueprint has been adopted, a hard reality will set in as the business community and others realize how much of the tax bill will involve closing loopholes and changing their credits and deductions. In the absence of details on how to pay for those rate reductions, the fight over the SALT deduction is instructive. Repealing the tax break would generate an estimated $1.3 trillion over 10 years. If it’s not fully repealed, lawmakers will have another revenue hole to fill.

Republican Sen. Bob Corker said today that some of the items in the GOP tax reform discussion are just “buying off” special interests and serve no other purpose. Corker said: “Some of the things we’re doing, I’m sorry, are ridiculous,” though he did not mention any specifics.

Corker, a member on the Senate Budget and Banking committees said those things are “not going to drive 1 ounce of economic growth. But it’s what you have to do to pass a tax bill. It’s buying off of people to pass tax reform. … We could take a lot of this off in the trash can and make it easier and actually do something that grows our economy and increases our wages.”

Meanwhile, Democrats united against the plan, arguing its tax cuts will pad the bank accounts of the wealthy and the balance sheets of corporations, while delivering modest relief — or none — to middle-income taxpayers.

Ways and Means Committee Chairman Kevin Brady, R-Texas, said immediately after the vote that he’ll release the tax measure on Nov. 1 and that a panel vote is expected the week of Nov. 6. House and Senate leaders want to pass companion measures before Thanksgiving with a final compromise coming before year’s end. But there are lots of details between now and then.

This afternoon, Trump declared the opioid crisis a public health emergency, stopping short of a national emergency declaration he promised months ago that would have freed up more federal money. The declaration will redirect federal resources and loosen regulations to combat opioid abuse, but it does not mean there will be more money to combat the crisis.

Apparently, it is tough to find money for the opioid crisis and cut corporate taxes at the same time. The Centers for Disease Control and Prevention report more than 54,000 deaths last year attributed to opioid abuse.

European Central Bank President Mario Draghi managed to avoid roiling markets when he detailed the central bank’s plan to cut its monthly bond purchases in half. In fact, bonds and stocks soared while the euro weakened – a perfect outcome for the ECB. Draghi added a bit of a surprise to the plan to pull back from the markets.

Yes, the ECB will cut in half its monthly bond purchases to 30 billion euros from 60 billion euros starting in January, but the bank’s president also indicated that zero percent interest rates could remain at current levels until “well past” whenever it finally decides to end its quantitative easing measures. Maybe 2019, maybe 2020.

Markets seemed to focus on the idea of “lower for longer”. Bonds across Europe rallied hard, with yields on 10-year German bunds tumbling almost 7 basis points to 0.42 percent. The STOXX Europe 600 Index promptly rose the most since August.

Pending home sales showed a decline to a 2½ year low in September, missing consensus estimates for a rise of 0.4%, as the housing market is buffeted by lean supply and strong demand. Meanwhile, the advanced U.S. trade deficit widened by 1.3% in September.

Amazon reported net income of $256 million, or 52 cents per share, for the three months ending Sept. 30. That easily beat the 2 cents per share analysts had expected. Amazon has long been known for investing the money it makes back into its businesses, such as opening new warehouses to fulfill orders.

Many seemed to expect that again. And Amazon did reinvest in the business. It paid nearly $14 billion this summer for organic grocer Whole Foods; announced a series of new voice-activated Echo devices; and kicked off a public hunt for a place to build its second headquarters.

Revenue rose 34 percent to $43.4 billion, beating the $41.5 billion analysts expected. Amazon reported after the bell and shares were up about 8% in after-hours trade. Rite Aid, Express Scripts Holding and Walgreens Boots Alliance all fell sharply after Amazon secured a wholesale pharmacy license.

UPS reported earnings per share of $1.45 for the third quarter. Revenue increased 7%. International profit was up 8.9%; currency neutral profit was up 20%. And they raised guidance for full year 2017. The upcoming holiday period is shaping up to be another record-breaking shipping season. Earlier in the week we told you that online purchases are expected to pass brick and mortar retail purchases this season.

In fact, United Parcel Service (UPS) forecasts 750 million packages will be delivered between Black Friday and New Year’s Eve, a 5% increase from last year. Despite the expected increase in volume, UPS expects to hire the same number of temporary seasonal workers as last year (95,000). The difference is UPS will be using more technology to streamline operations.

Alphabet beat projections for third-quarter sales and earnings after a surge in Google ad volume helped the web-search giant shrug off concerns about regulatory scrutiny and an expensive foray into hardware. Sales for the quarter rose 24% to $22.2 billion and profit was $9.57 a share, beating estimates of $8.34.

In September, the deadline arrived for Google to meet demands for the European Union antitrust case on shopping ads. Google agreed to tweak its paid search results for products in the continent, although it’s still appealing the charges. These product ads have helped drive sales and profit growth, but Google investors are more concerned about a probe into Google’s Android software on mobile devices, where Google’s ads are growing.

Also in September, Google agreed to pay $1.1 billion for about 2,000 engineers from HTC Corp, in effect an acquisition of skilled hands to expand Google’s line of Pixel smartphones. The new hardware business is a pillar of Google’s fight against Apple. Revenue from a segment labeled Other Revenue, which includes hardware, was up 39%. Alphabet share gained about 3% in after-hours trade.

Intel beat Wall Street estimates for the quarter and raised its outlook for the year. Intel reported third-quarter net income of $4.5 billion, or 94 cents a share, beating estimates of 80 cents per share. Revenue rose to $16.1 billion from $15.7 billion. Intel was up about 1.6% in after-hours.

Microsoft posted better-than-expected quarterly results. The company reported its fiscal first-quarter earnings rose to $6.5 billion, or 84 cents a share – topping estimates of 71 cents per share. Revenue grew 12% to $24.5 billion, beating estimates. Microsoft up about 4.5% in after-hours, trading at all-time highs.

Ford Motor rose 1.9% after the auto maker beat profit and revenue estimates.

Bristol-Myers Squibb shares fell 4.8% after the company missed on profit and revenue and changed its 2017 guidance.

Nutrisystem  continued to slide, falling 10.5%, despite turning in better-than-expected quarterly earnings.

Celgene plummeted 16.4% after the company reported a third-quarter profit beat and revenue miss and lowered its 2017 profit and revenue outlook. The stock pressured the overall biotech and health-care sectors.

The $9.5 billion iShares Nasdaq Biotechnology ETF tumbled as much as 2.9 percent. The biggest exchange-traded fund tracking the biotech industry is headed toward its longest losing streak since September 2015, falling for seven days in a row. Just a reminder, biotechs led a market selloff about 2 years ago.

Tenet Healthcare shares tanked 9.2% following a Reuters report that the hospital operator has ended its plan to sell itself after its chief executive abruptly left ahead of schedule.

The Wall Street Journal reports CVS Health has made a proposal to buy Aetna for more than $200 per share, a deal that could value the health insurer at upward of $66 billion.

Financial Review

Carry On

Sinclair Noe — September 6, 2017

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

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DOW + 54 = 21,807
SPX + 7 = 2465
NAS + 17 = 6393
RUT + 2 = 1402
10 Y + .04 = 2.11
OIL + .55 = 49.17
GOLD – 5.90 = 1334.50

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	4,535.4	$74.84B	$2.01B	33.87%	1	-1.17%	-1.56%
	Ethereum	ETH	326.69	$30.59B	$925.72M	15.61%	0.0713257	-3.16%	-14.52%
	Bitcoin Cash	BCH	626.82	$10.25B	$735.94M	12.41%	0.136414	-3.34%	6.35%
	Ripple	XRP	0.22301	$8.48B	$146.48M	2.47%	0.00004871	-3.23%	-2.85%
	Litecoin	LTC	78.720	$4.09B	$735.92M	12.41%	0.0170777	-3.38%	20.23%
	NEM	XEM	0.29171	$2.63B	$3.85M	0.06%	0.0000645	-3.47%	-6.32%
	Dash	DASH	339.22	$2.55B	$33.61M	0.57%	0.0745771	-3.04%	-8.44%
	IOTA	MIOTA	0.70690	$1.95B	$33.70M	0.57%	0.00015468	-4.40%	-20.62%
	Monero	XMR	118.70	$1.77B	$58.20M	0.98%	0.0259621	-3.50%	-13.37%
	Ethereum Classic	ETC	18.4400	$1.72B	$193.02M	3.25%	0.00397381	-4.45%	14.47%

The major stock indices did what they have been doing all year – shrugged off worries and continued the trend. In the background, the economy continues to slog along with good, not great growth. Companies continue to report good earnings.

Expectations for tax reform and infrastructure spending are diminishing but on the bright side we are not engaged in a nuclear war with North Korea, so it all kind of balances out. Bank of America Merrill Lynch, for one, thinks investors should be more confident on equities. The firm said in a research note that it recommends being bullish given that the first synchronized upswing in the global economy since 2007 is a strong tailwind for earnings.

By its reckoning, the firm figures that global corporate profits are running 13.5 percent higher than last year. That’s in line with the gain in the benchmark MSCI All-World Country Index, suggesting stock prices have not gotten ahead of themselves. To be sure, there are plenty of other issues on the horizon to worry about, but for now the trend is in place until something blows up.

In a rebuke to Republican leaders, Trump backed Democrats’ plan to support a deal that would fund Hurricane Harvey aid but only raise the debt ceiling for three months. Those two items would also be tied to a measure to keep the government open through the end of December, setting up a hugely complicated year end crush of must-pass items. Republicans would have preferred a longer extension to avoid another fight in December.

Democrats could use the opportunity as leverage to attach a provision aimed at codifying into law the Deferred Action for Childhood Arrivals program. Nothing signed yet, but it looks like the debt ceiling crisis has been kicked down the road for now. I’m not sure we can call it bipartisanship but it’s not a debt default.

Debt ceiling jitters were particularly high Tuesday when the Treasury Department auctioned $20 billion of one-month bills at a rate of 1.30 percent, which was higher than the 1.23 percent yield on two-year Treasury notes. Those who were brave enough to buy at those rates saw the value of the bills soar today as the rate dropped to 1.02 percent.

On the stump for tax reform in North Dakota this afternoon, Trump repeated one of his favorite campaign claims: that Americans pay more in taxes than any other country. Except that’s not true.

In fact, the US ranks in the middle of the pack when compared with the roughly three dozen developed countries tracked by the Paris-based Organization for Economic Cooperation and Development. And our tax rate, is ranked fourth from the bottom, among the very lowest.

Stanley Fischer, the vice chairman of the Federal Reserve, announced today that he would resign in mid-October. Fischer joined the Fed’s board in 2014 after a distinguished career as an academic economist and an international policy maker.

Fischer brought a hawkish voice to Fed deliberations on monetary policy, arguing that the Fed should be raising interest rates more quickly, sparring with Janet Yellen, the Fed chair. But he provided reliable support for measures strengthening financial regulation.

Trump has not been in a rush to refill the Fed’s board. There were two vacancies when he took office, and a third seat opened in the spring. So far, the White House has put forward only one candidate, Randal Quarles, a Utah investor who was nominated in July.

Fischer’s departure is unlikely to shift monetary policy in the near term. The Fed is widely expected to announce after its next meeting in mid-September that it will begin to reduce its holdings of Treasuries and mortgage-backed securities.

The Federal Reserve’s latest Beige Book report, which collects and presents anecdotes on economic trends from policy makers’ business contacts around the country. All 12 Fed districts reported moderate to modest economic growth. Companies aren’t passing along higher input costs to consumers in the form of more expensive products and services. Instead, they’re accepting lower profit margins.

Most districts reported limited wage pressures and modest to moderate wage growth. The Fed said that consumer spending increased in most districts and that many contacts were becoming worried about a prolonged slowdown in the auto industry.

The Beige Book, based on information collected on or before August 28, said there was not enough time to gauge the full extent of the flooding from Hurricane Harvey.  The Atlanta and Dallas Fed banks reported the storm created broad disruptions to economic activity along the Gulf Coast.

Economic reports today show the trade deficit rose slightly in July, keeping the U.S. on track to post a larger gap in 2017 than in 2016. The deficit edged up to $43.7 billion in July from $43.5 billion in June.

A reading on services activity, meanwhile, came in better than expected, providing an added lift to the outlook for the health of the U.S. economy. ISM services were at 55.3 in August, compared with 53.9 in the prior period. A reading of at least 50 indicates expansion.

Hurricane Irma has hit a few islands in the Caribbean – including St. Martins and St. Thomas – and is now closing in on Puerto Rico. The imminent threat of a natural disaster comes as the territory deals with a massive economic disaster.

In May the commonwealth filed the biggest municipal bankruptcy in US history. Puerto Rico has $74 billion in debt, and another $50 billion in pension obligations on the books.

The Federal Emergency Management Agency already has about 400 people in Puerto Rico and the U.S. Virgin Islands to help with hurricane preparation and response. Puerto Rico will surely need and get federal assistance. A severe disaster could exacerbate some of the commonwealth’s adverse economic trends, including migration to the U.S. mainland.

The official forecast path shows that Irma’s center could track along or either side of the Florida peninsula. Where Irma turns north will be critical for determining what part of Florida experiences the most dangerous impacts from Irma. Regardless, conditions in South Florida may go downhill as soon as midday Saturday.

Irma is a Category 5 and it is a very large hurricane, wider than the state of Florida; so, despite the uncertainty in its track, there is a threat of rainfall flooding and strong winds capable of triggering power outages, downing trees and perhaps some structural damage will likely occur to some degree well inland from wherever Irma makes landfall into a swath of the Southeast early next week.

And just a side note; the NFL season kicks off Thursday night but I would like to nominate J.J. Watt as the league MVP. The Houston Texan defensive player put together a fund-raising effort for Hurricane Harvey relief, and he has already raised $27 million.

And while we’re at it, a tip of the hat to Oklahoma. The Sooner state has offered aid to burnt orange country. Volunteers from agencies in Oklahoma, such as the American Red Cross, Children’s Disaster Services, Convoy of Hope, Mercy Chefs, the Salvation Army, Southern Baptist Disaster Relief and Operation BBQ will be going to Texas.

Just in case you’re wondering – Operation BBQ is a real thing. It started in 2011, when Joplin Missouri was hit by a tornado.  Volunteers from competition BBQ teams from eight states answered the need to help feed displaced families, police, fire, National Guard and emergency personnel. They served over 120,000 meals over 13 days. Operation BBQ – you may know it by its other name: Ribs Sans Frontieres.

The Gap plans to close about 200 “underperforming” Gap and Banana Republic locations. There are currently about 2,000 Gap and Banana Republic stores worldwide, so the closures would likely impact about 10% of them. Gap declined to specify how many of each brands’ stores will close or where the soon-to-be shuttered stores are located.

One bright spot for Gap has been Old Navy – its less expensive clothing brand. When Gap reported earnings last month, Old Navy outperformed the other brands once again. While comparable sales at Gap fell by 1% and Banana Republic’s sales were down 5%, Old Navy saw a 5% increase.

The company added that it plans to continue making “significant” investments in its online operations, including in artificial intelligence technology. Shares of The Gap were up 7.4% today. Closing 200 stores and the stock jumps higher – no, it doesn’t make sense.

Restoration Hardware announced a forecast for third-quarter and full year adjusted earnings that flew past its previous expectations, sending its shares 30% higher in extended trading. The stock is heavily shorted and the big move looks like a short squeeze.

Intel has won a point in its antitrust battle with the European Commission — and the American technology industry may be feeling a little victorious as well. The Court of Justice of the European Union ordered a lower court on Wednesday to re-examine the 1.6 billion euro, or nearly $1.3 billion, fine imposed on Intel in 2009 for abuse of its dominant position in the computer chip market.

This does not mean Intel is in the clear, just getting a second chance to present their side of the case. The decision is considered a setback for the European Union antitrust authorities who have been investigating American tech giants like Google and Qualcomm.

T-Mobile upped the mobile phone carrier war on Wednesday, announcing an exclusive partnership to offer free Netflix Inc. subscriptions to T-Mobile One family plan customers.

The best selling electric car is the Nissan Leaf, and today, Nissan announced it has updated the car for the first time since it was introduced in 2010. The biggest change – a 200-mile range.

Financial Review

DeFAANG

Sinclair Noe — July 27, 2017

Podcast: Play in new window | Download (Duration: 13:05 — 7.5MB)

Subscribe: iTunes | Android | RSS

DOW + 85 = 21,796
SPX – 2 = 2475
NAS – 40 = 6382
RUT – 8 = 1433
10 Y + .03 = 2.31%
OIL + .08 = 49.12
GOLD – 1.50 = 1259.60
BITCOIN + 0.73% = 2717.16 USD
ETHEREUM – 0.07% = 204.20

The major stock indexes moved to all-time intraday highs, only the Dow held on for a record close. The Dow Jones transportation Average dropped to its lowest level in nearly two months, with UPS offering a weak outlook and FedEx falling in tandem. Volume was heavy today.

The Nasdaq Composite and the Nasdaq 100 or QQQ just fell off a cliff around midday. With a higher high and a lower low than yesterday, we have an outside reversal, a strong bearish move – but it isn’t necessarily conclusive.

Tech has been leading the markets, and now the FAANG stocks have all reported earnings; so, it might be nothing more than buy the rumor, sell the news. A JPMorgan derivatives strategist thinks it might be more; claims low volatility has led to more leverage; recommends buying S&P 500 puts as a kind of portfolio insurance. For anybody old enough to remember 1987, portfolio insurance has nasty connotations.

A milestone was passed this week when one-month Treasury bill rates rose above 1 percent for the first time since 2008. That may not seem like much until you consider that the rate averaged a paltry 0.07 percent between 2008 and 2016.

With nearly half the S&P 500 having reported, second-quarter earnings are expected to have climbed 10.7 percent, compared to an 8-percent rise expected at the start of the month.

Amazon is the world’s biggest online retailer but they don’t earn much profit. Net income fell to $197 million, or 40 cents per share, in the second quarter, from $857 million, or $1.78 per share, a year earlier. Net sales rose 24.8 percent to $37.96 billion. Instead of booking profit, Amazon plows the money back into the business.

Amazon has stepped up spending to expand globally, to build warehouses and on new areas. The company also plans to create more than 130,000 full-time and part-time jobs by mid-2018 to speed up delivery. And they are in the process of buying Whole Foods Market.

Amazon Web Services public cloud generated $916 million in operating income on $4.10 billion in revenue in the second quarter of this year. The results and forecast show the world’s biggest online retailer is preparing for stepped up competition from Wal-Mart, and cloud-computing challengers Microsoft and Alphabet.

Spending is always a concern with Amazon, but investors eventually give Amazon a pass because Amazon invests in growth opportunities. Amazon shares dropped about 2% in after-hours trade, but still hanging in above $1,000, with market cap right at $500 billion.

For a while today, Amazon shares were up, and Jeff Bezos was the richest man in the world for a while, at $92.3 billion –  briefly passing Bill Gates at $90.8 billion. Bezos holds about 17% of Amazon, and Amazon has grown to be the 1800-pound gorilla of online retail. Gates and his colleagues at Microsoft can tell Bezos a thing or two about how an antitrust probe or two can slow progress down and consume years and millions of dollars in resources.

Intel, the world’s largest chipmaker, reported a 9.1 percent rise in quarterly revenue, helped by strength in its data center and personal computer businesses. Net income for the quarter rose to $2.8 billion, or 58 cents per share, from $1.3 billion, or 27 cents per share, a year earlier. Revenue rose to $14.7 billion from $12.5 billion.

In 144 characters or less: Twitter 2Q net loss widens. Revenue down. Flat user growth. Guidance lower. Shares down 14%.

Starbucks reported quarterly profit that matched analysts’ estimates, tempered expectations for the current quarter and said it would close all 379 of its Teavana stores. Net income fell to $691 million, or 47 cents per share, down from $754 million, or 51 cents per share, a year ago. Same cafe sales rose 5% in the quarter.

Electronics manufacturing giant Foxconn unveiled plans to build a massive factory in Wisconsin to make flat-screen displays. Foxconn plans to invest $10 billion in Wisconsin. Wisconsin will invest $3 billion in Foxconn in tax breaks, to be passed and provided by the state government.

Those kinds of tax incentives can get a manufacturer to plant a factory in a given location—but generally at a significant cost to the state budget, and without doing much to help the economy overall.

The company said it planned to hire 3,000 workers over four years, whereas the state said the new facility would create 13,000 jobs with an average salary of nearly $54,000, along with 10,000 temporary construction gigs and an eventual 22,000 “indirect and induced jobs,” from firms supplying goods and services to Foxconn and its workers. (To give a sense of scale, Wisconsin currently has around 472,000 manufacturing workers.)

Wisconsin reported beat out six states in a hush-hush bidding war to attract the plant. Whether it is 3,000 jobs or 13,000, the state is spending a lot to win Foxconn’s investment. The Washington Post estimates that the breaks could cost the state as much as $230,700 per job created.

To its credit, Wisconsin has tied its breaks to the number of jobs that Foxconn creates and has vowed to claw back money if “the jobs and investment are not kept in Wisconsin.” And as of now, nothing has been built. Foxconn made a splashy and lavishly praised promise to build a new, high-tech factory in central Pennsylvania a few years ago. It never followed through.

Shipments of key U.S.-made capital goods increased in June for a fifth straight month, suggesting that business spending on equipment helped to boost economic growth in the second quarter. The increase in equipment spending has mostly been driven by the energy sector, where oil and gas drilling has increased significantly.

The trade deficit narrowed in June. The bullish reports came on the eve of the government’s advance second-quarter gross domestic product estimate due out tomorrow. The economy grew at a 1.4 percent pace in the first quarter. Estimates for second quarter GDP are running from around 2.5% to as high as 3.5%

Senate Republicans have tried to repeal and replace Obamacare. That failed. Then they tried repeal only. That failed. Now they are trying to repeal bits and pieces, including the mandate that Americans must obtain health insurance or face a fine, as well as a partial repeal of the mandate that employers with more than 50 employees provide healthcare coverage.

A vote is expected later tonight. That would not repeal the entire Affordable Care Act but it would effectively kill it in slow motion. There was also discussion about abolishing a tax on medical device manufacturers, but it was unclear whether that provision would be included. If all or part of the so-called skinny repeal is approved, it would set up a committee of House and Senate lawmakers to meld the two competing versions into a single comprehensive bill that would be wider in scope than the skinny bill.

The skinny repeal would be a nightmare for insurance companies. Making the purchase of coverage compulsory is meant to distribute risk evenly among healthy and sick people and keep overall costs down. But many people, especially, younger and healthy people opt for the less expensive fine instead. Insurers have taken notice.

Many have raised premiums or pulled out of certain markets as healthier people decide to forgo coverage. They warn that overturning the mandate will only create more instability and result in even higher premiums. According to the Congressional Budget Office, a skinny repeal would still leave somewhere close to 16 million more people uninsured over a decade and increase premiums immediately.