Financial Review

Face Mask Shortage

Sinclair Noe — October 12, 2017

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

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DOW – 31 = 22,841
SPX – 4 = 2550
NAS – 12 = 6591
RUT – 1 = 1505
10 Y – .02 = 2.32%
OIL – .64 = 50.66
GOLD + 2.00 = 1294.10

Cryptocurrency

• Number of Currencies: 877
• Total Market Cap: $164,996,772,967
• 24H Volume: $5,136,518,497

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,422.1	$90.30B	$2.77B	53.86%	1	+12.38%	+25.32%
	Ethereum	ETH	302.78	$28.93B	$525.92M	10.24%	0.0562321	-0.20%	+2.84%
	Ripple	XRP	0.24670	$9.65B	$243.79M	4.75%	0.00004618	-6.02%	+5.83%
	Bitcoin Cash	BCH	310.66	$5.25B	$261.82M	5.10%	0.0581277	-0.71%	-12.08%
	Litecoin	LTC	58.950	$3.17B	$334.89M	6.52%	0.0109966	+16.11%	+15.25%
	Dash	DASH	293.87	$2.23B	$42.68M	0.83%	0.0540024	-1.40%	-4.04%
	NEM	XEM	0.20478	$1.85B	$4.40M	0.09%	0.00003806	-4.80%	-2.78%
	NEO	NEO	28.353	$1.38B	$59.75M	1.16%	0.0050969	-5.80%	-15.13%
	BitConnect	BCC	187.652	$1.34B	$15.57M	0.30%	0.0346751	+12.59%	+34.78%
	Monero	XMR	87.00	$1.32B	$32.67M	0.64%	0.0160682	-0.55%	-4.89%

For the past 7 years, Republicans have been trying to repeal Obamacare. This year they tried repeal and replace, skinny repeal, and basic repeal – all failed. Now Trump has signed an executive order directing federal agencies to look for ways to expand the use of association health plans, groups of small businesses that pool together to buy health insurance, and to broaden the definition of short-term insurance, which is exempt from the Affordable Care Act’s rules.

The ultimate impact will depend on any new regulations written because of the order, but overall, the Trump administration could make cheaper plans with skimpier benefits more available. The clear intent of the executive order is to create a parallel insurance market exempt from many of the consumer protections in the Affordable Care Act.

An association health plan is a way for a group of small businesses to pool together to buy insurance, giving them more purchasing power and access to cheaper premiums. The most famous examples have been farm bureaus, which allowed independent farming businesses to band together and get insurance. National associations could skirt state mandates, and pick plans with cheaper premiums.

The problem with those plans is that they provide almost no coverage. Think of them as don’t get sick plans. Small businesses left in Obamacare’s marketplace would face higher costs and fewer options as the market became less attractive to insurers. The individuals likely to flee the Obamacare markets for association plans would probably be younger and healthier, leaving behind an older, sicker pool for the remaining ACA market.

That has the makings of a death spiral, with ever-increasing premiums and insurers deciding to leave the market altogether. This has the potential to siphon off healthy people with skinnier benefits and cheaper premiums, leaving behind a sicker pool of people under ACA plans.

We have an actual example in Tennessee, where a Farm Bureau association has been operating through a state loophole; some 23,000 people are in the association – they don’t have to be farmers. Those 23,000-people buying the skimpier health plan are presumably younger and healthier.

Segmenting those people out of the Obamacare marketplace raises premiums for everyone else left behind. The Society of Actuaries estimated in 2016 that Tennessee’s marketplace has the sickest enrollees in the entire country. The state also has some of the highest Obamacare premiums in the entire country, too. The basic rule of insurance is the law of large numbers – the bigger the insured pool, the more evenly risk and cost is spread.

Trump’s executive order also looks to expand what’s called short-term limited duration insurance. These short-term policies typically have higher out-of-pocket costs and cover fewer services than traditional insurance. They were designed for people who, for example, expect to be out of work, and therefore without insurance, for a limited period.

That kind of coverage is totally free from the health care law’s insurance regulations: the mandate to cover essential health benefits, the prohibition on charging sick people more than healthy people or denying people coverage based on their medical history, and so on.

Trump has technically asked federal agencies to consider issuing new regulations that achieve the executive order’s goals. That’s all. Federal rule-making takes some time, months upon months. Don’t expect any changes before the end of the year. We don’t know if the changes would be compliant with the individual mandate. Expect challenges to the order. So, for now at least, the effect of the order is to sow confusion and uncertainty in the health insurance market for insurance companies and customers.

Today Trump lashed out at hurricane-devastated Puerto Rico, insisting in tweets that the federal government can’t keep sending help “forever”. In a series of tweets, Trump added, “electric and all infrastructure was disaster before hurricanes.” He blamed Puerto Rico for its looming financial crisis and “a total lack of accountability.”

At the same time, the House passed, on a sweeping 353-69 vote, a $36.5 billion disaster aid package that includes assistance for Puerto Rico’s financially-strapped government. House Speaker Paul Ryan, R-Wis., said the government needs to ensure that Puerto Rico can “begin to stand on its own two feet” and said the U.S. has “got to do more to help Puerto Rico rebuild its own economy.”

About 85 percent of Puerto Rico residents still lack electricity and the government says it hopes to have electricity restored completely by March. More than one-third of the population does not have access to potable water. At least 4 deaths are reported linked to infections from dirty water. Though officials say 45 people have died in Puerto Rico in the aftermath of Hurricane Maria, anecdotal reports suggest that number is much higher.

A recent Vox investigation tallied over 500 deaths that could be linked to the hurricane, in addition to another 69 people who are still missing following the storm. We don’t know an exact number – but it will be more than 45 and it will grow in coming weeks.

There is a face mask shortage in San Francisco. This morning, the air quality in the Bay Area was worse than in Beijing, which is notorious for having some of the unhealthiest air in the world. In what is being called one of the worst firestorms in California history, smoke heavy with soot continues to blow across the state.

In San Francisco, more than an hour’s drive south from the epicenter of the blazes in Santa Rosa, many people are wearing face masks to shield themselves from the pollution that hangs like a curtain in the hazy air. Local hardware stores have sold out of face masks. The forecast for the next few days in the region is that the air quality is going to get worse.

The death toll from California’s wildfires continues to increase, with a total of 29, matching California’s deadliest blaze, the 1933 Griffith Park blaze in Los Angeles. The number is expected to climb. Officials say there are around 8,000 firefighters currently fighting the flames with more help pouring in from neighboring states every day.

Dangerous winds have been whipping up off and on, not only in Napa but in Sonoma County, too. Despite the threat, officials are sending targeted search teams into burned areas to find hundreds of people still unaccounted for. Some 3,500 homes and businesses have been destroyed by the blazes.

As the wildfires raged for a fourth day, they have continued to grow and cross county lines, as 45 miles per hour winds whipped the flames and negated almost all efforts to contain the fires. A total count of 22 fires on Wednesday changed to 21 today because two large fires had merged together.

JPMorgan Chase easily beat Wall Street’s third-quarter profit expectations, with loan growth and higher interest rates more than offsetting weakness in its markets-related unit. Overall, JPMorgan’s profit rose 7.1 percent in the third quarter compared with the year-ago period, to $6.73 billion, or $1.76 per share. Analysts had expected earnings of $1.65 per share.

Citigroup reported third-quarter earnings of $1.42 per share, a nearly 8% beat. Wall Street estimated earnings of $1.32 per share. Revenues grew 2% year-over-year to $18.2 billion, beating estimates of $17.8 billion. The bottom line benefited from the $355 million gain on the sale of its fixed-income analytics business, which added $0.13 in earnings per share. EPS was down 2%, excluding this item. Fixed-income trading took a 16% hit year-over-year.

Both JPMorgan and Citigroup say that they boosted their reserves for consumer-loan losses by the most in more than four years. Both lenders set aside money last quarter because they expected write-offs for credit-card lending to climb in periods ahead, with Citigroup saying the increase is coming faster than it had anticipated.

AT&T, the No. 2 U.S. wireless carrier, which owns satellite television service DirecTV, said that it lost 90,000 U.S. video subscribers in the quarter due to intense competition in traditional pay TV markets and the impact of the recent hurricanes.

AT&T said it added roughly 300,000 subscribers to DirecTV Now, its cheaper option for customers who want to stream television over the internet. That means the company lost 390,000 subscribers to its satellite and U-verse services, which are considered higher-value customers.

Rising energy costs led prices at the wholesale level to climb 0.4% in September. The producer price index, which measures inflation pressures before they reach the consumer, has risen 2.6% over the past 12 months. September’s burst of inflation is likely the result of oil refineries shuttering along the Gulf of Mexico due to Hurricane Harvey toward the end of August. As a result, gasoline prices surged 10.9% in September.

Initial jobless claims fell by 15,000 to 243,000 in the first week of October to mark the lowest level in six weeks.

Equifax has taken one of its customer help website pages offline as its security team considers reports of another potential cyber breach at the credit reporting company, which recently disclosed a hack that compromised the sensitive information of more than 145 million people.

The move came after an independent security analyst found part of Equifax’s website was under the control of attackers trying to trick visitors into installing fraudulent Adobe Flash updates that could infect computers with malware. So, people who were afraid their data had been stolen, went to the site and infected their computers with malware.

Financial Review

Complacency Abounds

Sinclair Noe — July 14, 2017

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

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DOW + 84 = 21,637 (record)
SPX + 11 = 2459 (record)
NAS + 38 = 6312
RUT + 3 = 1428 (record)
10 Y – .03 = 2.32%
OIL + .52 = 46.60
GOLD + 11.10 = 1229.40
BITCOIN – 3.39% = 2156.96 USD
ETHEREUM – 5.51% = 187.69

Washington is in gridlock and the White House faces scrutiny. Valuations are at the highest levels since the financial crisis. There’s been straight months of outflows from the biggest exchange-traded fund tracking the S&P 500.

So, what happened today? Record highs for the Dow, S&P 500, and Russell 2000. The Nasdaq is within 10 points of a record. The CBOE Volatility Index ended at 9.51, a 24-year low, falling 15 percent.

We start with economic data. The Commerce Department said retail sales fell 0.2 percent in June as Americans curtailed spending at restaurants, department stores and gasoline stations. That followed a 0.1 percent drop in May. Most retail segments posted weaker results in June.

Sales at gas stations posted the biggest drop, down 1.3%, reflecting lower prices at the pump. Sales also fell at grocers, restaurants, book stores, sporting-goods stores and department stores. Auto dealers reported a small increase in sales, but they are not moving new cars off the lots as quickly as they were a year ago.

Meanwhile, the Labor Department said consumer prices were flat in June, the latest evidence that inflation remains muted. All told, inflation has climbed just 1.6 percent from a year ago. In June, energy prices sank 1.6%. Americans paid less for gasoline, natural gas and electricity. The cost of food leveled off in June after five straight increases.

The core rate of inflation that excludes the volatile food and energy categories rose 0.1% in June. Grocery prices have declined in the past year, but the cost of takeout and eating out has risen sharply. Over the past 12 months the core CPI is up 1.7%, unchanged from the prior month.

The University of Michigan’s sentiment index slipped to 93.1 in July from 95.1 in June. The index has fallen from a 13-year high of 98.5 in January. Americans feel plenty confident in the economy right now, but seem convinced we’re all headed for hell in a handbasket.

An index that measures current conditions rose to 113.2 to set a 10-year high, but a gauge that looks out six months fell to 80.2 from 83.9. The outlook of consumers is now back to where it was before the November election.

Industrial production rose 0.4% in June, a touch ahead of expectations and the fifth straight month of increases, as mining output surged 1.6%; mining includes the oil and gas sector. The Federal Reserve reported utilities output as flat and manufacturing output edged up 0.2%.

Economic forecasts are revising estimates for second quarter GDP lower, to the range of 1.9% to 2.5%. At the start of the second quarter estimates topped 3% growth. The economic data confirms a lack of inflation and a sluggish economy that fits with dovish statements from the Federal Reserve policymakers this week.

At this rate, we may have seen the last rate hike from the Fed for this year. The Fed still wants to trim its balance sheet, but 1.6% inflation and weak retail sales is hardly justification to hike rates.

The dollar dropped lower and treasuries rallied. Oil gained 1% today and 5% for the week.

Earnings season kicked off in earnest, with JPMorgan Chase, Citigroup and Wells Fargo all posting better-than-expected profits. Even though the bottom line was solid, they still faced challenges.

JPMorgan Chase reported a better-than-expected quarterly profit on Friday due to strong loan growth and higher interest rates, but said net interest income for the year would be lower than expected, sending its shares down about 2 percent.

JPMorgan earned $26.5 billion in profit over the past 12 months, the most ever by any major U.S. bank.

While trading results were worse than analysts’ estimated, second-quarter earnings set a record. The bank said that net interest income will probably climb $4 billion this year, less than the $4.5 billion it previously projected.

One area of weakness is mortgages, where the market may shrink and competition is stiff. JPMorgan said its markets revenue fell 14 percent in the second quarter. At Citigroup, trading revenue was down 7.2 percent.

On a conference call, JPMorgan CEO Jamie Dimon had a few choice words about Washington politics, choice as in four letter words we can’t repeat in print. Dimon also had trepidation about the Fed’s plans to unwind its balance sheet, saying: “We’ve never had QE like this before, and we’ve never had unwinding like this before.Obviously, that should say something to you about the risk that might mean, because we’ve never lived with it before.”

The Fed will likely announce the kick-off this year, possibly at its September meeting. The Fed’s plan calls for a phase-in period. It will unload $10  billion the first month and raise that to $50 billion over the next 12 months. Then it will continue at that pace to achieve its “balance sheet normalization.”

Just like the Fed “created” this money during QE to buy these assets, it will “destroy” this money at a rate of $50 billion a month, or $600 billion a year. It’s the reverse of QE, with reverse effects. QE had the intended effect: inflating asset prices. Unwinding QE, once it starts in earnest, is likely to pull asset prices in the opposite direction.

But given of how leveraged assets are, and to the enormous extent they have been used as collateral, Dimon – the banker who is concerned about collateral values – hit the nail on the head. It’ll be “a very different world.”

Citigroup posted earnings per share of $1.28 on revenue of $17.9 billion, topping analyst expectations on the top and bottom lines. That’s compared to earnings of $1.24 per share on $17.5 billion in revenue in the year-ago period.

Wells Fargo beat earnings expectations, as it benefited from higher interest rates, though revenue was lower than expected at $22.1 billion. At Wells Fargo, new car loans dropped by almost half in the second quarter, while its automotive portfolio fell to the lowest level in two years after the bank tightened underwriting standards.

Another cause for celebration earlier this week: court approval of a $142 million settlement of a class-action lawsuit between the bank and victims of its fake account scandal of 2016. The fiasco, you might remember, included claims that Wells Fargo employees opened up to 2 million bank and credit-card accounts without customers’ permission to boost sales numbers. Multiple class action suits followed, and the bank expects them to all fold into this settlement.

However, the bank’s first response was to veto the class action and send it to mandatory arbitration, which is an alternate form of resolving a dispute using an appointed independent party instead of the court system. It’s an option banks and financial institutions have written into contracts with consumers, and they use it to prevent consumers from joining together to pursue relief. Only after public pressure did the San Francisco bank agree to face the suit.

The big 3 banks all beat on the bottom line. There was a bit of disappointment on the guidance but overall, it’s been a good start to the earnings season.

Look for S&P 500 earnings in the range of 7%. Analysts have high hopes for earnings. Companies in the S&P 500 will earn $130 per share at year-end, compared with current trailing 12-month comparable earnings of about $120, according to data compiled by Bloomberg. That $10 spread is the widest between past and future earnings since 2001.

Expectations for tech profits have steadily climbed throughout the year, with analysts now calling for a 15 percent jump in the group’s bottom line.

Senate majority Leader Mitch McConnell has planned for a vote next week on revised healthcare legislation, unveiled yesterday, and he has his work cut out for him in the coming days to get the 50 “yes” votes needed for passage.

Republicans control the Senate by a 52-48 margin and cannot afford to lose more than two from within their ranks because of united Democratic opposition, but two Republican senators already have declared opposition. A dozen more Republican senators have expressed concern or remain noncommittal.

A major test for McConnell’s legislation expected early next week is an analysis by the nonpartisan Congressional Budget Office, which last month forecast that the prior version of the bill would have resulted in 22 million Americans losing insurance over the next decade.

Financial Review

Earnings Reporting Season Kicks Off

Sinclair Noe — April 13, 2017

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

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DOW – 138 = 20,453
SPX – 15 = 2328
NAS – 31 = 5805
RUT – 13 = 1345
10 Y – .06 = 2.23%
OIL – .07 = 53.04
GOLD + 1.20 = 1288.80

JPMorgan Chase kicked off a day of earnings reports for three of the nation’s biggest banks with first-quarter earnings that were stronger than expected. The bank reported a nearly 17 percent increase in net profit thanks to rising loans and a bump from its trading business.

The bank earned $6.4 billion, or $1.65 a share — more than $1.52 a share that analysts had expected. JPMorgan closed down 1.1%

Wells Fargo has been trying to rebuild its reputation after revelations that the bankers, under pressure to meet sales targets, opened thousands of fake accounts in customers’ names. The scandal continued to weigh on the bank’s consumer businesses in the first quarter of 2017.

Wells Fargo said revenue and profit were essentially flat in the quarter compared with the same period a year earlier. Mortgage banking revenue fell 23 percent from a year ago. Wells Fargo shares fell 1.7 percent.

Late yesterday Berkshire Hathaway also disclosed it had cut its stake in the bank to avoid regulations on shareholders owning more than 10% of a systemically important financial institution. Warren Buffett’s Berkshire sold more than 7 million shares earlier in the week.

Citigroup reported it earned $4.09 billion, or $1.35 a share, up 17 percent from $3.5 billion, or $1.10 a share, in the quarter a year earlier. Revenue rose 3 percent, to $18.1 billion from a year earlier. Trading in bonds, currencies and other financial products was strong, with revenue rising 19 percent, to $3.6 billion, in the quarter from a year ago.

Citigroup also reported a big jump in revenue and profit from Europe. The gets well over half of its revenue from overseas. Sales from Europe, the Middle East and Africa rose 30 percent to $2.8 billion compared with a year earlier, while profit from the region more than doubled to $855 million. Citi dropped 0.8 percent.

The bank sector was the best-performing group following the November election, but that rally has stalled. On Wednesday, the group turned negative for the year.

A report from the University of Michigan showed that U.S. consumer sentiment unexpectedly strengthened in April as consumer optimism on current economic conditions climbed to its highest level since November 2000.

Initial claims for state unemployment benefits slipped 1,000to a seasonally adjusted 234,000 for the week ended April 8, the Labor Department said. That was the third straight weekly decline in claims and left them near a 44-year low of 227,000 hit in February. The low level of claims suggests that the slowdown in job growth in March was a blip and the labor market is tightening.

The Labor Department said its producer price index for final demand slipped 0.1 percent last month, the first decline since August. The PPI gained 0.3 percent in February. Despite last month’s dip in prices, the PPI shot up 2.3 percent in the 12 months through March. That was the biggest increase since March 2012 and followed a 2.2 percent jump in February.

A 0.1 percent dip in prices for final demand services accounted for three quarters of the drop in the PPI in March. Energy prices fell 2.9 percent, the first decline since August, with the cost of gasoline down 8.3 percent. With oil prices rising in recent days and recovering nearly all of March’s losses, monthly producer prices are likely to resume their upward trend.

The dollar’s 2.8 percent drop this year against the currencies of the United States’ main trading partners is also keeping the underlying trend in producer prices elevated.

Global oil inventories probably increased in the first quarter despite OPEC’s near-perfect implementation of production cuts aimed at clearing the surplus. The International Energy Agency said cutbacks by OPEC and Russia since January have brought world markets “very close to balance” and should deplete stockpiles in the second quarter, inventories nonetheless expanded “marginally” because of production increases just before the deal took effect, the IEA said in its monthly report on Thursday.

The agency lowered estimates for global demand growth because of weaker-than-expected economic activity in India and Russia. Oil inventories in the 34-nation Organization for Economic Cooperation and Development increased by 38.5 million barrels in the first quarter to about 3 billion barrels, offsetting the decline in emerging economies.

The IEA trimmed forecasts for global oil demand growth this year by about 100,000 barrels a day to 1.3 million a day, or 1.4 percent, because of weaker OECD consumption and economic activity in India and Russia “slowing abruptly.”

Iron ore is in free fall. The price plunged 8.5% to $68.04 a ton on Wednesday, and it has lost 16.6% over the past five sessions. Iron ore is down 28.3% since its multiyear high of $94.86 a ton on February 21.

Earlier this week, Tesla’s market capitalization briefly topped General Motors. Time to roll out the trucks.  Tesla will show an electric semi-truck in September and a pickup in 18 to 24 months, plus they will bring back the Roadster as a convertible. The trucks are expected to be at least semi-autonomous.

For more than a century after the advent of commercial electrical power in the late 1800s, electricity use in the U.S. rose and rose and rose. Sure, there were pauses during recessions, but the general trajectory was up. Until 2007. The initial drop in electricity use in 2008 and 2009 could be attributed partly to the economic downturn. But the economy grew again in 2010, and every year since.

Electricity use in the U.S., meanwhile, is still below its 2007 level, and seemingly flat-lining. The change is even more dramatic if you measure on a per-capita basis. Per-capita electricity use has fallen for six years in a row. We’re now back to the levels of the mid-1990s, and seemingly headed lower.

It seems a little hard to believe because we have all sorts of new digital devices, but most of those devices are efficient. The corporate focus on costs has increasingly come to include energy costs, and parts of the corporate world have also reorganized themselves in ways that make saving energy more of a priority.

Consider the shift to cloud computing. From 2000 to 2005, electricity use by data centers in the U.S. increased 90 percent. From 2005 to 2010, the gain was 24 percent. As of 2014, data centers accounted for 1.8 percent of U.S. electricity use.

What happened? The nation outsourced its computing needs to cloud providers, for whom cutting the massive electricity costs of their data centers became a competitive imperative. So, they innovated, with more-efficient cooling systems and new ways of scaling back electricity use when servers are less busy.

In an article published in the Electricity Journal in 2015, former Lawrence Berkeley energy researcher Jonathan Koomey offered five reasons why electricity use is down. State and federal efficiency standards for buildings and appliances have enabled us to get by with less electricity.

Increased use of information and communications technologies have also allowed people to conduct business and communicate more efficiently. Higher prices for electricity in some areas have depressed its use. Structural changes in the economy have reduced demand. Electricity use is being underestimated because of the lack of reliable data on how much energy is being produced by rooftop solar panels.

We could expand on that; the economy of the US has undergone a structural change –  a shift away from manufacturing toward sectors that may not provide the kinds of jobs or competitive advantages that factories do. So, does that mean electricity use is in permanent decline? Not likely. Transportation now accounts for just 0.3 percent of retail electricity use in the US. If the shift to electric vehicles ever picks up real momentum, that’s going to start growing, and fast.

There are no plans to remove the maple leaf from the Canadian flag, but our northern neighbors are about to be famous, or infamous, for a different type of leaf. Prime Minister Justin Trudeau introduced legislation on Thursday to legalize the recreational use of marijuana in Canada. Many nations have either decriminalized marijuana, allowed it to be prescribed medically or effectively stopped enforcing laws against it.

But when Mr. Trudeau’s bill passes as expected, Canada will become only the second nation, after Uruguay, to completely legalize marijuana as a consumer product. Though eight American states have legalized marijuana to various extents, the drug remains illegal under federal law. While the new legislation will take Canada beyond its medical marijuana system, it stops far short of creating an open market.

The law will require purchasers to be at least 18 years old — though provinces can set a higher minimum — and it will limit the amount they can carry at any one time to 30 grams, about an ounce. Households will be allowed to grow up to four marijuana plants. Each province will decide where and how marijuana may be sold and will set prices.

The promise of the new law has prompted investors to bid up the stocks of 11 licensed medical marijuana growers. Several have tripled or quadrupled in price over the past year – although down today. But while the existing licensed growers — more than 40 in all, including those that are not publicly traded — are expected to have a head start in the recreational market, it is not clear that they will see a boom of the kind that, say, whiskey distillers enjoyed after Prohibition was repealed.

U.S. financial markets will be closed in observance of Good Friday.

Financial Review

Take 63

Sinclair Noe — April 4, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 39 = 20,689
SPX + 1 = 2360
NAS + 3 = 5898
RUT – 1 = 1368
10 Y + .01 = 2.36%
OIL + .94 = 51.18
GOLD + 2.70 = 1256.70

The U.S. trade deficit fell in February as exports increased to a two-year high and slowing domestic demand weighed on imports. The Commerce Department reports the trade deficit declined 9.6 percent to $43.6 billion. Some of the decline in imports in February likely reflects slower consumer spending.

Trade will probably be either neutral or impose a small drag on gross domestic product in the first quarter after subtracting 1.8 percentage points from fourth-quarter growth. In addition to trade, weak consumer spending also likely constrained the economy in the first three months of the year. The Atlanta Federal Reserve is forecasting GDP rising at a 1.2 percent rate in the first quarter, a deceleration from the 2.1 percent pace logged in the fourth quarter.

In a separate report, Factory orders rose 1% in February for the seventh increase in eight months, a sign of the rebounding fortunes of the manufacturing industry.

The U.S.-China trade deficit dropped 26.6 percent to $23.0 billion in February. The decline in the U.S.-China trade deficit comes ahead of Chinese President Xi Jinping’s visit later this week. President Trump has declared China the “grand champions” of currency manipulation. Trade relations with China are further complicated by growing tensions with North Korea.

The outcome of their talks could have longstanding ramifications for two of the world’s most important currencies. The valuation of a given currency can make stocks and bonds denominated in that currency attractive to foreign investors. Cheaper currencies can help to boost stocks by making companies’ goods more competitive on the global market.

President Trump vowed  today to cut red tape to speed up approval of infrastructure projects and said his overhaul could top $1 trillion on roads, tunnels and bridges, one of his 2016 election campaign promises. Trump did not provide further details on the amount or where the money would come from when he spoke to a White House meeting of 50 chief executives and other business leaders.

U.S. Transportation Secretary Elaine Chao said at the forum that the administration plans to release a legislative package in May. The administration wants to improve the electrical grid and water systems, rebuild airports, bridges, roads and potentially hospitals for military veterans and broadband. National Economic Council director Gary Cohn told executives that privatizing air traffic control, which the administration proposed in its budget outline in March, “is probably the single most exciting thing we can do.”

The Washington Post reported this morning that the White House is looking at the possibilities of creating a carbon tax and a value-added tax as part of tax reform. The Post’s report cites administration officials and “one other person briefed on the process.” Administration officials told the Post that no final decisions have been made about whether a value-added tax or a carbon tax would be included in a tax-reform plan.

Trump will need to come up with ways to raise revenue if he wants to lower tax rates without adding to the deficit. House Republicans have proposed raising revenue through a tax on imports known as border adjustment, but that proposal is opposed by several GOP senators.

Value-added taxes are a type of consumption tax, while carbon taxes would be imposed on the manufacturing of some types of fuel. Later in the day, the White House issued a statement saying, “As of now, neither a carbon tax nor a VAT are under consideration.” One thing is certain though, tax reform will not be easy.

Take 63. There is a new plan to repeal and replace Obamacare. Vice President Mike Pence and two top White House officials made an offer in a closed-door meeting with members of the House Freedom Caucus.

The proposal under discussion  would allow states to opt out of two key Affordable Care Act provisions: essential health benefits, which require insurers to cover certain services, and community rating, which bars carriers from charging consumers based on their medical history or gender. Eliminating these federal requirements could wipe out the safeguards requiring insurance companies to offer insurance to people with pre-existing conditions – one of the most popular provisions of the Affordable Care Act.

The benchmark 10-year Treasury yield fell Tuesday to as low as 2.31 percent, within a basis point of its 2017 low. The level to watch now is the Feb. 24th low at 2.308%. Anything below this pivot, even on an intraday basis, signals that a meaningful top was put in at the March high. And if support falters, the next support is 2.13%.

For all the talk of consumer confidence, it isn’t translating to sales at brick and mortar stores. Retail is the worst performing sector so far, this year. Today, Ralph Lauren said it was shutting its flagship Fifth Avenue store in New York and cutting jobs; Urban Outfitters announced a decline in same store sales; Citigroup downgraded L Brands; First Data Corp., the payments processor, said point-of-sales data for department stores slumped 10.9 percent in March.

Payless ShoeSource is the latest retailer to file for Chapter 11 bankruptcy protection. Payless will close nearly 400 stores as it attempts to boost its balance sheet and restructure its debt load. Payless has 4,400 stores in 30 countries and employs nearly 22,000 people. It was bought in 2012 by private equity firms Golden Gate Capital and Blum Capital partners.

Federal Reserve Bank of Richmond President Jeffrey Lacker said he’s resigning immediately and he regrets his role in disclosing confidential information related to the U.S. central bank’s deliberations in 2012 in an interview with an analyst from Medley. That info, dealing with the Fed’s planned purchase of mortgage securities, was published by the analyst; followed by various investigations over the years, leading to today’s resignation. In a statement emailed by his lawyer, Lacker wrote: “In 2012, my conduct was inconsistent with those important confidentiality policies.”

JPMorgan Chase CEO Jamie Dimon is out with his annual letter to shareholders, in which he discusses not only the bank’s business outlook but also various current economic and political issues. Dimon said he has high hopes for the U.S. but believes there is “something wrong” with the country as well, writing: “Our problems are significant, and they are not the singular purview of either political party. We need coherent, consistent, comprehensive and coordinated policies that help fix these problems.”

Dimon added: “The solutions are not binary — they are not either/or, and they are not about Democrats or Republicans. They are about facts, analysis, ideas and best practices (including what we can learn from others around the world).”

Dimon noted that the U.S. is “an exceptional country,” but there are numerous areas where the country needs to improve. Among them are low wage growth, high health-care costs and overcrowded prisons. Businesses are overburdened with regulations, the nation’s infrastructure needs help, and the education system “is leaving too many behind,” he added.

Among the other ills: Taxes are making U.S. companies less competitive globally, income disparity is widening, and social mobility is decreasing. “The lack of economic growth and opportunity has led to deep and understandable frustration among so many Americans,” Dimon said. “It is understandable why so many are angry at the leaders of America’s institutions, including businesses, schools and governments — they are right to expect us to do a better job.”

Dimon listed 11self-inflicted problems for the economy: excessive regulation, high spending on wars, student loan growth, high health care costs, high-skilled immigrants leaving the US, felony convictions leaving millions with criminal records, a tight mortgage market, the labor force participation rate is too low, education leaves too many behind, the need to invest in infrastructure, and a flawed corporate tax system.

On other issues; Dimon said he’s concerned the U.K.’s departure from the European Union might trigger political unrest throughout the region that could split the currency union, resulting in “devastating economic and political effects.” Dimon devoted more than a third of his letter to deregulation.

Dimon asserted that the Dodd-Frank Act effectively ended the possibility of government bailouts for “too big to fail” banks. He also called for modifying the Financial Stability Oversight Council — the panel of regulators created by the Dodd-Frank Act, however he did not call for repeal of Dodd-Frank.

Separately, JPMorgan said in its annual report that it expects $49 billion of net interest income this year, up from about $46 billion in 2016, assuming additional loan growth and no changes in interest rates. Average core loan growth will be about 10 percent, and loan write-offs will remain close to historically low levels.

In what appears to be a reference to Warren Buffett, Dimon talked about the “secret sauce” that powers the American economy: trust. In the past, Buffett has also talked about the “secret sauce”. Dimon wrote: “A strong and vibrant private sector (including big companies) is good for the average American. Entrepreneurship and free enterprise, with strong ethics and high standards, are worth rooting for, not attacking.”

Dimon is right, trust is important, but it can’t be cajoled or demanded. It must be earned.

Wells Fargo has been ordered to reinstate a former bank manager who was fired after reporting suspected illegal behavior to his superiors and a company hotline. The manager, who wasn’t identified, was dismissed in 2010 after reporting on incidents of suspected bank, mail and wire fraud by two bankers in the Los Angeles area.

Wells Fargo was also ordered to give the whistle-blower about $5.4 million in back pay, compensatory damages and legal fees after OSHA determined his warnings were at least a contributing factor in the termination.

Wells Fargo said they would immediately issue a check along with thanks to the whistle-blower for alerting them to the problems. No, just kidding about that last part – Wells Fargo said they would appeal the order.

Financial Review

21K

Sinclair Noe — March 1, 2017

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

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DOW + 303 = 21,115
SPX + 32 = 2395
NAS + 78 = 5904
RUT + 26 = 1413
10 Y + .11 = 2.46%
OIL – .34 = 53.67
GOLD + 1.20 = 1249.00

The Dow industrials hit 21,000 this morning, and just kept running. The Dow closed at 20,000 just about 35 trading days ago, marking a then-second-fastest push (42 days) to a 1,000-point milestone.

So, for all those people who ponied up for a Dow 20K cap or T-shirt, it is now obsolete.

There is no question that the market has been in rally mode, but the consensus was that the market was overvalued and would likely sell off following President Trumps speech last night. Trump delivered his first address before a joint session of Congress.

Most of the policies were old favorites from the campaign. He still wants to repeal Obamacare. He still wants a border wall, although conspicuously absent was his call for Mexico to pay for it. He still wants to slash corporate tax rates. He still doesn’t think allies are shouldering enough of the cost of security alliances.

The speech was short on specifics but it was delivered in a presidential manner. And contrary to the consensus – the market did not sell off. It gapped up about 200 points, and then we started to see a short squeeze; traders who had bet on a sell-off were forced to cover their positions, and that pushed prices higher.

Algorithmic trading then pushed prices higher. Salt on the wound. This is not a Trump rally today; he said nothing new; he did not provide any details; he seemed to dump it over into the laps of Congress without even offering an instruction manual. Good luck with that.

Now, when we consider that the rally since the election has been parabolic, orderly as in 56 straight days without a move of more than 1%, but parabolic nonetheless, you should think that a 303-point short squeeze is a setup for a sell-off, but now the shorts are a little trigger shy. Just sayin.

Or maybe Wall Street is no longer interested in detail and logic and we are now living in a post-factual trading world. Meanwhile, it was just a bloodbath in bonds today.

Financials were the big winners on the day, up over 3%, as it looks more likely the Fed will raise rates sooner rather than later.  San Francisco’s John Williams said yesterday that an interest hike will be under “serious consideration” in March, while New York’s William Dudley feels the case for tightening “has become a lot more compelling.”

But the case for a rate increase is not unanimous – St. Louis Fed President James Bullard on Tuesday said the U.S. central bank could afford to be patient on interest rate hikes.

The Fed FOMC meets to determine monetary policy in 2 weeks, so today they published the Beige Book, which is an anecdotal look at the economy from the 12 Fed Districts. Overall, the economy continued to pick up steam in February, with all districts reporting “modest to moderate” growth.

However, business optimism cooled a bit amid opposition to President Donald Trump’s border-tax proposal from several industries. Manufacturers around Dallas said customers were taking a “wait and see” approach to the Trump White House. Only a “few” districts reported rising wages.

Regarding inflation, a third of districts say earlier price gains have “largely leveled off.” Consumer spending expanded modestly since the last report mid-January. Retail sales increased at a subdued pace across most of the nation, with many Districts noting an ongoing shift from in-store to internet purchasing.

The personal consumption expenditures price index, or PCE, which is the Fed’s preferred gauge of inflation, jumped 0.4% in January, pushing the increase over the last 12 months to 1.9% from 1.6% in December. The rate of inflation is the highest in 4 years and is now close to the Fed’s 2% long-term target, and if it keeps moving higher, the central bank could raise interest rates more aggressively.

The rise in inflation over the last year has largely been linked to a rebound in the cost of oil, though the price of staples such as rent and medical have also increased. Another PCE index that strips out food and energy has been more stable. The core PCE index, which rose 0.3% in January, has stuck to a narrow range of 1.6% to 1.7% for the past 13 months.

Personal spending missed, but personal income beat. For the month of January, personal income rose by 0.4% and personal spending came in at 0.2%. Economists had forecast that both personal income and spending would rise by 0.3%. The savings rate was little changed at 5.5%.

Consumers, for their part, are still spending at levels that propel the economy forward even as higher inflation eats into their earnings. Although they are spending more to fill up their gas tanks, they are also buying more cars and trucks and other consumer goods.

The Institute for Supply Management’s manufacturing index jumped 1.7% to 57.7%. Any reading above 50% indicates improving conditions. The components were very strong: the new-orders index rose 4.7 points to 65.1% and the production index added 1.5 points to 62.9%, though the employment index slipped 1.9 points to 54.2%. Prices cooled off a bit but were still strong, down 1 point to 68%.

YouTube has unveiled a web-TV service that will offer a package of over 40 broadcast and cable channels for $35 a month, making the tech giant the latest entrant in a race to win over millions of consumers who are shifting away from traditional TV. The new service, dubbed YouTube TV, is set to launch in the next few months.

Fidelity blew up the online brokerage sector yesterday after cutting stock and ETF trading commissions to $4.95 from $7.95, following Schwab, which slashed its commissions to $6.95 from $8.95 in early February. Hit hardest was TD Ameritrade, which tumbled 10.5%, and immediately announced a cut in its commissions to $6.95 from $9.99.

Best Buy forecast first-quarter profit that trailed analysts’ estimates. Best Buy will try to turn things around by expanding its online business, and providing customers with services.

Wells Fargo had previously estimated that up to 2.1 million customers may have had checking and credit-card accounts opened in their names without authorization over a period of several years. Today, Wells Fargo filed 10-Ks, official regulatory filings and the actual number is higher – how much higher, we don’t know and apparently Wells Fargo doesn’t know for sure. We only know they soft pedaled the initial estimates.

According to JPMorgan’s Investor Day presentation, not only did the bank not have a single losing day in all of 2016, but JPMorgan’s trading desk also had zero daily losses in 2014 and 2013. It did, however, lose money on two days in 2015. JPM generated on average $80 million in daily trading revenues in 2016, up from $70 million the year before.

Now you might be wondering how it is possible to trade daily, big sums, and only have 2 down days in 4 years. How is that possible? And that’s a great question. It’s almost like they know how the trade will turn out before they make the trade. It’s almost like they have a secret weapon or some insider knowledge that no one else has……

Financial Review

Uncertain

Sinclair Noe — February 6, 2017

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

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Financial Review by Sinclair Noe for 02-06-2017
DOW – 19 = 20,052
SPX – 4 = 2292
NAS – 3 = 5663
RUT – 11 = 1366
10 Y – .08 = 2.41%
OIL – .72 = 53.11
GOLD + 15.70 = 1236.20

Traders around the world seem uncertain about whether to buy or sell. European markets were mixed. Most Asian markets ended the day with gains. This follows a week where U.S. stocks dropped and then slowly climbed back up. The Dow Jones industrial average ended the week with a 0.1% dip. The S&P 500 and Nasdaq each edged up by 0.1% over the week.

Big business in the UK is starting to feel the pain from Brexit. An Ipsos Mori poll of senior executives at more than 100 of the top 500 companies in the UK found that 58% of businesses believe they are starting to feel the impact of the UK’s decision to leave the European Union.

A decision on a Scottish referendum is coming soon. When the U.K. triggers Article 50 to leave the EU, it might also trigger a fresh independence referendum. Scotland – one of the United Kingdom’s four nations along with England, Wales and Northern Ireland – voted to keep its EU membership last June, but will leave the EU because the UK voted to do so. The British parliament could technically block the move, but to do so would likely provoke a constitutional crisis.

Top Euro Union diplomats have vowed to uphold sanctions against Russia for destabilizing Ukraine, despite US intentions to ease those sanctions. The EU imposed a series of economic and diplomatic sanctions against Russia in 2014. Over the past week, a flare-up in hostilities has erupted between the Ukrainian military and Russia-backed separatists, with each accusing the other of a new wave of shelling. Over the weekend, President Trump committed to meet with NATO leaders in Europe in May.

A federal appeals court rejected early Sunday morning a request from the Justice Department to immediately reinstate an executive order on immigration and refugees, asking for more court filings before it rules on the matter. Airlines in Europe and the Middle East respond to the suspension by allowing passengers from countries that had been blocked to fly.

Ninety-seven tech companies, including Netflix, Twitter, Apple, and Facebook filed an amicus brief on Sunday night against the executive order that places an immigration ban on citizens of seven Muslim-majority countries. The brief states that the executive order “inflicts significant harm on American business, innovation, and growth” and “makes it more difficult and expensive for U.S. companies to recruit, hire, and retain some of the world’s best employees.”

More than any other industry, tech companies hire the lions’ share of the 85,000 foreign workers allowed into the US annually under the H1-B visa program. The H1-B is a temporary visa intended to bring in foreign professionals with college degrees and specialized skills to fill jobs when qualified Americans cannot be found.

A research report from Goldman Sachs estimates that nearly one million H-1B visa holders now reside in the US, and they account for up to 13 percent of American technology jobs. The big tech companies have pressed for increases in the annual quotas, saying there are not enough Americans with the skills they need.

But many tech workers see the H-1B program as a way to pay temporary workers less; or ship their jobs abroad, or at least to bring in workers from abroad, train them, and then ship the jobs offshore.

And it’s not just tech workers. Each year, more than 6,000 medical trainees from foreign countries participate in medical residency programs through J-1 non-immigrant visas, according to the American Association of Medical College.

Once they complete their residency, physicians can either return to their home country for two years before they are eligible to re-enter the U.S. through a different immigration pathway, such as an H1-B worker visa, or they can apply for a Conrad 30 J-1 Visa Waiver. This allows them to extend their stay in the U.S. if they commit to serving in rural and under-served areas for three years.

 The point being, don’t expect a quick resolution to a complex problem.

This past Friday we focused on the January Jobs Report, but there was some other news of note. President Trump signed two executive orders dealing with Wall Street. The first calls for the Treasury secretary to conduct a review over the next 120 days of regulations stemming from the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

So, once again the banksters that caused the meltdown of 2008 will oversee policing their industry. What could go wrong?

The second order calls for a review of the Department of Labor’s “fiduciary rule,” which requires investment professionals to act in the best interest of their clients, rather than seek the highest profits for themselves. The orders don’t do much by themselves to roll back reforms but they do offer details on how the financial industry is likely to receive favored status over the next 4 years.

The order on the fiduciary rule is more like a memo; no extension was granted, and no guidance about seeking a stay to the rule. Nothing in the final version of this memorandum delays the fiduciary rule; still, it was enough for the acting Labor Secretary to state the Department of Labor “will now consider its legal options to delay the applicability date.”

Right now, the date is April 10. And apparently, no matter the administration, government continues to move at a glacial pace.

Over the past month, several Fed officials have openly discussed the need for the central bank to reduce its bond holdings, which it amassed as part of its quantitative easing during and after the financial crisis. There is some concern the Fed will start its drawdown as soon as this year, which has refocused attention on its $1.75 trillion stash of mortgage-backed securities.

In the past year alone, the Fed bought $387 billion of mortgage bonds just to maintain its holdings. Moody’s Analytics estimates that if the Fed gets out of the bond-buying business as the economy strengthens, it could help lift 30-year mortgage rates past 6 percent within three years.

Bill Gross, in his monthly newsletter says that other central banks have stepped up bond buying as the Fed has cut back, but when those central banks stop buying bonds, there will be a bear market in bonds that will ripple out.

The global central bank balance sheet has surpassed $12 trillion, Gross said. At the same time, Fitch Ratings recently reported that global sovereign debt with negative yields still surpasses $9 trillion.

Even if central banks remain accommodative, it only serves to inflate asset prices without boosting economic growth, creating “an unhealthy capitalistic equilibrium that one day must be reckoned with.”

JPMorgan has received approval and license to underwrite corporate bonds in China’s interbank bond market, making it the first U.S.-headquartered bank to do so. China is the third largest bond market in the world with $6.3 trillion outstanding at the end of 2016, with the interbank bond market accounting for over 90%.

U.S. energy companies added oil rigs for a 13th week in the last 14. Despite OPEC cuts, U.S. crude inventories increased more than expected last week. With output being cut, more investors are betting on rising prices despite indicators such as the Baker Hughes rig count pointing to increased U.S. supply. The Commodity Futures Trading Commission says investors raised their net long U.S. crude futures and options positions in the week to Jan. 31 to a record 412,380 lots.

Canadian department store operator Hudson’s Bay, which also owns the Saks Fifth Avenue stores, has made a takeover approach to U.S. department store chain Macy’s. Hudson’s Bay could raise equity and debt against its real estate portfolio, which could be worth $14 billion, to fund the deal. The company could also bring in a partner.

The economic calendar is a bit light this week, with the JOLTS report serving as the highlight alongside the preliminary reading on consumer confidence from the University of Michigan. But we will stay busy with earnings reports. Analysts will be looking for S&P 500 companies to maintain the 7.5% average profit increase that has marked an encouraging fourth-quarter earnings season so far and will be needed to sustain the market rally.

Tyson Foods reported stronger-than-expected first-quarter earnings and sales and raised its annual outlook, citing strong beef and pork sales.

Toyota Motor reported a sharp decline in net profit for its fiscal third quarter, as the relatively strong yen continued to weigh on earnings. Toyota and other Japanese exporters are being hammered by the yen’s strength. A U.S. dollar bought 109 Yen on average in the third quarter; a year earlier, it bought 121 Yen.

Toyota has a glut of used cars in the U.S.–fueled by years of record sales–which is weighing on new car prices. Toyota said it is ramping up production of more-profitable trucks and sport-utility vehicles to increase profit.

Toyota Motor and Suzuki Motor said they plan to trade expertise in parts supplies and R&D. Any deal could see Toyota benefit from a supply chain that has helped Suzuki dominate India’s massive auto market, while Suzuki could hope to access Toyota’s innovations in automated driving, artificial intelligence and low-emission vehicles.

Hasbro’s revenue was helped in the fourth quarter by surging sales of products in its girls’ category, which include its line of Disney Princess and Frozen dolls. Profit and revenue came in above Wall Street’s expectations.

Tiffany & Co. abruptly replaced Chief Executive Officer Frederic Cumenal after disappointing financial results, just hours before the jewelry chain introduced a new campaign with the first Super Bowl ad in its history. The shake-up follows the departure of the jeweler’s top designer three weeks ago, and weak holiday sales that sent the stock tumbling.

Google used the Super Bowl to plug its Google Home connectivity service, but the TV commercial apparently confused the systems in homes of those who already have it. For them, Google Home went wacko. Apparently, the home systems heard the TV broadcasts calling its name, and it became befuddled. OK Google do not listen to the commercial.

Financial Review

Mind the Gap

Sinclair Noe — January 18, 2017

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

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DOW – 22 = 19,804
SPX + 4 = 2271
NAS + 16 = 5555
RUT + 6 = 1358
10 Y + .06 = 2.39%
OIL – 1.09 = 51.39
GOLD – 12.70 = 1205.00

The Dow Industrials spent most of the day in slightly negative territory. The S&P 500 traded in a tight range between negative and positive. If it seems like the stock market’s crawl to nowhere over the past month has been particularly strange, that’s because it has been. It turns out the gap between the Dow’s high and low prices over the past month is a tiny 1.4 percent — the narrowest gap in data going back to 1957.

On December 13, the Dow crossed 19,900 and pushed toward 20,000 – getting within a fraction of a point, then falling to a low of 19719, or a 1.4 percent range. So, something has to give – the question is whether we will see a break out or a break down. The long-term trend is still higher, but we really must wait and let the market show us.

Consumer prices rose in December as households paid more for gasoline and rent.  Consumer Price Index rose 0.3 percent last month after gaining 0.2 percent in November. In the 12 months through December, the CPI increased 2.1 percent, the biggest year-on-year gain since June 2014.

The so-called core CPI, which strips out food and energy costs, rose 0.2 percent last month after the same increase in November. As a result, the core CPI was up 2.2 percent in the 12 months through December. Rents rose 4% compared to a year ago, in December, the Labor Department said Wednesday.

That’s the strongest yearly gain since December 2007, the month the Great Recession began. Rising inflation comes against the backdrop of a strengthening economy and tightening labor market, which raises the prospects for more, and faster interest rate hikes from the Federal Reserve.

Fed Chair Janet Yellen delivered a speech today and said the economy is close to the Fed’s objective of full employment and stable prices and she’s confident it will continue to improve. That, in turn, means “it makes sense to gradually reduce the level of monetary policy support,” although Yellen said the timing of the next interest-rate increase “will depend on how the economy actually evolves over coming months.” Yellen said, “Right now our foot is still pressing on the gas pedal.”

Meanwhile, Fed Governor Lael Brainard said fiscal policies that boost demand when the economy is already around full employment and 2 percent inflation are “relatively more likely to be accompanied by increases in interest rates.”

Meanwhile, Minneapolis Fed President Neel Kashkari is launching a research institute to generate ideas elected officials might use to help more Americans benefit from a growing economy and address issues such as racial disparity and income inequality.

Meanwhile, the Fed published its Beige Book, reports from all 12 Fed districts which is released 2 weeks before FOMC policy meetings. Manufacturers in “most” of the Federal Reserve System’s 12 regions reported increased sales.

Companies reported uncertainty surrounding the change of administrations in Washington but remained generally optimistic about growth prospects for 2017. Labor markets were reported to be tight or tightening and pricing pressure intensified.

Central bank policy might have a problem, according to the central banks’ bank. A working paper by the Bank for International Settlements found cuts in interest rates and asset purchase programs can help reduce volatility in stocks and bonds, but it also found lower rates, or lower term-premium, doesn’t appear to spark economic growth.

Industrial production rebounded in December due to the biggest jump in utilities since 1989 as temperatures cooled across the country. The Federal Reserve said industrial output rose 0.8 percent last month. The bulk of December’s increase was due to the 6.6 percent rise in the utilities index. Overall industrial production, however, fell at an annual rate of 0.6 percent in the fourth quarter.

The oil market got a stark reminder that rising oil production in the U.S. could upend efforts by major producers to bring global supply and demand for crude back in to balance. The Energy Information Administration released a report on drilling productivity—forecasting a monthly rise of 41,000 barrels a day in February oil production to 4.75 million barrels a day.

Citigroup reported a 7 percent rise in quarterly profit, beating estimates. However, adjusted revenue fell 9 percent to $17 billion due to divestitures and missed the average estimate.

Goldman Sachs Group reported net income of $2.2 billion, a nearly fourfold rise in quarterly profit.  The fifth largest U.S. bank by assets, which relies more on revenue from trading stocks and bonds than other Wall Street companies, posted a 25 percent jump in trading in the fourth quarter compared with the prior year. Goldman beat on the top and bottom lines.

HSBC became the first major bank to detail plans to move jobs out of London after Brexit, saying it will relocate staff responsible for generating around a fifth of its UK-based trading revenue to Paris after Britain leaves the EU.

The United States sued JPMorgan Chase, accusing the bank of discriminating against minority borrowers by charging them higher rates and fees on home mortgage loans between 2006 and at least 2009. Separately, the Labor Department claimed the bank “systematically discriminated” against 93 women technology workers in its investment bank by paying them lower wages since at least 2012.

The Labor Department asked an internal administrative judge to cancel all government contracts and prevent JPMorgan from entering future federal contracts if it fails to provide relief.

United Continental’s fourth quarter profit tumbled. The airline announced fourth-quarter earnings of $1.78 a share on revenue of $9.1 billion but said its profit fell 51% to $397 million because of its tax bill.

American Airlines is introducing its Basic Economy fares, because Economy fares weren’t basic enough. The new fares, also known as Sub-Cattle Class, mean you can’t store carry-ons in the overhead compartments, no assigned seating, last to board, and no changes at all, no upgrades, and no soup for you.

Meanwhile, American’s flight attendants have a problem with their new uniforms – they claim it is causing skin rashes, itchy eyes, sore throat and blisters. The airline spent $1 million on tests and still don’t know what is wrong.

Target cut its quarterly earnings forecast after sales for the holiday season came in lower than expected due to weak demand for electronics, food and other products. Sales at Target stores open at least a year declined 1.3 percent in the November-December period, while total sales fell 4.9 percent. Target follows rivals Macy’s and Kohl’s, which also cut their profit forecasts after reporting disappointing holiday sales.

J.C. Penney shares sank about 2% after announcing a new partnership with Nike to add Nike shops in 600 of its stores. I’m not sure why that would be bad news.

After the closing bell, Netflix report earnings of 15-cents per share, beating estimates by 2-cents. The company said it added 7.05 million subscribers during the quarter, well above its own expectations of 5.2 million. Its stock has risen by a dazzling 35% in the past six months and is tacking on 8% in after-hours trade.

Essilor of France said it would merge with Luxottica Group of Italy, owner of the Ray-Ban and Oakley brands in a $49 billion deal. The combined company would be known as EssilorLuxottica, and would be the largest player in the eyewear market. The new company would have more than 140,000 employees in 150 countries with 2016 revenue of $16 billion.

Navient, the nation’s largest student loan servicer was hit with a Consumer Financial Protection Bureau lawsuit over allegations that it has “systematically and illegally” failed borrowers. Navient, formerly part of Sallie Mae, created repayment obstacles for tens of thousands of student borrowers by providing incorrect payment information, processing payments incorrectly and failing to act when borrowers complained.

British bookies will bet on almost anything, including specific words or phrases Donald Trump might say in his inaugural address on Friday. Ladbrokes, for example, is offering odds of 1/50 for “Make American Great Again”, indicating there’s a good chance Trump will repeat his campaign slogan in Friday’s speech.

That means a $1 bet would only yield 2 cents in case of a win. With slightly longer odds, “Reagan” comes in at 1/5, followed by “tremendous”, “ISIS” and “China” at 1/2. Further down the list sit “fake news” at 3/1 and “totally false” at 5/1. Aside from the buzzword betting, gamblers can also try their luck with Trump’s tie color and speech length.

It’s official, according to the National Oceanic and Atmospheric Administration (NOAA) 2016 was the hottest year on record, again. The planet sizzled to its third straight record warm year in 2016, and 16 of the 17 warmest years have occurred since 2001. The average temperature across the Earth’s land and ocean surfaces in 2016 was 58.69 degrees, a whopping 1.69 degrees above average.

It was the largest margin by which an annual global temperature record has ever been broken. Record high temperatures were set in 2016 on nearly every continent. No land areas were cooler than average for the year. Eight straight months (January through August) were also each the warmest since records began 15 years after the Civil War ended.