Financial Review

Computer Says

Sinclair Noe — June 13, 2017

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DOW + 92 = 21,328 (record)
SPX + 10 = 2440 (record)
NAS + 44 = 6220
RUT + 6 = 1425 (record)
10 Y un = 2.21%
OIL – .13 = 45.95
GOLD + .60 = 1267.10
BITCOIN + 1.48% = 2779.42
ETHEREUM – 1.97% = 387.89

The Dow Jones Industrial Average and the S&P 500 Index ended at all-time highs, while the Nasdaq 100 Index bounced back from its biggest two-day drop since September.

European and emerging-market equities advanced. Sterling rose for the first time since the U.K. election. Ten-year Treasury yields held near 2.21 percent and the dollar slipped versus major peers before the Fed is projected to raise rates Wednesday.

Tech stocks enjoyed a bit of a rebound but there are still concerns about valuations. A Bank of America Merrill Lynch report found a record 44 percent of fund managers polled in a monthly survey see equities as overvalued, up from 37 percent in May.

The technology-heavy Nasdaq Composite Index was named the most crowded trade, with 57 percent of investors saying Internet stocks are expensive and 18 percent calling them “bubble-like.’’ In the ninth year of a bull market, stocks are expensive.

So, what was behind the recent two-day sell-off in tech? Did investors just get nervous? Are tech stocks fundamentally overvalued? Computer says…. No. The quants were just rebalancing.

According to a new report from JPMorgan quantitative investing based on computer formulas and trading by machines directly are leaving the traditional stock picker in the dust and now dominating the equity markets. The report estimates “fundamental discretionary traders” account for only about 10 percent of trading volume in stocks. Passive and quantitative investing accounts for about 60 percent, more than double its share a decade ago.

Figures from market structure research firm TABB Group point to similar gains in machine-driven trade volume, while the overall number of shares traded has declined. A subset of quantitative trading known as high-frequency trading accounted for 52 percent of May’s average daily trading volume.

Crude tumbled in early trading on a report that at the same time as OPEC and its partners agreed last month on prolonging production cuts, the group’s output was climbing the most since November as members exempt from the deal restored lost supply. Oil then reversed and gained amid estimates that U.S. supplies declined.

The producer price index was flat last month following a sharp 0.5% increase in April. Still, inflation is more widespread after being largely invisible in 2016. The 12-month rate of wholesale inflation stood at a 2.4% in May, up from zero a year earlier and just a notch below a five-year high.

The flat reading in wholesale inflation in May, as expected, was tied to falling prices for gas and fuels used to heat and cool homes. The wholesale cost of gasoline sank 11.2%. The wholesale cost of food also fell for the first time in six months. Core wholesale costs slipped 0.1% in May, when stripping out the volatile categories of energy, food and retail trade margins.

The core rate of inflation was up 2.1% over the past 12 months.

The Corelogic Home Price Index shows home prices nationwide, including distressed sales, increased year over year by 6.9 percent in April 2017 compared with April 2016 and increased month over month by 1.6 percent in April 2017 compared with March 2017. Corelogic forecasts that home prices will increase by 5.1 percent on a year-over-year basis from April 2017 to April 2018.

Arizona posted 6% year-over-year growth in home prices, with 0.7% increase March to April. Corelogic forecasts Arizona home prices will increase 6.3% over the next 12 months.

The National Federation of Independent Business said its small-business optimism index held steady at a seasonally adjusted 104.5 in May from the prior month. In May, five of the 10 index components gained, four declined and one remained unchanged. A net 28% of owners reported plans to make capital outlays, well below historic levels.

Duke University/CFO Magazine conducted a survey of US chief financial officers. The share of CFOs who are more optimistic about the economy is the lowest since before the presidential election. A jump in sentiment about near-term fixes to tax and health-care policy has given way to increased doubt as Congress stays fixated on investigating Russia’s role in the U.S. election.

The Federal Reserve’s Federal Open Market Committee met today. Tomorrow they will conclude their meeting and issue a statement – almost certainly announcing a 25-basis point increase in the fed funds target rate. Fed officials have penciled in three rate hikes this year. A rate hike tomorrow would be the second rate hike of the year.

Fed officials have said they are not worried about the strength of the economy. They view weak first quarter growth as transitory and believe inflation will resume rising toward the central bank’s 2% target. The interest-rate decision is straightforward. Monetary policy works with a lag, so the Fed must think ahead.

The big question is whether the central bank will start to shrink its $4.5 trillion balance sheet in September or December, assuming the economy stays on course. The balance-sheet decision is slightly more complicated. It has three parts: The Fed must choose when to start shrinking its holdings, how quickly to shrink them once it has started, and how small the balance sheet should be when the holdings are back to normal.

When to start shrinking the balance sheet is partially dependent on the path of interest rate hikes. Once interest rates are at more normal levels, the Fed will likely begin to let its bond holdings mature and fall off the balance sheet based on a set timetable. This coming policy shift isn’t yet imminent, because interest rates need to rise a bit more first. But it’s fast approaching, and this week isn’t too soon for the Fed to start being clearer about its intentions.

Attorney General Jeff Sessions offered an aggressive defense of his conduct surrounding the Russia investigation, telling an open Senate hearing any allegations he had colluded with Moscow to undermine the election were an “appalling and detestable lie”. Sessions recused himself from the Russia investigation in March, citing his role as a key foreign-policy adviser in the Trump campaign.

His abstention came one day after The Washington Post reported Sessions, during his Senate confirmation process, had failed to disclose two meetings during the presidential campaign with the Russian ambassador to the United States.

Meanwhile Bloomberg is reporting Russia’s cyberattack on the U.S. electoral system before Donald Trump’s election was far more widespread than has been publicly revealed, including incursions into voter databases and software systems in almost twice as many states as previously reported.

In all, the Russian hackers hit systems in a total of 39 states. The new details, seem to confirm a classified National Security Agency document recently disclosed by the Intercept.

In November, Steven Mnuchin pledged the wealthy would not see “an absolute” tax cut under the administration’s developing tax plan. That is, whatever reduction in tax rates would be offset by fewer deductions, so the net result would be the same for the wealthy. During Mnuchin’s confirmation hearing to become Treasury Secretary, Mnuchin repeated his pledge, earning the nickname “The Mnuchin Rule”.

Today, during a Senate Budget Committee hearing Mnuchin walked back the rule, indicating tax reform might result in a windfall for the wealthy.

Verizon has completed its purchase of Yahoo’s internet business for $4.48 billion. The acquisition, which was first announced last July, aims to combine Yahoo’s operating business with AOL, which it purchased in 2015. The merger will form Oath, a division of Verizon that is expected to house more than 50 media and technology brands.

Verizon plans to layoff more than 2,000 people, or the equivalent of 15 percent of Oath’s new workforce. Tim Armstrong, AOL’s former chief executive, will lead Oath as its CEO. Marissa Mayer, Yahoo’s CEO, is out.

Uber CEO, Travis Kalanick, will step away from the company for an unspecified period. But that won’t likely change the day-to-day lives of the more than 5,000 Uber employees as much as the changes the company is committing to make to their recruiting, retention, and workplace-culture policies, detailed in a report known as the Holder Report.

Financial Review

Monday, Monday

Sinclair Noe — June 12, 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Review

War on Drugs Again

Sinclair Noe — May 12, 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Review

And Pause

Sinclair Noe — March 2, 2017

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

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DOW – 112 = 21,002
SPX – 14 = 2381
NAS – 42 = 5861
RUT – 17 = 1395
10 Y + .03 = 2.49%
OIL – 1.21 = 52.62
GOLD – 15.00 = 1235.00

Yesterday, the Dow advanced about 300 points to close above 21,000 for the first time, just 24 trading sessions after it first hit 20,000. That matches the fastest-ever move between thousand-point milestones, which last happened in 1999 and took the index above 11,000.

The number of Americans filing for unemployment benefits fell to near a 44-year-low last week. Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 223,000 for the week ended Feb. 25, the lowest level since March 1973.

It was the 104th straight week that claims remained below 300,000, a threshold associated with a healthy labor market. That is the longest stretch since 1970.

The Federal Reserve’s Beige Book, a collection of anecdotes about the economy gathered before the central bank makes interest-rate decisions, said “businesses were generally optimistic about the near term but to a somewhat lesser degree than in the prior report.” Overall, the US economy continues to meander along, with all districts reporting “modest to moderate” growth.

Federal Reserve Gov. Lael Brainard has been among the most consistent doves at the Fed, but now, “near-term risks” to the U.S. from abroad appear to have diminished. Brainard the US economy appears to be in transition to a more stable growth path and gradual interest-rate hikes are likely to be appropriate “soon.”

Fed Gov. Jerome Powell became the latest Fed official to hint that a hike is imminent when he said Wednesday that the case for raising interest rates in March “has come together.” Fed Chair Janet Yellen is set to speak on the economic outlook in Chicago on Friday in her last speech before the Fed’s March 14-15 meeting.

Emerging-market borrowers are selling bonds at an unprecedented pace before the Federal Reserve raises interest rates. Emerging-market issuance in dollars and euros this year has already exceeded $100 billion. That’s the fastest pace ever and almost 20 percent more than the previous record for the period in 2014. With yields still favorable to borrowers, they may accelerate plans to refinance maturing debt and lock in current yields.

The yield on the two-year US Treasury note rose 3 basis points to 1.32% in recent trade, its highest end-of-day level since June 10, 2009. Bond yields rise as prices fall. The yield also notched its largest four-day increase since Feb. 8, 2011. The yield on the 10-year Treasury note has popped about 16 basis points in the past week.

The dollar advanced. Oil closed at the lowest level in more than three weeks. US stockpiles expanded to 520 million barrels, the most in weekly government data going back to 1982, even as Saudi Arabia continued to lead OPEC’s efforts to cut production to end the glut.

Snapchat parent Snap Inc raised $3.4 billion in its IPO last night, valuing the company at $24 billion, more than double the size of Twitter and the richest valuation in a U.S. tech IPO since Facebook five years ago.

The shares priced at $17 each, above the expected range of $14-16. And the IPO was oversubscribed by more than tenfold; and when shares started trading, there was a pop to $25, and shares closed at $24.47.

Snapchat’s founder and early investors cashed out over $1 billion today. This for a company which reported revenues of $404 million with losses of $515 million in 2016. And shareholders don’t have voting rights. Go figure.

About 32 million Yahoo user accounts were accessed by intruders in the last two years using forged cookies. The company said some of the latest intrusions can be connected to the “same state-sponsored actor believed to be responsible for the 2014 breach,” in which at least 500 million accounts were affected.

Yahoo also said in December that data from more than 1 billion user accounts was compromised in August 2013. Yahoo’s board of directors have decided to forgo CEO Marissa Mayer’s 2016 bonus following the results of an internal investigation of how the company’s massive hacks were handled.

Yesterday, Amazon’s cloud service S3 went down for a few hours. Today, Amazon blamed the outage on human error and the movie LaLa Land.

Banks globally have paid $321 billion in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing, per data compiled by Boston Consulting Group. That tally is set to increase in the coming years as European and Asian regulators catch up with their US peers, who have levied most charges to date.

The Labor Department has proposed delaying a rule that would require retirement advisers to act in the best interest of their clients. The “fiduciary rule” was set to go into effect on April 10 and would have prohibited retirement advisers from accepting incentives for promoting certain funds over others.

The Labor Department announced a proposed 60-day extension for the rule to go into effect on June 9. During that time, the department said it will collect applicable information on the possible effects of rule, including public comments.

As credit card companies compete for customers by offering increasingly better rewards and perks, American Express is giving its Platinum card a facelift and a benefits overhaul. The newly-enhanced card will come with Uber credits, increased travel rewards and more access to special events. But the new benefits don’t come cheap. The card carries a $550 annual fee, an increase from $450, and currently offers no sign-up bonus.

Federal law enforcement officials searched three facilities of heavy machinery manufacturer Caterpillar in Illinois. It was not immediately clear why federal agents raided the three locations, but Caterpillar has been fighting an Internal Revenue Service demand that the company pay $2 billion in taxes and penalties for profits assigned to a Swiss parts distribution subsidiary, Caterpillar SARL, or CSARL, per filings with the Securities and Exchange Commission.

That subsidiary was also the subject of a 2014 Senate committee report that charged Caterpillar “shifted billions of dollars in profits away from the United States.” Caterpillar also disclosed in its report that it had received grand jury subpoenas from the U.S. District Court for the Central District of Illinois seeking documents and information related to the movement of cash among U.S. and non-U.S. subsidiaries, and the purchase and resale of replacement parts.

Boeing is cutting its Seattle-area workforce by at least 1,800 jobs this year as the company streamlines operations. Boeing approved voluntary layoffs for 1,500 mechanics. Another 305 engineers and technical workers are leaving voluntarily.

Anheuser-Busch InBev  reported worse-than-expected quarterly results. The company said that challenges in Brazil hurt its overall performance.

Shake Shack same-store sales whiff. The burger chain announced adjusted earnings of $0.09 a share, matching estimates, but said same-shack sales, or sales in stores open at least two years, rose 1.6%, well shy of the 2.6% estimated gain.

Barnes & Noble reported third-quarter profit that missed expectations. Same-store sales fell 8.3%, largely due to lower traffic and a decline in coloring books, artist supplies and the best-selling Adele album that was released in 2015. The company now expects full-year 2017 same-store sales to decline about 7%.

Broadcom came in 15 cents above estimates with adjusted quarterly earnings of $3.63 per share, while the chip maker’s revenue was slightly above estimates. The company, which is a major supplier for Apple, said it expects healthy demand for its products to continue.

After the closing bell, Costco reported fiscal second-quarter per-share earnings and sales below expectations and said it plans to raise membership fees in June by $5.

The creepiest thing of the day, and there were multiple candidates – goes to Spiral Toys; a company that sells internet-connected teddy bears that allow kids and their far-away parents to exchange heartfelt messages left more than 800,000 customer credentials, as well as two million message recordings, totally exposed online for anyone to see and listen.

Since Christmas day of last year and at least until the first week of January, Spiral Toys left customer data of its CloudPets brand on a database that wasn’t behind a firewall or password-protected. The exposed data included more than 800,000 emails and passwords.

As we’ve seen time and time again in the last couple of years, so-called “smart” devices connected to the internet—what is popularly known as the Internet of Things or IoT—are often left insecure or are easily hack-able, and often leak sensitive data. There will be a time when IoT developers and manufacturers learn the lesson and make secure by default devices, but that time hasn’t come yet.

So, if you are a parent who doesn’t want your loving messages with your kids leaked online, you might want to buy a good old fashioned teddy bear that doesn’t connect to a remote, insecure server.

Tomorrow is the first Friday in March, but it is not a Jobs Report Friday. The jobs report is a monthly ritual for anyone following markets or the US economy, as it contains some of the main data points measuring the health of the labor market in the world’s largest economy.

The report almost always comes out on the first Friday of the month, but not this month: The February 2017 report is scheduled to be released on March 10, a week later than might be expected. It turns out that this is due to the way the jobs numbers are gathered and how the days of the week fell this year during a short month.

When the 12th is on a Sunday and there are 30 days or less in the month, the release date will wind up being the second Friday of the following month – so March 10, not tomorrow.

Attorney General Jeff Sessions said he would recuse himself from investigations involving the Trump campaign over his contacts with Russian officials during the 2016 election, but stood firm on the answers he gave during his Senate confirmation hearing about his past communications. Sessions denied during his confirmation hearing that he had ever communicated with any Russian officials while he was a top Trump campaign surrogate.

During his press conference, Sessions emphasized that he didn’t meet with Russian operatives about the Trump campaign during the election. So, the story is shifting. Is it too late to change my vote for Creepiest Thing of the Day?

Financial Review

Shut Up

Sinclair Noe — February 24, 2017

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DOW + 11 = 20,821
SPX + 3 = 2367
NAS + 9 = 5845
RUT – 0.1 = 1394
10 Y – .07 = 2.32%
OIL – .42 = 54.03
GOLD + 7.60 = 1257.90

11 days of record breaking closes, the best streak of positive sessions since 1993. The longest streak of record breaking sessions is 14 in a row – back in 1897.

For most of the day, the major indices were in negative territory; Dow futures dropped more than 100 points early in the morning, and then, in the final 17 seconds, buyers jumped in again. The Dow Industrial Average is up more than1,000 points since January 1 and almost 3,000 points since the election.

This was the third up week in a row for the Dow, and the fifth straight positive week for the S&P and Nasdaq. The 10-year Treasury note has its best week since last June. Gold is up 8 of the last 9 weeks and at its highest level since October.

In economic news, U.S. new home sales rose 3.7 percent in January, below the expected increase of 6.3 percent. Meanwhile, consumer sentiment in the U.S. hit 96.3 in February, slightly above an estimate of 96. Earnings season, which is coming to an end, has been much stronger than anticipated.

Per Thomson Reuters, fourth quarter earnings growth is tracking about 7.5%. It seems US equity funds are where the world is parking its money for the time being, with over $25 billion coming into market coffers since January 1.

President Trump spoke before the Conservative Political Action Committee today, and he ramped up his attack against the news media, charging that “fake news” outlets are “the enemy of the people.” And later in the day, the White House fired a shot across the bow, blocking CNN, the New York Times, the Los Angeles Times, Politico and BuzzFeed from an off-camera White House press briefing conducted by White House press secretary Sean Spicer.

The Associated Press and Time magazine boycotted the briefing because of how it was handled. The White House Correspondents Association also protested the move.

Spicer only allowed in reporters from a handpicked group of news organizations that, the White House said, had been previously confirmed. The press session, known as a gaggle, was scheduled as a no-camera event, less formal than his usual briefings that are carried live on cable news. But past administrations have not hand-selected outlets that can attend such sessions.

Two of the barred outlets, CNN and The Times, have been a focus of Mr. Trump’s ire. And during the presidential campaign, some journalists from BuzzFeed News and Politico were prohibited from attending Trump rallies. Representatives of the barred news organizations made clear that they believed the White House’s actions were punitive.

Oil investors have placed the biggest bet in history that prices will rise. Fund managers now hold more Brent oil futures and options contracts than at any time on record, equivalent to some 480 million barrels of oil and nearly double the amount held just two months ago.

The Brent April contract now commands a premium of $1.50 over the December 2018, a condition known as backwardation. Crude inventories held in the world’s richest nations are still high, but they have begun to drain, and traders expect demand for oil to improve to the point where it overtakes supply.

Meanwhile, industry executives, analysts and investors sizing up Saudi Aramco say it may be worth nowhere near the $2 trillion that’s been touted. For example, Wood Mackenzie came up with a rough valuation of Aramco’s core business of $400 billion.

While that is significantly more than Exxon Mobil, with a market cap just under $340 billion; it is not enough to provide the capital the Saudis require to run the national budget. That’s just a guess at valuation because Saudi Aramco has never revealed financial statements.

For the Saudis, the writing is on the wall. Demand for oil will peak in the next 10 to 12 years, according to Royal Dutch Shell projections, as alternative fuels and electric cars gain popularity, putting Middle East energy producers on shakier footing.

Saudi Aramco valuations are premised on a simple calculation: Take the 261 billion barrels of reserves Saudi Arabia says lie under oil fields, and multiply by $8 (a benchmark used to value reserves). By that logic, though, Russian producer Rosneft’s market capitalization would be $272 billion instead of $64 billion, and the valuation of Exxon Mobil would be 53 percent smaller than it is.

Another factor for valuation – those reserves might not be all that they’re cracked up to be. Consider that Exxon Mobil just lost 4.3 billion barrels of reserves this week. Not lost really, just removed from their books. The reserves are still under the ground and controlled by Exxon Mobil but for accounting purposes, they no longer meet the SEC’s criteria for being economic to produce anytime soon, chiefly because oil prices have collapsed. Higher prices could push those reserves back onto the books, but lower demand could keep prices much lower for much longer.

Exxon Mobil CEO Darren Woods (he’s the guy who replaced Rex Tillerson) – Woods is calling for a nationwide carbon tax to discourage use of polluting fuels. In a blog post, Woods writes: It “would promote greater energy efficiency and the use of today’s lower-carbon options, avoid further burdening the economy, and provide incentives for markets to develop additional low-carbon energy solutions for the future.”

In a memo signed Feb. 21 but published late on Thursday, US Attorney General Jeff Sessions rescinded a six-month-old order that was to phase out the use of private prisons by the federal government. CoreCivic and Geo Group, two of the largest for-profit prison operators, both rose in after-hours trading. The companies have more than recovered the steep losses their shares suffered after the former administration’s September directive.

JC Penney will shutter two distribution centers and 130 to 140 stores. The closures announced Friday represent 13% to 14% of the company’s store portfolio, less than 5% of total annual sales and 0% of net income. The company is starting an early retirement program for about 6,000 eligible associates. Chief Executive Marvin Ellison said closing stores will allow Penney to adjust its business to “effectively compete against the growing threat of online retailers.”

Department store operators Kohl’s and Macy’s are betting on a potential money-spinner – carving out prime space within their sprawling stores and leasing them to other retailers. The move underscores the pressing need for the two chains to better monetize their real estate assets at a time when fewer people are visiting malls.

Meanwhile, retailers have been lobbying against a border-tax proposal that would increase the tax bite on any company that imports goods into the US. Retailers would be among the biggest losers if such a proposal were implemented in full, as much of their sales are of imported goods.

Retailers and other critics say the planned 20 percent tax on imports could be passed along in higher prices to consumers, including manufacturers that rely on imported goods to make their products. Some critics have warned of a potential global trade war which would sharply curtail US and world economic growth.

Advocates say U.S. exporters will gain as their revenues will be excluded from federal taxes. They say the tax on imports will encourage domestic production and cause the already strong dollar to rise, offsetting upward pressure on import prices. Yesterday, Trump spoke positively about a border-tax.

Today, Gary Cohn, the president’s chief economic adviser, told a group of executives at a private event in Washington that the White House does not support this initiative. If the administration can’t find unanimity in a tax plan, imagine what happens when an actual plan is subjected to public scrutiny.

Royal Bank of Scotland reported a sharp rise in losses, $8.8 billion for the full-year, marked by higher legal penalties and restructuring costs. RBS took charges to set aside money to cover legal cases in the US where analysts expect it to pay the biggest regulatory penalty in its history for mis-selling US securities backed by toxic mortgage loans.

RBS was the only British lender to fail the Bank of England’s stress test in 2016. The British government, which owns more than 70 percent of RBS, has said it will not resume selling its stake until the bank settles its US fine and resolves its state aid requirements.

MacDonald Dettwiler and Associates has agreed to buy US-based DigitalGlobe for about $2.4 billion to strengthen its position in the satellite imagery market.

China’s state-owned Sinochem is in early talks to buy an equity stake in Noble Group. And now, Iceberg Research has issued critical report that raises concerns about Noble’s accounting practices, claiming the commodity firm is not worth its book value. Noble shares are down about 17% on the news.

Google and Uber started off as friends, then became competitors, and are now adversaries in a bitter legal fight to control the future of transportation. Waymo, the Google self-driving-car group, has accused Uber of using stolen technology to advance its own autonomous-car development. Google filed a lawsuit, claiming that a team of ex-Google engineers stole the company’s design for the lidar laser sensor that allows self-driving cars to map the environment around them.

A software bug leaked encrypted personal data from hundreds of thousands of web-pages hosted by Cloudflare. The company said the bug was fixed quickly and there was no sign that the leak was exploited by hackers.

Foot Locker reported better-than-expected earnings in the fourth quarter despite a slowdown in the retail industry. Same store sales were up 5%, topping expectations.

HP Enterprise’s revenues drops 10%. Sales fell in the first quarter, which ended January 31, with sluggish demand for its storage equipment and servers.

Samsung Electronics is tightening board oversight on donations, as the conglomerate struggles with the fallout from a graft scandal. The flagship of South Korea’s top conglomerate Samsung Group has been at the center of an influence-peddling scandal that led South Korea’s parliament to impeach President Park Geun-hye in December.

Jay Y. Lee, leader of Samsung Group and Samsung Electronics’ vice chairman, was arrested last week after being named a suspect by the South Korean special prosecutor’s office. The Samsung board of directors will now vote on any financial payment of $886,000 or more and disclose any such payments publicly.