Financial Review

Pause

Sinclair Noe — November 16, 2016

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DOW – 54 = 18,868
SPX – 3 = 2176
NAS + 18 = 5294
10 Y – .40 = 45.41
OIL – .02 = 2.22%
GOLD – 3.40 = 1225.00

The Dow Jones Industrial Average had posted record closes for four straight sessions, before hitting the pause button today. Still, the Dow is up about 8.25 percent year to date, outperforming the S&P 500 and the Nasdaq composite, which were up 6.6 percent and 5.8 percent for the year, respectively.

The last two times the Dow outperformed the S&P and Nasdaq in a year when all three were higher year to date were in 2006 and 1996. If the Dow can break 19,000 it would likely just keep running higher. Based on market data from the past 30 years, when the Dow has crossed levels like 2,000, 3,000, 4,000 – all the way to 18,000, we can expect traders to push it up even higher.

The trend is true not just for a quick one-week return, but also one-month and one-quarter returns. If nothing else, a move through a thousand-point level attracts attention, encouraging more people to jump on board. Of course, we’re not there yet, and it is a probability, not a guarantee.

The producer price index was unchanged in October. The PPI measures inflation at the wholesale level. Higher costs of natural gas and gasoline were offset last month by declines in prices of food as well as services such as financial advice and hospital outpatient care. Still, some modest inflationary pressure is building.

Wholesale costs have risen 0.8% in the past 12 months. That’s the strongest one-year change since the end of 2014. A separate measure that strips out the volatile food, energy and trade margin categories is rising at an even faster rate. So-called core producer prices have climbed 1.6% in the past 12 months, the fastest pace in two years.

Industrial production was unchanged in October after a big drop in output as warmer-than-normal temperatures reduced the demand for heating; utility output dropped 2.6%. Manufacturing output edged up 0.2%, while mining output jumped 2.1% higher, its best performance since March 2014.

The National Association of Home Builders’ index was steady was unchanged at 63 in November. Any reading over 50 indicates improvement.

A measure of mortgage application activity fell to a 10-month low as 30-year mortgage rates jumped to their highest levels since January. Borrowing costs to buy a home and to refinance posted their steepest weekly increase since June 2013. Interest rates on 30-year fixed-rate mortgages with conforming loan balances of $417,000 or less averaged 3.95 percent, which was up from 3.77 percent the previous week and the highest since January

Federal Reserve Bank of St. Louis President James Bullard said there’s a chance the US economy could get a medium-term boost if President-elect Donald Trump increases infrastructure spending and reforms taxes. Bullard said a “single policy-rate increase, possibly in December, may be sufficient to move monetary policy to a neutral setting.” Prices of federal funds futures contracts indicate investors see a more-than 90 percent probability the U.S. central bank will hike when officials meet Dec. 13-14.

Not everybody expects a Trump boost for the economy; Bill Gross, manager of the Janus Global Unconstrained Bond Fund, writes: “There is no new Trump bull market in the offing. Investors must drive with caution, understanding that higher deficits resulting from lower taxes raise interest rates and inflation, which in turn have the potential to produce lower earnings.” Gross writes many of the policies Trump favors represent the status quo – and a Clinton administration would have been no better. “Neither party as they now stand has bold policies beyond the reach of K Street lobbyists.”

So far, the Trump transition team does not seem particularly concerned about a transition team staffed heavily with lobbyists from energy, agriculture, transportation, and banking. Meanwhile, Senate Republicans voted to keep Mitch McConnell of Kentucky as the majority leader. Democratic senators elected Chuck Schumer of New York as minority leader.

Now, it is important to remember that Bill Gross is a bond guy; and while stocks have enjoyed record highs since the election, bond prices have tanked. The bond market largely believes Trump’s policies can lead to economic growth at the expense of deficit spending and inflation. And with bond prices dropping, volatility in the bond market has surged. Fixed income markets and equity markets are following completely different narratives after the election.

So, the question is which one is right. And the answer might be that they are both wrong. Stocks are probably overbought and bonds are probably oversold, and that can continue to play out in the near term. The most like course is a reversion to the mean. But absent equilibrium, Gross makes a good point about inflation and higher rates eventually dragging stocks lower.

But the market has not yet determined a clear direction. On Monday, something very rare happened: more than 300 issues on the New York Stock Exchange advanced to new 52-week highs, and more than the same number of issues fell to new lows. It happened for the first time ever.

The number of stocks setting new 52-week highs should normally outnumber those setting new lows (and vice versa,) reflecting some uniformity and clarity of direction. However, a wide dispersion between new highs and lows is not seen as a good market indicator. The high number of stocks making new highs and lows at the same time show that this is a confused market.

Snapchat, the messaging service, has filed to go public in one of the most eagerly anticipated market debuts of 2017. Snapchat is aiming for a valuation of more than $30 billion, which would make it the third-most-valuable technology company at the time of listing, after Alibaba and Facebook.

Snap, the parent company, aims to have shares trading as soon as March. Its last round of financing came in May to the tune of $1.8 billion, which valued the company at around $17.8 billion. Snapchat accounts for 32 percent of social network users in the United States, it’s only getting 2.3 percent of social network ad dollars.

No one questions Snapchat’s ability to engage its users. But turning that engagement into money is another story.

Amazon for the first time has filed lawsuits against counterfeit sellers, after several businesses voiced concern that knockoffs were killing their sales and endangering consumers. Amazon has increasingly relied on third-party sellers to fuel its growth, but opening its website brought with it a greater chance for fake goods to enter its warehouses.

Twitter has launched a counteroffensive against trolls who have been on the attack for too long. The company is expanding its “mute” function, allowing users to block specific content – like words, phrases or conversations – from appearing in their notifications section. The damage to Twitter’s reputation caused by abuse and harassment was reportedly one of the factors that swayed Salesforce against buying the platform earlier this year.

Seeking to ease concerns over its largest ever deal, Microsoft has offered concessions to EU antitrust regulators over its $26 billion bid for LinkedIn. The European Commission, which will rule on the deal by Dec. 6, did not provide details. It’s expected to seek feedback from rivals and customers before deciding whether to accept the concessions, demand more, or open a full investigation.

EU antitrust regulators are set to fine HSBC, JPMorgan and Credit Agricole by the end of the year for rigging financial benchmarks linked to the euro. Charges were levied in May 2014 against the three banks, which denied wrongdoing. Deutsche Bank, RBS and Societe Generale admitted guilt in December 2013, while Barclays avoided a fine because it alerted the European Commission.

Despite years of delays, the SEC has finally approved a plan to introduce a vast surveillance system to oversee trading on the US stock market, in response to the 2010 “Flash Crash.” The creation of a Consolidated Audit Trail will establish a regulatory central database and monitor every trade order, execution, modification and cancellation in real-time.

Boeing will cut 500 jobs over four years and shut two plants as it revamps its defense and space unit. The company also said it would create a new global operations group that would include its defense units in Australia, Saudi Arabia, and UK. Boeing’s defense, space and security business accounted for 31.4% of the plane maker’s total revenue of $23.9 billion in the latest quarter.

During his campaign Donald Trump singled out Ford by name, calling on the American car manufacturer to stop sending jobs to Mexico and threatening to slap tariffs on any cars imported from south of the border. Ford CEO Mark Fields says Ford still intends to move small car production to Mexico, but he hopes to work openly with the new president and Congress.

The Fiesta Bowl has a new sponsor for this year’s game, and not a moment too soon. Six weeks before the Fiesta serves as one of 2016’s two College Football Playoff semifinals, the game is now the PlayStation Fiesta Bowl.

Financial Review

How Low Can It Go?

Sinclair Noe — July 5, 2016

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DOW – 108 = 17,840
SPX – 14 = 2088
NAS – 39 = 4822
10 Y – .09 = 1.36
OIL – 2.39 = 46.60
GOLD + 5.70 = 1357.20

Longer-end Treasury yields traded near record lows, with the 30-year yield around 2.15 percent. The 10-year yield dropped to an all-time low of 1.367 percent.

The U.S. dollar index posted another gain to 96.28, with the euro around $1.11 and the pound sterling traded near $1.30, levels not seen in more than 30 years. European stocks were mostly lower, with the German DAX off more than 1.5 percent. The STOXX Europe 600 Banks index under-performed, trading about 2 percent lower.

Factory orders in the U.S. fell 1% in May after two straight gains. So far this year, orders for manufactured goods have dropped 1.9 percent to $2.2 trillion compared to the same period in 2015.

Demand in a category that serves as a proxy for business investment – non-military goods that exclude the volatile aircraft category – slipped 0.4 percent in May. The Commerce Department also reports durable goods orders declined 2.3%.

Demand for mining and energy-related equipment slid 5.8% following a 20.8% plunge in the prior month. Orders for computers were also weaker. Bookings for nondurable goods rose 0.3%.

Corelogic reports home prices nationwide, including distressed sales, increased year over year by 5.9 percent in May 2016 compared with May 2015 and increased month over month by 1.3 percent in May 2016 compared with April 2016.

The CoreLogic HPI Forecast indicates that home prices will increase by 5.3 percent on a year-over-year basis from May 2016 to May 2017 – so more of the same. Twenty-two states reached new highs for the month; Arizona was not one of them; we remain 23.9% below peak prices, but the state did record a 5.8% year-over-year price increase.

Tomorrow we get the minutes from the Fed’s June FOMC meeting. If the minutes show real concerns about the durability of the economy, it could be friendly to the dovish market, which now only has fully priced in the next rate hike in 2018. Alternatively, the minutes could suggest the Fed was fairly confident that the labor market would come back. This would be less friendly for the market.

Federal Reserve Bank of San Francisco President John Williams held a couple of interviews today and said Britain’s vote to exit the European Union probably won’t derail the U.S. economy, leaving the Fed scope to raise interest rates this year if his growth and inflation expectations are met.

The Bank of England takes action. The BOE’s Financial Policy Committee cut its counter-cyclical capital buffer for UK banks to zero from 0.50%, according to the latest Financial Stability Report. The committee says the buffer will remain in place for at least the next year as the UK economy deals with “uncertainty” following the vote for a British exit from the European Union, or Brexit.

Australia’s central bank held its cash rate today at a record low of 1.75%, a widely expected decision given political uncertainty and a lack of timely information on domestic inflation. The country still doesn’t know who won Saturday’s general election and final results may not be known for another week.

Euro zone business growth held steady in June, but the modest pace suggested economic growth in the second quarter was half the rate of January-March, even as a rebound in Italy and rapid acceleration in Spain brightened the outlook. In France, data showed both services and manufacturing contracting. The majority of the surveys were completed before Britain voted on June 23 to leave the European Union.

In the past 24 hours, three different UK property funds have frozen withdrawals, citing a rush by investors to pull out their money in the wake of the UK’s Brexit vote. In 2007, Bear Stearns banned withdrawals from one of its hedge funds after investors were spooked by rising defaults and bankruptcies. The British property funds are very different beasts from the exotic, derivative-laced vehicles that presaged the global financial meltdown. These funds are open to regular retail investors and invest in things like office parks and malls.

But forget about Brexit for a moment; the new worry of the day is Italian banks. A big feature from The Wall Street Journal  captures most of the concerns with Italy’s banking system and the political turmoil it appears liable to set off.

In short, Italian banks are loaded with bad debts; 17% of bank loans in Italy are “sour,” a level much greater even than that of the US banking system at the height of the financial crisis (5%).Of course, issues surrounding the Italian banking system are not strictly new, and in the past year shares of UniCredit — Italy’s only bank considered globally significant — and Banca Monte dei Paschi di Siena, the oldest bank in the world, are down over 60%.

Reports surfaced in April that the government could step in to shore up the banking system; days later the government got executives, insurers, and investors to put 5 billion euros into a rescue fund for Italy’s weakest banks. This morning, a report from Bloomberg said Italy was looking to inject up to 3 billion euros into Monte dei Paschi; this would be the bank’s third bailout since the financial crisis.

The U.S. holds more oil reserves (264 billion barrels) than Saudi Arabia (212 billion) and Russia (256 billion), the first time it has surpassed those held by the world’s biggest exporting nations, according to a new study by Rystad Energy.

The analysis of 60,000 fields worldwide, conducted over a three-year period, shows total global oil reserves at 2.1 trillion barrels. That is 70-times the current production rate of about 30 billion barrels of crude per year. For the U.S. more than 50 percent of the remaining oil reserves is in unconventional shale oil. Today, oil prices dropped nearly 5%.

NASA’s Juno spacecraft, built by Lockheed Martin, ended a five-year, 1.8 billion-mile journey to Jupiter, with a do-or-die engine burn to sling itself into the planet’s orbit. No small trick. At the time of its arrival, Juno was flying through the solar system at over 150,000 miles per hour—making it one of the fastest man-made objects ever.

Juno will spend the next 20 months studying what lies beneath the gas giant’s thick clouds and measure its gravity, magnetic fields and water content. Juno is the ninth spacecraft to see Jupiter up close, but only the second to ever go into orbit around it, and Juno promises to provide the most intimate peek into the far-off Jovian system yet.

Poland has made significant progress in its talks with Raytheon over a Patriot missile system valued at an estimated €5-billion-euro. According to the Polish Defense Ministry, the country is ready to move ahead with the plan because Raytheon pledged that 50% of the missile system spending would be “done in Poland by Polish arms firms.”

BlackBerry will stop making its Classic smartphone. The Classic was launched early last year, with a physical keyboard and powered by the company’s overhauled BlackBerry 10 operating system. BlackBerry has since launched a phone powered by Alphabet’s Android software and plans several more.

Google DeepMind, the London-based artificial intelligence unit owned by Alphabet, announced a research partnership today with the British National Health Service to gain access to a million anonymous eye scans. DeepMind specializes in machine learning, the increasingly important area of technology where algorithms allow computers to learn and figure things out on their own.

DeepMind will use the eye scan data to train its computers to identify eye defects. The aim is to give doctors a digital tool that can read an eye-scan test and recognize problems faster. Earlier detection of eye disorders related to diabetes and age-related macular degeneration could allow doctors to prevent loss of vision in many people

A bidding war with Salesforce.com forced Microsoft to pay nearly $6 billion extra last month to seal its planned takeover of LinkedIn. Details of the frenzied bidding were revealed in a filing with the SEC ahead of a shareholder vote to approve the transaction. A month-long back-and-forth between the two rivals pushed the value of the all-cash deal to $26.2 billion, making it the third-largest acquisition in the tech industry.

Three former Barclays traders have been found guilty of Libor manipulation almost four years after the bank paid out hundreds of millions of dollars in fines for fixing the key benchmark rate. Days after the British firm became the first to settle, its Chief Executive Officer, Bob Diamond, lost his job and regulators eventually imposed roughly $9 billion in penalties on the financial industry.

The convictions bring the total number of bankers Britain has convicted over the long-running Libor-rigging scandal to five. That is still a better fines to conviction ratio by far than the US had for mortgage abuses by big banks.

London Stock Exchange shareholders approved a $27 billion merger with Deutsche Boerse yesterday despite renewed uncertainty following the Brexit vote. The two exchanges insisted that their all-share merger to create the world’s biggest bourse by revenue was essentially “Brexit proof”.

Financial Review

What Are the Odds?

Sinclair Noe — June 14, 2016

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DOW – 57 = 17,674
SPX – 3 = 2075
NAS – 4 = 4843
10 Y – .01 = 1.61%
OIL – .39 = 48.49
GOLD + 1.70 = 1286.50

The rally for sovereign debt has passed an important milestone, with the yield on Germany’s benchmark 10-year bonds hitting zero for the first time and closed slightly negative, -0.01%. And as German bond yields slide into negative territory, the European Central Bank is running out of German debt to buy for its asset-purchase program. The central bank may have to consider scrapping the minimum yield limit or dropping a rule that prevents it from holding more than a third of any bond issue.

The strong demand is standing out in cautious trade ahead of a series of policy meetings at major central banks and rising uncertainty over whether the UK will stay in the EU. Four polls put the “Leave” campaign ahead of “Remain”. The latest polls show as much as a 7-point lead for the exit camp. The polls might be wrong; they were wrong about the vote for Scottish independence.

While a significant numbers of voters say they want to leave the EU, when it comes time to actually cast their vote, fear over the potential political and economic impact might steer them to take the safer course. British betting parlors still have odds of a Brexit at just 40%.

One month ago, the odds makers were placing a 20% chance on the possibility of the UK leaving the EU. Betting doesn’t tell what the future will be, it tells us what the probable future will be. The bookies are usually right.

Reuters is reporting the ECB would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union. The preparations illustrate the heightened state of alert ahead of the June 23 referendum. An official announcement from the ECB would come on June 24 if an early-morning result showed that British voters had chosen to leave the EU.

The aim is to underpin investor confidence across Europe and contain further market jitters. Providing extra funds to banks after a Brexit vote would ease pressure on them and reduce the potential for panic as financial markets digest the result on Friday, June 24, shortly before closing for the weekend. The Bank of England has already sought to avert any liquidity squeeze by providing injections of cheap funding for banks ahead of the vote.

Investors have amassed their largest cash pile since 2001 and cut equity holdings to a four-year low. Even though world bond yields have never been lower and many bank deposit rates around the world are now negative, investors are willing to hold more cash in their portfolios than at any time since November 2001.

According to a Bank of America Merrill Lynch report, risk appetite fell to its lowest level in four years, consistent with recession, although growth and profit expectations hit a six-month high and inflation expectations a one-year high. Fund managers held an average 5.7 percent of their portfolio in cash, up from 5.5 percent in May. If you are looking for the pony, consider that there is a lot of cash that can come off the sidelines fast.

The cost of imported goods rose 1.4% in May, the biggest increase in four years, largely because of a rebound in oil prices, which jumped 17.4%. Although import prices are still 5% lower compared to a year ago, they are no longer falling. Excluding fuel, import prices rose a much smaller 0.3% in May. That was still the largest gain since March 2014. The price of goods exported by the US to other nations, meanwhile, climbed 1.1% in May.

Shoppers increased their spending in May. The Commerce Department reports retail sales rose a seasonally adjusted 0.5 percent last month, the second straight increase after a 1.3 percent gain in April. Online and non-store purchases climbed 1.3 percent in May. Sporting goods stores, restaurants, clothiers and auto dealers also enjoyed higher sales.

Rising gasoline costs fueled a 2.1 percent jump in spending at gas stations; we didn’t buy more gas, we just paid more. Sales declines hit building material stores, furnishers and department stores last month. Total retail sales have risen 2.5 percent from a year ago.

The Federal Open Market Committee meeting for June kicked off today, with the interest rate decision and press conference due tomorrow. Market implied odds of a rate hike at this meeting have dropped to zero in the aftermath of the latest jobs report. They were higher than 30 percent as recently as May 26. Of course, the FOMC could hike rates or take other action; not likely but not totally impossible. The more probable move is that the Fed continues jawboning.

Today’s retail sales report would probably be enough to justify a rate hike, were it not for the May jobs report, which came in at a very weak 38,000 jobs. Federal Reserve Chair Janet Yellen said in a June 6 speech in Philadelphia, “We are now close to eliminating the slack that has weighed on the labor market since the recession.”

And the unemployment rate now stands at 4.7%; if you think back 7 years ago, or even 2 years back, you would think that 4.7% unemployment would indicate full employment, but it doesn’t.

Payrolls have increased by an average of 116,000 per month over the past 3 months; well below last year’s 229,000 per month pace of job growth. The Labor Department reported on June 8 that job openings rose to 5.8 million in April from 5.7 million in March. Hires, meanwhile, fell to 5.1 million, from 5.3 million.

Businesses complain that there is a shortfall of qualified workers. Usually this might indicate that we are near an inflection point in the labor market. Business needs workers, even if that means paying up and even training candidates for the position; the scales might be tipping from employers to employees, but the transition is slow.

The National Federation of Independent Business’s optimism index rose 0.2 point to 93.8. Most of the index’s sub-gauges rose or stayed neutral. Fewer owners expect to invest in capital expenditures, and the number of job openings and earnings trends both declined.

Oil prices are down this morning, pushed lower for the fourth consecutive day, despite a bullish report from the International Energy Agency. The IEA revised its demand forecast upward for this year by 100,000 barrels a day, to 1.3 million barrels a day from 1.2 million barrels a day.

The possibility of a Brexit is also weighing on oil; if the UK leaves the EU, the British pound will likely take a hit and the greenback will appreciate. As oil trading is conducted in dollars, a stronger dollar would push down oil prices in the US.

Moody’s has placed Microsoft’s ‘AAA’ credit rating under review for downgrade following the software giant’s deal to buy LinkedIn for $26 billion, citing concerns that it would be funded through new debt. Why is Microsoft taking out such a big loan if it has enough cash to buy LinkedIn 4x over? Taxes. Microsoft can avoid paying a 35% tax rate to repatriate cash from overseas and could also deduct interest payments.

Marriott International is on track to win unconditional EU antitrust approval for its cash and share purchase of Starwood Hotels and Resorts Worldwide. The deal $12.5 billion deal will combine Marriott’s Ritz-Carlton and Starwood’s Sheraton and Westin chains together to create the world’s largest hotel company.

Zenefits announced another layoff today. It’s cutting about another 106 people, about 9% of its salesforce, and it is shutting down its Arizona sales office, though it is not pulling out of Arizona altogether.

Iran is preparing to unveil an agreement for Boeing jetliners within days that could be valued at about $25 billion. The transaction would be the first struck by the plane maker since sanctions were lifted in January and would require US government approval. An order listed at $27 billion announced by Europe’s Airbus Group SE also needs a US Treasury Department license before it can be finalized.

Boeing is poised to land a comparable deal if they can get the appropriate government permissions. Iranian officials say the country needs to invest about $50 billion to bolster its fleet with 400 mid- and long-range jetliners and 100 short-haul planes.

High-speed internet service can be defined as a utility, a federal court has ruled in a sweeping decision clearing the way for more rigorous policing of broadband providers and greater protections for web users. The decision affirmed the government’s view that broadband is as essential as the phone and power and should be available to all Americans, rather than a luxury that does not need close government supervision.

Today’s 2-to-1 decision from a three-judge panel at the United States Court of Appeals for the District of Columbia Circuit came in a case about rules applying to a doctrine known as net neutrality, which prohibit broadband companies from blocking or slowing the delivery of internet content to consumers.

The court’s decision upheld the FCC on the declaration of broadband as a utility, which was the most significant aspect of the rules. For now, the decision limits the ability of broadband providers like Comcast and Verizon to shape the experience of internet users. Without net neutrality rules, the broadband providers could be inclined to deliver certain content on the web at slower speeds, for example, making the streams on Netflix or YouTube buffer or shut down.

Such business decisions by broadband providers would have created fast and slow lanes on the internet, subjecting businesses and consumers to extra charges and limited access to content online. Cable and telecom companies say they will continue to fight the rule, and the next step would be to take the case to the Supreme Court; which you will recall is short one justice.

Financial Review

Thankyou

Sinclair Noe — June 13, 2016

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

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DOW – 132 = 17,732
SPX – 17 = 2079
NAS – 46 = 4848
10 Y – .02 = 1.62%
OIL – .53 = 48.54
GOLD + 10.50 = 1284.80

Equities across the globe drifted into the red ahead of a data heavy week in the U.S. that will include retail sales, inflation and other economic figures. Reasons for the declines: Brexit woes, weak Chinese investment growth, fresh strength in the yen, and lower oil prices. Traders are also anticipating a busy week for central banks with policy meetings for the Fed, Bank of Japan, Swiss National Bank, and Bank of England.

The safe-haven yen strengthened across the board overnight, hitting a three-year high against both the euro and sterling on Brexit worries and reaching a six-week high vs. the greenback. Japan faces a credit rating downgrade after the government delayed a planned second sales tax hike.

With ten days to go until a Brexit vote, the “Leave” campaign has taken a lead over “Remain” in the latest YouGov poll, reversing the one-point lead held by the pro-EU camp in the last survey taken on June 6. Another poll from research firm ORB showed that 55% of British citizens feel they should leave the EU, versus 45% who favor remaining. Sterling moved lower against the dollar this morning.

The Federal Reserve FOMC meets tomorrow and then publishes a statement on Wednesday at 11 AM Pacific, followed by a Janet Yellen press conference. Here’s what we might reasonably expect: no rate increase from the Fed. The May jobs report was an abysmal 38,000 new jobs; so there is just too much slack in the labor market right now.

Also, the meeting is one week ahead of the Brexit referendum in the UK, which could go either way. So, don’t count on the Fed surprising the markets on Wednesday. Then the question is whether the Fed will be dovish or hawkish about a July rate hike. They will probably try to strike a balance. There is still time to telegraph a hike, if conditions improve substantially.

The Supreme Court has struck down a Puerto Rican law that would have allowed the U.S. territory’s public utilities to restructure their debt. The Bankruptcy Code requires municipalities to seek their state’s permission before they can declare bankruptcy, but Puerto Rico does not count as a “State” for purposes of this provision. The island’s utilities are effectively locked out of the protections afforded to similar debtors in the 50 states.

To compensate for this problem, Puerto Rico enacted the Puerto Rico Corporation Debt Enforcement and Recovery Act, which effectively creates a special bankruptcy code under the island’s own law that fills the gap in federal law. Today the Supreme Court ruled that the new law won’t fly.  Puerto Rico cannot file for bankruptcy. The 5-2 ruling leaves management of the island’s fiscal crisis to Congress. The House of Representatives passed a bill last week to help Puerto Rico manage its debt crisis. The Senate has not yet acted.

The Puerto Rico case today concerns about $20 billion in debt owed by the island’s public utilities companies. Absent a quick decision by Congress (not likely), power, water, sewer, and transportation are at risk of being shut down or turned off. The lost services are likely to exacerbate Puerto Rico’s debt problems as more people flee the island, depressing Puerto Rico’s tax base even further, potentially forcing deeper cuts, which will lead even more residents to flee. It is a slow motion debt spiral and there is no relief in sight.

Oil futures moved lower today, after dropping 4.2% in the previous two sessions as drilling rigs targeting crude in the U.S. rose by three to 328 last week, a second weekly gain which is a record since last August. The data from Baker Hughes suggests companies that were sidelined by low oil prices are starting to produce at $50 a barrel, and there are certainly many companies that didn’t halt production but just slowed production at lower prices. So, the $50 to $60 per barrel price range seems like the sweet spot where production returns. Now we know where the ceiling is.

Microsoft is acquiring the professional social network LinkedIn Corp. for $26.2 billion. Microsoft will pay $196 per share in an all-cash transaction, inclusive of LinkedIn’s net cash, a 49.5 percent premium to LinkedIn’s closing price Friday. The deal is the biggest ever for Microsoft. LinkedIn has long been valued for having the potential viral growth of a social network with the recurring revenues of a software-as-a-service business.

Symantec is buying privately held cyber security company Blue Coat for $4.6 billion, with Blue Coat chief Greg Clark becoming the company’s CEO once the deal closes. Symantec, which makes the Norton antivirus software, has been undergoing a transformation over the past year, selling its data storage unit, Veritas, for $7.4 billion to gain the cash necessary for turning around its core security software business.

Apple started its annual Worldwide Developers Conference in San Francisco today. Here’s what came out of Day One:

They announced Apple Pay and Siri for desktop Macs; a new Apple Watch app called Breathe, which is designed to help people control their mood; a big update to the Remote app for the Apple TV; a major update to iOS, the app that runs on iPhones, including fun new messaging options, emoji features, and lock screen and notification menus; programmers can also build apps specifically for iMessage; iOS also has additional new artificial-intelligence features, like a keyboard that can predict what you want to type and updates to the Photos app that can use facial recognition to sort photos by person; the ability for developers to build their apps into Siri and Maps; a  revamp to Apple Music; and an app for controlling automated smart homes called “Home”.

 Most of these new features will hit Apple devices in the fall.

Walgreens has terminated its relationship with Theranos. A statement posted on Walgreens’ website says the pharmacy chain is shutting down all 40 Theranos’ wellness centers at Walgreens stores in Arizona. The decision by Walgreens is a huge blow to Theranos, as the wellness centers were the company’s primary source of revenue. Theranos still operates five centers (four in Arizona and one in California).

The company once touted its Edison device as a ground-breaking technology able to test blood from just a pinprick. In October, The Wall Street Journal reported that the company’s tests weren’t producing accurate results and that the company was trying to cover it up. The Justice Department and SEC are investigating Theranos and its founder Elizabeth Holmes. Now comes word that Jennifer Lawrence will portray Elizabeth Holmes in an upcoming movie. I can’t make this stuff up.

Wal-Mart will stop accepting Visa cards in Canadian stores after failing to agree on terms with the credit card provider – the latest in a years-long battle between the two companies over fees and the right to steer customers to certain types of payments. Visa is the largest payments network in Canada, with 50.6M cards in circulation and $232.6B worth of transactions last year.

The Libyan Investment Authority, the country’s sovereign wealth fund, will go head-to-head with Goldman Sachs in a London court today in a case accusing Goldman of bribery to influence fund executives to make risky trades that led to a $1.2 billion loss. Now you might imagine that a sovereign wealth fund takes its chances and they might win some investment bets and lose some, but apparently Goldman execs knew they were pitching complex and unsuitable derivatives.

In documents provided to the court by the LIA cited Goldman Sachs describing the sovereign wealth fund as having “zero-level” financial sophistication and one individual having “delivered a pitch on structured leveraged loans to someone who lives in the middle of the desert with his camels”. One Goldman executive is quoted as saying: “They are very unsophisticated and anyone could rape them.”

Beyond the question of suitability is the question of bribery, including travel and dining at five-star hotels, prostitutes in Dubai, while an internship at Goldman was also arranged for an official’s brother. The Libyans said the trades were made under “undue influence”. Goldman said the claims were without merit and it would fight them vigorously. And then there is the question of fees charged. While the Libyan Investment Authority was losing $1.2 billion, Goldman was collecting possibly as much as $350 million in fees.

Meanwhile, Goldman Sachs is under investigation by the Justice Department, Federal Reserve, SEC, and New York’s Department of Financial Services for its part in bond sales for 1MDB, Malaysia’s sovereign fund, which is at the center of several international investigations into alleged corruption and money laundering by public officials. Goldman arranged for about $6.5 billion in bond sales. Goldman allegedly took a very large commission in the neighborhood of $600 million.

Another problem is $3 billion Goldman raised via a bond issue; days after Goldman sent the proceeds into a Swiss bank account controlled by the fund, half of the money disappeared offshore, with almost $700 million apparently later ending up in the prime minister’s bank account. The case is being investigated in 10 countries. New York’s banking regulator has told Goldman to submit details of its internal review by Tuesday.

On June 2, AT&T launched a customer loyalty program called “AT&T thanks,” trademarking the name in connection with loyalty incentives. Citigroup, meanwhile, has been using the term “thankyou” (all one word) since 2004 to promote its own customer loyalty and rewards programs, and they trademarked it as well.

Citigroup is now suing AT&T for thanking its customers, claiming the phrase “AT&T thanks” is confusingly similar. Of course the words “thanks” and “thank you” are some of the most common words in the English language. Thankfully, Citigroup and AT&T do not own those words.