Financial Review

No Coffee Today

Sinclair Noe — March 21, 2017

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

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DOW – 237 = 20,668
SPX – 29 = 2344
NAS – 107 = 5793
RUT – 37 = 1346
10 Y – .04 = 2.44%
OIL – .72 = 47.50
GOLD + 10.30 = 1245.20

The Treasury yield curve reached its narrowest level since the end of February, a possible indicator that investors are losing faith in the “reflation trade.” Yields started falling last week after the Federal Reserve raised interest rates for the second time in three months.

Typically, such a move would help push rates higher across the curve to better align with the higher baseline rates. However, the Fed’s reluctance to commit to a faster pace of interest-rate hikes, resulting in a short squeeze, which then lured bond bulls back into the debt market.

Long-term rates continued lower over the past two days as congressional Republicans have struggled to secure the support necessary for President Trump’s proposed health-care overhaul bill to make it out of the House of Representatives. A vote on the bill has been set for Thursday. Trump has said that passage of the bill is a prerequisite for tax reform.

These two events have brought into question the underlying assumptions that helped send Treasury yields rocketing higher in the aftermath of Trump’s Nov. 8 electoral victory. The Federal Reserve said they were sticking to guidance for 3 rate hikes, and not including speculation about potential pro-growth fiscal policies, including tax reform and infrastructure spending, throwing shade on Trump’s yet un-released details about his plans for the fiscal overhaul.

The American Health Care Act is not finding public support; per Five-Thirty-Eight the most recent six polls from firms such as Fox News, Morning Consult, and YouGov/CBS News showed that an average of 30% of Americans support the American Health Care Act, while 47% of people surveyed were against it. And health-care reform is undergoing last minute revisions prior to a vote.

Trump went to Capitol Hill this morning to muster support for the bill, but even if it passes the House, it might not clear the Senate. The bill might pass, or not – time will tell, but for today at least, the markets felt uncertainty. No coffee for the closer.

The stock market sold off sharply with many market leaders of the reflation trade lagging. And this is in context of a market that has priced in tax reform, infrastructure spending, and maybe a bit more.

And it follows on the heels of FBI Director Comey’s testimony before a rare open congressional committee hearing. The market ignored the slam at Trump’s credibility, and while the president himself may be Teflon, the market is not when it comes to his policy initiatives.

Earlier today, Bank of America Merrill Lynch released its monthly fund managers’ survey, with a record number saying the market is extremely overvalued, and just 10 percent expecting to see US tax reform passed by Congress before its August recess, as promised by the administration.

Again, a record number of institutional investors say the US equity market is overvalued. Yet at the same time, a net 48% of these managers say they are overweight stocks in their portfolios, meaning they hold more than their benchmarks would require.

If the health care bill passes the House and Senate, and if we see solid details on tax reform, we might still see a rally, but today was a day of uncertainty.

The Dow and the S&P snapped a months’ long streak without a drop of 1% for either index. As investors sold stocks, they snapped up bonds.

The yield on the 10-year Treasury note fell 4.6 basis points to 2.426% on Tuesday, while the yield on the two-year note shed 3.6 basis points to 1.260%, leaving the spread between the two at 1.166 percentage points, the narrowest level since Feb. 28.

The general direction of the yield curve in a given interest-rate environment is typically measured by comparing the yields on the two- and 10-year issues, although the difference between the federal funds rate and the 10-year note are often used as well.

The underlying concept is straightforward. When the difference between yields on short-term bonds and yields on long-term bonds decreases, the yield curve flattens, that is, it appears less steep. A flat yield curve is typically an indication investors and traders are worried about the macroeconomic outlook.

The big losers today were bank stocks, with the XLF ETF that tracks the sector dropping as much as 2.6%. Individual losers in the banking sector were Goldman Sachs, down almost 3%, Bank of America down over 5.5%, and Morgan Stanley, down 4%.

The US current-account deficit, a measure of the nation’s debt to other countries, fell 3.1% to $112.4 billion in the final quarter of 2016, the government said. The drop in the current-account deficit in the fourth quarter was tied to a large increase in primary income — returns on American-owned assets held abroad. That offset a larger trade deficit in goods.

There are a raft of Federal Reserve officials speaking this week. This morning, Fed Bank of New York President William Dudley gave a talk at a forum on banking standards in London, in which he was critical of Wells Fargo but made no mention of monetary policy. Dudley is calling for better incentives to drive performance on Wall Street, while stating banks have “a long way to go” in reforming internal culture.

Google has issued a public apology to major advertisers after their spots were featured alongside YouTube videos carrying homophobic and anti-Semitic messages. It led to Marks & Spencer, HSBC, the BBC, and McDonald’s pulling ad content from Google sites in the UK.

The tech giant is taking a “tougher stance on hateful content” in response, as well as hiring more staff and tightening safeguards in its YouTube Partner Program.

Wal-Mart will launch its first investment arm to expand its e-commerce business in partnership with retail start-ups, venture capitalists and entrepreneurs. Called Store No. 8, the Silicon Valley-based investment team will work with startups that specialize in areas like robotics, virtual and augmented reality, machine learning and artificial intelligence.

Augmented reality is coming to Apple, and the first fruits could be “Matrix-style” 3D photographs that users can move around – and eventually view through AR smartglasses. Meanwhile, Apple unveiled an updated version of its iPad tablet with a brighter screen and a $329 starting price that is the lowest ever for a full-sized tablet from Apple.

Just don’t take it on a plane. The US issued new rules that will prevent passengers from carrying most electronic devices into the cabin during flights from eight countries in the Middle East and Africa. Passengers will have to check in any devices bigger than a smartphone — including iPads, Kindles and laptops — before clearing security or boarding.

Saudi Arabia may extend production cuts if oil supplies stay above the five-year average. New data shows the US rig count growing for a ninth week. US crude output has climbed to 9.1 million barrels a day, the most since February last year. And a Libya official said two major ports are preparing to restart oil exports.

British inflation last month shot past the Bank of England’s 2% target for the first time since the end of 2013, leaping by 2.3% in annual terms. The British government announced yesterday that Prime Minister Theresa May would trigger Article 50 of the Lisbon Treaty on March 29 and initiate the two-year negotiation process for leaving the European Union.

Goldman Sachs will begin moving hundreds of people out of London before any Brexit deal is struck as part of its contingency plans for Britain leaving the European Union. Leading financial firms warned before last year’s June referendum that they would have to move some jobs if there was a leave vote, and have been working on plans for how they would do so for the past several months.

Many banks now believe they will lose “passporting” rights, that let them sell services across the EU from their London hubs. The bulk of Goldman’s European operations are in Britain, where it has around 6,000 employees.

Britain’s high street banks processed nearly $740 million from a money-laundering operation run by Russian criminals with links to the Kremlin and the FSB, per The Guardian. HSBC, RBS, Lloyds and Barclays are among 17 banks based in the UK that are facing questions over what they knew about the international scheme and why they didn’t turn away suspicious money transfers.

Marriott International plans to add up to 300,000 rooms worldwide by 2019, as part of a three-year growth plan, ahead of the No. 1 hotel chain’s investor day. The owner of Ritz-Carlton and St. Regis luxury hotel brands said it would earn $675 million in stabilized fees from hotel rooms added to its system. Earlier this month, Marriott said it would speed up expansion of its Starwood brand in Europe by 2020.

Target’s first fully redesigned shop in Houston will include two separate entrances: one for time-crunched grocery shoppers, and another for those who want to browse fashion or beauty. The company will use the design, which also includes order pickup parking spots, as a starting point for the 500 stores it plans to make over in 2018 and 2019. It’s part of the $7 billion investment Target disclosed last month.

Sears revealed “substantial doubt” about its ability to stay in business in an annual report filed late Tuesday. The company said in the report, “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.”

Sears said its efforts to generate cash by selling or licensing brands like Kenmore and Diehard, as well as selling valuable real estate, should mitigate that doubt and satisfy its estimated cash needs for the next 12 months. But the company said it can’t make any guarantees.

Financial Review

You Paid

Sinclair Noe — September 23, 2016

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

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DOW – 131 = 18,261
SPX – 12 = 2164
NAS – 33 = 5305
10 Y – .02 = 1.61%
OIL – 1.73 = 44.59
GOLD + .40 = 1338.10

The Dow Industrials posted a gain of 0.8% for the week. Both the S&P 500 and the Nasdaq were up 1.2% for the week.

Ahead of a major oil summit in Algiers next week, Saudi Arabia reportedly offered to lower its oil production if Iran agrees to cap output this year at its current level of 3.6 million barrels-per-day. Saudi output usually drops in winter and spikes during hot summer months.

And even though the Saudis are the largest producers in OPEC, there are several countries that are getting desperate, including Venezuela, Nigeria, Libya, Iraq, and Iran – they will sell whatever they can whenever they can, or face political unrest at home. Even if the meeting in Algiers results in a freeze on production, it might not have a significant impact on prices because US shale producers could pick up the difference.

Based, in part, on news of an agreement on a production freeze, oil climbed this morning over $46 a barrel. As the morning wore on, Bloomberg reported the Saudis did not have a deal in place.

Then, the Federal Reserve Board said it was inviting public comment on a proposed rule that would make it harder for banks to trade physical commodities. In addition to requiring the banks to hold more capital for activities involving commodities, banks would also be required to tighten the amount of commodities they could hold. The comment period is open for 90 days. Anyway, oil rolled over and closed down more than 4%.

Yahoo’s data breach is enormous. The company believes the credentials of at least 500 million user accounts were stolen by a “state-sponsored actor” (possibly Russian) in 2014, which would make it the largest-ever data breach. If you have a Yahoo e-mail account you should change your password, set up a two-factor authentication (such as a backup phone for text messages), and keep an eye on your account.

When you consider all the other hacks in the past couple of years (remember Home Depot, Target, Hilton, T-Mobile, Staple, UPS – yeah, that’s just a partial list) you may be wondering if you have been exposed to hackers, and the answer is yes. If you use a debit or credit card or the internet you have almost certainly been hacked. Good luck.

France’s economy is driving Europe. For the first time since 2012, France’s economy is doing better than Germany’s, at least according to preliminary PMI data from Markit. Germany missed growth forecasts for a second consecutive month due to weaker than expected service sector growth. The EU’s flash figure for overall growth in September suggests the economy is growing at slowest pace in more than 20 months.

The Markit flash U.S. manufacturing purchasing managers index fell to 51.4 in September from 52, marking the lowest level since June. Manufacturing activity in September grew at the slowest pace in three months as purchasing managers blamed weak new orders and the strong dollar.

Boston Federal Reserve President Eric Rosengren said this morning that he believed interest rates should be raised gradually now and warned that if the unemployment rate falls from here, it could stoke inflation, which could lead to a recession. Rosengren was one of 3 Fed policymakers voting for a rate hike this week.

Minneapolis Fed President Neel Kashkari, responding to questions from the public on Twitter, said he believed the labor market continues to have slack and that he wanted to see the unemployment rate, now at 4.9 percent, to come down. The bigger worry for him, he said, was that the Fed will raise rates too soon rather than too late. The view that the labor market is not close to overheating is also central to Dallas Fed President Robert Kaplan’s view that the Fed should be patient and cautious in raising rates.

U.K. Prime Minister Theresa May has distanced herself from comments made by Foreign Secretary Boris Johnson suggesting formal talks on Brexit will begin by “the early part of next year.” According to a Downing Street spokesman, “The government’s position has not changed: we will not trigger Article 50 before the end of 2016 and we are using this time to prepare for the negotiations.”

Marriott International closed Friday morning on its $13 billion acquisition of Starwood Hotels & Resorts Worldwide, bringing together its Marriott, Courtyard and Ritz Carlton brands with Starwood’s Sheraton, Westin, W and St. Regis properties.

In total, 30 hotel brands now fall under the Marriott umbrella to create the largest hotel chain in the world with more than 5,800 properties and 1.1 million rooms in more than 110 countries. That’s more than 1 out of every 15 hotel rooms around the globe. Starting today, members of Starwood and Marriott’s two loyalty programs will be able to link their accounts together.

Facebook has been giving advertisers an inflated metric for the average time users spent watching a video — by not counting people who viewed for less than 3 seconds.

United Parcel Service said it began testing the use of drones for emergency deliveries of medical supplies this week with a flight in rural Massachusetts, which the company hopes will eventually lead to federal approval of drones as a regular delivery option. UPS is working with drone manufacturer CyPhy Works.

The two companies yesterday completed a test of delivering medicine from the coastal town of Beverly, Massachusetts, to Children’s Island, a small island about three miles into the Atlantic Ocean. Last month the FAA established rules for commercial drones, including flying within the line of sight of the operator. Obviously there might be some exceptions.

Amazon shares closed past the $800 mark for the first time on Thursday, more than doubling its stock price in just 17 months. That gives Amazon a market cap of over $380 billion, making it the fourth most valuable company in the US; trailing only Apple, Alphabet and Microsoft.

Japanese regulators are considering taking action against Apple over possible antitrust violations that may have helped it dominate the nation’s smartphone sales. Japan’s Fair Trade Commission (FTC) said that NTT Docomo, KDDI Corp and Softbank Group were refusing to sell older surplus iPhone models to third party retailers, thereby hobbling smaller competitors.

Under those deals, surplus stock of older iPhones is kept out of the market and sent to overseas markets, such as Hong Kong. The carriers also bulk purchase the Apple smartphones and sell them at a discount, which gives the U.S. company an advantage over rivals such as Samsung

Twitter shares jumped the most in more than two years after CNBC said the company may soon receive a takeover offer. Potential suitors include Salesforce.com and Alphabet/Google, among others. Twitter may get a formal offer shortly – or not.

Some of the nation’s largest for-profit colleges are suffering steep declines in enrollment. The industry has been losing students for the last six years, but the crisis appears to be deepening with alarming speed. The most recent corporate filings show enrollment at the University of Phoenix chain fell 22% this year, to 171,000 students, marking a 70% loss since 2010. DeVry University reported a 23% drop this year. The collapse of ITT Tech last month is a problem for the industry. Since 2014, DeVry has closed 39 campuses and plans to shutter more in the upcoming year.

Wells Fargo CEO John Stumpf has resigned from the Federal Reserve Advisory Council, a banking industry group which meets with the Fed’s board of governors four times a year to discuss economic issues. Meanwhile, eight senators have asked the Labor Department to launch a probe into whether Wells may have violated wage laws by failing to pay overtime to employees who stayed late to meet sales quotas.

We have talked extensively about the Wells Fargo scandal, but here is one more insult – salt on the wound. You paid for it. If you have paid federal taxes over the past couple of years, you essentially subsidized the multi-million dollar payouts given to Wells Fargo executives who oversaw a massive consumer fraud.

Carrie Tolstedt, an executive who oversaw Wells Fargo’s Community Banking group — where much of the fraud occurred — pocketed millions in “performance pay,” including stock and equity, between 2012-2015. Under a 1993 law, corporations can deduct no more than $1 million of executive compensation from their taxes. But that law made an exception for pay linked to performance. Consequently, because Wells Fargo structured Tolstedt’s payout as a bonus — rather than wages — the bank could deduct the $78 million from its taxes, effectively giving itself a $27 million tax boost.

Banks continue to use these subsidies even as government regulators charged them with breaking rules. Between 2012-2015, Wells Fargo cashed in on $54 million in tax subsidies for CEO John Stumpf’s compensation. Over that same period, regulators extracted $10.4 billion in misconduct penalties from the bank.

Today is a cool day in Phoenix, relatively speaking. This week saw the autumnal equinox and today we get a hint of relief. August 2016 was Earth’s warmest August since record keeping began in 1880, said NOAA’s National Centers for Environmental Information (NCEI) on Tuesday. In the NOAA database, August 2016 came in 1.66°F warmer than the 20th-century average for August, beating the previous record for August, set in 2015.

NASA also reported the warmest August in its database, as well as a tie with July 2016 for the warmest absolute temperature recorded in any month. August 2016 marked the 16th consecutive month that NOAA’s global monthly temperature record was broken, which is the longest such streak since global temperature records began in 1880.

Financial Review

What Are the Odds?

Sinclair Noe — June 14, 2016

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

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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

Knock On

Sinclair Noe — November 16, 2015

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

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DOW + 237 = 17,483
SPX + 30 = 2053
NAS + 56 = 4984
10 YR YLD – .01 = 2.27%
OIL + 1.32 = 42.06
GOLD – 1.80 = 1083.10
SILV – .03 = 14.35

World leaders wrapped up G-20 meetings in Turkey with a vow to boost intelligence-sharing, cut off terrorist funding and strengthen border security in Europe, as they sought to show resolve and unity following the deadly terror attacks in Paris. This year’s G-20 agenda also included efforts to hasten global economic growth, with a particular focus on addressing the effects of China’s economic slowdown. French warplanes launched an assault on ISIS targets in Raqqa, Syria. Meanwhile, the authorities in France announced that they had conducted sweeping police raids around the country overnight, detaining two dozen people.

ISIS released a video today saying they will strike Washington. The Department of Homeland Safety said it had no “specific credible information of an attack on the U.S. homeland.” CIA Director John Brennan said he would be surprised if the group doesn’t have additional attacks in preparation.

Markets across the globe are still processing the weekend’s coordinated terrorist attacks in Paris. Asian exchanges traded lower overnight. European shares reversed early losses and closed in positive territory. The euro dropped, as investors scrambled for safe-havens like the U.S. dollar.

French President Hollande declared that France is at war. Hollande urged lawmakers to approve a three-month extension of the nation’s state of emergency, new laws that would allow authorities to strip the citizenship from French-born terrorists, and provisions making it easier to deport suspected terrorists.

The attacks are also likely to hit France’s economy, which has the largest number of tourists in the world. The sector accounts for almost 7.5% of the country’s GDP. The specific wording by President Hollande is of note, because of course it opens up a can of worms about NATO, the EU, and various agreements for open borders in the EU. This means likely restrictions on import-export activity.

It is nearly impossible to calculate the side effects of the Paris attacks. A couple of quick thoughts include an increase in surveillance. UK Prime Minister David Cameron has already announced the Brits will hire 1,900 new spies to deal with ISIS. The CIA is surely going to place a few ads as well. This will drive the tech heads in San Jose even crazier.

Next, think about the role of Russia in Syria and then expand it out to the role of Russian oil and Saudi Arabian oil vying for global market share. The oil market has been bound up with geopolitics and the threat of conflict for a century, and today’s trading in the oil patch is far from the final word on the direction of those markets.

White House officials confirmed Putin and Obama met privately at the G-20 in Turkey and agreed to “a Syrian-led and Syrian-owned political transition.” These are delicate positions in the dangerous dance between Sunni and Shia playing out in the deserts of Syria and Iraq.

The major stock indices in the US started in negative territory, but then rallied. There were some interesting theories bandied about for the recovery. One story talked about the increase in oil stocks as investors looked for safe havens; although the story didn’t go so far as to suggest that increased military action in the Middle East threatens oil supply routes or even that cutting off ISIS black market oil trading removes a small chunk of supply.

Another story mentioned the travel and tourism industry had a bad day, but then explained that previous terror attacks have taught investors that it doesn’t make financial sense to panic. And then the idea that citizens steadfastly refuse to allow terrorists to dictate how we will live our lives because terrorism won’t succeed in the long run.

I missed a good discussion on whether traders felt the terror attacks might push the Fed to pass on a rate hike in December. Nor was there much discussion about the probability of the stock markets’ bullish affection to war. I don’t know why the markets moved higher. Maybe after a lousy week last week, the shorts closed out positions because it was just time for an up day.

The response in the US has been to fly French flags at football games. The NYSE and Nasdaq observed a minute of silence at 9:25 AM Eastern, before the opening bell. And already, nine states (at last count) have said they would shut their doors to Syrian refugees, in direct violation of the Pottery Barn Rule. The governors of Florida, Alabama, North Carolina, Texas, Arkansas, Louisiana, Indiana, Illinois, and Massachusetts all said they would not accept refugees fleeing the Syrian conflict; go ahead and connect the dots.

There has yet to be a single Syrian refugee resettled in Alabama to date, even though there is  a US State Department-approved refugee processing center in Mobile. And it is uncertain whether any governor would have the power to ban refugees from a given country, as resettlement is handled at the federal level. The State Department said this morning that the US still plans to try to admit 10,000 Syrian refugees into the country in the coming year; final destination to be determined.

Marriott International said that it had agreed to buy Starwood Hotels and Resorts Worldwide for $12.2 billion in cash and stock, creating the world’s largest hotel company. The timing of this acquisition was just exquisite. Under the terms of the deal, Marriott will pay $72.08 a share in cash and stock for Starwood, whose brands include Westin, the W, Sheraton and St. Regis. Starwood shareholders would own 37 percent of the combined company. Combined, the companies operate more than 5,500 hotels with 1.1 million rooms worldwide in 30 countries, with 300,000 employees.

For the first time in at least a decade, imports fell in both September and October at the three busiest seaports in the US. The three – Los Angeles, Long Beach, and New York harbor – handle more than half of the goods coming into the country, and saw imports fall just over 10% between August and October; typically known as peak shipping season. The slowdown in imports is likely an adjustment from a sizable inventory build-up earlier this year.

S&P 500 earnings are on track to close their first season of negative growth since 2009, with more than 90% of components having already reported results, S&P 500 earnings are down 0.9 percent in the third quarter. Estimates call for sub-zero growth in the current quarter as well setting up for a bona fide ‘earnings recession’ (two consecutive periods of declines). According to FactSet, this already occurred in the second and third quarters. All this comes as the Fed prepares to hike rates for the first time in almost a decade – a move that could weaken corporate earnings even further.

Japan has unofficially entered recession. Japan just booked two consecutive quarters of negative gross domestic product. GDP contracted at an annualized pace of 0.8% in the third after a 0.7% pace of contraction in second quarter. The Nikkei 225-share index dropped 1 percent.

The average price of crude sold by OPEC fell below $40 a barrel for the first time 2009. The daily OPEC Basket Price fell to $39.21 a barrel on Nov. 13. The basket, an average of export grades from each of the group’s 12 members, typically trades below international oil futures as some OPEC nations pump denser or higher-sulfur crude that’s less profitable to refine. OPEC’s annual revenues may be curbed to $550 billion at current prices from an average of more than $1 trillion in the last five years.

 The number of oil wells in North Dakota that have been drilled but not fracked has topped 1,000 for the first time in September, as producers wait for prices to recover before turning them on. As a result, more than 8% of oil wells in North Dakota are now sitting idle, harming the industry’s ability to grow production; daily output in the state fell 2% in September to about 1.16 million barrels a day.

The nation’s second largest for-profit college, Education Management Corporation, will forgive nearly $103 million worth of student loan debt to settle claims that it violated consumer protection laws; specifically, misleading students about the benefits of a degree from its schools, and misrepresenting job placement numbers.

In a separate action, the company agreed to pay an additional $95 million to settle four whistleblower lawsuits that claimed it misled the government about its recruiting strategy. EDMC operates a network of 110 under the names: Art Institute, Argosy University, Brown Mackie College, and South University. EDMC did not admit to any wrongdoing.

Constellation Brands, the maker of Robert Mondavi wines and Svedka vodka, agreed to acquire Ballast Point Brewing & Spirits for $1 billion to add to its beer portfolio. The deal is expected to be completed this year and will be financed with cash and debt.

Ericsson said it has not engaged in any merger talks with Cisco Systems, despite rumors Cisco was actively pursuing the Swedish maker of networking equipment.

Blackstone  has reportedly agreed to sell its facility management group GCA Services unit for about $1 billion to Goldman Sachs  and Thomas H. Lee Partners.

Canadian Pacific CEO Hunter Harrison met with Norfolk Southern CEO James Squires, proposing a possible merger, which was coolly received by the Norfolk boss.

The Supreme Court refused to be drawn into the debate over Planned Parenthood, rejecting an appeal by abortion opponents who said they had a right to see some of the group’s internal documents, including its medical-standards manual. The appeal by New Hampshire Right to Life sought the disclosure of information related to a 2011 federal grant made to the Planned Parenthood chapter in northern New England.