Financial Review

In the Wake of the Storm

Sinclair Noe — August 31, 2017

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DOW + 55 = 21,948
SPX + 14 = 2471
NAS + 60 = 6428
RUT + 13 = 1405
10 Y – .02 = 2.12%
OIL – .18 = 47.05
GOLD + 12.70 = 1320.80

Top Cryptocurrencies

	Name	Symbol	Market Cap	Vol.	Total Vol. %	Price USD	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	$77.56B	$1.98B	35.76%	$4,690.37	1	1.74%	7.78%
	Ethereum	ETH	$36.49B	$751.90M	13.55%	$386.67	0.0821199	1.94%	16.85%
	Bitcoin Cash	BCH	$9.76B	$280.18M	5.05%	$589.80	0.12526	2.01%	-7.03%
	Ripple	XRP	$9.51B	$477.69M	8.61%	$0.25	0.00005269	9.33%	13.24%
	Litecoin	LTC	$3.87B	$666.87M	12.02%	$73.46	0.0156005	13.35%	45.50%
	Dash	DASH	$2.85B	$35.08M	0.63%	$378.73	0.0804347	2.40%	20.91%
	NEM	XEM	$2.82B	$17.23M	0.31%	$0.31	0.0000665	-3.00%	18.89%
	IOTA	MIOTA	$2.38B	$15.78M	0.28%	$0.86	0.00018222	-4.15%	-1.26%
	Monero	XMR	$2.08B	$121.15M	2.18%	$138.28	0.0293683	1.66%	50.00%
	NEO	NEO	$1.60B	$46.11M	0.83%	$31.94	0.00678321	-6.08%	-23.46%

For the month, the S&P edged up 0.05 percent while the Dow gained 0.28 percent and Nasdaq rose 1.27 percent.

Even after a late-July Federal Reserve meeting made it clear that policy makers would begin reducing the bank’s $4.5 trillion balance sheet in short order, 10-year Treasury yields have dropped 16 basis points in August, the steepest monthly decline since June 2016.

Here’s the latest on Harvey: In Beaumont, about 70 miles east-northeast of Houston, flooding shut down the system that supplies running water to the entire city, prompting a hospital to evacuate. Most roads in and out of Beaumont are under water.

In Houston, officials ordered mandatory evacuation of areas around the Barker Reservoir, as flooding from that overwhelmed basin, and the nearby Addicks Reservoir, continued to pour into neighborhoods on the city’s western edge. In other parts of the city, floodwaters receded.

A series of small explosions shook the Arkema chemical plant in Crosby, northeast of Houston and more blasts were expected, after floodwaters shut down the cooling systems that kept the chemicals stable. An area of 1.5 miles was evacuated around the plant. More explosions are expected.

Houston is known as the energy capital of the world; all that oil and gas passing through has spawned a second industry of petrochemicals. It should be no surprise that a storm of this magnitude is causing chemical accidents.

There are also reports of damaged tanks at an Exxon Mobil facility and a Phillips 66 facility, with gas leaking out of tanks. In public statement after public statement, companies working with hazardous materials or processes in Houston declare that their engineers have anticipated every eventuality, that the public has nothing to fear. Go away, they say, nothing to see here.

Yet since Hurricane Harvey struck, Houston area companies have filed 32 air emission event reports with the Texas Commission for Environmental Quality. The Coast Guard’s National Response Center has listed chemical or gas leaks in at least 20 locations in Greater Houston.

Two million pounds of dangerous chemicals were released in Houston when they shut down refineries and petrochemical plants between Monday and Wednesday. More has been released since then, and millions more will be released when the plants restart. Harvey has revealed a lot in its wake.

Gasoline futures surged 10 percent today as almost a quarter of U.S. refining capacity remained offline and traders scrambled to reroute millions of barrels of fuel. Gasoline futures have rallied roughly 26 percent from the previous week to a two-year high.

Hurricane Harvey has paralyzed at least 4.4 million barrels per day (bpd) of refining capacity. Analysts at Goldman Sachs and Stifel said they expected infrastructure outages to last several months but said it was difficult to estimate the exact damage.

The shutdowns led the U.S. government to tap its strategic oil reserves for the first time in five years on Thursday, releasing 1-million barrels of crude to a working refinery in Louisiana. Colonial Pipeline announced it would shut down because Harvey forced the closure of refineries.

Colonial is one of the most critical pieces of energy infrastructure in the U.S., able to transport about 2.5 million barrels a day of products such as gasoline and distillate from the Gulf Coast to the East Coast, supplying big demand centers stretching from Atlanta to New York City. Gasoline shortages are expected up and down the East Coast.

In all, 53 Texas counties issued emergency declarations – an area that’s home to around 11.4 million people. It is going to take some time to sort out. Meanwhile, the remnants of Harvey are headed for Tennessee and should be dumping rain on Kentucky and Ohio tomorrow.

Harvey makes landfall in Washington as soon as next week, when President Trump is expected to ask for what could be tens of billions of dollars in storm relief. And paying for storm recovery — probably with few offsetting spending cuts — will be but the first blow to fiscal discipline in what looks to be a particularly active, and calamitous, spending season.

After Harvey comes the debt ceiling, and there are rumblings that the vote to raise the limit could be used to increase spending. (In the past, such votes were used by fiscal hawks to cut spending.) At the same time come negotiations to fund the government for fiscal year 2018, and indications are that lawmakers will try to avoid a shutdown with a short-term spending deal.

Trump and Republicans have given clear signs they are moving away from tax reform (a simplification of the tax code that doesn’t necessarily reduce revenue) toward all-out tax cuts, financed by deficit spending.

Treasury Secretary Steven Mnuchin said today that Hurricane Harvey could bring forward the deadline by which the nation’s debt ceiling needs to be raised and that he is open to the borrowing cap being dealt with as part of a wider bill.

Mnuchin also said the administration has a “very detailed” tax plan ready and “couldn’t be more excited” about its prospects. He said the plan has been presented to members of Congress and will be released to the public by the end of September.

On Wednesday, Trump reiterated his call for a corporate tax rate cut to 15 percent from 35 percent. Senate Majority Leader Mitch McConnell has indicated he plans to use the same “reconciliation” resolution he used on the failed attempt to repeal Obamacare to allow for a party-line vote on a tax cut. That process would balloon the deficit — but they could avoid such concerns by using the well-worn gimmick of having the tax cut expire before 10 years.

The core personal consumption expenditures (PCE) price index increased 1.4 percent in the 12 months through July, its smallest year-on-year increase since December 2015. For the month, core prices rose just less than 0.1%. The PCE is the Fed’s preferred inflation measure.

Core PCE has undershot the Fed’s 2 percent target for the past five years. Chances of a rate hike in December have fallen to about 36 percent, from 43 percent a month ago, according to CME Group’s FedWatch tool. So, the new term to describe this pricing action is soft-flation. When we look at weak wage growth, combined with ongoing sluggish economic growth, we have an old term for that – stagflation.

Labor Department data showed the number of Americans filing for unemployment benefits rose slightly last week. The weekly data precedes the more comprehensive monthly jobs report on Friday. The median projection ahead of Friday’s jobs report is 180,000, that’s been about the average so far, this year. Tomorrow’s report will not include jobs lost from Hurricane Harvey.

A congressional hearing on net neutrality that was slated for September 7 isn’t happening after several major tech companies did not accept invitations for their CEOs to testify. Executives from Amazon, Google, Facebook, Netflix, and Verizon were invited to address the House Energy and Commerce Committee, but—even after the committee extended the deadline to wait for their responses—apparently no one agreed to go.

Many tech companies rallied in support of net neutrality during an internet-wide day of action last month, but executives were less thrilled about appearing before the committee. The Federal Communications Commission has been pushing for a rollback of Obama-era net neutrality protections that prevent internet service providers from selectively throttling data or creating fast lanes and slow lanes on the internet.

But even though the FCC has been flooded with public comments in support of those protections, chairman Ajit Pai has remained steadfast in his stance that the rollback is necessary. Assuming the FCCs proceeds as expected and dismantles existing net neutrality rules, both sides of the debate are expected to lobby congress to establish new net neutrality laws—hence, the purpose of the September 7 hearing, to kickstart a public debate.

But tech CEOs and the broader public clearly think the repeal of net neutrality is a non-starter.

The bogus bank account scandal at Wells Fargo appears to be a lot worse than originally known. Just how much worse? Newly reported figures show that the number of unauthorized accounts created by employees is up from 2.1 million to now close to 3.5 million.

The expanded review also uncovered about 528,000 potentially unauthorized online bill-pay enrollments Repercussions for Wells Fargo since the scandal broke a year ago have been severe — it paid a $185 million fine to the federal government, and fired more than 5,000 employees for improperly creating accounts without customers’ consent.

Bank insiders blamed the scandal on an internal high-pressure sales culture; it underwent Congressional hearings, its CEO quit and it has since been dogged by a dozen investigations and public backlash. But the new revelations brought the bank to new lows. And this is on top of other scandals, such as unauthorized auto insurance policies more than 800,000 customers didn’t need or agree to purchase.

This is not the first scandal for Wells Fargo, it won’t be the last, and they are still dealing with other scandals, such as sexual harassment claims, wrongful termination claims, retaliation against whistle-blowers, excessive charges for various fees – (that has been ongoing for about 10 years).

Today’s report was not totally unexpected, the bank warned a couple of weeks ago that there would be more bad news. At some point, you would think all this criminal activity would result in jail time. After all, the United States incarcerates more people than any other nation on earth, but for some reason the banksters walk.

Financial Review

St. Patrick’s Day Minus the Green

Sinclair Noe — March 17, 2017

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

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DOW – 19 = 20,914
SPX – 3 = 2378
NAS + 0.24 = 5901
RUT + 5 = 1391
10-Y – .02 = 2.50%
OIL + .03 = 48.78
GOLD + 3.00 = 1229.80

The Nasdaq Composite hit a record intraday high of 5,912. Today was a quadruple witching session on Wall Street. A quadruple witch occurs on the third Friday of the last month of every quarter, in March, June, September, and December, and refers to the simultaneous expiration of options and futures tied to individual stocks and stock-indexes.

On these days, volume is unusually high as traders offset, close, and roll out of positions. In the opening minute of Friday’s session, one trader dumped 9.24 million shares of Apple stock in a single block trade. At $141 a share, that’s worth about $1.3 billion. No one has claimed the trade yet.

A quad witch is often associated with added volatility, but the reality is that the sessions are usually tame. And for the most part, the markets have been downright somnambulant. The markets are still near record highs, but they have been moving very slowly. For all the talk of animal spirits, the markets most resemble a sloth.

Eighteen years ago, when the Dow Jones industrial average was trading at half its current level, 100-point daily moves were twice as significant. That’s just math. But back then, 100 point days were more frequent.  So far, this year, the Dow has only closed higher or lower by more than 100 points on 13 days, including Wednesday— a bit more than a quarter of its sessions. If this pace keeps up, 2017 will be the year with the second least 100-point moves since 2006.

For the week, the Dow gained less than 0.1 percent and the Nasdaq added 0.7 percent. The S&P index rose 0.2 percent for the week. It’s the seventh weekly gain for the S&P 500 in the last eight, and the index is within 1 percent of its record high. Financial stocks fell in sync with bond yields. The two have tended to move in the same direction recently, because higher rates would allow banks to charge more for loans and earn bigger profits.

The U.S. dollar slipped, continuing its slide in the wake of the Federal Reserve’s decision to raise interest rates, but sticking to its guidance of 3 hikes this year. MSCI’s all-country world stock index was little changed after touching an all-time high earlier in the day.

Treasury Secretary Steven Mnuchin is attending his first G20 meeting Friday. The two-day summit in Germany is a chance for leaders from the world’s largest economies to hear directly from the Trump administration.

G20 leaders have been looking for clarity about what the Trump administration’s “America First” policies will mean for the world economy, and the event could provide signals about currency policy, deregulation and trade. The world’s biggest economies will pledge to jointly fight cyber-attacks on the global banking system, however the G20 finance chiefs dropped an earlier reference for enhanced security requirements for financial services.

Eleven non-OPEC oil producers that joined a global deal to reduce output to boost prices delivered 64 percent of promised cuts in February, an industry source said on Friday, still lagging the higher levels of OPEC itself.

Angela Merkel met with President Trump today bolstered by a delegation of high-profile German business figures, including CEOs of BMW and Siemens, as well as representatives of other German companies with American operations. It’s the first meeting for the two leaders, who have been on the opposite sides of many issues – from trade to immigration, and Russia to NATO.

In January the euro zone recorded a trade deficit for the first time in three years as a rise in exports from a year earlier was more than offset by a larger increase of imports.

Secretary of State Rex Tillerson arrives in Beijing on Saturday, having declined to rule out a pre-emptive strike against North Korea during the early leg of his tour.

Apple upped its commitment to China. It will establish two more R&D centers, in addition to the two it’s building, as part of a $500 million investment in the country. Apple’s iPhone sales have been slowing in China, because of domestic competition. CEO Tim Cook is at an economic forum with senior government officials in Beijing this weekend.

Social media companies Facebook, Alphabet and Twitter must amend their terms of service for European users within a month or face the risk of fines. U.S. technology companies have faced tight scrutiny in Europe for the way they do business, from privacy to how quickly they remove illegal or threatening content.

Meanwhile, Google is facing a wave of angry customers after advertisements from major brands and the UK government appeared alongside content from hate preachers and extremist groups. The British government has summoned the tech firm to explain itself after a newspaper investigation showed that taxpayer-funded ads were used on inappropriate content including Ku Klux Klan videos.

Mule Software launched its IPO today, valuing the company at about $3 billion; trading under the ticker MULE, shares popped 40%. Mule is considered a meat and potatoes software technology offering – an enterprise software firm with moderate valuations but solid business model, even though it is not yet turning a profit.

Sinopec is reportedly near a deal with Chevron in South Africa. The Chinese oil and chemical giant could pay around $1 billion for Chevron’s South African assets. The purchase would give China its first refinery in Africa.

The Japanese government said it was not considering steps to support Toshiba and would share developments involving the firm and its US nuclear unit Westinghouse with Washington.

The Federal Reserve reports manufacturing production rose 0.5 percent last month. Despite the increase in manufacturing output, overall industrial production was unchanged in February because of a 5.7 percent weather-driven plunge in utilities generation. Industrial production fell 0.1 percent in January.

Mining output increased 2.7 percent last month, lifted by a 7.1 percent surge in oil and gas well drilling. Manufacturing, which accounts for about 12 percent of the U.S. economy, is regaining ground as the prolonged drag from lower oil prices, a strong dollar and an inventory overhang fades.

The index of consumer sentiment rose to 97.6 in March from 96.3 in February, based on a preliminary reading by the University Michigan. Two months ago, the index shot up to the highest level since 2004, largely because of more confidence among Republicans and independent voters.

The March survey shows Republicans are still gung-ho. A gauge that examines what they expect in the next six months climbed to 122.4. The expectations index for Democrats, by contrast, slumped to 55.3.

The Conference Board said its leading economic index rose 0.6% in February — the third straight gain of that magnitude — to reach its highest level in more than a decade. The report points to widespread gains across most of the leading indicators pointing to an improving economic outlook for 2017, although GDP growth is likely to remain moderate.

The leading economic index is constructed using 10 components, including the new-orders gauge of a manufacturing purchasing managers index and the interest rate spread between the 10-year Treasury and federal funds rate. Only the building permits component was a drag.

Tesla raised about $1.2 billion, roughly 20 percent more than it had planned, by selling common shares and convertible debt, ahead of the launch of the Model 3 sedan. Tesla announced on Wednesday that it planned to raise more than $1 billion in capital in 2017 — a combination of $250 million in equity and $750 million in convertible debt, with an additional $15 million going to the  underwriting bankers for the offering.

Tesla has more than $2 billion cash on hand, so this tells us that they expect to spend that cash on the Model 3 roll-out. It also tells us that Wall Street still like the electric car company.

J.C. Penney has released the list of 138 stores it plans to close in an effort to cut costs and grow sales at its strongest locations. The release comes a few weeks after Penney’s said it would close to 140 stores this year. Roughly 5,000 jobs will be affected by the closures. The list includes one store in Arizona – in Bullhead City.

Earlier this month, Wells Fargo piously announced there would be no cash bonuses for top executives for 2016; this, in response to the bogus account scandal. For a fleeting moment, it seemed that the Wells Fargo board of directors had an actual spine. Of course, they do not.

While cash bonuses have indeed been curtailed, they are more than compensated with stock bonuses. And then some. Thanks to 2016’s bumper crop of stock awards, each of the top executives’ compensation increased. This is how they bring accountability and transparency to the C-suite. Brilliant.

The American Gaming Association (AGA) predicts that Americans will wager $10.4 billion on March Madness games this year. That would be more than $1 billion more than last year’s $9.2 billion total, and a 13% spike. And 96% of these bets are placed illegally. The total money that fans bet legally, at Nevada sports-books, will come in at just $300 million.

There might even be a few wagers over a pint of Guinness this evening. With St. Patrick’s Day falling on a Friday this year, spending is expected to reach $5.3 billion, up from $4.4 billion last year, per the National Retail Federation; 27% of that will go on a party or a bar.

Financial Review

The Wisdom of Solomon

Sinclair Noe — January 31, 2017

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

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DOW – 107 = 19,864
SPX – 2 = 2278
NAS + 1 = 5614
RUT + 10 = 1362
10 Y – .03 = 2.45%
OIL + .19 = 52.82
GOLD + 14.70 = 1211.00

Economic growth for the Eurozone rose 1.7% last year, growing at a faster rate than the U.S. managed when averaged across the whole of 2016. That’s the first time that happened since 2008. The region’s jobless rate also fell to 9.6%, the lowest figure since May 2009, while inflation of 1.8% is now near the ECB’s target of “close to, but below 2%.”

Following a two-day board meeting, the Bank of Japan kept its monetary policy on hold, but policymakers were more bullish on the economy, raising its 2017 real gross-domestic-product growth forecast to 1.5%, up from its previous forecast of 1.3% offered last November.

The Federal Reserve Federal Open Market Committee is beginning 2 days of meetings to determine monetary policy. Most analysts predict the FOMC will leave interest rates unchanged when Chair Janet Yellen makes the announcement tomorrow. The Fed last met in mid-December and hiked interest rates for only the second time in almost a decade.

Since that meeting, officials stressed they intend to move rates up gradually, the main reason the market doesn’t expect a rate hike this week. Using federal funds rate futures prices, the CME Group says there is a 96 percent probability of no change.

U.S. home prices rose slightly in November from the previous month. The S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, was up 5.6 percent on an annual basis in November. Phoenix posted a 0.3% gain from October to November, and a 5.2% increase for the 12 months through November.

The Conference Board’s consumer confidence index fell to a reading of 111.8 in January after hitting a 15-year high of 113.3 in December. Consumers’ appraisal of the present improved, to a reading of 129.7 from 123.5, but the expectations index fell to 99.8 from 106.4. The proportion expecting more jobs in the months ahead decreased from 21.7% to 19.8%, and the percentage of consumers expecting their incomes to increase declined from 21.5% to 18%.

The amount of money it costs businesses to employ workers rose a touch slower in the fourth quarter owing to the smallest increase in benefits in a year and a half. The employment cost index rose 0.5% in the final three months of 2016, below the 0.6% gains in each of the past three quarters. The index grew a slightly faster 2.2% in 2016 after a 2% gain in 2015.

In the fourth quarter, wages advanced 0.5% but benefits only rose 0.4%. Part of the reason: Companies may have passed more of the costs of health care onto workers in the form of higher premiums and deductibles, among other things.

Deutsche Bank has agreed to pay $630 million to end investigations by UK and New York regulators into Russian equity trades that transferred $10 billion out of that country in violation of anti-money-laundering laws. Regulators say Deutsche Bank executed more than 2,400 pairs of so-called mirror trades between April 2012 and October 2014.

The scheme involved buying stock with Russian rubles at Deutsche Bank’s Moscow office and then selling the identical stock – same quantity, same price – at the London office of Deutsche Bank and being paid for the shares with US dollars in London. UK and New York regulators cited repeated shortcomings in Deutsche Bank’s controls to vet clients, including failing to determine their identities and sources of wealth, and to detect suspicious trades.

After the closing bell Apple reported it sold 78.2 million iPhones in the last quarter. That’s a beat. Profit of $3.38 per share; another beat. Revenue of $78.4 billion; another beat. Services revenue of $7.17 billion; another beat. All time revenue records for iPhone, Services, Mac, and Apple Watch. But guidance is on the weak side. Apple shares pop in after hours. Some poor schmuck bet his life savings on Apple puts and now he’s crying on his live stream.

Exxon Mobil  missed earnings forecasts this morning as it took a $2 billion impairment charge, mostly due to the company lowering the value of some of its U.S. gas assets. Persistently low oil prices and weaker profit margins in Exxon’s refining business also weighed on earnings for the full year. Exxon reported fourth-quarter earnings of $1.7 billion, or 41 cents a share.

In the period a year ago, the oil giant reported earnings of $2.8 billion, or 67 cents a share. Revenues for the quarter were $61.01 billion. The impairment resulted from the company’s review of its reserves. Exxon determined that some of its U.S. assets’ future cash flows no longer exceeded their carrying value.

Under Armour reported lower-than-expected quarterly sales and announced that Chief Financial Officer Chip Molloy will step down. The company said net income fell to $104.9 million in the fourth quarter ended Dec. 31 from $105.6 million a year earlier. The company’s net revenue rose about 12 percent to $1.3 billion, its slowest sales growth in eight years.

MasterCard posted fourth-quarter earnings per share of 86 cents on revenue of $2.76 billion. MasterCard missed revenue estimates but beat earnings estimates by a penny per share. MasterCard, which processes more than 65,000 transactions every minute, said its gross dollar volumes — the total value of transactions made by customers — rose 9 percent to $1.2 trillion worldwide.

United Parcel Service reported quarterly earnings and revenue that missed Wall Street’s expectations. UPS also posted a 2017 outlook below expectations. During the holiday season UPS delivered more than 712 million packages, a 16 percent increase over the year-ago quarter. The company said it delivered 1.4 billion packages last year, up 7.1 percent. E-commerce has been growing at double-digit rates for years and the 2016 holiday season was no exception: online sales surged 13 percent and UPS saw a surge in business to consumer shipments, which are not as efficient or profitable as B2B.

Aetna’s net profit fell to $139 million, or 39 cents per share, in the fourth quarter ended Dec. 31, from $321 million, or 91 cents per share, a year earlier. Aetna said its total health care medical benefit ratio — the percent of premiums spent on claims — rose to 82.1 percent from 81.9 percent, a year earlier, mainly due to higher medical costs in its individual commercial products.

Aetna and Humana have said they will consider all available options for their proposed merger after a court ruled against the $34 billion deal last week, saying it would lower competition.

Insulin makers are being accused of price fixing. Lilly, Novo Nordisk, and Sanofi are accused of taking part in an “organized scheme to drive up prices at the expense of patients who need insulin drugs to live,” per a complaint filed in the US District Court of Massachusetts.

Pfizer reported a lower-than-expected profit, hit by lower demand for its flagship vaccine Prevnar and higher expenses. Global Prevnar sales fell 23 percent to $1.42 billion, underwhelming consensus estimates. Pfizer closed its $14 billion acquisition of Medivation in September.

Today, President Trump met with executives of several major drug makers and called for lower drug prices while also promising to speed up approval times for new medicines. In an interview with The Associated Press, Pfizer CEO Ian Read stuck to his position that the problem isn’t soaring drug prices but insurers pushing more costs onto patients. He said Pfizer won’t pledge that it will limit annual price increases, as a few rivals recently did. Pfizer typically raises the list price on all its drugs about 10 percent twice each year, though wholesalers and other middlemen get much of those increases.

Rep. Tom Price, the Georgia congressman and nominee for Secretary of Health and Human Services testified in his Senate confirmation hearings on Jan. 18 and 24 that the discounted shares he bought in Innate Immunotherapeutics, an Australian medical biotechnology company, “were available to every single individual that was an investor at the time.”

Not exactly. In fact, the cabinet nominee was one of fewer than 20 U.S. investors who were invited last year to buy discounted shares of the company – an opportunity that, for Price, arose from an invitation from a company director and fellow congressmen.

Senate Democrats today boycotted scheduled votes in the Senate Finance Committee on Steven Mnuchin, the nominee to head the Treasury Department, and Rep. Tom Price to be health secretary. The committee needs at least one Democrat to proceed.

Mnuchin has come under fire for telling the Senate Finance Committee that OneWest, the bank he led as CEO from 2009 to 2015, did not engage in the robo-signing of foreclosure and bankruptcy documents. Court filings have shown that the bank did. Meanwhile, Betsy Devos’ nomination as Secretary of Education cleared Senate Committee today.

The Senate Judiciary Committee delayed voting this morning on the nomination of Sen. Jeff Sessions as attorney general, a pick that’s receiving even more scrutiny in the wake of President Donald Trump’s executive orders on immigration. Last night Trump fired the acting attorney general Sally Yates after she took the rare step of defying the White House and refused to defend new travel restrictions targeting seven Muslim-majority nations.

Dana Boente, (pronounced Ben-tay) U.S. Attorney for the Eastern District of Virginia, was sworn in last night as acting U.S. attorney general until Sessions is approved. The recent news out of Washington has hit Wall Street like a bag of rocks to the gut.

Following Trump’s executive order on immigration last week, federal judges across the country responded to lawsuits stemming from the travel ban by ordering the Department of Homeland Security to immediately stop enforcing various aspects of the executive order.

By Sunday, reports started coming out that some federal agents from Customs and Border Protection were disregarding the court orders, and continuing to enforce Trump’s travel ban in a way that violated instructions they’d been given by judges. And this sets up a very interesting scenario: What happens when the federal government or its agents refuse to honor a court order handed down by a federal judge? If there is escalation, it will likely be reflected on the scoreboard at Wall Street.

Later this evening, President Trump is expected to announce his nominee to succeed the late Justice Antonin Scalia on the Supreme Court. Whoever he is, let’s hope he has the wisdom of Solomon.

Financial Review

Let’s All Go to the Movies

Sinclair Noe — January 24, 2017

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

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DOW + 112 = 19,912
SPX + 14 = 2280
NAS + 48 = 5600
RUT + 21 = 1369
10Y + .07 = 2.47%
OIL + .31 = 53.06
GOLD – 8.90 = 1209.80

The S&P 500 and Nasdaq set record highs.

It was a busy first day for President Trump. Here are some of the highlights: Withdrew from TPP, promised to renegotiate NAFTA, placed a hiring freeze on federal employees, discussed slashing business regulations by 75%, reinstated the Mexico City policy on banning foreign aid groups from providing abortion counseling and vowed to stop the seizure of South China Sea islands. Trump had breakfast today with the heads of GM, Ford and Fiat Chrysler, as he pressures the Big Three car-makers to boost U.S. employment.

Australia has called for the Trans-Pacific Partnership to go ahead without the U.S. following President Trump’s withdrawal from the 12-nation trade agreement. China’s foreign ministry declined to say whether Beijing would consider any invitation to join the TPP, but a spokesperson instead cited rival trade pacts.

President Trump signed two orders today to move forward with construction of the Keystone XL and Dakota Access pipelines. Trump campaigned on promises to increase domestic energy industry production and before taking office indicated he supported completion of the Dakota pipeline and revival of the Keystone XL project.

Environmental activists broadly opposed the Keystone XL pipeline and campaigned against it for more than seven years. Shares of ETP, the company building the 450,000 barrel-a-day Dakota line, rose 3.5 percent. Trump owned ETP stock through at least mid-2016, per financial disclosure forms, and ETP’s chief executive, Kelcy Warren, donated $100,000 to his campaign. U.S. Energy Secretary nominee Rick Perry was until recently on ETP’s board.

Coincidentally, the Canadian government today reported a pipeline spill in the western Canadian province of Saskatchewan has leaked about 52,000 gallons of oil. The spill came seven months after another major incident in Saskatchewan, in which a Husky Energy Inc pipeline leaked 60,000 gallons into a major river and cut off the drinking water supply for two cities.

Trump’s administration has also asked the Environmental Protection Agency to temporarily halt all contracts, grants and interagency agreements pending a review.

Rex Tillerson has been cleared by the Foreign Relations Committee. President Trump’s pick for secretary of state received backing with an 11-10 vote along party lines that “all but assures Senate confirmation,” according to the Associated Press. Meanwhile, the Senate confirmed Representative Mike Pompeo as President Donald Trump’s CIA director.  A U.S. Senate committee swiftly approved Wilbur Ross,Trump’s nominees for commerce, and Elaine Chao for transportation secretary by voice vote, signaling that they will face little resistance to approval by the full Senate.

On Jan. 11, Tillerson said China should not be allowed access to islands it has built in the contested South China Sea. Today, China responded, saying it had “irrefutable” sovereignty over disputed islands in the South China Sea after the White House vowed to defend “international territories” in the strategic waterway.

China claims most of the South China Sea, while Taiwan, Malaysia, Vietnam, the Philippines and Brunei claims parts of the sea that commands strategic sea-lanes and has rich fishing grounds along with oil and gas deposits. China’s Foreign Ministry spokeswoman said “the United States is not a party to the South China Sea dispute”.

White House press secretary Sean Spicer met the press again today, hilarity ensued. Spicer says Trump will announce a pick for the Supreme Court next week. Spicer confirmed that President Trump believes millions of people voted illegally in November’s election, despite a total absence of evidence to support this view.

The dollar slumped to the weakest level in six weeks yesterday after U.S. Treasury Secretary nominee Steven Mnuchin said an “excessively strong dollar” could have a negative short-term effect on the economy. The Dollar Index has reversed those declines this morning, moving back above 100.

The UK government lost its Article 50 case. The decision handed down by the UK’s top court says the government must receive parliamentary approval before it can trigger Article 50, the mechanism that would begin the UK’s exit from the European Union.

The proposed merger of health insurers Aetna and Humana has been blocked on antitrust grounds. A federal judge said the tie up would threaten competition and would’ve resulted in higher prices and reduced services for seniors who buy Medicare Advantage. Aetna will owe Humana a $1 billion breakup fee.

You may recall that Aetna threatened the government last summer with pulling out of 11 of the 15 states where it participated in the Obamacare individual insurance markets, claiming it was a “business decision.” The threat was made while the Department of Justice was investigating the merger but before it filed its antitrust lawsuit. After the lawsuit was filed, Aetna followed through on its threat.

However, in an opinion on the case, the judge wrote that it wasn’t just a “business decision”, there was more to it: “Aetna tried to leverage its participation in the exchanges for favorable treatment from DOJ regarding the proposed merger.” Aetna then tried to cover up that connection between the threat to pull out of those markets and the antitrust investigation to the point where the “repeated efforts to conceal a paper trail about the decision-making process” bordered on “malfeasance,” he wrote.

US District Judge Bates determined that there was “persuasive evidence that when Aetna later withdrew from the 17 counties, it did not do so for business reasons, but instead to follow through on the threat that it made earlier.”

There is still a lot of uncertainty about the impact the Trump administration’s trade and business policies will have on the economy and markets. But all this was backdrop for earnings reports, which were pouring in throughout the session. Earnings are coming in generally better than expected.

Profits of S&P 500 companies are estimated to have risen 6.7 percent in the latest quarter, marking the strongest growth in two years. The S&P 500 is trading at about 17 times forward 12-month earnings, compared with the 10-year median of 14.2.

Powered by strong chip and display panel sales, Samsung Electronics’ operating profit jumped 50% to $7.9 billion in the fourth quarter, helping the company bounce back from its costly Note 7 debacle.

BT Group saw its stock drop as much as 19 percent this morning – wiping out $9 billion in market cap – after the company cut its outlook for the coming years and revealed “inappropriate behavior” in its Italian unit had forced a tripling of provisions for losses there.

DuPont reported fourth quarter earnings beat estimates, while revenue missed estimates. DuPont also said it expected its merger with Dow Chemical to close during the first half of the year.

Verizon missed earnings estimates by 3 cents a share. Revenue beat Street forecasts. Verizon saw year-over-year revenue fall 5.6 percent as it added far fewer wireless subscribers than analysts had expected.

After the closing bell yesterday, Yahoo reported better-than-expected quarterly profit and revenue, and said the sale of its core internet business to Verizon would be delayed but  should be completed in the second quarter.

Travelers insurance company posted earnings well above estimates. Revenue also beat forecasts. Travelers did see underwriting results fall in its auto insurance sector, but that was more than made up for by improvements in other lines.

Johnson & Johnson — J&J reported earnings of $1.58 per share for the fourth quarter, 2 cents a share above estimates. Revenue came in slightly below forecasts. The medical device maker also gave a full-year forecast that falls below analysts’ estimates.

3M reported quarterly profit of $1.88 per share, 1 cent a share above estimates. Revenue was in line with estimates. The company also affirmed its full-year forecast.

Alibaba Group posted a 54 percent rise in third-quarter revenue, beating analyst estimates, helped by higher sales during its Single’s Day shopping event and increased earnings in its cloud and digital media ventures.

Lockheed Martin beat estimates for fourth-quarter revenue and earnings, but last year delivered fewer-than-forecast F-35 jets. The Pentagon’s No. 1 weapons supplier also said internal controls for financial reporting were ineffective at its Sikorsky helicopter business.

D.R. Horton, the largest U.S. home-builder, reported its highest growth in orders in more than a year. Orders rose 14.6 percent to 9,241 homes in the quarter ended Dec. 31. The average selling price for the quarter was $297,000, up 2 percent from a year earlier. Horton reaffirmed its 2017 revenue forecast.

Homebuilders gained after a report showed that U.S. home resales fell more than expected in December as the supply of houses on the market dropped to levels last seen in 1999. The National Association of Realtors reported sales decreased by 2.8% at a seasonally adjusted annual rate of 5.49 million in December.

Lawrence Yun, NAR chief economist, wrote: “Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction… It’ll take more entry-level supply; continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.”

Rio Tinto — The mining company sold its Australian coal unit to Yancoal Australia for up to $2.45 billion in cash. Yancoal is an entity controlled by the Chinese government.

Nominations for the Oscars were announced this morning.  “La La Land” has landed a record-tying 14 Academy Awards nominations, matching it with “Titanic” and “All About Eve” for most nominations ever. The other nominees for best picture are: “Moonlight,” ”Arrival,” ”Manchester by the Sea,” ”Hell or High Water,” ”Lion,” ”Fences,” ‘Hidden Figures” and “Hacksaw Ridge.” Now, that I think about it – it might be good to go to the movies.