Financial Review

Roll a Grenade onto the Dance Floor

Sinclair Noe — November 15, 2017

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

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DOW – 138 = 23,271
SPX – 14 = 2564
NAS – 31 = 6706
RUT – 7 = 1464
10 Y – .05 = 2.34%
OIL – .41 = 55.29
GOLD – 2.20 = 1278.60

Cryptocurrency

• Number of Currencies: 903
• Total Market Cap: $217,644,126,481
• 24H Volume: $8,010,823,675

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,213.1	$121.02B	$3.82B	47.72%	1	-0.83%	-1.47%
	Ethereum	ETH	327.51	$31.52B	$646.25M	8.07%	0.0455803	-1.02%	+5.52%
	Bitcoin Cash	BCH	1,082.90	$18.53B	$1.32B	16.49%	0.152684	-8.53%	+75.34%
	Ripple	XRP	0.20900	$8.18B	$128.81M	1.61%	0.00002934	+0.10%	-3.20%
	Litecoin	LTC	63.660	$3.44B	$191.03M	2.38%	0.00883695	+0.57%	+1.18%
	Dash	DASH	423.00	$3.26B	$99.83M	1.25%	0.0587124	+0.48%	+31.52%
	IOTA	MIOTA	0.76800	$2.13B	$96.90M	1.21%	0.00010624	-2.41%	+52.56%
	NEO	NEO	29.497	$1.91B	$41.67M	0.52%	0.00407884	+0.70%	-6.79%
	Monero	XMR	123.76	$1.90B	$53.22M	0.66%	0.0171033	+2.29%	+7.67%
	NEM	XEM	0.20218	$1.75B	$6.76M	0.08%	0.00002697	-0.06%	-1.63%

The Dow industrials are now down for the month of November. The S&P and Nasdaq are also in the red for the month. Oil prices fell for a fourth session after data showed an increase in crude and gasoline stockpiles. The S&P 500 energy sector notched a four-day decline of 4 percent, its weakest such period in 14 months.

Since the third-quarter reporting season began a month ago, companies saying earnings will beat analyst estimates have outnumbered those predicting they will miss by a ratio of 1.2-to-1. That’s the highest for any similar stretch since 2010. And the S&P 500 is down about 1.5% from its record high on Nov. 7. Even with the pullback, the S&P 500 is up a healthy 14.5 percent this year.

Unlike October’s broad market rally, fewer stocks and sectors have been notching gains this month, and the latest market decline reflects that. Equity bulls says there’s more to come if you can ride out the current storm. Bears say this could be an early indicator of an even bigger drop. The truth is probably somewhere in between.

The gap between two- and 10-year Treasury yields shrunk to a new low for the year on Wednesday at 64 basis points, which is down from 136 basis points at the end of last year and the smallest difference since 2007. This move is important because a narrowing yield curve is typically associated with slower economic growth, and a full-on inversion is a sign that a recession is on the horizon.

The other big concern in markets right is junk bonds. The market has also suffered a swift and sharp selloff in the last week. Investors are now demanding an extra 4.06 percentage points in yield to own U.S. dollar-denominated corporate debt rather than Treasuries.

The tax bill working its way through Congress just gets worse and worse. We keep hearing that this is a tax cuts for middle class America but that’s just temporary. Tax cuts for individuals would expire in a few years under the Senate plan, which means tax cuts today would end up being tax hikes tomorrow. Cuts in business taxes, however, would remain permanent.

The tweaks by Senate Finance Committee Chairman Orrin Hatch on Tuesday largely move to make the bill comply with Senate budget rules. Major analyses so far have estimated that versions of the Senate bill would cut the tax burden on most Americans. However, millions of middle-income people could end up seeing a tax increase, due to the plan’s elimination of provisions like state and local tax deductions.

Also, yesterday, the Senate tossed in the idea of repealing the individual mandate in the Affordable Care Act, eliminating the requirement that people have insurance coverage. They tried this with the skinny repeal over the summer, and it did not pass. Now they are bringing back the failed idea, and they still don’t have anything to replace Obamacare, just sort of repeal it, or kill it off. Obamacare has many moving parts that interact with each other. The individual mandate has a particularly strong tie to the law’s protections for people with pre-existing conditions.

The rationale is that if the government is going to force insurance companies to cover everyone, then it must deliver a big insurance pool with a lot of healthy people in it. About 70% of people support the idea of having protections for pre-existing conditions. The individual mandate is a little less popular; about 50% supported that piece of the puzzle and 47% oppose – call it an even split.

In August 2017, pollsters framed the issue in terms of “President Trump taking actions to make the law (Obamacare) fail.” Put that way, only one-third, 31 percent, said they wanted Trump to stop enforcing the mandate, and two-thirds said it should be enforced.

The idea behind eliminating the individual mandate in tax legislation is that it would save the federal government about $338 billion over 10 years – and the tax cut writers need to find some more money because the tax plan as written blows a “too big” hole in the deficit – even if 13 million people would lose insurance coverage, and premiums for insurance coverage go up 10% for those remaining.

Just a side note – this is Obamacare open enrollment season and Americans enrolled in almost 1.5 million Affordable Care Act health plans on healthcare.gov in the first 11 days of the open enrollment period, a 47 percent increase over a similar period last year.

Then today, they toss in the idea of making individual taxpayers cuts temporary. Federal debt as a percentage of GDP is only going up, and at some point, Congress will no longer be able to keep putting off the day of reckoning. Meanwhile, hardly any taxpayers are going to put money aside in anticipation of higher taxes in 2026, setting the stage for a national financial shock.

In a word, this idea is just stupid. If tax cuts aren’t permanent, they shouldn’t be there.

White House economic advisor Gary Cohn was a guest speaker at the Wall Street Journal’s CEO Council. Republicans and the Trump administration have argued that tax cuts for businesses would lead companies to investment more and raise wages for workers. The moderator then asked those in attendance whether they were planning to increase their business investment if the tax bill became law. A few hands were raised, but most – the clear majority –  stayed down.

Today, Senator Ron Johnson of Wisconsin said he won’t vote for the current tax plan. Johnson, a businessman before he became senator, contends the current plan helps big corporations more than smaller companies. He said he’s also frustrated by the rushed process to pass tax legislation.

Johnson is a Republican. There are 52 Republican senators. If 2 more oppose the legislation – it is dead on the vine. A final vote on the House’s version of the tax-overhaul is expected on Thursday. The senate plans to vote before Thanksgiving – if they can whip the votes.

Retail sales slowed in October after a sharp gain in the prior month. Sales rose 0.2% in October. Sales rose a revised 1.9% in September, up from the prior estimate of a 1.6% gain, boosted by post-hurricane spending.

Excluding autos, sales rose 0.1% after a 1.2% gain in September. Economists were expecting a 0.2% gain. Sales excluding autos and gasoline climbed 0.3%. Growth in consumer spending has been healthy, with retail sales up 4.6% over the past year. Today’s retail numbers, although down from the previous month, still look positive for the economy heading into the holiday shopping season.

The consumer price index, or prices at the retail level, rose 0.1% in October, held down by falling energy prices, the Labor Department said. This was in line with forecasts. If food and energy are stripped out, core CPI rose a slightly larger 0.2%.

The drop in energy prices in the CPI pushed the yearly rate of inflation down to 2% from 2.2% in September. Yet the more closely followed core rate rose at a 1.8% annual rate, up from 1.7% in September and the fastest pace since April.

Adjusted for inflation, hourly wages fell 0.1%. Over the past year “real” wages have risen just 0.4%. The producer price index, a measure of inflation at the wholesale level, increased 0.4 percent last month after a similar gain in September. That lifted the year-on-year increase in the PPI to 2.8 percent, the largest rise since February 2012.

Inflation by the Fed’s preferred measure, core personal consumption expenditures (PCE), was just 1.6 percent in September. Wages are rising slightly, American consumers are spending their money and prices are following suit in signs that a continued economic recovery sets the stage for a Federal Reserve rate rise in December and the cycle beyond that, despite concerns over low levels of inflation.

Cisco Systems reported a 3.1 percent rise in quarterly profit, driven by growth in its newer areas, such as security, and lower expenses. Net income rose to $2.39 billion, or 48 cents per share, in the first quarter ended Oct. 28, from $2.32 billion, or 46 cents per share, a year earlier. Total revenue fell to $12.14 billion from $12.35 billion.

Mattel has rebuffed Hasbro’s latest takeover approach. Mattel has informed Hasbro its proposal undervalues the company and does not take sufficiently into account the potential for regulators to reject the deal based on antitrust concerns. The terms of any possible deal have not been revealed and it is not clear whether negotiations between the two companies will continue.

Target earned a profit of 91 cents per share in the third quarter, beating the average estimate of 86 cents. Sales rose 1.4 percent to $16.67 billion, topping the average estimate $16.61 billion. Third-quarter same-store sales topped estimates, rising 0.9 percent in the quarter, and price cuts drove a 24 percent jump in comparable online sales. Shares dropped about 10% today.

Target’s holiday-quarter profit forecast fell short of analyst expectations. Target has missed Wall Street’s fourth-quarter profit expectations for the past two years. It is gearing up for the holidays by cutting prices and introducing delivery options to compete with Wal-Mart and online sellers, moves that can lure customers but crimp margins.

Wal-Mart reports earnings tomorrow.

Financial Review

Ain’t That a Shame

Sinclair Noe — October 25, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

Subscribe: Android | RSS

DOW – 112 = 23,329
SPX – 11 = 2557
NAS – 34 = 6563
RUT – 6 = 1493
10 Y + .04 = 2.44%
OIL – .30 = 52.17
GOLD + .90 = 1278.20

Cryptocurrency

• Number of Currencies: 877
• Total Market Cap: $169,285,401,598
• 24H Volume: $3,480,700,406

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,724.2	$95.79B	$1.96B	56.46%	1	+3.89%	+3.75%
	Ethereum	ETH	295.25	$28.50B	$324.79M	9.35%	0.0521385	-0.35%	-3.81%
	Ripple	XRP	0.20140	$7.89B	$75.54M	2.17%	0.00003573	-0.90%	-4.77%
	Bitcoin Cash	BCH	328.42	$5.56B	$151.70M	4.37%	0.0579792	+1.87%	-0.16%
	Litecoin	LTC	56.330	$3.03B	$114.68M	3.30%	0.00985888	+1.29%	-5.54%
	Dash	DASH	287.59	$2.21B	$43.80M	1.26%	0.0504281	-0.88%	-2.25%
	NEM	XEM	0.20435	$1.86B	$4.19M	0.12%	0.00003598	+0.22%	-5.94%
	BitConnect	BCC	206.31	$1.51B	$16.86M	0.49%	0.0359821	+6.59%	+6.15%
	NEO	NEO	28.650	$1.43B	$35.32M	1.02%	0.00498411	-4.06%	-2.93%
	Monero	XMR	87.90	$1.34B	$59.61M	1.72%	0.0153379	-0.63%	-1.22%

The Dow and S&P 500 suffering their worst day in seven weeks. Even though overall earnings results have been beating estimates, we had a string of disappointments today.

Burrito chain Chipotle and chip maker AMD (that’s computer chips – not chips and salsa) were the S&P 500’s two biggest losers. Chipotle posted weaker-than-expected earnings late Tuesday, sinking 15%, while AMD’s results beat expectations, but investors seemed more concerned about the company’s outlook, which may not have been as strong as hoped. AMD shares dropped 13%.

Well, that’s how it goes during earnings reporting season. Yesterday investors cheered the early results from third-quarter corporate earnings, equity investors had a change of heart. Third quarter earnings are not expected to shine; with consensus forecasts of profit growth coming in at less than half the 10 percent or so seen in the first two quarters of 2017.

As we move through earnings – pay attention to guidance. The actual earnings have already happened. The market tries to look to the future.

Amgen reported higher-than-expected third quarter profit as lower research and other costs and improved operating margins helped offset sales declines in some of its biggest established products. The world’s largest biotechnology company also raised its full-year adjusted earnings forecast.

Nike posted its weakest quarterly sales growth in nearly seven years in September. Nike said it expects earnings per share to grow in the mid-teens over the next five years, driven by online sales and new product categories, sending its shares up by about three percent. The stock was the top gainer on the Dow today.

Coca-Cola topped profit and revenue estimates for the third quarter on a 3 percent rise in North American sales, gaining market share over arch rival Pepsi. Over the course of several years, both companies have shifted their strategy, focusing on selling low-calorie versions of their colas and buying healthier beverage brands, as consumers move away from sugary sodas.

But Coke seems to be winning the so-called cola-wars by adopting a more aggressive approach to selling juices, teas and vitamin water and taking the lead on franchising its bottling operations to cut costs.

Boeing racked up a further $329 million charge for its troubled KC-46 aerial refueling tanker program. Boeing raised its full-year earnings and cash flow forecasts as it beat third-quarter earnings estimates and reported higher margins in its main commercial airlines segment and overall business.

But the new charge on the air tanker, which some analysts had speculated could return to haunt Boeing despite assurances to the contrary in April, meant the program has now lopped a total of about $1.9 billion off the company’s net income after tax. Boeing share dropped about 4%.

Durable-goods orders rose 2.2% in September. Excluding transportation orders increased 0.7%. Business investment advanced 1.3% for the third month in a row, based on a closely followed measure known as core capital-goods orders. These orders have climbed 7.8% in the past year, the fastest pace since early 2012. The rise in orders last month was concentrated in commercial aircraft, military hardware and electronics.

New-home sales ran at a 667,000 annual pace in September, an 18.9% increase compared with August, and a 17% increase compared with a year ago. This is one of those economic reports that tends to include month-to-month static. For the year to date, sales are 8.6% higher compared to the same period last year.

In September, the median sale price was $319,700, compared to $314,700 a year ago. At the current sales pace, it would take 5 months to exhaust all available supply. More homes are crucial for a market starved for inventory.

Tomorrow, the European Central Bank unveils its plan to scale back purchases of bonds under its quantitative easing program. The consensus is that monthly bond purchases will be cut in half to 30 billion euros ($35 billion) for most of next year. So, any amount that differs from that number is likely to roil markets. Investors will also be listening for President Mario Draghi’s comments on the future path of interest rates.

Nobody expects the ECB’s Governing Council to announce a rate hike tomorrow, suggesting that the central bank is likely to reiterate that rates will “remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.” The longer the QE horizon the stronger the guidance will be, but a rate hike is unlikely before mid-2019 regardless of whether QE is extended for six or nine months.

Legislation to fund cost-sharing reduction payments – or CSRs – to health insurers would save the U.S. government $3.8 billion over a decade – that, according to a new analysis from the Congressional Budget Office. Trump signed an executive order to cut off CSR funding this month, citing concerns about their legality.

The CBO score of the bill may improve passage odds for the bipartisan legislation authored by Sens. Lamar Alexander, a Tennessee Republican, and Patty Murray, a Washington Democrat. The bill would reinstate cost-sharing reduction payments owed to insurers for lowering deductibles for the next two years.

It would also allow more customers to purchase a cheaper high-deductible plan and make some small changes in the way states can apply for federal waivers to tweak their health care system. Insurers have already signed contracts to offer plans with significantly higher premiums in 2018 in response to the White House’s ambiguity on CSR payments.

The CBO previously found that ending CSR payments permanently would increase deficits by $194 billion over a decade, since insurers would raise premiums for Obamacare exchange plans by 20 percent in response and the government would have to spend more on subsidies to help customers pay them. The savings are lower in the new Alexander-Murray score largely because it uses a baseline that assumes the CSR payments will be made.

Also tomorrow, The House of Representative is slated to vote to formally back the Senate’s budget resolution, fast-tracking the GOP’s effort to advance a tax overhaul with a simple majority in the Senate. With passage, Republicans would unlock the powerful legislative tool known as reconciliation, which replaces the Senate’s 60-vote threshold with a simple majority in some circumstances.

Opposition from some moderate House Republicans to a proposal that would abolish state and local tax deductions is inserting some last-minute drama. Bloomberg reports Representative Tom MacArthur of New Jersey said he thinks there are more than 20 House Republicans who would vote against a key budget resolution, if a “reasonable” compromise isn’t reached on preserving the state and local tax break in some form.

MacArthur added that he didn’t think the House should hold its scheduled vote on the budget Thursday unless an agreement on the so-called SALT deduction has been reached. House GOP members concerned about the break are supposed to meet with Republican leaders this evening.

House Republicans hold 239 seats and need 217 votes to adopt the budget — a critical step to passing tax changes without Democratic support. That means 23 defections could sink the budget resolution — assuming no absences or Democratic support.

When it comes to tax reform, SALT (or state and local tax) deductions may be just one of many stumbling blocks. Once Obamacare repeal failed, the only major item on Republicans’ agenda for the rest of the year was supposed to be tax reform.

But then Trump announced his administration planned to sunset the Deferred Action for Childhood Arrivals program, and that it would end the Affordable Care Act’s subsidy payments, a move that will increase premiums for Americans and dig a deeper hole in the national deficit. Congress also keeps putting off negotiations on key policies, like the now-expired federal Children’s Health Insurance Program (CHIP). With so many policy deadlines, the possibility of a shutdown can’t be dismissed.

In the final hours of Tuesday night, the Senate voted to nullify a rule that would’ve allowed customers of banks, credit-card companies, and other financial institutions to join together in class-action lawsuits if they felt they’d been wronged.

The rule—which was introduced in July by the Consumer Financial Protection Bureau (CFPB), but was not yet in effect—would have prevented financial institutions from forcing customers with legal grievances to resolve them out of court with the company’s lawyers, in a process called arbitration.

Buried in the fine print for credit card applications and banks accounts and such is a clause that requires consumers to submit to arbitration if there is a problem. But the problem for consumers is that arbitration can be cumbersome and costly. The mandatory arbitration clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up.

The Senate’s nullification of the rule came about even as recent major financial-industry scandals have harmed consumers. Wells Fargo, even with its fake-account and auto-lending scandals, utilized mandatory-arbitration clauses in some of the agreements they have customers sign.

The nullification of the CFPB’s rule means that people who suffered financial harm or identity theft as a result of either of these large companies’ lapses may not have the right to take them to court. It was a huge win for banks, who feared a flood of costly lawsuits.

But for financial firms already under the spotlight for poor treatment of customers, the bad publicity may make it difficult for them to avoid court. For example, Equifax initially turned to arbitration clauses in the face of its cyber hack but public pressure and threats from state attorneys general forced it to drop the requirement for 145.5 million consumers affected by the breach.

Financial Review

Black Monday + 30

Sinclair Noe — October 19, 2017

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

Subscribe: Android | RSS

DOW + 5 = 23,163 (Record)
SPX + 0.84 = 2562 (Record)
NAS – 19 = 6605
RUT – 3 = 1502
10 Y – .02 = 2.32%
OIL – .64 = 51.40
GOLD + 9.20 = 1290.70

Cryptocurrency

• Number of Currencies: 873
• Total Market Cap: $170,063,950,800
• 24H Volume: $3,432,050,501

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,694.9	$94.88B	$1.68B	49.05%	1	+0.02%	+3.13%
	Ethereum	ETH	307.59	$29.36B	$331.65M	9.66%	0.0542081	+0.20%	-0.03%
	Ripple	XRP	0.21712	$8.45B	$314.98M	9.18%	0.00003856	+1.31%	-11.94%
	Bitcoin Cash	BCH	330.66	$5.55B	$183.38M	5.34%	0.0583385	+0.34%	+6.19%
	Litecoin	LTC	59.870	$3.19B	$143.17M	4.17%	0.0104936	+0.07%	+3.21%
	Dash	DASH	295.11	$2.25B	$30.31M	0.88%	0.0518648	+0.24%	+0.12%
	NEM	XEM	0.22116	$2.03B	$3.49M	0.10%	0.00003971	0.00%	+10.38%
	NEO	NEO	28.920	$1.45B	$27.49M	0.80%	0.00508234	-0.03%	+3.49%
	BitConnect	BCC	199.387	$1.44B	$13.46M	0.39%	0.0350416	+0.92%	+4.33%
	Monero	XMR	89.00	$1.35B	$34.55M	1.01%	0.0155816	+0.85%	+2.24%

Somehow, the Dow managed to pull another record out of the hat. Major market indices were down most of the day – the Dow was down 105 points this morning – but the Dow and S&P clawed back to positive in the final minutes of trading.

Janet Yellen went to the White House today for a meeting with Trump, billed as some sort of job interview. If Yellen was smart, and she is, she probably let it be known that she was ready to move on when her term as Fed Chairwoman ends in February and she maybe offered a little advice on how not to blow up the economy. The meeting lasted about 30 minutes.

Politico reports Federal Reserve Governor Jerome Powell is the leading candidate to become the chair of the Fed. Powell has been heavily favored by Treasury Secretary Steven Mnuchin, who is leading the Fed chair search for Trump. Other finalists include former Fed Governor Kevin Warsh, Stanford economist John Taylor and National Economic Council Director Gary Cohn.

I don’t know why the major stock indices moved into positive territory at the end of the day, but it happened to coincide with the news about Powell. A decision is expected in a few days.

Senate Health Committee Chairman Lamar Alexander announced bipartisan support for an on-off-on again fix for Obamacare. Twelve Republicans and 12 Democrats signed on to the bill, which would continue ObamaCare’s insurer subsidies for two years and give states more flexibility to waive ObamaCare rules.

Trump announced last week he was canceling the payments, arguing the previous administration lacked the authority to make them. But Democrats, and some Republicans, including Alexander, have pushed for Congress to temporarily fund the payments to stabilize the ObamaCare markets. If they don’t, Alexander said, “there will be chaos in this country and millions of Americans will be hurt.”

Amazon.com wants to build a second headquarter. It would be a big deal. Amazon plans to spend $5 billion and employ about 50,000 workers. Cities are slobbering for that kind of economic development. For its second campus, Amazon wants a metropolitan area of more than a million people with good education, mass transit and likely lower costs than its home base in Seattle.

Amazon said it will need 8 million square feet in a second region, making it the biggest economic development target in decades. Amazon has said it will announce a decision next year. Applications for the gig are due today. New Jersey proposed $7 billion in potential credits against state and city taxes if Amazon locates in Newark and sticks to hiring commitments. New Jersey might be better served sending politicians to classes in remedial math.

Tucson hauled a 21-foot saguaro cactus to Amazon’s main Seattle headquarters via a truck. The plan didn’t turn out the way that Tucson’s economic group had hoped: Amazon refused to accept the gift. Canada is trying to lure the company, and in Ottawa, they instructed hockey fans to cheer for Amazon between periods.

Pittsburgh is offering free sandwiches to every Amazon employee who ends up working there. Four bids from New York, including the city and areas upstate. Tonight, New York City will be lit up all orange – it is not a Halloween drill. The mayor of the Atlanta suburb of Stonecrest said his city would use 345 acres of industrial land and create a new city called Amazon. Bezos would be its mayor for life. That’s just sad.

The front-runners are Austin, Atlanta, Toronto, Pittsburgh, and Boston. Each public stunt is just the wrapping on a package of tax breaks, promises, and other giveaways enclosed in the bids, many of which cities, counties and states have decided to keep private. Most cities will lose and have nothing to show for their self-debasement.

When Amazon announced plans for HQ2 they were fairly specific about their requirements: Amazon is looking for existing buildings of at least 500,000 square feet and total site space of up to 8 million sq. ft. It would like the site to be within 30 miles of a population center and within 45 minutes of an international airport. It prefers metro areas with more than 1 million people. Amazon is prioritizing “stable and business-friendly regulations and tax structure” in its considerations.

Also, good public transit, close to freeways, bus and light rail, bike lanes and even pedestrian access, good wi-fi and mobile phone infrastructure, an educated workforce with a solid university system in place. And more generally, it needs affordable housing and a good cultural fit. Now forget Amazon for a minute, and you have a blueprint for local government to follow when they consider investing in a strong business environment.

For a company trying to fend off activist investors targeting bloated corporate spending, General Electric has seemed particularly clueless about how it spends money. Along with paying executives astronomical salaries for lousy results, it has showered them with perks that read like a caricature of executive excess. Perhaps the most egregious example is the one revealed yesterday in the Wall Street Journal.

It reports that the company often sent an empty aircraft to follow then-CEO Jeffrey Immelt around as he traveled the world on another corporate jet, just in case his primary plane (no doubt equipped with GE aviation equipment) broke down during one of his business trips.

GE has a long history of bloated executive compensation. When former CEO Jack Welch retired in 2001, he was left with a retirement package valued at almost $420 million, and included items like the use of an $50,000-a-month Manhattan apartment, choice seats for the Yankees, Knicks, Red Sox, and at Wimbledon, and the use of GE’s airplanes.

The size and excess of Welch’s golden parachute only came to light in his divorce filings, and its non-disclosure to shareholders became the subject of a SEC enforcement action. But while Welch’s haul was embarrassing, it came when GE was still making money for investors, so nobody cared.

Every two years, the US Energy Information Administration (EIA), America’s official source for energy statistics, issues scenarios about how much solar, wind and conventional energy the future holds for the US. Every two years, since the mid-1990s, the EIA is wrong. Last year, it was spectacularly wrong.

The Natural Resources Defense Council and Statista recently teamed up to analyze the EIA’s predictions for energy usage and production. It found that the EIA’s ten-year estimates between 2006 to 2016 systematically understated the share of wind, solar and gas. Solar capacity was a whopping 4,813% more in 2016 than the EIA had predicted it would be.

Meanwhile, EIA estimates regularly overstate US fossil fuel consumption, which some see as an attempt to boost the oil and gas industry.

Spain’s central government said it would suspend Catalonia’s autonomy and impose direct rule after the region’s leader threatened to go ahead with a formal declaration of independence if Madrid refused to hold talks. In an act unprecedented since Spain returned to democracy in the late 1970s, Prime Minister Mariano Rajoy said he would hold a special cabinet meeting on Saturday that could trigger the move.

The Socialist opposition said it backed the government but suggested the measures should be limited in scope and time. Catalan president Carles Puigdemont, ignoring a 10 a.m. deadline to drop his secession campaign, wrote a letter to Rajoy threatening a formal declaration of independence. The war of words increased uncertainty over a standoff that has raised fears of social unrest, cut growth prospects for the euro zone’s fourth-largest economy and rattled the euro.

Apple shares fell nearly 3 percent on signs of weak demand for the iPhone 8. Wireless carriers in the United States and Canada have reported slow third-quarter customer upgrades. While some expect a pickup after the iPhone X goes on sale in November, others cautioned that phone’s high price tag could weigh on demand. The uncertainty about demand was coupled with a Taiwan media report of a cut in iPhone 8 production.

Verizon Communications reported quarterly revenue topped Wall Street analyst estimates and the company added more phone subscribers than expected.

Today marks the 30^th anniversary of Black Monday – the Crash of 87. On October 19, 1987 the Dow Industrial Average dropped 508 points or 22.6%, nearly double the percentage loss for Black Friday in October 1929, which ushered in the Great Depression.

A 22.6% loss today would be more than 5,200 points – slamming the Dow back under 18,000. In 1987, Black Monday wiped out $500 billion of stock market wealth. A similar percentage drop today would wipe out $6 trillion. Program trading offered a way of quickly hedging bets when markets got rocky.

As with so many other things that initially appear to make our lives easier, though, the whole system dramatically backfired when it led to too many people scrambling for the exit at the same time. There are many theories behind Black Monday, some better than others, but the truth is we don’t know exactly why the markets melted down 30 years ago. And that is a problem.

Financial Review

Solid 23K

Sinclair Noe — October 18, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

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DOW + 160 = 23,157 (Record)
SPX + 1 = 2561 (Record)
NAS + 0.56 = 6624 (Record)
RUT + 7 = 1505
10 Y + .04 = 2.34%
OIL + .03 = 52.07
GOLD – 4.30 = 1281.50

Cryptocurrency 

• Number of Currencies: 872
• Total Market Cap: $169,632,917,992
• 24H Volume: $5,029,229,846

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,627.1	$93.66B	$2.41B	48.10%	1	+0.94%	+15.98%
	Ethereum	ETH	315.86	$30.13B	$611.96M	12.20%	0.0562455	+0.62%	+3.70%
	Ripple	XRP	0.21733	$8.39B	$323.31M	6.44%	0.00003869	+0.50%	-17.52%
	Bitcoin Cash	BCH	327.54	$5.49B	$460.27M	9.17%	0.0583761	-3.27%	+4.67%
	Litecoin	LTC	60.840	$3.25B	$293.12M	5.84%	0.0108171	+0.26%	+19.46%
	Dash	DASH	298.30	$2.28B	$38.73M	0.77%	0.0531836	+0.86%	+0.68%
	NEM	XEM	0.22017	$1.99B	$3.48M	0.07%	0.00003926	+2.65%	+3.30%
	NEO	NEO	29.117	$1.44B	$47.65M	0.95%	0.00512899	-2.16%	-3.21%
	BitConnect	BCC	199.648	$1.44B	$13.78M	0.27%	0.0354773	+4.74%	+18.98%
	Monero	XMR	89.32	$1.37B	$35.88M	0.72%	0.0159926	+0.36%	+2.54%

Yesterday the Dow Industrials topped 23,000 for the first time only to close just below the milestone. Today, the Dow sprinted past 23,000 without looking back.

Yesterday we told you IBM posted better than expected earnings and revenue (even though it was the 22^nd consecutive quarter where revenue declined) but they did report growth where it counts, with revenue increasing 11% in cloud computing and software-as-a-service offerings; good enough for a 9% pop – its biggest one-day gain in almost 9 years – which, in turn, lifted the Dow. Also record highs for the S&P 500 and Nasdaq.

The Dow logged its fourth straight daily rise, as well as its 13th gain of the past 16 trading days. The S&P gained for a fourth straight day as well as its 14th positive session of the past 17. The Dow has now notched 51 record high closes this year, the most all-time high finishes in a single year since 2013.

Senate Republicans appear to have enough votes to pass a budget measure to use a procedure known as reconciliation to move tax legislation through the Senate with a simple majority, rather than the 60 votes normally required.

Reconciliation is a parliamentary procedure that allows for the expedited passage of budget-related legislation that alters revenue, spending and the federal debt limit. It is a vital technicality to moving forward on tax cuts. The Senate is expected to vote on a budget bill this week.

Treasury Secretary Steven Mnuchin told Politico the stock market will see a “significant” drop if tax reform is not passed. Mnuchin said, “There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done.” So, if tax cuts don’t get done, don’t blame Mnuchin – blame Congress.

Remember when the Trump administration first proposed its 9-page blueprint for tax reform. They claimed that it would not benefit the very wealthy. For almost a year now, Treasury Secretary Steven Mnuchin has pledged that wealthy Americans would receive no tax cut whatsoever. It became known as the Mnuchin Rule – no tax cuts for the wealthy, that’s the rule.

Then he softened the pledge to say that avoiding tax cuts for the rich was a goal, not a commitment.

So, it should be no surprise that today Mnuchin just gave up on his promise, admitting “it’s very hard not to give tax cuts to the wealthy with tax cuts to the middle class.” Which goes down as the stupidest thing of the day, in a day filled with stupidity. It really is simple – if you promise no tax cuts for the wealthy, you don’t cut their taxes – simple, you just don’t lie.

Yesterday, Senators Lamar Alexander and Patty Murray announced a bipartisan deal to stabilize Obamacare by restoring subsidies to health insurers. The agreement would shore up Obamacare by reviving billions of dollars of federal subsidies to insurers for two years to help lower-income Americans obtain medical coverage. Alexander said that Trump had “completely engineered” the bipartisan proposal.

On Tuesday, Trump said the White House was involved in the negotiations and that the agreement was “a very good solution” for a short-term approach, but today he said he could “never support bailing out” insurance companies.

Trump’s decision to end key Obamacare payments is already reverberating throughout the health insurance market. Blue Cross Blue Shield of North Carolina announced its final Obamacare exchange premium increases for 2018 on Wednesday, and it pinned a significant amount of the increase on Trump. BCBS said it was forced to increase premiums due to lost funding from Obamacare’s cost-sharing reduction (CSR) payments.

There is a slice of people in the market, roughly 10% according to BCBS NC, who do not receive the tax credit and will therefore bear the brunt of the increase caused by the lost CSRs. The announcement comes just a few days after a similar announcement from the Department of Insurance in Pennsylvania. According to the department, the average Obamacare premiums in the state would increase 30.6% in 2018, up from 7.6% if the CSRs continued.

American Express reported quarterly earnings and revenue that beat analysts’ expectations and raised its forecast for the year. The company also announced that Stephen Squeri will succeed Kenneth Chenault as CEO, effective February 1, 2018.

Northern Trust also posted quarterly results, beating top and bottom-line estimates. The company’s stock rose 3.8 percent and was among the best performers in the S&P 500.

United Airlines said its third-quarter net income fell by a third to $669 million from the year-ago period, partly due to $185 million in pretax losses caused by canceled flights during the Atlantic hurricane season.

EBay forecast current-quarter adjusted profit that was largely below analysts’ estimates as the company continues to ramp up spending to tweak its e-commerce platforms.

One of the world’s biggest mining companies and two of its former top executives are in trouble for allegedly overstating the value of a mine in Africa by billions of dollars. The Securities and Exchange Commission claims that Rio Tinto realized the mine was worth significantly less within a year of purchasing it, but did not share that information with investors until 2013. In a filing with a district court in New York, the SEC accused the company and the two former senior executives of fraud.

Ford is recalling 1.3 million F-series pickup trucks, the best-selling vehicle in America, for a door latch problem that could allow the door to open while the truck is moving. The affected models include some of the model year 2015, 2016 and 2017 F-150’s, as well as some 2017 Super Duty pickups.

Two weeks before a Federal Reserve FOMC policy meeting, the Fed publishes the Beige Book, a collection of reports and observations from Fed districts around the country. The latest snapshot of the economy shows modest to moderate growth and few signs of inflation.

Hurricanes Harvey and Irma hit during the survey period and will have a negative effect on third-quarter economic growth, the Fed has said, although it expects the impact to be temporary. “Despite widespread labor tightness, the majority of districts reported only modest to moderate wage pressures.” Shortages were particularly acute in construction, transportation, skilled manufacturing, and some healthcare and service positions. “These shortages were also restraining business growth,” the Fed said.

However, this did not feed through into higher wages and there also was little change overall in selling prices despite several districts reporting increased manufacturing input costs.

Once every 5 years, the Chinese Communist Party gets together and today was the day. Chinese President Xi Jinping laid out a confident vision for a more prosperous nation and its role in the world. The speech was heavy on aspiration and short on specific plans.

On the economy, Xi said China would relax market access for foreign investment, expand access to its services sector and deepen market-oriented reform of its exchange rate and financial system, while at the same time strengthening state firms.

Homebuilding fell to a one-year low in September as Hurricanes Harvey and Irma disrupted the construction of single-family homes in the South, suggesting housing probably remained a drag on economic growth in the third quarter. Housing starts decreased 4.7 percent to a seasonally adjusted annual rate of 1.127 million units. That was the lowest level since September 2016 and marked the third monthly decline in starts. Building permits fell 4.5 percent.

Inequality and economic insecurity have been rising for American workers — and the situation is only getting worse as they age into retirement. The Organization for Economic Co-operation and Development released a study that found the gap between wealthy and low income seniors is wider in the United States than it is in all but two of its 35 member nations — Mexico and Chile.

Although previous generations of retired Americans have seen rising levels of economic security, that trend appears to be coming to an end. Lower wages and the decline of pensions for middle-class workers are combining to create a class of older people with very thin financial cushions.

Tomorrow marks the 30^th anniversary of Black Monday – the Crash of 1987. On that day, the Dow lost 508 points, a fall of nearly 23%. At today’s market heights, a percentage fall of that magnitude would knock more than 5,200 points off the DJIA.

The crash was blamed on a number of factors, but at heart, it was the growing complexity of the market that seemed to overwhelm participants and set the stage for the calamity. Computerized trading, then in its infancy, combined with new hedging strategies that used relatively newfangled stock-index futures contracts were all part of the picture.

The market is much more complex now – not necessarily a good thing. The major exchanges now have automatic trading curbs in place – meaning a 23% one-day crash shouldn’t happen, at least in theory.

Financial Review

23K(ish)

Sinclair Noe — October 17, 2017

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

Subscribe: Android | RSS

DOW + 40 = 22,997 (Record)
SPX + 1 = 2559 (Record)
NAS – 0.35 = 6623
RUT – 5 = 1497
10 Y – .01 = 2.30%
OIL + .14 = 52.01
GOLD – 9.70 = 1285.80

Cryptocurrency

• Number of Currencies: 881
• Total Market Cap: $164,018,283,218
• 24H Volume: $4,954,812,161

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,358.1	$89.65B	$1.86B	37.48%	1	-4.27%	+12.45%
	Ethereum	ETH	304.46	$29.07B	$530.61M	10.71%	0.0568999	-3.54%	+1.24%
	Ripple	XRP	0.22479	$8.75B	$412.24M	8.32%	0.00004228	-1.92%	-13.77%
	Bitcoin Cash	BCH	345.00	$5.95B	$942.47M	19.02%	0.0663392	-6.41%	+12.14%
	Litecoin	LTC	56.180	$3.01B	$208.32M	4.20%	0.0105002	-5.10%	+11.48%
	Dash	DASH	287.68	$2.21B	$41.24M	0.83%	0.0538494	-3.45%	-0.64%
	NEM	XEM	0.21036	$1.89B	$3.05M	0.06%	0.00003909	-5.30%	-2.68%
	NEO	NEO	29.112	$1.45B	$78.17M	1.58%	0.00540911	-8.06%	-4.17%
	Monero	XMR	89.19	$1.36B	$44.46M	0.90%	0.016648	-1.85%	+2.95%
	BitConnect	BCC	186.401	$1.34B	$13.34M	0.27%	0.0347181	-4.43%	+14.14%

The Dow Industrials and the S&P 500 hit another record high close. The Nasdaq Composite barely missed. The Dow briefly moved above 23,000 intraday – for the first time ever. Wait for 24,000 before you buy a hat.

It took 53 trading days for the Dow industrials to move from 22,000 to the 23,000 mark. Don’t know how long you might have to wait. Valuations seem a bit high at these levels. But a 1,000-point move isn’t what it used to be. If the Dow picks up another 1,000 points to reach 24,000, that will represent a 4.3% advance from the 23,000 mark.

Two senators announced a bipartisan breakthrough to shore up Obamacare, a least for the short-term. The agreement worked out by Republican Senator Lamar Alexander and Democratic Senator Patty Murray would meet some Democratic, including a revival of the subsidies for Obamacare and restoring $106 million in funding for a federal program that helps people enroll in insurance plans.

In exchange, Republicans would get more flexibility for states to offer a wider variety of health insurance plans while maintaining the requirement that sick and healthy people be charged the same rates for coverage. The deal still has to make it through both houses of Congress and be signed by Trump.

If it becomes law, it could end a chaotic situation for insurers after the White House moved last week to dismantle parts of the Affordable Care Act. Shares of U.S. hospital operators moved higher after news of the deal. Tenet shares were up 4 percent, while HCA was 2.3 percent higher. Shares of some health insurers also extended their gains on the day, with Anthem up 2.5 percent and Centene rising 2.8 percent.

UnitedHealth, the largest US health insurer, is the first health insurer to report and its third-quarter net earnings rose 26.3 percent, beating analysts’ expectations. Its shares rose more than 5 percent

Trade ministers from the United States, Canada and Mexico wrapped up a contentious round of NAFTA negotiations. The three sides agreed to carry on with talks and said they would negotiate into the first quarter of 2018, beyond the end-year framework initially envisaged to complete the negotiations.

Canada and Mexico have rejected U.S. proposals involving the dairy and auto sectors, dispute resolution, government procurement and a sunset clause that would effectively end NAFTA after five years unless all parties agree to extend it.

A federal judge in Hawaii on Tuesday granted a temporary restraining order against Trump’s third travel ban, just hours before it was set to take effect at midnight. Trump issued a proclamation last month restricting travel to the US from nationals of eight countries, including Iran, Syria, Yemen, Somalia, Venezuela, Chad, Libya, and North Korea.

Those restrictions came after the first two iterations of the travel ban, which targeted majority-Muslim nations, faced court challenges. Trump’s second travel ban was partly implemented, and the Supreme Court was scheduled to hear arguments on its constitutionality in October. But the justices removed oral arguments from the schedule after part of the second ban expired and Trump issued the third ban as a replacement in September.

The third ban will likely make its way to the Supreme Court, as well, though it must go through the appellate court system first. Another federal court is also expected to rule on the ban in a separate legal challenge. Almost immediately, the Department of Justice announced it would appeal the ruling.

Morgan Stanley and Goldman Sachs reported earnings and they followed a pattern of weak results due to calm markets. Like JPMorgan Chase and Citigroup, the firms that reported today showed a decline in fixed-income trading revenue. Low volatility has been problematic for Wall Street, especially compared with what was an active trading environment in the third quarter of 2016.

Goldman’s fixed-income trading revenue dropped 26 percent from a year ago, while Morgan Stanley posted a 21 percent decline. Still, both banks’ debt trading units slightly beat analyst expectations for the quarter. Morgan Stanley, Wells Fargo and JPMorgan all posted record revenue from their wealth- and asset-management units as stock markets hit records and after the Federal Reserve hiked interest rates three times in the past year.

Goldman Sachs also gained from rising markets, as its revenue from equity investments climbed to the highest in almost four years. JPMorgan, Citigroup, Bank of America and Wells Fargo boosted provisions for consumer loan losses from the previous quarter, which could be a leading indicator of a turn in the credit cycle. Goldman Sachs reported earnings of $5.02 per share vs. $4.17 expected.

Also, revenue of $8.33 billion also easily beat expectations of $7.54 billion. Goldman Sachs was down 2.6%. Morgan Stanley posted earnings of 93 cents a share – topping estimates of 81 cents. Morgan Stanley was up slightly.

IBM reported third-quarter net income of $2.7 billion, or $2.92 a share, compared to $3.2 billion, or $2.98 a share, in the year-ago period – still, that beat estimates. Revenue fell slightly to $19.1 billion from $19.2 billion in the year-ago period, marking the 22-consecutive quarter of revenue declines. IBM shares popped 4% in after-hours trade.

Yesterday, after the closing bell, Netflix reported earnings – a modest beat, but they added a whole bunch of subscribers. And one of the major reasons they keep adding subscribers is because they keep adding movies. Netflix has released at least 34 original movies so far in 2017. It plans to release 80 next year. That’s more titles than most movie studios release in a year.

Disney—which also owns Pixar, Marvel Studios, and Lucasfilm—released 13 movies in the US in 2016; Time Warner’s Warner Bros., New Line, Fine Line, Warner Independent, and Picturehouse studios released a combined 23 films; and Sony, which released the most, put out 38 movies throughout its studio portfolio last year, less than half of what Netflix is proposing.

Netflix is padding its already massive content budget to support the ambitious movie-release schedule it has planned. It expects to spend between $7-8 billion on content overall next year, up from $6 billion in 2017. Even with a recently announced hike in subscription fees, you have to wonder if Netflix is experiencing a bit of cash burn. Netflix shares dropped about $3 today.

Volvo and Chinese parent company Geely unveiled the first model of its new Polestar electric brand, and announced a more than $750 million investment to develop the brand further. It is the first step to developing high-performance electric cars that are aimed at some of the same customers targeted by makers such as Tesla.

The first production car will be the Polestar 1, a hybrid 600-horsepower two-door, four-seater hybrid coupe, with just above 90 miles of pure electric range. That car will go into production in 2019. It will be followed soon by an all-electric car aptly named the Polestar 2.

Industrial production in the U.S. rebounded in September after two straight declines, rising 0.3% in September. Capacity utilization rose to 76% from 75.8% but remained below summer levels.

Production for July, meanwhile, was revised to show a small decline instead of a 0.4% gain. The decline in August lowered to 0.7% from 0.9%. Most industries boosted output in September, led by construction and utilities.

Manufacturing production edged up 0.1%. The most notable decline was in chemicals, an industry concentrated in the South. A pair of major storms that swept through the region from Texas to Florida held down U.S. production by about 0.25 percentage points.

Industrial production fell at a 1.5% annual rate in the third quarter, but the Fed said its index would have risen at least 0.5% if not for the hurricanes. Other indicators of heavy industry points to steadily rising sales and production and that’s likely to help keep the U.S. on its current 2% annual growth path.

The cost of imported goods jumped 0.7% in September in the biggest gain in more than a year, led by fuel prices and industrial supplies. Excluding fuel, import prices rose a smaller 0.3%.

Sentiment among home builders spiked in October after faltering over the summer. The National Association of Home Builder’s monthly confidence gauge jumped four points to a reading of 68, the highest reading since May. The NAHB warned that builders need to be mindful of long-term repercussions from the recent hurricanes, such as intensified material price increases and labor shortages.

And a final note, if you follow the metals markets you may have noticed that palladium is now trading around $980, while platinum is just $938 an ounce. That reverses long-term price trends.