Financial Review

Unsavory Business Model

Sinclair Noe — May 11, 2016

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DOW – 217 = 17,711
SPX- 19 = 2064
NAS – 49 = 4760
10 Y – .02 = 1.74%
OIL + 1.57 = 46.23
GOLD + 11.40 = 1277.70

The Dow Jones industrial average had its worst day since Feb. 11. The S&P 500 closed 0.96 percent lower for its worst day since April 7. Consumer discretionary led nine sectors lower. Oil turned higher and extended gains to close at a high for the year after the EIA’s weekly inventory report showed a decline of 3.4 million barrels, versus expectations of a slight build. Yesterday, the American Petroleum Institute reported a 3.4 million-barrel increase in crude inventories for the week; so, really, take your pick.

A federal judge has blocked Staples acquisition of Office Depot after a judge agreed to the Federal Trade Commission’s request for a preliminary injunction on antitrust grounds. The FTC said the proposed merger would likely eliminate competition. The same result occurred when Office Depot and Staples sought to combine in 1997. Staples will now pay a $250 million break-up fee to its smaller rival for terminating the transaction.

The U.S. government posted a $106 billion budget surplus in April, down 32 percent from the same period last year.

The International Monetary Fund has published a new research paper that says public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty. Extrapolating from 2005 World Bank research, the paper estimated that around 2 percent of global gross domestic product is now paid in bribes annually. But it said corruption’s indirect costs are substantially higher, reducing government revenues by encouraging tax evasion and reducing incentives to pay taxes, leaving less money available for public investments in infrastructure, health care and education.

On Monday, the International Consortium of Investigative Journalists posted online its database of documents related to more than 200,000 offshore accounts created through Panamanian law firm Mossack Fonseca. You can read and search through the database at your leisure at offshoreleaks.icij.org. On Monday, 300 economists signed a letter urging world leaders to end tax havens, saying they only benefited rich individuals and multinational corporations, while boosting inequality. Which is probably true, yet not quite complete. What we are also learning from the Panama Papers is that offshore accounts are a business model for the financial system. It is a core business for global financial institutions.

Tax evasion by wealthy individuals is only a small part of the story. Legal tax avoidance is almost certainly more important. Most of that involves companies; some companies designed to hide the activities of individuals or families, and also large global corporations.

And while it might be impossible at this time to measure the exact amount of evasion and avoidance, we could look at the gross global output and then the amount the financial sector claims in profits, and then try to extrapolate how much of that comes from  tax evasion and avoidance schemes; and don’t forget the manipulation of currency exchanges, and interest rate exchanges, and bond markets and equity markets and commodity markets and derivatives markets, and well… all the other markets that banks have admitted to rigging.

Add it all up and it might total hundreds of billions a year; if we add in the bribery and corruption the IMF calculates (and that should be added in because that money ends up in banks), then we are looking at trillions of dollars a year.

There has been an explosion in financial sector activity and profits in the past 40 years or so, and the bankers claim that it is: “driven by the benefits of a more efficient allocation of capital by rational markets” but a more realistic interpretation is that growth has been driven by an unsavory system that turns a blind eye to a socially counter-productive business model.

As the Puerto Rican debt crisis continues to unfold, mutual fund managers have been busy trimming their holdings to reduce exposure to the commonwealth’s crisis. Over the past year, the number of funds with exposure to the island has been pared to 29 – out of a pool of 562 municipal bond funds – from as many as 48 in June 2015, according to data from Morningstar. Total dollar exposure has been cut as well, from about $9.9 billion last summer to $6.3 billion now.

Pacific Investment Management Co.’s Total Return Fund cut its holdings of emerging-market debt to the lowest level in almost two years in April. Emerging bonds fell to 9.4 percent of assets, the smallest proportion since August 2014, and down from as much as 29 percent in August 2015.

An impeachment vote on Dilma Rousseff. After months of wrangling, the Brazilian senate will vote on whether or not to impeach the country’s embattled president. National media polls show she’s likely to lose and face trial on charges she broke national budget laws. Today could effectively be her last on the job. The Brazilian newspaper O Estado de S.Paulo says President Dilma Rousseff has packed up all her personal belongings at her office and had them sent to the official presidential residence. Brazil’s highest court says it has rejected an appeal to halt the impeachment process in the Senate. An impeachment vote is expected any time now, like in the next few minutes.

Canadian oil sands companies near Fort McMurray are beginning to restart their operations, as the out-of-control wildfire continues to rage but has now moved far enough away from the oil sands’ sites to allow them to return. Royal Dutch Shell is the first firm to turn on its operations, resuming production at its Albian mine. Before Shell’s restart, the total decline to output in the area reportedly reached at least 839,000-barrels per day, or close to one-third of Canada’s overall daily production.

Department store operator Macy’s reported a 7.4 percent fall in first-quarter sales, the fifth straight quarter of decline, as customers cut back on buying apparel.

 Hershey, the chocolate candy maker, reported a drop in net sales for the third quarter in a row, hurt by weak demand in North America, the chocolate maker’s biggest market.

DuPont’s first-quarter results beat Wall Street estimates and the chemicals and seed producer raised its full-year guidance as it sees lower currency impact than expected. DuPont and Dow Chemical agreed in December last year to a $130 billion all-stock merger, in a first step towards breaking up into three separate businesses; that deal faces intense regulatory scrutiny.

Hit by a sharp appreciation in the yen, Toyota is predicting net income to drop 35% to $13billion for the fiscal year ending in March, snapping three straight years of record profit. Toyota also stated it would repurchase as much as $4.6 billion, or about 3.2%, of its stock.

Chipotle Mexican Grill has spent more than $1 billion on share buybacks in the past year, part of efforts to cope with a food-safety crisis and a flagging stock price. But the move has raised questions about whether the money would be better spent elsewhere. The cost of the repurchases is roughly twice the cash Chipotle’s restaurants generated in the same period. Meanwhile, Chipotle has retained two leading food safety experts – including a critic of the burrito chain’s early response to disease outbreaks last year – as it redoubles its efforts to guard against health scares.

Walmart has filed a lawsuit against Visa for allowing customers to verify chip-enabled debit card transactions with a signature instead of a PIN. The lawsuit says that Visa requires Walmart to accept signature-based transactions for chip debit cards, which Walmart says are a less secure method of payment than PIN-based payments. The dispute is really about money: Wal-Mart pays Visa about five cents more per signature transaction than it does for those that use a PIN. The two have tangled frequently in different lawsuits over the last several years.

Mitsubishi Motors now says that cheating on gas mileage ratings on its cars extends to nine models sold in Japan and others that are no longer sold, vastly increasing the scope of the scandal. That encompasses virtually all the models it sold in its home country. They insist that the scandal does not involve cars sold in the US. Mitsubishi has not disclosed a plan yet to compensate customers. Mitsubishi is only the latest automaker to become enmeshed in controversy over its gas-mileage ratings. In the US, Hyundai, Kia and Ford had to revise gas mileage figures on some models in recent years after their rating methods were called into question.

Google will no longer accept ads for payday loans. Google defines payday loans as loans due within 60 days of being issued and in the U.S. loans with an annual interest rate of 36% or higher. Payday lenders will no longer be able to purchase ads that appear above search results for key terms under Google’s AdWords program. But they will still appear in search results.

The change does not rein in companies marketing loans for mortgage, student, car and commercial loans as well as credit card offers. The ban, which takes effect on July 13, comes ahead of stricter regulations from the Consumer Financial Protection Bureau. Facebook officially banned payday loans last August. Payday lenders and their lobbyists complain the move is discriminatory, but we know that there is a special place in hell for usurers.

Financial Review

The Other Shoe

Sinclair Noe — April 19, 2016

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DOW + 49 = 18,053
SPX + 6 = 2100
NAS – 19 = 4940
10 Y + .01 = 1.78%
OIL + 1.30 = 41.08
GOLD + 17.80 = 1251.30

The Dow Industrial Average closed above 18,000 yesterday for the first time since last July and the rally continued today, although the Dow lost about half its early gains. The S&P 500 topped the psychologically key 2,100 level this morning. We’re not far from the record highs of last May; a couple of strong days and we’re there.

China looks stable, at least today. The Eurozone is preparing for more stimulus from the ECB in its battle against deflation. Oil prices are rising. Analysts are predicting earnings for the first quarter will decline anywhere from 8% to 10% and it appears that weak first quarter corporate earnings are almost fully discounted. Share prices are going up. This is when you should get nervous.

After the close Monday, IBM posted results that beat on both the top and bottom line. However, they did not raise full-year guidance. Netflix also disappointed with lower-than-expected subscriber growth for the second quarter. IBM was down 5% today, and Netflix lost almost 13%, which was a major drag on the Nasdaq.

Early morning reports include Goldman Sachs posting first-quarter earnings dropped 60 percent from a year ago, the fourth-straight quarter of profit declines. Still, earnings beat lowered expectations. Revenue dropped about 40 percent from the year ago period, missing estimates. Johnson & Johnson, which posted quarterly earnings that beat, while revenue matched forecasts. The firm raised its full-year forecast. UnitedHealth reported earnings that beat on both the top and bottom line, and raised its full-year forecast.

After the closing bell, Intel said it would cut 12,000 jobs globally, or 11 percent of its workforce.  The cuts will include “voluntary and involuntary departures” from its operations around the world. Most of the affected workers will be notified in the next 60 days. Intel said it had net income of $2 billion, or 42 cents a share, and revenue of $13.7 billion; a miss on both the top and bottom lines. PC sales are down; you knew that. Intel is trying to get into chips for smartphones, sensors, and cloud computing but they aren’t quite there yet.

 A strike by oil workers in Kuwait has reduced output to 1.1 million barrels per day from 2.8 million. However, the gains may be short-lived. Russia’s Deputy Energy Minister said the country is considering raising its production this year. A deal to freeze oil output by OPEC and non-OPEC producers fell apart after Saudi Arabia demanded that Iran join in production cuts. Iran has repeatedly said it would prioritize regaining pre-sanctions crude output levels over discussing an output freeze.

New-home construction in the U.S. slumped more than projected in March. Residential starts decreased 8.8 percent to a 1.09 million annualized rate. Permits decreased 7.7 percent to a 1.09 million annualized rate, the fewest in a year. Construction of single-family houses dropped 9.2 percent to a 764,000 rate from 841,000 the previous month that was the strongest since October 2007.

Work on multifamily homes, such as townhouses and apartment buildings, declined 7.9 percent to an annual rate of 325,000, the fewest since February 2015. First-quarter gross domestic product growth estimates are currently as low as a 0.2 percent annualized rate. The economy grew at a 1.4 percent rate in the fourth quarter.

The Federal Reserve is set to hike interest rates more rapidly than investors currently expect, so says Boston Fed President Eric Rosengren, again pushing back on what he said was investors’ too pessimistic view of the U.S. economy and monetary policy. It was the second time in as many weeks that Rosengren warned that futures markets, which see only one modest rate hike in each of the next few years, are off the mark.

He said U.S. inflation was now “much closer” to the Fed’s goal, downplayed weak growth in the first quarter, and said the economy is “fundamentally sound.” The Fed’s policy-setting committee meets on April 26-27. The probability that the FOMC will increase the fed funds rate by 25 basis points at the June 14-15 policy meeting is 18%, which compares to 11% yesterday.

Argentina has officially returned to the global bond markets following a 15-year hiatus, unveiling the biggest sovereign issuance by an emerging-market nation in two decades. The country is raising up to $15 billion, but demand for the bond issue (which will pay an interest rate of between 6.4% and 8%) was strong and attracted orders worth $65 billion. Most of the cash raised will go toward paying off a small number of holdout creditors, led by US hedge funds Elliott Management and Aurelius Capital.

The International Monetary Fund and the World Bank are joining forces with other international organizations to cooperate on tax issues and develop new tools and standards for taxing multinational enterprises. The decision by the organizations to formally cooperate predates the release of the Panama Papers, but an IMF official said the groups welcomed the heightened attention on tax issues that the controversy has stoked.

I know the news cycle moves fast, and since there were almost no Americans named in the massive document dump, coverage of the Panama Papers has faded quickly. But wait, there’s more. US officials have taken part in two global meetings about the Panama Papers. The IRS acknowledged participating in a “special project meeting” of the Joint International Tax Shelter Information and Collaboration network, about the papers in Paris last week.

The IRS also encouraged any U.S. citizens and companies that may have money in offshore accounts to contact the agency now before any possible illegal activity on their part is identified. It is now believed the documents contain information on potentially thousands of US citizens and firms that have at least an indirect connection to offshore accounts affiliated with Mossack Fonseca. Waiting for the other shoe… to drop.

Anheuser-Busch InBev has accepted Asahi Group Holdings’ offer to buy the Peroni, Grolsch and Meantime beer brands for $2.9 billion, clearing another hurdle in its efforts to win regulatory approval for its $100 billion-plus takeover of SABMiller. The purchase is conditional on the SABMiller deal going through.

A consortium backed by sovereign fund China Investment Corp. has expressed interest in buying a majority stake in Yum! Brands’ China business, which runs more than 7,100 KFC and Pizza Hut eateries across the nation. The investor group includes KKR and Baring Private Equity Asia. A deal could value Yum! China at $7 billion to $8 billion.

Privately held outdoors retailer Bass Pro Shops has partnered with Goldman Sachs Group’s private equity arm to make an offer for hunting and fishing store chain Cabela’s. The move gives Bass Pro the equity financing necessary to pursue Cabela’s. In December, Cabela’s said it was working with investment bank Guggenheim Securities to explore strategic alternatives including a sale, following pressure from activist hedge fund Elliott Management.

Who wants Yahoo? The deadline to bid for Yahoo has passed with YP Holdings (formerly Yellowpages.com) the latest name in the fray, although Verizon is still considered the front-runner. Yahoo posted earnings today; adjusted earnings came in at $0.08 per share on $1.09 billion in revenue, both down significantly from the same quarter a year ago, but both the top and bottom line were slightly better than estimates.

UBS is going to trial over $2.1 billion in losses that investors incurred on mortgage-backed securities, the latest in a series of lawsuits over the shoddy financial products at the heart of the financial crisis. The non-jury trial in Manhattan stems from a lawsuit being pursued by U.S. Bancorp on behalf of three trusts, who claim UBS refused to buy back the MBSs when pervasive defects emerged.

Federal prosecutors from the U.S. Attorney’s office and the SEC are investigating Theranos over whether it misled investors. Walgreens Boots Alliance and the NY State Department of Health have received subpoenas in recent weeks seeking documents and testimony about representations made to them by the blood-testing startup.

The National Oceanic and Atmospheric Administration has released data showing the first three months of this year, so far, the hottest year ever. March was also the 11th consecutive month to see a new record for temperatures since agencies started tracking them in the 1800s. The new data confirms similar but separate reports from NASA and the Japan Meteorological Association.

Both 2014 and 2015 were record setting years as well.  The Arctic is seeing some of the most abnormal weather on earth, with temperatures about 6 degrees warmer than average overall. These highs could lead to record melting of Arctic sea ice this summer, where the ice cover is already at its lowest since measurements began in the late 1970s.

After a relaxing four-day weekend, you might find that you’re more productive at work than usual. And now there is research to prove it. According to a new study by researchers at the University of Melbourne, for employees over the age of 40, the sweet spot for the best productivity is around three days of work per week. That’s when workers showed the highest level of brain functioning.

Their brain functions were scored based on the results of three tests: a memory test; a reading test; and an attention, visual comprehension, and motor skills test. In all three tests, participants who worked part-time, around 25 to 30 hours a week, showed the sharpest cognitive skills.

Cognitive abilities were lowest among those who worked 50 to 60 hours per work and in those didn’t work at all. The findings suggest that some work is good for your brain, but too much can be damaging, at least for older and middle-aged workers.

Financial Review

More Exciting Than Soccer

Sinclair Noe — April 15, 2016

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DOW – 28 = 17,897
SPX – 2 = 2080
NAS – 7 = 4938
10 Y – .03 = 1.75%
OIL – 1.07 = 40.43
GOLD + 6.50 = 1235.10

It was a pretty good week on Wall Street, even though it feels like some of the recent gains were the result of a short squeeze. On Thursday, the Dow and S&P 500 closed at their highest levels of the year so far. The S&P 500 has recovered about 14% from the February lows. The S&P has posted gains in 7 of the past 9 weeks. The Dow posted a 1.8% gain for the week, its best since the week ended March 18. The S&P 500 added 1.5% for the week.

The world’s second-largest economy grew 6.7% in Q1, the slowest pace of expansion since the financial crisis. But the figure suggested China’s target range of 6.5%-7% growth for 2016 is possible as long as it continues using its vast stimulus toolbox. Other data also reinforced previous signs the country may be finding traction with better-than-expected growth in retail sales, industrial output, fixed asset investment, export figures, and capital outflows.

The biggest oil meeting in decades takes place on Sunday. Major oil producers will gather in Doha, Qatar on Sunday to discuss a potential oil production freeze. Expectations for a deal are low.  Notably, Iran has said it won’t send its oil minister to the meeting, which could pose a problem as Saudi Arabia has suggested it won’t agree to a deal unless Iran is involved. Russia’s finance minister has said that even if a deal is reached to freeze production, it might not result in higher prices. The 18 nations set to gather in Doha on Sunday to discuss a production freeze have spent $315 billion of their foreign-exchange reserves, about a fifth of their total, since the oil slump started in November 2014.

The other big event for investors to watch this weekend will be political developments in Brazil, where a last minute attempt to block an impeachment vote against President Dilma Rousseff in the Supreme Court has failed. The vote will now go ahead on Sunday, with markets viewing the removal of Rousseff as a positive development for the country and the global economy. The vote is so important in Brazil that soccer matches are being rescheduled and huge outdoor screens to broadcast proceedings have been set up.

One big problem is that some of the most vocal lawmakers pushing to impeach Rousseff are facing serious charges of graft, electoral fraud and human rights abuses. If Rousseff is impeached, the vice president Michel Temer is not expected to take over because he has been accused of involvement in an illegal ethanol-purchasing scheme. The House Speaker Eduardo Cunha, the third in the line of succession, has been charged with accepting millions in bribes. Altogether, 60 percent of the 594 members of Brazil’s Congress face serious charges like bribery, electoral fraud, illegal deforestation, kidnapping and homicide. I would have to agree – this is more exciting than soccer.

In the wake of the Panama Papers scandal, the EU’s five biggest economies have struck a deal to crack down on tax avoidance, agreeing to exchange information on the beneficial owners of companies and trusts. The IMF says tax avoidance is a global risk. At the annual IMF meeting in Washington, Britain’s George Osborne said, “Today we deal another hammer blow against those who hide their illegal tax evasion in the dark corners of the financial system.” The UK, Germany, France, Italy and Spain are now pushing for the rest of the G20 to follow suit.

US manufacturing output declined in March by the most since February 2015. The 0.3 percent drop at factories, which make up 75 percent of production, followed a revised 0.1 percent decrease the prior month. Utility output decreased 1.2 percent after a 3.6 percent slump the previous month. Mining production, which includes oil drilling, decreased 2.9 percent. The Federal Reserve reports total industrial production, including mines and utilities, slumped by a weaker-than-estimated 0.6 percent for a second month.

The University of Michigan’s preliminary consumer sentiment index for this month fell to 89.7, the lowest since September, from 91 in March. Steady employment gains haven’t yet translated into solid wage increases. About a fifth of those surveyed mentioned the election or government policy as likely to have negative implications for future economic growth.

Earnings season kicks into high gear next week; it’s shaping up to be the worst quarter for earnings since 2009. The first quarter, should it come in as expected, would mark a third straight quarterly decline in earnings and a fifth straight fall in revenue. This week saw earnings reports from the big banks, and the results were bad but they could have been worse.

Citigroup reported a big drop in earnings this morning. Citi’s revenue fell 11% year-over-year to $17.6 billion. Meanwhile, net income plunged 27% to $3.5 billion or $1.10 per share. That bottom line beat the $1.05 expected by analysts. Citi’s trading revenue fell to $3.79 billion, the fourth straight year that fixed-income and equities trading operations declined in what is typically the industry’s strongest quarter. This has been a common theme among the big banks (JPMorgan, BofA, and Wells Fargo) that reported earnings this week.

Other common themes include cost cutting to prop up profits (Citi really added to the bottom line by firing a whole lot of people), also all the banks have big problems with energy loans. Citi set aside about $455 million for energy loans in the first quarter; in all, the bank said provisions were $2.05 billion.

One more thing we learned this week is that the big banks are still too big to fail; five of the 8 biggest banks flunked the Federal Reserve test; seven out of 8 did not have “credible” plans for how they would wind themselves down in a crisis without sowing panic or requiring bailouts. Citi passed the test, barely; regulators said their plan had shortcomings.

The Dodd-Frank Act of 2010 told large financial institutions to draw up “living wills”, or plans for dismantling the enterprises if they go bust. The big banks are struggling to comply. Part of the plan calls for the banks to have cash and liquid assets to keep operations operating. That might not be enough to avoid a meltdown. Ultimately, the only way to be sure a bank is not too big to fail, and melt down the economy, is to make the big banks smaller. It’s the difference between eating a bite size piece of steak and trying to swallow the entire cow.

The Federal Communications Commission is working on a new rule that would forbid cable companies from requiring customers rent their set-up boxes directly from their providers. Renting the boxes can run upwards of $240 a year per box, and consumers don’t have a choice between boxes. The price of buying a box outright could easily be less than the fees customers pay over the course of a year.

Among the supporters of the set-top box proposal are technology companies like Google, Amazon and Apple, which are eager to establish a broader foothold in the TV market. The cable industry is opposed, calling it a giveaway to wealthy tech companies. If you’re looking for precedent to breaking up the cable industries lock on set top boxes, look back to a time when Americans rented their phones from Ma Bell.

And set top boxes might not be the only industry facing a shakeup. The Council of Economic Advisers issued a report today saying that competition was declining in many industries and argued that the decrease was having a harmful effect on consumers and workers.

As Yahoo prepares to accept first-round bids for its core Internet division on Monday, potential buyers have found themselves facing one big problem: How do you value a firm with a declining business when the company appears reluctant to share vital financial details? According to the NYT, Yahoo executives have refused to discuss the outlook for 2017 or answer questions about crucial aspects of the business in meetings and phone calls with potential bidders.

General Motors is recalling more than one million newer pickup trucks for a seat belt flaw. GM said the recall of the 2014-15 Chevrolet Silverado and GMC Sierra 1500 pickups is not linked to any crashes or injuries.

Pre-orders for the Tesla Model 3 are approaching 400,000. Tesla plans to expand its lineup following the Model 3, likely including a Tesla pickup truck that’s been talked about before by CEO Elon Musk.

You know all those fees that airlines have added over the last several years? Delta is taking one away. Delta will drop the fee for U.S. consumers who buy tickets over the phone or at a ticket counter to make things simpler for customers. The phone fee was $25 and the fee for a ticket bought at an airport or other ticket counter was $35. So now Delta and Southwest are the only major airlines that do not charge these particular fees.

What has caused Delta to seemingly have a change of heart? Delta says that in-person ticketing gives them a chance to engage with their customers. Yea..., that’s not it. The simple fact is that everybody hates this fee; it made the airline look greedy, very greedy. But the real reason for cutting the fee: airlines are swimming in profits thanks to lower fuel prices.

And whether you fly or drive or find some other means of transportation, the next week might be a good time to get away. The U.S. National Park Service is celebrating its 100th birthday in 2016. And during National Park Week, April 16 through April 24, you can join in on the celebration by enjoying free admission to any of the 58 national parks in the country.

Financial Review

A Dodgy Day

Sinclair Noe — April 11, 2016

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

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DOW – 20 = 17,556
SPX – 5 = 2041
NAS – 17 = 4833
10 Y unch = 1.72%
OIL + .61 = 40.33
GOLD + 19.70 = 1259.10

Stocks started the session higher. This morning the Dow was up 150 points for the first hour or so of trade. In the final hour we saw a sell-off that pushed the major indices into negative territory. This kind of trading action makes the recent run-up look like not much more than short covering. With today’s decline, the S&P 500 moved into negative territory year-to-date.

First quarter earnings reporting season is underway, starting with Alcoa’s results after today’s market close. Actually, we’ve already seen a few earnings, but Alcoa is the traditional start of the reporting season because it used to be in the Dow Industrials and it has the ticker symbol AA. The metals and materials company reported adjusted first-quarter earnings of 7 cents per share on $4.9 billion in revenue.

Earnings fell from 28 cents per share in the prior-year period, while sales slid from $5.8 billion. Alcoa beat on earnings and missed on revenue. The company also said it cut 600 jobs in the quarter, with 400 more reductions planned. And they are considering another 1,000 cuts. Shares have plunged more than 25 percent in the last year amid a prolonged commodities slump.

More important than Alcoa is what we see from the first crop of big banks, including JPMorgan Chase and Bank of America, later in the week. Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group, are expected to report the worst results in over ten years. This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year. In other words, the first quarter could be so ugly, they can’t recover in the second half of the year.

Total earnings for the quarter are expected to be down as much as -11% and revenues are expected to be down -2.3%. Wall Street analysts have a tendency to lower the bar heading into reporting season, and then celebrate when actual earnings beat diminished expectations. The negative earnings growth in Q1 will be the fourth quarter in a row of earnings declines for the S&P 500 index.

The headwinds remain unchanged from other recent periods, essentially a combination of Energy sector weakness, the dollar strength and global growth constraints. What corporate CEOs say about the future could be the biggest determinant of whether Wall Street is sold on the theory that the first-quarter will mark the low point for earnings

The U.S. Federal Reserve conducted a closed meeting this morning “under expedited procedures” during which the Board of Governors reviewed and determined advance and discount rates charged by the Fed banks. The event is notable because the last time such a gathering took place was on November 21, less than a month before the central bank’s historic rate hike.

Economic growth is set to slow in Italy but steady in Canada over coming months, while the outlook for developed nations as a whole continues to weaken, according to leading indicators released Monday by the Organization for Economic Cooperation and Development. Overall, the leading indicators imply that the global economy is unlikely to accelerate this year, following several years of disappointing growth.

UK Prime Minister David Cameron has published his taxes after his father’s name was revealed in the Panama Papers. The returns revealed that Cameron and his wife, Samantha, earned a $19,000 profit from the sale of shares in Blairmore Holdings, an offshore trust held by his late father and named in the Panama Papers; that trust did not pay British taxes. Tax returns also reveal that in 2011, the Prime Minister received £500,000 free of inheritance tax.

Making the matter more onerous, Cameron has, in the past, publicly championed tax transparency as well as being an advocate for austerity. There is nothing in the tax returns that indicates illegal action, but Cameron tried to stonewall the press for about a week, and that hasn’t helped his case.

Taking a cue from Iceland, thousands of British protesters swarmed London’s streets on Saturday to try to get their leader to quit. This morning, Cameron went before parliament to explain his role in the offshore trust, and call for new measures that would go after British corporations that do not crack down on tax evasion through offshore accounts, making tax avoidance a criminal offense.

For the first time, companies will be held criminally liable if they fail to stop their employees from facilitating tax evasion. Also British dependencies and territories that are often used to create offshore companies for tax purposes have agreed to compile information on offshore companies registered there; to share the information among themselves; and to create centralized registries of “beneficial ownership”. The jurisdictions that have agreed to these steps include Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, the Isle of Man, Jersey, Montserrat and Turks and Caicos.

Jeremy Corbyn, leader of the opposition Labour Party said, “There is now one rule for the super-rich and another for the rest.”  Dennis Skinner, a Labour member, was thrown out of the House of Commons for the day for calling the Prime Minister “dodgy Dave” several times. Apparently “Dodgy Dave” was just a bit too rude.

The European Commission will meet tomorrow to consider how to require large companies to make public what they pay in tax in each of the 28 EU countries, and possibly outside the bloc as well. Though the Commission has been working for years on how to stop multinationals playing European countries’ tax codes off each other to minimize payments, the Panama papers may push it to expand the scope of its work. Global finance ministers are expected to discuss evasion when they gather in Washington later this week for the International Monetary Fund’s spring meeting.

The IMF defended negative interest rates, saying they boost demand and support stable prices by supplementing conventional monetary stimulus. The International Monetary Fund said the use of negative interest rates by some of the world’s biggest central banks was appropriate given the “significant risks” of slow growth. But the fund also conceded that negative rates could produce boom-and-bust cycles. The IMF’s annual spring meetings will take place this week in Washington D.C.

Investor interest in Argentina’s new bond offering is strong as the nation, sidelined from global debt markets since its 2001 default, launches a five-day marketing tour across the U.S and U.K. Argentina will cap the offering at $15 billion across 5-, 10- and 30-year tenures; the bonds are expected to come to market as early as April 18.

Wells Fargo settled its “shoddy” mortgage practices. The bank agreed to pay $1.2 billion to settle civil mortgage-fraud claims related to residential mortgages it sold from 2001 to 2008. According to the DOJ statement, Wells Fargo certified that certain loans were eligible for Federal Housing Administration insurance, when in fact they were not. That meant the government wound up having to pay insurance claims when some of those loans defaulted.

Goldman Sachs has agreed to pay just over $5 billion to settle claims that it misled mortgage bond investors during the financial crisis. The settlement, which Goldman disclosed in January, stems from the firm’s conduct in packaging, securitization, marketing and sale of residential mortgage-backed securities between 2007 and 2009. The Justice Department said investors suffered billions of dollars in losses from the securities bought during the period. Goldman also acknowledged a Justice Department statement of facts describing how the firm misled investors.

Valeant Pharmaceuticals asked its CEO to cooperate with a Senate investigation into drug pricing after he failed to appear for a deposition. The Senate Special Committee on Aging said last week that it planned to start legal proceedings against Michael Pearson, who is leaving Valeant after months of turmoil for the drug-maker. Pearson is still under subpoena to appear before the committee for an April 27 hearing. The committee is planning its third hearing since December on soaring drug prices.

The parent company of British newspaper and tabloid site, Daily Mail, is in talks with private-equity firms about a possible offer for Yahoo. The Wall Street Journal reports a bid is likely to take one of two forms: 1) A PE partner would acquire Yahoo’s core business, with the Mail taking over news/media properties, or 2) The PE firm would acquire Yahoo’s core business and merge its media/news properties with the Mail‘s online operations.

Canadian Pacific Railway has ended its bid for its US counterpart Norfolk Southern. The Canadian company entered into early-stage talks with Norfolk Southern — the second-largest railroad in the eastern US, valued at about $25 billion — late last year. Since then, US regulators have been pushing back against the deal.

Annaly Capital Management has announced a definitive merger agreement with Hatteras Financial for $15.85 per share, or $1.5 billion. The transaction has been unanimously approved by the boards of both companies.

Dell’s cyber security unit, SecureWorks, could be valued at up to $1.4 billion in its initial public offering, the first major U.S. listing of a technology company this year. Atlanta, Georgia-based SecureWorks said on Monday its offering was expected to be priced at $15.50-$17.50 per Class A share, raising as much as $157 million.

TransCanada has received authorization from the Pipeline and Hazardous Materials Safety Administration to restart the 590K barrel per day Keystone crude pipeline at reduced pressure. The channel, which delivers light and heavy crude from Hardisty, Alberta, to Cushing, Oklahoma, and Illinois, was shut last Saturday after TransCanada discovered a tube leak in South Dakota.

In advance of the busy summer driving season, gasoline prices gained 8 cents to around $2.10 per gallon in the past three weeks, according to the latest Lundberg survey.

Financial Review

Place Your Bets

Sinclair Noe — April 7, 2016

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

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DOW – 174 = 17,541
SPX – 24 = 2041
NAS – 72 = 4848
10 Y – .06 = 1.69%
OIL – .33 = 37.42
GOLD + 18.20 = 1241.50

Federal Reserve officials seemed evenly split at their March meeting on the key question of whether to raise interest rates; policymakers were also split on whether the recent pickup in core inflation would prove persistent. Global risks also seemed to leave the FOMC flat-footed. Ultimately the Fed decided there was no urgent reason to hike rates at the March meeting and there doesn’t seem to be agreement on an April hike either.

Later this evening there will be a rare group interview including Fed Chair Janet Yellen, plus her three predecessors – Ben Bernanke, Alan Greenspan, and Paul Volcker; that’s 37 years of Fed Chairmen. The topic? “How the chairs’ philosophies and personal beliefs impact decision making with international implications.” Please try to curb your enthusiasm.

The number of Americans filing for unemployment benefits fell last week, suggesting the labor market continued to strengthen despite tepid economic growth. Initial claims for state unemployment benefits declined 9,000 to a seasonally adjusted 267,000 for the week ended April 2. Jobless claims have now been below 300,000, a threshold associated with healthy labor market conditions, for 57 weeks, the longest stretch since 1973.

Americans added to their debt at a steady solid pace in February. The Federal Reserve reports consumer credit grew at a seasonally adjusted annual rate of 5.8%, for a gain of $17.2 billion, compared to a 5% gain in January. Consumer credit has been consistently solid over the past year with no monthly gains below 5%.

Total consumer borrowing, which does not include mortgage debt, is now $3.57 trillion. There was a 6.6% gain in the category that covers auto loans and student loans. This was a bit below the 7% gain in January. Pent-up demand for new vehicles and student debt has been two big drivers of this new strength in consumer credit. Credit card borrowing rose 3.7% in February after a 0.3% drop in the prior month.

More than 40% of the roughly 22 million Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, according to a quarterly snapshot of the Department of Education’s $1.2 trillion student-loan portfolio. In a survey by Citizens Bank, a startling 6 in 10 millennials said they have no idea when their loans will be paid off and more than a third don’t even know the interest rate they are paying. The report says that on average, graduates owed about $41,000 in student loans.

Apollo Education reported a Q2 adjusted EPS loss of -31 cents continuing operations, a much wider loss than consensus of -10 cents, and said it will not provide future guidance at this time.

Mortgage rates fell to the lowest level since February 2015. Mortgage provider Freddie Mac reports the 30-year fixed-rate mortgage averaged 3.59% in the April 7 week, down from 3.71%. The 15-year fixed-rate mortgage averaged 2.88%, down from 2.98%.

One of the trends of 2016 has been a move from stocks to bonds. According to data from ETF.com the 10 exchange-traded funds that have suffered the biggest outflows this year are all equity funds of some shape or form. Meanwhile, six of the 10 biggest recipients of inflows are bond products from across the spectrum, with everything from Treasuries to high-yield bonds attracting fresh cash. In March, stocks staged a rebound but that isn’t holding in the first few trading days of April.

First quarter earnings reporting season kicks off Monday when Alcoa posts results. Don’t look for earnings to lift the market. Stephen Parker of JPMorgan’s Private Bank told CNBC: “We need to see what companies are saying about the future and, if they can paint a better picture about the back half of the year now that oil has stabilized, that the dollar has come off, that’s going to drive markets higher.” So, that sounds like they are giving up on a decent first quarter earnings season.

Icelandic Prime Minister Sigmundur Gunnlaugsson announced yesterday he was stepping down after Panama Papers revelations that he and his wife held a shell off-shore corporation. So, who is the next world leader who will fall?

In Ireland you can bet on almost anything, Irish bookmaker Paddy Power Betfair PLC has opened betting lines on which head of state could be the next to go. Argentina’s President Mauricio Macri is the favorite at 8-1 odds. Paddy Power also has laid odds that the President of Pakistan Nawaz Sharif will leave at 10-to-1 and Ukraine’s President Petro Poroshenko almost as good at 12-1.  British Prime Minister David Cameron is listed at 20-1 odds for being forced from power.

The European Union has decided it is best to get in front of the mob and call it a parade. The EU tax regulators have vowed to stop the kind of tax avoidance uncovered in the Panama Papers scandal. The EU effort to close loopholes includes automatic exchanges of tax deals between countries and companies and they’re working on an automatic system for sharing firms’ tax data between all tax authorities.

The Panama Papers may have an impact on US banking. The U.S. Treasury Department intends to issue a long-delayed rule forcing banks to seek the identities of people behind shell-company accounts, in the wake of the “Panama Papers” scandal which exposed global wealth hidden from tax authorities via offshore vehicles. A department spokesman said the law would “soon” be turned over to the White House for review and issuance, but did not confirm a timetable for the initiative.

The regulation is designed to close a loophole allowing “secretive financial maneuvers” in the U.S. banking system. Under current policy, the names of company heads can be obscured as identities are not required when limited liability corporations are registered with certain states. The change would force institutions to identify each individual who owns 25 percent or more of the equity interests.

The issue came into the spotlight after Mossack Fonseca was found connected with M.F. Corporate Services Wyoming LLC – a Wyoming-based corporation now being audited by the state, in addition to several other companies in the state and states with similar anonymity policies – which was allegedly being used as a tax haven.

You may be wondering why the US Treasury waited until the Panama Papers to push forward this rule about knowing who is opening a bank account. It seems that Panama and Switzerland are not the only places that allow banking secrecy and anonymous corporate off-shore shell companies. The center of that universe is in the US.

Alibaba says that it became “the largest retail economy in the world” at the end of its fiscal year on March 31, “as measured by gross merchandise volume on its China retail marketplaces.” The company has yet to declare its fourth quarter and full year financial results, but the announcement makes it clear that Alibaba surpassed the $482 billion figure reported by Wal-Mart for its fiscal year ended Jan. 31.

Struggling teen apparel retailer Pacific Sunwear filed for Chapter 11 bankruptcy protection today. The Anaheim, California-based retailer listed assets in the range of $50 million to $100 million, and liabilities of between $100 million and $500 million The company’s shares fell as much 42 percent to a record low of 5 cents in early morning trading.

Will a self-driving car be smart enough to pull over to the side of the road in a dust storm? Alphabet is expanding its testing of self-driving cars to the Phoenix, Arizona metro area. The company’s Google unit has conducted driver-less vehicle testing for six years in Mountain View, California, where it is based.

Google said its test drivers recently began driving four Lexus RX450h SUVs around the Phoenix area to create a detailed map of streets, lane markers, traffic signals and curb heights. That information will then be fed into the technology embedded in the autonomous cars so they know how to navigate the city on their own.

About a dozen trucks from major manufacturers like Volvo and Daimler just completed a week of largely autonomous driving across Europe, the first such major exercise on the continent. The trucks set off from their bases in three European countries and completed their journeys in Rotterdam in the Netherlands yesterday. One set of trucks, made by the Volkswagen subsidiary Scania, traveled more than 2,000 km and crossed four borders to get there.

When trucks autonomously follow one another, it’s called platooning; they’re connected by Wi-Fi and they leave a much smaller gap between vehicles than when humans are at the wheel, essentially like NASCAR racers drafting behind a vehicle. Platooning can reduce fuel use by up to 15%.

While self-driving cars from Google or Ford get most of the credit for capturing the public imagination, commercial uses for autonomous or nearly autonomous vehicles have been quietly putting the concept to work in a business setting. Turns out that John Deere is the largest operator of autonomous vehicles for the time being. The self-driving technology featured on John Deere tractors is less technically complex than fully driver-less cars. And for now, the tractors are still supposed to have a driver at the wheel, even if they never touch it.

One reason for the rapid advance in autonomous tractors – they are usually operated on private land and that means fewer regulations and fewer strange things that come around the corner. Also, the robots can drive a more precise straight line than human counterparts. Crops are generally planted in one long row after another, and farmers want to make sure they use up all their land.

I know what you’re thinking, and the answer is yes. They also make robotic lawn mowers.

Financial Review

Bad Medicine

Sinclair Noe — April 6, 2016

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

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DOW + 112 = 17,716
SPX + 21 = 2066
NAS + 76 = 4920
10 Y + .03 = 1.75%
OIL + 1.84 = 37.73
GOLD – 8.90 = 1223.30

The FOMC issued the minutes from its last meeting, where the Fed left rates unchanged and lowered its forecast for hikes this year from four to two. Policymakers debated whether to raise rates but a consensus emerged that risks from a global economic slowdown warranted a cautious approach. According to the minutes, many Fed members said they were concerned that interest rates were still so low that the central bank had limited firepower to respond to shocks from abroad.

The proposed $160 billion merger between US-based Pfizer and Ireland-based Allergan is dead. Changes in U.S. tax codes dealt a blow to the largest-ever heath sector deal. New regulations issued Monday by the Treasury Department targeted so-called inversions, under which a U.S. company moves its base to a country with a more favorable taxation environment. Pfizer is expected to pay Allergan a $150 million breakup fee.

With the deal behind it, Pfizer said it would decide this year about whether to split off its hundreds of generic medicines into a separate business. Allergan said it would move ahead with plans for its $40.5 billion sale of its generic drug business to Israel’s Teva Pharmaceutical Industries. It expects the transaction to close by June.

The chairman of the U.S. House Transportation and Infrastructure Committee has come out against Canadian Pacific’s proposed railroad merger with Norfolk Southern, dealing another blow to the likelihood of a deal. Bill Shuster noted that CP Rail had actively pursued some sort of merger in the U.S. since 2014, which he said “has done nothing but create uncertainty in the rail industry.”

The Justice Department has filed a lawsuit aimed at stopping Halliburton from merging with Baker Hughes, a deal that would combine the No. 2 and No. 3 oil services companies. The DOJ says the deal threatens to eliminate head-to-head competition in 23 products and services used in oil exploration and create a duopoly with market leader Schlumberger. A merger might still happen if they divest assets or make other accommodations, but more than likely, this kills the deal.

Oil prices are rallying on hopes that both OPEC and non-OPEC members will agree to an output freeze at upcoming talks in Doha on April 17. Fresh comments from Kuwait and Russia suggest that global producers could reach a supply agreement deal despite conflicting statements by participants Saudi Arabia and Iran. Crude is also getting a boost from API industry data that showed U.S. crude inventories falling by 4.3 million barrels last week.

Clean energy investment broke new records in 2015 and is now seeing twice as much global funding as fossil fuels. One reason is that renewable energy is becoming ever cheaper to produce. Government subsidies have helped wind and solar get a foothold in global power markets, but economies of scale are the true driver of falling prices.

Just since 2000, the amount of global electricity produced by solar power has doubled seven times over. Even wind power, which was already established, doubled four times over the same period. For the first time, the two forms of renewable energy are beginning to compete head-to-head on price and annual investment.  The reason for the strong growth in clean energy is that it’s a technology, not a fuel. As such, efficiency increases and prices fall as time goes on. What’s more, the price of batteries to store solar power when the sun isn’t shining is falling in a similarly stunning arc.

Global bond yields fell to a record, a warning sign for the worldwide economy. The yield on the Bank of America Global Broad Market Index dropped to 1.3%, the lowest in almost 20 years of data. A third of the world’s developed-market sovereign debt now has negative yields, after Europe and Japan cut interest rates below zero to counter deflation.

Investors rushed to higher-yielding debt, fueling the global rally. Japan’s economy contracted in the last quarter of 2015, while the Eurozone’s barely grew. China this month cut its growth target. Bond yields indicate investors expect inflation worldwide to be about 1.1 percent. The figure dropped to 0.89 percent in February, the lowest level in more than five years.

The “Panama Papers” have claimed their first casualty: Iceland’s Prime Minister, Sigmundur Gunnlaugsson said he stepped down from his post, insisting it was a resignation, after the leak revealed his wife’s ownership of a shell company set up in the British Virgin Islands.

Today, comes word that at least three of the seven people on the Chinese Communist Party’s most powerful committee, including President Xi Jinping, have relatives who have controlled secretive offshore companies. It is uncertain what will happen in China, where most people aren’t even aware of the leaked documents. Chinese government officials have blocked internet searches and online discussion that involve the words “Panama Papers”.

Apparently information about the leaked documents and the players involved will be dished out on a near daily basis. Names of US citizens are expected in about one month. It will take some time to devour 11.5 million documents and connect the dots between 14,000 clients of Mossack Fonseca and the 214,000 offshore entities they created.

Here is what we do know; the system is rigged, and unless you are part of the one percent, it is rigged against you. Legislatures don’t write laws for you, courts don’t secure justice for you. The taxes you pay are not paid by people who are much wealthier than you; they cheat the system and they get away with it.

It is hard to muster righteous indignation because rational thought and recent history tells us it is nothing more than an exercise in futility. We might reasonably expect a few indictments of minor players, sacrificial lambs for the slaughter.  We know the system is rigged and the elites are cheating the rest of us; the only surprise would be if they weren’t cheating us. The big question that’s circling around the Panama Papers scandal at the moment is why more Americans haven’t been implicated.

Rumors are swirling in the comments section that wealthy Americans have bribed their way out of mention in the documents. It might just be that Mossack Fonseca’s client base is largely Europeans, Asians, and Latin Americans, because US citizens can just set up an anonymous shell company in Nevada, or Delaware, or South Dakota; no need to deal with a Panamanian law firm. As the details from the Panama Papers are dribbled out for consumption, we will see more Americans named.

Puerto Rico’s financial crisis is escalating. The island has taken steps toward a unilateral moratorium on all government debt payments, a sudden move that surprised both Washington and Wall Street. The Puerto Rican legislature passed an emergency declaration authorizing the governor to suspend payments on $72 billion in public debt—setting up a dramatic showdown between Puerto Rico and hedge funds amid the island’s historic debt crisis.

The bill authorizes the Puerto Rican governor to “protect the health, security and public welfare … by using government funds first and foremost for public services.” The emergency measure was in response to a suit filed by hedge funds attempting to freeze the assets of Puerto Rico’s Government Development Bank in efforts to stop the bank from spending money on the island that the hedge funds want to go toward upcoming debt payments.

San Francisco has become the first U.S. city to mandate six weeks of fully paid parental leave (in companies with 20 or more workers), requiring employers to shoulder much of the cost and exceeding federal and state rules for private-sector employees. California’s governor Jerry Brown on Monday signed into law a bill raising the state’s minimum wage from $10 to $15 an hour by the year 2023.

A big change for investors today, as the Labor Department unveiled the final version of its long-awaited fiduciary rule, requiring financial professionals to put their customers’ interests ahead of their own. The language is tougher than an existing rule that only requires brokers to ensure products are “suitable.” The Labor Department made some concessions to the financial industry in the final version of its highly-anticipated fiduciary rule.

In one of the biggest changes from the initial proposal, the final rule simplifies the “best interest contract,” a provision that allows brokers to continue to get paid commissions so long as they make a variety of disclosures to customers.  Unlike the draft proposal, the final rule does not restrict brokers from pushing proprietary products, splitting revenue with creators of funds they promote, or recommending risky, high-fee investments in alternative assets and certain annuities.

Additionally, the final rule includes a “grandfather” provision that won’t require brokers to adhere to a fiduciary standard for their previous recommendations to customers. The rule also loosens previously proposed disclosure requirements for fees. While the initial rule required annual disclosure of fees, the final rule removes that requirement. The final rule also eliminates a requirement to provide clients with one-, five- and ten-year projections of fees at the point of sale.

BP will be able to deduct a big chunk of its $20 billion Gulf of Mexico oil spill settlement for tax purposes. Under U.S. law, companies are not allowed to deduct penalties they pay as part of a settlement, but only $5.5 billion of the $20 billion cost of the settlement is a fine. BP can classify the remainder as “ordinary business expenses,” which are deductible.

Forget Apple vs. the FBI, WhatsApp just switched on encryption for over a billion people. Every conversation on the messaging service, whether it be a private or group chat, will now have full end-to-end encryption, thus making the recipient the only person who can see the message. WhatsApp was bought by Facebook for $19 billion in 2014.

Financial Review

 #Panama Papers

Sinclair Noe — April 4, 2016

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

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DOW – 76 = 17,630
SPX – 8 = 2056
NAS – 28 = 4499
10 Y – .01 = 1.78%
OIL – 1.02 = 36.77
GOLD – 6.70 = 1216.20

On Sunday, the International Consortium of Investigative Journalists published a massive leak of documents, which are being called the Panama Papers. An anonymous source gave the documents to Germany’s Suddeutsche Zeitung and the newspaper shared them with ICIJ. Other media organizations that reported on the documents include the BBC, The Guardian and McClatchy.

The documents are from a Panama-based law firm called Mossack Fonseca, the world’s fourth biggest provider of offshore services. It has acted for more than 300,000 companies. There is a strong UK connection. More than half of the companies are registered in British-administered tax havens, as well as in the UK itself. The firm won’t discuss specific cases of alleged wrongdoing, citing client confidentiality. Mossack Fonseca says it complies with anti-money-laundering laws and carries out thorough due diligence on all its clients.

The documents show corruption and questionable business practices of the world’s politicians, billionaires, entertainers, athletes, drug barons, and others. The papers show Mossack Fonseca helped its clients launder money, dodge sanctions, and avoid paying taxes. Offshore services are not always illegal, but the documents appear to reveal a clandestine web of shell companies, their real owners concealed under layers of secrecy, and connections to firms in different tax havens. An Oxfam briefing paper dated March 14, 2016 says anonymous ownership, is “a consistent feature of international corruption cases, including money laundering and the theft of public assets”.

The names of people in more than 200 countries and territories. The 11.5 million records reveal the offshore holdings of 12 national leaders, among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.

A $2 billion trail leads all the way to Vladimir Putin. The Russian president’s best friend, a cellist named Sergei Roldugin, is at the center of a scheme in which money from Russian state banks is hidden offshore. Some of it ends up in a ski resort where in 2013 Putin’s daughter Katerina got married. the documents allege a close associate of Russian President Vladimir Putin and Bank Rossiya, a Russian bank that has been blacklisted by the U.S. and the EU, laundered hundreds of millions of dollars. The Russian president is never named in the files. The Kremlin said Putin is the target of attempts to destabilize Russia through the publication of reports.

Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Gunnlaugsson.

Iceland is already calling for snap elections and calling for the PM’s resignation. An offshore investment fund run by the father of British Prime Minister David Cameron avoided ever having to pay tax in Britain by hiring a small army of Bahamas residents to sign its paperwork. The documents also reveal offshore companies linked to the family of Xi Jinping, China’s president who has cracked down on corruption in the country.

Also political leaders or associates of leaders, past or present, from: Iraq, Qatar, Jordan, Georgia, Saudi Arabia, Abu Dhabi, Sudan, Argentina, Morocco, Azerbaijan, Mexico, Ghana, Malaysia, South Africa, Spain, Peru, Columbia, Bolivia, Chile, Australia, and others. At least 57 people already linked to Brazil’s huge Petrobras corruption scandal opened offshore companies through Mossack Fonseca.

Some of the largest banks in the world were identified in the leaked documents, including: HSBC, Credit Suisse, UBS, and Societe Generale. More than 500 banks in all requested that Mossack Fonseca and a predecessor firm create shell companies for their clients from 1977 through the end of 2015, according to the ICIJ. Some of those banks, including HSBC, UBS, and Credit Suisse had entered into deferred prosecution agreements with the US Department of Justice for wrongdoing related to money laundering, rate rigging, tax evasion, and other things. It certainly looks like they might have violated their deferred prosecution agreements.

Now, consider that there are several legal firms working on creating shell companies to hide money; Mossack Fonesca is only considered the fourth largest. So, the leaked documents today are just the tip of the iceberg. In a report from 2010, the Tax Justice Network, estimate there are over 80 tax havens in the world hiding somewhere between $21 trillion and $32 trillion. To put that in perspective, the World Bank estimated the Gross World Product – adding up the GDPs of all countries – at about $62 trillion that year. Further consider that not all illegal money gets funneled through tax havens and shell corporations.

Here are some other numbers in connection with the Panama Papers. The leak includes 11.5 million documents dated from 1977 to 2015, involving 214,488 businesses and 14,153 clients. It involves 12 current or former country leaders, 61 relatives or associates of country leaders, 128 politicians or public officials, and 29 Forbes-listed billionaires in 202 countries.

The US Justice Department said this morning that it is reviewing the Panama Papers to determine whether the documents point to evidence of corruption and other violations of US law. The “Panama Papers” are being called the largest ever leak of secret data, and articles about the offshore bank accounts of the ultra-rich worldwide. There will be attempts to sweep this under the rug. And there is good reason to be suspicious.

No names of US tax evaders have been published, and one explanation is that the 2010 United States – Panama Trade Promotion Agreement included a taxation clause that effectively shut down any chance of rich Americans using Panama as a tax shelter. But the documents go back for many years and not all the documents have been published.

One article I read today suggested that Americans are more honest than the rest of the world and we just don’t want to be bothered with the difficulty of setting up tax haven accounts. That goes beyond naïve to the realm of pure bull. Another possible explanation is that the “International Consortium of Investigative Journalists” is funded and organized entirely by the USA’s Center for Public Integrity, which is funded by the Ford Foundation, Carnegie Endowment, Rockefeller Family Fund, Kellogg Foundation, and George Soros’ Open Society Foundation.

The people named in today’s release reads like a who’s who of people at odds with the US in one way or another. At least 33 people and companies listed in the documents were blacklisted by the US government for wrongdoing. The selective release of the leaked documents presents an opportunity to smear or blackmail or otherwise incriminate. More than 1,000 Germans are named in the leaked Panama Papers; it would be incredibly naïve to imagine no US politicians or business leaders have been involved in tax haven schemes.

It seems it will just be a matter of time until we hear some big names from the US. In a tweet this morning, the Editor of Süddeutsche Zeitung responded to the lack of U.S. individuals in the documents, saying “Just wait for what is coming next”.

OK, I just hope I don’t have to wait too long.

Factory orders fell 1.7%, marking the third fall in four months. The Commerce Department reports orders for durable goods were revised to show a 3% decline instead of the previously reported 2.8% fall. Orders for equipment in the hard-hit mining sector, which includes the oil field and gas field machinery segment dropped by 20.1%. Those for nondefense aircraft dropped by 27.2%, and for defense aircraft by 28%. Shipments fell 0.7%, the tenth drop in 11 months. Inventories fell 0.4%, the eighth straight monthly decline.

Iran’s oil minister said the country’s oil exports jumped in March to surpass 2 million barrels a day and Iran will continue increasing oil production and exports until it reaches the market position it enjoyed before the imposition of sanctions. Saudi Arabia, which spearheaded an initial proposal in February for producers to limit output, said last week that it would not join any effort to do so unless Iran were on board, while Russia reported its highest oil production in 30 years.

The US Supreme Court rejected Wal-Mart’s bid to throw out a more than $150 million class action judgment over the retailers’ treatment of workers in Pennsylvania. The justices declined to hear a Wal-Mart appeal, leaving intact a 2014 ruling by the Pennsylvania Supreme Court that largely upheld a lower court judgment awarding $187 million to the plaintiffs. The case affects about 187,000 Wal-Mart employees who worked in Pennsylvania between 1998 and 2006. The Pennsylvania court mostly upheld a 2007 lower court ruling in favor of the employees, who said the company failed to pay them for all hours worked and prevented them from taking full meal and rest breaks.

Alaska Air has agreed to pay $2.6 billion for Virgin America, beating rival JetBlue’s bid (and leapfrogging the carrier) to become the fifth-largest U.S. airline by traffic. Alaska’s offer of $57 per share in cash represents a premium of about 47% to Virgin’s Friday’s close, and will allow it to heavily expand its presence on the U.S. West Coast. Virgin America is 54% owned by Richard Branson’s Virgin Group and New York-based Cyrus Capital Partners.

Network gear maker Brocade Communications Systems says it will buy Ruckus Wireless in a cash and stock deal worth about $1.5 billion to add Ruckus’s Wi-Fi products to its enterprise networking business. Based on Friday’s closing prices, the deal values Sunnyvale, California-based Ruckus at $14.43 per share, a premium of 44 percent.

Blackstone Group is buying a majority stake in Indian IT outsourcing services provider Mphasis Ltd. from Hewlett Packard Enterprise in a $1.1 billion all-cash deal. India’s IT and software services export revenue is likely to grow by 10-12 percent in the fiscal year beginning on April 1 to as much as $121 billion.

After successfully hacking the San Bernardino shooter’s iPhone last week, the FBI has assured law enforcement across the US that it will help unlock mobile devices involved in investigations when it is allowed by law and policy. But according to Apple engineers, the agency’s method for breaking into the locked iPhone 5c is unlikely to stay secret for long. Once it is exposed, the company will try to plug the encryption hole to help insure customer’s privacy.

Orders for Tesla Motors’ new Model 3 electric sedan topped 275,00 by the end of Saturday, a fast start for the company’s first mass-market vehicle, which may not begin to reach customers for another 18 months or more. With a base price of $35,000, the weekend pre-orders for the model are bound to put another $10 billion in Tesla’s bank account.