Financial Review

Carving a Turkey

Sinclair Noe — November 8, 2017

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

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DOW + 6 = 23,563 (Record)
SPX + 3 = 2594 (Record)
NAS + 21 = 6789 (Record)
RUT + 2 = 1481
10 Y + .02 = 2.33%
OIL – .38 = 56.82
GOLD + 6.00 = 1281.80

Cryptocurrency

• Number of Currencies: 903
• Total Market Cap: $205,794,764,215
• 24H Volume: $9,066,047,752

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,356.5	$122.81B	$4.59B	50.65%	1	-1.22%	+8.30%
	Ethereum	ETH	310.87	$29.81B	$994.05M	10.96%	0.0425565	+1.13%	+7.00%
	Bitcoin Cash	BCH	636.99	$10.66B	$889.93M	9.82%	0.0867183	+2.43%	+20.78%
	Ripple	XRP	0.21847	$8.40B	$161.55M	1.78%	0.00002976	+1.12%	+12.71%
	Litecoin	LTC	62.660	$3.36B	$321.17M	3.54%	0.00853435	+0.30%	+17.37%
	Dash	DASH	313.43	$2.40B	$102.65M	1.13%	0.0427506	-0.50%	+16.34%
	NEO	NEO	31.589	$2.04B	$126.94M	1.40%	0.00428639	+3.81%	+21.15%
	Monero	XMR	116.60	$1.78B	$87.91M	0.97%	0.0158386	+3.74%	+37.89%
	NEM	XEM	0.19280	$1.71B	$6.41M	0.07%	0.00002599	+0.33%	+12.06%
	Ethereum Classic	ETC	14.0500	$1.37B	$123.11M	1.36%	0.0019165	+2.09%	+36.30%

The Dow Industrial Average carved out yet another record high close – not a big gain at all but any gain adds to the record. The S&P 500 also closed at a record high. And a record high for the Nasdaq – All three at records. In hockey parlance that’s a hat trick; bowlers might call it a turkey.

On the one-year anniversary of Trump’s win in the presidential race, the Dow Jones Industrial Average is showing its biggest post-Election Day gain in more than 70 years. The Dow has advanced 28.50% since Nov. 8, 2016. That represents its best performance after a White House contest since 1945, when the blue-chip gauge was up 29.83% in a year following the election of Franklin D. Roosevelt.

The S&P 500 is up 21% over the past 12 months. Trump has taken full credit for the equities rally, offering this assessment this week: “The reason our stock market is so successful is because of me.”

There may have been a few other factors involved: strong corporate earnings, historically low interest rates, solid job growth, a surging global economy, and an established bull market that saw the S&P nearly quadruple since its financial crisis low in March 2009. You can place credit wherever you wish, just remember the market can be a fickle mistress.

The gains in the past 12 months have been primarily concentrated within two sectors: technology stocks, up 42.2% over the past 12 months, and financials, up 37.5%. You can narrow it down even further, and look at the crazy good performance of the FAANG stocks.

Maybe the real credit should go to Tim Cook. Last week, Apple earnings crushed Wall Street estimates with Chief Executive Tim Cook saying he expected this to be “the best holiday season yet.” Apple share are up more than 52% year to date.

Today, Apple closed up 0.8% at a record $176.21 today, its fourth consecutive record close, passing the $175.29 mark needed to hit $900 billion in market capitalization based on 5,134,312,000 shares outstanding. At the close, Apple is now valued at just over $904 billion. For Apple to reach the $1 trillion mark, shares need to trade above $194.77

Democrats claimed big gains in Virginia’s statehouse and flipped Republican-held seats in other local races across the United States on Tuesday, in the party’s first big wave of victories since Republican Donald Trump’s surprise White House win a year ago.

A ticket filled with candidates making their first bids for elected office propelled the party to a 16-seat gain in the Virginia House of Delegates, the state party said, its largest pickup in at least a century. There are still 5 seats where the race is tight enough to trigger recounts.

In the governor’s race, Democratic Lieutenant Governor Ralph Northam defeated Republican Ed Gillespie. Voters also replaced a Republican governor in New Jersey with a Democrat and increased the party’s majorities in the state legislature. In Georgia, Democrats picked up three seats in special state legislative elections. Republicans still hold majorities in the legislature.

In Washington state, one race was enough to flip the state Senate blue, giving Democrats full control over state government. Further down the ballot, Democrats captured the mayor’s office in New Hampshire’s largest city, Manchester, while the Democratic mayor of St. Petersburg, Florida, beat a former Republican mayor.

Democrats also notched a win in Maine, where voters approved a referendum to expand Medicaid coverage for the poor and disabled under the Affordable Care Act, rebuking Republican Governor Paul LePage, who had vetoed similar measures.

House Speaker Paul Ryan left the door open to a possible delay in implementing a huge corporate tax cut, following a media report that his fellow Republicans in the Senate are exploring the option. Republicans in Congress are working on separate tax plans.

The latest version of the House Republicans’ tax bill would add $1.7 trillion to the federal budget deficit over 10 years, more than the $1.5 trillion they initially announced, according to the nonpartisan Congressional Budget Office. The threshold for the process known as reconciliation is $1.5 trillion. The CBO’s assessment gives more impetus to the Senate’s bill.

The Senate could include a one-year delay in its version of the bill to make it easier to comply with the chamber’s rules that aim to limit any legislation’s impact on the deficit. Ryan said both chambers of Congress would work on their own tax cut package and iron out the differences in a conference committee. But for now – based on the CBO assessment – lawmakers will need to significantly scale back their tax plan.

Also today, analysis from the Urban Institute and Brookings Institution’s Tax Policy Center found that the Tax Cuts and Jobs Act (TCJA) would result in higher taxes for around 7% of Americans in 2018 and 25% of people in 2027.

The Tax Policy Center found that much of the TCJA’s benefits would go toward wealthier Americans; 76% of people would get a tax cut, 7% would see a tax increase, and 13% would see little change. A cut of $700 for the average American, increasing after-tax income by an average of 0.7%.

A $10 cut for people in the lowest quintile, increasing average incomes by less than 0.1%. A $320 cut for people in the middle quintile, increasing average incomes by 0.4%. An average $52,780 cut for people in the top 1%, increasing average incomes by 2.2%. Nearly 50% of the bill’s total benefits would go to the 1% in 2027.

The findings are similar to those from the nonpartisan Joint Committee on Taxation, a nonpartisan congressional committee, that found roughly 20% of people would pay more in 2027.

The Saudi purge continues. Saudi Arabian authorities have made further arrests and frozen more bank accounts in an expanding anti-corruption crackdown on the kingdom’s political and business elite. Saudi Arabian authorities have made further arrests and frozen more bank accounts in an expanding anti-corruption crackdown on the kingdom’s political and business elite.

Today, there were even more arrests. The number of people targeted by the crackdown was expected eventually to rise into the hundreds. The number of domestic bank accounts frozen because of  the purge is over 1,700 and rising, up from 1,200 reported on Tuesday.

Marriott International reported a 43% increase in third quarter revenue. Net income rose to from $392 million, or $1.04 per share, in the quarter, from $70 million, or 26 cents per share. Marriott became the world’s largest hotel company after it completed the acquisition of Starwood Hotels & Resorts in September last year.

Take-Two Interactive Software jumped 10.8 percent after the videogame maker offered a stronger-than-expected revenue forecast for the holiday quarter. That sparked a rally among its competitors, with Activision Blizzard surging 5.80 percent and Electronic Arts adding 1.9 percent.

Snapchat-owner Snap fell 16.6 percent a day after reporting much-slower-than expected advertising revenue and user growth. Snap said China’s Tencent bought a 12-percent stake in the company.

The fast food chain Wendy’s shares fell 1.6% after the fast-food chain reported third-quarter earnings and revenue that came in weaker than consensus.

Shares in peer-to-peer lending company LendingClub tumbled 19% after reporting a disappointing full-year earnings outlook late Tuesday.

Fossil Group shares tumbled 15% after the accessories seller gave a disappointing outlook.

Health insurer Humana said third-quarter revenue fell 3.0, missing estimates. Shares of health-care company were down 5%.

Regeneron Pharmaceuticals rose 2.6% after the biotechnology company reported third-quarter profit and revenue that rose above expectations.

MGM Resorts added 5% even as the company reported third-quarter profit that was below Wall Street expectations.

iHeartMedia, the biggest operator of radio stations in the U.S., reiterated doubts about its ability to remain a “going concern” in its latest filing with the Securities and Exchange Commission. Its shares were down 2.3%.

The Department of Justice is pushing AT&T to sell Turner Broadcasting, parent of CNN cable network, or its DirecTV satellite television unit to satisfy antitrust concerns over its purchase of Time Warner. AT&T is reportedly prepared to fight any divestitures required to win regulatory approval of the $85 billion deal.

The development was a surprise to investors. Shares of Time Warner fell 6.5 percent, while AT&T shares were down 0.2 percent.

Financial Review

Cake and Panic

Sinclair Noe — May 17, 2017

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

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DOW – 372 = 20,606
SPX – 43 = 2357
NAS – 158 = 6011
RUT – 38 = 1355
10 Y – .11 = 2.22%
OIL + .30 = 48.96
GOLD + 24.20 = 1261.90

Today marks the 225^th anniversary of the New York Stock Exchange. On the floor of the exchange, they celebrated with cake and panic. Stocks started the session with triple digit losses on the Dow, and then drifted lower throughout the day.

It was the worst loss on Wall Street since September, while the Nasdaq Composite Index plunged 2.6 percent for its steepest drop since June 24.

The dollar fell by nearly 2 percent against the yen to its lowest level since April and hit a six-month low against the Swiss franc. The dollar index, which tracks the U.S. currency against six peers, fell 0.6 percent to its lowest level since Nov. 9, surrendering all its “Trump bump” gains.

The VIX, the volatility index jumped nearly 5 points, or 46%. The 10-year Treasury yield sank to 2.22 percent in its steepest decline since July. The spread between 10-year and two-year yields narrowed to the flattest since before Trump’s election.

Today’s drop in markets comes after Tuesday evening saw the second damaging story for President Donald Trump in as many days. The New York Times reported  that Trump asked former FBI director James Comey to end an inquiry into ties former national security advisor Michael Flynn had to Russia.

And Comey documented the meeting in a memo. The Comey memo caused alarm on Capitol Hill and raised questions about whether Trump attempted to interfere with a federal investigation, something that might constitute obstruction of justice and could potentially be invoked to impeach Trump.

And this report came just a day after The Washington Post reported Trump revealed “highly classified” information to Russia’s foreign minister. Last week, Trump fired Comey, even as the FBI was investigating possible ties between Trump’s campaign and Russia.

The market reacting negatively to Trump-related headlines is a definite change from what we’ve become accustomed to in recent months. After the market’s violent election night reaction, stocks have moved up and to the right unabated, with the political chaos in Washington seeming to have little impact on financial markets.

The difference might be that several Republican leaders are now starting to say it may be time for an independent commission or special prosecutor. House Speaker Paul Ryan held a press conference this morning; he did not call for a special prosecutor, but he said, “we have an obligation to carry out our oversight regardless of which party is in the White House.”

And just as important as what Ryan said, was what he didn’t say. Ryan did not attack former FBI Director Comey, a marked change from last week. And Ryan did not attack the media.

In a letter to acting FBI Director Andrew McCabe on Tuesday, the Republican chairman of a House oversight committee, Jason Chaffetz, set a May 24 deadline for the FBI to produce all relevant material relating to any communications between Comey and Trump. Ryan backed Chaffetz’s request.

The Senate Intelligence Committee sent two letters to former FBI Director James Comey and Acting FBI Director Andrew McCabe requesting their cooperation in the committee’s ongoing investigation into Russia’s election interference. The senators have requested that Comey appear before the committee “in both open and closed sessions.”

Senator John McCain, who has called for the creation of a special bipartisan congressional panel to investigate the Russia matter, compared the controversies enveloping Trump to the Watergate scandal that forced Republican President Richard Nixon to resign in 1974. This is not to say that Republicans have deserted Trump – far from it, but there are some cracks in the wall.

Speaker Ryan insisted the Republican legislative agenda was not becoming paralyzed, but that might be wishful thinking. There is no way this controversy will help efforts to repeal and replace Obamacare, it will not aid tax reform or infrastructure efforts. That does not mean the agenda can’t move forward, just that it will be tougher.

Apple stock was down 3.3% today. Apple stock was up 34% this year on anticipation that the next iPhone could spur a “super cycle” of sales as well as hopes that federal tax reform could enable Apple to bring home some of its $240 billion in cash and marketable securities that are held outside the United States at lower tax rates.

Apple has suggested that if the company were able to repatriate some of its overseas holdings at a lower tax rate, it would return some of the money to its shareholders.

Trump leaves Friday on a 10-day trip to Saudi Arabi, Israel, and the Vatican. Today Trump told graduates of the Coast Guard Academy that he has been treated worse than any politician “in history”, although Mrs. Lincoln probably would have disagreed.

It took nearly a decade, but debt has made a comeback. Americans have now borrowed more money than they did at the height of the credit bubble in 2008, just as the global financial system began to fall apart. The Federal Reserve Bank of New York says total household debt had reached a new peak — $12.7 trillion, exceeding its peak in the third quarter of 2008.

Student loans account for 10.6 percent of that total, up from 3.3 percent in 2003, Student borrowers today owe $1.3 trillion, more than double the $611 billion nearly nine years ago. About one in 10 student borrowers is behind on the loans — the highest delinquency rate of any type of loan tracked by the report.

While mortgage balances still make up much of household debt, they are a smaller share of total obligations and have fallen back to 2003 levels. Auto loans totaled about $1.1 trillion, or 9 percent, of all household debt. Defaults have been creeping up in auto loans.

Credit card balances shrunk by $15 billion to $764 billion, but there has been a recent uptick in delinquencies on these payments. The growing debt level shows that many of the millions of Americans who struggled during the recession have sufficiently repaired their credit to qualify for loans. It also speaks to growing optimism among banks and other lenders about economic growth.

Debt can fuel consumer spending, which accounts for about 70 percent of all economic activity in the United States. But debt can be risky. The good news is that the economy is stronger than it has been in some time. Consumers were delinquent on 4.8% of total debt, a marked improvement from the 11.9% of debt that was at least 30 days late at the end of 2009.

Cisco Systems, the world’s largest networking gear maker, reported its sixth straight drop in quarterly revenue, largely due to declines in its router business. The company’s net income rose to $2.5 billion, or 50 cents per share, from $2.3 billion, or 46 cents per share, a year earlier. Revenue fell 0.5 percent to $11.9 billion.

Target reported better-than-expected first-quarter earnings and revenue. Target reported adjusted earnings per share of $1.21, beating estimates of 91 cents. Sales, at $16.0 billion, were ahead of estimates for $15.6 billion, though they were down from $16.2 billion last year. E-commerce sales climbed 22%. Same-store sales were down 1.3%.

Shares of Ascena Retail Group fell more than 30 percent in after-hours trading as the owner of Ann Taylor, Loft, Lane Bryant and other brands said it adjusted its second-half outlook to reflect worse-than-expected business conditions. In what’s been a rough earnings season for retailers, Ascena expects third-quarter comparable store sales to decline 8 percent and for full-year comparable sales to decline between 6 percent and 7 percent.

I/O is Google’s annual developer conference. And they had some interesting announcements. There are now about 2 billion active devices based on the company’s Android software. The big headline: Google Assistant is coming to the iPhone. It’s no longer stuck on Android.

Google is also expanding its third-party support for Assistant. Before, third parties could build “actions” for the Assistant in the Google Home speaker. Now they’ll work wherever Assistant is, including Android phones and the iPhone. Google Home, the company’s connected speaker, will soon let you call any number in the US or Canada from the speaker for free.

A new product, Google Lens has some of the most impressive new features. You can scan just about anything with your phone’s camera and have Assistant analyze its contents. For example, if you take a photo of a concert venue, you can listen to an artist’s music, buy tickets, and more. Or for the amateur botanists, take a picture of a flower, and Google will tell you what it is.

Google’s Daydream virtual-reality platform now supports standalone headsets, not just ones that need to be powered by smartphones. Perhaps the most ambitious program is Google.ai, or artificial intelligence. Put away your machine learning degrees — artificial intelligence is now at the stage where it’s ready to replicate and improve on itself.

Googlers have designed AIs that are capable of “learning to learn,” which they hope to use on every single product across the Google portfolio, including its cloud business. Google announced a new generation of its custom AI chips today, the second version of its Tensor Processing Units.

Google’s TPU represents a next generation of chip, one custom-built for the task of handling AI, and twice as fast. The new hardware will be available for developers on Google’s cloud service and for companies that want to add artificial intelligence to their operations when renting processing power.

Financial Review

Waiting

Sinclair Noe — March 23, 2017

Podcast: Play in new window | Download (Duration: 11:31 — 6.6MB)

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DOW – 4 = 20,656
SPX – 2 = 2345
NAS – 3 = 5817
RUT + 7 = 1353
10 Y + 2 – 2.41%
OIL – .37 = 47.67
GOLD – 3.60 = 1245.60

Wall Street was closely watching developments on the bill to repeal and replace the Affordable Care Act. The White House said it was confident the bill will pass and warned there was no “Plan B”.

Those backing the plan continue to work toward securing the votes needed to pass the health care bill led by House Speaker Paul Ryan. President Donald Trump met this morning with the House Freedom Caucus as GOP leaders offered a late tweak to their health-care bill to try to get the conservative group on board, including repealing the so-called essential benefits requirements in Obamacare for the individual market only, not for employer-based plans.

The essential health benefits mandate included in ObamaCare was intended to require insurance companies to provide coverage in 10 areas, including mental health, pediatric services, ambulance services, substance abuse treatment, and vision care, maternity care, and prescription drugs.

The idea behind the move was to prevent insurers from offering skimpy plans that would leave people on the hook for thousands of dollars in costs if their plan doesn’t cover certain services. Republicans argue the requirements drive up premium costs by preventing insurers from offering less-generous plans. They say consumers should be allowed to pick cheaper plans and that a single man, for example, has little need for maternity coverage.

Getting rid of the essential health benefits would almost certainly lower premium costs, though it could also leave many consumers holding health insurance that might not cover various maladies. With no required benefits, some (like mental health or maternity) would be very expensive because only people who need them would buy them.

 Republicans want to deregulate, but they also feel they must offer some refundable tax credit to sell the bill to moderates and the public. If they deregulate through law, though, the policy analyzers will show that more people might use the tax credit and the Congressional Budget Office spending score would blow up.

But apparently, repealing the essential benefits requirement was not good enough – the vote, scheduled for today, has been postponed, until probably tomorrow. The obvious explanation is that there were not enough votes to pass the repeal legislation. The big question is whether they can whip up a few more votes by tomorrow, and if so, what other tweaks will be required to buy those votes.

Yet as Trump and Ryan pick up conservative members with some of the potential changes, they risk losing moderates. Freedom Caucus members said White House officials made the pitch that conservatives should pass the bill so that the Senate can amend it and address their concerns, but several lawmakers said they weren’t buying it.

And even if they do get the votes tomorrow, or in the not-so-distant future, that still might not be enough. Does it matter if they vote on this tomorrow or next week? They have until the Easter recess to vote on this. If this doesn’t happen by then, this gets to be an issue.

The plan to repeal essential health benefits will almost certainly not be permissible under Senate reconciliation rules. It will require 60 votes to repeal these protections, and the votes just aren’t there in the Senate.

And if bill is dead on arrival in the Senate, then that opens the door for House members to take a firm stand against it – if only for political posturing, or to rake in a few more campaign dollars from groups opposed to the new plan.

Of course, there could still be a deal and there could still be a successful vote, but postponed vote means that right now, President Trump’s first major legislative priority is on thin ice. And Trump has stated that this needs to get done before moving on to other issues such as tax reform and infrastructure spending; also, not simple issues.

And so, the financial markets were just kind of frozen today. Waiting to pop up or break down. Light volume; uncertainty; waiting. Waiting.

New US single-family home sales jumped to a seven-month high in February, suggesting the housing market recovery continued to gain momentum despite the challenges of high prices and tight inventories.

The Commerce Department said new home sales increased 6.1% to a seasonally adjusted annual rate of 592,000 units last month, the highest level since July 2016. Sales were up 12.8% compared to February 2016. The median price for a new home fell 4.9% to $296,200 in February from a year ago.

The number of Americans filing for unemployment benefits rose last week, but remained below a level associated with a strengthening labor market. Initial claims for state unemployment benefits increased 15,000 to a seasonally adjusted 258,000 for the week ended March 18. Claims have now been below 300,000, for 80 straight weeks. That is the longest stretch since 1970.

Data from the Energy Information Administration showed US gasoline stocks fell by 2.8 million barrels in the week ended March 17, marking a fifth straight drawdown. Gasoline demand is expected to increase as we get closer to the summer driving season.

Even with the small dip in stocks, crude oversupply continues. Late today Saudi Arabia’s energy ministry said crude exports to the United States in March will fall by around 300,000 barrels per day from February, in line with OPEC’s agreement to reduce supply. The Saudis currently supply about 1.3 million bpd.

The European Central Bank offers its last Targeted Longer-Term Refinancing Operation, which gives banks four-year loans at zero percent interest. The size of the uptake by banks vary hugely, from 30 billion euros to as high as 750 billion euros. The size of the update will be viewed as a gauge of lenders’ thinking as pressure mounts on the central bank to reduce its accommodative monetary stance.

US relations with North Korea, which had already been under pressure, may be about to take another turn for the worse. Investigators looking into the theft of $81 million from the Bangladesh central bank account at the New York Fed are checking for links to North Korea as the hack used to access the funds was similar to one used previously by North Korea.

Failed brokerage MF Global Holdings and accounting firm PricewaterhouseCoopers announced they have settled their high-profile lawsuit in which the brokerage contended bad accounting advice from PwC was a factor in its 2011 collapse. Terms of the settlement weren’t disclosed. MF Global’s bankruptcy administrator had sought $3 billion in damages and interest from PwC in the case, which was in its third week of trial in federal court in New York.

Beginning next week, Wells Fargo depositors can withdraw money using a smartphone at any branded ATM, the first U.S. bank to roll out cardless machines across its entire network.

AT&T and Verizon joined a growing number of companies pulling much of their advertising from Alphabet over placements on websites and YouTube videos containing objectionable content.

Meanwhile, Google unveiled a new set of features for its popular Maps app that lets users share their locations with friends and contacts in real time. Thanks to this update, Google Maps users will now be able to quickly let friends know if they’re running late to a meeting or stuck in traffic. It’s a compelling idea.

And if you’re wondering why Google hadn’t thought of this earlier, the answer is: It did. In 2009, when smartphones were still in their infancy, Google introduced something called Latitude; which had almost the exact same feature Google is now touting as the hot new thing.

Apple has acquired a company named Workflow, a small company that develops an app under the same name. Workflow is available for iOS devices, including the iPhone and iPad, and allows you to automate certain actions. Workflow first caught the eye of Apple first in 2015. In a rare move, the company is keeping the app alive in the App Store and setting its price to free. It previously cost $2.99.

Apple’s year-and-half old iPhone 6s was the best-selling smartphone globally last year.  Apple shipped around 60 million iPhone 6s units in 2016, IHS Markit data showed, but the company declined to provide the exact figure.

The iPhone 7 was the second most-shipped smartphone model with just over 50 million units, while the iPhone 7 Plus was next with just over 25 million. Samsung’s flagship model, the Galaxy S7 Edge was in fifth place with around 25 million units shipped.

Suppliers to Sears Holdings are reportedly taking defensive measures, such as reducing shipments and asking for better payment terms, to protect against the risk of nonpayment as the company warned about its finances.

Sears, whose roots date back to 1886, said on Tuesday that “substantial doubt exists related to the company’s ability to continue as a going concern.” The company’s disclosure turned the focus to its vendors as tension is expected to mount ahead of the key fourth-quarter selling season and rising concern about a potential bankruptcy.

U.S. Economy Looks Shaky, Which Weak GDP Reading Would Confirm

Denying Denial

Sinclair Noe — October 26, 2015

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

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DOW – 23 = 17,623
SPX – 3 = 2071
NAS + 2 = 5034
10 YR YLD – .02 = 2.06%
OIL – .87 = 43.73
GOLD – 1.10 = 1163.90
SILV + .03 = 15.94

The U.S. economy has looked shaky of late, and an expected weak reading on third-quarter gross domestic product should confirm that. As a result, the Federal Reserve is again expected to keep interest rates near zero. The Fed decision, due Wednesday, and the GDP report, coming Thursday, will be the center of focus on this week’s economic calendar. Weak data almost certainly means the Fed will stick with its Zero Interest Rate Policy at this week’s meeting. The big question is whether the Fed will hint at a December move.

Also on the calendar this week is some sort of deal for the debt ceiling, which needs to be raised by November 3 in order to avoid default; and to meet the November 3 deadline, a deal needs to be reached this week. Talks have intensified between the White House and House Speaker John Boehner on a two-year budget agreement that would also increase the federal debt limit. Congressional leaders are said to be nearing an agreement, which would then need to win backing from most Democrats and at least several dozen Republicans for House passage. The deal raises the prospect that Boehner could resolve two of the thorniest fiscal hurdles before he resigns later this week.

If completed, the agreement would be the most significant spending accord in two years and perhaps since 2011, when the White House and congressional Republicans enacted deep spending cuts in exchange for an increase in the debt ceiling. Obama and some Republicans have been trying to undo part of those cuts, known as sequestration, ever since—GOP defense hawks want to lift budget caps for the Pentagon, while the president has refused to do so unless he can get an equivalent increase in domestic spending.

Under the emerging agreement, that’s what would happen. Money for defense and non-defense accounts would go up by about $50 billion this year and another $30 billion in fiscal 2017. The deal would also prevent steep premium increases for millions of Medicare beneficiaries, the House official said, in a win for Democratic negotiators. CNN is reporting that the spending increases would be offset by oil sales from the Strategic Petroleum Reserve, higher fees for telecommunications companies, and changes to the crop insurance program.

In political terms, the agreement would be a victory for three people in particular. Boehner would succeed in his stated goal of (mostly) clearing the deck of big issues for his successor. Ryan, who has barely won the support of hardliners in the House, would be spared the challenge of having to negotiate contentious fiscal agreements within weeks of assuming the speakership.

And, Obama would walk away victorious in his bid for Congress to relax spending restraints now that the economy has improved and the budget gap has shrunk (at least for the next few years). The president would also get relief in another respect: By removing the shadow of a possible government shutdown or default, he stands a better chance of seeing Congress act on his other priorities, namely criminal-justice reform, in his remaining 14 months in office.

A bipartisan group of House members will try to revive the Export-Import Bank, a federal government agency that finances exports. This is separate from the debt limit. Created during the Depression, the Ex-Im Bank provides insurance and loan guarantees to overseas buyers of American products. The Ex-Im Bank, essentially stopped doing new business on July 1, after House leaders let its charter lapse.

Opponents of the Ex-Im Bank claim it is nothing more than an example of corporate welfare, even though the bank paid the Treasury $675 million in fiscal year 2014. The bank says it supported $27.4 billion in exports and 164,000 American jobs last year. Nearly 90 percent of its loan recipients, the bank says, were small businesses, whose exports accounted for about 40 percent of those supported with Export-Import funding. Supporters in the House appear to have enough votes to re-authorize the bank, although it’s less clear it can pass the Senate.

The pace of new-home sales in the U.S. sank 11.5% in September to an annual rate of 468,000, marking the lowest level in 10 months. Sales for August were also revised down to a 529,000 pace from an original 552,000, which would have been a post-recession high. The median price of a new home in September was 13.5% higher compared to one year ago: $296,900 vs. $261,500. Despite the big drop in sales in September, new-home purchases are up 2% in comparison to September 2014.

Toyota has regained its crown as the world’s biggest car company by sales after releasing figures for the first nine months of the year. The Japanese carmaker sold 7.49 million in the first three quarters of 2015, beating Volkswagen’s 7.43 million and General Motors’ 7.2 million. The reversal could prove the tip of the iceberg for Volkswagen, which is engulfed in the worst scandal in its 78-year history.

Negotiators for the United Auto Workers and General Motors reached a tentative agreement on undisclosed terms for a new four-year labor contract, averting a threatened strike. The proposed deal will now go to a council of several hundred UAW leaders on Wednesday, and will then head to a ratification vote by UAW’s 52,700 workers.

FedEx said it expects shipments during the holiday period between the Black Friday and Christmas Eve to rise 12.4% above year ago levels to 317 million shipments. This holiday period includes one more day that last year. FedEx expects the holiday period to include three shipment volume spikes, including Cyber Monday and the first two Mondays in December. The package delivery service said it was adding 55,000 employees for the holidays, and will expand operations.

Valeant Pharmaceuticals has conducted an internal reviewed of the company’s accounting for its Philidor arrangement and has confirmed the appropriateness of the company’s related revenue recognition and accounting treatment. “In light of the recent allegations, however, the Board of Directors has decided to establish an ad hoc committee to review allegations related to the company’s business relationship with Philidor and related matters.”

Last Wednesday, Citron Research accused the company of using a network of pharmacies to create phantom sales of its products. Valeant said Philidor is independent and that the drugmaker’s accounting leaves no way for it to stuff inventory into the pharmacy. Valeant can’t remove the CEO or management of Philidor, and the drugmaker’s executives and board members don’t own any stake in the pharmacy. Valeant shares were down 35% last week, and even after the conference call today, shares dropped another 5%.

Duke Energy announced plans to buy Piedmont Natural Gas for $4.9 billion in cash. The boards of both companies have unanimously approved the buyout deal. Piedmont shareholders will receive $60 in cash for each share of common stock, representing a roughly 40% premium to Piedmont’s closing price on Friday.

Eating processed meats causes cancer, and red meat probably increases cancer risks. That’s the judgment of a panel of global experts assembled by the World Health Organization. Eating an extra 50 grams daily of processed meat increases the risk of colorectal cancer by 18 percent. The W.H.O. says that while the overall risk is small, it “increases with the amount of meat consumed.”

ExxonMobil has responded to mounting calls for a federal investigation into accusations that the company knew for decades about the risks of burning fossil fuels and the effects on climate change, but withheld the information and sought to sow doubt among the public. Exxon says the allegations are “inaccurate and deliberately misleading.” But there is more to the story than a simple denial and it goes back to former Exxon CEO Lee Raymond.

Beginning in 1977, Exxon scientists began to produce a decade of papers that described a general scientific consensus that the burning of fossil fuels was changing global climate. It was not yet knowable whether the planet was undergoing a heating trend, but if it was, temperatures could rise by three to 10 degrees Celsius, one early paper said.

In the late 1980s, however, Exxon abruptly embraced a message that scientists were exaggerating how much they knew, and that the risk was that they were utterly wrong. In full-throated public statements, Raymond himself said he did not believe the planet was warming.

The possible legal ramifications of the Exxon paper trail are that the company could potentially be shown in a court to have deliberately squelched scientifically based evidence that effectively accepted the consensus view. Science is rarely incontrovertible, but, as the tobacco industry was fined a decade ago for having lied about the dangers of cigarettes, Exxon could be liable for stiff penalties should it be shown to have purposely misled the public for corporate gain.

A former prosecutor in the successful 2006 US racketeering case against tobacco companies has asserted that similar charges might be warranted against ExxonMobil. Exxon under Raymond had not previously been seen to have maliciously distorted in-house scientific research. But now, the news reports, relying on previously little-known papers and documents, many of them housed in an ExxonMobil archive at the University of Texas, allege that the company knew much more than it owned up to. The scandal has implications beyond ExxonMobil, as other oil companies that conducted their own research could also face public scrutiny.

Financial Review

The Day of Futures Past

Sinclair Noe — October 21, 2015

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

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DOW – 48 = 17,168
SPX – 11 = 2018
NAS – 40 = 4840
10 YR YLD – .04 = 2.03%
OIL – 1.08 = 45.21
GOLD – 9.10 = 1167.70
SILV – .22 = 15.78

Oil futures settled at their lowest level in nearly three weeks. OPEC is holding a special meeting in Vienna with cartel members and non-members Russia and Mexico to discuss ways to prop up oil prices. Don’t hold your breath. Meanwhile, the U.S. Energy Information Administration reported a much bigger than expected increase of eight million barrels in crude supplies for the past week.

The European Commission has ruled that Starbucks and Fiat Chrysler’s tax deals with the Netherlands and Luxembourg are illegal state aid, ordering the respective governments to recover as much as $34 million from each. The ruling follows an EU investigation launched in June 2014. It looked into whether the two companies were given so-called sweetheart tax deals that effectively lowered their corporate taxes.  Who’s up next? European regulators are finishing up investigations into McDonald’s and Amazon’s tax affairs in Luxembourg and Apple’s arrangements in Ireland.

Outgoing House Speaker John Boehner said Republicans will meet on Oct. 28 to nominate a candidate to replace him. Last night, Rep. Paul Ryan of Wisconsin said he would run for the job if certain conditions were met. With a critical deadline just two weeks away, House Republican leaders are discussing options for raising the U.S. debt limit.

Last week, Treasury Secretary Jacob Lew moved the cutoff for raising the debt limit to Nov. 3, earlier than the Nov. 5 date he had set earlier. After that point, Lew said, the Treasury would have less than $30 billion to fund the government, “far short” of expenses on certain days.

Syrian President Bashar al-Assad arrived in Moscow on an unannounced visit on Tuesday, in the leader’s first known trip outside his country since the start of the country’s civil war. During the meeting, Russia’s Vladimir Putin reiterated his commitment to support Assad through military and political channels, and said he would call on other world powers to look into a potential diplomatic solution to the conflict.

A group of high-profile lawyers plans to file a request today to begin impeachment proceedings against Brazilian President Dilma Rousseff. Today’s move is only the first step in a drawn-out process which could take up to eight months. The Brazilian real is down 32% this year.

General Motors and EMC released their latest earnings reports before opening bell this morning. GM posted adjusted earnings of $1.50 per share, a 55% year over year increase that beat estimates of $1.18 per share. EMC reported earnings of 43 cents per share and revenue of $6.08 billion for the third quarter. Analysts had been looking for earnings of 44 cents per share and $6.17 billion in revenue.

Coca-Cola said revenue fell a worse-than-expected 4.6% in the third quarter despite improvements in volume, as the beverage giant said currency fluctuations will hurt results for the year more than expected.

Boeing posted a $1.7 billion net profit, up from $1.3 billion during the same period last year. Boeing delivered 199 commercial jets in the third quarter, up from 186 during the same quarter last year. And more of those jets are expensive wide-bodies, such as the 787 Dreamliner.

During this quarter last year, 31 Dreamliners were delivered to airlines; this year Boeing delivered 37. The challenge now for Boeing is to bring down the production cost of the long-delayed Dreamliner so it can bring in more cash and maybe, someday, breakeven on the plane whose development costs ran over budget.

Credit Suisse reported worse than expected third-quarter results with net income falling 24 percent and the investment bank posting a pre-tax loss of 125 million francs. Separately, the bank announced a plan to raise $6.3 billion in new capital and a corporate reorganization.

Western Digital agreed to buy SanDisk for about $19 billion. SanDisk is one of the largest makers of Nand flash memory chips, which store data in mobile devices and are increasingly being used in hard drives in computing. The technology uses less power and is faster to access information, making it more useful in cloud-computing data centers.

Lam Research is buying KLA Tencor for about $10.6 billion. The merger will create a $19 billion semiconductor firm that will rival Applied Materials, and serve 42% of the wafer fabrication equipment market when the deal closes in the middle of next year. The offer of $67.02 per KLA Tencor share represents a 24% premium to Tuesday’s closing price.

According to Hedge Fund Research, hedge funds suffered their largest quarterly loss in assets since the financial crisis during the three months that ended in September. The third-quarter saw the average fund lose 3.9% driven by slowing growth in China, sliding commodities prices and a likely U.S. Fed rate hike that sent stocks tumbling. Notables: David Einhorn’s Greenlight Capital is down 17% YTD, and Bill Ackman’s Pershing Square has now fallen 12.6% for the year (down 12.5% for September.)

Today, Ackman’s Pershing Square just purchased 2 million more shares of Valeant Pharmaceuticals. It’s either brilliant or insane; time will tell.  In September Valeant dropped 23% and Ackman’s large 5.7% stake in Valeant really hurt his returns for the month; so he doubled down. And today, Valeant dropped another 30%. We don’t know when Ackman bought in today.

Citron Research, a stock-commentary site run by a short seller, said Valeant is using a couple of specialty pharmacy called Philidor RX Services and R&O Pharmacy to store inventory and record those transactions as sales; comparing the accounting and auditing to Enron. Valeant has been at the forefront of an intensifying debate over price increases for older drugs in the U.S. Last week it said it had received subpoenas from the U.S. Attorney’s Offices in Massachusetts and Manhattan.

Here’s the kicker. R&O Pharmacy has sued Valeant. The lawsuit says that R&O believes that both Valeant and R&O are “victims of a massive fraud perpetuated by third parties” or that “Valeant is conspiring with other persons or entities to perpetuate a massive fraud against R&O and others.”

I think I’ll go with insane.

The chairman of the Commodity Futures Trading Commission, Timothy Massad, says that the regulator is very concerned about the potential for disruptive events in the U.S. Treasury market and is already taking steps to address the growth of automated trading and increasing cybersecurity risks. New proposals include requirements for pre-trade risk controls and other measures to reduce risks of automated trading. The CFTC also wants to increase transparency regarding market maker incentive programs and self-trading to make sure it isn’t illegal wash trading.

Toyota is recalling about 6.5M vehicles worldwide to fix a defective power window switch in models including the Yaris/Vitz subcompact, Corolla, Camry and others. Debris caused by wear from the electrical contact points can accumulate and cause a short circuit. That in turn could make the switch assembly overheat, potentially leading to a fire.

Yahoo has signed a search advertising deal with Google. The deal builds on an existing search partnership with Microsoft under which the company gets a percentage of revenue from ads displayed on its sites. The move also follows disappointing Q3 results from Yahoo that missed expectations and unveiled cost cuts, content write-offs, and more soft guidance.

Today is the day that Marty McFly flies the time traveling Delorean to Hill Valley California, and if the flux capacitor is correct, he landed there about 18 minutes ago. We’re talking about the movie Back to the Future, Part 2. And if you don’t really remember the movie or you haven’t heard the news stories over the past few day, the intrepid time traveler from 1989, played by Michael J. Fox, set his time machine to October 21, 2015. Today is the day of futures past.

And it has been intriguing to look back at the movie to see how their fictional predictions have panned out. Of course, one of the favorite futuristic gizmos was the hoverboard; it isn’t a ubiquitous toy but a couple of companies have built functioning hoverboards. The garbage powered portable nuclear fission machines – not so much. Fax machines everywhere – nope. Cubs win the World Series – still within the realm of possibility but the odds are astronomical; however there is now a major league team in Miami.

Still the movie got some things right: Flat panel TVs with built in video-conferencing were in the movie, and I actually have a flat screen at my home with the Skype app. Wearables, such as Google Glasses or Apple Watch – yep. Biometrics – sort of; Biff paid for a taxi with his thumbprint; I can’t do that but I can pay for stuff with my phone and my phone can be unlocked with a thumbprint.

Programmable, automated homes – yes; my home is not automated but the technology exists. 3D holographic entertainment, advertising, and gaming – yes we have that; still working out the specifics, but we have it. The Black & Decker food hydrator – not exactly but I do have a microwave, which is probably worse. There are other examples, but you get the idea.

The writers, 30 years in the past, actually did a pretty good job of predicting the future. New ideas and technologies have completely changed the way we live, learn, and work. So, the next question is: What will our world look like in 2045, thirty years from today?

Maybe we’ll make a mess of everything but I hope and believe that 30 years from now we’ll be doing much better. Maybe we’ll have peace, or end poverty, or find cures to horrible diseases. Try to imagine the world you want to live in 30 years from today, and then move in that direction. And if the future has hoverboards for everybody, that’s just a bonus.