Financial Review

Black Cyber-ish

Sinclair Noe — November 27, 2017

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DOW + 22 = 23,580
SPX – 1 = 2601
NAS – 10 = 6878
RUT – 5 = 1513
10 Y – .01 = 2.33%
OIL – 1.08 = 57.87
GOLD + 6.10 = 1295.00

Cryptocurrency

• Number of Currencies: 919
• Total Market Cap: $304,635,688,163
• 24H Volume: $12,910,150,130

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	9,647.3	$162.88B	$5.45B	41.99%	1	-0.84%	+20.29%
	Ethereum	ETH	474.73	$46.05B	$1.38B	10.66%	0.0494524	+0.24%	+31.65%
	Bitcoin Cash	BCH	1,566.80	$27.07B	$1.33B	10.26%	0.16585	-1.20%	+35.24%
	Ripple	XRP	0.25200	$10.06B	$247.07M	1.90%	0.00002685	+1.69%	+9.48%
	Bitcoin Gold	BTG	353.60	$5.90B	$111.60M	0.86%	0.0364681	-2.25%	+48.94%
	Litecoin	LTC	90.800	$4.90B	$424.45M	3.27%	0.00935105	-0.61%	+27.25%
	Dash	DASH	615.61	$4.83B	$133.23M	1.03%	0.0646084	-1.34%	+34.34%
	IOTA	MIOTA	1.16350	$3.22B	$218.03M	1.68%	0.0001195	+12.10%	+24.59%
	Ethereum Classic	ETC	27.9180	$2.90B	$963.35M	7.43%	0.00305606	+13.03%	+63.22%
	Monero	XMR	171.40	$2.68B	$97.71M	0.75%	0.0179119	-0.91%	+26.46%

Happy Cyber Monday.

Online shoppers in the U.S. are expected to spend about $6.6 billion today, up from $5.6 billion one year ago. Thanksgiving and Black Friday, when shoppers spent $7.9 billion and bought more on their mobile devices than last year, had also generated record online sales.

That brightened the overall outlook for traditional retailers that have expanded beyond brick-and-mortar outlets into e-commerce. The availability of deals and promotions throughout November hurt shopper traffic at stores. If you don’t find a great deal today, be patient – look for deeper discounts to be offered later in December.

Online sales at Wal-Mart grew 50 percent year-over-year in the most recent quarter. It now accounts for 3.6 percent of total U.S. online sales in the 12 months to October 2017, up from a 2.8 percent share a year ago. Even with this progress, Wal-Mart has a long way to go. Amazon’s share of the U.S. e-commerce market stands at 43.5 percent. About half of U.S. households are estimated to have Amazon Prime subscriptions.

GlobalData’s preliminary tracking figures have already predicted total Black Friday sales to have risen the most since 2011. The National Retail Federation (NRF), the industry’s trade group, is calling for an increase as much as 4 percent, with those results set to be released Tuesday afternoon.

After several years of growth, Small Business Saturday saw a dip in both foot traffic and overall dollars spent. The American Express-sponsored shopping holiday saw 108 million shoppers spend $12.9 billion on Nov. 25 at independently owned businesses. That is down from $15 billion in 2016.

Increasingly, the idea of one single day of shopping has been replaced by a month of holiday shopping. It’s no longer Black Friday. It’s now Black November. As retailers increasingly spread sales and discounts throughout the month, November has become a shopping extravaganza.

Online sales from November 1 through 22 totaled almost $30.4 billion this year, accounting for nearly 18% year-over-year growth, according to Adobe Analytics. In fact, every day in November so far has seen over $1 billion in online sales, creating a new paradigm for shoppers and retailers. Black Friday sales events are starting earlier and earlier in November every year as retailers try to get the jump on one another.

The Census Bureau reports sales of new single-family houses in October 2017 were at a seasonally adjusted annual rate of 685,000 – that’s a 10-year high. This is 6.2 percent above the revised September rate of 645,000 and is 18.7 percent above the October 2016 estimate.

Inventories are tight: it would take 4.9 months to sell all existing inventory – that’s down from 5.2 months’ supply of homes in September. The median sales price of new houses sold in October 2017 was $312,800. The average sales price was $400,200. New-home sales, tabulated when contracts get signed, account for about 10 percent of the market.

Congress is back in session for the next 3 weeks, with a busy schedule. Tomorrow, we’ll hear the Senate confirmation hearing for Jerome Powell, Trump’s nominee to head the Federal Reserve. We’ll get to hear Powell’s ideas on monetary policy, banking regulation and his general approach to run one of the most important institutions in the world.

Confirmation hearings are often unpredictable. While Powell could face some scrutiny, particularly from Republicans who don’t care for the central bank to begin with, and Democrats who want a tighter rein on Wall Street, Powell’s confirmation is all but assured.

Wednesday morning, current Fed Chair Janet Yellen delivers her final Humphrey Hawkins testimony on the economy, before the Joint Economic Committee.

Today, Dallas Fed President Robert Kaplan delivered an especially hawkish speech. Kaplan said he is “cognizant of financial imbalances” present in the current economy and suggested that the unemployment rate may be starting to extend too far beyond its natural level.

Specifically, Kaplan noted: stock market capitalization is about 135% of GDP, the highest since 1999-2000 just before the technology bubble burst; Commercial real estate prices and the valuation of debt both appearing “notably extended”; Historically low stock market volatility, which Kaplan described as “extraordinarily unusual”; Margin debt at record-high levels and Kaplan warned, “In the event of a sell-off, high levels of margin debt can encourage additional selling, which could, in turn, lead to a more rapid tightening of financial conditions”; and US government debt at about 75 per cent of GDP – a level Kaplan calls “unlikely to be sustainable”.

The big news on Capitol Hill continues to be the tax reform legislation, which might see a final Senate vote this week if they can muster the votes. With several senators not yet committed to supporting the $1.5 trillion tax plan, the week is expected to be punctuated by behind-the-scenes arm-twisting and deal-making as Republican leaders work to find enough votes to pass the bill along party lines.

At least a half-dozen senators have raised concerns about the bill, including its potential to add to the federal deficit and a provision that would eliminate the Affordable Care Act requirement that most Americans have health insurance or pay a penalty. The talks could result in substantial changes to the bill before it reaches the Senate floor, or, more likely, in amendments that the full Senate would vote on.

Any bill that passes the Senate is likely to differ in significant ways from the House-passed version, and Republican leaders in both chambers have said repeatedly that such differences will be worked out in a formal conference committee.

Recent national polls show the plan fails to garner the support of a majority of Americans; several polls show a majority actually opposing it. According to a new analysis from the Tax Policy Center, the Senate bill gives more than 60% of its benefits to the top 1% of taxpayers. Those in the top 0.1% of incomes are set to get 40% of all cuts.

The ongoing brouhaha over who is the rightful interim leader of the Consumer Financial Protection Bureau spilled over into Monday morning, as the two people separately tasked with leading the independent agency sent dueling emails asserting their authority.

In the first email to staffers this morning Leandra English — whom the departing director, Richard Cordray, named the acting director on Friday — called herself “acting director” and expressed gratitude to her CFPB colleagues “for your service.” That was followed up by a memo from Mick Mulvaney, the director of the Office of Management and Budget who was tapped by Trump to serve as acting director of the agency shortly after Cordray announced English, his chief of staff, as his interim successor.

Mulvaney’s memo told staffers to disregard the memo from acting director English. Then English filed a lawsuit in federal court seeking a temporary restraining order to prevent Mulvaney from fulfilling Trump’s appointment. Either English or Mulvaney will serve as acting director until the Senate can confirm a permanent nominee.

Media company Meredith Corp said on Sunday it will buy Time Inc, the publisher of People, Sports Illustrated and Fortune magazines, in a $1.84 billion all-cash deal backed by conservative billionaire brothers Charles and David Koch.

The state of Maryland passed a ban on “assault” weapons after the 2012 mass shooting at a Newtown, Conn., elementary school. A district judge had cast doubt on the constitutionality of the law. But the full U.S. Court of Appeals for the 4th Circuit in Richmond upheld the ban in a 10-to-4 vote.

That court went further than other appellate courts that have reviewed similar laws, stating that “assault weapons and large-capacity magazines are not protected by the Second Amendment.” That court went further than other appellate courts that have reviewed similar laws, stating that “assault weapons and large-capacity magazines are not protected by the Second Amendment.”

The majority opinion refers to the banned firearms as “weapons of war” that the court says are most useful in the military. Attorneys general in 21 states asked the Supreme Court to hear the Maryland case, and the National Rifle Association and other gun rights groups had joined the effort.  Today, the U.S. Supreme Court declined to hear the case, meaning the Maryland ban on assault weapons stands.

In the past year, bitcoins have generated transaction fees of nearly $219 million. And at $9,600 a piece, the total value of all bitcoins — their market cap — now tops $160 billion. That gives bitcoins the equivalent of a trailing P/E ratio of 708. Bitcoin now has a bigger market cap than General Electric, or Disney.

Bitcoin has increased nearly tenfold in price so far, this year. The digital currency has surged 50 percent in November alone. Bitcoin’s price has been helped in recent months by the announcement that the world’s biggest derivatives exchange operator CME Group would start offering bitcoin futures. The company said last week the futures would launch by the end of the year though no precise date had been set.

If you still don’t understand the underlying premise of bitcoin, you are not alone. There is no inherent value, just a transaction that happens based upon blockchain. Blockchain creates a quick, permanent and secure record of transactions, eliminating the need for a third party such as a bank.

Banks and other large corporations are testing how blockchain can help improve everything from supply chain management to global payments. The blockchain technology is very real but bitcoins are pure speculation that has now grown into a bubble. Not a huge bubble but big enough to pain.

Financial Review

Milk and Cookies

Sinclair Noe — June 19, 2017

DOW + 144 = 21,528
SPX + 20 = 2453
NAS + 87 = 6239
RUT + 11 = 1418
10Y + .03 = 2.19%
OIL – .64 = 44.10
GOLD – 9.80 = 1244.60
BITCOIN + 1.34% = 2677.18 USD
ETHEREUM – 3.60% = 358.49

The Dow Industrial Average hit another record high today. The S&P 500 is up 9% so far, this year, hitting another record high close today.

Just 10 companies have accounted for almost half of the benchmark’s return this year. While stock bears have been stressing caution, some have gone as far as to compare the current environment to the dotcom bubble. The reality is that this concentration is not unusual; it happens in rallies.

On June 9, tech stocks in the S&P 500 dropped 2.7%. But that money mostly stayed in the stock market, flowing into energy and financial shares. Nasdaq’s biotechnology index rose 2.5 percent in its biggest one-day gain since February while the S&P’s healthcare index had a record-high close.

The S&P’s financial sector was also one of the benchmark’s strongest gainers with a 1% rise after New York Federal Reserve President William Dudley said U.S. inflation was a bit low but should rise alongside wages as the labor market continues to improve, allowing the Fed to continue gradually tightening monetary policy.

Dudley said: “I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go. This is actually a pretty good place to be.” Apparently, the Fed sees underlying strength in the economy that the data doesn’t show right now. The Fed’s base case is that this is just kind of a soft patch and we will continue to cycle higher.

And Wall Street always seems to be optimistic when we have big merger and acquisition news – which we saw on Friday with the Amazon/Whole Foods deal. Not everybody loved the deal, Kroger lost 19% on Thursday when they announced a bad earnings report, then came news of Amazon, and Kroger dropped another 9%, losing $7 billion in market cap in just 2 days. Today, the bottom fishers came in and Kroger bounced 1.5%.

Also, Blue Apron started its IPO roadshow today, hoping that nobody paid any attention to anything last week. Blue Apron Holdings, a startup that offers cook-at-home preparation kits, expects shares to price between $15 and $17 in its initial public offering. With Amazon now casting an anticipatory shadow over the “Fresh food to urban yuppie home delivery” sector, Blue Apron is caught in a gnarly Catch 22.

Its IPO only makes sense if people believe that its business model can drive revenue and maybe create profit, but if that model can indeed drive revenue, what’s to stop Amazon from copying it, using 80 million Prime subscribers and the vast coverage of Whole Foods distribution network?

Resurgent growth is reviving one of the past decade’s hottest trades. Emerging-market investors are again piling into the so-called BRIC nations — Brazil, Russia, India and China — pushing monthly inflows and stock prices to almost two-year highs. Non-resident portfolio flows into BRIC nations rose to $166 billion last month, from $28 billion of outflows 12 months prior.

Oil fell, extending four weeks of declines, as U.S. drillers continue adding rigs and Libya boosts output. U.S. drillers added rigs for a 22nd straight week, the longest uninterrupted stretch of growth in three decades.

The Supreme Court just ruled that social media is a constitutional right. Today, the justices unanimously held that states can’t broadly limit access to social media because cyberspace “is one of the most important places to exchange views.”

In Packingham v. North Carolina, the justices were asked to review a North Carolina statute that bars sex offenders from accessing social media altogether and makes it a felony if they post on any platform. The case has implications for all members of American society, however, not just sex offenders, and the court appears to be extremely conscious of the broader effect.

Justice Anthony Kennedy wrote, “A fundamental First Amendment principle is that all persons have access to places where they can speak and listen, and then, after reflection, speak and listen once more.” Given the fact that social-media platforms allow for this kind of free communication, and that the constitution protects the right to exchange, the justices recognized this case was widely societally important.

North Carolina convicted over 1,000 sex offenders based on its statute barring access to all social platforms. That, according to the high court, simply isn’t acceptable considering the role Facebook, Twitter, Snapchat and others play in current public communication.

The Supreme Court agreed to consider whether there are constitutional limits to how far lawmakers can go in drawing electoral districts to maximize partisan political advantage, a case that could have profound implications for US elections.

The justices in a brief written order said they would review a redistricting case from Wisconsin, where a three-judge lower court last year invalidated a redistricting plan enacted by the Republican-controlled Wisconsin legislature in 2011. That court said Wisconsin lawmakers redrew the state’s legislative districts after the 2010 census to unlawfully maximize the number of Republicans elected and dilute the power of Democratic voters.

Democrats won a popular majority of assembly votes in 2012 and 2014, but Republicans managed to take 60 of the 99 assembly seats. The practice of redrawing electoral maps along partisan lines is known as “gerrymandering.” The Supreme Court has previously struck down gerrymandered maps that disadvantage minority voters, but has yet to prohibit a map because it unfairly advantages one political party over another.

Also today, the Supreme Court struck down part of a law that bans offensive trademarks, ruling in favor of an Asian-American rock band called the Slants and giving a major boost to the Washington Redskins in their separate legal fight over the team name.

The justices were unanimous in saying that the 71-year-old trademark law barring disparaging terms infringes free speech rights guaranteed in the Constitution’s First Amendment. Justice Samuel Alito said in his opinion for the court, “It offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend.”

Silicon Valley went to Washington today. The White House has enlisted tech CEOs to improve government services, reform outdated information technology systems, cut fraud and government costs and improve services for taxpayers. It has cited an economic opportunity to save up to $1 trillion over 10 years through such measures.

Jared Kushner, Trump’s son-in-law, said before the sessions began that the administration wanted to “unleash the creativity of the private sector to provide citizen services in a way that has never happened before.”

French President Emmanuel Macron is poised to rearrange his Cabinet after his new centrist party won a solid majority in the country’s parliamentary election, enabling the government to quickly start passing its first big laws. President Macron flew opened the world’s biggest air show in Paris, today.

Boeing generated a burst of activity on the opening day by launching the 737 MAX 10. Boeing said it had more than 240 orders and commitments from at least 10 customers for the new 737, which can carry up to 230 people in a single-class configuration. Airbus immediately hit back with an order for 100 of its popular A320neo planes.

The Federal Trade Commission said it will seek to stop the merger of DraftKings and FanDuel, because the combined company would control more than 90 percent of the U.S. market for paid daily fantasy sports contests.

This is the latest setback for two companies, which have faced regulatory challenges in several states. They announced the deal in November 2016 as a merger of equals that would cut their legal bills. The companies said in a joint statement that they were considering their legal options.

Late Friday, we told you that CenturyLink had been sued in Arizona by a former employee for allegedly running a sales incentive scheme, by adding services to accounts without customer approval. The whistleblower was fired.

Now, the case is going to class action status in California, seeking damages up to $12 billion. CenturyLink is amid a $34 billion merger with Level 3 Communications.

Financial Review

Monday, Monday

Sinclair Noe — June 12, 2017

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DOW – 36 = 21,235
SPX – 2 = 2429
NAS – 32 = 6175
RUT – 2 = 1419
10 Y + .01 = 2.21%
OIL + .17 = 46.00
GOLD – .90 = 1266.50
BITCOIN + 0.39% = 2720.80
ETHEREUM + 16.83% = 398.58

The Dow Industrials fell from record highs, with an inside trading session that does not look like a reversal, not yet anyway. The Nasdaq Composite confirmed its sharp downturn on Friday. Really, it was just five mega-tech stocks that accounted for 75% of the Nasdaq’s drop.

Apple, Microsoft and Goggle parent Alphabet account for nearly 30 percent of the index’s weighting, and their outsize impact has driven the gauge lower even though the bulk of the stocks are doing fine. What has sparked the so-called tech wreck isn’t exactly clear, but Goldman Sachs issued a report last Friday entitled, “Is FANG Mispriced?”

More important is whether this is a short-term correction or the sign of something more ominous. One or two days down does not make a trend, but a trend can start with a couple of down days. At this point, most analysts see this as a pause after a very strong and fast rally in the mega-tech names.

The good news is that money is not leaving stocks, just rotating to different sectors. On a net basis, investors sent $1.9 billion to ETFs focused on U.S. equities Friday, five times the money sent to fixed income. While tech ETFs experienced withdrawals of about $510 million (and the Fang stocks lost $126 billion in market cap), financials had inflows of almost $1 billion and energy took in $120 million.

Tomorrow will kick off a busy week for economic data – we’ll get the latest producer price index, which is expected to be flat. Wednesday morning brings the consumer price index and retail sales data. Wednesday afternoon brings a statement from the Federal Reserve on monetary policy.

A federal funds rate increase is widely expected, so the more market-sensitive elements of the Fed’s meeting will relate to signals regarding future policy action — either the path for the rates going forward or plans regarding a reduction in the central bank’s $4.5 trillion balance sheet.

The British pound sterling continued falling today, marking its worst two-day decline since October. Last week’s election saw Prime minister Theresa May’s Tories falling short of a majority in Parliament. While the Tories are expected to cobble a slim coalition, May will now govern from a position of weakness.

Some of May’s most senior ministers are plotting to soften her approach to leaving the bloc, potentially keeping the country in the single-market and customs union. By contrast, hardline Brexit supporters are determined to force through the prime minister’s plans for a clean break.

Treasury Secretary Steven Mnuchin  had previously set an August deadline for the federal government to avoid a default. Mnuchin said he still prefers that Congress increase the government’s authority to borrow before lawmakers leave on a five-week break in August. However, he said he is “comfortable” that the Treasury Department can meet the government’s financial obligations through the start of September.

The 9th US Circuit Court of Appeals panel unanimously upheld an earlier decision by a federal judge in Hawaii to block the government from enforcing Trump’s executive order for a “travel ban” that would restrict refugees and people from six predominantly Muslim countries from entering the US. The Supreme Court asked two groups challenging the travel ban to file legal papers by Monday. Once it receives the briefs it sought, the court could act at any time.

Attorney General Jeff Sessions will testify publicly to a Senate panel tomorrow. It had been unclear whether Sessions would testify in an open or closed setting. Sessions is likely to face tough questioning from Senate Intelligence Committee members over his dealings with Russian officials during the campaign and whether he had a role in the firing of former FBI Director James Comey, who testified last week before the same panel.

Along with testifying before the Senate Intelligence Committee this week, Attorney General Jeff Sessions can expect a subpoena from lawyers for a former Maricopa county Sheriff Joe Arpaio. Arpaio is presently being prosecuted by the U.S. Justice Department for allegedly violating a federal judge’s order to cease immigration enforcement. Arpaio’s trial is scheduled to begin June 26.

Sessions could challenge the subpoena to testify. The defense attorneys hope to use Sessions to underscore the irony of Arpaio being prosecuted by the very entity that is using the threat of pulling federal funds to get cities to do essentially what their client is accused of doing.

The case will be before Judge Susan Bolton, the very one who upheld SB 1070, the Arizona state law that requires cops to act on a “reasonable suspicion” that someone they have detained is in the country illegally. As it now stands, the outcome will be decided solely by Bolton, not by a jury.

Puerto Rico voted overwhelmingly in favor of statehood on Sunday in a referendum that begins the steps toward sending representatives to Washington, DC. It was a landslide, with 97 percent voting for statehood, though turnout was only about 23 percent.

Puerto Rico previously voted in favor of becoming a state in 2012, but statehood opponents said the voter turnout was not high enough to accurately reflect will of the Puerto Rican people. Some fear that they will make the same case this time around.

The Supreme Court cut the time it will take for copycat versions of biologic drugs to get to market. In a unanimous ruling, the justices overturned a lower court’s decision that had prevented Swiss pharmaceutical company Novartis from selling its copycat version of Amgen’s Neupogen until six months after the US Food and Drug Administration approved it.

The decision has major implications for the pharmaceutical industry because it will dictate how long brand-name makers of biologic drugs can keep near-copies, called biosimilars, off the market. Even the six months at issue in the case can mean hundreds of millions of dollars in sales. Health insurers expect biosimilars to be cheaper than original brands, like generics, saving consumers billions of dollars each year.

In a separate case, the Supreme Court ruled in favor of Microsoft in its bid to fend off class action claims by Xbox 360 owners who said the videogame console gouges discs because of a design defect. In an 8-0 ruling, the court overturned a 2015 decision by the 9th US Circuit Court of Appeals that allowed console owners to appeal the dismissal of their class action lawsuit by a federal judge in Seattle in 2012.

Typically, parties cannot appeal a class certification ruling until the entire case has reached a conclusion. But the 9th Circuit allowed the console owners to voluntarily dismiss their lawsuit so they could immediately appeal the denial of a class certification. The court ruled such a move was not permitted because a voluntary dismissal of a lawsuit is not a final decision and thus cannot be appealed.

Jeffrey Immelt is stepping down as chairman and chief executive of General Electric. Amid mounting pressure from activist investor Trian Fund Management for operational changes, GE said Immelt will be replaced by John Flannery, a 30-year company veteran who oversaw a jump in profits at the health-care unit.

Of all companies that remain in the Dow Jones Industrial Average since Sept. 7, 2001, when Jeffrey Immelt took over as chief executive officer of GE. GE’s stock has been by far the worst performer, and one of only two that have declined. GE’s stock has plunged 29.6% since Immelt took control through Friday.

Meanwhile, GE won US antitrust approval to merge its oil and gas business with Baker Hughes to form a new publicly traded company. GE and Baker Hughes announced the deal in October, months after Halliburton’s effort to buy Baker Hughes collapsed under pressure from the Justice Department.

Under the agreement, GE will combine Baker Hughes with its oil and gas business, creating a company with $23 billion in annual revenue, the companies said. GE will pay existing Baker Hughes shareholders $7.4 billion for a special dividend.

Meanwhile, another CEO with a rocky tenure — Travis Kalanick of Uber — may be taking a leave of absence. Uber’s board of directors met Sunday to mull over how to reverse the ride-hail company’s slow-motion implosion. Board members voted to unanimously adopt all the recommendations from a recent investigation into Uber’s culture of pervasive sexism and harassment.

They also discussed the fate of two of the company’s top executives, CEO Travis Kalanick and senior vice president of business Emil Michael. Michael is out. We’ll learn Kalanick fate tomorrow, maybe.

Time for today’s edition of Retail Armageddon, featuring Gymboree. The children’s clothing retailer announced it was seeking Chapter 11 bankruptcy protection. Gymboree has been in discussions with lenders since the beginning of the year as it grapples with a heavy debt load, much of which stems from Bain Capital’s $1.8 billion leveraged buyout of the retailer in 2010.

In conjunction with the filing, the company said it secured commitments for up to $308 million in additional financing. Public filings show Gymboree has more than $1 billion in outstanding debt, of which about $872 million is due in less than a year.

The U.S. Air Force has temporarily canceled flying operations of Lockheed Martin’s F-35 jets at Luke Air Force base in Arizona. The move comes after a series of five incidents in which pilots experienced hypoxia-like symptoms – in other words, they weren’t getting enough oxygen. Since May 2, pilots of five F-35A Lightning II aircraft assigned to the air force base have reported physiological incidents while flying

Financial Review

Drifting

Sinclair Noe — June 5, 2017

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

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DOW – 22 = 21,184
SPX – 2 = 2436
NAS – 10 = 6295
RUT – 8 = 1396
10 Y + .02 = 2.18%
OIL – .27 = 47.39
GOLD + .80 = 1280.30
BITCOIN + 4.68% = 2864.70
ETHEREUM +.91% = 247.50

The markets were drifting today. After hitting record highs Friday on a very weak May Jobs Report, there just wasn’t any good news to push the markets higher. There was a bit of negative or sideways news.

On the economic data side, the Institute for Supply Management reported that their non-manufacturing index slipped to 56.9% in May, down slightly from April but still in positive territory.

The government said productivity was unchanged in the first three months of 2017 instead of declining at a 0.6% annual rate. The biggest change: The increase in output, or how many goods and services companies produce, was raised to 1.7% from 1%. The number of hours employees worked, meanwhile, was revised to a slightly higher 1.7% gain instead of 1.6%.

The updated figures show that labor costs rose more slowly than initially reported, a sign companies continue to keep costs down despite a steadily expanding economy and growing shortages of skilled labor.

Hourly compensation — pay and benefits — rose a revised 2.2% in the first quarter, but after adjusting for inflation workers lost ground. Real compensation fell 0.9%.

The upward revision in the first quarter doesn’t change the underlying weakness in productivity, the key to a higher standard of living.

Factory orders dipped 0.2% in April. For the year to date, orders are 4.4% higher than in the same period a year ago. Excluding transportation, which can be volatile, orders rose 0.1% during the month, and are 5.5% higher compared to the same period in 2016.

Activity is ticking up, but so are inventories. Stockpiles rose a seasonally adjusted 0.1% during the month and are 2.5% higher than a year ago.

Markets shrugged off the news of a series of attacks which killed several people and injured dozens in the heart of London on Saturday. The UK has a parliamentary election scheduled for Thursday, pitting the Conservative Incumbent Prime Minister Theresa May against Labor leader Jeremy Corbyn.

With the London attack dominating attention, a reduction in the number of police officers in England and Wales by almost 20,000 during May’s six years as interior minister from 2010 to 2016 shot to the top of the election agenda. Whatever the outcome of the election, the UK still must deal with Brexit.

The UK has slipped to become least attractive developed market for sovereign wealth funds one year after the 2016 Brexit referendum, according to a survey by asset manager Invesco. A survey of 97 sovereign wealth funds, pension funds and central banks with a combined $12 trillion in assets rated the UK 5.5 out of 10 for investor attractiveness, down from 7.5 in 2016.

Germany was the most attractive market in Europe, with a score of 7.8, while Italy and France followed with 6.1. The US was the most attractive place in the world to invest, earning a rating of 8 out 10.

Also on Thursday, former FBI Director James Comey is scheduled to testify before the Senate Intelligence Committee as part of the committee’s Russia-related investigation.

Saudi Arabia, Bahrain, Egypt and the United Arab Emirates have cut diplomatic relations with Qatar, having accused Qatar of supporting terrorism and destabilizing the region. The US’ biggest concentration of military personnel in the Middle East are located at an Air Force base near the Qatari capital of Doha, and is home to some 11,000 US military personnel.

The rift could cause problems for OPEC’s plans to cut oil production. With production capacity of about 600,000 barrels per day (bpd), Qatar’s crude output ranks as one of the smallest among the Organization of the Petroleum Exporting Countries, but tension within the cartel could weaken the supply deal aimed at supporting prices.

President Trump outlined a plan to privatize the US air traffic control system. The FAA spends nearly $10 billion a year on air traffic control funded largely through passenger user fees, and has spent more than $7.5 billion on next-generation air traffic control reforms in recent years.

The Aircraft Owners and Pilots Association said it will not support a plan that imposes fees on small plane owners. The major airlines generally favor the idea but Delta is opposed, saying that privatization would not save money, and would drive up ticket costs and could create a national security risk.

The proposal would require congressional approval. The president will hold a rally in Ohio on Wednesday to make a case for his $1 trillion infrastructure proposal.

The Supreme Court ruled 9-0 today that the SEC’s recovery remedy known as “disgorgement” is subject to a five-year statute of limitations. The justices sided with New Mexico-based investment adviser Charles Kokesh, who previously was ordered by a judge to pay $2.4 million in penalties plus $34.9 million in disgorgement of illegal profits after the SEC sued him.

Kokesh was sued by the SEC in 2009 for misappropriating investors’ money. His penalties covered conduct within the five-year statute of limitations, but the disgorgement covered conduct that largely occurred outside that time frame. The ruling represented a major victory for Wall Street firms, whose Securities Industry and Financial Markets Association trade group had urged the justices to curb the SEC’s powers.

The Supreme Court agreed to hear a major case on privacy rights in the digital age that will determine whether police officers need warrants to access past cellphone location information kept by wireless carriers, or whether that information is protected by Fourth Amendment rights to be free from unreasonable search and seizure.

The legal fight has raised questions about how much companies protect the privacy rights of their customers. The major wireless carriers receive tens of thousands of requests a year from law enforcement for what is known as “cell site location information”

The justices agreed to hear an appeal brought by a man who was arrested in 2011 as part of an investigation into a string of armed robberies in the Detroit area over the preceding months. Police helped establish that the suspect was near the scene of the crimes by securing cell site location information from his cellphone carrier.

The Supreme Court has twice in recent years ruled on major cases concerning how criminal law applies to new technology, on each occasion ruling against law enforcement. In 2012, the court held that a warrant is required to place a GPS tracking device on a vehicle. Two years later, the court said police need a warrant to search a cellphone that is seized during an arrest.

While the S&P 500 is up 9 percent this year, three of its 11 sectors — energy, telecommunications services and financials — are down by an average of 7.7 percent. The common factor in these 3 sectors is that they were all up big in the fourth quarter, perhaps too much, too fast; and now they have fallen back to earth.

Where has the big money been flowing in this market? It’s been a great year for big tech stocks, and a meager one for the small caps; the Nasdaq 100 index is up 20 percent this year, while the Russell 2000 has risen by less than 3 percent.

Markets worldwide are being propped up by a secret weapon of sorts: robust cash holdings that are at their highest in almost three decades. While stocks globally have benefited from rebounding earnings growth, bonds have also rallied amid declining inflation expectations and uncertainty around the pace of Federal Reserve interest-rate hikes.

Underpinning gains in both asset classes is $5 trillion of capital that is sitting on the sidelines and serving as a reservoir for buying on weakness. This excess cash acts as a backstop for financial assets, both bonds and equities, because any correction is quickly reversed by investors deploying their excess cash to buy the dip.

Goldman Sachs has issued a report looking at where hedge funds are investing and noted that technology is the favorite sector by far of professional investors. Hedge funds and large-cap mutual funds disagree about the prospects of the financial sector, which has been a shining spot of the Trump trade since the presidential election.

Hedge funds particularly love the “FAANG” stocks: Facebook, Apple, Amazon, Netflix and Google parent Alphabet. Last week, Amazon topped $1,000 per share. Today, Alphabet topped $1,000 per share. So, really, it has been easy to see where the big money has been flowing.

Today, Apple dropped about 1%, even as they presented their annual developers’ conference.

Apple unveiled a Siri-powered smart speaker, the HomePod. It runs $349, which is far more expensive than competing products. Apple is a bit late to the party. Amazon launched its Echo, priced at $179. Six months ago, Google introduced the Google Home speaker priced at $109.

They all use voice commands to play music, tell you the weather, read news, and answer questions. Apple ran through all the big improvements it's made to the software that runs on iPhones, iPads, and Macs. And they announced various tweaks to watches, computers, etc., etc., blah, blah.

Sorry, but these Apple conferences just don’t carry to “wow” factor they used to. It really looked like Apple was behind the curve when it comes to AI, and other big things that might get investors excited.

Separately, Foxconn’s CEO said that Apple and Amazon will join in Foxconn’s bid for Toshiba’s chip business. Representatives for Apple and Amazon declined to comment. The Japanese government has said it will block any deal that would risk the transfer of Toshiba’s key chip technology out of the country.

Financial Review

Slipping from Highs

Sinclair Noe — May 30, 2017

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

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DOW – 50 = 21,029
SPX – 2 = 2412
NAS – 7 = 6203
RUT – 11 = 1371
10 Y – .03 = 2.22%
OIL – .04 = 49.62
GOLD – 4.00 = 1263.80
BITCOIN + .89% = 2261.89
ETHEREUM + 18.73% = 232.85

Stocks inched lower, with the S&P 500 retreating slightly from a record, as weakness in the energy and financial sectors outweighed gains in technology shares.

Aided by rising incomes and tax refunds, Americans boosted spending in April at the fastest clip since the end of 2016 and monthly inflation rebounded but remained fairly low due to lower oil prices. Personal income rose 0.4 percent in April, in line with expectations, and consumer spending increased by 0.4 percent.

Americans spent far less in the first three months of 2017, inducing the economy to slow to a paltry 1.2% rate of growth. Although spending in March was revised up to show a 0.3% increase instead of no change, outlays barely rose in the first two months of the year.

The personal consumption expenditures price index, the Federal Reserve’s preferred measure of inflation, rose 0.2 percent. The rate of inflation over the past 12 months slowed to 1.7% in April from a multiyear high of 2.1% in February. The core rate of inflation dipped to a 1.5% pace from 1.6% in March.

The average credit score nationwide hit 700 in April – the highest level since 2005 – according to Fair Isaac, the creator of FICO credit scores. Meanwhile, the share of consumers deemed to be riskiest, with a score below 600, hit a new low of roughly 40M, or 20% of U.S. adults who have FICO scores.

Meanwhile, U.S. home prices rose 5.8 percent in March, according to the S&P/Case-Shiller U.S. National Home Price Index. The gains were enough to reach a 33-month high, climbing at the strongest rate in nearly three years. The inventory of homes for sale remains “unusually low.”

Prices are rising across the country. Half of the 20 cities tracked by the S&P Corelogic Case-Shiller rose more than 6% from March 2016 to March 2017. The smallest gain of 4.1%, in New York, was roughly double the rate of inflation. The index is based on a three-month average. For March, Phoenix posted a 0.6% gain, with a 5.6% gain for the past 12 months.

And the consumer confidence reading for May, came in at 117.9, slightly below a consensus estimate of 119. Just three months earlier, consumer confidence hit its highest level in more than 16 years, but heading into summer, the bloom is off the rose.

An index that measures current economic conditions edged up to 140.7 from 140.3, but a gauge that looks out six months dipped to 102.6 from 105.4.

The economic data, while not overwhelming, still points to firming domestic demand that could allow the Federal Reserve to raise interest rates next month. Fed Governor Lael Brainard said a hike is probably coming soon, though the central bank may want to delay if inflation remains soft.

The Fed has also signaled it plans later this year to begin shedding some of its $4.5 trillion in bond holdings, most of which it amassed in the wake of the financial crisis and recession. It would initially set a low cap on the securities allowed to run off, and raise that every three months, under the plan.

Brainard largely agreed, saying the process should be set on “autopilot” and be “calibrated” to the differences between maturing Treasury- and mortgage-backed assets. She also suggested it would likely begin this year, noting the process could be halted and even reversed if the U.S. economy faced an “adverse shock.”

Dallas Fed head Robert Kaplan told CNBC that while he was concerned about the recent economic data, he expected two more rate hikes in 2017 and a start to the process of unwinding the Fed’s $4.5 trillion bond portfolio, most of which was accumulated after the financial crisis.

However, he doesn’t think that’s because the economy is about to take off. Instead, Kaplan sees growth likely continuing the path of about 2 percent and not the 3 percent or more boom in gross domestic product that the administration has been forecasting.

Fed Bank of St. Louis President James Bullard said the path of inflation in the U.S. is “worrisome”, speaking in Tokyo on Friday. The Fed’s plan for raising interest rates in the coming years is also too aggressive. Bullard suggested the financial markets’ view of the upcoming rate hike trajectory is currently out of lockstep with that of the Fed. Fed futures are currently pricing in around a 65 percent chance of a rate hike in June.

Amazon.com became the second of the current S&P 500 components to hit the $1,000 price mark. Priceline was the first S&P 500 stock to hit $1,000, doing so in September 2013. Alphabet’s Class A shares were close behind, hitting a record of $997.62 before ending the session up 0.3 percent at $996.17.

Shares of Amazon have risen 33 percent so far in 2017 alone, adding roughly $120 billion to its market value. Among the other four largest U.S. companies by market cap, Apple and Facebook share prices have also risen nearly 33 percent this year while Alphabet has gained 26 percent and Microsoft has added 13 percent.

The combined market cap of the top five is near $3 trillion, or more than 13 percent of the S&P 500 index stocks’ capitalization. Amazon, the only one of the top five not in the technology sector, accounts for 17 percent of the market cap of the S&P 500 consumer discretionary sector.

British Airways’ flights are back to their normal schedule, following an IT glitch over the long weekend that saw thousands of people stranded around the world. Explaining the disaster over the weekend, CEO Alex Cruz told the BBC: “There was a power surge and there was a back-up system, which did not work at that particular point in time.”

Customers are entitled to compensation under EU law if their flights are delayed by at least 3 hours for reasons within an airline’s control. So, this glitch will likely cost British Airways about $130 million just in customer compensation.

Payless ShoeSource is preparing to launch a second round of store closings, seeking court approval to trim its retail business by closing up to 408 stores if negotiations with landlords fail to result in rent concessions. The latest closings would bring the total number of recently closed Payless stores to nearly 800.

Payless is already in the process of closing nearly 400 of its locations. The Kansas-based retailer had more than 4,000 stores, employing some 22,000 people, when it sought chapter 11 protection last month.

As traditional retail stores close and vacancies mount, landlords across the country appear newly receptive to leases as short as a week. The upswing in pop-up stores, as the short-term placements are called, is playing out in all sorts of ways, and in all sorts of places — including dark malls, former grocery stores and shuttered art galleries, according to real estate brokers, landlords and tenants.

The rise in pop-up stores is adding another element of change to a retail industry facing upheaval from profound shifts in consumer habits and powerful new competitors, especially online. In the past, short-term tenants focused on holidays like Halloween: Costumes were hot items in October, but sales evaporated once the calendar turned to November.

For retailers, the stores can offer lower rents and far less commitment. For the landlords, the reason is just as clear: A short-term tenant is better than no tenant at all.

The Brazilian Supreme Court has order President Michel Temer must respond within 24 hours to federal police questions about his alleged involvement in a sprawling political graft probe. Executives from the world’s biggest meatpacker JBS SA said in plea-bargain testimony to police that Temer condoned bribing a potential witness in the “Car Wash” corruption case and they paid the president nearly $5 million in bribes in recent years.

Goldman Sachs has confirmed it has bought $2.8 billion worth of bonds from Venezuela’s central bank. According to the Wall Street Journal, Goldman paid just $865 million for bonds valued at $2.8 billion – paying about 31 cents on the dollar for the bonds. Venezuela is experiencing the worst financial crisis in its history and has been rocked by months of violent demonstrations that have led to at least 55 deaths.

Inflation has soared past 400%, there are widespread shortages of essential supplies including food and medicines, a quarter of the country is unemployed. The bond sale will likely help finance the administration of the embattled president Nicolas Maduro.

The Federal Reserve said it had fined Deutsche Bank $41 million for failing to ensure its systems would detect money laundering regulations and it said the lender agreed to increase its controls. The New York Fed found that the German bank had faulty systems to detect suspicious transactions between 2011 and 2015

The Supreme Court today placed sharp limits on how much control patent holders have over how their products are used after they are sold. The case concerned Lexmark International, which makes toner cartridges for use in its printers. The court ruled that the company could not use patent law to stop companies from refilling and selling the cartridges.

Lexmark sold the cartridges on the condition that they not be reused after the ink ran out. Impression Products, a small company in West Virginia nonetheless bought Lexmark cartridges in the United States and abroad, refurbished and refilled them and sold them more cheaply than Lexmark does.

Lexmark sued for patent infringement. Chief Justice John Roberts wrote: “The purchaser and all subsequent owners are free to use or resell the product just like any other item of personal property, without fear of an infringement lawsuit.”

Financial Review

Fed Day

Sinclair Noe — February 1, 2017

Podcast: Play in new window | Download (Duration: 12:05 — 6.9MB)

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DOW + 26 = 19,890
SPX + 0.68 = 2279
NAS + 27 = 5642
RUT – 0 .60 = 1361
10 Y + .02 = 2.47%
OIL + .73 = 54.15
GOLD – .070 = 1210.60

Today is Fed Day. The FOMC released its statement today, there was no press conference, and was no change; interest rates unchanged, outlook unchanged. Policy makers reiterated their expectations for moderate economic growth, “some further strengthening” in the labor market and a return to 2 percent inflation.

Policy makers in December penciled three rate hikes into their 2017 forecasts and there was nothing in today’s statement that would indicate a change from that course. Wall Street tries to read between the lines, and the absence of a more hawkish tone was interpreted as dovish; the thinking is that if the Fed really wanted to hike rates 3 times this year, they would have given us a hint.

Of course, the Fed policymakers could still have plenty to say in their speeches over the next few weeks, but for now, the implied or maybe just imagined tone is dovish.

The VIX, the volatility index, is hovering near multi-year lows and intraday, there was a little flash crash that momentarily sent the VIX under 10, which is a level we haven’t seen for about 10 years. The dollar index briefly flirted with the 100 level but that didn’t last. The dollar was mildly higher at 99.6. the dollar suffered its worst January on 3 decades.

ADP reports private-sector hiring picked up in January, as employers added 246,000 jobs, well above expectations. This was the fastest pace of job growth since June. Manufacturing added 15,000 jobs in January, the most since December 2014. Economists use ADP data to get a feeling for the Labor Department employment report, which will be released Friday and covers government jobs in addition to the private sector. Jobs are the most important economic indicator there is.

If this is improving, then the economy is improving. If the economy improves, earnings have more visibility. That can grab investors off the sidelines that had been worried about valuations.

The Institute for Supply Management (ISM) said its index of manufacturing activity rose to 56.0 last month from December’s reading of 54.5. That was its highest level since November 2014. A reading above 50.0 indicates expansion in the manufacturing sector, below indicates contraction.

The ISM indicated that the survey suggested that the overall economy had grown for the 92nd consecutive month. The new orders index rose to 60.4 in January from 60.3 a month earlier. The employment index advanced to 56.1 last month from the prior 52.8 and compared to forecasts for an increase to 53.1. There was also a big pop in the prices index.

The U.S. Census Bureau reports construction spending in December 2016 was estimated at a seasonally adjusted annual rate of $1,181.5 billion, 0.2 percent below the revised November estimate. The December figure is 4.2 percent above the December 2015 estimate. The value of construction in 2016 was $1,162.4 billion, 4.5 percent above spending in 2015.

Facebook reported a blockbuster fourth quarter, with $8.81 billion in revenue and 1.86 billion monthly active users and 1.23 billion daily active users. The company managed to beat growth expectations across the board, despite concern that it’s running out of room to place ads in the News Feed.

Facebook made an average of $4.83 in revenue per user, globally, over the last quarter. In the US and Canada, where disposable income is high and Facebook is well-established, each user was worth $19.81. Part of the company’s success is its ability to make more and more money off its existing users. Ad revenue shot up 53% over the quarter.

It wasn’t all sunshine and daffodils: a Dallas jury has ordered Facebook to pay $500 million in damages for a lawsuit that claims its Oculus VR subsidiary was based on stolen tech. The money will go to game maker Zenimax, who filed the lawsuit against Oculus in 2014. Oculus wasn’t found guilty of stealing trade secrets from Zenimax, but the jury did find that Oculus co-founder Palmer Luckey violated a signed non-disclosure agreement.  Facebook says it will appeal.

Volkswagen will pay at least $1.26 billion to fix or buy back nearly 80,000 polluting 3.0-liter diesel-engine vehicles. And the automaker could be forced to pay up to $4.04 billion if regulators don’t approve fixes for all vehicles.

New York Attorney General Eric Schneiderman filed a lawsuit that accuses Charter Communications Inc’s Spectrum cable unit of short-changing customers on internet speeds.

Pipeline company Oneok Partners LP’s biggest shareholder Oneok Inc said it would buy the rest of the company for $9.3 billion.

The acquisition of Rite Aid by Walgreens is being opposed by a union representing about 6,000 Rite Aid workers. The union said the two drug store chains don’t go far enough to address antitrust concerns.

Roche’s profit got a kick from drugs. The Swiss pharma company reported 8% profit growth in 2016 over the year before, thanks to robust sales of its medicines and diagnostic tools. Roche is bracing for the financial impact of copycat versions of its two best-selling cancer drugs.

Anthem reported adjusted quarterly profit of $1.76 per share, beating estimates by 15 cents, while revenue also beat forecasts. Anthem said it ended 2016 with better-than-expected enrollment.

Tupperware reported adjusted quarterly profit of $1.45 per share, 8 cents above estimates, despite a revenue miss.

Marathon Petroleum reported quarterly profit of 43 cents per share, well above estimates of 26 cents, and revenue also beat forecasts by a wide margin. Marathon’s results were driven by strong performances in its refining and transportation units.

Electronic Arts earned an adjusted $2.58 per share for its latest quarter, beating estimates of $2.30. Revenue also beat forecasts, helped by strong sales of the video game maker’s “Battlefield 1.”

Amazon will invest about $1.5 billion in an air cargo hub in northern Kentucky, planning to employ 2,700 people and eventually house 40 Amazon Prime Air planes there.

Some 15.4 million consumers were victims of identity theft or fraud last year, according to a new report from Javelin Strategy & Research. That’s up 16 percent from 2015, and the highest figure recorded since the firm began tracking fraud instances in 2004. In all, thieves stole $16 billion, the report found — nearly $1 billion more than in 2015.

A law allowing Prime Minister Theresa May to trigger Britain’s exit from the European Union cleared its first legislative hurdle today, paving the way for the government to launch exit talks by the end of March. The UK parliament passed a law giving Prime Minister May the right to trigger Article 50 of the EU’s Lisbon Treaty – the legal process for leaving the bloc – after the Supreme Court ruled last week that she could not take that decision unilaterally. The vote authorizes Theresa May to begin the withdrawal process, which she has indicated she will do by the end of March, 2017.

Last night President Trump announced Neil Gorsuch as his nominee for the Supreme Court to replace the late Justice Antonin Scalia. Today, Trump encouraged Senate Majority Leader Mitch McConnell to use the “nuclear” option to help get Gorsuch confirmed to the Supreme Court if Senate Democrats decided to filibuster his nomination.

If Democrats filibustered the nomination, Gorsuch would need a super-majority of 60 votes to be confirmed in the Senate. Republicans currently control 52 seats. The nuclear option would rewrite Senate rules and only require a majority for confirmation.

President Trump’s national security adviser, Michael Flynn says the administration is putting Iran “on notice” after it tested a ballistic missile, although he did not elaborate on what that meant.

Rex Tillerson, the former chairman and CEO of ExxonMobil has been confirmed to become the nation’s 69^th Secretary of State.

The Acting Secretary of the Army has directed the Army Corps of Engineers to issue the final permit needed by Energy Transfer Partners to finish the Dakota Access oil pipeline.

One year ago, today, the World Health Organization declared the mosquito-borne virus known as Zika an international public health emergency. Zika is no longer classified as a crisis, but new infections are still present around the globe. The WHO said in a report, saying, “Overall, the global risk assessment has not changed,” and warning that vigilance worldwide must remain high.

Financial Review

Dominoes on Edge

Sinclair Noe — December 6, 2016

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

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DOW + 35 = 19,251
SPX + 7 = 2212
NAS + 24 = 5333
RUT + 14 = 1352
10 Y + .01 = 2.40%
OIL – .95 = 51.88
GOLD – .80 = 1170.20

Another record high for the Dow industrial average. This is starting to be old hat. Also, a record high for the Russell 2000 –  close but no cigar for the S&P. Still, it looks like the stock market, at least the US stock market loves the idea of Trumponomics, at least for now.

The rest of the financial world – not so much.

The bond market certainly has not been happy. Government bond prices have unraveled. The yield on the benchmark 10-year Treasury note for example, surged from 1.6% at the end of September to 2.40% today. And there is the inverse relationship to price and yield; as yield moves higher prices moves lower, or in this case prices have cratered.

So, is the stock market or the bond market smarter when it comes to predicting what’s next for broader financial markets and the economy? Will inflation sour the growth outlook, and which market will reflect that sooner? Perhaps the biggest threat to financial markets right now is a sense of complacency.

The U.S. trade deficit jumped almost 18% in October as imports rose to the highest level in 14 months. The nation’s trade gap climbed to a four-month high of $42.6 billion. October imports increased 1.3% to $229 billion, marking the highest level since August 2015. The U.S. imported more drugs, computer accessories, cell phones and other consumer goods.

Exports, meanwhile, slipped 1.8% to $186.4 billion in October. That’s the smallest amount in three months. The decline in exports was largely related to fewer shipments of farm products such as soybeans and corn as well as petroleum and other industrial supplies.

Bankers are running out of private sector solutions for Banca Monte dei Paschi and have told the Italian lender to prepare for a state bailout this weekend after Matteo Renzi suffered a referendum defeat. Renzi will remain in his job as Prime Minister for at least a week; snap elections have not yet been called.

While financial markets responded relatively calmly, sources told the Financial Times that the political upheaval made it “more difficult” to secure a €1-billion-euro investment from Qatar on which Monte de Paschi’s €5-billion-euro capital-raising plan hinges. Shares in the bank have lost more than 85% in value this year. Plans by leading Italian banks to raise billions of euros from investors to boost their financial strength have been damaged by the outcome of Sunday’s referendum, a leading ratings agency said on Tuesday as it downgraded its outlook for the sector.

Fitch – which said it had a negative outlook on the Italian banking industry for 2017 – said profitability in the sector was already frail before the referendum. So, why no bank run in Rome? Well, Eurozone rules come into effect: first the shareholders lose, then bondholders get bailed in and their bonds are exchanged for stock, and then depositors above the deposit insurance level of €100,000 are forcibly converted to equity. Only then can the government step in with bailouts.

No idea who would buy all the newly converted stock, and without buyers, you have a bank run of sorts. And if you have a bank run of sorts in Italy, the German banks (specifically Deutsche Bank) start looking very, very dangerous. So, the idea that Italian banks are having a hard time finding private recapitalization brings up visions of dominoes on edge.

Despite approving a set of “short-term” debt relief measures, talks between Eurozone ministers and the IMF broke down on Monday with little headway having been made in resolving splits over Greece’s €86-billion-euro bailout. And it looks like the International Monetary Fund has abandoned the bailout program, at least until the Eurozone gives Athens more debt relief or Greece legislates more spending cuts.  The Greek government, facing a population worn down by years of austerity, has warned creditors not to push it too far.

Reaching a deal to cut production is one thing; getting an actual reduction in global output is another. Crude production from OPEC members is likely to have risen to a record 34.16 million barrels a day in November, with African members leading the gains.

Federal and Los Angeles officials said they had been alerted by authorities in another country to a “specific” threat against the city’s Red Line commuter rail system, prompting them to beef up security and alert the public. Los Angeles Police Chief Charlie Beck told a news conference, “This threat is imminent, … it is very specific, but the credibility still needs to be vetted.”

Amazon wants to automate grocery shopping. Amazon is testing a grocery store in downtown Seattle that lets customers walk in, grab food from the shelves and walk out again, without ever having to stand in a checkout line. Customers tap their cellphones on a turnstile as they walk into the store, which logs them into the store’s network and connects to their Amazon account through an app.

The service is called Amazon Go. It uses machine learning, sensors and artificial intelligence to track items customers pick up. These are then added to the virtual cart on their app. If they pick up an item they later decide they don’t want, putting it back on the shelf removes it from their cart. Amazon envisions opening more than 2,000 brick-and-mortar grocery stores under its name, depending on the success of the new test locations. Target and Walmart plan to expand a service that lets shoppers order online and pickup curbside to 1,000 stores by the end of next year.

The Supreme Court ruled that Samsung’s violation of Apple’s smartphone design patents may involve only a component, rather than the entire product – a decision that means Samsung might not have to pay penalties reaching into the hundreds of millions of dollars. The justices reasoned that the patent infringement could affect just a component of the phones, such as their appearance, rather than all their capabilities.

The legal battle between the two tech giants represented the first design patent case to reach the high court in more than a century. A jury in 2012 had ruled that because Samsung infringed on three of Apple’s iPhone design patents, it must fork over the entire profits from the phones in question. Now the case will return to the U.S. Court of Appeals for the Federal Circuit to determine what portion of its profits Samsung must pay – a process several justices predicted will be difficult.

In a separate case, the Supreme Court sought to crack down on insider trading, ruling unanimously that tips passed between relatives and friends are illegal even if the corporate insider receives no financial benefit.

The decision marked the first time the high court had clarified what constitutes insider trading in nearly two decades, and it upended a legal standard set by a New York-based federal appeals court in 2014 that had made prosecutions more difficult. The decision was written by Justice Samuel Alito, saying: “Giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds.”

Wall Street has been watching the case carefully for a sign of where the justices stand on the issue. The earlier case, which the high court refused to hear, made it almost impossible to obtain convictions unless prosecutors presented evidence showing the tipster received a direct benefit. The high court called that decision “inconsistent” with its precedents.

Requiring that insiders get rewarded didn’t sit well with most of the justices during oral argument in October. In some instances, Justice Stephen Breyer said, “to help a close family member is like helping yourself.” Federal prosecutors have used a 1983 rule, like the one agreed upon by the justices, to convict both corporate insiders and the people they tip off. Maintaining such a rule, Justice Elena Kagan said last month, was important to maintain “the integrity of the markets.”

A group effort? YouTube, Facebook, Twitter and Microsoft are stepping up efforts to remove extremist content from their websites by creating a common database that will be up and running in early 2017. The web giants will share “hashes” – unique digital fingerprints they automatically assign to videos or photos – of terrorist material to enable their peers to identify the same content on their platforms.

5G and its multi-gigabit cellular speeds probably won’t hit the market until 2020, but AT&T has started testing the technology inside of one of Intel’s offices in Austin, TX. The company is particularly interested in how the new network will stand up to streaming 4K video, but will also test a wide variety of uses, including VPN, VoIP, “unified communications applications” and good old internet access.