Financial Review

Everybody’s Doing It

Sinclair Noe — November 7, 2017

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DOW + 8 = 23,557 (Record)
SPX – 0.49 = 2590
NAS – 18 = 6767
RUT – 18 = 1479
10 Y – .01 = 2.31%
OIL – .41 = 56.94
GOLD – 6.70 = 1275.80

Cryptocurrency

• Number of Currencies: 902
• Total Market Cap: $201,041,381,484
• 24H Volume: $5,222,370,086

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,279.0	$122.09B	$2.44B	46.66%	1	+2.49%	+14.15%
	Ethereum	ETH	293.21	$28.28B	$544.34M	10.42%	0.0404424	+0.49%	-3.10%
	Bitcoin Cash	BCH	623.42	$10.62B	$389.40M	7.46%	0.0865799	+3.13%	+41.45%
	Ripple	XRP	0.20416	$8.03B	$117.18M	2.24%	0.00002847	-0.75%	+3.87%
	Litecoin	LTC	60.290	$3.28B	$440.74M	8.44%	0.00835343	-0.76%	+9.78%
	Dash	DASH	284.79	$2.22B	$85.71M	1.64%	0.039539	-0.87%	+3.68%
	NEO	NEO	26.194	$1.71B	$33.20M	0.64%	0.00359807	-0.30%	-7.02%
	NEM	XEM	0.18085	$1.63B	$5.08M	0.10%	0.00002476	+1.03%	-2.87%
	Monero	XMR	98.23	$1.52B	$65.79M	1.26%	0.0135968	-0.16%	+13.54%
	Ethereum Classic	ETC	13.7054	$1.37B	$181.84M	3.48%	0.00192914	+1.22%	+33.03%

The Dow Industrial average floundered in negative territory for much of the trading day, and then managed to pull out a modest gain – enough for another record high close. Go figure.

Tax reform is the number one thing on everybody’s minds right now. The Senate has indicated they’re going to announce their own bill Thursday, and that bill is extensively based off the House bill, but there’s likely to be some important differences.

The number of job openings in the U.S. rose slightly in September to 6.09 million, keeping them near a record high. Job openings have topped 6 million for four months in a row for the first time ever. The Labor Department’s JOLT survey, or Job Openings and Labor Turnover, shows 5.27 million people were hired in September, down from 5.42 million. And 5.24 million people lost their jobs, also down from the prior month.

The so-called quits rate among private-sector employees was unchanged at 2.4%. The quit rate edged up to 2.2% from 2.1% if government workers are included. The higher quit rate indicates more people are confident about landing a new job and therefore willing to quit their old job.

Total consumer credit increased $20.8 billion in September to a record seasonally adjusted $3.79 trillion, posting an annual growth rate of 6.6%. This is up from a $13.1 billion gain in August.  All categories of borrowing showed strength in September.

Nonrevolving credit, which covers loans for education and cars, rose at an annual rate of 6.3% in September, up from 3.3% rate in August. Revolving credit, which is mostly made up of credit-card loans, increased at an annual rate of 7.7% in September.

Self-driving cars have graced public roads for almost a decade—but always with a person behind the wheel. Waymo, the autonomous car unit from Google parent Alphabet, will soon start chauffeuring people in minivans without “safety drivers,” a milestone for the internet giant’s bid to lead the crowded pack trying to commercialize driverless technology. And they have picked Phoenix as their test market.

We don’t yet know the specific date for the beginning of the pilot program, but a Waymo service will arrive soon, allowing people/volunteers/guinea pigs to hail the cars with a mobile app, like services like Uber and Lyft. Waymo has partnered with Lyft but hasn’t shared details on that deal. Waymo’s driver-less cars will roll out in selected areas of Chandler, Arizona and then expand throughout the metro Phoenix area.

Third quarter earnings have been coming in better than expected, but a miss can result in sharp punishment. Today’s example – Snap. The company, which runs the Snapchat mobile-messaging app, said third-quarter revenue was $207 million, falling short of the $235 million analysts predicted, as the price per ad declined 60 percent. Daily users averaged 178 million, missing estimates. Shares dropped 22% in after-hours trade.

Twitter says users can now send tweets with as many as 280 characters, double the current limit, the latest attempt by the social media company to revive anemic user growth. The company started testing the longer tweet limit with a small group of users in September. Twitter found that people with the expanded character limit spent less time editing their tweets. Those people also got more followers, spent more time on the platform and interacted more with other users on the service.

Some Twitterati think brevity is the soul of the service and worry the longer form will ruin what’s special about it. However, many of Twitter’s 330 million monthly active users were already getting around the limit by linking to longer pieces, taking screenshots of full stories, and sending streams of tweets … called tweetstorms to complete thoughts.

All major Persian Gulf stock markets slid today and oil prices are adding a risk premium on jitters about Saudi Arabia’s sweeping anti-graft purge. Authorities detained dozens of top Saudis including billionaire Prince Alwaleed bin Talal in a move widely seen as an attempt by Crown Prince Mohammed bin Salman to suppress political opposition.

Trump endorsed the crackdown, saying some of those arrested have been “milking” Saudi Arabia for years. Saudi banks have frozen more than 1,200 accounts belonging to individuals and companies in the kingdom and the number keeps rising.

Investors worry that his campaign against corruption – involving the arrests of the kingdom’s most internationally known businessmen – could see the ownership of businesses and assets become vulnerable to unpredictable policy shifts.

Authorities sought to reassure the business community, with the Saudi central bank saying it was freezing suspects’ personal bank accounts at the request of the attorney general but not suspending operations of their companies.

In Washington, the U.S. State Department said it was not informed in advance of the Saudi crackdown, but it had been reassured by Riyadh that any prosecutions of suspects would be undertaken in a fair and transparent manner.

The show of investor nerves coincided with sharply heightened strains between Riyadh and Tehran, as Prince Mohammed denounced Iran over its role in Yemen. Iran has denied it was behind a recent Yemen-based missile launch that targeted Riyadh. The Saudi military intercepted the missile.

A new set of data taken from an offshore law firm again threatens to expose the hidden wealth of individuals and show how corporations, hedge funds and others may have skirted taxes. A year after the Panama Papers, the International Consortium of Investigative Journalists has published the Paradise Papers, a massive collection of confidential information on offshore accounts.

The Paradise Papers documents include nearly 7 million loan agreements, financial statements, emails, trust deeds and other paperwork over nearly 50 years from inside Appleby, a prestigious offshore law firm with offices in Bermuda and beyond.

The Paradise Papers reveal offshore interests and activities of more than 120 politicians and world leaders, plus information on more than 100 multinational corporations. Here are some of the findings:
Jim Simons, the billionaire founder of hedge fund Renaissance Technologies, has amassed more than $7.5 billion in a previously undisclosed, four-decade-old fund set up in Bermuda.

Warren Stephens, an Arkansas banker and Republican donor, used a Bermuda-based family trust to reduce his tax bill and conceal his interest in a payday lender under U.S. scrutiny.

More than a dozen members of President Donald Trump’s inner circle, including Secretary of State Rex Tillerson and top economic adviser Gary Cohn, held undisclosed offshore companies.

Robert Mercer, a Republican donor who just said he would step down as Renaissance Technology’s co-CEO, was revealed to be a director of more than eight of RenTech’s offshore subsidiaries, who used other offshore firms to shelter money his family funneled to political causes.

The Blackstone Group, co-founded by Trump economic adviser Stephen Schwarzman, used trusts and companies registered in tax havens to avoid paying taxes on two U.K. commercial properties.

Irish officials closed a tax loophole that had allowed Apple to avoid billions of dollars in taxes, Apple then enlisted international law firms to help it find a new tax home and settled in the English Channel island of Jersey. The documents helped solve a two-year mystery of where the world’s biggest company by market capitalization is booking a big share of its revenue.

Bank of Utah manages more than 1,390 aircraft trust accounts that obscure the identities of the jets’ (largely foreign) owners. Among the wealthy foreigners said to use the bank’s services: Russian oligarch Leonid Mikhelson, an ally of Russian leader Vladimir Putin whose gas company is under U.S. sanctions.

Commerce Secretary Wilbur Ross faces questions about his financial disclosures to Congress and the government after a report that he didn’t disclose business ties to the son-in-law of Russian President Vladimir Putin and an oligarch under U.S. sanctions. The Appleby documents included details of Ross’s stake in a shipping company, Navigator Holdings.

Commodities trader Glencore was one of the top clients of Appleby, which even had a “Glencore Room” at its Bermuda office that kept information on the trader’s 107 offshore companies.

Silicon Valley investor Yuri Milner, who was an early backer of Facebook Inc., partnered in two investments with the Russian state-controlled bank VTB Bank before it was sanctioned.

Queen Elizabeth II of the U.K. made a series of investments in a Cayman Islands fund through the British Royal Family’s private estate, the Duchy of Lancaster.

Everybody’s doing it.

Financial Review

Suicide is Painless

Sinclair Noe — March 6, 2017

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

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DOW – 51 = 20,954
SPX – 7 = 2375
NAS – 21 = 5849
RUT – 9 = 1384
10 Y flat = 2.49%
OIL – .12 = 53.21
GOLD – 8.80 = 1226.50

On this date in 2009, the S&P 500 hit an intraday low of 666; the closing low was 3 days later but the intraday low was 8 years ago.

On Friday, Fed chair Janet Yellen signaled that an interest rate hike would likely come when Fed leaders meet next week. A March rate hike is now being priced into the markets. About the only thing that could change the Fed’s plan is weak economic data, giving extra significance to Friday’s jobs report.

In January, according to DOL’s Bureau of Labor Statistics, the economy added 227,000 jobs; unemployment was at 4.8 percent; and hourly earnings rose 0.1%. The US probably created a healthy 200,000 new jobs last month, keeping the unemployment rate below 5%.

North Korea fired four ballistic missiles early today. Three landed within a couple hundred miles of Japan, in what Japan considers an exclusive economic zone. The United States has about 28,500 troops and equipment stationed in the South, and plans to roll out the Terminal High Altitude Area Defense anti-missile defense system by the end of the year. And the ongoing provocative actions by North Korea insinuate that somehow that country is skirting sanctions.

The United Nations Security council recently issued a report claiming Malaysian companies are acting as a front in an arms sales operation, and requesting suspect companies’ assets be frozen. Malaysia has denied the claims but otherwise not responded to the UN claims.

China recently announced it would stop all imports of coal from North Korea but the UN report raises concerns about front companies operating in China continuing to do business with North Korea. As early as December 2016, China had blown past a UN-imposed ceiling of 1 million metric tons on coal imports, purchasing twice that amount.

China then shrugged off a requirement to report its North Korean coal imports to the UN Security Council sanctions committee. North Korean banks and firms, meanwhile, have maintained access to international financial markets through a vast network of Chinese-based front companies, enabling Pyongyang to evade sanctions.

President Trump signed a revised executive order today banning citizens from six Muslim-majority nations from traveling to the United States but removing Iraq from the list, after his first attempt was blocked in the courts.

The new order keeps a 90-day ban on travel to the United States by citizens of Iran, Libya, Syria, Somalia, Sudan and Yemen. Iraq was taken off the banned list because the Iraqi government has imposed new vetting procedures, such as heightened visa screening and data sharing, and because of its work with the United States in countering ISIS militants.

Secretary of State Rex Tillerson told reporters after Trump signed the new order that, “It is the president’s solemn duty to protect the American people.” The new order spells out detailed categories of people eligible to enter the United States, such as for business or medical travel, or people with family connections or who support the United States. Trump’s original ban resulted in more than two dozen lawsuits in US courts.

Today’s revised order is likely to face legal challenges as well.

Demand for travel to the United States over the coming months has flattened out following a positive start to the year, with uncertainty over a possible new travel order likely deterring visitors, per ForwardKeys, a travel analysis company which analyses 16 million flight reservations a day from major global reservation systems.

Overall, bookings for travel to the United States over the next three months are 0.4 percent down on last year, whereas they had been 3.4 percent ahead the day before the travel restrictions were imposed. Per travel search site Kayak, searches from Europe for flights to the U.S. are down by 12 percent since the elections.

However, Germans, some of the world’s biggest spenders on travel, have not been deterred, with searches up 10 percent in that period.

General Motors has agreed to sell its European division to Peugeot. The deal will total $2.3 billion and consist of GM’s sales of its unit containing Opel and Vauxhall for $1.3 billion and its European GM Financial arm for $1 billion. GM will take a $4 billion charge on the sale. The Opel deal continues a business theme for GM. Earlier, the company had pulled out of Russia and discontinued its Chevrolet brand in Europe. It had also ended auto manufacturing in Australia.

Deutsche Bank is raising cash. Shares of the German investment bank are down by more than 6% after the company announced it would tap the markets for $8.5 billion to help improve its financial health after two years of heavy losses. Germany’s biggest bank announced plans for the huge share sale on Sunday along with another overhaul of its strategy.

CEO John Cryan said in a release: “The new three-pillar structure of our operating business should position us for significant growth, both in revenues and earnings.” This marks the fourth time Deutsche has raised capital since 2010. The four add up to a total of about $32 billion, more than the bank’s current market value.

Standard Life and Aberdeen Asset Management are merging. The deal to combine the two investment firms values the combined entity at about $13.4 billion. The merger will create the largest asset manager in Britain.

Wells Fargo execs may face criminal charges, (don’t hold your breath); but Reuters reports the US Department of Justice is investigating whether Wells Fargo executives hid details of the company’s recent scandal from the company’s board and regulators.

Wells Fargo disclosed in a $190 million settlement with regulators in September that staff opened as many as 2.1 million checking, savings and credit card accounts without customer consent over several years to satisfy management’s sales quotas.

Officials are seeking to find out if executives shared everything they knew about the phony accounts to the Wells Fargo board of directors and the Office of the Comptroller of the Currency, the lead regulator for national banks.

Greece’s economy suffers a setback. Greece’s economy shrank by 1.2% in the fourth quarter of 2016, per the latest data from the country’s statistical service Elstat. That was worse than the previous estimate of a 0.4% contraction.

Alphabet, Google’s parent company, is suing Uber for theft of trade secrets, alleging that one of the top engineers in its self-driving car program decamped with thousands of confidential files, including designs that helped him start self-driving truck company Otto and then quickly sell it to Uber. Uber denies those claims.

Hope you enjoyed yourself with that Snapchat IPO, because the fun’s just about over, at least for now, according to a weekend feature on Barron’s .  You can start by trying to justify this crazy number: A market cap that surged at one point to $37.8 billion means 93 times its 2016 revenue of $405 million, with no profits expected until at least 2019. Several analysts initiated coverage of Snap as a “sell.” And many shareholders apparently felt it was a good time to pocket profits, as shares slid 7% today.

TG Therapeutics said a late-stage study testing a combination of its experimental cancer drug, in combination with an existing drug from AbbVie proved superior in high-risk patients with a common form of leukemia. The trial involved adult patients with high-risk chronic lymphocytic leukemia, who had undergone at least one prior therapy. TG Therapeutics more than double in share price intraday.

A strain of bird flu has been detected in a chicken breeder flock on a Tennessee farm contracted to Tyson Foods. Tyson, the biggest chicken meat producer in the United States, said in a statement it was working with state and federal officials to contain the virus by euthanizing 73,500 birds on the contract farm. In 2014 and 2015, during a widespread outbreak of bird flu, the United States killed nearly 50 million birds, mostly egg-laying hens.

The Arizona state Supreme Court is scheduled to hold a hearing Thursday on a challenge to a minimum wage increase. Last year, voters passed a measure to raise the state’s hourly minimum to $12 by 2020, up from $8.05. Under the measure, the minimum increased to $10 in January. In a court order issued last month, Chief Justice Scott Bales said “the court will limit arguments to whether [the measure] violated a state constitutional provision that requires ballot measures to identify a funding source.”

Even though the state is exempted from the measure, the Arizona Chamber of Commerce and other business interests argue it will be impacted because of increased wages for private sector employees under state contracts. Any relief from the court would appear to be limited to state contractors and not private employers, unless the court agrees with the business groups’ arguments that the entire measure is unconstitutional.

The chamber and other business interests went to court after Prop. 206 passed with support from 58 percent of voters. The measure gradually raises the state’s minimum wage to $12 an hour by 2020 and requires employers to provide paid sick leave. The first step — an increase to $10 per hour — took effect Jan. 1. The sick-leave provision is scheduled to begin July 1.

Just 6% of U.S. adults who expect to receive a tax refund this year plan to splurge on something such as a vacation or shopping spree. According to a new Bankrate.com report, the most popular uses for the money are much more practical: save or invest it (34%), spend it on necessities such as food or utility bills (29%) and pay down debt (27%). Approximately 47% of all taxpayers anticipate a refund this year. Millennials are the most likely to receive refunds, the most likely to save/invest them and the most likely to have filed early.

Financial Review

When Others Are Greedy

Sinclair Noe — February 16, 2017

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

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DOW + 7 = 20,619
SPX – 2 = 2347
NAS – 4 = 5814
RUT – 5 = 1399
10 Y – .05 = 2.45%
OIL + .19 = 53.79
GOLD + 5.40 = 1239.60

Asian markets moved higher this morning but European exchanges were slightly lower. World stocks hit an all-time high this morning, as the MSCI’s All Country World index, which spans 46 countries, notched a record. The Dow Jones industrial average, S&P 500 and Nasdaq have all closed at record highs for five consecutive days, something investors haven’t seen since 1992. And today the Dow, pulled out another record high close but couldn’t drag the other indices higher.

Yesterday, Fed Chair Janet Yellen was delivering her Humphrey-Hawkins testimony before the House Finance Committee and she answered a question about the market’s melt-up. She said: “I think market participants likely are anticipating shifts in fiscal policy that will stimulate growth and perhaps raise earnings.”

Federal Reserve Vice Chairman Stanley Fischer confirmed Fed chief Janet Yellen’s message to the markets this week that the central bank sees signs of strengthening in the economy and “is a little more confident about where we’re going and how soon we’ll get to full employment with stable prices.”

Yellen delivered 2 days of testimony before Congress this week and made the case for continued interest rate hikes this year. Stronger than expected inflation data combined with comments from Fed Chair Janet Yellen to Congress helped push the Fed funds futures market-implied chance of a rate hike in March to 44%, up from 34% the day before.

The odds, per overnight index swaps pricing, have jumped to 52% for March. The dollar hasn’t had a very good week despite the prospect of tighter US policy.

Promises of massive and phenomenal tax reforms have certainly been a driving force in the recent rally; the reality is that we don’t yet know the details, and so the cart seems a bit ahead of the horse. According to a new Bank of America Merrill Lynch Global Fund Manager Survey just 23 percent of respondents, for instance, expect tax cuts to happen before Congress takes its August recess, and 30 percent believe they won’t get enacted until 2018.

Another gauge of emotion, the Investors Intelligence Advisors Sentiment survey, shows bullishness on the stock market at 62.7 percent, the highest reading in more than 12 years. Bearish sentiment, or a belief that the market is heading lower, dropped to 16.2 percent, the lowest since August 2015. Of course, this is a contrarian indicator. You don’t want to buy when everyone is bullish. Or as Warren Buffett famously said, “be greedy when others are fearful and be fearful when others are greedy.”

Normally, the Fed taking a hawkish stance would wipe out giddy optimism but it hasn’t slowed this market hopped up on Trumponomics. What is especially peculiar, is that Trump is calling the economy a disaster.

At a press conference today, to announce his new nominee for Labor Secretary (Alexander Acosta, a former Justice Department official and current dean of Florida International University) Trump claimed: “It’s a mess. At home and abroad. A mess. Jobs are pouring out of the country. You see what’s going on with all the companies leaving our country. Going to Mexico and other places. Low pay, low wages… I inherited a mess.”

When it comes to the U.S economy, though, that “mess” isn’t borne out by most measures. The stock market is at all-time highs. Though growth in the gross domestic product is slow by historical standards, the economy is in the tenth year of one of the longest sustained expansions in history.

And the U.S. job market, which is creating jobs faster than employers can fill them, appears to be stronger than it’s been in nearly a decade; 227,000 new jobs last month and the unemployment rate at 4.8%, which is close to full employment.

The Philadelphia Fed said its manufacturing index soared in February to a reading of 43.3 from 23.6 in January. That’s the highest level since early 1984. Manufacturing activity in the Philadelphia region has been improving since the middle of last year. The new orders index rose 12 points to 39, and the shipments index rose 8.1 points to 28.6.

Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 239,000 for the week ended Feb. 11. Claims have been below 300,000, a threshold associated with a strong labor market, for 102 consecutive weeks.

Construction on new houses fell 2.6% in January, but another increase in permits points to builders breaking ground on more units in the months ahead. Housing starts took place at an annual rate of 1.25 million last month. The decline in new construction last month was centered entirely on the category of multi-dwelling units that are usually rented.

Construction on apartment, condos and buildings with five or more units shrank nearly 8%. Yet work on new single-family homes rose almost 2%. Permits to build new homes, climbed 4.6% in January to a 1.29 million pace, and are up 8.2% in the past year.

On Monday, February 20, all US banks and financial markets will be closed in observance of the Presidents Day, perhaps giving investors a chance to catch their collective breath and contemplate the madness of the markets this year.

Cisco sees softness in its core business. The company beat on the top and bottom lines but said revenue from its key “NGN Routing, Switching and Data Center product revenue decreased by 10%, 5% and 4%, respectively.” Shares fell by more than 1% in after-hours trade.

Waste Management said revenue for the latest quarter climbed, driven by increased volumes and yield in the company’s collection and disposal business, though earnings on a per-share basis missed Wall Street expectations. Waste Management confirmed guidance for the current fiscal year.

Snapchat has reportedly set the value of its IPO. The company has set a valuation of $16.2 billion to $18.5 billion for its initial public offering, below the lower end of its range.

America’s largest banks are to propose a complete overhaul of how financial institutions investigate and report potential criminal activity, arguing that rules imposed in the years after the Sept. 11, 2001 attacks are onerous and ineffective. To keep drug traffickers and terrorists from laundering money through the US financial system, federal law mandates that bank employees file a Suspicious Activity Report (SAR) with authorities if they suspect transactions could be part of a crime.

Oil prices are moving higher after OPEC sources said the group could extend its oil supply-reduction pact with non-members and might even apply deeper cuts if global crude inventories failed to drop to a targeted level. OPEC and other exporters agreed last year to cut output by 1.8 million barrels per day to reduce a price-sapping glut. The deal took effect on Jan. 1 and lasts six months. Most producers appear to be sticking to the deal so far but it is unclear how much impact the supply reductions are having on world oil inventories that are close to record highs.

US oil producers sent a record 7 million barrels of crude out into the world market last week. The 1 million barrels a day is nearly double the week-earlier level. The Energy Information Administration’s weekly inventory data also showed that US oil stockpiles swelled to a record 518.2 million barrels last week, and gasoline inventories also hit a record 259.1 million barrels, gaining 2.8 million barrels.

At 2.25 gigawatts, Arizona’s Navajo Generating Station is the biggest coal-burning power plant in the Western US. The plant, and the nearby Kayenta coal mine that feeds it, are located on the Navajo Indian Reservation, and the Navajo and Hopi peoples have had a conflicted relationship with coal since the plant opened in the 1970s. Almost all the 900-plus jobs at the mine and plant are held by Native Americans, and the tribes receive royalties to account for large portions of their budget.

Negotiations were underway to improve the tribes’ lease terms, which expire in 2019. But on Monday, the four utilities that own most of the plant voted to close it at the end of 2019. They decided that the plant’s coal-powered electricity just can’t compete with plants burning natural gas.

Lease negotiations included consideration of a plan to close one of the plant’s three turbines and replace the generation with renewable energy. But the economically vulnerable tribes will be hard-pressed to immediately replace the critical jobs and revenue associated with coal should the plant close three years from now. The flip-side, of course, is that closing the plant (as well as the mine) would eliminate a significant amount of pollution and water use.

Staff at the Environmental Protection Agency have been told that President Trump is preparing a handful of executive orders to reshape the agency, to be signed once a new administrator is confirmed.

Financial Review

Pause

Sinclair Noe — November 16, 2016

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

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DOW – 54 = 18,868
SPX – 3 = 2176
NAS + 18 = 5294
10 Y – .40 = 45.41
OIL – .02 = 2.22%
GOLD – 3.40 = 1225.00

The Dow Jones Industrial Average had posted record closes for four straight sessions, before hitting the pause button today. Still, the Dow is up about 8.25 percent year to date, outperforming the S&P 500 and the Nasdaq composite, which were up 6.6 percent and 5.8 percent for the year, respectively.

The last two times the Dow outperformed the S&P and Nasdaq in a year when all three were higher year to date were in 2006 and 1996. If the Dow can break 19,000 it would likely just keep running higher. Based on market data from the past 30 years, when the Dow has crossed levels like 2,000, 3,000, 4,000 – all the way to 18,000, we can expect traders to push it up even higher.

The trend is true not just for a quick one-week return, but also one-month and one-quarter returns. If nothing else, a move through a thousand-point level attracts attention, encouraging more people to jump on board. Of course, we’re not there yet, and it is a probability, not a guarantee.

The producer price index was unchanged in October. The PPI measures inflation at the wholesale level. Higher costs of natural gas and gasoline were offset last month by declines in prices of food as well as services such as financial advice and hospital outpatient care. Still, some modest inflationary pressure is building.

Wholesale costs have risen 0.8% in the past 12 months. That’s the strongest one-year change since the end of 2014. A separate measure that strips out the volatile food, energy and trade margin categories is rising at an even faster rate. So-called core producer prices have climbed 1.6% in the past 12 months, the fastest pace in two years.

Industrial production was unchanged in October after a big drop in output as warmer-than-normal temperatures reduced the demand for heating; utility output dropped 2.6%. Manufacturing output edged up 0.2%, while mining output jumped 2.1% higher, its best performance since March 2014.

The National Association of Home Builders’ index was steady was unchanged at 63 in November. Any reading over 50 indicates improvement.

A measure of mortgage application activity fell to a 10-month low as 30-year mortgage rates jumped to their highest levels since January. Borrowing costs to buy a home and to refinance posted their steepest weekly increase since June 2013. Interest rates on 30-year fixed-rate mortgages with conforming loan balances of $417,000 or less averaged 3.95 percent, which was up from 3.77 percent the previous week and the highest since January

Federal Reserve Bank of St. Louis President James Bullard said there’s a chance the US economy could get a medium-term boost if President-elect Donald Trump increases infrastructure spending and reforms taxes. Bullard said a “single policy-rate increase, possibly in December, may be sufficient to move monetary policy to a neutral setting.” Prices of federal funds futures contracts indicate investors see a more-than 90 percent probability the U.S. central bank will hike when officials meet Dec. 13-14.

Not everybody expects a Trump boost for the economy; Bill Gross, manager of the Janus Global Unconstrained Bond Fund, writes: “There is no new Trump bull market in the offing. Investors must drive with caution, understanding that higher deficits resulting from lower taxes raise interest rates and inflation, which in turn have the potential to produce lower earnings.” Gross writes many of the policies Trump favors represent the status quo – and a Clinton administration would have been no better. “Neither party as they now stand has bold policies beyond the reach of K Street lobbyists.”

So far, the Trump transition team does not seem particularly concerned about a transition team staffed heavily with lobbyists from energy, agriculture, transportation, and banking. Meanwhile, Senate Republicans voted to keep Mitch McConnell of Kentucky as the majority leader. Democratic senators elected Chuck Schumer of New York as minority leader.

Now, it is important to remember that Bill Gross is a bond guy; and while stocks have enjoyed record highs since the election, bond prices have tanked. The bond market largely believes Trump’s policies can lead to economic growth at the expense of deficit spending and inflation. And with bond prices dropping, volatility in the bond market has surged. Fixed income markets and equity markets are following completely different narratives after the election.

So, the question is which one is right. And the answer might be that they are both wrong. Stocks are probably overbought and bonds are probably oversold, and that can continue to play out in the near term. The most like course is a reversion to the mean. But absent equilibrium, Gross makes a good point about inflation and higher rates eventually dragging stocks lower.

But the market has not yet determined a clear direction. On Monday, something very rare happened: more than 300 issues on the New York Stock Exchange advanced to new 52-week highs, and more than the same number of issues fell to new lows. It happened for the first time ever.

The number of stocks setting new 52-week highs should normally outnumber those setting new lows (and vice versa,) reflecting some uniformity and clarity of direction. However, a wide dispersion between new highs and lows is not seen as a good market indicator. The high number of stocks making new highs and lows at the same time show that this is a confused market.

Snapchat, the messaging service, has filed to go public in one of the most eagerly anticipated market debuts of 2017. Snapchat is aiming for a valuation of more than $30 billion, which would make it the third-most-valuable technology company at the time of listing, after Alibaba and Facebook.

Snap, the parent company, aims to have shares trading as soon as March. Its last round of financing came in May to the tune of $1.8 billion, which valued the company at around $17.8 billion. Snapchat accounts for 32 percent of social network users in the United States, it’s only getting 2.3 percent of social network ad dollars.

No one questions Snapchat’s ability to engage its users. But turning that engagement into money is another story.

Amazon for the first time has filed lawsuits against counterfeit sellers, after several businesses voiced concern that knockoffs were killing their sales and endangering consumers. Amazon has increasingly relied on third-party sellers to fuel its growth, but opening its website brought with it a greater chance for fake goods to enter its warehouses.

Twitter has launched a counteroffensive against trolls who have been on the attack for too long. The company is expanding its “mute” function, allowing users to block specific content – like words, phrases or conversations – from appearing in their notifications section. The damage to Twitter’s reputation caused by abuse and harassment was reportedly one of the factors that swayed Salesforce against buying the platform earlier this year.

Seeking to ease concerns over its largest ever deal, Microsoft has offered concessions to EU antitrust regulators over its $26 billion bid for LinkedIn. The European Commission, which will rule on the deal by Dec. 6, did not provide details. It’s expected to seek feedback from rivals and customers before deciding whether to accept the concessions, demand more, or open a full investigation.

EU antitrust regulators are set to fine HSBC, JPMorgan and Credit Agricole by the end of the year for rigging financial benchmarks linked to the euro. Charges were levied in May 2014 against the three banks, which denied wrongdoing. Deutsche Bank, RBS and Societe Generale admitted guilt in December 2013, while Barclays avoided a fine because it alerted the European Commission.

Despite years of delays, the SEC has finally approved a plan to introduce a vast surveillance system to oversee trading on the US stock market, in response to the 2010 “Flash Crash.” The creation of a Consolidated Audit Trail will establish a regulatory central database and monitor every trade order, execution, modification and cancellation in real-time.

Boeing will cut 500 jobs over four years and shut two plants as it revamps its defense and space unit. The company also said it would create a new global operations group that would include its defense units in Australia, Saudi Arabia, and UK. Boeing’s defense, space and security business accounted for 31.4% of the plane maker’s total revenue of $23.9 billion in the latest quarter.

During his campaign Donald Trump singled out Ford by name, calling on the American car manufacturer to stop sending jobs to Mexico and threatening to slap tariffs on any cars imported from south of the border. Ford CEO Mark Fields says Ford still intends to move small car production to Mexico, but he hopes to work openly with the new president and Congress.

The Fiesta Bowl has a new sponsor for this year’s game, and not a moment too soon. Six weeks before the Fiesta serves as one of 2016’s two College Football Playoff semifinals, the game is now the PlayStation Fiesta Bowl.

Financial Review

Waiting for the Storm

Sinclair Noe — October 6, 2016

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

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DOW – 12 = 18,268
SPX + 1 = 2160
NAS – 9 = 5306
10 Y + .03 = 1.74%
OIL + .73 = 50.56
GOLD – 11.30 = 1256.20

The number of people who applied for unemployment benefits fell by 5,000 to 249,000 at the end of September. This marks 83 consecutive weeks of initial claims below 300,000, the longest streak since 1970. Tomorrow the Labor Department reports on how many people found jobs in September; the consensus estimate is calling for about 170,000 new jobs in the last month.

With unemployment near the lowest level since before the last recession, employers are having to offer more incentives to attract skilled workers to blue-collar truck driving and construction jobs.

Tomorrow’s jobs report could provide clues to the timing of the Fed’s next interest rate rise. If the tight jobs market means average hourly earnings rose more than the projected 0.3 percent, the chances of a hike this year could easily increase beyond the current market-implied 61 percent.

Traders are taking the Fed’s November meeting off the table for two reasons: its closeness to the elections could have aggravated political and market consequences, and the Fed may want to avoid raising rates at meetings without scheduled press conferences. There will be two more jobs reports before the Fed’s December meeting. And so, reading the Fed tea leaves based on this report may be premature, unless we get a very dramatic number tomorrow.

Now, when we see the report that weekly claims for jobless benefits are at the lowest levels in 46 years, you might think that is a sure sign that the labor market is very strong. Not necessarily. The labor market is certainly much stronger than it was 5 or 6 years ago, but one reason why claims for unemployment benefits are so low is because fewer people are eligible to make claims, with just over one in four jobless workers (27 percent) receiving unemployment insurance benefits in 2015. Just since 2011, the proportion of jobless workers receiving unemployment insurance plunged from 67% to a measly 27%. From two-thirds to just one in four.

Global outplacement consultancy Challenger, Gray & Christmas reports employers announced plans to cut 44,324 jobs last month; that’s a 38% increase from August, but 25% less than September a year ago.

A fresh report from the Freelancers Union now shows that nearly 55 million Americans are freelancing. If you tally this up against the Labor Department data, it means that 35% of the work force is made up of freelancers. The view is that the number of freelancers is growing and that the freelance economy has added 2 million workers since 2014. The report also shows that these independent workers are “emerging as a powerful economic and political force” and that freelancers contributed $1 trillion dollars to the economy this year.

Consumer loan delinquencies fell to the lowest on record in the second quarter of the year. The American Bankers Association’s index, which tracks late payments in eight categories, fell 3 basis points to 1.35, a record low. Delinquency rates held below the 15-year average of 2.21% for the third year.

Hurricane Matthew, the fiercest Caribbean storm in nearly a decade, slammed into the Bahamas this morning. Haiti now reports more than 100 dead. Now, it is gathering strength and is expected to slam into Florida in the next 4 to 6 hours as a Category 4 hurricane with sustained winds of about 140 miles per hour and a storm surge up to 11 feet. It might even grow into a Category 5.

The National Hurricane Center extended its hurricane warning area farther north into Georgia and more than 12 million US residents are under hurricane watches and warnings. More than 1.5 million Floridians have been told to evacuate.   Efforts to prepare for the deadly storm have resulted in massive gas lines and empty store shelves as residents either get out of town or bulk up on supplies to ride out the storm.

Airlines have cancelled flights from Florida to the Carolinas. Airlines have cancelled more than 3,000 flights. Expect delays everywhere. Twelve U.S. power generators, including two nuclear plants, are in the storm’s path. The risk to Florida’s orange crop is “minimal” because the worst weather will be along the coast.

Evacuations could push storm damage to $10 billion to $15 billion in losses related to economic disruption, and total losses could top out around $50 billion. Shares of publicly-traded property and causality companies are taking it on the chin as Hurricane Matthew bears down on the Florida, Georgia, and South Carolina coasts.

Shares in Twitter fell hard this morning after technology news site Recode reported that Google doesn’t currently plan to make a bid for the company. Recode also said Disney and Apple are unlikely to bid. That leaves Salesforce.com as a possible suitor, although some analysts say an acquisition could hurt Salesforce more than it helps.

Snapchat has begun preparing filings for an initial public offering and is aiming to sell shares in the first quarter of next year. The Wall Street Journal estimates the social media site known for its disappearing texts and photos could fetch a market value of at least $25 billion.

Looking to gain an even more dominant position in retail, Wal-Mart is accelerating its investment in e-commerce. The company is on track to double the number of warehouses dedicated to online sales by the end of 2016 and has installed technology that for the first time puts them on par with Amazon’s robot-staffed facilities.

Wal-Mart tempered its profit forecast for the next two fiscal years due to investments in its online business. Wal-Mart said it expected flat earnings for the year ending on Jan. 31, 2018, with capital expenditures of about $11 billion. It had previously forecast profit growth. New store growth will slow significantly. The retailer expects to build 35 new supercenters in fiscal 2018, down from 69 last year. Even growth of the company’s smaller format Neighborhood Markets will slow, down to 20 new stores in fiscal 2018 from 161 built last year.

Mylan overcharged the government for the EpiPen. The drug company classified the EpiPen allergy treatment as a generic, allowing it to have inflation protections with Medicaid that are not available to branded drugs. Makers of brand-name drugs have to pay higher rebates to states than generics — 23.1% versus 13%. Also, they have to pay additional rebates if their price increases rise more than inflation. So by having EpiPen classified as a generic Mylan saved itself a bunch of money.

Back in 2009, Mylan paid a $124 million fine for misclassifying its drugs and under-paying rebates this way. It is the responsibility of the manufacturer to maintain accurate information of its drug’s status. From 2011 to 2015, government spending on EpiPen increased 463%, from $86 million to $487 million. As of now, the Centers for Medicare & Medicaid Services are unsure exactly how much they were overcharged.

Theranos fired 40% of its workforce. Life sciences company Theranos will close its clinical labs and fire 340 people, founder Elizabeth Holmes said in an open letter. The company said it is no longer focusing on blood-testing after serious questions were raised about the effectiveness of its novel method, but will develop products for outside labs.

One of Deutsche Bank’s problems might have gone away. German financial regulators say they found no evidence to date that the lender violated rules on money laundering in Russia. The stakes are still high for Deutsche Bank as German government officials quietly meet with U.S. regulators in Washington to broker a deal that would reduce the Justice Department’s $14 billion proposed settlement for mortgage backed securities mis-deeds dating back to the financial crisis. Last week, there was a rumor that the DOJ might accept a $5.4 billion fine. With talks ongoing, it looks like the two sides have not come up with a mutually acceptable resolution.

Southwest Airlines Flight 994 was scheduled to depart Louisville for Baltimore yesterday. The flight was cancelled and the plane was evacuated after a passenger’s Samsung smartphone caught fire. And we have all heard the stories of Samsung phones catching fire. The company, which is announced last month that it would replace 2.5 million of the Galaxy Note 7 phones because of a flaw in the battery’s cell that could result in the devices bursting into flames or exploding…, but this phone was a replacement. The passenger sent his old phone in to be replaced with a new battery, and it still caught fire.

The United Nations has organized the first international pact to reduce the airline industry’s carbon emissions. And the airline industry supported the deal. But there’s some fine print. The restrictions won’t even be set for several more years, and emissions will be capped at 2020 levels, and may indeed rise before then, and the standards won’t become mandatory until 2027. And airlines won’t necessarily have to burn less fuel; emissions beyond the 2020 levels could be offset with investments in renewable energy projects and environmental programs. Aviation contributes about 2% of the world’s carbon emissions.

The town of Summit, New Jersey has hired UBER to provide free rides for commuters to and from its train station under a new six-month pilot aimed at solving its downtown parking crisis. Uber is looking at similar arrangements with “another half dozen” towns along the NJ Transit rail line, and that the model could extend to other states in time.

Financial Review

Justice Delayed is Par for the Course

Sinclair Noe — February 18, 2015

 

Podcast: Play in new window | Download (Duration: 13:17 — 6.1MB)

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DOW – 17 = 18,029 SPX – 0.66 = 2099 NAS + 7 = 4906 10 YR YLD – .08 = 2.06% OIL – 2.56 = 50.97

The S&P 500 closed above 2,100 for the first time ever on Tuesday, delivering year-end target goals to Goldman Sachs, Credit Suisse and Barclays nearly 11 months early.

Greece confirms that it plans to submit a request to the euro zone tomorrow to extend a “loan agreement” for up to six months, but EU paymaster Germany says Athens must stick to the terms of its existing international bailout. Greece wants to maintain a budget surplus before interest payments equal to 1.5 percent of gross domestic product; the current plan calls for a budget surplus equal to 4.5 percent of GDP. It’s still unclear what the terms of the extension will look like, as both Athens and its creditors seem determined not to compromise over the loan’s conditions.

The Federal Reserve released minutes from the January 27-28 Federal Open Market Committee meeting. The minutes reveal that “Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time.” Allow me to translate; the Fed would like to put off raising interest rates because the economy is still a bit risky.

Well, that’s good news and bad news; good that the Fed isn’t going to raise rates; bad because the economy is still not recovered. The FOMC says the risks are “nearly balanced” but then they list the risks: a strengthening dollar, international flash points from Greece to Ukraine, slow wage growth, and even lower energy prices. Wait a minute; low energy prices are supposed to be a positive for the economy, and they are except some people in the energy industry are losing their jobs, and when people save money at the gas pump they aren’t spending it elsewhere. So, lower energy prices are good except maybe the energy market is telling us something.

Beyond that, low energy prices mean next to no inflation, so why raise rates when there are no inflationary pressures? Fed members who supported an early move said they were concerned that holding rates low for too long might lead to asset bubbles, but backers of waiting longer said an early move would result in the Fed’s having to cut rates back to zero afterward.

Speaking of asset bubbles; for the first three quarters of 2014, companies spent $420 billion on share buybacks, on track to set a record. As buybacks and dividends have risen, so has corporate debt. Since 2012, annual U.S. corporate bond issuance has topped $1 trillion a year. About $503 billion of corporate debt is set to mature this year, and each successive year will see higher amounts of debt maturing, with about $3.7 trillion is set to mature through 2019, according to Standard & Poor’s RatingsDirect.

So, the Fed is playing a delicate balancing act and we should not expect any sudden movements from the Fed; they will eventually raise rates but they will move at about the pace of an arthritic tortoise.

As widely expected, the Bank of Japan maintained its massive 80 trillion yen annual stimulus program today, its main tool to hit 2% inflation by next fiscal year. Data earlier this week confirmed that the country pulled out of recession in the fourth quarter of last year, although annualized growth of 2.2% was much weaker than expected. The Nikkei closed up 1.2% at 18,199 following the decision, its highest level since July 2007.

Bank of England officials voted unanimously to leave the central bank’s benchmark interest rate unchanged at 0.5% this month and the stock of assets purchased under its bond-buying program unchanged at £375 billion.

Construction on new U.S. homes dropped 2% in January to an annual rate of 1.07 million units, as heavy snowfall hindered builders in some regions such as the Midwest and Northeast.

Industrial production rose a seasonally adjusted 0.2% in January, well short of expectations. Another sign of weakness came in a slight downward revision to output in the past four months. Even with the revisions, industrial output advanced at a 4.3% annual rate in the fourth quarter.

Wholesale prices posted a record 0.8% decline in January. Low energy costs kept a lid on Producer Prices, but even when you strip out food and energy costs, the so-called core index dropped 0.3%. The price of goods fell sharply owing to a 10.3% decrease in energy costs. Gasoline prices in particular tumbled 24%, the biggest drop since 2008. Producer prices have shown zero change in the past 12 months because of plunging energy costs. The core PPI is up 0.9% in the same span, however.
 
So, what is the “Big Money” doing? SEC filings are showing us who has been buying or selling, and what:
Warren Buffett dumped Exxon Mobil. The billionaire’s Berkshire Hathaway holding company disclosed that it sold a $3.7 billion stake in the energy giant as oil prices have plunged. The company also purchased a 5% stake in agriculture equipment maker John Deere, plus shares of Twenty-First Century Fox and Restaurant Brands International, the owner of Burger King and Tim Hortons.
Soros Fund Management, the family office of billionaire hedge fund manager George Soros, cut holdings of U.S. stocks in the fourth quarter and shifted assets globally. Soros, which manages almost $30 billion, moved about $2 billion into companies in Asia and Europe. Warren Buffett and George Soros both boosted their stakes in General Motors.

Carl Icahn’s equity holdings declined by 5.2% during the fourth quarter to $31.9 billion as of Dec. 31, even as he bought more EBay and Hertz.

Daniel S. Loeb’s Third Point acquired five million shares of Phillips 66, a stake worth $384.5 million. And Leon G. Cooperman’s Omega Advisors acquired a 2.1 million-share position in Laredo Petroleum and a 652,500-share position in Sanchez Energy. At the same time, Omega sold about 29 percent of its big stake in Sandridge Energy, ending the quarter with 32.2 million shares. ValueAct Capital Management, an activist hedge fund, acquired big new positions in Halliburton and Baker Hughes, two oil field services companies that agreed to a $34.6 billion merger in November.
In the technology sector, David Einhorn of Greenlight Capital reduced his fund’s stake in Apple by about 6 percent, to 8.6 million shares, a stake worth more than $1 billion as of Tuesday. Another hedge fund, Coatue Management, which focuses on technology, reduced its Apple holdings by about 15 percent, to 8.9 million shares, as of the end of 2014. Appaloosa Management, David Tepper’s hedge fund, sold its entire 1.2 million-share stake in Apple, as well as its stakes in Facebook and the Chinese Internet giant Alibaba. Appaloosa Management had $2.74 billion less in U.S. stocks in the fourth quarter, a 40 percent drop from the previous quarter. Louis Bacon’s $14.8 billion Moore Capital Management had $2.3 billion in U.S. equities at the end of the year, about 25 percent less than the end of September.

Are you familiar with Snapchat? Let me explain how it works. Remember the old Mission Impossible shows? The team would get their mission and then the message would self-destruct in 10 seconds. That’s the idea behind Snapchat; it’s an app for your phone, and after you receive a message, the message will erase after a few seconds. Last month Snapchat received $485 million in funding, valuing the company at about $10 billion. Now Snapchat is looking to raise an additional $500 million, which would put the valuation “as high as $19 billion.” That would make the disappearing messaging platform the third-most-valuable VC-backed startup, behind Xiaomi and Uber, and give it a valuation nearly equal to the $22 billion paid by Facebook for WhatsApp.

Now for today edition of “Banks Behaving Badly”:
Switzerland raided HSBC. Police searched the bank’s Geneva offices for evidence of money laundering, in the wake of leaks that document HSBC’s attempts to help clients evade taxes through the use of private Swiss accounts. The story about leaked documents aired 10 days ago. The actual leaked documents were leaked 6 years ago. Justice delayed is par for the course.

BNY Mellon has restated its Q4 results it announced in January, taking a $598M litigation charge that suggests it is on course toward a settlement of cases, including a three-year-old forex lawsuit filed by the DOJ. The adjustment lowers net income for the year by about a fifth, to $2.5 billion. BNY Mellon (NYSE:BK) is one of the many banks under investigation for forex manipulation.

Next, let’s give credit where it is due: Citigroup says it will commit to spend $100 billion on initiatives to help combat climate change over the next ten years.

According to the company’s release the money will be used “to finance activities that reduce the impacts of climate change and create environmental solutions that benefit people and communities.” In 2007, Citi pledged $50 billion over ten years and met that goal three years early, hence the new, higher number.

Citi says it will use its $100 billion climate fund to finance infrastructure projects “that increase access to clean water and manage waste, while also supporting green, affordable housing for clients, including in low- and moderate-income communities”. Citi will also back “sustainable transportation” projects and help cities protect against climate extremes.

In 2012, Bank of America set a goal of $50 billion to provide loans and other financing for environmentally friendly energy projects over 10 years. The same year, Goldman Sachs set a 10-year target of $40 billion for investments in renewable energy projects. Clearly, Citigroup thinks they can make some money on Green Energy.