Financial Review

Quarter’s End

Sinclair Noe — March 31, 2016

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DOW – 31 = 17,685
SPX – 4 = 2059
NAS + 0.55 = 4869
10 Y – .04 = 1.79%
OIL – .21 – 38.11
GOLD + 7.90 = 1233.20
SILV + .23 = 15.55

This is the final trading day of the month and the first quarter. The Dow Industrials posted a gain of 1.5% for the quarter, and the S&P 500 was up 0.77% for the quarter. The Nasdaq composite had its worst first quarter since 2009 with a 2.75 percent quarterly decline.

All three major averages recovered from an intra-quarter drop of more than 10 percent. The Dow Jones industrial average saw its biggest quarterly comeback since 1933. For the month of March, the Dow gained 7%, the S&P 500 was up 6.6%, and the Nasdaq was up 6.8%.

April is usually a positive month for stocks, and the S&P 500 has been positive 70 percent of the time since 1945, ranking it as the second-best month, after December. But in the past 10 years, April has been the top-performing month. The S&P 500 companies are expected to see a decline of 6.9 percent in first-quarter earnings.

If you are looking for reasons behind the rebound in equities, you might consider the central banks. In the Eurozone, ECB president Mario Draghi unleashed his QE bazooka. In the US, the Fed couldn’t pull the trigger on a follow-up to its December rate hike; earlier this week Janet Yellen took a decidedly dovish tone on future rate hikes.

Investors are also tracking the dollar, which hit a six-week low against the euro, weakening in the wake of recent dovish comments from U.S. Fed Chair Janet Yellen. But it’s not just the euro that’s making gains against the USD, Asian currencies are also getting a big boost. The Australian and New Zealand dollar are near nine-month peaks. The Dollar Index is down 3.7% for March.

Initial jobless claims increased by 11,000 to 276,000 in the week ended March 26, the highest since the end of January. Jobless claims have been below 300,000, a level associated with a healthy labor market, for 56 consecutive weeks. That’s the longest streak since 1973. In a separate report, global outplacement consultancy Challenger, Gray & Christmas said U.S.-based employers announced 48,207 jobs cuts this month, down 21.7 percent from February. On Friday, investors will turn their eyes to the key March jobs report. The consensus guess is that the economy added 205,000 jobs in March.

Consumer prices in the euro-area remained in negative territory in March, weighed down by a sharp fall in the energy sector. Eurostat’s flash estimate showed annual inflation of minus 0.1% against the previous month’s reading of negative 0.2%.

China could be downgraded at S&P. S&P cut its outlook for China’s sovereign credit rating to negative from stable but kept its rating at AA-. The rating agency referred to “economic imbalances in China that are unlikely to diminish at the pace we previously expected.” Just a note here: AA- is still a strong rating.

India hopes to receive one of the first loans issued by the China-led Asian Infrastructure Investment Bank later this year, as it looks to raise $500 million for solar power projects from the newly created lender. The AIIB, which has authorized capital of $100 billion, plans to join global clean-energy initiatives, and could fund eco-friendly investment projects to avoid allegations of promoting pollution.

Argentina’s Senate has approved measures that will allow the government to pay billions of dollars to American hedge funds, a critical step toward settling a 14-year old legal battle. In February, the Macri administration reached a series of agreements with investors including Paul Singer’s NML Capital, Montreux Partners, Dart Management and a group of Italian investors, totaling more than $10 billion in payments.

These funds swooped in after Argentina defaulted and bought bonds for pennies on the dollar, and then they sued Argentina, hoping to cash in at full face value; that didn’t happen but apparently the new deal provides enough profit to stop fighting. Argentina is expected to go on a road show in April to court foreign investors. The country will try to sell up to $15 billion in bonds to pay for the February agreements.

Time now for “Bankers Behaving Badly”; today’s edition takes us south of the equator to Brazil. Brazilian prosecutors on Thursday charged Joseph Safra, the world’s richest banker, in connection with an alleged scheme to pay bribes to government officials in return for waiving tax debts. Safra is a Lebanese-Brazilian billionaire, whose fortune is estimated at about $18 billion: The Safra family owns Banco Safra, and he controls a banking and financial conglomerate that operates in 19 countries.

In a statement, prosecutors said that Safra had knowledge of a 2014 plan by executives at his Banco Safra SA to pay $4.2 million in bribes to federal tax auditors. The accusation is based on tapped phone calls between a Banco Safra executive, João Inácio Puga, and tax officials. Safra was not involved in the bribery negotiations, but the recording show Puga reported to Safra on the bribery talks.

Lenders to the oil and gas industry have been extraordinarily lenient amid the worst downturn in decades, allowing indebted companies to survive a little while longer in hopes of a rebound in oil prices. But the screws are set to tighten just a bit more as the periodic credit re-determination period finishes up. Banks reassess their credit lines to oil and gas firms twice a year, once in the spring and once in the fall.

While the lending arrangements vary from bank to bank and from borrower to borrower, lenders largely punted on both re-determination periods last year, providing a grace period for drillers to wait out the bust in prices. But oil prices have not rebounded much since the original crash in late 2014.  Time could run out for companies that have been hanging on by a thread.

When oil was at $100 a barrel, debt was easy to get. According to The Wall Street Journal, the net debt of publicly-listed global oil and gas companies grew threefold over the past decade, hitting a high of $549 billion last year.

About 51 oil and gas companies from North America have filed for bankruptcy since early 2015, but there are 175 more that are in danger of not being able to meet debt payments. For context, 62 oil and gas companies fell into bankruptcy during the financial crisis in 2008 and 2009. Companies struggling with debt payments and shrinking revenue could see the taps shut off or at least reduced.

Some analysts see cuts to credit lines on the order of 20 to 30 percent. Oil & Gas 360 says that banks are also marketing their troubled debt to hedge funds, marking down distressed debt to cents on the dollars. Hedge funds could buy up discounted debt in hopes of repayment.

Meanwhile, although the credit markets are squeezing drillers, equity markets remain open, at least to some. Reuters reported last week that about 15 companies have announced new equity offerings in 2016. The credit re-determinations are currently wrapping up and the details of many of them could soon be released. The deeper banks cut their credit facilities, the more likely struggling oil and gas companies could be forced into bankruptcy.

General Electric formally asked to be released from supervision by the Federal Reserve, saying it has sufficiently shrunk its once-massive financial services arm so it would no longer pose a systemic threat to the banking system. Being categorized as a “systemically important financial institution,” or SIFI, required GE to submit to financial supervision by Fed staff and rein in leverage, two factors in GE’s decision last year to exit most of its lending business, which until recently provided as much as half of the conglomerate’s profits.

In a filing sent Thursday to the Financial Stability Oversight Council, GE said it had cut its total assets in the financing division by more than half, eliminated the majority of its U.S. operations, and cut the company’s ties to the rest of the financial system that had led to its receiving the SIFI designation.

Tesla’s Model 3 debuts later today. The Model 3’s release is highly anticipated, as the vehicle has a base price of $35,000, making it Tesla’s first vehicle that’s cheap enough to be considered “mass market.” The automaker will unveil the car this evening at an event at its headquarters in Southern California. But buyers were lined up at the Tesla store in Santa Monica today to put down thousand dollar deposits on a car they haven’t even seen yet.

China’s Anbang Insurance Group has abandoned its bid for Starwood Hotels & Resorts, paving the way for Marriott International to buy the Sheraton and Westin hotels operator. Anbang and Marriott had gone back and forth, bidding up shares in Starwood; last week Anbang made an offer of $14 billion, which looked like it would beat Marriott’s offer of $12.2 billion.

When it comes to soccer in the United States, women rule. The women’s national team has won 3 World Cup championships and 4 Olympic championships; the men’s national soccer team…, yea, not so much. Five players on the women’s team filed a federal complaint yesterday, accusing U.S. Soccer (the governing body and paymaster) of wage discrimination because, they said, they earned as little as 40 percent of what players on the United States men’s national team earned even as they marched to the team’s third world championship last year.

The five players, some of the most prominent women’s athletes in sports, said they were shortchanged on everything from bonuses to appearance fees to per diems. The case was submitted to the Equal Employment Opportunity Commission, the federal agency that enforces civil rights laws against workplace discrimination.

Financial Review

An Imperfect Circle

Sinclair Noe — March 14, 2016

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DOW + 15 = 17,229
SPX – 2 = 2019
NAS + 1 = 4750
10 Y – .02 = 1.96%
OIL – 1.15 = 37.35
GOLD – 15.10 = 1236.00

No economic reports scheduled for this morning but the remainder of the week will be busy. The Fed FOMC will release their economic forecast along with their policy statement on Wednesday. One area of near-unanimous agreement is that the Fed will not raise rates this week. Instead, we will look at the FOMC’s economic forecast and the language they use in their statement. Also on the calendar: February retail sales, Housing Starts, Industrial Production, Job Openings, Philly Fed, Consumer Sentiment Index, and the Commerce Department’s current account for the fourth quarter. The reports could shed more light on the health of the U.S. economy and the future path of monetary policy.

Morgan Stanley strategists are growing increasingly concerned about the risk of a global recession, slashing forecasts for all major equity markets and advising investors to sell stocks that have recently rallied. They also cut bond yield forecasts for 2016, saying the U.S. central bank will wait until December before raising interest rates. According to the company report, Treasury 10-year yields might fall to 1.45% by the end of September, analysts wrote, approaching the record low of 1.38% set in 2012. They also warned that a slowing global economy and high production would prevent any sharp rises in oil prices. For 2016, Morgan Stanley now sees the US economy growing by 1.7%, down from a previous forecast of 1.9%. The Eurozone is expected to grow by 1.5%, down from 1.8%, while the outlook for emerging-market economies was cut to 4% from 4.4%.

If you don’t like that analysis, Goldman Sachs issued a report saying they think the Fed will hike rates in June, and an April rate increase is still on the table, even if it rattles financial markets. Goldman analysts say it is more important for policymakers to assure a smooth landing for the economy rather than a steady stock market.

The Bank of Japan’s policy board is set to discuss this week whether to exempt $90 billion in short-term funds from its newly imposed negative interest rate, after the securities industry warned that investment money would be driven into bank deposits. China’s central bank won’t resort to excessive stimulus to bolster growth but will keep a flexible stance in the event of an economic shock – domestic or global. The PBOC cut interest rates six times since November 2014 and reduced the amount of cash that commercial lenders must hold as reserves. Both the Swiss National Bank and Bank of England opine on Thursday

Next weekend’s oil talks may be in jeopardy after Iran’s Oil Minister said his country won’t join a group production freeze until it doubles its post-sanctions output. Iran said they would only join the output freeze group once they reached production of 4 million barrels a day. In a sign that investors are growing more skeptical about a rebound in oil prices, ICE data showed on Monday that speculators had cut net long positions in Brent crude by 9,500 contracts in the week to March 8.

For now, share buybacks continue to prop up the stock market. Mutual fund and exchange traded fund investors have been selling – pulling out $40 billion since January and on pace for $60 billion, one of the biggest quarterly withdrawals ever. On the flip side, S&P 500 Index companies are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. Of course, buybacks can get dangerous, especially when companies take on debt to buy their shares. And you have to wonder how far this extreme can go.

More than three million people marched through cities across Brazil on Sunday to protest political corruption, a weak economy, and to call for the impeachment of President Dilma Rousseff, in a showing that could accelerate efforts to remove her from office. The demonstration in Sao Paulo was the largest ever recorded by polling firm Datafolha. Brazilians demonstrated peacefully for Rousseff’s ouster, expressing their support for the anti-corruption blitz that has put several high-profile executives and politicians behind bars.

In late 2010, in the waning months of the Financial Crisis Inquiry Commission, the panel responsible for determining who and what caused the financial meltdown that lead to the worst recession in decades voted to refer Robert Rubin to the Department of Justice for investigation. The panel stated it believed Rubin, a former U.S. Treasury Secretary who has held top roles at Goldman Sachs and later Citigroup, “may have violated the laws of the United States in relation to the financial crisis.” Rubin, the commission alleged, along with some other members of Citi’s top management, may have been “culpable” for misleading Citi’s investors and the market by hiding the extent of the bank’s subprime exposure, stating at one point that it was 76% lower than what it actually was.

No government action was ever brought against Rubin. And there is no evidence that Department of Justice acted on the crisis commission’s recommendations. A source close to Rubin says the former Wall Street executive was never contacted by the Justice Department in relation to the commission’s allegations. And it wasn’t just Rubin and a few executives at Citi, the FCIC referred several cases to the Department of Justice and, as we all know, nothing happened. The bankers were never jailed, never indicted. A few fines were paid, but that mainly came from shareholders. No major Wall Street figure was ever prosecuted for crimes related to the financial crisis.

On Friday, the National Archives released the previously unreleased documents from the Financial Crisis Inquiry Commission, including minutes of meetings and transcripts of interviews. The FCIC investigations included some pretty clear evidence for fraud and other criminal acts; the cases were referred to the Department of Justice; nothing was done. Why didn’t the DOJ act? They won’t say. None of this is surprising but it is a well-documented and devastating indictment of how the banksters have corrupted the justice system. And sadly, that is the only kind of indictment we will ever see.

Plaintiffs suing General Motors over a faulty ignition switch will get two chances in a Manhattan court this week to argue that the U.S. automaker should be held accountable for injuries, deaths and lost vehicle value. Jury selection begins later today in the second trial involving a car accident allegedly caused by GM’s defective device (a first trial ended in January following claims of misleading testimony). In the same courthouse tomorrow, plaintiffs suing over lost vehicle value and accidents that occurred before GM’s 2009 bankruptcy will seek to reverse last year’s court decisions that freed “New GM” from several liabilities.

Starwood Hotels & Resorts Worldwide received a buyout offer from a consortium led by China’s Anbang Insurance Group, possibly derailing the company’s planned takeover by rival Marriott International. The offer of $76 per share in cash values Starwood at $12.8 billion. Marriott said it remained committed to its offer for Starwood, which would create the world’s largest hotel chain with top brands including Sheraton, Ritz Carlton and the Autograph Collection. Marriott’s offer of $72.08 per share in stock and cash valued Starwood at $12.18 billion on Nov. 16. That offer is now worth about $11 billion as Marriott shares have dropped 6.5 percent since.

Private equity firm Apollo Global Management is nearing a deal to acquire The Fresh Market, Inc. for $28.50 per share in cash, or more than $1.3 billion, in a move that could derail bids from Kroger, KKR, and TPG Capital. An agreement could be announced as early as today, but a deal has not yet been finalized and was still possible to be amended or fall apart at the last minute.

AlphaGo, Google’s Go-playing computer, took a 3-0 lead on Saturday against one of the world’s top players, clinching the five game series. “I am very sorry for the powerless display,” Lee Sedol told reporters in Seoul. “I have never felt before such severe pressure as I do now, and I suppose my abilities were a bit lacking to overcome that.” Lee struck back to win game four against AlphaGo on Sunday. The fifth match will take place tomorrow.

The annual Game Developers Conference kicks off today in San Francisco, where more than 26K people from around the globe will congregate for a five-day gathering focused on augmented- and virtual-reality. According to Digi-Capital, investors in 2016 have already have pumped $1.1 billion into the technologies, more than the total for any prior year. Researchers at Gartner estimate nearly 40 million headsets will be sold world-wide by 2020.

Just in case you’re thinking that digital games are nothing more than games, Microsoft announced today that computer scientists and amateurs will be able to evaluate and develop artificial intelligence, or AI, software using its Minecraft virtual landscapes. Improving AI software by getting it to play video games has been done before. But Microsoft suggests the open-ended nature of Minecraft makes it particularly useful because of the huge variety of situations it can simulate from first-person perspectives.

Today is Pi Day, March 14, or 3-14, the first three digits in Pi; which refers to the ratio of a circle’s circumference to its diameter, and not a delicious desert. The diameter of a circle is the distance from edge to edge, measuring straight through the center. The circumference of a circle is the distance around. And the ratio works on any circle, big or small, which means Pi is a constant number. As an irrational and transcendental number, it will continue infinitely without repetition or pattern, except of course, that it embodies the order inherent in a perfect circle. The first 6 digits in Pi are 3.14159, and if you round that number up, you get 3.1416, which would match March 14, 2016.

Financial Review

Knock On

Sinclair Noe — November 16, 2015

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

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DOW + 237 = 17,483
SPX + 30 = 2053
NAS + 56 = 4984
10 YR YLD – .01 = 2.27%
OIL + 1.32 = 42.06
GOLD – 1.80 = 1083.10
SILV – .03 = 14.35

World leaders wrapped up G-20 meetings in Turkey with a vow to boost intelligence-sharing, cut off terrorist funding and strengthen border security in Europe, as they sought to show resolve and unity following the deadly terror attacks in Paris. This year’s G-20 agenda also included efforts to hasten global economic growth, with a particular focus on addressing the effects of China’s economic slowdown. French warplanes launched an assault on ISIS targets in Raqqa, Syria. Meanwhile, the authorities in France announced that they had conducted sweeping police raids around the country overnight, detaining two dozen people.

ISIS released a video today saying they will strike Washington. The Department of Homeland Safety said it had no “specific credible information of an attack on the U.S. homeland.” CIA Director John Brennan said he would be surprised if the group doesn’t have additional attacks in preparation.

Markets across the globe are still processing the weekend’s coordinated terrorist attacks in Paris. Asian exchanges traded lower overnight. European shares reversed early losses and closed in positive territory. The euro dropped, as investors scrambled for safe-havens like the U.S. dollar.

French President Hollande declared that France is at war. Hollande urged lawmakers to approve a three-month extension of the nation’s state of emergency, new laws that would allow authorities to strip the citizenship from French-born terrorists, and provisions making it easier to deport suspected terrorists.

The attacks are also likely to hit France’s economy, which has the largest number of tourists in the world. The sector accounts for almost 7.5% of the country’s GDP. The specific wording by President Hollande is of note, because of course it opens up a can of worms about NATO, the EU, and various agreements for open borders in the EU. This means likely restrictions on import-export activity.

It is nearly impossible to calculate the side effects of the Paris attacks. A couple of quick thoughts include an increase in surveillance. UK Prime Minister David Cameron has already announced the Brits will hire 1,900 new spies to deal with ISIS. The CIA is surely going to place a few ads as well. This will drive the tech heads in San Jose even crazier.

Next, think about the role of Russia in Syria and then expand it out to the role of Russian oil and Saudi Arabian oil vying for global market share. The oil market has been bound up with geopolitics and the threat of conflict for a century, and today’s trading in the oil patch is far from the final word on the direction of those markets.

White House officials confirmed Putin and Obama met privately at the G-20 in Turkey and agreed to “a Syrian-led and Syrian-owned political transition.” These are delicate positions in the dangerous dance between Sunni and Shia playing out in the deserts of Syria and Iraq.

The major stock indices in the US started in negative territory, but then rallied. There were some interesting theories bandied about for the recovery. One story talked about the increase in oil stocks as investors looked for safe havens; although the story didn’t go so far as to suggest that increased military action in the Middle East threatens oil supply routes or even that cutting off ISIS black market oil trading removes a small chunk of supply.

Another story mentioned the travel and tourism industry had a bad day, but then explained that previous terror attacks have taught investors that it doesn’t make financial sense to panic. And then the idea that citizens steadfastly refuse to allow terrorists to dictate how we will live our lives because terrorism won’t succeed in the long run.

I missed a good discussion on whether traders felt the terror attacks might push the Fed to pass on a rate hike in December. Nor was there much discussion about the probability of the stock markets’ bullish affection to war. I don’t know why the markets moved higher. Maybe after a lousy week last week, the shorts closed out positions because it was just time for an up day.

The response in the US has been to fly French flags at football games. The NYSE and Nasdaq observed a minute of silence at 9:25 AM Eastern, before the opening bell. And already, nine states (at last count) have said they would shut their doors to Syrian refugees, in direct violation of the Pottery Barn Rule. The governors of Florida, Alabama, North Carolina, Texas, Arkansas, Louisiana, Indiana, Illinois, and Massachusetts all said they would not accept refugees fleeing the Syrian conflict; go ahead and connect the dots.

There has yet to be a single Syrian refugee resettled in Alabama to date, even though there is  a US State Department-approved refugee processing center in Mobile. And it is uncertain whether any governor would have the power to ban refugees from a given country, as resettlement is handled at the federal level. The State Department said this morning that the US still plans to try to admit 10,000 Syrian refugees into the country in the coming year; final destination to be determined.

Marriott International said that it had agreed to buy Starwood Hotels and Resorts Worldwide for $12.2 billion in cash and stock, creating the world’s largest hotel company. The timing of this acquisition was just exquisite. Under the terms of the deal, Marriott will pay $72.08 a share in cash and stock for Starwood, whose brands include Westin, the W, Sheraton and St. Regis. Starwood shareholders would own 37 percent of the combined company. Combined, the companies operate more than 5,500 hotels with 1.1 million rooms worldwide in 30 countries, with 300,000 employees.

For the first time in at least a decade, imports fell in both September and October at the three busiest seaports in the US. The three – Los Angeles, Long Beach, and New York harbor – handle more than half of the goods coming into the country, and saw imports fall just over 10% between August and October; typically known as peak shipping season. The slowdown in imports is likely an adjustment from a sizable inventory build-up earlier this year.

S&P 500 earnings are on track to close their first season of negative growth since 2009, with more than 90% of components having already reported results, S&P 500 earnings are down 0.9 percent in the third quarter. Estimates call for sub-zero growth in the current quarter as well setting up for a bona fide ‘earnings recession’ (two consecutive periods of declines). According to FactSet, this already occurred in the second and third quarters. All this comes as the Fed prepares to hike rates for the first time in almost a decade – a move that could weaken corporate earnings even further.

Japan has unofficially entered recession. Japan just booked two consecutive quarters of negative gross domestic product. GDP contracted at an annualized pace of 0.8% in the third after a 0.7% pace of contraction in second quarter. The Nikkei 225-share index dropped 1 percent.

The average price of crude sold by OPEC fell below $40 a barrel for the first time 2009. The daily OPEC Basket Price fell to $39.21 a barrel on Nov. 13. The basket, an average of export grades from each of the group’s 12 members, typically trades below international oil futures as some OPEC nations pump denser or higher-sulfur crude that’s less profitable to refine. OPEC’s annual revenues may be curbed to $550 billion at current prices from an average of more than $1 trillion in the last five years.

 The number of oil wells in North Dakota that have been drilled but not fracked has topped 1,000 for the first time in September, as producers wait for prices to recover before turning them on. As a result, more than 8% of oil wells in North Dakota are now sitting idle, harming the industry’s ability to grow production; daily output in the state fell 2% in September to about 1.16 million barrels a day.

The nation’s second largest for-profit college, Education Management Corporation, will forgive nearly $103 million worth of student loan debt to settle claims that it violated consumer protection laws; specifically, misleading students about the benefits of a degree from its schools, and misrepresenting job placement numbers.

In a separate action, the company agreed to pay an additional $95 million to settle four whistleblower lawsuits that claimed it misled the government about its recruiting strategy. EDMC operates a network of 110 under the names: Art Institute, Argosy University, Brown Mackie College, and South University. EDMC did not admit to any wrongdoing.

Constellation Brands, the maker of Robert Mondavi wines and Svedka vodka, agreed to acquire Ballast Point Brewing & Spirits for $1 billion to add to its beer portfolio. The deal is expected to be completed this year and will be financed with cash and debt.

Ericsson said it has not engaged in any merger talks with Cisco Systems, despite rumors Cisco was actively pursuing the Swedish maker of networking equipment.

Blackstone  has reportedly agreed to sell its facility management group GCA Services unit for about $1 billion to Goldman Sachs  and Thomas H. Lee Partners.

Canadian Pacific CEO Hunter Harrison met with Norfolk Southern CEO James Squires, proposing a possible merger, which was coolly received by the Norfolk boss.

The Supreme Court refused to be drawn into the debate over Planned Parenthood, rejecting an appeal by abortion opponents who said they had a right to see some of the group’s internal documents, including its medical-standards manual. The appeal by New Hampshire Right to Life sought the disclosure of information related to a 2011 federal grant made to the Planned Parenthood chapter in northern New England.

Congress Reaches Tentative Budget Deal, CB Consumer Confidence Falls

Financial Review

Barn Cleaning

Sinclair Noe — October 27, 2015

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

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DOW – 41 = 17,581
SPX – 5 = 2065
NAS – 4 = 5030
10 YR YLD – .03 = 2.03%
OIL – .78 = 43.20
GOLD + 4.10 = 1168.00
SILV + .03 = 15.97

Congressional leaders have reached a tentative budget deal with the White House in a breakthrough that would set government funding levels for the next two years and extend the nation’s debt limit through 2017. The bill would raise the spending caps set in place in 2011 that would result in deep cuts to both defense and non-defense spending, called sequestration.  This deal would provide $80 billion in sequester relief.

The bipartisan agreement would include long-term entitlement reforms to the Social Security Disability Insurance (SSDI) program, the first major reform to Social Security since 1983.  The Social Security Disability Insurance program would be amended, in part to tighten and standardize eligibility requirements that now vary by state. That change was projected to save the government $5 billion. It also prevents a spike in Medicare B premiums for millions of seniors. The increases would have been caused by the rare absence of a cost-of-living increase in Social Security benefits, because of unusually low inflation.

The deal still needs Congressional approval, but for outgoing House Speaker John Boehner this was a matter of wrapping up unfinished business before his departure, or as Boehner described it “cleaning the barn.” Representative Paul Ryan, the likely successor to House Speaker said he would likely vote for the deal but he said “the whole process stinks.”

The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 to pay for spending in that budget bill. The proposed sale equates to more than 8% of the 695 million barrels of reserves. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period.

Also, the two-year budget deal produces savings from one of the most popular programs in farm country, federally subsidized crop insurance, and farm state lawmakers are furious. Senators and House members said they weren’t notified of the cut before the deal was struck. Budget-writers in Washington have long eyed the crop insurance program, which costs more than $9 billion annually, as a pot of available money. But farm-state lawmakers have fought to protect it, saying it makes more sense than other farm subsidies since it pays out when farmers suffer losses.

Meanwhile, 62 Republicans have joined 184 Democrats to pass a “discharge petition” to renew the Export-Import Bank’s charter. Monday’s vote means that, barring any other last-minute obstacles, a vote on reauthorizing the bank should pass the House shortly. The bill would then go to the Senate, where it awaits an uncertain fate.

The U.S. Federal Reserve kicks off its two day monetary policy meeting today, with their decision to be announced at 11 AM tomorrow. There’s virtually no chance that the Fed will hike interest rates this week, certainly not if they want to claim they are data dependent. Figures on U.S. jobs, retail sales, manufacturing, inventories and exports all disappointed, while new jobless claims and housing data — for the most part — have showed continued strength. The challenge for policy makers will be to keep their options open for a move this year, while acknowledging weak data that could tilt the tone of the statement toward liftoff in 2016.We had another batch of tepid data today.

Orders for long-lasting or durable goods fell a seasonally adjusted 1.2% in September; a sign of widespread softness in the manufacturing sector. The auto industry was one of the few bright spots again, with orders snapping back 1.8% after a decline in August. Orders for core capital goods – a proxy for business investment – declined 0.3% to mark the second straight drop.

The Conference Board said that consumer confidence in October fell to a reading of 97.6, down from a revised 102.6 in September.

Service sector output growth fell to a nine-month low in October. The Markit Flash U.S. services purchasing managers index fell to 54.4 in October from 55.1 in September, which means it’s still above the 50 mark indicating growth. Markit attributed the slowdown to slowing new business growth and more cautious spending patterns.

Home prices rose 0.4% in August to stretch year-on-year gains to 5.1%, according to the S&P/Case-Shiller 20-city composite. Eighteen out of 20 cities reported monthly gains. That’s not unusual for the summer, and after seasonal adjustment, five were down, 11 were up, and four were unchanged. Portland and Denver had the strongest monthly gains, while only fast-growing San Francisco saw a decline, of 0.1%. Phoenix posted a monthly gain of 0.6%, and a 4.9% gain for the past 12 months.

After the closing bell, Apple reported higher-than-expected quarterly revenue and profit as sales of iPhones increased 35%, driven by the launch of the 6S and 6S Plus models last month. Apple’s sales in China nearly doubled to $12.52 billion, accounting for nearly a quarter of its total revenue. Apple’s net income for the quarter rose to $11.1 billion, or $1.96 per share, from $8.4 billion, or $1.42 per share, a year earlier. Net sales rose about 22% to $51.50 billion.

Apple offered holiday guidance that is a little light of expectations, about 4% growth at the high end of the range, but remember that Apple never seems to miss guidance. Apple shares were up about 2.5% in after-hours trade.

Meanwhile, Chase is launching its own competitor to Apple Pay that will allow consumers to pay retailers using their smartphones in stores, and it has already won the endorsement of a major group of companies. For merchants, it’s promising fixed pricing and no additional fees for network, processing or fraud liability, and will work not via NFP (tap-and-pay) but by using existing gift-card scanners. Chase Pay will be available mid-2016.

Also, after the closing bell, Twitter reported earnings. Revenue was up 58% to $569 million, beating estimates. Earnings per share were 10 cents, twice as good as estimates.  Twitter missed estimates on the number of users they added over the quarter, only 4 million new Twitterers. Shares down 11%.

Despite a slowdown in China, Alibaba, the Internet giant, experienced a surge in revenue in the latest quarter, driven by strong growth in mobile. Alibaba reported that sales rose 32 percent in the latest quarter to $3.5 billion. Earnings per share increased 30 percent.

Ford Motor reports third-quarter profit that rose sharply but still fell short of estimates as higher taxes reduced the payoff from its aluminum-bodied F-Series pickups. Earnings excluding some items were 45 cents a share, compared with the 47-cent average of estimates. Net income more than doubled to $1.9 billion from $835 million a year earlier when Ford was changing over to the new F-150 pickup. Shares were down 5% today. Go figure.

Novartis has agreed to pay $390 million to resolve a lawsuit claiming the company paid kickbacks to increase sales of several prescription medicines. Novartis reported that third quarter net income fell 42% to $1.8 billion.

Pfizer reported better-than-expected third-quarter results and raised its full-year outlook. Earnings fell to $2.13 billion, or 34 cents a share, from $2.67 billion, or 42 cents a share, in the same period a year ago.

BP’s earnings in the third quarter were nearly cut in half compared to a year earlier, as low crude prices and charges related to its 2010 Gulf of Mexico spill weighed on its financial performance.

United Parcel Service beat third-quarter profit expectations, but missed on sales. A decline in international package revenue offset increases in domestic and supply chain and freight revenue.

IBM fell to its lowest price in five years after disclosing that the Securities and Exchange Commission is conducting an investigation related to the technology seller’s revenue recognition. IBM last week cut its full-year profit forecast and reported its 14th straight quarter of shrinking sales. No doubt another stock buyback announcement is in the offing.

Walgreens Boots Alliance will acquire Rite Aid; at least that was the rumor floating about today. That was enough to send Rite Aid share prices up 39%, which would value the company at about $8.9 billion. The actual announcement came after the close of trade, and it values the company at $9.4 billion. Still, it sounds like somebody leaked some important news.

Starwood Hotels & Resorts Worldwide jumped the most in six years after the Wall Street Journal reported that at least three big Chinese companies are competing to buy the company. Chinese investors have been pretty aggressive in the hotel market over the last year or so. Starwood has some pretty powerful brands, and they announced in April that it was exploring
strategic options including a possible sale.

Walmart has applied to the FAA for permission to test drones for home delivery, curbside pickup and checking warehouse inventories, a sign it seeks to compete with Amazon in using drones to fill and deliver online orders. A Walmart spokesperson said: “There is a Walmart within five miles of 70% of the U.S. population, which creates some unique and interesting possibilities for serving customers with drones.”

In about one month, Black Friday will descend on American retailers and shoppers will be whipped into a frenzy. One retailer thinks there are better ways to spend the day after Thanksgiving. Outdoor sporting goods company REI will shut its stores on Black Friday, no online sales either, and it is paying employees to take the day off.

The CEO of REI issued a statement: “Black Friday is the perfect time to remind ourselves of the essential truth that life is richer, more connected and complete when you choose to spend it outside. We’re closing our doors, paying our employees to get out there, and inviting America to OptOutside with us because we love great gear, but we are even more passionate about the experiences it unlocks.”