Financial Review

And It’s Back

Sinclair Noe — November 16, 2017

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DOW + 187 = 23,458
SPX + 21 = 2585
NAS + 87 = 6793
RUT + 22 = 1486
10 Y + .03 = 2.36%
OIL – .16 = 55.17
GOLD + .70 = 1279.30

Cryptocurrency

• Number of Currencies: 905
• Total Market Cap: $225,401,252,418
• 24H Volume: $11,650,534,328

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,874.3	$131.56B	$5.00B	43.18%	1	+8.26%	+9.30%
	Ethereum	ETH	329.30	$31.59B	$784.75M	6.77%	0.04184	-0.48%	+2.37%
	Bitcoin Cash	BCH	900.81	$15.21B	$1.98B	17.07%	0.114825	-23.91%	+36.44%
	Ripple	XRP	0.22450	$8.75B	$1.00B	8.67%	0.00002874	+7.52%	+3.69%
	Litecoin	LTC	70.980	$3.77B	$318.04M	2.75%	0.00887902	+12.13%	+7.47%
	Dash	DASH	419.57	$3.21B	$96.41M	0.83%	0.0530133	-0.34%	+27.02%
	IOTA	MIOTA	0.84219	$2.37B	$135.08M	1.17%	0.0001082	+7.02%	+54.52%
	NEO	NEO	28.700	$1.89B	$40.65M	0.35%	0.00367968	-2.02%	-8.87%
	Monero	XMR	120.02	$1.84B	$73.94M	0.64%	0.0152058	-0.80%	+0.57%
	NEM	XEM	0.20351	$1.78B	$15.98M	0.14%	0.00002515	+0.60%	-7.95%

If you have been following the on-again, off-again path of the tax cut plan on Capitol Hill, it is becoming clear that a tax cut is not fully priced into stocks. Yesterday – bad news about the plan as the Senate linked another Obamacare repeal effort to the tax plan and the first Republican senator defected.

Today – the House passed their initial version of the Tax Cuts and Jobs Act. That certainly wasn’t the only factor contributing to the bounce back in stocks, but it was noteworthy.

Cisco Systems leapt 6.2 percent, its biggest move since February 2016, after the internet gear maker reported a bigger profit than analysts expected and said revenue should grow in its next quarter after two years of declines.

Wal-Mart jumped over 10 percent after the retail giant reported strong third-quarter results and raised its annual profit outlook. Walmart, which has been challenging Amazon by adding products, partners and perks, saw online sales jump 50% in its most recent quarter. Food sales were strong as well, which means that Amazon’s purchase of Whole Foods makes even more sense.

Walmart’s moves to revamp its stores and hone its customer service appear to be paying off as sales at U.S. stores open at least a year — a key industry measure of financial performance — rose 2.7%. Traffic, which has been dipping at many retailers as more consumers shop online, climbed 1.5%.  Walmart shares posted their biggest gain since May 2016.

Procter & Gamble was up 1.3 percent after activist investor Nelson Peltz said an independent count showed he won election to the consumer products company’s board.

Cisco, P&G, and Wal-mart are components of the Dow Industrial Average, so…

Technology sector stocks, which have done far better than the rest of the market this year, accounted for some of the biggest gains in early trading. Data storage company NetApp led the sector, picking up about 15% on a strong earnings report.

The House of Representatives passed tax legislation by a partisan vote of 227-205. That does not mean we have a new tax code. Now, the legislation moves over to the Senate, which has its own, different version. The Senate might vote next week. And because the Senate slides into the driver’s seat, the House was able to pass a badly flawed bill surely would not have passed on its own merits.

But now, Republican representatives can go home and tell their base and their donors that they voted for the tax bill, without having to accept the responsibility of the bill inflicting damage on their constituents.

A new congressional analysis found that the Senate’s revised tax bill would raise taxes on lower-income Americans within a few years. The Joint Committee on Taxation projected that Americans earning $30,000 or less would see their taxes increase beginning in 2021, if the Senate bill becomes law. The committee also projected that Americans earning $75,000 or less would face large tax increases in 2027, after the individual tax cuts expire.

The updated analysis stems from the Senate’s last-minute inclusion of a provision that would repeal the Affordable Care Act’s requirement that most people buy health insurance.

The repeal would lead many lower-income Americans to choose not to buy insurance, and thus not claim tax subsidies that currently help them defray the costs of health coverage. For those that remain, their insurance premiums would go up, probably by 10% or more – wiping out any tax savings and resulting in a net loss.

And because of a 2010 budget law, the bill would trigger automatic cuts to Medicare and other important programs that low-income and middle-class Americans depend on. Medicare used to be considered the “third rail” – you don’t cut Medicare without incurring significant blowback. So, who benefits from the tax plan? The rich and corporations.

Few voters seem fooled. Just 25 percent approved of the tax plan in a recent Quinnipiac poll, while 52 percent said they disapproved of it. Even some Republican lawmakers are beginning to catch on that this tax-cut plan is politically radioactive. The Senate bill is already teetering, with one Republican senator opposed and others voicing concerns. The GOP bill can lose no more than two senators to advance.

Thirteen Republican representatives voted against the bill today, all but one from states that have high income and property taxes. The House bill included a compromise on state and local tax deductions. The Senate bill does not accept the House compromise on state and local tax deductions, or SALT; it eliminates the break entirely, which could cause an exodus of Republican votes in the House if that were to be in the final bill.

And the House bill does not repeal Obamacare’s individual mandate, which the Senate added to its proposal earlier this week.

Wall Street dropped the past couple of days as the tax bill hit a couple of obstacles. Wall Street cheered today as the House passed a bill, but it looks like most of the tax plan has been priced into the market already and the risk of legislation failing seems far greater than the reward of legislation passing. If positive news continues, we could see another bull run from the recent dip, but this is also a good time for caution.

House passage of the tax bill has another – likely unintended – consequence. It might kill off any chance for infrastructure spending. The House bill ends tax breaks for private activity bonds, a key part of public-private partnerships in projects ranging from roads to low-income housing. The administration has said it wants to leverage those partnerships to reduce the direct cost of the president’s building plan”

The National Association of Home Builders’ monthly confidence gauge rose two points to 70 in November. That was the second-highest reading since the housing bubble of 2005. The sub-index that tracks current sales conditions also rose two points, to 77, but the gauge of sales over the next six months dipped one point to 77.

The home-builder lobby has been critical of recent developments in the tax reform debate, arguing that reform will quash demand for new homes. The group warned the bill proposed by House Republicans “eviscerates existing housing tax benefits by drastically reducing the number of home owners who can take advantage of mortgage interest and property tax incentives.”

Arizona released data on nonfarm employment for October. The state unemployment rate dropped from 4.7% in September to 4.5% in October. The state added 18,700 jobs for the month. Arizona Nonfarm employment grew by 1.2% (32,000 jobs) over the year in October. The Private Sector accounted for 32,200 jobs (1.4%). Government employment decreased by 200 jobs in October.

San Francisco Fed President John Williams says global central bankers should take this moment of “relative economic calm” to rethink their approach to monetary policy, warning that to fight the next recession, as with the last, they would need to do more than just cut interest rates.

With many major economies facing slower growth and thus lower interest rates even when unemployment is low, central banks will need to find ways to stimulate their economies that work even when many other countries are also trying to boost their growth.

Williams says strategies that central banks should consider including not only the bond-buying and forward guidance used widely in the last recession, but also negative interest rates that was used in some non-U.S. countries, as well as untried tools including so-called price-level targeting or nominal-income targeting. Central banks may also want to consider setting a higher inflation target.

Meanwhile, Federal Reserve Governor Lael Brainard said today that traditional lenders should demand that online financial companies protect consumer privacy and money interests Banks often pay tech companies for the information they gather on borrowers.

For that reason, those lenders can set high standards in consumer protection and privacy. Brainard said, “Banks have a stake in ensuring that their vendors and third-party service providers act appropriately, that consumers are protected and treated fairly, and that the banks’ reputations aren’t exposed to unnecessary risk”

Sandell Asset Management proposed to take Barnes & Noble private with the help of current shareholders and $500 million in debt financing in a deal that valued the company at more than $650 million, or over $9 per share. But the bookstore chain said the offer did not appear to be bona fide and seemed unlikely to happen.

Casino operator Caesars Entertainment said it would buy privately owned casino and horse racing company Centaur Holdings LLC for $1.7 billion in cash to expand in Indiana.

Emerson Electric raised its cash-and-stock offer to acquire Rockwell Automation to $29 billion, ratcheting up pressure on its smaller peer to engage in deal talks.

Tesla short sellers finally made some money this month. They’ve raked in $890 million in mark-to-market profits since the start of the fourth quarter, according to data compiled by the financial-analytics firm S3 Partners. At least until today.

Tesla bounced back, a little, enough to shake out at least a few short-sellers. In a couple of hours, Elon Musk will unveil a new Tesla a self-driving big rig semi-trailer (electric, of course). The Tesla semi was anything but a 10-4-good-buddy move for Tesla.

While many observers expected a pickup truck to join the carmaker’s lineup of all-electric cars, the big rig was a surprise. Musk tweeted, that the truck would “blow your mind clear out of your skull and into an alternate dimension.” Which seems like a totally fine and not at all hyperbolic way to manage expectations.

Financial Review

Everybody Wants to Go to Heaven

Sinclair Noe — November 1, 2017

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

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DOW + 46 = 23,424
SPX + 5 = 2580
NAS – 15 = 6712
RUT – 9 = 1492
10 Y – .01 = 2.36%
OIL – .04 = 54.34
GOLD + 3.90 = 1275.30

Cryptocurrency

• Number of Currencies: 888
• Total Market Cap: $189,077,138,499
• 24H Volume: $7,220,358,890

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	6,936.4	$117.35B	$3.59B	49.69%	1	+2.99%	+21.11%
	Ethereum	ETH	277.77	$26.95B	$741.45M	10.27%	0.040594	-3.76%	-5.34%
	Bitcoin Cash	BCH	549.00	$9.52B	$1.30B	17.96%	0.0817164	+3.03%	+68.43%
	Ripple	XRP	0.18122	$7.19B	$99.04M	1.37%	0.00002682	-5.19%	-9.05%
	Litecoin	LTC	51.450	$2.76B	$159.73M	2.21%	0.00739832	-3.07%	-8.47%
	Dash	DASH	253.83	$1.95B	$60.01M	0.83%	0.0366871	-6.71%	-11.45%
	BitConnect	BCC	260.114	$1.91B	$24.17M	0.33%	0.0373998	+7.57%	+21.97%
	NEO	NEO	24.340	$1.59B	$59.18M	0.82%	0.00351398	-9.18%	-14.85%
	NEM	XEM	0.16222	$1.42B	$7.67M	0.11%	0.00002275	-2.71%	-21.96%
	Monero	XMR	82.37	$1.28B	$46.76M	0.65%	0.0119949	-4.22%	-6.40%

The Dow and the S&P closed near records. The Nasdaq slipped from a record high close yesterday.

The ISM manufacturing index fell to 58.7% in October, a month after hitting a 13-year high of 60.8%. Sixteen of the 18 industries tracked by ISM reported growth. After a flurry of activity in the wake of the hurricanes, we seem to be returning to more normal, yet still strong manufacturing growth.

Construction spending rose in September, led by a surge in government spending. Spending ran at a seasonally adjusted annual $1.22 billion rate. Spending increased 0.3% during the month, and stood 2% higher than a year ago.

For the second month in a row, public works projects drove the spending increase. Public-sector outlays were 2.6% higher than in August, while private-sector spending was 0.4% lower. Compared to a year ago, however, the pace of total public construction spending is 1.6% lower, while overall private spending is 3.1% higher.

The Federal Reserve left a key interest rate unchanged in November but called the economy “solid,” which is Fedspeak to say policymakers remain on track to raise the cost of borrowing next month.

The central bank had previously projected it would raise its benchmark fed funds rate, now between 1% and 1.25%, at its final meeting on Dec. 12-13. In a statement, the Fed also acknowledged core inflation “remained soft” and is likely to remain so in the short run.

The Fed offered a lengthy explanation of what happened to inflation after Hurricanes Harvey and Irma. Higher gas prices boosted overall inflation in September and the after-effects will continue to impact inflation, though for items other than food and energy inflation remained soft.  The Fed still expects inflation to reach its 2% target in the “medium term.”

The more muted language on inflation might be a clue the bank will proceed more cautiously early in 2018. But really no surprises from the Fed today. Fed Chairwoman Janet Yellen has said the strength of the economy justified more gradual rate hikes despite low inflation readings. The modest changes to the Fed statement shows that remains the majority view.

More indications that Jerome Powell will be nominated to replace Janet Yellen when her term expires in February. The Wall Street Journal reports Powell is the choice. An announcement is expected tomorrow.

Powell has never dissented from any decision since becoming a Federal Reserve governor in May 2012. He’s agreed to lift interest rates four times in five years. Put another way – there is hope Powell will represent continuity at the Fed. Powell has made clear he’s a proponent of the “off ramp” the Fed has chosen as it’s begun to reduce the size of its $4.5 trillion balance sheet.

In a speech in June, Powell also imagined the Fed balance sheet probably wouldn’t get below $2.4 trillion, and possibly not even $2.9 trillion. Stylistically, Bernanke called Powell a “moderate”.

We were waiting for the rollout of the GOP tax plan but it has been delayed. Maybe tomorrow. The problem is basic math – how to cut tax rates without eliminating popular tax breaks. The answer likely lies in smoke and mirrors.

Even if the delay does not throw the Republican schedule off course, it signals potential difficulties ahead for a bill that Republicans are attempting to pass on a party-line basis, over what appear most likely to be loud objections from some business groups — and relentless criticism from Democrats.

As Republicans rushed to lock down support from their members and key interest groups earlier on Tuesday, some new details of the bill began to trickle out. The draft bill is expected to cut the top corporate tax rate to 20 percent immediately, and not phase it in over a period of years, as had been discussed.

The plan might give up on trying to cut the highest rate for the wealthiest earners, which would be above the 35 percent the Republicans identified as their top tax rate in the framework released in September; the idea is to keep that rate at 39.6% and then protest the idea that they are cutting taxes for the wealthy. Maybe a phased in repeal of the estate tax over several years.

Republican leaders also confirmed they would maintain a federal tax deduction for at least some state and local property taxes paid, while eliminating comparable deductions for income and sales taxes. This is going to be a big problem – first because it looks a lot like double taxation – next because states’ rights – next because nobody wants to be taxed on their taxes to give a big tax break to corporations and rich guys.

It is now clear that the original plan to fully eliminate the deduction for state and local taxes is not dead – the big problem for people who believe in math is that the tax plan doesn’t work without those cuts. On taxes, everyone wants to go to heaven, no one wants to die.

Then, this morning Trump tweeted that the tax plan should include a repeal of the individual mandate on Obamacare, which would turn a difficult math problem into a big hot mess. Nobody is quite sure what the tweets mean, if anything, but tying the tax plan to the already failed effort to repeal Obamacare just doesn’t make sense.

GOP leadership is scrambling to get a tax deal done on an extremely compressed schedule, not only because they want to have an accomplishment to tout, but also because the quicker they do it, the less chance there is that resistance will build. And right now, they seem genuinely spooked by the possibility that the public will conclude that their tax cut is little more than a gigantic giveaway to corporations and the wealthy.

This is a well-grounded fear: It is, in fact, a gigantic giveaway to corporations and the wealthy, and polls show the public doesn’t believe corporations and the wealthy desperately need relief from the oppressive burden of taxation. Morgan Stanley warned in a report this week that enacting aggressive tax cuts to businesses and individuals risks “overheating” the economy and causing stocks to “boom then bust.”

The concern is that slashing the corporate tax rate from 35% to 20% could backfire by forcing the Federal Reserve to accelerate interest rate hikes. That in turn would raise borrowing costs for consumers and businesses, potentially unnerving the stock market along the way. Morgan Stanley strategists wrote: “Adding stimulus to an already strong economy likely stirs the Fed… pulling forward the end of an aging cycle.”

Ironically, given all the excitement on Wall Street about tax cuts, Morgan Stanley argues that “failure of tax reform” would be the “best” outcome for extending the economic and market recovery from the Great Recession.

So, what’s a one-day delay in releasing details of the tax plan? Well, that means there are just 10 working days for Congress between tomorrow and the Thanksgiving holiday. And while many things can be done in 10 days, re-wiring the economic engine might be overly ambitious.

Facebook beat earnings and revenue expectations. The company reported third-quarter net income of $4.7 billion, or $1.59 a share, compared to $2.63 billion, or 90 cents a share, in the year-ago period. Revenue rose to $10.3 billion from $7 billion in the year-ago period. Analysts surveyed by FactSet had estimated $1.28 a share on revenue of $9.8 billion.

Daily active users, a metric closely watched by analysts and investors, rose 16% to 1.37 billion, compared with the year-earlier period. For the fourth quarter, analysts model earnings of $1.70 a share on revenue of $12 billion. The company’s shares, which hit a record earlier in the day, initially rose in after-hours trading, but later fell into negative territory. They have gained almost 60 percent this year.

Meanwhile, lawmakers released a batch of Russian-bought Facebook ads that showcased politically charged content allegedly spread on social media by Moscow ahead of the 2016 U.S. election. Lawyers from Facebook, Twitter and Google testified about Russian influence on their networks. After decades of relatively little regulatory scrutiny, the tech industry is now on the defensive on a range of policy issues.

Tesla reported third quarter earnings – or more accurately they reported their largest ever quarterly loss. Tesla also pushed back its target for volume production on its new Model 3 sedan by about three months, saying that while progress fixing bottlenecks was made, it was difficult to predict how long it would take for all production issues to be fixed.

Tesla’s long-term viability depends on the Model 3, its new sedan that starts at $35,000, about half the price of its flagship Model S. Tesla plans to produce 500,000 vehicles in 2018, mostly Model 3s, a six-fold increase over 2016 levels.

But the company made just 260 Model 3 sedans in the third quarter due to “production bottlenecks,” it said. It had planned to build more than 1,500. Tesla posted a net loss of $619 million, or $3.70 per share, even as revenue rose to 30% to $2.98 billion. Tesla shares dropped about 5% in after-hours trade.

Earlier this month, Wells Fargo fired four foreign exchange bankers. No big deal, right? In its statement, Wells Fargo said, “The departure of these employees was not related to issues involving market collusion, front-running or market manipulation.”

We’re pretty sure you can see where this is going. Federal prosecutors are looking into possible front-running of trades. If it’s not one thing, it’s another.

Markets Add to Record Run

Charles Schwab: On the Market

Posted: 10/3/2017 4:15 PM EDT

Markets Add to Record Run

 

The U.S. equity markets moved further into record territory, as global economic sentiment continued to get a tailwind from yesterday's plethora of upbeat manufacturing reports and favorable September auto sales figures released today. Treasury yields inched lower after a recent rally and the U.S. dollar was little changed, while crude oil prices were mixed and gold was modestly higher.

The Dow Jones Industrial Average (DJIA) increased 84 points (0.4%) to 22,643, the S&P 500 Index was 5 points (0.2%) higher at 2,535, and the Nasdaq Composite advanced 15 points (0.7%) to 6,532. In moderate volume, 724 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.16 to $51.42 per barrel and wholesale gasoline was $0.01 higher at $1.57 per gallon. Elsewhere, the Bloomberg gold spot price rose $0.69 to $1,271.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 93.59.

Tesla Inc. (TSLA $348) announced that total Q3 deliveries of vehicles came in above expectations, led by its Model S and X cars, though its Model 3 shipments were well below estimates. The company said Model 3 production was less than anticipated due to production bottlenecks, but it pointed out that there are no fundamental issues with the Model 3 production or supply chain. Shares overcame early weakness and were higher.

Lennar Corp. (LEN $55) reported Q3 earnings-per-share (EPS) of $1.06, above the $1.00 FactSet estimate, as revenues rose 15.0% year-over-year (y/y) to $3.3 billion, topping the forecasted $3.2 billion. The homebuilder said its results were supported by strong demand for homes, low unemployment, favorable interest rates, and increased consumer confidence. LEN is gained solid ground.

The major automakers reported September sales today, with General Motors Co's (GM $43) sales rising 11.9% y/y, compared to FactSet's projected 8.1% increase. Ford Motor Co (F $12) reported an 8.7% rise in sales, versus the expected gain of 1.4%. Fiat Chrysler Automobiles NV's (FCAU $18) Chrysler sales fell 9.7%, compared to the expected 13.4% drop. GM and F were solidly higher, while shares of FCAU dipped.

Treasury yields and U.S. dollar take a breather

Treasuries finished higher, amid an economic calendar void of any major releases today. The yields on the 2-year and the 10-year notes, as well as the 30-year bond, declined 1 basis point (bp) to 1.48%, 2.33%, and 2.87%, respectively.

Treasury yields and the U.S. dollar have seen noticeable increases as of late as the Fed is set to begin to shrink its behemoth $4.5 trillion balance sheet, while signs of an uptick in inflation have joined the backdrop of a tight labor market to boost December Fed rate hike expectations. Global economic growth is widespread and the markets have appeared to become relatively optimistic in the wake of last week's release of the tax reform framework as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in his latest article, Tax Reform Framework Released, But The Road Ahead Is Long, on the Insights & Ideas page. Follow Schwab on Twitter: @schwabresearch.

The European Central Bank and Bank of England have also signaled moves to tighten monetary policy and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Meanwhile, the stock market has moved back to record high territory, showing resiliency in the face of a plethora of things to worry about as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, the economic docket will bring a couple September reads on the key U.S. services sector—the largest contributor to economic output—in the form of the ISM non-Manufacturing Index and Markit's final Services PMI Index. The ISM Index is expected to tick higher to 55.5 from 55.3 in August, while Markit's Index is projected to be unrevised at 55.1, but down from the prior month's 56.0 level. Readings above 50 for both indicate expansion. The consumer drives services sector activity and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, points out that the likelihood of gradually rising short-term interest rates, a continued solid employment picture, and improved wage growth are helping paint a healthy picture. However, he points out some potential negative factors, while providing our current view of the economic cycle that leads us to maintain our neutral stances on the consumer staples and discretionary sectors. You can read this in Brad's latest, Schwab Sector Views: Consumer Staples: More than Meets the Eye on the Market Commentary page at www.schwab.com.

Other reports set for release tomorrow include the ADP Employment Change report, with the measure of private sector jobs expected to decline sharply to a level of 135,000 added for September from the 237,000 posted in August, as well as MBA Mortgage Applications.

Europe ticks higher as Spanish political uneasiness remains, Asia mixed

European equity markets showed some late-day strength to finish mostly higher with yesterday's upbeat global manufacturing data supporting sentiment and overshadowing lingering Spanish political uncertainty in the wake of the weekend's independence vote in Catalonia, which was deemed as illegal. The euro was higher versus the U.S. dollar and bond yields in the region gained ground.

The British pound saw some pressure following a read on construction output, which unexpectedly fell into contraction territory for September, and as Brexit uncertainty festered. For a look at the Brexit process, see our article, Brexit Begins: What's Next for the U.K?, on the Insights & Ideas page at www.schwab.com. The pound jumped last month as the Bank of England signaled that a rate hike could happen in the coming months. Schwab's Jeffrey Kleintop, CFA, discusses the shift in monetary policy and points out that Inflation May Be The Biggest Question For Investors In 2018, on the Market Commentary page at www.schwab.com. German markets were closed for a holiday.

Stocks in Asia finished mixed, with global market sentiment continuing to be buoyed by recent upbeat economic data, bolstered by yesterday's favorable manufacturing reports out of the U.S., China, Japan and eurozone. The yen continued to see pressure, helping stocks in Japan finish at a two-year high. Markets rallied in Hong Kong after returning to action following yesterday's holiday, with financials leading the way on the weekend announcement that the People's Bank of China will reduce the amount of cash lenders must hold in reserve. Markets in mainland China and South Korea extended holiday breaks. Listings in India moved to the upside, but Australian securities declined in the wake of the Reserve Bank of Australia's (RBA) expected unchanged monetary policy decision.

However, the markets appeared disappointed by RBA Governor Lowe's remarks after the decision, which provided a mixed outlook to foster policy uncertainty. Amid this backdrop, Schwab's Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick note in the video, Is An Optimistic Outlook for Global Equities Warranted?, all of the world's top 20 economies are growing this year—a rare occurrence over the last decade, underpinning our positive outlook for global earnings. Read more on the Insights & Ideas page at www.schwab.com and follow Randy on Twitter: @randyafrederick.

Similar to the U.S., reads on the all-important services sector will dominate tomorrow's international economic calendar, while other items of note include retail sales from the Eurozone, and the Reserve Bank of India's monetary policy decision, with no change to the nation's interest rates expected.

Financial Review

Number 9

Sinclair Noe — August 7, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 25 = 22,118
SPX + 4 = 2480
NAS + 32 = 6383
RUT + 1 = 1414
10 Y – .01 = 2.26%
OIL – .27 = 49.31
GOLD – 1.10 = 1258.30
BITCOIN + 0.47% = 3447.61 USD
ETHEREUM + 0.88% = 269.15

The Dow hit an early morning, intraday high, dipped into negative territory and then hit a fresh intraday high before drifting into the close. Good enough for the 9^th record high close in a row. We have a low-inflation environment, low interest rates, and corporate earnings have come in incredibly well.

Analysts, on average, expect S&P 500 earnings to have expanded 12 percent in the second quarter and project earnings up 9.3 percent for the third quarter. The S&P, which is up about 11 percent this year, is trading at 18 times expected earnings, compared to its 10-year average of 14.

How long can the Dow Industrial keep hitting all-time highs? Who knows.

But the markets never follow a straight line and eventually this will end.  The streak comes as August trading gets under way and with September looming—historically two of the worst months for investors. If you have cash, there really is no reason to rush out and buy at these levels, especially if you think there will be a sale next week.

Friday’s July employment report showed job growth, at 209,000, well above the estimates for 180,000 new jobs. The unemployment rate fell to 4.3 percent in July, a decline of 0.1 from June, and a 16-year low. Goldman Sachs economists say the outlook for jobs is even better than they thought, and unemployment could go as low as 3.8 percent next year.

The firm’s economists, in a note over the weekend, talked about a labor market “overshoot,” with the trend in job growth remaining in the 150,000 to 200,000 range. Looking at such measures as the long-term unemployment rate, job openings and quits, and reports of skill shortages, the Goldman analysts say “the labor market is about as tight as in the full-employment years 2006 and 1989, though not yet as overheated as in 2000.

They expect the wage growth to finally tick up to about 3% by the end of the year. The economists said it appears that the labor market is likely to “overshoot” full employment, a condition that has resulted in recessions in the past. Even so, they are sticking with their forecast for Fed rate hikes, saying: “Our subjective probability of a hike by the December meeting remains around 60 percent, and our baseline for 2018-2019 is quarterly hikes.”

The dollar drifted slightly lower.  St. Louis Fed President James Bullard said the Fed can leave interest rates where they are for now because inflation is not likely to rise much even if the job market continues to improve.

And Minneapolis Fed President Neel Kashkari at a speech in South Dakota today, took a shot at companies saying they have worker shortages, arguing that workers are available if the pay is higher. Kashkari said, “If you’re not raising wages, then it just sounds like whining.” Kashkari also said that reducing immigration to the United States will reduce economic growth.

Total consumer credit increased $12.4 billion in June to a record seasonally adjusted $3.86 trillion, posting an annual growth rate of 3.9%. The historical main source of credit growth, non-revolving credit, which covers loans for education and cars, rose at an annual rate of 4.9% in June, down from torrid 8.2% in May.

Revolving credit, which is mostly made up of credit-card loans, increased at an annual rate of 3.9% in June, down from 5.7% in May.

The U.N. Security Council on Saturday imposed its toughest round of sanctions yet against North Korea over its two intercontinental ballistic missile (ICBM) tests in July. The sanctions could further choke North Korea’s economy by cutting its $3 billion annual export revenue by a third.

At a summit of Southeast Asian countries, Secretary of State Rex Tillerson held a door open for dialogue, saying Washington was willing to talk to North Korea if it halted a series of recent missile test launches. In a statement Monday, North Korea said it would never place its nuclear program on the negotiating table if the United States maintained a hostile policy against the North.

German health-care provider Fresenius is making a big push into the US market, buying home dialysis company NxStage for $30 per share in a deal valued at $2 billion.  Shares are up 28% on the news.

United Technologies has submitted an offer for aircraft parts maker Rockwell Collins. Rumors that Rockwell Collins has been working with an investment bank sent the stock up 4%. United Technologies did not comment on the news.

Berkshire Hathaway on Friday reported a 15 percent drop in second-quarter profit and missed estimates, as lower investment gains and a loss from insurance underwriting offset improvement in its BNSF railroad business. Berkshire ended June with about $99.7 billion of cash and equivalents.

ON Semiconductor rose 4.6 percent on stronger-than-expected second-quarter earnings and revenue.

Tyson Foods reported stronger-than-expected quarterly results, sending its shares up 5 percent, and said it would ramp up chicken production in the face of record demand from U.S. consumers.

CBS Corp, owner of the most-watched U.S. TV network, reported a 9.4 percent rise in second-quarter revenue, driven by higher content licensing and subscription fees.

Marriott International will partner with China’s Alibaba Group to tap into the growing number of Chinese citizens who travel abroad. The world’s biggest hotel chain said the joint venture with Alibaba would allow Chinese travelers to book rooms at Marriott hotels via Alibaba’s travel service platform, Fliggy.

The partnership will connect Marriott and Alibaba’s loyalty programs. Tourists would be able to pay for their bookings using Alibaba’s online payments platform, Alipay. Marriott has nearly 300 hotels in China and around 300 hotels in the pipeline.

Last week, Tesla announced its quarterly numbers; and once again, Tesla announced a quarterly loss. As the company ramps up production capacity for the Model 3, it is burning through cash at a prodigious pace. So, once again, Tesla is raising money, but this time they are not issuing more shares of stock.

Tesla will try to raise about $1.5 billion through its first-ever high-yield junk bond offering. Standard & Poor’s reaffirmed its negative outlook for the automaker and assigned a “B-” rating for the bond issue – deep into junk credit territory.

Apple’s iPhone 8 has gone to mass production, according to reports. The smartphone is likely to meet launch in September, and one of the new features will include augmented reality. AR is essentially a graphical overlay of CGI, or computer generated imagery, elements onto real world elements, typically generated by a video feed.

Here’s what that means; if you want to buy a new chair for your living room, you could take of a photo of the living room and the chair, and see how the chair looks in the living room. Or how about this – for hundreds of years, maybe thousands, the only way to measure the room was with a tape measure. The new iPhone will have a virtual tape measure, very handy for measurements where the tape measure can’t reach.

It seems like some people have a phone glued to their hands, and when you think about all the other gadgets we use these days, you might think we are using more electricity than ever. But the U.S. Energy Information Administration reports overall residential electricity sales have declined 3 percent from 2010 to 2016, and 7 percent on a per capita basis.

Americans are using less electricity than we did 10 years ago. Our numerous gadgets are all getting more efficient, so they’re less of a drain on residential electric bills. And our devices are also getting smaller. Most TVs are now flat and require less energy to operate than the giant TVs of yesteryear.

Also, laptops and tablets are more efficient than those big desktop PCs. Eventually, however, the EIA figures the ubiquity of rechargeable devices will counter efficiency gains, causing a net electricity consumption to increase from 2030 to 2040.

The Wall Street Journal reports penalties levied against firms and individuals by the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority in the first half of 2017 were down nearly two-thirds compared with the first half of 2016—putting regulators on track for the lowest annual level of fines since at least 2010.

Fines of $489 million in the first half of 2017 compared with $1.4 billion in the 2016 period.

Wink, wink, nod, nod.

Financial Review

22k Day

Sinclair Noe — August 2, 2017

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

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DOW + 54 = 22,016
SPX + 1 = 2477
NAS – 0.29 = 6362
RUT – 15 = 1412
10 Y + .01 = 2.26%
OIL + .45 = 49.61
GOLD – 2.00 = 1267.20
BITCOIN + 0.06% = 2739.83 USD
ETHEREUM – 0.59% = 218.89

The Dow closed above 22,000 for the first time ever. Not a big surprise. After the closing bell last night, Apple reported a strong quarter for earnings, and the stock moved to a record high, which carried over to today’s trading.

Apple jumped 4.73 percent to a record high. It is up 36 percent this year. Apple’s gains helped push the Dow to a record closing high, although tech heavyweights Microsoft, Facebook and Alphabet all lost ground following recent strong gains that have made the sector the strongest performer in 2017.

The Dow has risen 11 percent in 2017 and hit its sixth straight record close today. The Dow hit the 20,000 level in late January and crossed the 21,000 mark on March 1. The last time the S&P pulled back by 5 percent or more was just ahead of the election when it gave back 5 percent. There also was a sell-off after the June 2016 Brexit vote of 6 percent.

The last large correction was the more than 11 percent pullback that ended in February 2016. So, some of the techs are pulling back now but it is not a sharp pullback, rather a pause to catch your breath; all very orderly and neat, at least for now. The bears haven’t had enough power to break it down and there is still buying interest.

Two-thirds of S&P 500 companies have reported their second-quarter earnings so far and 72 percent of them have beaten Wall Street’s expectations, according to Thomson Reuters I/B/E/S. In a typical quarter, 64 percent of companies beat expectations.

The Dollar index was down slightly again today at 92.7, and it is now at a critical level of long-term support. At some point over the next few days, we should see a bounce or a breakdown. The U.S. dollar index has fallen more than 9 percent this year to its lowest since May 2016.

A weaker dollar is good for US companies with international exposure. Goldman has developed a basket of 50 S&P 500 stocks with a high percentage of international sales. Those companies should do well with a weaker dollar. So far, the group has climbed 18 percent this year, versus 7 percent gains for Goldman’s basket of stocks with domestically-generated sales. The S&P 500 has risen 10.5 percent this year.

Can anything stop the euro? That’s a serious question. Europe’s shared currency briefly rose through $1.19 on Wednesday for the first time since the start of 2015 and rising from as low as $1.0570 in April when the rally started. Although much of the euro’s strength is a function of the dollar’s weakness, there’s no denying that the euro zone economy is gathering pace.

Eurostat data showed the economy expanded 2.1 percent in the second quarter from a year earlier, the fastest pace since 2011. To be sure, a stronger euro could start to bite into the profits of European exporters, and there are signs that analysts are starting to temper their earnings estimates as a result.

Keep an eye on the Bank of England tomorrow. The BOE’s Monetary Policy Committee kept rates unchanged when it last met, in June. But the split vote suggested that some members were worried about the risk of a persistent inflation overshoot.

A weaker dollar has also helped oil prices move higher, but in the oil field, it is still a matter of supply and demand. The shale surge that’s tied down global oil prices shows no signs of abating, as four of the biggest U.S. drillers said this week that they’re not backing away from lofty production targets for 2017. Shale production is going up. It’s not a matter of if; it’s just a matter of how much.

Much of the discussion in markets the next couple of months is likely to center around the U.S. debt ceiling and whether lawmakers raise it or if there will a big battle between Republicans and Democrats that results in a government shutdown that hurts markets. Traders are already willing to pay up for Treasury bills maturing after Oct. 19 to avoid being caught holding securities vulnerable to a technical default.

President Trump signed into law new sanctions against Russia, a move Moscow said amounted to a full-scale trade war and an end to hopes for better ties with the Trump administration. Congress overwhelmingly approved the legislation last week, passing a measure that conflicts with the Republican president’s desire to improve relations with Moscow.

While Trump signed the bill, he criticized it as infringing on his powers to shape foreign policy and said he could make “far better deals” with governments than Congress can.

Data showed U.S. private employers added 178,000 jobs in July after adding 191,000 in June. The more comprehensive non-farm payrolls report is due on Friday.

Tesla shares gained 6 percent after the company reported a narrower-than expected loss. The electric automaker also reported strong revenue as they start making deliveries of the new, more-reasonably-priced Model S sedans.

Tesla continues to burn through cash as it ramps up manufacturing capabilities. Tesla reported negative free cash flow of $1.1 billion in the second quarter in a letter to shareholders Wednesday, less than the $1.3 billion projected by analysts. The burn rate was still a quarterly record and almost double the amount of money Tesla went through in the first three months of the year.

Tesla forecast spending $2 billion in capital expenditures in the second half of the year, up from $1.5 billion in the first six months of the year. Tesla had said it planned to produce 500,000 vehicles annually by 2018 and would ramp up costs to meet that goal.

Shares of Fitbit gained as much as 8 percent after the company posted better-than-expected quarterly results. Co-founder and CEO James Park said Fitbit saw strong sales with unexpectedly strong demand, leading to a reduction in inventory.

Square ticked 1 percent higher after the company reported results that bested analyst expectations. The Jack Dorsey-led company posted a loss of 4 cents per share on $552 million in revenue. Wall Street had expected a loss per share of 5 cents on revenue of $536 million.

Shares of AIG edged higher after the company reported earnings per share above analyst expectations. The company posted earnings per share of $1.53, easily besting the consensus estimate for about $1.20 a share.

Cheesecake Factory shares fell 7 percent after the company reported a decline in comparable restaurant sales, outweighing earnings and revenue that were roughly in-line with expectations. The company said same-restaurant sales declined 0.5 percent during the period.

AutoNation fell 7 percent after the largest U.S. auto retail chain reported lower quarterly profits.

Cardinal Health fell 8.2 percent after the drug distributor’s 2018 profit forecast missed analysts’ estimate.

Theranos just reached a settlement with Walgreens. In November 2016, Walgreens filed a $140 million lawsuit against Theranos, accusing Theranos of a breach of contract. Walgreens had ended its relationship with Theranos a few months prior in June 2016.

It had operated Theranos Wellness Centers, where people could go have their blood tested in the company’s stores. Until October 2016, Theranos’s business model was based around the idea that it ran blood tests using proprietary technology that requires only a small amount of blood.

Theranos has been under fire since October 2015 after the Journal published an investigation that questioned the accuracy of its blood test. Eventually, one of the company’s lab-testing locations was shut down, and its founder — Elizabeth Holmes — was originally barred for two years from running a clinical lab.

The settlement with Walgreens is the last in a series of major settlements between Theranos and investors, as well as the state of Arizona.

Financial Review

End of an Era

Sinclair Noe — July 31, 2017

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

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DOW + 60 = 21, 891
SPX – 1 = 2470
NAS – 26 = 6348
RUT – 4 = 1425
10 Y + .01 = 2.29%
OIL + .46 = 50.17
GOLD – .30 = 1269.80
BITCOIN – Undefined % = 2910.34 USD
ETHEREUM + 4.76% = 214.43

The Dow industrials traded in record territory. Losses in the tech sector weighed on the broader market. Despite the dip on the day, the S&P is within 1 percentage point off its own record, while the Nasdaq is 1.5% from its own.

For the month, the Dow is up 2.5%, while the S&P is up 1.9% and the Nasdaq has risen 3.4%. July was the second-best month of the year for both the Dow and the S&P. Both posted their fourth straight monthly gain. The DOW, S&P and Nasdaq recorded their eighth monthly increase of the past nine months.

The tech sector has not fallen off a cliff. The Dow hit 21,000 on March 1, and 22,000 is now just a chip shot away. The Dow hit 19,000 back in November.

We made it through some big earnings reports and some investors took profits or shuffled the lineup. Moving forward, good earnings will continue to be rewarded and bad earnings will be punished. S &P 500 earnings are expected on average to have grown 10.8 percent in the second quarter.

Tomorrow, Apple reports after the closing bell.

For the month, oil rallied 8.9%, its biggest monthly gain of the year. On a most-active basis, gold saw a roughly 2.5% gain in July. Silver rose around 1.3% in July. The Dollar Index lost almost 3% for the month of July, and posted its fifth straight monthly decline.

In the latest economic data, the Chicago purchasing managers index fell to 58.9 in July from 65.7 in the previous month. Separately, pending-home sales rose 1.5% in June, snapping a three-month streak of declines.  The housing market remained constrained by a shortage of properties available for sale. The June increase in pending sales suggests that existing home sales will likely increase soon, but the June increase for the index undid only a portion of the decline reported over the prior few months.

Loan officers at US banks reported tightening lending standards on commercial real estate loans while terms for business loans remained largely unchanged. According to the Federal Reserve’s quarterly survey, demand was weaker for commercial real estate and business loans in the second quarter. Some banks also reported a tightening in auto and credit card loan standards, with demand also weakening in that category.

Life moves pretty fast. If you don’t stop and look around occasionally, you could miss it. Today’s case in point, The Mooch is gone. Anthony Scaramucci has resigned as White House Communications Director, just 10 days after accepting the position.

During the Mooch era, we saw the quick resignations of Sean Spicer, the former press secretary, and Reince Priebus, the president’s first chief of staff. Priebus was replaced by General John Kelly, who had been running the Department of Homeland Security.

Kelly began his first day in charge of the White House staff by telling aides that he intended to impose a new sense of order and operational discipline that had been absent under his predecessor.

Even in an administration that has set records for quick departures, Scaramucci’s flameout was fast and phenomenal. It’s been a rough season for Scaramucci, who sold his hedge fund to work for Trump, got a top job, and then saw his marriage and job both crumble. The move leaves Trump once again without a communications director. The office has proven to have something of a curse.

The first person named to the job, Jason Miller, withdrew before taking over. Spicer served on an interim basis until Mike Dubke was named to the post in February, but Dubke resigned in May after an ineffectual term. Spicer then once again stepped in until Scaramucci’s appointment. It’s unclear who will serve in the role now. Deputy Press Secretary Sarah Huckabee Sanders was promoted to press secretary the same day Scaramucci took over.

White House officials outlined what one of them called an “aggressive” timetable for getting a tax overhaul in place before the end of the year. The plan for a tax code rewrite is to start hearings and a markup of the bill after Labor Day so a version can get through the House in October and the Senate in November. The White House has said it wants to lower corporate and individual tax rates, eliminate deductions and simplify the code.

Despite assurances on timing, many obstacles and unanswered questions remain about how to offset cutting tax rates with new revenue. Few details of the planned tax code rewrite have emerged from weekly, closed-door tax meetings between Trump’s advisers and congressional leaders.

Last week, White House officials and congressional leaders released a joint statement outlining their tax principles, with the only real progress disclosed being that the border-adjusted tax wouldn’t be part of negotiations going forward.

The US government slapped sanctions on Venezuelan President Nicolas Maduro today. In a referendum over the weekend, President Nicolás Maduro’s government claimed it has won overwhelming powers to redraft Venezuela’s constitution. Washington denounced the election as a “sham” vote.

No oil-related measures were included in the announcement, but such measures remain under consideration. Under the sanctions, all of Maduro’s assets subject to U.S. jurisdiction were frozen, and Americans are barred from doing business with him.

The sanctions against Maduro could be followed by measures targeting further senior Venezuelan officials as well as oil-sector measures in an “escalatory process” depending on how far the Venezuelan government goes in implementing the new congress following Sunday’s vote.

Former Maricopa County sheriff Joe Arpaio has been found guilty of criminal contempt for violating the terms of a 2011 court order in a racial profiling case. Arpaio, who lost his bid for re-election as Maricopa County sheriff last November after 24 years in office, faces a maximum penalty of six months in jail and a fine when he is sentenced on the misdemeanor offense on Oct. 5.

U.S. District Judge Susan Bolton found Arpaio guilty of contempt for intentionally defying the 2011 court order, which barred his officers from stopping and detaining Latino motorists solely on suspicion that they were in the country illegally.

The judge in the underlying lawsuit, brought by the American Civil Liberties Union and others in 2007, held that such traffic stops were a violation of the motorists’ constitutional rights. Federal prosecutors said racial profiling of Latino drivers continued for about 18 months after the injunction was issued, with 170 more people wrongfully detained. Arpaio says he will appeal the decision.

Los Angeles will host the 2028 Olympic Games. Paris will host the 2024 games. For 2024, Budapest, Rome, Hamburg, and Boston all dropped out after facing popular resistance. Civic leaders have grown wary of the costs of hosting. Russia spent a record $51 billion to host the 2014 Winter Games in Sochi, while organizers of the 2016 Summer Games in Rio de Janeiro have struggled to pay off debts.

Shares of Scripps Networks rose 0.6% after Discovery Communications said it would buy the owner of HGTV, Food Network and Travel Channel among others. Shares of Discovery Communications fell more than 7.4%.

Charter Communications rose 5.8% t to a record high after a source said Japan’s SoftBank Group was considering an acquisition offer.

Friday night Tesla delivered the first of its Model 3 mass-market sedans to their new owners. Tesla has been a manufacturer of high-end electric cars in small numbers. But now, Tesla wants not only to become a large-scale producer in the suddenly crowded field of battery-powered vehicles but also to lure consumers away from mainstream, gasoline-powered automobiles.

The biggest hurdle is expanding manufacturing capacity in Fremont fast enough to begin satisfying the enormous interest in the new car. About 500,000 people have put down $1,000 deposits since last year to reserve delivery of Model 3s when they are available. Tesla manufactured 25,000 cars in the last quarter. Volkswagen and Toyota manufacture 25,000 cars a day.

And all of the sudden, the major manufacturers are going all in on electric. Daimler announced a $740 million investment to produce EV batteries in China. Cummins noted it would have a fully electric truck platform available by the end of 2019.

Lyft pledged to provide a billion rides a year powered by electricity by 2025. Porsche set a 2023 target for having 50 percent of its production be electric vehicles. Volvo Cars announced that “all the models it introduces starting in 2019 will be either hybrids or powered solely by batteries”

Financial Review

3 Things

Sinclair Noe — July 10, 2017

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

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DOW – 5 = 21,408
SPX + 2 = 2427
NAS + 23 = 6176
RUT – 7 = 1408
10 Y – .02 = 2.37%
OIL + .09 = 44.49
GOLD + 1.90 = 1215.10
GOLD – 12.80 = 1213.20
BITCOIN – 0.60% = 2357.73 USD
ETHEREUM – 5.71% = 199.45

Three big events on the calendar this week, including: Janet Yellen’s semi-annual testimony before Congress, another attempt to pass a replacement to Obamacare, and Amazon Prime day.

Congress returned from a July 4 recess, with Senate Republicans beginning to consider what they should do if their Obamacare replacement bill fails. While lawmakers were on recess, they heard from constituents at home, and the message was strong opposition to the Better Care Reconciliation Act; a survey in late June showed the plan had only 17% support from US voters.

With a slim 52-seat majority, they can only afford to lose two GOP senators and still let Vice President Pence break a tie. Roughly 10 GOP senators have come out against the current version of the Senate healthcare bill. Senate Republicans want to roll out a new draft of their bill to repeal and replace Obamacare as soon as this week, with a vote next week.

Before a vote, they will need an update from the Congressional Budget Office. Senators could release an updated draft of their bill by the end of the week. Senate Republicans sent two proposals to the CBO late last month, one including an amendment from Sen. Ted Cruz and one without.

The Cruz proposal would give insurance companies the freedom to sell any kinds of health plans they want if they also sell at least one plan that qualifies under the regulatory requirements of the Affordable Care Act. But the amendment has drawn push-back from GOP senators, who warn that the proposal won’t be able to get enough support to pass. Some senators are now pushing a “repeal now, try to come up with a replacement later” approach.

A straight repeal bill almost certainly would not have the votes to pass. Trump has also suggested moving forward with a simple Obamacare repeal bill if negotiations fall apart. That would at least, supporters say, fulfill a key GOP promise and allow lawmakers more time to draft an acceptable replacement. But Senate Majority Leader Mitch McConnell and more moderate members would rather work with Democrats on a short-term plan to stabilize the insurance markets, lest they deteriorate even more.

Meanwhile, the Trump administration is aiming to come to an agreement on a draft tax plan with the House and Senate before the August recess, with the goal of beginning legislative action after the break. The plan always called for dealing with health care first, then tax reform, so…

What will Janet Yellen say in Congressional testimony? The Federal Reserve chair will discuss the outlook for policy and the economy in Congressional testimony on Wednesday and Thursday in her semi-annual testimony before the House and Senate. Investors will focus on her views regarding interest rate policy and when the central bank plans to start winding back its $4.5 trillion balance sheet.

In its latest meeting minutes, released last week, the Fed remained guarded about the timing of reducing reinvestment flows. The minutes noted that several Fed officials wanted to announce the start to the process of trimming asset holdings within “a couple of months’’, suggesting the September policy meeting may well mark the moment.

Against the backdrop of solid job gains, the quibble from the bond market is the lack of inflation pressure. A gain of 222,000 new jobs during June, alongside upward revisions for May and April, was accompanied by sluggish wage growth. So, we are left with a divergence between bond traders and policy officials.

While the Fed forecasts a further tightening of 100 basis points (or 4 more quarter-percentage point hikes) by the end of 2018, the bond market pegs that at around 45bp. Yellen ‘may well seek to narrow the gap between the Fed’s assessment on the policy outlook and what the market is currently anticipating.

Another focus for investors and markets is any expansion of Yellen’s comments regarding ‘somewhat rich’ asset price valuations and those of William Dudley, the NY Fed president, that loose financial conditions can provide ‘additional impetus’ for rate hikes. Look for Yellen to be very transparent. She will probably try to telegraph any Fed action. The Fed has been acting only after there is no doubt they will act.

Yellen says the process for trimming the Fed’s balance sheet will be like watching paint dry. Still, the testimony should be entertaining, if only to demonstrate Congress’ complete lack of basic economics.

In case you haven’t heard, Tuesday, July 11, is the third annual Amazon Prime Day, actually it starts at 6PM (pacific) tonight. With two years of experience under its belt, Amazon is planning its biggest Prime Day yet. If you haven’t heard of Prime Day, it’s Amazon’s biggest sales event of the year. More than 100,000 items are set to be discounted, but the discounts will be available only for Amazon Prime members.

Deals are released sporadically throughout the day and are available for a set time or until the product sells out. New products will be rolled out every 5 minutes or so. What can you expect to be discounted? Everything from home goods, to electronics, to clothing; basically, if it’s available on Amazon, there’s a good chance Prime Day will be one of the best days to buy it.

Think of Prime Day as Black Friday in July; big-ticket items like TVs, tablets, and Amazon products like its Echo smart speakers, Kindle e-readers, and Fire TV will be way cheaper than usual. It’s also a good day to pick up tech accessories you’ve been meaning to buy, like headphones, portable chargers, car mounts, phone cases, or laptop stands.

Those discounts probably won’t be as dramatic, but if you buy a few of them, the savings will quickly add up. Another thing to watch out for is discounts on gift cards, which is basically free money. If you eat at certain restaurants or shop at a specific brick-and-mortar store, it’ll be well worth your while to keep an eye on those.

JP Morgan estimates that Amazon Prime Day would generate about $1 billion in sales, a 55% jump from last year. And because the event requires Prime subscription membership, the effect should carry over into the rest of the year. Still, you might want to shop around; 76 percent of Prime Day shoppers will visit other online stores to research product ratings and reviews before making a purchase on Amazon.

Rival retailers are not about to sit on the sidelines. Instead, they are hoping to capitalize on the heavier-than-normal shopping traffic online this week, and that means almost everybody will be running sales this week.

The Federal Reserve reports consumer credit rose at a 5.8% clip, or by $18.4 billion, in May. That’s the fastest rate in seven months, and comes as revolving credit like credit cards jumped 8.7%. Non-revolving credit, typically auto and student loans, rose 4.7%.

Abercrombie & Fitch is not for sale. Shares of Abercrombie & Fitch plunged 21 percent and dragged down other retail stocks as the teen apparel maker terminated talks over a potential sale. Abercrombie, which has a market value of $650 million, had said in May it was in talks with several bidders regarding a potential sale

The first Model 3 rolled off the assembly line today. The Tesla Model 3 will be priced at around $35,000. Tesla has already taken in roughly half a billion dollars in Model 3 deposits, at $1,000 apiece, and its proposed ramp-up schedule would have it rivaling well-established U.S. market peers like BMW and Mercedes by year’s end.

The only thing standing between Tesla and being the world’s first mass-market electric car-maker is proving it can build, deliver, and service enormous numbers of these vehicles—without sacrificing quality. One down, millions more to go.

Faraday Future, which also makes electric cars said it is deserting its plan to construct a $1 billion manufacturing plant in southern Nevada eight months after suspending the project and sinking at least $120 million into it. Thousands of jobs had been anticipated to come with the construction and launch of the proposed plant on a 900-acre site at the Apex Industrial Park in North Las Vegas.

Honda Motor confirmed an 11th U.S. death involving one of its vehicles tied to a faulty Takata air bag inflator. Honda said the incident occurred in Florida in June 2016 when an individual was working on repairs on a 2001 Honda Accord and the air bag ruptured. At least 17 deaths and 180 injuries worldwide are now tied to the defect that prompted the largest ever auto safety recall and led Takata to file for bankruptcy protection last month.

The Consumer Financial Protection Bureau decided to ban most types of mandatory arbitration clauses, which require credit card or bank customers to use a mediator when they have a dispute — often giving up their right to sue in court.

Mandatory arbitration clauses are found in the fine print of tens of millions of financial products, from credit cards to checking accounts. Because consumers generally don’t carefully read the fine print on the agreements for their checking accounts and credit cards, they are often unaware they are subject to arbitration. Consumer advocates have been pushing for years for stricter federal regulation of these types of clauses.

Banks have strongly opposed banning arbitration clauses, arguing that arbitration is a more efficient way of handling small disputes. There’s also a bottom line impact: banks could be exposed to billions of dollars in lawsuits from customers, specifically class action suits.