Financial Review

Delayed Not Dead

Sinclair Noe — June 27, 2017

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DOW – 98 = 21,310
SPX – 19 = 2419
NAS – 100 = 6146
RUT – 13 = 1403
10 Y + .06 = 2.20%
OIL + .34 = 43.72
GOLD + 2.20 = 1247.70
BITCOIN – 1.73% = 2548.23 USD
ETHEREUM – 1.73% = 287.89

Last week, Senate Majority Leader Mitch McConnell unveiled Trumpcare, the Better Care Reconciliation Act of 2017, the Senate version of the American Health Care Act, which was the House version of a plan to repeal and replace Obamacare. Yesterday, the Congressional Budget Office published its analysis, or score for Trumpcare and it was ugly.

The Senate legislation would repeal Obamacare’s taxes and insurance mandates and phase out its Medicaid expansion, but it drew criticism from Republican senators on both ends of the ideological spectrum. Conservatives were miffed that it did not fully repeal the 2010 health law, while moderates opposed its deep cuts to Medicaid and blanched at a projection from the Congressional Budget Office that it would result in 22 million fewer people having insurance over a decade.

McConnell said he wanted a vote by Thursday or Friday, before senators recessed for the July 4^th holiday. But that won’t happen. Today, McConnell says the vote will be delayed; they will try to make adjustments to the bill to make it acceptable. GOP leaders had argued that more time would not help the public perception of the bill, which is broadly like legislation the House passed last month that polls show is deeply unpopular.

Now, lawmakers will go home for the holiday, and they are going to hear from constituents. And it will get loud. The president invited all 52 Republican senators to the White House for a meeting this afternoon after initially having little involvement in the Senate’s deliberations. Under the reconciliation process, the bill only needs 51 votes to pass; 50 senators plus the vice president.

That means if 3 Republicans vote against the bill, it does not pass. But at least 6 GOP senators—Susan Collins of Maine, Dean Heller of Nevada, Ron Johnson of Wisconsin, Mike Lee of Utah, Rand Paul of Kentucky, and Ted Cruz of Texas – said they would vote against even bringing the bill up for debate this week unless changes were made.

And there are others stepping up: Senator Jerry Moran of Kansas tweeted that he, too, was against the bill. Senators Rob Portman of Ohio and Shelley Moore Capito of West Virginia followed suit soon afterward.  Senators Cory Gardner of Colorado and Lisa Murkowski of Alaska are likely to jump ship, or at least press for a better deal. That’s at least 11 republican senators who are not on board.

Conservatives like Johnson, Paul, and Cruz were pushing for amendments that would lower premiums and eliminate—or allow states to opt out of—Obamacare insurance regulations, including the provision prohibiting companies from charging higher rates to people with preexisting conditions.

Portman and Capito, meanwhile, wanted tens of billions of dollars more to help states fight the opioid epidemic and changes that would soften the billions in cuts to Medicaid. So far, McConnell has not open the bill to negotiation.

For now, the plan is to squeeze holdouts, but it doesn’t seem to be working. Yet it would be premature to consider the bill dead. House Republican leaders were also forced to put off a vote on their bill earlier this year only to work out a compromise that allowed it to pass weeks later.

While the delivery of health care is of vital social importance, Wall Street is focused on the next thing – tax reform. But to get there, the administration must work through health care first so that its impact on the budget can be determined. Without a deal on health care, representing one-fifth to one-sixth of GDP, it is difficult to figure out taxes.

Wall Street has generally risen since President Donald Trump’s election in November, in large part due to hopes that his economic agenda—including massive tax cuts and deregulation—would accelerate economic growth. However, his administration has seen few legislative successes, raising questions about whether the broader market’s valuations are justified if the thesis that drove them higher fails to come to fruition.

This does not mean that tax reform is dead, just slightly delayed. This means that GOP donors are going to turn up the heat on senators over the coming days pushing for health care and/or tax reform, and the donors will be pushing hard.

Fed Chairwoman Janet Yellen told an audience in London that asset valuations are “somewhat rich.” She repeated plans to hike interest rates gradually. Fed Vice Chairman Stanley Fischer told an International Monetary Fund event that price-to-earnings ratios now stand in the top quintiles of their historical distributions.

Fischer also said rising valuations in equities and in other parts of the global market are partly explained by a brighter economic outlook but also by elevated risk appetite. San Francisco Fed President John Williams gave the bluntest assessment, telling an Australian television station that the stock market is running on “fumes.”

Both Yellen and Fischer touted the capital built up at the nation’s biggest banks. Ahead of the release of the second stage of the stress tests due Wednesday, Fischer pointed out that regulatory capital at large banks is now at multidecade highs.

Yellen went further and said another crisis like the one that caused the Great Recession isn’t likely in our lifetimes. And of course, Chair Yellen will be absolutely and totally correct, if we all die by Friday.

The Fed famously was not particularly contrarian in identifying risks before the Great Recession.

The IMF, coincidentally, blessed the Fed’s rate hike cycle in their annual review of the US. The IMF isn’t terribly optimistic on the US economy, projecting 2.1% growth this year and seeing growth slow from there. The IMF also said there were “larger than usual” risks to the US economy, given policy uncertainties.

They threw some shade on Trump’s pro-growth agenda, say that even with an “ideal constellation of pro-growth policies,” the Trump administration’s forecast that it would boost GDP by 1 percentage point is “unlikely.” The IMF said the US dollar is moderately overvalued, by 10% to 20%.

Home prices pulled back slightly in the latest Case Shiller report. The S&P/Case-Shiller 20-city index rose 5.7% in the three-month period ending in April compared to a year ago, down two ticks from the 5.9% annual gain notched in March.

Despite those decelerations, prices continued to reflect sturdy demand. Only one metro in the 20-city index, Cleveland, saw a monthly decline, while in Seattle, prices surged 2.6% for the month. Phoenix posted a 0.8% increase for the month and a 5.7% gain over the past 12 months.

European Union antitrust regulators have leveled a $2.7 billion fine against Google. EU antitrust regulators said Google abused its dominance in search to promote its own comparison shopping service while demoting those of competitors. Alphabet said it disagreed with the decision and would consider an appeal.

Alphabet had $92 billion in cash or equivalents at the end of the first quarter. That means the fine represents less than 3% of Alphabet’s cash position. Considering the company generated an average of about $68 million a day in cash during the first quarter, it could raise the cash to pay for the fine in just 40 days, or by Aug. 8.

The market hit was bigger, Alphabet lost about $16 billion in market capitalization today. Regulators promised Google was in for years of monitoring to guard against further abuses. And Google will have to prove that rivals have made substantial inroads into its businesses before there is much chance of it being let off the regulatory hook.

Google does not want to change its search business model but the economics of continuing the fight aren’t really in Google’s favor. Google has 90 days to comply or face an additional daily fines.

A ransomware cyberattack has hit Europe and spread to the US. The “Petya” ransomware attack was first reported in Ukraine, where the government, banks, state power utility and Kiev’s airport and metro system were all affected. The radiation monitoring system at Chernobyl was taken offline, forcing employees to use hand-held counters to measure levels at the former nuclear plant’s exclusion zone.

The food giant Mondelez, legal firm DLA Piper, Danish shipping and transport giant AP Moller-Maersk and Heritage Valley Health System, which runs hospitals and care facilities in Pittsburgh, also said their systems had been hit by the malware.

Brazil is bracing for a fresh bout of political turmoil after the president, Michel Temer, became the country’s first sitting head of state to be formally charged with a crime. Less than a year after taking power following impeachment of Dilma Rousseff, the deeply unpopular leader was formally accused of corruption by the attorney general Rodrigo Janot and could now face a lower house vote on whether he should be tried by the supreme court for taking bribes.

In a damning indictment to the supreme court, Janot alleged Temer took millions of dollars in bribes from meat-packing giant JBS. The attorney general said the president had “fooled Brazilian citizens” and compromised the image of the country.

These allegations followed the release of a secret recording of a conversation earlier this year between Temer and the JBS executive Joesley Batista, in which the president appeared to endorse hush money payoffs to former house speaker Eduardo Cunha, a member of Temer’s party who is serving a 15-year sentence for corruption.

Temer’s predecessor Dilma Rousseff – who was ousted in an impeachment plot in May 2016 – was quick to note that her former running mate was now accused of greater crimes than those for which she was removed from office last year. She tweeted: “The result of the 2016 coup: leaving the country in the hands of the only president indicted for corruption.”

Financial Review

Scored

Sinclair Noe — June 26, 2017

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

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DOW + 14 = 21,409
SPX +0.77 = 2439
NAS – 18 = 6247
RUT + 1 = 1416
10 Y UN = 2.14%
OIL + .42 = 43.43
GOLD – 12.10 = 1245.50

Another quiet day on Wall Street. That is the new normal. The S&P 500 this year has been more likely to move less than 0.1 percent than to move more than 0.5 percent in a trading session. The index has closed at least 1 percent higher or lower a mere four times this year.

The CBOE volatility index has fallen to 23-year lows. And still the market keeps inching higher. The market is still hovering near record highs.

The non-partisan Congressional Budget Office has released its score of the Better Care Reconciliation Act, this is the Senate version of legislation to repeal and replace Obamacare. The Senate Republican health care bill would leave 22 million fewer Americans with health insurance by 2026 than under Obamacare.

And while that is a slight improvement on 23 million that would lose insurance under the House version, it is still a dreadful number. Next year, 15 million more people would be uninsured compared with current law. Like the House bill, the Senate’s version would end enhanced funding for Medicaid expansion, though at a slower pace, while overhauling the entire Medicaid program.

It would eliminate the mandates that require nearly all Americans to have coverage and companies with more than 50 workers to provide health benefits. And it would jettison Obamacare’s taxes on the wealthy, insurers and others, while allowing insurers to charge more to older policyholders.

However, the Senate bill would maintain much of Obamacare’s subsidy structure to help people pay for individual coverage, but make it less generous, particularly for older enrollees. And it would keep more of Obamacare’s insurance regulations than the House legislation. The Senate version also provides funds to stabilize the Obamacare market over the next few years, including money for a key set of subsidies for insurers.

The legislation is wildly unpopular. Before the budget office released its report this afternoon, the American Medical Association officially announced its opposition to the bill, and the National Governors Association urged the Senate to slow down. The AARP slammed the Senate GOP bill, calling efforts to repeal and replace ObamaCare “harmful” and denouncing what it calls an “Age Tax” affecting the nation’s senior citizens.

The GOP plan allows insurance companies to charge older adults up to five times more than younger people, while under ObamaCare older Americans can only be charged three times as much as younger people. The lobbying group for seniors accused Senate GOP leaders of crafting legislation in “secrecy” that “would hit millions of Americans with higher costs and result in less coverage for them.”

Here are a few other key findings from the CBO:
Premiums would increase in 2018 and 2019 compared to the current baseline, but decline thereafter: According to the CBO, premiums would increase 30% more than the current projection in 2018 and 10% higher than the current baseline in 2019. From 2020 and beyond, the change in the risk pool with older and poorer Americans likely priced out would bring these premiums down.

Deductibles and out of pocket costs would increase substantially: The benchmark plan on the individual insurance market would have an actuarial value of 58%, meaning insurance was obligated to cover 58% of the total costs. That is down from the current 70% benchmark value. According to the CBO, that opens the door for higher deductibles and out-of-pocket costs.

Earlier today, Republicans released changes to their healthcare bill, adding a measure that would penalize people who let their insurance coverage lapse. The revised bill would impose a six-month waiting period for anyone who lets their health insurance lapse for over 63 days and then wants to re-enroll in a plan in the individual market.

The legislation would decrease federal deficits by a total of $321 billion over a decade; more than the $119 million in savings in the House bill, between 2017 and 2026. The savings are made possible by cutting $862 billion in spending over that time-frame while also reducing tax revenue by $541 billion. It represents a big tax cut for wealthy taxpayers, but even bigger spending cuts, mainly to Medicaid.

That means the legislation can continue under the budget reconciliation process, which only requires 51 votes to pass. As of today, it does not have enough votes to pass. Five Republican senators have said they would not vote for the BCRA, several others have indicated they are leaning in the direction of a vote against and it doesn’t look like the CBO score will help turn those to support the bill.

Senate Majority Leader Mitch McConnell is insisting on a vote this week before lawmakers leave town for the July 4th recess, but a vote could be delayed, especially if it looks like it will go down in flames. Look for tweaking, name calling, arm twisting and much more over the coming days or weeks.

The Supreme Court will allow most of the Trump administration’s travel ban to go forward before it hears a case on the matter in October. The ruling grants a stay of lower court rulings that had piled up against the administration. The court’s decision found that the lower courts’ preliminary injunctions, which fully halted the key provisions of the executive order, were too broad.

So, the court narrowed these injunctions, ruling that the travel ban “may not be enforced against foreign nationals who have a credible claim of a bona fide relationship with a person or entity in the United States.”

That would apply to people who have family members stateside, those who have been admitted to a college or hired by an employer. However, “all other foreign nationals are still subject to the provisions” of the order.

In practice, the court’s ruling means Trump’s travel ban won’t be able to affect the great majority of foreign nationals who were trying to get to the U.S. from the six countries. It was already extremely difficult to get a visa from these countries unless you had family ties or a specific invitation.

The court also set arguments on the merits of the case for the first day of its next term in early October. The government may now exclude citizens from six Muslim-majority countries from coming into the United States unless they have some meaningful connection with a “person or entity” in the country. The court’s order also allows the government to exclude refugees, even those who are already vetted and poised to resettle here, unless they have the required connections.

SCOTUS agreed to consider whether employees who report misconduct at their companies are entitled to protections as “whistleblowers” if they report the alleged wrongdoing only internally, not to the Securities and Exchange Commission.

The announcement is welcome news for corporate defendants that have lamented the broad way in which the SEC and some federal courts have interpreted the 2010 Dodd-Frank financial overhaul, which is ambiguous about whether employees who only make internal corporate reports of securities fraud are protected under federal law.

The Supreme Court also agreed to consider whether the Constitution’s religion clauses allow a bakery to deny service to gay couples. In a separate ruling, the Supremes ruled that the Constitution requires states to list married same-sex couples on their children’s birth certificate. The decision marks a landmark victory for gay rights, confirming that the court’s decision in Obergefell v. Hodges protects all rights relating to marriage, not simply the recognition of marriage itself.

The Supreme Court ruled that taxpayer-funded grants for playgrounds available to nonprofits under a state program could not be denied to a school run by a church.

The Supreme Court declined to hear a Second Amendment challenge to a California law that places strict limits on carrying guns in public. The California case essentially bans carrying guns openly in public and allows carrying concealed weapons only if applicants can demonstrate good cause.

Orders for durable goods such as planes and computers fell in May for the second month in a row and registered the biggest drop in six months. Durable-goods orders slipped 1.1% last month following a similar decline in April. A key measure of business investment known as core capital-goods orders, meanwhile, fell 0.2% to mark the first decline of 2017. Businesses that were eagerly anticipating tax and regulatory relief may be taking a wait-and-see attitude.

Government websites in Ohio, Maryland and New York have been hacked with what appears to be pro-ISIS propaganda. It was not immediately clear who the group is — or whether it is genuinely affiliated with ISIS. The Ohio sites were back to normal this morning.

Twitter, Facebook, YouTube and Microsoft have formed the Global Internet Forum to Counter Terrorism. The group will share technical tools for combating extremist content, such as violent imagery and terrorist propaganda, and commission research to guide future resources. It’ll also work with academic and policy experts to learn more about terrorism.

Martin Shkreli, the former pharmaceutical executive is going to trial. In 2017, Shkreli sparked outrage in 2015 for increasing the price of Daraprim, a drug used by AIDS patients, by more than 5,000% from $13.50 to $750 a pill while he was CEO of Turing Pharmaceuticals. But the trial deals with charges of securities fraud, wire fraud and conspiracy for allegedly cheating investors out of more than $11 million between 2009 and 2014 in what federal prosecutors called a “Ponzi scheme.”

Financial Review

Up and Down the Chain

Sinclair Noe — June 23, 2017

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

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DOW – 2 = 21,394
SPX + 3 = 2438
NAS + 28 = 6265
RUT + 10 = 1414
10 Y – .01 = 2.14%
OIL + .43 = 43.17
GOLD + 6.60 = 1257.60
BITCOIN + 0.27% = 2745.66 USD
ETHEREUM – 3.55 % = 329.50

Energy stocks led the S&P 500 higher, posting its only positive session of the week. Overall, U.S. stocks closed little changed for the week, with the Dow and S&P posting small gains in the period.

The Nasdaq posted a 1.8% gain for the week. Health care stocks pulled back about 0.1 percent today, but the sector still notched a weekly gain of 3.7 percent to outperform the other spaces.

Today is a Russell Rebalancing Day. That is the annual reconstitution of the Russell Indexes, where the index provider makes rule-based changes to composition of its indexes, to ensure that changes in market value or investment styles, like shares of companies deemed value or growth, for example, are properly accounted.

Total market capitalization for Russell components increased more than 10% to around $27 trillion since last year. Rebalancing day typically results in a little extra trading volume but not much effect on price action for the overall market.

Yesterday, the Senate unveiled its version of Trumpcare, or the Better Care Reconciliation Act. Four GOP senators announced they would not support the bill. Rand Paul, Ted Cruz, Mike Lee, and Ron Johnson said the legislation did not go far enough in its repeal of Obamacare.

Today, Nevada Senator Dean Heller said he would not support the legislation. Heller is up for reelection in 2018 in a state won by Hillary Clinton in last year’s presidential election. Nevada also expanded the Medicaid program under the Affordable Care Act, or Obamacare, and the Senate bill would phase out that expansion starting in 2020. Heller said he can’t support a bill “that takes insurance away from tens of millions of Americans and hundreds of thousands of Nevadans.”

Several other senators are leaning toward opposition, including Portman of Ohio, Murkowski of Alaska, and Collins from Maine. Look for lots of deal making and arm twisting.

Sales of newly-constructed homes rebounded in May, and government data was revised to show a stronger spring selling season than had been previously reported. New-home sales ran at a seasonally adjusted annual rate of 610,000. That was 2.9% higher than in April and 8.9% higher than a year ago.

So far in 2017, 271,000 new homes have been sold, which is 12% higher than during the same period last year. The median sales price in May was $345,800, up from $310,200 in April and $296,000 in May 2016. At the current pace of sales, it would take 4.6 months to exhaust available supply.

About a week ago, Amazon it would acquire Whole Foods, then followed that with news it will start selling Nike products directly online. Once again, Amazon is shaking up the retail universe. Amazon stock has been on a nice run the past week, adding $18 billion in market capitalization.

In contrast, $31 billion in competitor market cap has been wiped out in the same period. Walmart and Costco have been hit the hardest, both losing more than $8 billion in value since the Whole Foods deal was announced on June 16. Whole Foods stock has been trading above Amazon’s offer of $42 a share, however, signaling that investors believe a bidding war could emerge and drive up the final price for Whole Foods.

Competitors like Target, Costco, and Kroger have been rumored as potential suitors, and they would do anything to make this deal harder for Amazon. Walmart is probably the only retailer that can truly compete with Amazon, but today they said they will not bid.

At the same time, Morgan Stanley said in a research note that the retail drug space could experience a wave of M&A action as companies try to outflank Amazon. Basically, any link in the supply chain is now subject to the influence of Amazon.

Meanwhile, outdoor gear retailer Eddie Bauer has hired investment banks to explore strategic alternatives, including a potential sale of the company. Also, today, Sears Holdings is closing an additional 20 money-losing stores. The move includes 18 Sears stores and two Kmart stores. Sears is hardly the only retailer shuttering locations.

There have been about 5,300 store closing announcements so far, this year, according to Fung Global Retail & Technology, a retail think tank.

Meanwhile, Amazon has filed for a patent for beehive-like towers that would serve as multi-level fulfillment centers for its delivery drones to take off and land. The facilities would be built vertically to blend in with high rises in urban areas. Amazon envisions each city would have one. The patent application features several drawings of these buildings, such as the beehive, a cylinder-shaped center and one that looks like a UFO.

The Brexit vote happened one year ago. Britain’s stock market, the FTSE 100, has gained nearly 17% since the UK’s June 23, 2016, vote to leave the European Union. The divorce talks between Brussels and Britain finally kicked off this week, but the outcome of the final agreement remains extremely uncertain.

The government will be working against the clock to hammer out a deal before the deadline of March 29, 2019, two years after UK Prime Minister Theresa May triggered the so-called Article 50 that officially set off the Brexit process. Little progress has been made in the three months since the Brexit clock started ticking. The UK is in a weak negotiating position.

And nobody is sure what Brexit means or what it will ultimately look like.

Qatar has 10 days to meet 13 demands from the Gulf states. Qatar is being ordered to reduce diplomatic ties with Iran, sever ties with terrorist organizations, and shut down Al Jazeera and affiliated networks, among other things, before the Gulf states will lift their blockade on the country.

Another day of Fedspeak. Cleveland Federal Reserve Bank President Loretta Mester said that recent inflation weakness was likely temporary and it should not delay another interest-rate hike this year, even though there is no “immediate need” to tighten policy. Mester is considered one of the more hawkish policymakers.

St. Louis Fed president James Bullard says the Fed can afford to stop raising short-term interest rates and wait and see how economic developments and Washington policy debates play out in coming quarters. Bullard says optimism about the economy has faded since March with economic data surprising to the downside. Bullard is considered one of the more dovish policymakers, calling for rates to remain flat through 2019.

By raising interest rates for the second time this year, Federal Reserve officials doubled down on their long-held belief that inflation will level out at their 2% target, even though the numbers hint at another story.

The Fed has been singing the same tune on inflation for nearly the entirety of this decade, and one could be forgiven for wondering how much inflation is really playing into the Fed’s decision-making process at this point. Yellen and friends made the move to lift rates to between 1% and 1.25% even though most inflation readings have drifted away from its long-run target of 2% in recent months.

Instead, it seems that a marginally improved labor market, and a desire for more wiggle room to cut rates for a slowdown that is becoming increasingly mathematically inevitable, are motivating the push to tighten policy. That includes the Fed’s outline for reducing its balance sheet, the manner of which but not the timing, was unveiled alongside the rate hike.

Treasury yields have fallen from their 2017 highs recently, with the benchmark 10-year yield trading around 2.15 percent. In March, it traded around 2.6 percent. The bond market doesn’t see inflation coming in the near term, and so far, it’s been right.

Adding to the deflationary ledger – oil prices dropped about 4% this week.

Today, SpaceX successfully fired up a Falcon 9 rocket for the eighth time this year, matching its flight total for all of last year. Its next launch is scheduled just two days later, with the ramped-up cadence putting the company on track to achieve the 20 to 24 total missions it’s targeting for the year.

The launch used a “flight proven” Falcon 9 rocket booster, which means it’s flown to space previously and been returned and refurbished. The rocket carried a Bulgarian communications satellite destined for geostationary orbit.

It launched from the historic 39A pad at NASA Kennedy Space Center in Florida, where Neil Armstrong left from before landing on the moon in 1969. On Sunday, SpaceX will launch 10 satellites for Iridium Communications from Vandenberg Air Force Base on California’s central coast.

Remember Blackberry? Once upon a time, about 8 to 10 years ago, Blackberry was the mobile phone of choice. The company reported earnings of $0.02 per share, compared to an estimated zero, but revenue fell to $235 million from $400 million from the year before. The company outsourced the manufacturing of Blackberry hardware in late 2016 in order to focus on software and services. Shares were up about 50% this year, until today – down 12%.

If you use Google’s Gmail, you may have noticed a that anything in your emails is likely to pop up as an ad. It’s not just a coincidence. Gmail scans and analyzes emails – or at least they did. They will stop the practice, due to privacy concerns and the general creepiness.

But this doesn’t mean you won’t see targeted ads in Gmail. Instead, they’ll be personalized with information gleaned from other sources. For example, Google collects data about you based on the YouTube videos you watch or the searches you make.

Financial Review

Take 65

Sinclair Noe — June 22, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 12 = 21,397
SPX – 1 = 2434
NAS + 2 = 6236
RUT + 5 = 1404
10 Y – .01 = 2.15%
OIL + .21 = 42.74
GOLD + 3.70 = 1251.00

BITCOIN – 0.11% = 2709.21 USD
ETHEREUM – 2.77% = 328.37

BITCOIN + 1.13% = 2771.78 USD
ETHEREUM – 1.81 % = 330.40

BITCOIN – 0.11% = 2709.21 USD
ETHEREUM – 2.77% = 328.37

The Senate health care bill was unveiled today. The 142-page bill was written entirely behind closed doors and today is the first time the public and most senators have seen the bill. The latest version of Trumpcare is officially titled as the Better Care Reconciliation Act of 2017, which is a rewrite of the House of Representatives American Health Care Act, which is a rewrite of the Affordable Care Act.

The bill would repeal Obamacare’s individual mandate, drastically cut back federal support of Medicaid, and eliminate Obamacare’s taxes on the wealthy, insurers and others.

The bill will have to undergo scrutiny to ensure that it meets the strict requirements on what can or can’t be included in a bill under the budget reconciliation process. The non-partisan Congressional Budget Office, will analyze and score the bill and present its findings early next week.

The CBO analysis will shed light on how much money the bill would cost and how many people would be covered. Senate Republicans hope to see better headlines from this CBO report than the one that the House GOP legislation received. CBO said the House bill would result in 23 million fewer people insured in 2026 than under Obamacare.

Here are some of the key points that we know. The Senate bill would require insurers to cover those with pre-existing conditions and charge everyone the same regardless of health history. But it would allow states to waive the federal mandate on what insurers must cover, known as the essential health benefits.

This would allow insurers to offer less comprehensive policies, so those with pre-existing conditions may not have all their treatments covered.

The bill would continue the enhanced Medicaid expansion funding from Obamacare until 2021 and then phase it out over three years. The Senate bill would keep the House plan to send a fixed amount of money to states each year based on enrollment or as a lump sum block grant.

But it would shrink the program even more over time by pegging the annual growth rate of those funds to standard inflation, rather than the more generous medical inflation, starting in 2025.

This would likely force states to cut enrollment, benefits or provider payments. Several independent analyses have concluded that this funding structure would lead to large-scale shortfalls in every state, which would need to be closed by reducing enrollment or benefits, and cutting capacity to respond to disasters and public-health crises.

Those affected most would be poor children, people with mental-health issues, and disabled people.

The Senate bill would also largely maintain Obamacare’s premium subsidies structure, but tighten the eligibility criteria starting in 2020. Fewer middle class folks would get help because only those earning up to 350% of the poverty level would qualify, rather than the 400% threshold contained in Obamacare.

It also allows even less generous plans to stand as benchmarks for exchange and employer coverage, which could likewise contribute to disruptions and deductible increases. In recognition of the disruptions to the state-level exchanges through which individuals purchase coverage, the House bill set up a “Patient and State Stability Fund,” which would inject over $100 billion into state high-risk pools and reinsurance funds.

The Senate largely replicates this approach with slightly less funding, although it does add an additional $2 billion fund for fighting the opioid crisis in 2018.

The bill would also aim to shore up the existing Obamacare market by allocating funds for the cost-sharing subsidies until 2019. This might placate insurers, who were upset by Trump’s refusal to commit to continue making these payments, leading many carriers to hike rates or drop out of the exchanges for 2018.

The draft bill proposes repealing the 3.8 percent net investment income tax on high earners retroactively to the start of 2017, not at some point in the future. The tax cut will be offset by reducing aid to the poor to cut costs. We’ll have to wait for the CBO score to see if the math works, and how many people would see higher premiums or see coverage eliminated. That could be followed by a vote on the bill as soon as next week.

Democrats appear to have a solid bloc of opposition; if 3 Republicans oppose the bill, it will not pass. The bill could be changed over the next few days. Sens. Rand Paul of Kentucky, Ron Johnson of Wisconsin, Ted Cruz of Texas and Mike Lee of Utah said in a joint statement they’re “not ready to vote for this bill.”

Many other GOP senators are avoiding outright supporting the new health care bill, saying they need more time to read the fine print before taking a stand. The CBO score will be key – if it is not significantly better than the score of the House version, this bill could be DOA.

Hospital stocks traded sharply higher after the bill was released, adding to gains from earlier in the session. HCA Healthcare Inc rose 3.8 percent, while Tenet Healthcare Corp surged 8.4 percent. Health insurers also traded broadly higher, with large players Aetna and UnitedHealth Group each up more than 1 percent. Insurers that specialize in Medicaid also gained, with Centene up 3.4 percent and Molina Healthcare rising 2.6 percent.

About those tapes President Donald Trump suggested (or warned) that he (or someone) may have had of his one-on-one conversations with then–FBI Director James Comey: They don’t exist. Or, if they did, he didn’t make them. Trump took to Twitter today to say: “I have no idea… …whether there are “tapes” or recordings of my conversations with James Comey, but I did not make, and do not have, any such recordings.”

Thirty-four of the largest banks operating in the U.S. cleared a Federal Reserve stress test of their ability to withstand economic shocks. Every bank subject to the annual tests’ first phase exceeded minimum thresholds, though Morgan Stanley trailed the rest of Wall Street on a key measure of leverage — the second year it performed worse than peers on one of the test’s main metrics.

The Conference Board’s leading economic index climbed 0.3% in May and offered further proof the U.S. continues to grow at a steady clip, suggesting the economy is likely to remain on, or perhaps even moderately above, its long-term trend of about 2% growth for the remainder of the year.

Mortgage rates are keeping close pace with U.S. Treasury yields, and the yield on the 10-year Treasury note is hovering around the lowest levels of the year, and the lowest since the November election. Mortgage rates fell to one of the lowest levels of the year in the most recent week, following a short-lived rebound. Freddie Mac said  the 30-year fixed-rate mortgage averaged 3.90% in the June 22 week. The 15-year fixed-rate mortgage averaged 3.17%

The number of Americans filing for unemployment benefits increased 3,000 to a seasonally adjusted 241,000 last week.

Qatar Airways, the Gulf country’s state-owned airline, has expressed interest in buying as much as a 10 percent stake worth at least $808 million in American Airlines Group. The potential investment comes against the background of diplomatic and competitive turbulence for Qatar Airways, its home country and U.S. airlines.

Operations at Qatar Airways were disrupted after four Arab nations cut diplomatic and economic ties with Qatar this month in the worst diplomatic crisis in the region in years. Separately, American, United Continental, and Delta have pressed the U.S. government to act to curb U.S. flights by Qatar Airways and rival Gulf carriers Emirates Airline and Etihad Airways. The U.S. carriers charge that their Gulf rivals have received billions of dollars in unfair state subsidies.

Qatar Airways said in a statement that it sees a “strong investment opportunity” in American and that it “intends to build a passive position in the company with no involvement in management, operations or governance.” American said its rules prohibit “anyone from acquiring 4.75 percent or more of the company’s outstanding stock without advance approval from the board.”

As expected, Sears Canada has filed for bankruptcy protection and 2,900 employees countrywide are losing their jobs.

Warren Buffett’s Berkshire Hathaway is extending a 1.5 billion credit facility to Home Capital Group, Canada’s largest non-bank lender. Berkshire also agreed through its Columbia Insurance unit to buy up to $300 million of Home Capital shares for a 38.4 percent stake, pending shareholder and regulatory approvals. The credit line carries an interest rate of at least 9 percent.

Reuters reports Staples is in advanced talks to be acquired by Sycamore Partners in a $6 billion deal.

After leading the stock market for months, the big name tech stocks hit pause to catch a breath. And that allowed an old name to sneak into rally mode. Oracle was late to the cloud revolution, allowing upstarts like Salesforce.com Inc. to find significant market share with software delivered over the internet, and has suffered while making an acquisition-fueled push into the space.

But it looks like Oracle is figuring out the cloud. Late yesterday, they reported fiscal fourth quarter earnings, and today, shares topped $50, sending the market cap over $200 billion. Oracle posted full-year revenue growth of 1.8% and profit growth of 4.9%, and raised guidance.

Facebook CEO Mark Zuckerberg revised the world’s largest online social network’s mission statement. The previous mission was “to give people the power to share and make the world more open and connected.” Facebook’s new mission is to “give people the power to build community and bring the world closer together.”

Financial Review

Trumpcare

Sinclair Noe — March 7, 2017

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

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DOW – 29 = 20,924
SPX – 6 = 2368
NAS – 15 = 5833
RUT – 9 = 1374
10 Y + .02 = 2.51%
OIL – .16 = 53.04
GOLD – 9.70 = 1216.40

Healthcare stocks were in focus today after the GOP unveiled its Obamacare replacement bill, called the American Health Care Act. The bill rolls back the Medicaid expansion and eliminates the individual mandate, which requires everyone to buy health insurance.

Under the ACA, tax credits were provided to 85% of people enrolled in the exchanges, and the amount of the subsidy was determined based on income level, geographic region, and age. The amount of the tax credit in the House bill is based exclusively on age: The older you are, the more you get per month (though still less than you would get under the ACA).

A report from the non-profit Kaiser Family Foundation found that older Americans will receive significantly less help paying for their premiums, as will the poorest young Americans. Americans earning $40,000 to $75,000, on the other hand, are the winners—their subsidies will increase. The proposal would  kill a 3.8% investment tax on the wealthy that had used to finance the health-care law. It would also kill a 0.9% surcharge on wages above $250,000.

Under the ACA, insurers could not discriminate against people with pre-existing conditions like cancer, diabetes, or heart disease. The new plan does away with coverage for pre-existing conditions and institutes a continuous coverage provision.

People who have lapses in insurance cannot be denied coverage, but they can be charged more. Enrollees cannot have gone 63 continuous days (or more) without coverage, or they would pay a 30% penalty on premiums.

Older consumers would pay more for coverage under the GOP plan. The oldest consumers on the individual market are 64, just shy of the Medicare eligibility age of 65, and under the Affordable Care Act they can be charged no more than 3 times what a 21-year-old would pay. The GOP plan would broaden the age bands, as these rate limits are called, to 5 to 1, allowing insurers to charge the oldest consumers five times more than younger ones.

What’s more, the proposal would give the states the latitude to broaden those limits even further or to constrict them back to 3 to 1 or another level. Moving to a 5-to-1 rating would increase monthly premiums for a silver plan in 2018 by 25% for a 64-year-old before tax credits.

Older consumers would get hit with a double whammy: not only may their premiums increase, but the restructured tax credits won’t go as far as those under the Affordable Care Act in subsidizing the premium cost. The new tax credits are based on age, not on income, while many of the consumers on the individual market are lower income.

The new tax credits would also rise at a slower rate than under the Affordable Care Act, where credits were pegged to the cost of the second-lowest cost silver plan in the consumer’s region. That benchmark reflects the true market cost of the plan. The new peg, by contrast, is pegged only to a measure of inflation.

The GOP’s plan includes the phase out of the Medicaid expansion. About 10.7 million people were newly eligible for Medicaid coverage after the ACA went into effect. One of the only ways to pay for the GOP’s health subsidies and cut taxes the ACA imposed on the wealthy is to cut off federal Medicaid funding.

States will be allowed to continue to enroll people into Medicaid until 2020. Then, it will “freeze,” and no other enrollees can be added, the thinking being people will eventually drop out of the program as they earn more money; 31 states expanded Medicaid to people above the poverty level under the ACA, and the Republican plan would roll that back, though how has become a major point of argument inside the party.

There are several other components to the bill, including restrictions on funding for Planned Parenthood, plus more generous use of health savings accounts. But the meat and potatoes is that the bill repeals the mandate and replaces it with a 30 percent premium penalty for anyone – healthy or sick – who does not maintain continuous insurance coverage; which sounds kind of like a mandate, and will surely be challenged in the courts.

The tax credits for buying insurance are also altered and reduced, making it more expensive for the old and poor. And major cuts to Medicaid funding which are already running into roadblocks. With Medicaid reductions and smaller tax credits, there is a strong chance that many people would lose their coverage. In other words, the new plan is less of a repeal and more of a revamp or re-branding, absent significant improvements and sustainable solutions.

The proposal has not yet been scored by the Congressional Budget Office, the federal agency that calculates the impact that proposed legislation would have on the debt and other considerations; that means we do not know how it will be paid for and whether it will cost more than ACA.

If all proceeds smoothly, and the votes are lined up, the full House could vote on the bill within two weeks. The votes might not be lining up. The new bill to replace Obamacare is being savaged by early bad reviews from a wide range of conservatives, with one Republican senator declaring it “dead on arrival” in the Senate – if it can make it through the House, and it would take less than two dozen defections among Republicans to sink the repeal effort, assuming Democrats vote as a bloc.

In other words, this could be a long, drawn out process. Just a reminder, Trump has said the repeal and replace of Obamacare needed to take place before moving on to tax reform.

Drug companies were generally lower today, including Endo, Valeant, and Mallinckrodt, which were all down more than 4%. Generics giants Allergan and Mylan were also down as much as 2%.

Losers in the hospital space include Tenet Healthcare, down 4%, and Universal Health Services, down about 2%, and HCA Holdings was down a bit less than 1%.

Biotech stocks were also getting hit, including Juno Therapeutics, Sage Therapeutics, and Intercept Pharmaceuticals, each down as much as 2%. The large health insurance stocks were flat.

The US Citizenship and Immigration Services said it plans to suspend fast-track processing for the H-1B skilled-worker visa program, a move that could slow down the process of hiring foreign workers for US companies.

The US trade deficit shot up in January to a five-year high. The trade deficit rose 9.6% to $48 billion in January from a revised $44 billion in December. The wider deficit was spurred by a 2.3% increase in imports of consumer goods such as cell phones from China and other countries.

The higher cost of oil also boosted the value of US imports. Imports totaled $240 billion in January. US exports, meanwhile, rose a smaller 0.6% to $192 billion. Exports of cars and trucks, oil and soybeans all rose sharply.

Looking further afield, a new report shows the Eurozone economy grew by 1.7% in the fourth quarter. This was in line with expectations and slightly slower than US growth over the same period. However, German industrial orders in January delivered a nasty shock, slumping 7.4%.

In South America, new figures from Brazil show the country continues to grind through its longest recession ever, spanning eight consecutive quarters. Brazil’s economy shrank 3.6% in 2016. That’s just a slight improvement from 2015, when it contracted 3.8%, but still far from good.

Exxon Mobil promised to invest $20 billion over 10 years to build and expand refineries, chemical and liquefied natural gas plants along the Gulf Coast. Chairman and CEO Darren Woods said the work, which would focus on 11 plants in Texas and Louisiana, would create 12,000 permanent jobs and 35,000 construction jobs. Exxon currently has about 71,000 employees. The promised $20 billion, decade-long investment would be roughly equal to Exxon’s total capital spending last year.

The Justice Department is seeking additional information from General Electric and Baker Hughes over their pending merger, extending the waiting period related to the regulatory review until 30 days after the companies comply. GE announced a deal in October to combine its oil and gas business with Baker Hughes, forming one of the industry’s largest oilfield services and equipment companies.

Salesforce announced an artificial intelligence partnership with IBM. As part of the agreement, data from Big Blue’s Watson will be available to Salesforce customers, and the cloud company’s technology will be integrated into IBM’s system for internal use.

Amazon has abandoned its legal battle to protect its Alexa assistant with First Amendment rights – for now. The company filed a motion against a police search warrant in an Arkansas murder case earlier this month, but dropped it after the defendant agreed to hand over the data contained on his Echo speaker. Amazon previously claimed that voice interactions were a “constitutionally protected opinion.”

RadioShack stores are closing again. General Wireless, the joint venture with Sprint that purchased 1,700 stores from the original RadioShack Corp. after it filed for bankruptcy in 2015, apparently hasn’t been able to fix the 96-year-old brand. General Wireless is now preparing its own bankruptcy filing.

Toshiba is spinning-off its core memory chip business and seeking outside investors in it. Potential suitors include Apple, Foxconn, TSMC, Microsoft, Western Digital, Micron, and SK Hynix. Apple could have the edge to win the business, which would allow it to lock in memory technology for its iPhone and other products. Micron and SK Hynix face antitrust issues while Foxconn faces national security issues. The seller values the business at $17-18 billion. Bids are due March 29.

The Oakland Raiders have found a financial partner to back their new proposed stadium in Las Vegas. Bank of America has been secured to help complete financing on a $1.9 billion, 65,000-seat stadium that would be located on the Las Vegas Strip.

The state of Nevada has committed $750 million to the project, with the team and the league paying the remaining cost contingent on the owners’ approval. The Raiders are eligible for relocation, but 24 of the 32 NFL owners must approve any move. The league’s owners are set to meet in Phoenix later this month.

Financial Review

Like a Bird on a Wire

Sinclair Noe — November 11, 2016

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

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DOW + 39 = 18,847
SPX – 3 = 2164
NAS + 28 = 5237
10 Y closed 2.12%
OIL – 1.21 = 44.15
GOLD – 31.00 = 1228.60

The Dow closed at a new all-time high. Milk and cookies for everyone. Or wine and Xanax – your choice. It was a wild ride. For the week, the Dow rose around 5.4 percent, marking its best weekly performance since December 2011. The S&P 500 gained 3.8 percent for the week. The Nasdaq Comp posted a 3.4 percent weekly gain.

While stock markets were open today for Veterans Day, bond markets were closed, after taking a beating over the past few sessions. The global bond sell-off continued; across the world, more than $1 trillion has been wiped off the value of bonds as President-Elect Trump’s policies are seen boosting inflation.

One bright spot in the bond market, TIPS, or Treasury Inflation Protected Securities, which are indexed to inflation, have enjoyed their largest eight-week inflow on record, attracting over $5 billion. Commodities and equities also proved big gainers.

Commodities funds attracted $1.5 billon inflows in the week to Wednesday, the largest in 14 weeks. Copper is eyeing its biggest weekly rally in 35 years and iron ore is heading for its biggest weekly gain on record, helped by a rosier outlook for Chinese demand and anticipation of infrastructure spending straight from the pseudo-Keynesian playbook.

Equities funds attracted $8.9 billion, the most in 17 weeks, but some $200 million was pulled from bond funds in the US. Healthcare stocks enjoyed their largest inflows since October 2015, attracting $700 million, but European equities continued to suffer outflows, with some $1.3 billion redeemed.

The financial sector has rallied 10% over the past 4 days. Just remember, early market strength after an election is not a guarantee of future long-term performance.

In addition to bonds and tech stocks, emerging markets are not faring so well in the election’s aftermath. That’s down to fears about how Trump will act on global trade. But it’s also about the prospect of higher U.S. interest rates – which is boosting the dollar and hitting far-flung currencies.

Fed Vice Chair Stanley Fischer said this morning that economic growth prospects appear strong enough for the Federal Reserve to proceed with a gradual increase in interest rates. The central bank’s second-in-command said the Fed was “reasonably close” to achieving its employment and inflation goals, and the case for tightening, thus, is “quite strong”.

Fischer did not mention the outcome of the presidential election in his remarks. Yesterday, Richmond Fed President Jeffrey Lacker said that if the next Congress passes a stimulus program, the Federal Reserve should respond with more interest-rate hikes.

The Bank of Korea kept policy on hold. The central bank held its key interest rate unchanged at 1.25%, as expected. The British pound is up – at $1.26, its highest level since the October 6 “flash crash,” but remains nearly 20% below its pre-Brexit level. Meanwhile, the dollar is off slightly this morning but still on course for its best week in a year, racking up another round of gains against the yuan and peso.

An organizational chart released by the Trump campaign detailing who will handle his transition into office is filled with Washington lobbyists, insiders, and GOP veterans. Vice President-elect Mike Pence will take over the Transition Team from Chris Christie, who will now serve as vice-chair. Other advisers will include: Ben Carson, Newt Gingrich, Rudy Giuliani, Reince Priebus, Stephen Bannon, Peter Thiel and Trump’s children Donald Jr., Eric and Ivanka.

Going through the chart, Bill Walton, chairman of the DC-based private equity firm Rappahannock Ventures, and David Malpass, an economist and former Reagan administration treasury official, will head Trump’s economic team. Dan DiMicco, the former CEO of the largest steel producer in the United States, Nucor, was listed as Trump’s trade representative on the transition team.

Former Securities and Exchange (SEC) Commissioner Paul Atkins will oversee “Independent Financial Agencies”. Atkins is now the CEO of Patomak Global Partners, a private DC firm that consults companies on how to navigate post-financial crisis Dodd-Frank financial regulatory overhaul, to which Atkins staunchly opposed.

Former congressman Mike Rogers is slated to lead the national-security transition. And former Ohio official and George W. Bush honorary campaign co-chair, Ken Blackwell, will oversee domestic issues, including health and human services, labor, and environmental protection.

The management and budget team is being jointly handled by former Attorney General Ed Meese and Kay Coles James, a former director of the Office of Personnel Management who served under George W. Bush. Trump’s Homeland Security team, for example, is being led by Cindy Hayden, a director at the US tobacco giant Altria. Jim Carter, an in-house lobbyist for the manufacturing company Emerson, has been tasked with overseeing tax reform policies.

Not exactly draining the swamp.

President-elect Donald Trump outlined some pieces of his health-care program. A document was posted on the presidential transition website, the first look at Trump’s plan since the election. It includes protecting “innocent human life from conception to natural death” and gives states a big role in regulating health insurance and in running their Medicaid health-insurance programs for the poor.

Whether the 15.7 million people who have gained access to Medicaid through the ACA expansion will keep it is not clear from Trump’s plan. Trump hinted at softening the coverage guarantee for those with pre-existing conditions under the ACA, saying high-risk pools – state insurance programs for individuals who are sick or otherwise unable to get coverage – would cover those with large medical expenses who have “not maintained continuous coverage.”

Maybe – and this is just a shot in the dark – rather than relying on private citizens’ employers to select individual insurance plans from third-party providers, the government could try buying one great big insurance plan that covers everybody when they get sick? Not sure if there’s a term for that.

Alibaba has set new records for its annual Singles’ Day event as sales reached $1 billion in the first five minutes and hit $17.7 billion, or about one-third more than last year’s total; and more than double Black Friday and Cyber Monday combined online sales in the US. The world’s biggest retail event features 6 million products from 30,000 brands sold by 40,000 merchants and is closely watched for clues on the health of China’s economy and its largest online retailer – Alibaba.

Disney said it expects modest earnings growth next year and an even more robust rise in 2018. The assuring message came after the media company reported weaker-than-expected third quarter earnings – hit by a drop in ad sales and subscribers at its struggling ESPN unit. New deals with Hulu and AT&T/DirecTV could also help Disney attract elusive millennial customers.

Allianz beat expectations in the third quarter, posting a 37% rise in net profit. Europe’s largest insurer saw improvements across all its businesses, including bond fund manager Pimco, which logged net inflows for the first time in three years. Quarterly operating profit also beat forecasts, rising 18% and helping Allianz reaffirm its full-year target.

J.C. Penney posted a decline in sales, citing softness in apparel, and lowered a key sales metric. The company’s same-store sales fell 0.8% in the quarter, down from 6.4% growth last year and well below estimates. For the quarter, Penney posted a loss of $67 million, or 22 cents a share. Revenue fell 1.4%.

Macy’s reported third-quarter sales and revenue that missed estimates. Macy’s also announced a series of real estate deals including the $250 million sale of the Union Square Men’s store in San Francisco – part of more than 100 planned store closures.

Nordstrom delivered an earnings beat , while Kors offered up a weak outlook. Nvidia soared on upbeat profits .

Saying it was too easy to spend their parents’ money, a judge in Seattle has set up a year-long process to reimburse customers whose children made Amazon in-app purchases without permission, but rejected an FTC request for a $26 million lump sum payout. The agency already settled similar cases against Apple and Google. All three companies now require a password for in-app purchases or an opt-in to enable purchases without a code.

Brazil has been plunged into a fresh bout of political uncertainty after lawyers for former president Dilma Rousseff presented evidence suggesting her successor, Michel Temer, accepted bribes from a construction company. If found guilty, Temer, a member of the Brazilian Democratic Movement Party, would also be removed from office.

Shari Redstone, vice chair of the board at CBS and Viacom now says: “I was never a great proponent  of the split of the two companies,” adding “Scale will matter to your advertisers, who more than ever have to reach the consumer on a number of platforms.” A decade ago, Sumner Redstone decided to divide the two into separate companies, and while CBS has thrived, Viacom has wrestled with falling ratings and declining ad sales. CBS and Viacom are now looking at the prospect of a re-merger.

The largest, brightest full moon in nearly seven decades – what is known as a “Super Moon” – will be on display in the coming days. The full moon will come nearer to Earth than at any time since 1948. On Monday, the moon will pass within 216,500 miles of Earth’s surface, about 22,000 miles closer than average. If skies are clear, the upcoming full moon will appear up to 14 percent bigger and 30 percent brighter than usual. The next time a full moon comes as close to Earth will be in 2034.

Today, of course is Veterans Day, marking the Armistice, on the 11^th hour of the 11^th day of the 11^th month of 1918 – the end of World War I, the war to end all wars. Veterans Day is intended to honor and thank all who served in the United States Armed Forces. I would like to give my thanks to all veterans. And I believe the best way to honor veterans is no more wars.