Financial Review

Everybody’s Doing It

Sinclair Noe — November 7, 2017

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

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

Cryptocurrency

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

Top Cryptocurrencies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Everybody’s doing it.

Financial Review

A Stickler for Math

Sinclair Noe — September 28, 2017

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

Subscribe: Android | RSS

DOW + 40 = 22,381
SPX + 3 = 2510 (record)
NAS + 0.19 = 6453
RUT + 3 = 1488 (record)
10 Y un = 2.31%
OIL – .56 = 51.58
GOLD + 4.30 = 1287.70

Cryptocurrency

• Number of Currencies: 872
• Total Market Cap: $137,946,002,185
• 24H Volume: $4,334,119,332

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	4,092.0	$67.23B	$1.69B	38.97%	1	-2.27%	9.86%
	Ethereum	ETH	286.29	$26.77B	$548.51M	12.66%	0.0693121	-5.36%	6.77%
	Ripple	XRP	0.19261	$7.23B	$117.41M	2.71%	0.00004632	-4.42%	8.64%
	Bitcoin Cash	BCH	444.00	$7.16B	$302.02M	6.97%	0.105858	-3.06%	1.37%
	Litecoin	LTC	51.840	$2.71B	$217.43M	5.02%	0.0125488	-5.50%	7.38%
	Dash	DASH	330.82	$2.45B	$48.11M	1.11%	0.0792086	-3.59%	-6.56%
	NEM	XEM	0.22060	$2.00B	$4.78M	0.11%	0.00005451	-7.43%	3.17%
	IOTA	MIOTA	0.56939	$1.54B	$25.69M	0.59%	0.00013607	-4.33%	10.18%
	Monero	XMR	93.30	$1.40B	$42.46M	0.98%	0.0227271	-4.97%	5.19%
	NEO	NEO	27.000	$1.33B	$99.73M	2.30%	0.00653991	-10.00%	50.08%

The S&P 500 and the Russell 2000 hit record high closes. The S&P is up 1.5 percent this month, on track for its sixth consecutive monthly gain. September is normally the worst month for stocks.

The Commerce Department released its third and final estimate of second quarter Gross Domestic Product. Second quarter GDP was revised to 3.1%, up from the earlier estimate of 3%. Growth last quarter was the quickest since the first quarter of 2015 and followed a 1.2 percent pace in the January-March period.

With GDP accelerating in the second quarter, the economy grew 2.1 percent in the first half of 2017. Hurricane damage is expected to put a dent in third quarter GDP, but give a little boost to fourth quarter numbers. Estimates for the growth rate in the July-September period are just above 2.2 percent.

Details of the Republican tax plan have yet to be filled in, so we can’t say yet who would pay what. The 9-page proposal released yesterday specifies three income tax brackets — 12%, 25%, and 35% — but it doesn’t say what income levels they would apply to.

It says the $4,050 exemption that taxpayers currently get for each dependent child would be abolished, to be replaced with an unspecified increase in the per-child credit. It says tax-writing committees would provide families “additional tax relief” that they are not prepared to describe yet.

And because Senate rules will require the plan to fit within a budget resolution that will most likely allow only $1.5 trillion in revenue losses over a decade, lawmakers will have to trim its proposed tax cuts — or add new tax increases — to meet that specification before it can become law.

While there is a lot we don’t know, we can identify a group of taxpayers likely to face tax increases from this proposal: people with moderate to upper-moderate incomes who take itemized deductions, like those for mortgage interest and state and local taxes paid.

Some of these deductions would be eliminated. And while Republicans like to misleadingly claim that their plan would “double the standard deduction,” these itemizing taxpayers would lose the ability to take the personal exemption for themselves or their spouses, subjecting an additional $8,100 of their income to tax.

While these taxpayers would lose key tax benefits, rich taxpayers would come out ahead. The rich would benefit from a new preferential rate for business income — while high-income workers could pay tax at rates as high as 35%, business owners would have tax on their profits capped at 25%.

Today, Chief economic adviser Gary Cohn told reporters that a typical four-person American family bringing in $100,000 a year would save $1,000 under the Republicans’ proposed tax reform effort, which they could use to pay for a new car or a kitchen. Or not.

Cohn didn’t explain the math behind the $1,000 in savings but the rest of the math is wrong. In actuality, the average American family makes $74,000 a year before taxes, or about $30,000 less than that, according to the Bureau of Labor Statistics. The median American family income is roughly half of Cohn’s estimate, or only about $55,000.

And I don’t think I can remodel my kitchen or buy a new car for $1,000. Cohn also claimed, “The wealthy are not getting a tax cut under our plan.” That’s simply not true. This is a huge tax cut for the top 1 percent. Math will be an important part of any tax plan, something the politicians haven’t figured out yet.

Puerto Rico is struggling to recover from what its governor called its “biggest catastrophe in modern history,” with Hurricane Maria’s devastation spiraling the country into a humanitarian crisis. After much criticism that the U.S. was not doing enough to help, Trump waived the Jones Act to speed up shipments to the island.

The Jones Act is a 1920 law that prohibits foreign boats from shuttling goods between US harbors. That will make it a bit easier to get food, water, and other products to Puerto Rican ports. But it will have little impact on what is a more pressing problem. Getting supplies from those ports to the people who need them.

Thousands of cargo containers bearing millions of emergency meals and other relief supplies have been piling up on San Juan’s docks since Saturday. Even with moves to ease shipping to the island, the docks have become choke points in the effort to aid storm survivors and may not reach those who need them for days. If nothing else, Maria is a cautionary tale about the vulnerabilities of the supply chain.

The Facebook group United Muslims of America was neither united, Muslim, nor American. Among their various tactics, Russians impersonated real American Muslims to stir chaos on Facebook and Instagram. (And let’s not leave out Twitter, since the Russians didn’t).

Twitter today disclosed to congressional investigators that more than 200 Russia-linked accounts had been used to spread propaganda and misinformation on the company’s platform. The company said that, over the coming months, it will be introducing new ways to detect malicious activity, although it did not provide specifics.

The European Union is once again asking Facebook, Google, Twitter, and other web companies to crack down on hate speech and speech inciting violence and terrorism — but this time, it’s taking things a step further. The European Commission has issued guidelines for web companies to follow, and it’s warning the companies that, if they don’t comply, the Commission may pass legislation. And that legislation, of course, could lead to some huge fines.

The Supremes are back on the bench. The Supreme Court kicked off their new term with the justices hearing three consolidated cases with far-reaching implications for wage-earners. The cases—Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, Inc.—are all about whether employers have the right to compel workers go through onerous individual arbitration proceedings in order to bring labor law claims.

If the justices answer that question in the affirmative, then the affected workers will—as a practical matter—find it nearly impossible to win back pay in cases involving wage law violations. In the typical case involving wage law violations plaintiffs bring what’s called a collective action (similar, but not identical to, a class action) to recover back pay from a common employer.

Each worker’s claim might be worth only a few hundred or few thousand dollars, but when the defendant is a large firm with lots of similarly situated employees, the collective action might be worth millions. It’s much easier to find competent counsel to litigate a potentially more lucrative collective action.

To pre-empt this possibility, more firms are inserting individual arbitration clauses into employee contracts. In a series of opinions in recent years—including three authored between 2011 and 2013 by the late conservative Justice Antonin Scalia—the court has repeatedly ruled that consumers were barred from bringing class actions by arbitration clauses they had signed as a condition of receiving a product or service.

In the first three years after the court’s pro-arbitration ruling in AT&T Mobility v. Concepcion in 2011, the number of companies using arbitration clauses to preclude employee class actions jumped from 16.1% to 42.7%. Almost 25 million private-sector, nonunion employees are now subject to class waivers contained in arbitration clauses.

Though the three specific cases before the court all involve overtime claims under the Fair Labor Standards Act, the precedent that will be created appears likely also to impact class claims brought under the Equal Pay Act, the Family Medical Leave Act, the Age Discrimination in Employment Act, and Title VII of the Civil Rights Act.

Every time the price of a barrel of crude rises above $50, US shale drillers ramp up production to take advantage of the surge. Then, as supply increases, prices fall. We may be seeing the start of that trend again after oil rose from $46 to more than $52 only to ease back closer to $51 today. Government data released yesterday showed American drillers lifted output almost 9 percent during the past three weeks, the biggest three-week increase in half a decade.

Drug maker AbbVie climbed after it resolved a patent dispute over Amgen’s version of AbbVie’s drug Humira, which is the source of most of its revenue. Amgen agreed not to begin selling its version of the anti-inflammatory medicine in Europe until October 2018, and the U.S. version won’t go on the market until Jan. 31, 2023. The settlement would mean billions of dollars in additional sales for AbbVie, which reported $16 billion in Humira sales in 2016.

Abbott Laboratories jumped after the Food and Drug Administration approved its FreeStyle Libre Flash glucose monitoring system for adults with Type 1 diabetes. The product uses a sensor inserted below the skin to measure blood glucose. Analysts say Abbott could have a competitive edge because the FDA did not advise patients to take samples of their blood to confirm the system’s readings.

Drugstore chain Rite Aid dropped after its quarterly revenue fell short of Wall Street’s forecasts. The stock lost 26 cents, or 11.2 percent, to $2.03. Earlier this month the company agreed to sell almost half of its stores to rival Walgreens for $4.38 billion, but the slimmed-down deal was smaller than investors had hoped.

Ikea has purchased TaskRabbit, which is a gig-economy app that lets users pay a handyman to assemble their Ikea furniture. That’s the kind of can-do spirit that we need around here.

Financial Review

Happy Day

Sinclair Noe — March 20, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 8 = 20,905
SPX – 4 = 2373
NAS + 0.53 = 5901
RUT – 7 = 1384
10 Y – .03 = 2.47%
OIL – .55 = 48,23
GOLD + 5.10 = 1234.90

The directors of the FBI and NSA appeared before a rare open congressional intelligence committee hearing today.

FBI Director James Comey confirmed the FBI is investigating Russia’s interference in the US election and investigating possible links between the Trump campaign and the Russian government. Comey said the FBI has “no information” to support President Trump’s allegation that Barack Obama wiretapped him.

NSA chief, Admiral Mike Rogers, weighed in as well, saying that he had no knowledge of anyone asking the British or any other ally to wiretap Trump. That seemed to refute another claim made by the White House.

Confirmation hearings for Trump’s Supreme Court nominee kicked off today. Trump nominated Neil Gorsuch, 49, to replace conservative Justice Antonin Scalia, who died in February 2016.

Meanwhile, Wall Street also braced for a contentious House vote on the GOP health care bill slated for Thursday. The bill’s passage is considered a first step toward enacting tax reform, but it has faced criticism from both sides of the aisle.

The Trump administration appealed Friday a temporary restraining order against its revised travel ban policy. The reworked executive order (which halts the issuance of visas to six majority-Muslim countries for 90 days and suspends the refugee resettlement program for 120 days) was set to go into effect on March 16, but federal judges and Hawaii and Maryland blocked it from going forward.

The Justice Department filed an appeal in the Maryland case, which will take that fight to the Fourth Circuit, based in Richmond, Va. Meanwhile, a federal judge in Hawaii declined a request from the Justice Department to narrow the injunction. That ruling clears the way for the Trump administration to appeal the judge’s initial decision to the 9th Circuit Court of Appeals.

Bill Gates met with Donald Trump today.  An agenda wasn’t released, but a statement from the Gates Foundation said it has “a long history of working with officials” on issues like domestic education and global health and development. Gates and Trump also met in December to discuss innovation.

On March 16, the Gates Foundation said that it was “deeply troubled” by the president’s 2018 budget request, released that morning. The proposal included deep cuts to both the EPA and non-military overseas aid. The next day, Gates responded with an article on the Gates Notes blog, “How Foreign Aid Helps Americans.”

The meeting of the Group of 20 in Germany over the weekend featured an apparent win for the US after the communique produced by the talks omitted warnings about protectionism. One thing that was repeated was the pledge to overhaul bank-capital rules, with the statement urging the Basel Committee on Banking Supervision to finalize the Basel III reforms.

Away from the G-20, German Chancellor Angela Merkel joined Japanese Prime Minister Shinzo Abe in calling for a concerted effort to defend free trade.

Nine months after Britain voted to leave the European Union, Prime Minister Theresa May is planning to open divorce proceedings on March 29.  May will trigger Article 50 of the Lisbon Treaty, the EU’s guiding document, which details how a country leaves the bloc. It’s never been activated and is only about 260 words long. It gives the departing country up to two years to negotiate “its future relationship with the Union.” If May has her way, the actual split will occur around April 2019.

Greece missed another deadline for unlocking bailout funds today, edging closer to a repeat of the 2015 drama that pushed Europe’s most indebted nation to the edge of economic collapse. Prime Minister Alexis Tsipras had promised the latest bailout’s long delayed review would be completed by March 20, but many see that reaching an agreement even in April is now considered a long shot.

Deutsche Bank will issue 687 million new shares at a 35 percent discount to Friday’s closing price — to raise €8-billion-euros of fresh capital. In its annual report published today the bank said it expected revenue to remain broadly unchanged this year, while revealing that the bonus pool was slashed to €500-million-euros in 2016.

Britain’s Vodafone Group and Idea Cellular agreed to merge their Indian operations in a $23 billion deal. The combined entity would have almost 400 million customers, accounting for 35% of the market share.

Albertsons, the grocery-chain operator backed by Cerberus Capital Management, has held preliminary talks to merge with Sprouts Farmers Market. Bloomberg reports the discussions, which took place in recent weeks, are at an early stage and may not lead to a deal. The talks have involved a plan to take organic grocer Sprouts private and add it to Albertsons’ portfolio, which includes the Safeway store brand.

Unilever is preparing a $7.4 billion sale of some of its food brands, British newspapers reported on Saturday. The British-Dutch company is planning to sell Flora margarine and Stork butter brands. Unilever rebuffed a surprise $143 billion takeover offer from Kraft Heinz last month, saying the bid undervalued the company.

Pressure is growing on Twitter CEO Jack Dorsey to step down, per the Sunday Times, after a report from the University of Southern California and the University of Indiana alleged that up to 48 million of its accounts – equal to 15% of its users – were robots not people (that’s nearly twice the company’s own estimate).

The number of executive departures from Uber is growing. President Jeff Jones is quitting the company, citing “incompatibility with leadership,” while Brian McClendon, a VP responsible for the company’s mapping program, is leaving to return to his home town in Kansas. Uber has been recently plagued by allegations of sexual harassment and the combative behavior of CEO Travis Kalanick.

Bullish bets on West Texas Intermediate crude prices fell by a record amount in the week ending March 14, with wagers on further price falls doubling. Energy lender Arab Petroleum Investment Corp. sees oil prices remaining below $60 a barrel for the rest of the year.

Bank of America Merrill Lynch has published a giant list of asset class returns for the year so far. Here’s a quick rundown. Looking at global asset classes, the Pacific Rim, excluding Japan is up 9.6%, matched by Emerging Market equities, Industrial metals up 7.6%, US equites (7.2%), global equities (up 6.7%) And Euro stocks (up 4.9%).

By country; Russia’s stock market is the laggard this year after being one of the best performers in the world in 2016. India is the leader, year-to-date, up 14.5%, followed by South Korea (up 13.3%) and Brazil (up 12.8%). China and Hong Kong round out the Top Five. Russia is down 9%.

By sector, Biotech is the leader (up 11.9%), followed by information technology (up 11.6%), healthcare (up 9.3%), banks (up 7%), with consumer discretionary and financials both up 6%.

The strongest currencies against the US dollar are the Mexican peso, which took a hit following the US election in November, but has gained 7.8% against the dollar since the start of the year; followed by the South African rand, and the Australian dollar.

Natural gas prices have tumbled amid unseasonably warm weather, which implies weaker demand for heating. The US had its second-warmest February ever on record, per to the National Centers for Environmental Information.

Crude oil is also a big loser, likely to the dismay of the Organization of Petroleum Exporting Countries. The top gainers among commodities include iron ore (up 15.3%), lead (up 12%), aluminum (up 11.1%) and cotton (up 10.5%). Nat gas is down 20% and WTI crude is down 9%.

Or, if you want to keep it simple, Apple hit a record high today, and it is up about 23% from the start of the year. Of course, you still must decide if you want to run with the bulls or buy the dips.

Italy is ranked the healthiest country on Earth in the Bloomberg Global Health Index of 163 countries. A baby born in Italy can expect to live to be an octogenarian.

Even though economic growth in Italy has stagnated for decades, and almost 40 percent of its youngsters are out of jobs and it’s saddled with one of the world’s highest debt loads relative to the size of its economy; Italians are in way better shape than Americans, Canadians and Brits, who all suffer from higher blood pressure and cholesterol and poorer mental health.

Italy also has “an excess of doctors.” Then there is the diet, rich in vegetables and drizzled with extra virgin olive oil. Each country in the index was graded based on variables such as life expectancy, causes of death and health risks ranging from high blood pressure and tobacco use to malnutrition and the availability of clean water.

Iceland, Switzerland, Singapore and Australia rounded out the top five most-healthy countries in the index. The U.S. placed No. 34 with a health grade of 73.05 out of 100. It’s ranking for prevalence of overweight people is 67.3 — tipping the scale as one of the world’s heaviest nations.

Norway is now the world’s happiest country, per the 2017 World Happiness Report. The Central African Republic was the least happy of 155 countries. The report was prepared by the Sustainable Development Solutions Network, an international panel of social scientists convened by the United Nations.

Researchers used a scale of zero to 10, covering six areas: gross domestic product per capita, life expectancy, support from relatives or friends, charitable giving, freedom to make life choices, and perceived levels of government and corporate corruption. Norway and several other Nordic countries dominated the top of the list.

America’s rank on the happiness scale is falling.

Even as the country pulled off an economic turnaround, with increases in income and unemployment falling to historic lows, Americans are becoming less happy. When it comes to happiness, the US ranked 19th among the 34 countries in the Organization for Economic Cooperation & Development in 2016, down from third among 24 countries on a similar measure in 2007.

And today is the first day of Spring. Enjoy.

Financial Review

Fed Day

Sinclair Noe — March 15, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 112 = 20,950
SPX + 19 = 2385
NAS + 43 = 5900
RUT + 20 = 1382
10 Y – .08 = 2.51%
OIL + 1.24 = 48.96
GOLD + 21.10 = 1220.70

Today is Fed Day.

Policymakers at the Federal Open Market Committee of the Federal Reserve raised interest rates, as expected. The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent marked one of the Fed’s most convincing steps yet in the effort to return monetary policy to a more normal footing.

This was the second interest rate hike in the past 3 months, and only the third rate hike in the past decade. The Fed indicated it is still looking at 2 more rate hikes in 2017, which matches the guidance they provided in December. The Federal Reserve under Janet Yellen has been very good at communicating any changes in policy; they do nothing that could shock the markets.

The Fed issued a statement confirming their view that the “labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months.

Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat. Inflation has increased in recent quarters, moving close to the Committee’s 2 percent longer-run objective…”

The Fed added a fresh wrinkle by noting that inflation was little changed and still running below its long-term target if energy and food prices were excluded.

In a press conference following the statement, Yellen said the Fed isn’t trying to get inflation to run faster than 2% for a while to catch up from being below 2% for so long, but that doesn’t mean the Fed would stomp on the brakes as soon as the 2% target was breached. “Two percent is not a ceiling on inflation. It is a target.”

Yellen also said the Fed was not really considering any economic implications from President Trump’s proposals for tax cuts, deregulation, and infrastructure spending. Yellen said, “We haven’t tried to map out what our response would be to certain policies. We have plenty of time to see what happens.”

And Yellen added, “The simple message is, the economy is doing well.” It’s too early to react to Trump, Yellen said. Optimism is great, she said, but you have to show us actual changes in consumer or business spending, or actual changes in fiscal policies before we’re going to change our minds about the economy.

The Fed has a wait-and-see attitude about whether consumer or business optimism will translate into actual increased spending. Yellen said, “It’s uncertain just how much sentiment actually impacts spending decisions, and I wouldn’t say at this point that I have seen hard evidence of any change in spending decisions, based on expectations about the future.”

Yellen said the Fed does look at stock market valuations as part of its assessment of financial conditions, but there is no sign that the Fed is particularly worried about a dangerous bubble developing.

The lack of hawkishness from the Fed apparently caught some traders out of the money. Dollar-buyers exited the trade. Stocks shot higher as Yellen spoke. Financials were the weakest sector in the S&P. A rate hike tends to be a positive for banks, because it increases how much they can charge borrowers, compared with their own short-term borrowing costs. So, the banks wanted to hear that the Fed was going to be more aggressive in raising rates.

In theory, rising interest rates are supposed to hurt the stock market because it makes interest-rate instruments relatively more attractive and reduces liquidity in the marketplace. But interest rates and the stock market usually trend in the same direction over the long term.

That is because the conditions that lead to higher rates, such as an acceleration in economic growth, also fuel bull markets for stocks, while the drivers of rate cuts, like an impending economic recession, are often behind bear markets.

Eventually, rates could get high enough to choke off economic expansion and hurt stocks, but based on current market dynamics, the market appears to be safe for quite a while, maybe even years. So, the Fed has a long way to go before damaging the market or economy.

Of course, higher rates will hit people who have debt; everything from mortgage rates to car loans to credit card debt. That increase will cost consumers an additional $1.6 billion in credit card fees alone during 2017.

For savers, a rise in Federal Reserve interest rates is good news. Savings account rates will likely increase slightly, which should help consumers, especially since interest rates on savings accounts are at historic lows. Although consumers shouldn’t expect those rates to rise much. Banks will likely have to collect extra income from borrowers before being able to pass those funds onto the savers.

The International Energy Agency says global oil inventories rose for the first time in January as the market grappled with increased production last year, but if OPEC maintains its output cuts, demand should overtake supply in the first half of this year.

OPEC also flagged rising inventory levels, but raised its estimates for production outside the group and did not see a re-balancing between supply and demand until the second half of this year.

The IEA said crude stocks in the world’s richest nations rose in January for the first time since July by 48 million barrels to 3 billion barrels, more than 300 million barrels above the five-year average.

Investors cashed out of US-based high-yield junk bond funds.  Lipper data shows high-yield bond funds posted $2.1 billion in net withdrawals during the week ended March 8, the most since November 2016. Crude oil prices fell this week to 3-1/2 month lows. Energy producers are heavily represented in junk bond indexes.

Higher interest rates could shrink bond prices and hike borrowing costs for indebted companies. Still US-based stock funds attracted their sixth straight week of net inflows, $8.5 billion, while taxable bond funds netted $2.8 billion despite the high-yield outflows

American consumers paid slightly more in February for goods and services such as groceries and rent, reflecting upward pressure on inflation that’s intensified since last summer.

The consumer price index, or cost of living, rose by a seasonally adjusted 0.1% last month. The increase in inflation over the past 12 months advanced to 2.7% in February from 2.5% in January, putting it at the highest level since early 2012.

Excluding the volatile food and energy categories, so-called core consumer prices rose 0.2% in February. Core prices have advanced 2.2% in the past year. Inflation-adjusted wages rose just 0.1% per hour in February and worker wages are unchanged in the past year.

Retail sales recorded their smallest increase in six months in February. The Commerce Department said retail sales ticked up a seasonally adjusted 0.1% in February, after a much bigger gain of 0.6% the previous month. January’s gain was revised higher.

The figures suggest that strong job gains this year, near record-high stock prices and decent pay gains haven’t yet lifted spending. But last month’s sluggish pace could prove temporary, because spending was likely held back by delays in tax refund payments.

Business inventories in the U.S. rose 0.3% in January, largely because of more new vehicles sitting in auto dealer lots. Inventories at auto dealers rose 2%, reflecting a downturn in sales at the start of the new year. Sales were pumped up in December by holiday-season discounts and a slowdown was expected in January.

The value of auto inventories is 9.3% higher compared a year ago. Millions of Americans who held onto to aging cars in the wake of the Great Recession have upgraded to newer vehicles, but much of that pent-up demand has been met.

Twitter shares were lower in early trading after many high-profile Twitter accounts were hijacked. The hacker posted tweets that supported Turkish President Erdogan in his diplomatic spat with the Netherlands and Germany.

Dutch Prime Minister Mark Rutte’s party has taken the lead in an election widely seen as an indicator of populist sentiment in Europe. Anti-immigrant, anti-European Union figure Geert Wilders had run on a “de-Islamification” platform, calling for Islamic schools to be closed and the Quran and burqa to be banned. The latest polls show that no party will come close to winning an overall majority, so the post-election period will likely come down to forming a coalition government.

MIT has created an award for rule-breakers. The university’s Media Lab announced this week it will award $250,000 to a group or individual for disobedience. Per Joi Ito, the director of MIT’s Media Lab, “You don’t change the world by doing what you’re told.”

The eligibility requirements are simple: “The recipient must have taken a personal risk to affect positive change for greater society.” The winner will be announced in July.

Financial Review

Pause

Sinclair Noe — November 16, 2016

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Review

Welcome to Earnings Reporting Season

Sinclair Noe — October 11, 2016

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

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DOW – 200 = 18,128
SPX – 26 = 2136
NAS – 81 = 5246
10 Y + .02 = 1.76%
OIL – .49 = 50.86
GOLD – 7.00 = 1253.40

Alcoa reported third quarter earnings before the bell today, in what has been traditionally known as the start of earnings season. The raw aluminum and specialty parts maker missed estimates on both top and bottom lines. S&P 500 companies are expected to post their sixth straight quarter of declining earnings, according to FactSet data. And while sales are expected to break their six-quarter streak of declines, that optimism may be overdone, based on the dozens of sales warnings to pop up in the last several weeks.

When you look at a chart of the S&P 500, you’ll see we’ve been in a sideways or consolidation pattern since mid-July. Earnings season could be the catalyst for a breakout or a breakdown; with the S&P 500 trading at an historical high valuation in terms of P/E and P/S, the pressure is towards the downside.

In fact, stocks must justify the current 12-month trailing P/E of 25 and the current CAPE ratio of 27 (cyclically adjusted price to earnings ratio) through positive earnings growth. Analysts are usually very conservative on their predictions. Actual earnings have beaten analyst’s estimates since 2014. As this is well known by investors, one should not get too optimistic over the possibility that earnings may beat estimates by a small margin.

In fact, be careful to buy on slightly better than expected earnings given that valuations are high. Now, the good news is that most of the bad news has already been baked into price; by that, I mean we are all aware of concerns with Brexit, China, the price of oil, the US election, and a possible Fed rate hike. The bad news is that the market is complacent. The VIX is low at around 15.

Except for a couple of weeks in September, where the S&P took a big hit and then bounced back, the tight range has been getting tighter, like a rubber band wound to the limit. A break above the September highs of 2180 would serve as a bullish sign that could lead to new all-time highs. Today’s close below 2140 exposes weakness and a break down below 2120 looks dangerous.

Long-term bond yields continued to rise. The yield on the 10-year Treasury note was slightly higher at 1.76%. Earlier Tuesday it hit 1.8% for the first time since early June, marking a four-month high. Futures markets are now pricing in roughly 70% odds of a rate hike at the Fed’s December meeting. We should learn more tomorrow, when the Fed releases minutes of its last policy meeting.

British cabinet ministers are being warned that the Treasury could lose up to £66-billion-pounds a year in tax revenues under a “hard Brexit,” according to leaked government papers seen by The Times. The document also cautions that leaving the single market and switching to WTO rules could cause GDP to fall between 5.4%-9.5%.

The British pound sterling slipped below $1.23 and €1.11 in morning trading to its lowest value since last week’s flash crash. The fall in the pound has boosted the FTSE 100 as many of the companies in the index generate most of their revenues abroad. The UK’s benchmark index broke through its previous record intra-day level to hit 7,129.83 before losing some ground.

Igor Sechin, Russia’s most influential oil executive and the head of state-controlled energy giant Rosneft, said his company will not cap oil production as part of a possible agreement with OPEC. Sechin told reporters that Rosneft planned this year to raise its oil production, already the world’s largest among listed producers. Sechin said he doubted some OPEC countries, such as Iran, Saudi Arabia and Venezuela, would cut their output. Yesterday, WTI pushed above $51 per barrel after Vladimir Putin said Russia was ready to join an output freeze, but not one world producer has willingly taken one solitary barrel off the table this fall.

Samsung’s Galaxy Note 7 has been permanently discontinued, following a problematic recall operation that replaced Note 7 phones with faulty batteries at risk of explosion… with new phones that have the same batteries. The replacement lithium ion batteries in the phone tend to catch fire. The cost to Samsung of the Galaxy Note 7 could be $17 billion, the amount the company was expected to bring in from the sales cycle of the phone.

That figure doesn’t include the damage to the Samsung brand, though. Samsung shares have lost $18 billion in market cap since the problems started. If you have a Galaxy Note 7, and it doesn’t matter if it was the original phone or a phone with a replacement battery, just turn it off and get a refund and buy a phone that doesn’t explode.

Although Salesforce was thought to be out of the mix as of this weekend, a new report suggests the company is still evaluating the benefits of a Twitter deal and what an appropriate valuation might be. Meanwhile, in an internal memo reportedly sent to Twitter employees last week, CEO Jack Dorsey made no mention of any deals, instead highlighting initiatives revolving around the company’s live strategy and other merits.

General Electric said it would buy LM Wind Power, a maker of rotor blades used in wind turbines, from private equity firm Doughty Hanson for $1.65 billion, as it looks to capture a bigger share of the fast-growing renewable energy market. GE separated its renewable energy business from its power unit last year, following the $13.6 billion acquisition of Alstom SA’s power business. Denmark-based LM Wind Power is the largest supplier of rotor blades to GE.

Fiat Chrysler has reached a tentative deal with unionized workers in Canada by agreeing to make more than $300 million in investments for local operations. The pact was announced just minutes ahead of a midnight strike deadline that could have sent more than 9,000 Fiat workers off the job. Union members will vote on the accord at ratification meetings on October 16.

Chicago’s schools and its teachers’ union agreed to a contract proposal late on Monday, averting a strike set for today in the third largest U.S. public school system. Teachers contribute 2 percent to their pension, with the school board chipping in an additional 7 percent. Under Monday’s deal, new hires will not get the 7-percent “pension pickup,” but will get a salary adjustment to compensate for that.

Airbus plans to slow the assembly rate of its A380 to one aircraft per month from 2018 as the European plane maker struggles to revive sales of the world’s largest passenger jet.  Airbus’ assembly rate for the superjumbo currently stands at 2.5 aircraft per month.

Theranos has been sued by one of the blood testing start-up’s biggest backers, Partner Fund Management, for attracting $96 million in investment “through a series of lies, material misstatements, and omissions.” The suit accuses Elizabeth Holmes of deceiving the hedge fund by claiming Theranos had developed “proprietary technologies that worked” and was close to getting regulatory approvals. The suit comes less than a week after Theranos stopped all of its clinical operations, cutting 340 positions and closing its Wellness Centers where blood tests were performed.

A recent update from the Arizona Multiple Listing Service shows Phoenix real estate sales in September were up 6.3% year-over-year. Active inventory was up 3.4% year-over-year, marking the seventh consecutive month of increases in inventory. Cash sales declined to 20.2% of total sales. Meanwhile, foreclosure inventory continues to plunge across the nation, with the foreclosure inventory rate at 0.9% in August, down 29.6% compared to last year. Arizona has one of the lowest levels of foreclosure inventory, at just 0.3%.

Americans are increasingly shopping online and we have been spending less at the malls; overall, we just got tighter with money following the financial crisis. According to a new report from Morningstar, we have a shopping mall problem. The US has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada and 11.1 square feet in Australia – the next two countries with the highest retail space per capita.

Department stores like Sears, Macy’s, and JCPenney have been closing stores to try and get rid of unprofitable stores, and that’s had a devastating effect on malls. When an anchor stores closes, it often triggers a downward spiral in performance for shopping malls that in some cases has led to massive losses on loans.

When an anchor store closes, shopping malls don’t only lose the income and shopper traffic from that store’s business. It often triggers “co-tenancy clauses” that allow the remaining mall tenants to exercise the right to terminate their leases or renegotiate the terms, typically with a period of lower rents, until another retailer moves into the vacant anchor space. The Morningstar report supports a recent analysis from Credit Suisse that said about 200 shopping malls are at risk of shutting down if Sears continues to close stores.