Financial Review

Relatively Soon

Sinclair Noe — November 17, 2016

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DOW + 35 = 18,903
SPX + 10 = 2187
NAS + 39 = 5333
10 Y + .05 = 2.28%
OIL – .58 = 45.52
GOLD – 2.40 = 1,215

The S&P 500 is close to a record high of 2190. Not today, but close.

The Labor Department reports the Consumer Price Index increased 0.4 percent last month, the biggest increase in six months. In the 12 months through October, the CPI advanced 1.6 percent.

Gasoline prices jumped 7 percent last month and rents increased 0.4 percent; food prices were unchanged. Underlying inflation, however, remained moderate. The core CPI, which strips out food and energy costs, climbed 0.1 percent last month after a similar gain in September. That slowed the year-on-year increase in the core CPI to 2.1 percent.

The number of people who applied for unemployment benefits last week dropped by 19,000 to 235,000, a 43-year low. Initial claims have been under the key 300,000 threshold for 89 straight weeks. Companies have ramped up hiring over the past five years, and many complain they cannot find enough skilled workers to quickly fill open positions.

Arizona’s seasonally adjusted unemployment rate decreased three-tenths of a percentage point from 5.5% in September to 5.2% in October. The national unemployment rate stands at 4.9%. Arizona gained 28,000 Nonfarm jobs in October. Arizona Nonfarm employment grew by 1.8% (49,600 jobs) over the year in October.

Federal Reserve Chair Janet Yellen spoke to the Joint Economic Committee this morning, saying a rate hike is coming “relatively soon.” Yellen said progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year.

The Fed chair warned of the risks attached to waiting too long before raising rates, saying: “Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both committee’s longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”

So, the Fed will hike rates in December, absent some catastrophe. Also, in testimony, Yellen pledged to serve out her term despite criticism from Donald Trump during his presidential campaign and she defended the Dodd-Frank Act.

Meanwhile, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis in January, says the big banks are still too big to fail even after the passage of the 2010 Dodd-Frank Act. And he has a proposal, called the Minneapolis Plan, to reduce the risks that these banks pose.

In a speech to the Economic Club of New York, Kashkari said his plan would require banks with $250 billion or more in assets to issue common equity of 23.5 percent, up from 13 percent required under current rules. Long-term debt would not be allowed to be counted as part of that cushion because history showed it was not a foolproof buffer to losses.

The plan would likely prompt banks to break apart because of the high cost of holding so much capital. In other words, the risk of another financial calamity outweighed the costs of increased regulation.

What makes this interesting is that President-elect Trump has called for repealing Dodd-Frank, although we don’t know what he would replace it with. At the same time, the Republican Party platform calls for breaking up the large banks by restoring the New Deal-era Glass-Steagall Act. Kashkari said the Minneapolis Plan would greatly reduce the risks of another financial meltdown.

Kashkari also said he traced some of the nation’s current political anger and polarization to how the government responded to the financial crisis — which allowed large banks to survive while thousands of Americans struggled to keep their homes and find new jobs, saying: “The bailouts violated a core belief that has been handed down from generation to generation in our society that if you take a risk you bear the rewards and consequences of that risk.”

The Bank of Mexico just hiked rates by 50 basis points, to 5.25% up from 4.75%.The Mexican peso fell to a record low against the dollar on election night as rolling results increasingly pointed to a Trump victory. It continued tumbling over the course of last week, but has since retraced some of its losses. The point of a rate rise is not to stem the peso’s fall but to anchor inflation expectations and deter capital flight; still, a rate hike could slow economic growth.  Mexico faces the threat of a rating agency downgrade, and analysts have been trimming their growth forecasts for next year.

President-elect Donald Trump is expected to meet with Japanese Prime Minister Shinzo Abe today. But Japanese officials don’t know where or when it will take place, nor do they know who will be attending. The Bank of Japan has been on the defensive, buying Japanese Government Bonds in a bid to offset rising treasury yields. Governor Haruhiko Kuroda said he would not allow market pressure from the U.S. to interfere with Japanese monetary policy and does not need to move in tandem with the Federal Reserve, and so the Bank of Japan will buy unlimited bonds – keep in mind they carry a negative interest rate.

Walmart reported earnings and revenue that slightly missed estimates. Wal-Mart said it earned 98 cents a share during the fiscal third quarter, slightly lower than 99 cents a share in the prior-year period. It raked in sales of $118 billion, a 0.7 percent increase over the prior-year period but below estimates.

Cisco Systems, another Dow stock, reported late Wednesday earnings and revenue above forecasts.  But Cisco warned on outlook for the current quarter, as the company’s traditional business of switches and routers continues to struggle with sluggish demand.

Best Buy, the electronics retailer, posted third quarter earnings of 62 cents per share, topping estimates of 42 cents. Revenue also beat. Comparable store sales were up 1.8% from the same quarter last year. Guidance for the fourth quarter came in strong.

After five months of wrangling and two different recommendations from proxy advisory firms, shareholders approved the $2.6 billion merger between Tesla and SolarCity.

Documents filed with the FCC show SpaceX plans to deploy 4,425 satellites to create a super-fast global internet network. That’s more than three times the 1,419 operational satellites that are currently in orbit, according to the Union of Concerned Scientists. The initiative was first floated by Elon Musk in early 2015, when he estimated the project would take at least five years and cost around $10 billion.

Citigroup’s Australian arm is going cashless, telling customers that it will no longer handle notes and coins as of Nov. 24, because fewer than 4% of customers have used them in the last year. While Citi is a small force in Australian retail banking, the move is a sign of how banks are being forced to reinvent branches in the face of a boom in digital transactions and contactless payments.

Following a nearly three-year investigation, JPMorgan has agreed to pay more than $264 million to settle bribery allegations that it hired children of well-connected Chinese decision-makers to win business. JPMorgan may take another hit; Fox Business is reporting that CEO Jamie Dimon might be named Treasury Secretary in the new Trump administration.

Wells Fargo said retail customers opened 44 percent fewer new accounts in October compared with the same period a year earlier following the bank’s settlement with regulators over its cross-selling scandal. New credit-card applications dropped by half to 200,000 in October, the first full month since the lender disclosed the settlement.

Andy Davenport, the CEO of Philidor, the secret pharmacy whose discovery led to a crisis at Valeant Pharmaceuticals, has been arrested and charged with “engaging in a multimillion-dollar fraud and kickback scheme.” Gary Tanner, a former Valeant executive who went on to work for Philidor, was also arrested. US prosecutors are separately investigating former Valeant CEO Michael Pearson and CFO Howard Schiller but they have not been charged at this time.

Philidor is at the heart of the scandal that erased 90% of Valeant Pharmaceuticals’ market value. Valeant hadn’t told investors about the pharmacy, which Valeant had an option to acquire and which accounted for at least 5% of the company’s sales. After the pharmacy’s existence came to light, and accusations that it was using fraudulent tactics to push Valeant’s drugs quickly followed, the company was quick to break off the relationship.

Toyota is getting serious about electric cars. The world’s biggest car company is setting up a separate in-house division to focus purely on developing an electric-car strategy to meet ever-tightening global emissions regulations. Until now, Toyota has been investing mainly in the development of hydrogen-fuel-cell cars.

Ford’s new EcoSport is set to become the smallest SUV in the Detroit automaker’s line-up, but it could also fuel the big debate over automotive trade. That’s because the model will roll off a Ford assembly line in India. Ford has also made plans to move all its small car production to Mexico.

Financial Review

Break Down

Sinclair Noe — November 1, 2016

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DOW – 105 = 18,037
SPX – 14 = 2111
NAS – 35 = 5153
10 Y – .02 = 1.84%
OIL – .53 = 46.33
GOLD + 10.80 = 1288.80

Stocks started the session in positive territory but slippage was immediate; slow at first then picking up momentum. The Dow Industrial Average dropped below 18,000 for the fourth time since September 12, at one point posting a 200-point loss.

The S&P 500 took out the lows of September at the 2120 level. We had talked about 2020 being a level of support, which has now been broken. The next levels of support are 2080 (representing the 200-day moving average) and 2040 (representing lows from April and May). The point here is that today’s trading did some serious technical damage; the other point is to remind you to keep an eye on the charts; they are very effective at cutting through the chatter and the clutter.

The Fed began its 2-day FOMC meeting.  Treasury yields climbed early toward the highest since May on speculation the Federal Reserve will raise interest rates this year as the global economy improves. The Atlanta Federal Reserve’s GDP Now forecast model shows the economy is on track to grow at a 2.3 percent annualized pace in the fourth quarter; that is a downward revision from just yesterday, when the GDP Now forecast was for 2.7 percent fourth quarter growth.

Investors will be scouring the accompanying statement for clues on how determined the Fed is to raise rates in December. As things stand, the markets are taking policymakers such as Bill Dudley of the New York Fed at their word when they say a move is likely before the year is out if growth stays on track. Fed funds futures data compiled by Bloomberg shows the market is pricing in a 16% chance of a November interest-rate hike and a 71% chance of a rate hike before the end of the year.

The Bank of Japan kept policy on hold. Japan’s central bank voted 7-2 to keep its key interest rate at negative -0.1%, and target for the 10-year Japanese bond yield at 0%, warning that risks to growth and inflation were “skewed to the downside.”

Australia’s central bank held rates steady at 1.50%, as expected, and said “the Bank’s forecasts for output growth and inflation are little changed from those of three months ago.”

American manufacturers grew slightly faster in October and even put more people to work for the first in four months. The Institute for Supply Management said its manufacturing index rose to 51.9%, the highest in three months, from 51.5% in September. Readings over 50% indicate more companies are expanding instead of shrinking.

A measure of factory employment jumped 3.2 percentage points to a reading of 52.9. But a gauge of new orders slipped to a reading of 52.1 from 55.1 in September, suggesting any future gains in manufacturing activity would be modest.

The Affordable Care Act Open Enrollment starts today. Arizonans will find in most counties only one insurer selling exchange plans for 2017. Premiums for some plans will be more than double this year, some of the biggest increases in the nation. Only last-minute maneuvering prevented one Arizona county from becoming the first in the nation to have no exchange insurers at all.

Outlays for U.S. construction projects fell 0.4% in September. Spending on private outlays fell 0.2%. Residential spending rose 0.5% but spending on nonresidential projects sank 1%. For overall public construction projects, spending fell 0.9%. Outlays for the first nine months of the year are 4.4% higher compared with the same period in 2015.

CoreLogic reports home prices nationwide, including distressed sales, increased year over year by 6.3 percent in September 2016 compared with September 2015 and increased month over month by 1.1 percent in September 2016 compared with August 2016. Arizona is still 22% below peak prices. Arizona home prices were up 0.6% for the month and 5.6% year-over-year.

Sales of new cars and trucks were expected to fall in October. Auto sales have been strong but there are limits and it looks like car makers hit those limits last month. General Motors’ sales fell 2 percent from last October, while Toyota’s sales fell 9 percent. Honda’s sales were down 4 percent and Nissan’s fell 2 percent. Fiat Chrysler’s sales were down 10 percent. Volkswagen’s sales fell 18 percent. Ford will report later in the week due to a fire at their headquarters.

Sales fell even though automakers increased average discounts per vehicle by 12 percent from last October to $3,726 per vehicle. But the average sales price still was expected to set an October record at $31,383. Prices are rising because more high-priced trucks and SUVs are being sold.

Gasoline is surging, despite a recent drop in crude oil prices. An explosion of a Colonial pipeline in Alabama killed one person and injured 5 other; it is also causing gasoline futures to skyrocket higher. Futures for December delivery jumped 10.8% to $1.57 a gallon. Colonial Pipeline said it hopes to restart its major gasoline pipeline between Gulf Coast refiners and customers in the East and Southeast by noon Saturday; that news pushed prices down, but futures are still up about 4% at $1.48.

Meanwhile, crude oil has not been able to mount any kind of rally despite a weaker dollar. Following last week’s inventory draws across the entire energy complex, API was expected to report a seasonally normal 1.5 million barrel build but instead printed a massive 9.3 million build.

Royal Dutch Shell and BP both reporting higher than expected earnings by making further deep cuts in spending. Shell announced higher quarterly earnings than Exxon Mobil, the world’s largest listed oil company by output and market capitalization. At $2.8 billion in the third quarter, Shell’s net income was above Exxon’s third quarter net income of $2.65 billion. Both Shell and BP maintained their dividends unchanged as expected.

Mortgage provider Freddie Mac reported a profit of $2.3 billion in the third quarter, as interest rates turned in its favor, credit quality improved, and mortgage volumes surged. Freddie has operated under federal conservatorship since the 2008 financial crisis, when it received $71 billion in bailout funds. In December, the enterprise will remit $2.3 billion to the U.S. Treasury, bringing its total paid post-crisis to $101 billion.

Pfizer lowered its earnings outlook for the year and said it was ending the development of a drug in the cholesterol-treatment sector. Pfizer reported a profit of $1.3 billion, or 21 cents a share, down from $2.1 billion, or 34 cents a share a year prior; bottom line missed estimates – revenue matched estimates.

Prosecutors are focusing on Valeant Pharmaceuticals’ former CEO and CFO as they build a fraud case against the company that could yield charges within weeks. Authorities are considering potential accounting fraud charges related to the company’s hidden ties to Philidor Rx Services LLC, a specialty pharmacy company that Valeant secretly controlled.

Federal prosecutors in Manhattan and agents at the Federal Bureau of Investigation in New York have been investigating the company for at least a year. Last October, accusations of accounting malfeasance combined with government scrutiny over the company’s drug price hikes brought the company to its knees. Valeant’s stock price is down around 90% since last year’s peak.

One of the most difficult things Valeant has had to deal with through this entire mess is its over $30 billion debt load, which could be an even bigger problem with a criminal charge. Prosecutors in Boston and Philadelphia are also said to be conducting separate inquiries of Valeant.

Boston’s investigation focuses on Valeant’s payments to charities that then helped patients make co-payments for the soaring cost of Valeant drugs, some of the most expensive on the market. The Philadelphia case is examining Valeant’s billing of government health care programs for the company’s drugs.

And while that all sounds very bad for Valeant, if you pull up a quote today, you will see the stock is up 33%. The reason – Valeant is in talks to sell its Salix unit to Japan’s Takeda for $10 billion, per the Wall Street Journal. The crown jewel of Salix’s product line is Xifaxan, a drug that cures irritable bowel system.

When the company bought Salix, it told investors that Xifaxan would be a $1 billion drug in 2016. So far though, that hasn’t been in case. Valeant acquired Salix for $11 billion in 2015 and took on around $4 billion of its debt, so the company would be taking a loss, but it would show Valeant still has some valuable assets, even in a fire sale.

Sony’s second-quarter profit missed estimates, as a one-time charge and stronger yen weighed on profit from financial services and PlayStation games.

Angie’s List said it has hired financial advisers to review its strategic options as it continues to work on a turnaround and seek new opportunities. The company said it had a net loss of $16.8 million, or 28 cents a share, in the quarter, after breaking even in the year-earlier period – a big miss on top and bottom line estimates.

Gannett (the publisher of USA Today) has dropped its bid to buy Chicago Tribune and Los Angeles Times publisher Tronc. Gannett first made a bid for Tronc in April, then Tronc rejected a sweetened offer in May.

ChemChina has extended its $43 billion cash offer for Syngenta to Jan. 5 while it works to gain regulatory approval for the transaction. On Friday, EU anti-trust regulators opened an in-depth investigation into China’s biggest-ever foreign acquisition, setting a March 15 deadline to complete its review.

In one week and a few hours, the results will pour in. Hang in there.

Financial Review

Take the Overs

Sinclair Noe — August 19, 2016

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DOW – 45 = 18,552
SPX – 3 = 2183
NAS – 1 = 5238
10 Y + .04 = 1.58%
OIL + .27 = 48.49
GOLD – 12.50 = 1340.60

Oil has entered bull-market territory, as both WTI and Brent benchmarks extended their gains past 20 percent over the past three weeks, and up over 8% for the week. The rally has been fueled by speculation OPEC is poised to freeze production, divisions between major powers over output targets remain ahead of next month’s meeting in Algiers.

Saudi Arabia reported yesterday that it hiked its oil and refined-product exports to the highest level for June ever recorded, at 8.8 million barrels a day, as the kingdom seeks to grow market share and address its budget deficit. The S&P GSCI Crude Oil Total Return is up 15.2%, its biggest six-day gain, ending Aug. 18, 2016, since the six-day gain of 16.1%, ending on Apr. 13, 2016.

A side note: yesterday we got state-by-state reports on July Jobs figures (the national report comes out on the first Friday of each month and about 10 days later we get the breakdown by individual states). As we reported yesterday, Arizona’s unemployment rate rose 0.2% to 6%. You might think the oil producing states have suffered huge job losses; well, yes, but not so bad. Louisiana has a 6.3% unemployment rate, but about half the state is under water. South Dakota’s unemployment rate is still the lowest in the country at 2.8%; North Dakota at 3.1%; Texas 4.6%; and Oklahoma 5%.

Aiming to drill for crude in Mexico’s deep-water oil areas, Exxon Mobil, Chevron and Hess have reached an agreement to bid on producing oil in 10 areas up for auction on Dec. 5. Mexico hopes to raise $44 billion in its first-ever sale of deep-water drilling rights in the Gulf of Mexico, located in the Perdido area near the maritime border with the U.S.

The dollar trimmed its losses, rising against all 16 of its major counterparts, but that wasn’t enough to stem its second weekly decline as markets continue to waver on whether the Federal Reserve will hike rates this year. The dollar’s losing streak against this year’s best-performing G10 currency, the yen, is even longer at a fourth consecutive week of losses: The Japanese currency is trading near its strongest levels in almost three years.

San Francisco Federal Reserve Bank President John Williams joined a growing chorus of his colleagues signaling support for a U.S. interest rate hike in coming months, saying that waiting too long could be costly for the economy. Saying he is in no hurry to raise rates, Williams nevertheless warned that the economy could overheat if rates are kept low for too long, like a party at which the host fails to remove the punch bowl. The next signal of the Fed’s intent is likely to arrive next week at the Jackson Hole monetary symposium on August 26; Fed chair Janet Yellen is scheduled to speak and there is growing anticipation that she will take a hawkish stance on September rate hikes.

In a letter to investors, Elliott Management’s Paul Singer wrote that we are experiencing the “biggest bond bubble in world history” as investors continue to rush in despite low and negative yields. The man, known best for suing Argentina over its debt restructuring, called the global bond market “broken” and warned that the end of the current environment will be “surprising, sudden, intense and large.” Singer brings up a valid concern, even if he is a bit dramatic in the presentation.

About $12 trillion of the government bond market currently trades at a negative yield; that’s basically a guarantee of losses. The average yield on the 10-year Treasury note over the past 145 years is about 4.55%; the current yield is 1.58%. If that difference, or deviation, was the only thing you considered, then we might call it a bubble. But about one-third of outstanding bonds are held by central banks around the globe.

And that means that if inflation starts running wild or if liquidity dries up, the anticipated response is another round of bond buying. Central bankers have deep pockets. Singer’s latest assessment of the market is stark and bold. He said that “Everyone is in the dark, experience doesn’t count much, and extreme confidence may be fatal.” Yeah, maybe, but not today.

British Prime Minister Theresa May will not begin formal divorce talks on leaving the European Union before the end of the year. Bloomberg cited unidentified officials as saying that May is sympathetic to the case for acting by April at the latest.  Earlier media reports had suggested May would wait until later in 2017 to kick off the talks. The report suggests invoking Article 50 by April, ending speculation that the U.K. would have several years to prepare to leave the EU. The less time the U.K. has to get things in order, the greater the market fears the fallout. The British pound sterling moved sharply lower today.

Meanwhile, The City of London has relinquished hopes the U.K. will retain full access to the European single market for goods and services, according to the FT. Officials from the financial sector have concluded that a Norway-style deal is untenable, and are now looking to imitate and build on Switzerland’s deal with the EU, where only some industries have full access to the single market.

Wall Street is no longer New York’s biggest jobs engine. William Dudley, the New York Federal Reserve president, said in a Thursday speech that growth in the city’s tech sector was “picking up much of the slack created by the softness of the securities industry.” Dudley pointed specifically to jobs in the internet publishing, online shopping, and scientific research and development industries.

The battle over Sumner Redstone’s $40 billion media empire is over, according to media reports, bringing to a close a legal fight over whether the 93-year-old had the mental capacity to make decisions and if he was being manipulated by his daughter Shari. Terms of the settlement include the dismissal of Viacom CEO Philippe Dauman (with a $72M severance package), appointment of COO Thomas Dooley as interim chief executive and the expansion of Viacom’s board (based on the five choices of National Amusements).

A Deutsche Bank whistleblower won’t be accepting his award. Eric Ben-Artzi, a former Deutsche Bank risk officer, said in a Financial Times op-ed article that he would not accept his $8.25 million reward for blowing the whistle on Deutsche Bank because the firm’s executives should be the ones paying the award.

Two major institutional investors are suing Valeant Pharmaceuticals and six current and former top executives for allegedly engaging in “a fraudulent scheme” that cost shareholders billions of dollars. Mutual fund giant T. Rowe Price and insurance company Alleghany Corp. filed the lawsuit this week in a New Jersey court. The court filings allege that Valeant resorted to deceptive practices such as refilling patients’ prescriptions without permission and pushing sales of its high-priced medications through a secret channel of pharmacies across the US.

Once the scheme was unmasked the fallout was severe and investors were left holding the bag. Valeant shares collapsed by about 90% after its relationship with Philidor, a now-defunct mail-order pharmacy based in Pennsylvania, came to light and its practice of aggressively increasing the prices of its drugs faced more scrutiny. Valeant also faces a separate class action suit, and is the subject of a criminal investigation.

Now, emails from employees of Philidor and Valeant (one and the same really) ..., emails have been published and it paints a very sleazy picture of price gouging. And it is now looking like Valeant is the pharmaceutical industries equivalent of Enron.

The FCC has put together a “Robocall Strike Force,” it’s really just a group of tech companies getting together to try to stop people from annoying you with spam phone calls. The group – which includes Apple, Comcast, Google, Microsoft, Nokia, Qualcomm, Samsung, T-Mobile, Verizon, and dozens more – held its first meeting today. The strike force is expected to report back to the Commission by Oct. 19 with concrete plans for the development and adoption of new tools, as well as recommendations on the government’s role.

Robocalls span a wide range, from those that are legal but unwanted – telemarketers and public opinion surveyors – to the blatantly illegal – those violating the Do Not Call registry or trying to steal your money or identity. All 33 members of the strike force have already committed to five things: conforming to caller ID standards, adopting SS7 solutions, evaluating the feasibility of a “Do Not Originate” list, developing and implementing new solutions, and adopting call-blocking tech.

Today is Google’s anniversary; August 19, 2004 was the first day Google was publicly traded. The stock didn’t even survive to its tenth birthday. In 2014 it changed its name to Alphabet; still, it has been a pretty good run. Since the first day of trading, Google alphabet shares are up 1,500%.

The political betting site PredictIt has a market in how many totally false statements the two major presidential candidates will make. Yep, you can bet on politicians lying. PredictIt uses the analysis of the site PolitiFact, and statements rated “totally false.” The current odds suggest that Clinton is the more truthful – there’s a 65% probability Clinton will make just one totally false statement in August, according to the betting odds. The least amount of lies to bet on for Trump is four, and the market is split between five and six lies, with 26% odds on each.

That shouldn’t come as a surprise. In an analysis made in June, PolitiFact said Trump had more statements rated “pants on fire” than the 21 other candidates for president combined. That said, Americans don’t think either candidate is particularly honest, only 28% think Clinton is honest and trustworthy, and 27% think Trump is. And while I would never endorse gambling, if you feel compelled to place a wager, I would go with the overs.

Financial Review

Quiet and Overbought

Sinclair Noe — June 7, 2016

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

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DOW + 17 = 17,938
SPX + 2 = 2112
NAS – 6 = 4961
10 Y – .01 = 1.71%
OIL + .74 = 50.43
GOLD – 1.50 = 1244.20

Fed chief Janet Yellen on Monday called last week’s U.S. jobs numbers disappointing and opted not to repeat her message that U.S. interest rates could rise again in the coming months. That was balanced, however, by her cautioning against attaching too much significance to the payrolls data in isolation and as she pointed to other more upbeat signals for the economy and indicated rate hikes this year would still be appropriate.

On Friday, when the jobs report came in at a very weak 38,000 jobs added, the markets were down slightly. Clearly the news from the jobs report had the effect of taking a June rate hike off the table. In the past, the markets would have rallied on that kind of news, but it made for terrible optics, and so we had to wait for Fed chair Yellen to not say anything. And besides, the markets had already priced in no rate hike in June. So, what’s going on here?

The S&P 500 has gone 42 trading days without a decline of 1% or more. That’s the longest stretch without a big drop since a 66-day period that ended in July 2014, according to FactSet. The U.S. stock market hasn’t dropped by 1% or more since April 7. During one particularly scary stretch in mid-February, the S&P 500 suffered three plunges of 1% or more on separate occasions in just five days. This slow steady advance leaves the market in extremely overbought territory.

Economic data remains weak; we just wrapped up another horrible earnings season; valuations remain expensive; we are moving into a seasonally weak time period; the yield curve is flattening; volume is weak.

Meanwhile, the bullish case for this market is tenuous at best. It might be bullish…, if the Fed keeps rates unchanged; if the economy bounces back in the second half (we’ve already given up on a second quarter bounce); if earnings improve (which is plausible given how low the bar is now set); if oil trades higher (even though higher oil prices will surely lead to higher supplies); if the dollar doesn’t firm up again; if there is no Brexit; and if the markets continue to ignore the data.

You get the idea. Still, it is possible to take out the old highs on the S&P, even without a bullish case. If that happens I would still be left wondering what is pushing the bullish case, other than a herd mentality that is not sustainable. Today, stocks moved to an 11 month high and then faltered on weak volume.

Productivity remains a key weakness of the economy and is especially evident during the low output of the first quarter. American workers were less productive again in the first quarter. The Labor Department productivity declined at an annual rate of 0.6 percent in the first quarter after a 1.7 percent drop in the fourth quarter.

The government first estimated that productivity fell at a 1 percent rate. Not only did hours exceed output, compensation rose at the same time, up 3.9 percent to lift unit labor costs by 4.5 percent, even faster than the 4.1 percent gain first reported. Though there seems to still be a belief that wage growth remains sluggish, in reality, wages have finally begun to move higher in earnest. The anecdotal and survey evidence has been pointing to rising wages for a while, but the data were slow to fall into line. Now they have.

CoreLogic’s Home Price Index (HPI) shows that home prices in the USA are up 6.2 % year-over-year (reported up 1.8 % month-over-month). Last month’s 6.7 % year-over-year gain was revised downward to 5.5 %. CoreLogic HPI is used in the Federal Reserve’s Flow of Funds to calculate the values of residential real estate.

Consumer credit growth cooled off a bit in April from a torrid pace in March, according to the latest government estimates. Credit growth rose $13.4 billion in April, or at a seasonally adjusted annual rate of 4.5%, the Federal Reserve said Tuesday. Economists had expected a gain of $18 billion in April consumer credit. This is down from a revised $28.4 billion, or 9.6% pace in March. That was the largest dollar gain in consumer credit on record. The Fed said credit-card debt rose at a 2.1% rate in April, down from 13.3% in the prior month, which was the largest gain February 2001.

Non-revolving debt, mainly car and student loans, which has powered credit growth in recent years, expanded at a 5.4% rate in April, below the 8.2% gain in March. As a result of the gain in April, total outstanding consumer credit reached an all-time peak of $3.6 trillion.

Even before Mario Draghi starts his corporate-bond buying program tomorrow, he’s pushed down borrowing costs in Europe toward unprecedented levels, with the average yield on euro investment-grade company notes tumbling to 1%. On Tuesday, a series of government bond yields tumbled to multi-month and all-time lows.

The ECB in March announced it would expand its asset-purchasing program to include corporate bonds in an effort to directly lower borrowing costs for businesses and to help lift persistently low inflation. One concern is that corporate buybacks might have some unintended consequences, such as stock buybacks and widening spreads between bonds that are eligible for ECB’s purchases and those that aren’t.

Second-round bids for Yahoo’s internet business were due yesterday. Verizon Communications reportedly planned to submit a bid worth about $3 billion for Yahoo’s internet business, according to the Wall Street Journal. The telecom giant reportedly isn’t interested in other Yahoo assets such as patents and real estate. The private-equity firm TPG and a team led by Quicken Loans founder Dan Gilbert are said to be among the other interested parties. Yahoo is projected to hold at least one more cycle of bidding, and the offers could change by the final round.

U.S. investigators are trying to determine whether Goldman Sachs violated the Bank Secrecy Act when it didn’t sound an alarm over a suspicious transaction involving Malaysia’s state fund 1MDB. After raising $3 billion via a bond issue for the troubled fund, Goldman sent the proceeds to a Swiss bank account controlled by 1MDB, with half of the money disappearing offshore within days and some reappearing in the prime minister’s bank account.

Royal Dutch Shell will exit oil and gas operations in up to 10 countries in a drive to cut costs as it weathers weak oil prices and has to pay down debt following its $54 billion acquisition of BG Group. The company is active in more than 70 countries and said it would like to focus on 13 important nations where it is making good returns, including Brazil, Australia and the United States. The move, which includes the sale of 10 percent of its oil and gas production assets, will make Shell a smaller company that offers investors access to a more gas-heavy portfolio than some of its rivals.

Shares of Biogen dropped this morning after an experimental drug for multiple sclerosis failed in a mid-stage trial. The drug missed both the main and secondary goals for treating the disorder. Biogen makes most of its money from drugs treating MS and has been seeking new treatments to accelerate growth.

Valeant Pharmaceuticals announced a loss of $1.08 a share, which was adjusted to a gain of $1.27 when factoring out one-time adjustments. Valeant cut its 2016 earnings and sales forecasts, marking a major reset point as the once high-flying company tries to get back on its feet.

First-quarter earnings — the last set of full results under former Chief Executive Officer Michael Pearson — gave investors the first detailed picture of the drug maker’s struggles to sell its products during the recent months of chaos. Two of Valeant’s key categories, dermatology and prescription ophthalmology, slumped by 43 percent and 30 percent, respectively. In dermatology in particular, the company has faced push-back from health insurers and pharmacy benefit managers after increasing its prices.

A U.S. District Judge  has found a pattern of misconduct by Merck including lying under oath and other unethical practices, freeing Gilead Sciences from paying damages for infringing on Merck’s patents with its hepatitis C treatments – Sovaldi and Harvoni. The ruling comes after a federal jury on March 24 ordered Gilead to pay $200 million in damages, based on findings that Merck’s patents were valid.

Samsung is considering introducing two new smartphone models that will feature bendable screens. One model is said to fold in half like a cosmetic compact, while the other has a 5-inch display that “unfurls” into a tablet-sized 8-inch panel. The devices using organic light-emitting diodes could be unveiled as soon as early 2017.

Leading European countries have decided not to extend the license for glyphosate, a herbicide used in Monsanto’s top selling weed killer. The EU is worried about growing public concerns it could cause cancer.

Daimler is laying off more than 1,200 workers at three plants in the U.S. and one in Mexico, the second such cut this year in response to falling demand for commercial trucks. Last month, Daimler projected a 15% decline in North America sales of medium and heavy-duty trucks, warning that a slump in the market would significantly lower its earnings before interest and tax in 2016.

Ralph Lauren announced a restructuring plan. The company also plans to cut 8% of its workforce in the current fiscal year. As of April, it employed about 26,000 people around the world, 11,000 of whom are part-time workers. The planned job cuts will be in addition to the 5% workforce reduction that the company already implemented in its last fiscal year. The company plans to close about 50 stores. The company currently has 493 stores, including 216 in the U.S.

Financial Review

Banks Flunk

Sinclair Noe — April 13, 2016

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

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DOW + 187 = 17,908
SPX + 20 = 2082
NAS + 75 = 4947
10 Y – .02 = 1.76%
OIL – .41 = 41.76
GOLD – 13.30 = 1243.40

Retail sales dropped a seasonally adjusted 0.3% last month, the second decline in 3 months. The weak pace of retail sales from January through March is likely to contribute to another soft quarter of U.S. growth when the government reports gross domestic product later this month. Sales at U.S. retailers were expected to spring back in March due in part to higher gasoline prices. Retail sales excluding automobiles, gasoline, building materials and food services ticked up 0.1 percent last month after an upwardly revised 0.1 percent gain in February.

The producer price index, a measure of inflation at the wholesale level, slipped 0.1 percent last month after dropping 0.2 percent in February. In the 12 months through March, the PPI dipped 0.1 percent after being unchanged in February. Rising energy prices were offset by a decline in the cost of services, pointing to tame inflation.

Last month, energy prices rose 1.8 percent, with gasoline prices surging 7.1 percent in what was the largest increase since May 2015. Wholesale food prices fell 0.9 percent last month. Weak producer prices suggest overall inflation will remain below the Fed’s 2 percent target for a while.

The Federal Reserve published its Beige Book. Two weeks before a FOMC policy meeting the Fed compiles anecdotal reports from the 12 Fed districts to help guide them. Today’s Beige Book shows the economy continued to expand from late February to early April and low unemployment appears to be spurring an uptick in wage growth. Pay increased in all but one of the Fed’s 12 regional bank districts and several reported signs of a pickup in wage growth.

Consumer spending increased only modestly in most districts and while capital spending increased on balance, there was only scattered reports of spending for capacity expansion. Manufacturing increased in most districts but expectations for future growth were mixed. One particular bright spot in the employment picture was the healthcare sector.

In an interview with Time magazine, Federal Reserve Chair Janet Yellen said that the Fed is unlikely to make any sudden or aggressive moves, given the lingering uncertainty in current global economic conditions.

JPMorgan Chase reported first quarter earnings of $1.35 per share, down from $1.45 a year ago, but better than the $1.24 per share consensus estimate. Overall, JPMorgan reported first quarter revenue of $24 billion, which was stronger than the $23.8 billion expected. JPMorgan gained more than 4% today because the earnings report wasn’t as bad as it could have been, I guess.

One of the big stories in the global markets and economy continue to be persistently low energy prices. While this may be good news for consumers, it’s bad news for the investors and creditors of drillers. JPMorgan’s provision for credit losses was $304 million, compared to $61 million in the prior-year quarter.

Five out of eight of the biggest US banks do not have credible plans, or what is known as a “living will”, for winding down operations during a crisis without the help of public money. Federal regulators gave the banks until October 1 to resubmit their plans with serious “deficiencies” corrected, or face stricter regulations, like higher capital requirements or limits on business activities.

The requirement for a “living will” was part of the Dodd-Frank reform legislation passed in the wake of the 2007-2009 financial crisis, when the government spent billions of dollars on bailouts to keep big banks from failing and wrecking the economy. The plans are separate from the Fed’s stress tests, where banks demonstrate stability by showing how they would withstand economic shocks in hypothetical scenarios.

The “living wills” that the Federal Reserve and FDIC jointly agreed were not credible came from Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street, and Wells Fargo. None of the eight systemically important banks, which the government considers “too big to fail,” fared well in the evaluations.

A bank has to fix deficiencies only if the two regulators jointly determine its plan does not have the potential to work. Only one agency found the “living will” of Goldman Sachs and Merrill Lynch to not be credible, while the other agency noted shortcomings.

Citigroup passed the test, but the Fed and the FDIC did note some shortcomings. In short, the 8 most important banks in the US are still a big hot mess, standing at the edge of a potential meltdown and continuing to whine about regulations and fully expecting taxpayers to bail them out if and when they screw things up again. What this really means is that their provisions for losses are not sufficient, and that means that their earnings reports, starting today with JPMorgan, do not reflect reality.

By the way, the news on big banks failing the “living will” test was leaked to the Wall Street Journal yesterday. Now, the Federal Reserve and Federal Deposit Insurance Corp. requested that inspectors general investigate whether someone at their agencies’ leaked details.

The US Congress has until Friday to produce a budget. If you haven’t heard much about the 2016 Federal budget, there is a good reason – it doesn’t exist. The House cannot find a majority for the budget, and the Senate sees no reason to take a risk without cooperation from the House. Instead of an actual budget, the appropriations process will lop along again without any strategic framework, which means that in all likelihood, Congress will once again be faced with the same end-of-the-year up-against-the-deadline crisis it faced last year.

Nearly 40,000 Verizon employees on the East Coast have walked off the job after working without a contract since August. The strike is being led by the Communications Workers of America and the International Brotherhood of Electrical Workers, who say they’re striking because the company wants to freeze pensions, make layoffs easier and rely more on contract workers. The protest marks the largest US walkout in years, and brings back memories of the 2011 Verizon strike that lasted two weeks.

Panama’s Attorney General raided the law offices at the heart of the Panama Papers scandal, to search for evidence of illegal activities. But Mossack Fonseca still denies wrongdoing, stating that while it set up offshore and anonymous shell companies, it was not involved in how those accounts were used. Conspiracy theories are also swirling that the CIA was behind the leak, and could have hacked the Panama-based law firm.

Shares of Peabody Energy have been suspended after the U.S. coal giant voluntarily filed for Chapter 11. The bankruptcy comes in the wake of a sharp fall in coal prices that left Peabody unable to service a recent debt-fueled expansion into Australia, however its operations Down Under will not be included in the filings.

Peabody is the largest coal company and the bankruptcy is the largest bankruptcy in the US this year. The bankruptcy filing came as no surprise after the company announced last month that it was delaying interest payments on two loans. It comes after a number of bankruptcy filings over the last two years by other coal companies, including industry giants like Arch Coal, Patriot Coal, Walter Energy and Alpha Natural Resources. Now, with the industry in near free fall, many banks are pulling away from financing coal projects.

Utilities are closing aging coal-fired power plants rather than upgrade them to meet new environmental standards, in large part because the glut of natural gas has offered a cheaper alternative. Peabody disclosed that it has had problems selling holdings in Colorado and New Mexico. Peabody’s last best hope to avert bankruptcy was its attempt to sell three mines to Bowie Resource Partners, but that company has had trouble raising the full $650 million in debt to acquire them.

Adding to the list of woes it faces, Valeant Pharmaceuticals has received a notice of default from bondholders Centerbridge Partners due to its failure to file its annual report. The drugmaker now has until June 11 to make the filing.

Teen fashion retailer American Apparel is laying off hundreds of workers as it overhauls its production process, which could include outsourcing part of its production to another U.S. manufacturer. American Apparel filed for bankruptcy in October following years of losses, but expects to be profitable in 2018.

Google is scaling up its digital skills training programs to accommodate a million Africans in the next year. The tech giant plans to train 300,000 people in South Africa, 400,000 Nigerians, 200,000 Kenyans, and another 100,000 from other sub-Saharan countries. Google has partnered with Livity Africa to develop the training programs and is rolling out a new online education portal for learners in the region.

European privacy watchdogs will issue a judgment today about the new trans-Atlantic data agreement – known as the EU-U.S. Privacy Shield – that allows companies to move information between the two regions. Many of the regulators remain skeptical about the agreement, and if they rule that the deal does not meet Europe’s tough privacy standards, it may cause headaches for global companies when handling personal digital information.

Hundreds of thousands of student loan borrowers will now have an easier path to getting their loans discharged. The Department of Education will send letters to 387,000 people they’ve identified as being eligible for a total and permanent disability discharge, a designation that allows federal student loan borrowers who can’t work because of a disability to have their loans forgiven.

The borrowers identified by the Department won’t have to go through the typical application process for receiving a disability discharge, which requires sending in documented proof of their disability. Instead, the borrower will simply have to sign and return the completed application enclosed in the letter. If every borrower identified by the Department decides to have his or her debt forgiven, the government will end up discharging more than $7.7 billion in debt.

Financial Review

Pick a Lane

Sinclair Noe — November 17, 2015

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

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DOW + 6 = 17,489
SPX – 2 = 2050
NAS + 1 = 4986
10 YR YLD – .01 = 2.26%
OIL – .95 = 40.79
GOLD – 12.30 = 1070.80
SILV – .06 = 14.29

Global equity markets moved higher today, following the rally yesterday on Wall Street and brushed off concerns related to Friday’s terror attacks in Paris. In their final communique from a summit in Turkey, the leaders of the world’s largest economies stuck to a goal of lifting their collective output by an extra 2% by 2018, even though growth remains uneven and weaker than expected globally. G20 leaders also endorsed plans to address Syria’s refugee crisis, taxation, climate change, cyber security and inequality.

France launched another set of airstrikes on the ISIS stronghold of Raqqa in Syria early Tuesday as the country steps up its response to last week’s deadly attacks. The bombings follow a second night of home searches in France and Belgium to catch those responsible and linked to the killings. President Francois Hollande is now looking to expand his powers under France’s state-of-emergency statute and has called on the U.S. and Russia to form a “big unified coalition” to destroy ISIS.

Meanwhile, Russian officials said they had found evidence that the passenger jet that crashed in Egypt last month was downed by a bomb, the first time those investigating the crash have cited proof of a terrorist attack. Russia’s military doubled its attacks in Syria on Tuesday. President Putin ordered Russian naval forces in the Mediterranean to work as allies with French warships in attacking ISIS targets in Syria; not necessarily a France-Russia alliance, but certainly greater military coordination.

The consumer price index increased by a seasonally adjusted 0.2% in October. The CPI measures prices at the retail level and is used to determine cost of living adjustments. The cost of housing and medical care, two of the biggest expenses for most families, climbed again and are running above a 3% annual rate. Rents rose 0.3% in October and medical care jumped 0.7%, the biggest increase in five months. Food prices, meanwhile, rose just 0.1%, marking the smallest gain in five months. Energy prices advanced 0.3%, even though the price of gasoline was down last month. The discrepancy comes from seasonal adjustments. Overall inflation is up 0.2% in the past year. Core prices, excluding food and energy, are up 1.9% in the past 12 months.

Separately, a new report from Aon Hewitt shows health insurance costs for employees of midsize and large companies averaged $4,700 in 2015; that’s up 130% from $2,001 in 2005. The report shows 38% of employers have increased their participants’ deductibles and/or copays in the last year, and another 46% may do so in the future. Employers are making cutbacks in health coverage in other ways, too. Some 18% of companies are reducing subsidies for covered dependents, and 17% are adding a surcharge for adult dependents who have access to other health coverage. Plus, 43% of companies are considering using unitized pricing, in which employees pay per person instead of individual versus family.

So there are some signs of inflation in some areas but no indication that inflation is overheating, at least according to the headline inflation numbers. Still, for most of us, it seems like there is inflation; housing and rents have increased, health care, education, and food prices seem to be on the rise. Even wages are starting to show gains. The economy has added jobs at a rapid pace over the past few years, putting some upward pressure on wages and reducing the unemployment rate to 5%. The government said real, or inflation-adjusted, hourly wages advanced 0.2% in October. Real wages have climbed 2.4% in the past 12 months.

You’re not just imagining it. Prices are going up, except for commodities. And the price of energy has an oversized influence on the annual inflation rate. The Federal Reserve’s preferred measure of inflation is the Personal Consumption Expenditures index, or PCE, which is running at a 1.3% annualized pace; still below the Fed’s target of 2% inflation but likely to rise quickly with expected increases to health care premiums over the next few months.

Now add fiscal policy to the mix. After years of gridlock the government has finally approved a 2 year budget, and it actually includes some spending; it will likely add 0.3% to gross domestic product, rather than subtracting 2% from growth; it might even result in a few government jobs, rather than cutting government jobs. And those government workers will go out and spend their paychecks on Main Street, adding to demand and circulating money through the economy. Next year will be the first since 2010 that fiscal policy adds to growth. For years, Fed Chair Bernanke (and more recently Chair Yellen) complained about headwinds from fiscal policy, or the lack thereof. Now we are about to see a shift from monetary policy alone to fiscal policy – a passing of the baton, which is always the most perilous part of a relay; too early or too late, and the race comes to a grinding halt.

The next concern is whether fiscal policy is capable of running with the baton (to extend the analogy), and staying in the correct lane. If government spending goes to projects that improve productivity – things like infrastructure and education – then it will likely improve growth. French President Francois Hollande said he will step up spending on security in the wake of the terrorist attacks in Paris, but this type of spending is not likely to result in economic growth. So, it’s not just a matter of changing from monetary policy to fiscal policy, it is important that something is actually accomplished with the stimulus. This has been the big drawback of monetary policy; the Fed dropped money on Wall Street but it never made it to Main Street.

A new Reuters analysis shows that corporate spending on buybacks and dividends has surged relative to investment in long-term growth through R&D and other forms of capital spending, in a troubling sign that corporate America may be undermining itself. Almost 60% of the 3,297 publicly traded non-financial U.S. companies examined bought back their shares since 2010. In fiscal 2014 alone, the total amount returned to shareholders (including share repurchases and dividends) reached $885 billion, way more than the companies’ combined net income of $847 billion. And the spending on buybacks, or financial engineering squeezes out investments in R&D, which has dropped.

Industrial production fell 0.2% in October but manufacturing output advanced 0.4% in October. Overall production was held down by a drop in mining and utility output. In addition, the Fed revised August production higher to a 0.1% gain from previous estimate of a 0.1% drop. As a result, industrial production was up at a 2.6% annual rate in the third quarter.

The National Association of Home Builders/Wells Fargo housing market index pulled back 3 points to 62, slightly below expectations but up from 58 a year ago. A reading over 50 signals improvement. Builders have reported strong results in the most recent earnings season. D.R. Horton, the largest US homebuilder, reported a 44% jump in profit in the most recent quarter, with orders up 19%. Lennar, the number-two builder by volume, also reported profit and revenue that were better than expected. Orders rose more than 10%.

Greece has reached a preliminary deal with its international lenders on home foreclosures reform, removing a major obstacle holding up fresh bailout loans for the debt-laden country. The changes will see Athens qualify for a €2-billion-euro sub-tranche of new financial aid to pay off state arrears and €10-billion-euro in funds to help recapitalize the country’s four main banks.

Walmart beats. Walmart earned $1.03 per share from continuing operations in the third quarter, but $0.99 excluding adjustments to its leases. Still, that was marginally higher than the $0.98 expected by analysts. Comparable-store sales, or sales at stores open at least a year, at Walmart’s US stores were up 1.5%. E-commerce sales were up by 10%.

Home Depot beats. The do-it-yourself home-improvement chain earned $1.36 per share in third quarter, beating expectations for $1.32. This was driven by a healthy 5.1% gain in comparable-store sales, which was better than the 4.6% expected by analysts.

Urban Outfitters missed. Urban Outfitters reported record third quarter sales that missed estimates, and earnings per share matched estimates, but comparable-store sales climbed by just 1% during the period, missing expectations for 3.4% growth. The news came after shares dropped 7.4% following the company’s announcement that it acquired a group of restaurants including the fast-casual chain Pizzeria Vetri. Apparently I’m not the only one who fails to see the synergy between retail clothing and pizza.

Shares of Dick’s Sporting Goods are getting clobbered. Dick’s reported third quarter adjusted earnings of $0.45 per share, missing expectations by a penny. Same-store sales, or sales at stores open at least a year, were up 0.4% in the quarter across the company, less than the 1.9% increase that was expected. And then the salt on the wound: the company lowered fourth quarter guidance.

A New York state judge denied a temporary restraining order sought by daily fantasy sports companies DraftKings and FanDuel in an effort to keep operating in the state after NY Attorney General Eric Schneiderman deemed the games to be illegal gambling. The government will now move for an injunction against the companies which will be heard in court on Nov. 25. DraftKings continues to operate as usual in New York despite the pressure from Schneiderman’s office, but FanDuel stopped taking new deposits from state players on Friday.

A US House of Representatives investigative panel plans to hold a 2016 hearing on skyrocketing drug costs. Earlier this month, the U.S. Senate Special Committee on Aging launched a probe into drug pricing at Valeant and Turing, signaling growing bipartisan agreement over the need to review prescription medicine costs across the nation.

Financial Review

Veterans Day 2015

Sinclair Noe — November 11, 2015

Podcast: Play in new window | Download (Duration: 13:15 — 6.1MB)

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DOW – 55 = 17,702
SPX – 6 = 2075
NAS – 16 = 5067
10 YR YLD closed 2.34%
OIL – 1.14 = 43.07
GOLD – 3.00 = 1087.20
SILV – .09 = 14.45

“To us in America, the reflections of Armistice Day will be filled with solemn pride in the heroism of those who died in the country’s service and with gratitude for the victory, both because of the thing from which it has freed us and because of the opportunity it has given America to show her sympathy with peace and justice in the councils of the nations…” Those were the words of President Wilson in 1919, one year after hostilities ended in World War I on this date in 1918, in the 11^th hour, of the 11^th day, of the 11^th month. Back then it was called Armistice Day. Today we call it Veterans Day. And for all the veterans – Thank you.

The 11^th day of November is celebrated in China as Singles Day, symbolized by the four lonely 1s of 11/11. Apparently, this is kind of the anti-Valentine’s Day. Alibaba broke its own record for sales on China’s Singles Day, the world’s largest Internet shopping event, generating more than $9.3 billion in gross merchandise volume by midday Wednesday. Sales now look on track to hit $13 billion. More records: In the first eight minutes of this year’s sale, the company posted more than $1 billion in sales, topping last year’s 17 minutes to hit the billion-dollar mark.

AB InBev has completed an agreement to buy SABMiller for $105 billion, one of the largest mergers in corporate history. Under terms of the deal, SABMiller will sell a 58% stake in its MillerCoors joint venture to partner Molson Coors for $12 billion. A combined AB Inbev-SABMiller would have controlled close to 70% of the U.S. beer market, so the sale of the U.S. division was seen as a concession to competition authorities. In other brewing news, shares in Carlsberg A/S rose as much as 8.7 percent after the beer-maker announced a cost-cutting plan which will see it shed about 2,000 employees.

Iraqi oil puts pressure on shale; 19 million barrels of oil are due to arrive by ship from Iraq in American ports this month, the biggest influx from that country since June 2012, as OPEC members continue to defend market share in the face of low oil prices. The tactic seems to be working as yesterday the Energy Information Administration cut its U.S. crude oil production forecast for 2016 by 1 percent to 8.77 million barrels a day. The American Petroleum Institute said Tuesday that inventories rose by 6.3 million barrels last week. This all adds to concerns about oversupply. Crude oil fell to the lowest level in nearly three months.

Britain’s relationship with the EU is working but the Bank of England Governor Mark Carney says they will do whatever is needed to adapt should Britons vote to leave the bloc in a referendum. Britain is due to vote to stay in the EU before the end of 2017. The announcement came as U.K. unemployment fell to the lowest level in more than seven years, dropping to 5.3% in the third quarter. Also on tap: ECB chief Mario Draghi will deliver a speech today at the Bank of England’s Open Forum.

Online orders for Apple’s iPad Pro started today. The 12.9 inch-screen tablet, aimed in large part at business users and creative pros, will start at $799 but costs more than $1,000 if buyers want a keyboard and stylus included. Yesterday, Apple shares fell 3.1% after a Credit Suisse report said Apple had cut its orders for iPhone 6 components by as much as 10%.

Meanwhile, Apple is in talks with banks in the US about creating its own mobile-to-mobile payments service that sounds a lot like PayPal’s Venmo app. The app would reportedly let people send payments to each other directly from their phones, and automatically take it out of their checking accounts on the back end. While Apple already has its own payments system thanks to Apple Pay, the service so far has been mobile-to-merchant, and the mobile-to-mobile space has largely been dominated by PayPal’s Venmo app, but there is competition from Facebook’s Messenger app, Snapchat, and Square.

Macy’s shares plunged by as much as 14% after the department-store chain said its sales growth was weak because of muted consumer demand. Macy’s also lowered its guidance for 2015 earnings per share. Sales fell 5% to $5.87 billion, below the expectation for $6.1 billion. Bad news for Macy’s could be great news for customers, the company’s revenues have plunged, which means year-end sales are likely to be fantastic.

The New York state attorney general has ordered the fantasy sports sites DraftKings and FanDuel to stop accepting bets in New York, saying that the operations were essentially illegal gambling. The AG said the fantasy sites were considered gambling because customers “are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes.” The state of Nevada took a similar action in mid-October, with the Nevada Gaming Control Board saying the companies had to cease operations in the state.

DraftKings and FanDuel have indicated they would continue to let customers play while they contest the order in New York. Four smaller daily fantasy sports sites: DailyMVP, DraftDay, DraftOps, and MondoGoal Trading say they will stop letting users from New York enter their paid contests.

Nomura lowered its price target on Valeant Pharmaceuticals to $175 from $220. Nomura had been one of the most bullish on the company. The analyst for Nomura wrote: “Valeant’s business update call did not address all our outstanding questions; however, management’s willingness to be as open as possible in its responses was a positive first step towards rebuilding credibility with investors.” Here’s the big problem though, share price has dropped from $263 to $78.90. Every now and then it is a good idea for Wall Street analysts to open their eyes before issuing a forecast.

Valeant’s biggest investor is Bill Ackman of Pershing Square; he doubled down when the bad news on Valeant first hit; after Citron Research, a short-selling firm led by Andrew Left, issued a report two weeks ago asking if the company was running an Enron-like fraud. The stock had already been under pressure after the company was scrutinized for raising the prices for two acquired drugs. The Citron report, though, focused on Valeant’s relationship with Philidor, a specialty pharmacy. Citron has accused Valeant of using Philidor to book “phantom sales.” Valeant is the largest holding in Pershing Sqaure, and that hedge fund is now down about 19% for the year.

And the hits keep coming. A U.S. judge said Valeant Pharmaceuticals and hedge fund manager William Ackman must face a lawsuit accusing them of insider trading in Allergan before making an unsuccessful takeover bid for the maker of Botox. The lawsuit was filed on behalf of investors who sold Allergan shares in the two months before the defendants on April 22, 2014 announced an unsolicited $51 billion bid for Allergan. Pershing had by then quietly amassed a 9.7 percent stake in Allergan, which soared in value after the bid was announced. Investors said Pershing bought those shares knowing that Valeant was preparing a bid that could, and later did, become hostile.

Who knows? Maybe Valeant is an extraordinary bargain at current prices, but I’m guessing it will take years therapy before anybody is able to laugh at this.

The U.S. Department of Transportation has denied an appeal by railroads challenging new “crude-by-rail” regulations on trains hauling hazardous flammable materials. The rules issued in May include the phasing in of tougher tank car standards over several years and require new expensive braking systems on trains hauling more than 70 cars of crude oil by 2021.

General Electric’s stock did something yesterday that it hasn’t done in seven years: it closed above $30/share. In the years since June 10, 2008, GE’s stock has struggled despite CEO Jeff Immelt’s efforts to reassure investors that the company was changing. The mood seems to have shifted over the past year as the company offloaded its finance business and completed its biggest acquisition of all-time with the purchase of Alstom’s energy assets.

On Nov. 11, 1915, exactly three years before the end of World War I, IBM listed for the first time on the New York Stock Exchange — its name then Computing-Tabulating-Recording Co. IBM isn’t making a big deal of Wednesday’s 100th anniversary, which comes at an inauspicious time. Its stock has been the second biggest drag on the Dow Jones Industrial Average this year. For really, really long-term investors, consider this: If you had bought one share of IBM when it first listed on the NYSE at $47, you would now own 11,879 shares with a value of $1.6 million, according to the company. That’s a 3.4 million percent return.