Financial Review

Still Too Hot

Sinclair Noe — June 21, 2017

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

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DOW – 57 = 21,410
SPX – 1 = 2435
NAS + 45 = 6233
RUT – 3 = 1399
10 Y + .01 = 2.16%
OIL – 1.06 = 42.45
GOLD + 3.70 = 1247.30
BITCOIN – 0.11% = 2709.21 USD
ETHEREUM – 2.77% = 328.37

BITCOIN – 0.83% = 2755.74 USD
ETHEREUM – 3.89% = 355.93

BITCOIN – 0.83% = 2755.74 USD
ETHEREUM – 3.89% = 355.93

BITCOIN – 0.83% = 2755.74 USD
ETHEREUM – 3.89% = 355.93

The Energy Information Administration reports American crude stockpiles fell by 2.45 million barrels last week and gasoline supplies slid by 577,999 barrels. Meanwhile, oil production rose to 9.35 million barrels a day, the highest level in almost two years.

The report did nothing to sway oil traders from their bearish positions. Brent crude dropped below $45 for the first time in 2017.  West Texas Intermediate dropped 1.06 to 42.45 a barrel. Potentially bullish factors failed to lift prices, including Tropical Storm Cindy halting service at a major oil terminal in the Gulf of Mexico, a shake-up in the Saudi royal family, and Iran’s Oil Minister saying that OPEC may decide to make deeper cuts.

That sent energy shares in the S&P 500 Index to the lowest level in two months. Chipmakers helped lift tech stocks. Healthcare and Biotech shares helped lift the Nasdaq to positive territory. The Nasdaq Biotechnology Index is up 8% this week.

A draft of an executive order on drug prices appears to give the pharmaceutical industry much of what it has asked for — and no guarantee that costs to consumers will drop. The four-page document, obtained by the New York Times, contains several proposals that have long been championed by the industry, including strengthening drug makers’ monopoly power overseas and scaling back a federal program that requires pharmaceutical companies to give discounts to hospitals and clinics that serve low-income patients.

The proposed order does little to specifically call out the drug industry and instead focuses on rolling back regulations.

Senate Republicans have been working for weeks behind closed doors on legislation aimed at repealing and replacing major portions of the Affordable Care Act. Tomorrow, they are expected to unveil their plan. The Republican-controlled House of Representatives narrowly approved its version of repeal last month. An estimated 23 million people could lose their healthcare under the House plan, according to the non-partisan Congressional Budget Office.

The Senate proposal cuts off Medicaid expansion more gradually than the House bill, but would enact deeper long-term cuts to the health-care program for low-income Americans. Senate Majority Leader Mitch McConnell said on Tuesday the Senate healthcare bill would be different from the House version, but he did not elaborate.

Given the opposition of all Senate Democrats to repealing Obamacare, Republican leaders will need the support of at least 50 of the chamber’s 52 Republicans to ensure passage. The bill will be brought to the Senate floor once the CBO has assessed its cost and impact, likely next week. Even if the Senate measure does pass the upper chamber, it will still have to pass muster with the more conservative House before any legislation could be enacted.

A Roper Center analysis shows the proposal with just 29 percent support, making it the most unpopular piece of legislation Congress has considered in decades. There is no state in the union where a majority of voters support the bill.

Meanwhile, a new report, released by the Agency for Healthcare Research and Quality (AHRQ), says the coast-to-coast opioid epidemic is swamping hospitals, showing 1.27 million emergency room visits or inpatient stays for opioid-related issues in a single year.

The report puts Maryland at the very top of the national list for inpatient care. The state, already struggling with overdoses from heroin and prescription opioids, has seen the spread of the synthetic opioid fentanyl, which can be mixed with heroin or cocaine and is extraordinarily powerful. Opioid-related deaths in Maryland had nearly quadrupled since 2010, and deaths from fentanyl had increased 38-fold in the past decade.

Baltimore City saw 694 deaths from drug and alcohol-related overdoses in 2016 — nearly two a day, and a big spike from 2015, when 393 people died from overdoses. Drug overdoses, which range from prescription painkillers to heroin and fentanyl, cause most of the fatal overdoses. In 2015, opioid overdoses killed 33,039 Americans, according to data that the Centers for Disease Control and Prevention.

The sharpest increase in hospitalization and emergency room treatment for opioids was among people ages 25 to 44. The new report shows that women are now as likely as men to be admitted to a hospital for inpatient treatment for opioid-related problems. The report identifies big increases in hospitalizations among people older than 65, but those cases predominantly result from reactions to prescription medication, rather than from overdoses or the use of heroin or other illegal drugs.

The National Association of Realtors reports  existing home sales were up 1.1% in May, at a seasonally adjusted annual 5.62 million rate.  April’s sales stood 2.7% higher than a year ago, and marked the third-highest selling pace of the past year. The median number of days a property spent on the market dropped to a fresh low of 27 days.

There were 1.96 million homes for sale at the end of the month, 8.4% lower than in the same period a year ago. Lower supply amid sturdy demand nudged prices higher again. The median sales price in May was $252,800, a new all-time high and 5.8% higher than a year ago. May marked the 63rd straight month of yearly price gains.

The Realtors called the pace of price appreciation “unsustainable” and noted that “some would-be buyers are having to delay or postpone their home search” because of low supply.

Confidence and business activity have climbed since the election. The economy seems to be muddling along. This would typically be good for banks, as demand for loans should be higher. However, bank lending has fallen significantly since last year. Total bank loans have grown just 4.6% since February 2016, the weakest showing since 2014. Business loans rose 3.9%—the slowest growth rate in nearly six years—and were the worst-performing segment.

The main reason for the tepid economic growth over the last eight years has been a lack of business investment. Many thought improved consumer confidence and business activity were signs that this trend had reversed. So far, it appears the opposite has happened.

America leads the world when it comes to access to higher education. But when it comes to health, environmental protection, and fighting discrimination, it trails many other developed countries. The Social Progress Index released this week is compiled from social and environmental data that come as close as possible to revealing how people live. America came in at number 18.

The Trump administration made its final plea to the U.S. Supreme Court to allow its proposed ban on travelers from six Muslim-majority countries to go into effect as the justices weigh how to handle the hotly contested dispute. The court papers filed today complete the briefing on the government’s emergency application asking the justices to block lower court injunctions in favor of challengers to the ban.

Lawyers for the state of Hawaii and individual plaintiffs in Maryland urged the high court not to allow the ban go into effect. The Supreme Court could now act at any time.

Travis Kalanick has resigned from his job leading Uber, giving up on his effort to hold onto power as self-inflicted scandals enveloped him and the company he co-founded. Pressure from investors, who have poured more than $15 billion into the company, ultimately did what the board could, or would, not: It convinced the 40-year-old chief executive to step aside. Uber is now in need of a new CEO.

The world’s largest sportswear maker and the world’s largest online retailer might finally work together. According to analysts at Goldman Sachs, Nike will start selling directly on Amazon.com. Nike’s shoes, apparel, and accessories are already sold on Amazon, but from third-party sellers and unlicensed dealers that purchased the product wholesale from Nike.

Selling directly on the site eliminates a layer between Nike and the consumer, allowing the company to better control pricing and presentation. It’s not quite direct to consumer, but it’s a lot closer. Goldman sees it as a deal worth potentially up to $500 million of revenue yearly — an additional 1% of global sales for the Nike.

Nike’s biggest competitors — Adidas and Under Armour — already sell directly on Amazon, and they both have fancy splash pages that highlight the newest and best product the companies offer. Dick’s Sporting Goods and Foot Locker, some of Nike’s biggest retailers, were both down on the news of the increasing competition. Dick’s neared an 18-month low, while Foot Locker fell below a three-year-low.

Sears Canada is preparing to seek court protection against creditors in a move that will likely lead to a liquidation, according to reports by Bloomberg and Reuters. The company was spun off in 2012 from Sears Holdings, which owns Sears’ US business. Sears Holdings still holds 12% of the Canadian business’s stock.

Eddie Lampert, the CEO of Sears Holdings, owns 45% of Sears Canada’s shares. Sears Canada said earlier this month that it had “significant doubt” about its ability to stay in business, and was looking at a possible restructuring or sale.

UPS said today that, for the first time, it will assess a surcharge on peak holiday season deliveries in the US to recoup the higher costs that come with managing the peak surge.

Wal-Mart is telling some technology companies that if they want its business, they can’t run applications for the retailer on Amazon’s cloud-computing service, Amazon Web Services.

Bruno Iksil, the former JPMorgan Chase trader at the center of the “London Whale” trading scandal, has accused the bank’s Chief Executive Jamie Dimon of laying the ground for the $6.2 billion loss. In an account on his website, Iksil, who traded credit derivatives for JPMorgan in London, also blamed senior executives at the bank.

Financial Review

The Wisdom of Solomon

Sinclair Noe — January 31, 2017

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

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DOW – 107 = 19,864
SPX – 2 = 2278
NAS + 1 = 5614
RUT + 10 = 1362
10 Y – .03 = 2.45%
OIL + .19 = 52.82
GOLD + 14.70 = 1211.00

Economic growth for the Eurozone rose 1.7% last year, growing at a faster rate than the U.S. managed when averaged across the whole of 2016. That’s the first time that happened since 2008. The region’s jobless rate also fell to 9.6%, the lowest figure since May 2009, while inflation of 1.8% is now near the ECB’s target of “close to, but below 2%.”

Following a two-day board meeting, the Bank of Japan kept its monetary policy on hold, but policymakers were more bullish on the economy, raising its 2017 real gross-domestic-product growth forecast to 1.5%, up from its previous forecast of 1.3% offered last November.

The Federal Reserve Federal Open Market Committee is beginning 2 days of meetings to determine monetary policy. Most analysts predict the FOMC will leave interest rates unchanged when Chair Janet Yellen makes the announcement tomorrow. The Fed last met in mid-December and hiked interest rates for only the second time in almost a decade.

Since that meeting, officials stressed they intend to move rates up gradually, the main reason the market doesn’t expect a rate hike this week. Using federal funds rate futures prices, the CME Group says there is a 96 percent probability of no change.

U.S. home prices rose slightly in November from the previous month. The S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, was up 5.6 percent on an annual basis in November. Phoenix posted a 0.3% gain from October to November, and a 5.2% increase for the 12 months through November.

The Conference Board’s consumer confidence index fell to a reading of 111.8 in January after hitting a 15-year high of 113.3 in December. Consumers’ appraisal of the present improved, to a reading of 129.7 from 123.5, but the expectations index fell to 99.8 from 106.4. The proportion expecting more jobs in the months ahead decreased from 21.7% to 19.8%, and the percentage of consumers expecting their incomes to increase declined from 21.5% to 18%.

The amount of money it costs businesses to employ workers rose a touch slower in the fourth quarter owing to the smallest increase in benefits in a year and a half. The employment cost index rose 0.5% in the final three months of 2016, below the 0.6% gains in each of the past three quarters. The index grew a slightly faster 2.2% in 2016 after a 2% gain in 2015.

In the fourth quarter, wages advanced 0.5% but benefits only rose 0.4%. Part of the reason: Companies may have passed more of the costs of health care onto workers in the form of higher premiums and deductibles, among other things.

Deutsche Bank has agreed to pay $630 million to end investigations by UK and New York regulators into Russian equity trades that transferred $10 billion out of that country in violation of anti-money-laundering laws. Regulators say Deutsche Bank executed more than 2,400 pairs of so-called mirror trades between April 2012 and October 2014.

The scheme involved buying stock with Russian rubles at Deutsche Bank’s Moscow office and then selling the identical stock – same quantity, same price – at the London office of Deutsche Bank and being paid for the shares with US dollars in London. UK and New York regulators cited repeated shortcomings in Deutsche Bank’s controls to vet clients, including failing to determine their identities and sources of wealth, and to detect suspicious trades.

After the closing bell Apple reported it sold 78.2 million iPhones in the last quarter. That’s a beat. Profit of $3.38 per share; another beat. Revenue of $78.4 billion; another beat. Services revenue of $7.17 billion; another beat. All time revenue records for iPhone, Services, Mac, and Apple Watch. But guidance is on the weak side. Apple shares pop in after hours. Some poor schmuck bet his life savings on Apple puts and now he’s crying on his live stream.

Exxon Mobil  missed earnings forecasts this morning as it took a $2 billion impairment charge, mostly due to the company lowering the value of some of its U.S. gas assets. Persistently low oil prices and weaker profit margins in Exxon’s refining business also weighed on earnings for the full year. Exxon reported fourth-quarter earnings of $1.7 billion, or 41 cents a share.

In the period a year ago, the oil giant reported earnings of $2.8 billion, or 67 cents a share. Revenues for the quarter were $61.01 billion. The impairment resulted from the company’s review of its reserves. Exxon determined that some of its U.S. assets’ future cash flows no longer exceeded their carrying value.

Under Armour reported lower-than-expected quarterly sales and announced that Chief Financial Officer Chip Molloy will step down. The company said net income fell to $104.9 million in the fourth quarter ended Dec. 31 from $105.6 million a year earlier. The company’s net revenue rose about 12 percent to $1.3 billion, its slowest sales growth in eight years.

MasterCard posted fourth-quarter earnings per share of 86 cents on revenue of $2.76 billion. MasterCard missed revenue estimates but beat earnings estimates by a penny per share. MasterCard, which processes more than 65,000 transactions every minute, said its gross dollar volumes — the total value of transactions made by customers — rose 9 percent to $1.2 trillion worldwide.

United Parcel Service reported quarterly earnings and revenue that missed Wall Street’s expectations. UPS also posted a 2017 outlook below expectations. During the holiday season UPS delivered more than 712 million packages, a 16 percent increase over the year-ago quarter. The company said it delivered 1.4 billion packages last year, up 7.1 percent. E-commerce has been growing at double-digit rates for years and the 2016 holiday season was no exception: online sales surged 13 percent and UPS saw a surge in business to consumer shipments, which are not as efficient or profitable as B2B.

Aetna’s net profit fell to $139 million, or 39 cents per share, in the fourth quarter ended Dec. 31, from $321 million, or 91 cents per share, a year earlier. Aetna said its total health care medical benefit ratio — the percent of premiums spent on claims — rose to 82.1 percent from 81.9 percent, a year earlier, mainly due to higher medical costs in its individual commercial products.

Aetna and Humana have said they will consider all available options for their proposed merger after a court ruled against the $34 billion deal last week, saying it would lower competition.

Insulin makers are being accused of price fixing. Lilly, Novo Nordisk, and Sanofi are accused of taking part in an “organized scheme to drive up prices at the expense of patients who need insulin drugs to live,” per a complaint filed in the US District Court of Massachusetts.

Pfizer reported a lower-than-expected profit, hit by lower demand for its flagship vaccine Prevnar and higher expenses. Global Prevnar sales fell 23 percent to $1.42 billion, underwhelming consensus estimates. Pfizer closed its $14 billion acquisition of Medivation in September.

Today, President Trump met with executives of several major drug makers and called for lower drug prices while also promising to speed up approval times for new medicines. In an interview with The Associated Press, Pfizer CEO Ian Read stuck to his position that the problem isn’t soaring drug prices but insurers pushing more costs onto patients. He said Pfizer won’t pledge that it will limit annual price increases, as a few rivals recently did. Pfizer typically raises the list price on all its drugs about 10 percent twice each year, though wholesalers and other middlemen get much of those increases.

Rep. Tom Price, the Georgia congressman and nominee for Secretary of Health and Human Services testified in his Senate confirmation hearings on Jan. 18 and 24 that the discounted shares he bought in Innate Immunotherapeutics, an Australian medical biotechnology company, “were available to every single individual that was an investor at the time.”

Not exactly. In fact, the cabinet nominee was one of fewer than 20 U.S. investors who were invited last year to buy discounted shares of the company – an opportunity that, for Price, arose from an invitation from a company director and fellow congressmen.

Senate Democrats today boycotted scheduled votes in the Senate Finance Committee on Steven Mnuchin, the nominee to head the Treasury Department, and Rep. Tom Price to be health secretary. The committee needs at least one Democrat to proceed.

Mnuchin has come under fire for telling the Senate Finance Committee that OneWest, the bank he led as CEO from 2009 to 2015, did not engage in the robo-signing of foreclosure and bankruptcy documents. Court filings have shown that the bank did. Meanwhile, Betsy Devos’ nomination as Secretary of Education cleared Senate Committee today.

The Senate Judiciary Committee delayed voting this morning on the nomination of Sen. Jeff Sessions as attorney general, a pick that’s receiving even more scrutiny in the wake of President Donald Trump’s executive orders on immigration. Last night Trump fired the acting attorney general Sally Yates after she took the rare step of defying the White House and refused to defend new travel restrictions targeting seven Muslim-majority nations.

Dana Boente, (pronounced Ben-tay) U.S. Attorney for the Eastern District of Virginia, was sworn in last night as acting U.S. attorney general until Sessions is approved. The recent news out of Washington has hit Wall Street like a bag of rocks to the gut.

Following Trump’s executive order on immigration last week, federal judges across the country responded to lawsuits stemming from the travel ban by ordering the Department of Homeland Security to immediately stop enforcing various aspects of the executive order.

By Sunday, reports started coming out that some federal agents from Customs and Border Protection were disregarding the court orders, and continuing to enforce Trump’s travel ban in a way that violated instructions they’d been given by judges. And this sets up a very interesting scenario: What happens when the federal government or its agents refuse to honor a court order handed down by a federal judge? If there is escalation, it will likely be reflected on the scoreboard at Wall Street.

Later this evening, President Trump is expected to announce his nominee to succeed the late Justice Antonin Scalia on the Supreme Court. Whoever he is, let’s hope he has the wisdom of Solomon.