Financial Review

Ultra Violet

Sinclair Noe — December 7, 2017

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

Subscribe: Android | RSS

DOW + 70 = 24,211
SPX + 7 = 2636
NAS + 36 = 6812
RUT + 11 = 1520
10 Y + .05 = 2.38%
OIL+ .66 = 56.62
GOLD – 16.00 = 1247.80

Cryptocurrency

• Number of Currencies: 1,364
• Total Market Cap: $443,799,771,860
• Volume (24h): $29,879,496,699

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	16,012.0	$290.56B	$17.67B	59.15%	1	-3.56%	+74.30%
	Ethereum	ETH	413.58	$41.34B	$2.10B	7.02%	0.0250542	-0.34%	-1.99%
	Bitcoin Cash	BCH	1,378.80	$26.18B	$1.55B	5.20%	0.0906213	+11.89%	+15.99%
	IOTA	MIOTA	3.71990	$10.57B	$1.14B	3.80%	0.00022174	-9.27%	+196.54%
	Ripple	XRP	0.23500	$10.09B	$553.84M	1.85%	0.00001519	+15.71%	+6.01%
	Dash	DASH	660.52	$5.36B	$242.77M	0.81%	0.0403684	-0.34%	-11.54%
	Litecoin	LTC	97.110	$5.31B	$644.07M	2.16%	0.00571542	-0.85%	+13.95%
	Bitcoin Gold	BTG	238.73	$4.52B	$146.44M	0.49%	0.0157946	+11.30%	-7.79%
	Monero	XMR	251.29	$4.32B	$281.56M	0.94%	0.0163026	-3.27%	+59.69%
	Cardano	ADA	0.112903	$2.98B	$64.74M	0.22%	0.0000067	+1.62%	-1.36%

Stocks closed higher. The S&P 500 snapped a 4-day losing streak. Tech stocks made something of a comeback after taking a battering earlier this week. From Friday through Tuesday, the Nasdaq fell 1.6%, with analysts largely blaming the drop on profit-taking after a big rally and on concerns about how the U.S. tax overhaul will impact the tech sector. Whatever rotation away from tech happened in the past few days, it was minor.

Hamas urged Palestinians to abandon peace efforts and launch a new uprising against Israel in response to Trump’s recognition of Jerusalem as the Israeli capital. Palestinian factions called for a “Day of Rage” on Friday, and today a wave of protest in the West Bank and Gaza brought clashes between Palestinians and Israeli troops.

Sen. Al Franken said he will resign in the coming weeks, in a speech on the Senate floor that put him face to face with dozens of Democratic colleagues who called for him to step down over mounting allegations of sexual misconduct.

General Electric plans to cut 12,000 jobs in its power division as the new CEO institutes sweeping changes and the company grapples with a decline in business for coal and natural gas products. The company will cut nearly one in five positions in its GE Power unit. Overall, the layoffs equal about 4% of the company’s workforce of about 295,000 employees at the end of 2016.

New CEO John Flannery is aiming to make GE more efficient. He has already earned a reputation for taking a microscope to GE’s global business to identify opportunities for savings and changes. GE said the cuts would contribute to its plans to slash $3.5 billion in “structural costs” in 2017 and 2018. That includes a $1 billion cost-cutting plan in 2018 by the GE Power division, which makes gas and steam turbines, electrical transmission products, nuclear plant infrastructure and other items.

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 236,000 for the week ended Dec. 2. Last week marked the 144th straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was smaller.

This only tells part of the story about the strength of the economy. Yes, the unemployment rate is at 4.1%, a level considered near full employment. But many workers who leave or lose a job are not eligible for unemployment benefits. That is why the claims number has been so low for so long.

The bitcoin boom continued today, zipping past $17,000. Since its low of $11,450 on Tuesday to its peak Thursday, Bitcoin has rallied 45% in a roughly 48-hour span. Bitcoin soared above $19,500 a coin on Coinbase’s GDAX exchange at about 11:30 a.m. ET, three hours after it blew past $16,000.

The massive tear upward seems to have put pressure on Coinbase’s infrastructure — the exchange said on Twitter that users were experiencing issues logging into their accounts because of record traffic. Other exchanges had other prices. Pick one and wish.

If you placed a wager on bitcoin, congratulations. Don’t forget to cash in. If you didn’t put money in bitcoin and you are starting to feel tempted, just remember that you probably didn’t win the lottery this week either. So, what?

The only thing hotter than bitcoin is inflation in Venezuela, now running at 1,369 percent between January and November. The Venezuelan central bank reported inflation of 180 percent and 240 percent in 2015 and 2016, which had been the highest on record. It has since then stopped providing figures.

S&P Global analysts said a partial government shutdown would cost the economy about $6.5 billion per week, or about 0.2 percent of gross domestic product growth in the fourth quarter of 2017, as the impact of furloughing federal employees ripples across the country.

Lawmakers have until the end of Friday to reach an agreement to avert the shutdown. The House is slated to vote Thursday on a short-term extension to keep the government going a couple of more weeks while lawmakers try to work out the problems.

If a shutdown were to take place so far into the quarter, fourth-quarter GDP would not have time to bounce back, which could shake investors and consumers and, as a result, possibly snuff out any economic momentum. The bad news, is that even in a partial shutdown, Congress would continue to get paid for taking a holiday recess.

A faction of conservative Republicans is raising warnings about federal spending, two weeks after backing tax-cut legislation that would raise federal deficits by $1 trillion over the next decade. They say that compromises struck with moderate Senate Republicans, as well as negotiations to keep Democrats from filibustering spending bills, will contain measures that increase government spending.

As Congress turns attention to funding the government after months devoted to passing the tax cut package, some of the lawmakers who dismissed Congress’s own analysis that the tax cuts would add deficits are raising alarms about spending.

That may threaten some of the deals Senate Republican leaders cut to secure votes for the tax plan, including heading off cuts to Medicaid and legislation to stabilize Obamacare insurance markets. Killing your parents and then complaining about being an orphan.

Wildfires in Los Angeles have burned more than 120,000 acres, and it will get worse. Schools are closed, roadways are shut and nearly 200,000 people have been told to evacuate their homes. Winds were strengthening on Thursday, with warnings that gusts of 80 miles per hour. The high winds will continue at least through tomorrow.

Brush fires broke out this morning in Malibu, Oxnard and Huntington Beach; that in addition to the fires burning, basically out of control in Sylmar, Santa Clarita, Bel-Air and Ventura.

The Federal Reserve reports net worth of households and nonprofits hit a record of $96.9 trillion after a $1.74 trillion increase, or 1.8%, gain in the third quarter. Total debt grew at the fastest rate in nearly two years, 6.2% annualized, after the federal government was allowed to borrow again following the end of a debt-limit impasse. The stock market rally continued in the third quarter, and that $1.1 trillion gain was the big driver of the gain in net worth. Rising house prices added another $400 billion.

On the borrowing front, the story continued to be the rise in corporate debt, rising 6.4% annualized, as well as the continued auto- and student-loan driven rise in consumer credit, which rose 4.9% annualized. Cash on corporate balance sheets rose to $2.36 trillion from $2.29 trillion. So, tax cuts.

Goggle and Amazon are fighting. Google on Tuesday said it would pull its YouTube apps from Amazon’s Fire TV and Alexa-powered Echo Show starting next month. Why? Google pointed a finger at Amazon, which hasn’t been selling some products from Google and Nest, which is also owned by Google’s parent company.

Amazon also doesn’t allow Google products to have access to its Prime Video streaming service. These kinds of conflicts can be confusing for consumers who probably just want to watch the things they like on the devices they’ve bought. It’s childish that companies as big as Amazon and Google can’t work out a deal that makes sense for both, thereby helping the industry to grow and, instead, let consumers and content owners suffer.

Meanwhile, another long-standing streaming media tiff is getting (somewhat) resolved. As of Wednesday, Apple TV owners are finally able to add Amazon’s Prime Video to their devices — about six months after Apple chief executive Tim Cook promised the service was on its way. The two companies reportedly had trouble negotiating while wearing the hats of both partners and competitors.

With the holiday shopping season approaching and bankruptcy proceedings underway in federal court, Toys R Us just received court approval to pay 17 executives about $14 million in incentive bonuses, as long as the company hits its target of $550 million in earnings. It must hit a minimum of $484 million in adjusted earnings before any bonuses are awarded.

Attorneys for the company argued in court papers that the bonuses would help encourage executives to focus on driving up sales as the holidays approach. Because if they don’t get bonuses, they might not do a good job?

The national student loan debt is currently $1.4 trillion, an amount owed by more than 44 million borrowers. The average student loan borrower owes $27,857 in educational debt upon graduation.

The Student Loan Report polled 1,000 student loan borrowers currently in repayment to find out if they would rather receive a gift or an equally-valued student loan payment this holiday season, and 69% said they would like the money to go toward paying down the student loan debt.  Just trying to help you work through your shopping list.

Wildfires torching California, sexual-harassment scandals toppling powerful men and a splintered political landscape — and that’s only a trickle of the headlines. It’s the sludge of earthbound news that has Pantone, the design world’s arbiter of color, looking to the night sky and the future for its 2018 color of the year.

Ultra Violet 18-3383, it is — a dramatically provocative and thoughtful shade. Pantone says the hue, a blue-based purple, expresses “originality, ingenuity and visionary thinking that points us toward the future.” Apparently this is an annual event.

Financial Review

Happy Time Vibe

Sinclair Noe — December 4, 2017

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

Subscribe: Android | RSS

DOW + 58 = 24,290 (Record)
SPX – 2 = 2639
NAS – 72 = 6775
RUT – 11 = 1532
10 Y + .02 = 2.38%
OIL – .91 = 57.45
GOLD – 4.00 = 1276.70

Cryptocurrency

• Number of Currencies: 1,362
• Total Market Cap: $349,166,950,507
• Volume (24h): $13,255,090,001

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	11,582.0	$195.97B	$6.14B	46.29%	1	-0.11%	+19.49%
	Ethereum	ETH	462.13	$45.26B	$1.03B	7.74%	0.0404611	-0.62%	-1.92%
	Bitcoin Cash	BCH	1,508.90	$26.23B	$777.45M	5.87%	0.134083	-1.97%	-3.99%
	Ripple	XRP	0.24700	$9.79B	$107.72M	0.81%	0.00002174	+0.82%	-3.39%
	IOTA	MIOTA	2.23250	$7.22B	$1.08B	8.17%	0.00022357	-15.60%	+136.49%
	Dash	DASH	754.28	$5.93B	$157.91M	1.19%	0.0658949	-1.14%	+21.57%
	Litecoin	LTC	103.320	$5.61B	$331.87M	2.50%	0.00890391	-0.70%	+12.94%
	Bitcoin Gold	BTG	305.21	$5.38B	$119.41M	0.90%	0.0277613	-1.87%	-9.77%
	Cardano	ADA	0.127907	$3.45B	$77.64M	0.59%	0.00001145	-7.25%	+162.11%
	Monero	XMR	210.35	$3.32B	$94.78M	0.72%	0.0185096	+1.85%	+21.83%

This morning, the markets surged – largely, a happy-time vibe from the tax cut plan – but as the day wore on, the euphoria faded. The Nasdaq turned south after about one hour of trading. The entire tech sector came under serious pressure.

Microsoft dropped 4%, its biggest single-day decline since June 2016.  Facebook lost 3.6%. Amazon down almost 2.5%. Alphabet down 1%. Apple slipped about 0.7%. The S&P 500 managed to hang on until the final minutes of trading before the numbers turned red. The Dow Industrials managed to hold on to a positive session and a record high close, but that close was 245 points down from the intraday high.

Treasuries continued to slip. Even though yields rose today, they remain relatively subdued, with 10-year Treasury yields struggling to push much above 2.40 percent. If the economic outlook is so strong, then how does one explain long-term bond yields?

Bond traders are naturally more cautious, and appear to be taking their cue from forecasts that fiscal stimulus, including Republican-backed tax cuts, will deliver only a modest boost to the economy in the next two years.

Municipal bond investors are bracing for what promises to be the biggest week not only of 2017, but possibly of years to come. Estimates are that borrowers may sell $19 billion to $21 billion of tax-exempt bonds this week, almost triple the average this year. The reason why issuance will boom is that the Senate this weekend passed its version of tax reform, which includes prohibiting tax-exempt advance refunding.

Senate Republicans narrowly passed their tax bill over the weekend, and now must reconcile it with the House version before they can send it to the White House. Easier said than done. There are significant differences between the House and Senate versions.

The Senate calls for all individual tax breaks to expire after 2025 to comply with budget rules, while the House would keep most of the individual changes in place, except for a $300 per person family credit.

So-called pass-through businesses, such as partnerships and limited liability companies, are also treated differently under the bills. And the Senate bill would postpone a corporate tax rate cut — to 20 percent from 35 percent — for one year, until 2019; that means tax overhaul’s potential direct impact to 2018 corporate earnings is likely to be zero.

The House bill would consolidate the current seven individual tax brackets to four, leaving the top tax rate at 39.6 percent. The Senate bill would have seven brackets — with lower rates, and a top rate of 38.5 percent.

In a last-minute change, the Senate GOP decided to keep the alternative minimum tax for individuals, while raising the exemptions until 2026, and preserve the corporate AMT. The House would repeal both levies.

The Senate bill also keeps the estate tax (while doubling the exemption amount until 2026). The House plan doubles the threshold, but eventually fully repeals the levy. The Senate legislation also calls for repealing the Obamacare individual mandate — and while House Republicans mostly support that, it could get tricky if moderates’ votes are needed.

A key part of trying to make health insurance coverage universal is to require that everyone gets it; this helps spread the costs of health care among as broad a pool of people as possible. Repealing the requirement will save the government money because fewer people will enroll in publicly-subsidized health plans.

However, a good chunk of those subsidies underpinned the individual insurance market, so even people who don’t receive the payments are expected to see higher premiums.

The U.S. faces a partial government shutdown after money runs out on Dec. 8 if Congress can’t agree on a spending bill by then. House Republicans introduced a temporary stop-gap spending bill to fund the government until Dec. 22. The bill maintains the current federal spending levels but includes a provision to ensure that states are not forced to suspend the popular Children’s Health Insurance Program, which annually provides health insurance for nearly 9 million children in low-income families.

In the largest deal of 2017 CVS Health is buying Aetna, the third-largest US insurer, for $69 billion. Aetna stockholders will be paid $145 a share in cash and 0.8378 CVS shares per Aetna share. The acquisition is subject to regulatory approval, but if approved it will change the nature of retail and healthcare.

First, if CVS does buy Aetna, it might be able to win over more business—both from individual consumers and from employers buying plans on behalf of their workers. In theory, that’s because CVS could gain a competitive edge by reducing the cost of providing care to Aetna’s customers.

How could it do this? CVS is not just drugstores. In 2006, it acquired a company called MinuteClinic, which operates walk-in clinics. CVS now has more than 1,000 of them, including in its stores and in some Target locations. This is one of the main reasons CVS and Aetna could, together, save money: A company that sells insurance could start providing care directly, and steer customers not immediately to doctors but rather first to its own nurses and pharmacists working at CVS locations.

For example, if an Aetna customer has diabetes, it can be extremely costly (for both Aetna and the customer) for them to frequently see doctors for help managing their condition. Instead, a merged CVS-Aetna could encourage this customer to go to its walk-in clinics regularly for check-ins, potentially limiting those higher-cost doctor visits.

The merger is intended to shift the way consumers interact with their healthcare. The plan is to make pharmacies the “new front doors of healthcare” — as opposed to a traditional doctor’s office or a hospital; and once a customer is in the front door, the sale continues in the pharmacy.

The other reason for the CVS-Aetna deal is Amazon, which has been plotting to move into the pharmacy business. Amazon has already secured the necessary licenses in 12 states and there is a possibility they will try to start up an online pharmacy that could ship medications.

How does a brick and mortar retailer respond to Amazon? History shows that Amazon can crush competitors. Whether the CVS-Aetna deal could withstand the onslaught remains to be seen, but they are going to respond with some fresh new ideas. The actual amount of money prescriptions bring into pharmacies isn’t all that much, it’s what else you buy while you’re at the pharmacy — snacks, drinks, beauty products — that makes pharmacies a booming business.

Say that prescription portion went online, it would be much harder for retail pharmacies to compete with convenience stores, grocery stores and anyone else selling candy bars and deodorant. But say you’re an Aetna member, the preferred way to get your prescription might be by going to a CVS pharmacy, bringing foot traffic that might not come organically. And it is possible CVS-Aetna customers could see benefits if the new company can provide some innovative new services or pass through cost benefits to them.

On the other hand, the merger could give CVS control over drug wholesalers, pharmacies, insurers, and pharmacy benefit managers – in other words, a way to crush competition from other companies. One thing the two companies are hoping for is synergy – that’s corporate-speak for cost savings, and the big place to cut expenses is by firing workers.

For the first time in 40 years, power plants are no longer the biggest source of U.S. greenhouse gas pollution. That dubious distinction now belongs to the transport sector: cars, trucks, planes, trains and boats.

The big reversal didn’t happen because transportation emissions have been increasing. In fact, since 2000 the U.S. has experienced the flattest stretch of transportation-related pollution in modern record keeping, according to data compiled by the U.S. Energy Information Administration. The big change has come from the cleanup of America’s electric grid. Electricity use in the U.S. hasn’t declined much in the last decade, but it’s being generated from cleaner sources.

A dramatic switch away from coal, the dirtiest fuel, is mostly responsible for the drop in emissions. Coal power has declined by more than a third in the last decade. Meanwhile, the transportation sector is getting cleaner. Cars are becoming more efficient under aggressive pollution rules, or CAFÉ standards, but that’s so far been offset by an ever-rising American appetite for SUVs, crossovers and pickup trucks.

Investments in electric cars may soon begin to do to the transportation sector what wind and solar have done to the power sector: turn the pollution curve upside down. The price of battery packs has been plummeting by about 8 percent a year and electric cars are now projected to become cheaper, more reliable, and more convenient than their gasoline-powered equivalents around the world by the mid-2020s.

Financial Review

See What Sticks

Sinclair Noe — May 1, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 27 = 20,913
SPX + 4 = 2388
NAS + 44 = 6091
RUT + 6 = 1407
10 Y + .04 = 2.32%
OIL – .56 = 48.77
GOLD – 11.60 = 1257.10

Once again, the Nasdaq hit a record high close. And the VIX, the volatility index dipped down under 10. Nothing to worry about here. Meanwhile, investors braced for another heavy week of quarterly corporate results in an earnings season that has exceeded expectations.

Overall, profits at S&P 500 companies are estimated to have risen between 12 percent and 13.6 percent in the first quarter, the most since 2011. First quarter GDP came in at 0.7 percent. The difference between earnings per share growth and gross domestic product expansion in the first quarter is the widest since the third quarter of 2011.

S&P 500 companies that generate more than half their revenue overseas are posting quarterly earnings growth of 19.9 percent on average, double that of companies that conduct most of their business domestically. About 46 percent of S&P 500 sales overall come from foreign markets. Other factors helping earnings and overseas economic growth are softness in the U.S. dollar and stabilizing oil prices.

The greenback has traded mostly lower this year after sharp gains in 2014 and 2015 that cut into overseas profits. Meanwhile, oil recovered from a sub-$30 a barrel low last February to trade in a range near $50 a barrel. U.S. crude is up about 7 percent over the last 12 months.

To be sure, there’s another reason why earnings look so good: A year ago, they were bad. Last year’s poor results for S&P 500 companies overall, including four straight quarters of earnings decline, set a low bar for companies to overcome.

You’ve heard the old axiom, Sell in May and Go Away; that is the simplified version. If you follow the directions, you could sell in May, or slightly before or after depending on when the market gives a sell signal. The critical reference point for the adage is the MACD. A traditional sell signal occurs when the MACD line crosses below the signal line. The Sell in May refers to the best and worst six month, so the idea is to stay away until the end of October.

The saying may be better at avoiding volatility in September and October than any big downturn in May. If you don’t want to sell in May, you might consider more defensive positions, or even a few short trades.  The next week could provide direction for the markets. We have a Federal Reserve policy meeting on Wednesday, a jobs report on Friday, and Sunday brings the French election between Macron and Le Pen. Buckle up.

Over the weekend, congressional negotiators have hammered out a bipartisan agreement on a spending package to keep the federal government funded through the end of the current fiscal year on Sept. 30. You are probably shocked by the news that congress worked over the weekend. Congress is expected to vote on the roughly $1.1 trillion package early this week.

The White House sought funding to begin building the wall, as well as $18 billion in cuts to domestic agencies, and both demands were rebuffed. The spending deal includes money for Planned Parenthood. The package includes $12.5 billion in new military spending and $1.5 billion more for border security, but not for a wall or additional Immigration and Customs Enforcement agents.

The Environmental Protection Agency, which Trump has sought to shrink dramatically, would receive a 1 percent reduction of $81 million in funding and no staff cuts. The deal also includes steady or slight increases in funding for agencies within the Department of Energy, such the Office of Energy Efficiency and Renewable Energy, which would get a $17 million increase, and the Office of Science, which would get a boost of $42 million compared to fiscal 2016 funding levels.

One provision allows the secretary of Homeland Security to temporarily increase the cap in H-2B visas for temporary labor through the end of September. Agencies Trump has sought to eliminate, like the National Endowment for the Arts and the National Endowment for the Humanities and the Appalachian Regional Commission, would get modest increases in funding instead.

Today, President Trump told Bloomberg News that he’s considering breaking up giant Wall Street banks by reinstating Glass-Steagall, the 1933 law that separates investment banking from traditional banking. Trump also suggested raising the gas tax to fund infrastructure.

The Trump administration released an outline of a tax plan last week that would slash tax rates for businesses and reduce the number of tax brackets for individuals. The plan, however, was silent on gasoline taxes. So, throw it on the wall and see if it sticks.

The European Union’s summit in Brussels ended with EU leaders suggesting that British Prime Minister Theresa May’s ambitions for the looming Brexit negotiations are unrealistic. May stuck to her guns, however, arguing that Britain should be allowed to line up a “comprehensive” free-trade deal with the EU post-Brexit and denying accusations that she’s in a “different galaxy.”

Meanwhile, Marine Le Pen and Emmanuel Macron are kicking off the final week of the French presidential campaign with major rallies in Paris. Macron is still leading the polls, although his margin has slipped slightly in recent days.

Oil and gold moved lower, but in the commodity markets, it was a big jump for wheat. A winter storm dropped more than 12 inches of snow across four Midwest states. While it will take several days before the damage can be assessed accurately as the snow melts, early estimates suggest losses could exceed 50 million bushels but quite possibly more.

Heavy rains are forecast for the region later in the week. Many reports of snapped wheat stems, and for a crop in the early stage of forming grain, that suggests there could be “substantial” production losses. For hard red winter wheat, a variety of the grain used to make bread, futures for July delivery surged 6.5 percent to close at $4.6575.

July futures for soft red winter wheat, which is used to make cookies and cake, jumped 5.5 percent to $4.56, also a record, while corn prices climbed 3 percent in active trading. Wheat has been in a long-term bear market thanks to near ideal growing conditions the past couple of years, and the feeling among many traders was that the only direction for wheat was down. The dominant position for speculative traders has been short. The freak storm caught many by surprise.

America’s largest oil refinery is now fully owned by Saudi Arabia. Saudi Aramco, the kingdom’s state-owned oil behemoth, took 100% control of the sprawling Port Arthur refinery in Texas on Monday, completing a deal that was first announced last year. Port Arthur is considered the crown jewel of the US refinery system.

The Gulf Coast facility can process 600,000 barrels of oil per day, making it the largest refinery in North America. Aramco previously owned 50% of Port Arthur through a joint venture co-owned with Royal Dutch Shell.

The ISM manufacturing report shows manufacturers scaled back hiring plans in April and demand for new products slowed, but most companies said business was still quite brisk, a survey of executives found. The Institute for Supply Management said its manufacturing index slipped to 54.8% in April from 57.2%. Any reading above 50 indicates expansion.

Spending on construction dipped 0.2% in March following an unusually strong pace of spending in February. For the first three months of the year, spending was 4.9% higher than in the same period in 2016. Much of the increase came from housing. Residential construction was up 1.2% during the month, but stood 7.3% higher than a year ago.

Overall private construction was flat in March, as lower levels of spending on public works continued to drag. Overall public construction was 0.9% lower during the month, and 6.5% lower than in March 2016.

Personal income rose less than expected in March while spending was flat, according to the Bureau of Economic Analysis.  Personal income rose 0.2%, missing the forecast for 0.3% growth. The report also included data on personal consumption expenditures, a gauge of consumer purchases that the Fed prefers to measure inflation. The PCE deflator fell 0.2% month-on-month and rose 1.8% year-on-year, slipping from 2.1% in February.

American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up? Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon says net charge-offs would rise to at least 5% this year.

Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion. Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. Other worries about consumer debt in the US are piling up.

The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.

In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves. Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt.

Financial Review

Make Way for May

Sinclair Noe — April 28, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 40 = 20,940
SPX – 4 = 2384
NAS – 1 = 6047
RUT – 16 = 1400
10 Y – .02 = 2.28%
OIL + .21 = 49.18
GOLD + 4.20 = 1268.70

Looking back on the week, we had a couple of strong moves Monday and Tuesday, following the French election over the weekend – the rally was based on an absence of bad news. After that, markets looked for good news and floundered.

The tax reform plan failed to impress. We had some good earnings reports, which helped to lift a few stocks – notably a few of the big tech stocks, and that helped the Nasdaq Composite climb above 6,000 to new record highs. For the week, the Dow rose 1.9 percent, the S&P gained 1.5 percent and the Nasdaq rose 2.3 percent.

During April, the Dow gained 1.3 percent, the S&P rose 0.9 percent and the Nasdaq jumped 2.3 percent.

Yesterday, Alphabet, Amazon, and Microsoft reported earnings. Alphabet and Amazon crushed it. Microsoft was a slight disappointment. From the close of the market on Thursday to session highs on Friday, all three stocks hit an all-time high. That added more than $30.6 billion to Alphabet’s Class A market capitalization, $14.2 billion to Amazon’s market capitalization, and $6.7 billion to Microsoft’s market cap, reaching about $52 billion between the 3.

The stocks later pared gains, falling below their peaks. By the end of the day on Friday, the trio were just $27.4 billion richer, with Alphabet seeing $22.75 billion of those gains. The gains left both Amazon and Alphabet closing in on share prices of $1,000.

Amazon went public in 1997; if you had been brilliant enough to invest $10,000 at the IPO price of $18, and patiently held, you would be sitting on just over $4.8 million. Amazon’s market capitalization reached about $442 billion, pushing founder Jeff Bezos’ wealth closer to the richest in the world.

Alphabet and Microsoft had market caps of about $636 billion and $529 billion, respectively.

The US economy expanded at the slowest pace in three years as weak auto sales and lower home-heating bills dragged down consumer spending, offsetting a pickup in investment led by housing and oil drilling. Gross domestic product, the value of all goods and services produced, rose at a 0.7 percent annualized rate after advancing 2.1 percent in the prior quarter.

Consumer spending, the biggest part of the economy, rose 0.3 percent, the worst performance since 2009. There is a tendency for weak economic growth in the first quarter; the past few years winter storms were blamed for the declines; this year, warm winter weather is being blamed.

Since 2000, expansion in the first quarter of each year has averaged 1 percent, compared with 2.2 percent for the rest of each year. The pattern I recognize is that consumers get tapped out over the holidays and must tighten their belts in the first quarter.

The good news is that the unemployment rate is low, people have jobs, there is no immediate economic dilemma, and the economy should rebound as we move through the rest of the year. The bad news is that the growth trajectory looks a lot like the past few years, solid but sluggish. And in the background, inflation is eating into consumers’ wallets.

Real disposable personal income rose at a 1 percent pace in the period, the weakest since the fourth quarter of 2013. The report also showed price pressures were picking up. The GDP price index rose 2.3 percent in the first quarter. A measure of inflation tied to consumer spending and excluding volatile food and energy costs was up 2 percent, the fastest in four quarters.

And there is a good chance consumers will loosen the strings on the pocketbook in the second quarter. The University of Michigan consumer confidence survey shows consumers feeling good. The current conditions index in April was at its second-highest since 2005, and consumer expectations for inflation in the year ahead, and in five to 10 years, were unchanged from the prior month.

The employment cost index, released by the Labor Department, showed a 2.4 percent annual rise — the fastest pace in two years – and climbed 0.8 percent from the prior quarter for the strongest rate since the end of 2007. The wages and salaries component also increased 0.8 percent in the first three months of the year, the most since the second quarter of 2008.

The Federal Reserve FOMC policy meeting is next week and it is widely expected the Fed will leave interest rates at current levels while maintaining guidance for 2 more rate hikes this year.

The federal government will continue for at least one more week. Faced with a budget deadline of midnight tonight, legislators could not agree on the details of a budget plan to keep the doors open and the lights on, but they did agree to kick the can down the road. Congress approved a one-week extension to agree on a spending bill to fund the government through September.

Leaders of both parties say they’re close to agreement on a broader spending plan after Republicans signaled they would accept Democratic demands that the Trump administration promise to continue paying Obamacare subsidies and drop its bid for immediate funds for a wall on the Mexican border.

House GOP leaders abandoned efforts to vote this week on their plan to repeal and replace Obamacare for lack of support in their party. A vote is still possible next week.

Brazil is on strike, a nationwide general strike to protest President Michel Temer’s austerity measures, hitting public transport and closing schools, factories, banks and other businesses in every state. Police clashed with demonstrators in several cities, firing tear gas in efforts to clear roadways blocked by burning barricades.

Protesters also obstructed the entrances of airports and metro stations. Temer’s efforts to pass pension and labor reforms have deeply angered many Brazilians. Temer has proposed a minimum age for retirement. The lower house of Congress approved a bill this week to weaken labor laws by relaxing restrictions on outsourcing and temporary contracts.

GM, Ford, Toyota, and Mercedes all halted production at factories in Sao Paulo. the strike was strategically concentrated in public transportation so that even people who might want to get to work could not.

Young Europeans are sick of the status quo in Europe. And they’re ready to take to the streets to bring about change, according to a recent survey. Around 580,000 respondents in 35 countries were asked the question: Would you actively participate in large-scale uprising against the generation in power if it happened in the next days or months? More than half of 18- to 34-year-olds said yes.

A U.S. appeals court has blocked health insurer Anthem’s bid to merge with Cigna, upholding a lower court’s decision that the $54 billion deal should not be allowed because it would lead to higher prices for healthcare. The ruling effectively kills the proposed merger that was opposed by the U.S. Justice Department, 11 states and a district court judge after consumers, medical professionals and others objected to it.

In the end, Cigna itself tried to back out. Anthem and Cigna are suing each other. Cigna has sought to abandon the merger and force Anthem to pay a $1.85 billion breakup fee while Anthem filed a lawsuit to force its smaller rival to go through with the combination.

A consortium led by private equity firms Hillhouse Capital Group and CDH Investments offered on Friday to buy Belle International Holdings in a deal valuing the entire Hong Kong-listed shoe retailer at about $6.8 billion.

After months of speculation about whether Time, Inc. would be acquired, its board of directors has decided not to sell the company. Following the news, Time Inc. shares were down more than 19%.

Two initial public offerings went opposite directions Friday, as software company Cloudera shares shot up above its issue price and car-vending machine company Carvana saw its shares slump. Cloudera gained 20%, while Carvana dropped 26%.

Gasoline demand in the US dropped 2.4% in February compared with a year earlier, the second straight monthly decline. Still, coming in at 8.9 million barrels per day. The price of oil has nearly doubled from 12 months ago – a powerful motivation to conserve, but the lower demand also points to less economic activity.

Oil prices settled a bit higher today but still registered a second straight monthly decline. The problem for oil companies is that oil has spent a very long time consolidating around $50 to $55 and has now dropped under that range. Meaning any move higher will face strong resistance.

Meanwhile, any move below $47 would break through support. For oil companies, they have largely based their guidance for 2017 on prices in the $60 a barrel range.

Rising crude prices helped Chevron and Exxon Mobil easily beat analysts’ quarterly profit expectations. Chevron and Exxon expanded production in their American shale portfolios during the quarter, with both deciding the low-cost fields offered an easy opportunity to boost profit. They have laid out plans to increase drilling in those fields this year.

Exxon reported quarterly profit more than doubling to $4 billion, even as production fell 4 percent. Chevron swung to a $2.6 billion quarterly profit and turned cash flow positive. Chevron’s results were helped by $2.1 billion in asset sales. The company has sold more than $5 billion in assets since last year and is seeking buyers for its Canadian oil sands business.

General Motors recorded its highest ever profit for a first quarter. US sales of Chevrolet trucks and crossovers rose 3.5 percent and 12 percent, respectively, during the quarter, while GMC truck and crossover sales jumped almost 10 percent. GM’s net profit rose 33 percent in the first quarter to $2.6 billion, or $1.70 per share, beating estimates of $1.48 per share.

Financial Review

Big Stuff

Sinclair Noe — April 24, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 216 = 20,763
SPX + 25 = 2374
NAS + 73 = 5983
RUT + 18 = 1397
10 Y + .03 = 2.27%
OIL + .06 = 49.29
GOLD – 7.90 = 1277.00

Last Friday we spent some extra time talking about the French election; thinking it might be a significant event for the markets. Results in France’s election on Sunday saw centrist Emmanuel Macron and far-right nationalist Marine Le Pen emerge as the top two candidates for a run-off in two weeks’ time.

Early polling shows that Macron is expected to win by a wide margin, with one poll showing the 39-year-old is expected to get 62% of the vote. Le Pen is considered a risk to markets for a variety of reasons, including her vow to hold a referendum on France leaving the EU were she to win election as president. That is early polling and anything can happen in the next couple of weeks, and even if Macron wins, he will need to forge a parliamentary majority.

But for now, nervous investors and traders flipped the switch from safe haven bets to “risk on”. European shares surged to a 17-month high. The euro scaled back gains after its best open on record. The major Wall Street indexes posted their best one-day advance since March 1. The Nasdaq Composite closed at a new record high.

This should be a very interesting week. President Trump tweeted on Saturday that he plans to announce a “big” tax reform and reduction plan on April 26. Trump has ordered White House aides to accelerate efforts to draft a tax plan slashing the corporate rate to 15% and prioritizing cuts in tax rates over an attempt to not increase the deficit, according to Marketwatch.

Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn are scheduled to meet Tuesday to discuss Trump’s tax proposals with Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, Senate Finance Chairman Orrin Hatch and House Ways and Means Chairman Kevin Brady of Texas. The meeting comes in advance of a Wednesday announcement by Trump; although you might think these leaders should already know the plan.

Mick Mulvaney, the director of the Office of Management and Budget, has said it is unlikely the administration will release a full plan until June at the earliest. So, it sounds like the Wednesday announcement might be long on concept and short on detail.

The Trump administration is preparing to brief all 100 senators Wednesday on the situation in North Korea. Today, Trump said the UN Security Council must be prepared to impose new sanctions on North Korea as concerns mount that it may test a sixth nuclear bomb as early as tomorrow, which marks the 85^th anniversary of the foundation of North Korea’s army.

US officials told Reuters tougher sanctions under consideration include an oil embargo, banning North Korea’s airline, intercepting cargo ships and punishing Chinese banks and other companies doing business with North Korea.

The State Department said Secretary of State Rex Tillerson would chair a special ministerial meeting of the Security Council on North Korea on Friday that would give members the opportunity to discuss ways to maximize the impact of existing sanctions and “show their resolve to respond to further provocations with appropriate new measures”. Two Japanese destroyers have joined the U.S. carrier group for exercises in the western Pacific, and South Korea said it was in talks about holding joint naval exercises.

Also on Wednesday, Federal Communications Commission Chairman Ajit Pai is expected to unveil his plan to replace the agency’s hotly contested net neutrality rules.

Meanwhile, a government shutdown is possible on April 29 if Congress doesn’t approve a spending bill to fund the government. Trump’s biggest demand is a Democratic deal-breaker: money for his long-promised border wall with Mexico. Democrats hope he’ll blink to avoid partial shutdown which would start on Saturday, Trump’s 100th day in office.

Trump insists that Mexico will pay for the wall eventually, later, in some form. Until then, he wants American taxpayers to foot the bill. There is an out for both sides – a short-term spending plan that would provide another week or so for negotiations after the deadline early Saturday.

US investors are also gearing up for the busiest earnings week of the earnings reporting season, with over 190 S&P 500 members. Earnings are coming in better than expected. Of the 100 S&P 500 companies that have reported results so far, 77 percent have beaten profit expectations, according to Thomson Reuters I/B/E/S.

This has helped lift profit growth estimates to 11 percent from 10 percent forecast at the start of the earnings season. Alphabet, the parent company for Google, just passed $600 billion in market capitalization – they report earnings Thursday. Also on the earnings calendar this week: Microsoft, Amazon, Twitter, Intel, Credit Suisse, Barclays, Daimler and Total.

On Friday, we’ll get a look at first quarter gross domestic product.  GDP is forecast to grow by 1%, maybe as high as 1.5%. But the earnings per share for S&P 500 corporations is expected to do much better, up by 11% year-on-year, maybe a bit higher, depending on the forecaster. Ultimately, this divergence is a reminder that what affects the stock market does not necessarily have a run-off effect on the economy.

Outside of recessions, S&P EPS can vary from negative to double-digit growth rates when US GDP is anywhere between 2-4%. Outside of recessions, it is global growth, investment spending, US exports/global trade, commodity prices, FX rates, loan growth, and non-operating factors like taxes, acquisitions, buybacks, and other reinvestment that drives S&P EPS growth.

The economy certainly matters very much to earnings, especially for companies that earn most of their revenue in the US. And financial markets, reflecting confidence levels and expectations for future earnings, tend to lead economic growth and downturns. But ultimately it is a mistake to think that success on Wall Street equates to success on Main Street.

The number of bank branches in the United States will shrink by as much as 20 percent in five years, according to a report from commercial real estate firm JLL. This reduction comes as banks are looking for ways to cut costs and to encourage their customers to embrace mobile banking technology rather than completing basic transactions within a physical branch.

The U.S. banking industry could save as much as $8.3 billion annually if it trimmed the number of branches and downsized the average bank branch from 5,000 to 3,000 square feet, JLL found. U.S. banks have reduced their footprint by around 8 percent since the financial crisis, from 97,000 branches to roughly 90,000.

PPG Industries, an American paint and chemicals giant, again raised its takeover bid for Akzo Nobel, the Dutch maker of Dulux paint, hoping to persuade its rival’s management to engage in merger talks. Akzo Nobel has rejected two previous offers. PPG’s latest offer would value Akzo Nobel at about $26.4 billion.

Supermarket operator Albertsons is exploring a takeover of Whole Foods, according to the Financial Times. Albertsons is owned by private-equity firm Cerberus Capital Management, which has held preliminary talks with bankers on a bid for Whole Foods.

The news comes just weeks after hedge fund Jana Partners LLC said it had amassed a 9% stake in Whole Foods, and was urging it to look at a possible sale, change its management board and revise contracts with suppliers and others.

iHeartMedia, the biggest operator of radio stations in the US, plans to include language in its next quarterly report warning investors that it may not survive another year. iHeartMedia expects cash flow to be negative and is uncertain as to whether it will be able to refinance or extend the maturities of some of its borrowings, according to a regulatory filing.

The company has almost $350 million of debt coming due this year, part of a massive $20 billion debt load it took on as part of a $24 billion leveraged buyout of then Clear Channel Communications

T-Mobile beat earnings estimates but missed on revenue. T-Mobile said it added 914,000 branded postpaid subscribers, who pay bills monthly – that was better than expected. Shares moved higher.

 Alcoa rose more than 2 percent in extended trading on Monday after the aluminum company reported an earnings beat. However, the company also reported a revenue miss.

Steve Ballmer is the former Chief Executive Officer of Microsoft and the current owner of the Los Angeles Clippers NBA basketball franchise. In his spare time, Ballmer has been trying to figure out what the government does with our money, taxpayer money.

Tomorrow, Ballmer plans to make public a database and a report that he and a small army of economists, professors and other professionals have been assembling as part of a stealth start-up over the last three years called USAFacts. The database is perhaps the first nonpartisan effort to create a fully integrated look at revenue and spending across federal, state and local governments.

Want to know how many police officers are employed in various parts of the country and compare that against crime rates? Want to know how much revenue is brought in from parking tickets and the cost to collect? Want to know what percentage of Americans suffer from diagnosed depression and how much the government spends on it? That’s in there. You can slice the numbers in all sorts of ways.

In an age of fake news and questions about how politicians and others manipulate data to fit their biases,  Ballmer’s project may serve as a powerful antidote. Using his website, USAFacts.org, a person could look up just about anything: How much revenue do airports take in and spend? What percentage of overall tax revenue is paid by corporations? At the very least, it could settle a lot of bets made during public policy debates at the dinner table.

Financial Review

C’est l’économie stupide

Sinclair Noe — April 21, 2017

Podcast: Play in new window | Download (Duration: 20:24 — 11.7MB)

Subscribe: iTunes | Android | RSS

DOW – 30 = 20,547
SPX – 7 = 2348
NAS – 6 = 5910
RUT – 4 = 1379
10 Y – .01 = 2.24%
OIL – 1.17 = 49.54
GOLD + 2.20 = 1284.90

For the week, the Dow Industrials were down 3 days and up 2, but the 2 gainers were big. The S&P 500 managed to notch its first weekly gain in three. For the week, the Dow rose 0.5 percent, the S&P gained 0.8 percent and the Nasdaq advanced 1.8 percent, notching a record high along the way. Small caps in the Russell 2000 provided out-sized gains of 2.6% on the week.

Oil prices dropped more than 2 percent today, notching the biggest weekly decline in more than a month on mounting evidence that US production and inventory growth were offsetting OPEC’s attempts to reduce the global crude glut. WTI crude lost 6.7 percent for the week.

The U.S. Commodities Future Trading Commission showed total long positions in U.S. crude rose in the week to April 18 to their highest in more than a month at 355,077 contracts. But oil has sagged in recent days, much as it did in March. Many in the market still expect OPEC to renew its production cuts for another six months. Still, shipment data shows more oil transiting world oceans than when cuts were put in place.

According to AAA, 43 states have seen prices at the pump increase over the past week. The national average is $2.42 a gallon, which reflects an increase of 13 cents in the last month, and 30 cents (or around 14%) compared to last year. A bump in gas prices is typical around this time of year, as oil refineries switch over from their winter blend to the summer blend.

The United States currently has an oversupply of gas, and as the weather warms up, demand will likely rise in June, sapping up supply and pushing prices up. AAA expects the national average for gas to peak at around $2.70 a gallon in June. In 2016, summer gas prices peaked at an average of $2.38 a gallon.

Johnson says that a handful of states will even see gas prices over $3 a gallon this summer, especially on the West Coast. In fact, two states already hit that benchmark this week: Hawaii ($3.06) and California ($3.01). The cheapest gas in the nation can currently be found in South Carolina ($2.13).

Of the 95 companies in the S&P 500 that have reported earnings through Friday morning, about 75 percent have topped expectations, according to Thomson Reuters data, above the 71-percent average for the past four quarters. Overall, profits of S&P 500 companies are estimated to have risen 11.2 percent in the quarter, the most since 2011.

Markets were hesitant today, in advance of Sunday’s French elections; this is just the first round of elections, winnowing a field of 11 candidates down to 2, who will face off in 3 weeks. Still, a lot is at stake. We’ll dive into details in just a bit.

President Trump told the Associated Press he’ll unveil a tax-reform package next week and promised a “massive tax cut” for individuals and businesses. He said it would be released “Wednesday or shortly thereafter” but declined to give details. He said the cuts will be “bigger I believe than any tax cut ever.”

The Tax Policy Center in Washington says, “The plan would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income.”

Treasury Secretary Steven Mnuchin reiterated the administration is planning to unveil its tax reform plan in the near future. He said the administration is “very close” to releasing a proposal. Mnuchin said corporate inversions will be part of an overall review of tax regulations. Inversions involve US firms that move their legal address abroad to cut their tax bills through mergers with foreign companies.

President Trump’s budget director Mick Mulvaney said the administration plans to include $200 billion for new infrastructure spending in its full fiscal year 2018 budget. In a moderated discussion at the Institute of International Finance conference, Mulvaney said this is all the money needed to fund $1 trillion in projects, if leveraged properly. Mulvaney said there will not be any specific votes on infrastructure spending until the fall.

The White House ordered federal agencies to begin preparations for a potential partial government shutdown; it shouldn’t come to that but they need to be prepared. The White House said it wants to see money for Trump’s border wall included in the spending bill Congress must pass next week.

Democrats are opposed to the wall and consider including it in the budget bill to be something of a poison pill. The Senate needs 60 votes to pass the budget. Look for a possible short-term extension while they work it out. The push to reach an agreement on spending is complicated by White House efforts to try again for a House vote on replacing Obamacare next week.

If ongoing congressional budget battles force a government shutdown next week, home-buyers and sellers could be subject to more headaches than usual before their deals close.  That’s because buyers looking for mortgage approval could hit paperwork roadblocks if the shutdown furloughs workers at the IRS or Social Security Administration.

That’s what happened in October 2013, the last time budget gridlock forced a 16-day shutdown that sent millions of government workers on furlough and gummed up the works of the U.S. housing market.

The National Association of Realtors says existing-home sales ran at a seasonally adjusted annual rate of 5.71 million, a 4.4% monthly increase. That was the strongest selling pace since February 2007 and was 5.9% higher than a year ago.

Tight inventory is still the biggest factor in the marketplace: supply was 6.6% lower compared to a year ago. That nudged the national median sales price to $236,400 – a 6.8% gain compared to a year ago. March’s price increase marks the 61^st consecutive month of year-over-year gains.

Unemployment rates were lower in March in 17 states and stable in 33 states.  Colorado had the lowest unemployment rate in March, 2.6 percent. New Mexico, at 6.7%, had the highest state unemployment rate. Arizona’s seasonally adjusted unemployment rate decreased from 5.1% in February to 5.0% in March.

The U.S. seasonally adjusted unemployment rate decreased from 4.7% in February to 4.5% in March. A year ago, the Arizona seasonally adjusted rate was 5.4% and the U.S. rate was 5.0%. The Private Sector gained 11,200 jobs; government cut 2,400 jobs, for a net gain of 8,800. The sector with the strongest growth was Leisure and hospitality.

Federal Reserve Vice Chairman Stanley Fischer isn’t worried about the economy. In an interview today, Fischer said weak growth in the US economy in the first quarter will likely be temporary and interest-rate hikes should be able to proceed as planned. The Fed has penciled in two more rate hikes this year and Fischer said this remains his forecast, depending on data, of course.

In the past few years, the economy has shown weakness in the first quarter, followed by stronger growth in the second and third quarters. First quarter growth was probably running at 1%. The government will release an advance estimate of first-quarter GDP April 28. Economists expect a rebound to a 2.7% rate in the second quarter.

The United States will not make an exception for American companies, including Exxon Mobil, seeking to drill in areas prohibited by U.S. sanctions on Russia. The United States and European Union imposed economic sanctions on Russia over its annexation of the Crimea region in 2014 and its role in the conflict in eastern Ukraine.

The sanctions forced Exxon to wind down drilling in Russia’s Arctic in 2014. Exxon had asked for and received in 2015 and 2016 waivers to operate a joint venture with Russian oil producer Rosneft in Russia. European Union sanctions do not keep European oil companies from operating in Russia, a point of annoyance for Exxon.

In recent months, Exxon applied for a Treasury Department waiver to drill with Rosneft – and today the waiver request was denied.

A federal judge in Detroit sentenced Volkswagen to three years’ probation for the German automaker’s diesel emissions scandal as part of a $4.3 billion settlement announced in January. The plea agreement called for “organization probation” in which the company would be overseen by an independent monitor.

General Electric reported quarterly sales and adjusted earnings results that beat analysts’ estimates, but its shares fell on concerns about some of its industrial businesses and its $1.6 billion in negative cash outflow. Adjusted earnings of 21 cents a share were unchanged from a year ago and beat analyst estimates of 17 cents. Revenue fell 1 percent to $27.66 billion. GE down 2.4%.

Subway Restaurants closed 359 U.S. locations in 2016, the first time that Subway had a net reduction. The store count dropped 1.3 percent to 26,744, but Subway remains the nation’s most ubiquitous eatery. Subway is coping with sub-par sales in the U.S., made worse by the emergence of newer fast-casual rivals and the industry’s heavy reliance on discounts and promotions.

Subway also has lost some of its luster as a healthier-food option. Sales fell 1.7 percent last year to about $11.3 billion. Subway is still growing internationally, though. Last year, sales outside the U.S. rose 3.7 percent to $5.8 billion as it continued to open locations.