Financial Review

The Case Has Strengthened

Sinclair Noe — August 26, 2016

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DOW – 53 = 18,395
SPX – 3 = 2169
NAS + 6 = 5218
10Y + .06 = 1.62%
OIL – .04 = 47.29
GOLD – .90 = 1321.70

Federal Reserve chair Janet Yellen delivered a speech at the Jackson Hole Economic Symposium this morning. Here’s what she said, the key point: “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”

Yellen said the Fed expects “moderate growth” in gross domestic product, additional strengthening in the labor market and inflation rising to 2% over the next few years.  She said that any decision on interest rates “always depends on the degree to which incoming data continues to confirm the Fed policy committee’s outlook.” Yellen spent the bulk of her speech discussing the potential need to add new tools to the Fed’s toolkit to combat the next recession given that interest rates remain so low. Yellen said the “U.S. economy was nearing the Federal Reserve’s statutory goals of maximum employment and price stability.”

In the past, Yellen has been dovish; in no hurry to raise rates; and she wasn’t exactly pounding the table, and she didn’t give a specific date when the Fed might make a move. And even though Yellen was making a case for action, the markets kind of shrugged it off initially. So, vice-chair Stanley Fischer came along later and removed any ambiguity, saying: “Yellen’s comments are consistent with a possible September hike.”

That is not a guarantee of a rate hike but if the Fed takes action in about 3 weeks, you can’t say you weren’t warned. Stocks, bonds and commodities were all sporting nice gains following Yellen’s speech, then Fischer provided clarification and selling ensued, while at the same time the dollar moved higher and the VIX spike 4.5%.

U.S. economic growth was a bit more sluggish than initially thought in the second quarter as businesses aggressively ran down stocks of unsold goods, offsetting a spurt in consumer spending. Gross domestic product expanded at a 1.1 percent annual rate, down from the 1.2 percent rate reported last month. The revision also reflected more imports than previously estimated as well as weak spending by state and local governments. The economy grew at a 0.8 percent pace in the first quarter. It grew 1.0 percent in the first half of 2016.

The government also reported that after-tax corporate profits fell at a 2.4 percent rate last quarter after increasing at an 8.1 percent pace in the first quarter. Weak profits could limit an anticipated rebound in business spending. With profits declining, an alternative measure of growth, gross domestic income, or GDI, increased at only a 0.2 percent rate in the second quarter, the weakest since the first quarter of 2013.

Masked in the latest quarter is a very strong 4.4 percent annualized growth rate for consumer spending which is 0.2 percent higher than the first estimate. Inventory draw is the quarter’s culprit, pulling down GDP by a very steep 1.3 percentage points. But, in a counter-intuitive twist, lighter inventory in times of slow economic growth is a major positive for future production and employment and is a major plus for the ongoing quarter. The line of thinking is that there’s no pony in here now, but at some future point, there will be a pony, because ponies have always appeared in the past.

The Commerce Department reports the trade gap narrowed to a seasonally adjusted $59.3 billion in July from $64.5 billion in June. Exports rose by $2.9 billion during the month while imports shrank $2.4 billion. A surge in food exports helped cut the nation’s goods gap. Exports of foods, feeds & beverages rose 31 percent in the month though export prices of agricultural goods actually dipped slightly in the month. Other export readings are less favorable including a decline for capital goods, reflecting weak global investment in new equipment, and a small dip for consumer goods.

The University of Michigan’s consumer sentiment index for August slipped to 89.8 from 90.0 in July. The index is 2.3% lower than a year ago.

A very good article by Rex Nutting in Marketwatch asks a key question: Who’s preparing the United States for the 21st century? Nobody, really. Not the 22 million private businesses, not the 118 million households, and not the 90,000 state, local or federal government agencies.

Since the recession, investments have fallen sharply, and they haven’t gotten back up again. It seems that everyone is still scarred by the Great Recession, and by the collapse of asset bubbles in 2000 and 2006. Gross domestic investment totaled about $3.6 trillion in the second quarter of 2016, about 20% of gross domestic product.

That may seem a large sum, but it’s the lowest share of GDP, except during recessions, since 1947. But when you consider depreciation, the actual number is probably closer to $750 billion in the second quarter, or 4% of GDP, about half of the average over the post-war period. In fact, net investment has been running at the lowest rates since the Great Depression of the 1930s.

Business fixed investment has fallen for three quarters in a row, the first time that’s happened outside of a recession or its immediate aftermath since the mid-1980s. Net investment by state and local governments dropped to 0.6% of GDP in the second quarter, about half the average over the post-war period.

We have an economy that’s underperforming, but no one is willing or able to invest the sums needed to build the offices, factories, mines, computers, machinery, roads and airports we’ll need in the future. Business leaders don’t see a quick payoff in long-term investments, and public officials can’t fill the gap because the public thinks austerity now is better than growth tomorrow.

A U.K. sentiment index from YouGov and the Centre for Economics and Business jumped to 109.8 from 106.6 in July. The July print was a three-year low, and the rise in August was the largest in three years. It looks like the panic that gripped the public in the immediate aftermath of the Brexit vote has subsided, but the Centre warns it could all change though as details of the Brexit start to become reality.

If you have an Apple iPhone, you need to fix it. Apple issued a patch to repair a dangerous security flaw in iPhones and iPads after researchers discovered that a prominent United Arab Emirates dissident’s phone had been targeted with a previously unknown method of hacking. The hack is the first known case of software that can remotely take over a fully up-to-date iPhone 6. The researchers said they had alerted Apple a week and a half ago, and the company developed a fix and distributed it as an automatic update to iPhone 6 owners.

Adding another twist to the drama over Herbalife, investment bank Jefferies has been looking for the past month to find buyers for Carl Icahn’s 18% (roughly $1 billion) stake in the company. As if the idea of Herbalife’s largest shareholder exiting wasn’t enough of a story, the report also says Bill Ackman was among a possible group of buyers. Ackman has been shorting the stock for years. 

Icahn’s sale would come just weeks after he expressed renewed confidence in the company following the FTC settlement. Ackman kicked off the fight in 2012 with a widely watched presentation and a $1 billion bet that the stock would collapse. Icahn joined the battle a few months later and soon after got several Herbalife board seats.

Since then, the men have screamed at each other on live television and they and the company have traded legal accusations amid multiple investigations and a feature-length documentary. If Ackman really wanted to crush Herbalife, one way would be to get rid of the largest holder and then sell.

Apollo Global Management said it would buy cloud services provider Rackspace Hosting in a deal valued at $4.3 billion. The $32 per-share-offer represents a premium of 6 percent to Rackspace’s Thursday closing price. It’s also a 38% premium to Rackspace’s closing price on August 3. There was a very large short interest in Rackspace, more than $400 million. Ouch.

This exit from the public market can be laid squarely at the feet of Amazon Web Services. Amazon and Rackspace used to be such fierce competitors in cloud computing that Rackspace spearheaded a project called OpenStack to give itself and other IT vendors a chance to compete with Amazon. And OpenStack was successful, just not as successful as Amazon. It says something that the company went private instead of being bought by its partners, Amazon, Microsoft or any IT firms looking to jump start their cloud revenues; and what it probably says is that Amazon is crushing it in the cloud.

The Surgeon General of the United States, Vivek Murthy, has sent an electronic letter to 2.3 million doctors asking for their help to curb what’s being called an “unprecedented” epidemic of opioid painkiller overdose deaths. It’s the first time in history that a surgeon general has sent a letter directly to American physicians. Despite being home to 5% of the world’s population, America consumes 80% of its opioids. Between 2013 and 2014, deaths from synthetic opioids skyrocketed by 79%, according to a new Centers for Disease Control and Prevention report released Thursday.

A 2014 report from the American Academy of Neurology estimates that more than 100,000 Americans have died from prescribed opioids since the late 1990s. Those at highest risk include people between 35 and 54, the report found, and deaths from opioids in this age group have exceeded those from firearms and car crashes.

Financial Review

Progress Not Perfection

Sinclair Noe — July 15, 2016

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DOW + 10 = 18,516
SPX – 2 = 2161
NAS – 4 = 5029
10 Y + .06 = 1.60%
OIL + .27 = 45.95
GOLD – 3.80 = 1331.80

Another record high close for the Dow Industrials; six straight winning sessions, and since the June 27 lows following the Brexit vote, the Dow Industrials have added just over 1453 points, or an 8.5% gain in less than 3 weeks.

Consumer prices rose in June for the fourth straight month as the cost of gasoline, rent and medical care continued to go up. The consumer price index increased a seasonally adjusted 0.2% last month; the CPI is a measure of inflation at the retail level. Overall inflation remains low. The consumer price index has risen 1% in the past 12 months. And the multi-year trend is disinflationary. Real or inflation-adjusted hourly wages, meanwhile, fell 0.2% in June to mark the second drop in three months. Hourly pay has risen a scant 1.5% in the past 12 months.

The higher cost of gas accounted for much of the increase in inflation in June. Energy prices rose 1.3%. What’s also helping households is the biggest sustained drop in grocery prices since 2010. The so-called food at home index fell 0.3% in June, and it’s down 1.3% in the past 12 months. The core rate that excludes food and energy rose 0.2% in June and increased at a 2.3% annual pace. Yet other key expenses for consumers such as housing and medical care have gotten costlier. Rents rose 0.4% in June and the price of prescription drugs jumped 1.3%. Rent in particular is denting the pocketbooks of consumers, especially people moving into new apartments. Longtime home owners with low mortgages are faring much better.

Retail sales rose a seasonally adjusted 0.6% to mark the third straight strong gain. The surge in spending was led by home-and-garden centers and online stores. Online retailers led by Amazon boasted a 1.1% increase in sales in June. Gas stations and even department stores, lately the industry laggards, also recorded strong sales. Gas prices increased in the spring and early summer, though prices have since leveled off. Sales at apparel stores fell 1%, restaurants lost business and sales at purveyors of electronics and appliances were flat. Auto dealers registered a 0.1% increase. Purchases of new cars and trucks were softer than expected last month.

 Industrial production in June grew 0.6%, the fastest monthly rate in eleven months. Despite the gains, the factory sector is still struggling. For the second quarter as a whole, industrial production fell at an annual rate of 1%, its third consecutive quarterly decline and the fifth out of the past six. Compared to a year ago, production was down 0.7%. Manufacturing has been hurt by the strong dollar and the drop in oil prices.

The University of Michigan said its consumer sentiment index fell to 89.5 in July, a three-month low, from 93.5 in June. Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy. Following the Brexit vote, it was mentioned by record numbers of consumers, especially high income consumers.

Three Fed policymakers, James Bullard, Robert Kaplan and Dennis Lockhart, all expressed the view yesterday that there’s no hurry to raise interest rates in the wake of the Brexit vote, despite signs that the U.S. is near full employment. Kansas City Fed President Esther George differed on the outlook, stating she would keep an eye on recent market volatility, but stressed that rates were too low for the strength of the economy.

Companies have begun announcing earnings for the second quarter, and the results are not expected to be pretty over the next few weeks. Analytics firm FactSet estimates profits of companies in the S&P 500-stock index will fall 5.6 percent compared with a year ago; the fifth straight quarter of decline. The contraction has been so prolonged that investors consider it an “earnings recession.” LPL Financial, analyzed the S&P’s 12 earnings recessions since 1954. Nine of them were accompanied by economic recessions a year before or after, although the depth and duration of the downturns varied widely. Three earnings recessions have not been tied to broader distress. The first two occurred in 1967 and 1985. The third is the one we’re in right now, and it is not done playing out.

Citigroup reported quarterly earnings and revenue that easily beat analysts’ expectations, even as earnings and revenue dropped from the year-earlier quarter. The company posted second-quarter earnings per share of $1.24, compared with $1.51 a share in the year-earlier period. Revenue for the quarter came in at $17.5 billion, against the year-earlier figure of $19.1 billion.

Wells Fargo reported net income fell from $5.4 billion to $5.2 billion, even as revenue was higher. That’s a bad combination – it means net margins are down or expenses are up, or both. Part of the problem for Wells Fargo is that they have to set aside more provisions for loan losses.

The Federal Trade Commission settled with Herbalife, effectively determining that the nutritional supplement marketer is not a pyramid scheme. However, the FTC did warn Herbalife that it will need to prove that its business model is legitimate going forward. Separately, the company said Carl Icahn and his interests have retained the right to boost their ownership stake of Herbalife to 34.99 percent, up from a previous maximum of 25 percent. Icahn currently owns about 18 percent of Herbalife’s outstanding common shares.

Fiat Chrysler Automobiles is investing more than $1 billion in its assembly plants in Illinois and Ohio, retooling them to boost production of its Jeep Cherokee and Wrangler. Sales of Fiat Chrysler’s Jeep brand rose 17% in June and accounted for 42.5% of the company’s total U.S. sales.

The gavel is finally poised to drop in the drawn-out auction for Yahoo’s core internet business. Final bids for the services, which include its search, email, advertising and media operations, are due Monday, with the board set to make a decision soon afterward.

Costs from BP’s deadly 2010 Gulf of Mexico oil spill will rise by an additional $5.2 billion and ultimately cost $62 billion in pay-outs for one of the worst environmental disasters in U.S. history. The pretax charge for BP’s second quarter will also likely be the last from the Deepwater Horizon accident to have a “material impact” on its financial performance.

A federal appeals court sided with Microsoft in a case over whether the U.S. government could force the company and other tech companies to hand over customer emails stored overseas. The decision reverses a 2014 court order that required Microsoft to turn over email content stored on a server in Ireland. The court found that the federal Stored Communications Act only applies to data stored in the United States — and thus can’t be used to force a company to produce information from servers outside the country. Without the warrant, the government has to go through a much lengthier process set up through a mutual legal assistance treaty with the Irish government to obtain the data. Ireland filed a brief supporting Microsoft in the case, as did many tech companies, including Apple and Cisco.

There is no question that we live in amazing times. You can use your cell phone to look at a map of almost any place in the world, and not just look at the map, but zoom in to street level to look at the trees and buildings. Google Street view has even gone to Mount Everest and the Great Barrier Reef. Still, there are some places…, such as the Faroe Islands, an archipelago between Scotland and Iceland. They have streets and a few cars, but so far, no Google Street View. If Google Street View won’t come to the Faroe Islands, the Faroe Islands will bring 360-street views to them and the world. The islands’ tourism board is strapping 360 degree cameras onto sheep. Each minute, photos and GPS coordinates taken from the sheep are sent back to the tourism board. They’re then uploaded to Google Street View. Progress, not perfection.

Financial Review

Patience For Now

Sinclair Noe — March 13, 2015

 

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DOW – 145 = 17,749
SPX – 12 = 2053
NAS –  21 =  4871
10 YR YLD + .01 = 2.11%
OIL – 2.05 = 45.00
GOLD + 6.50 = 1158.40
SILV + .12 = 15.64

At one point today, the Dow was down 250, so it could have been worse. For the week, the Dow was down 0.6% and the S&P 500 fell 0.9%. The Nasdaq was down 1.1% for the week. Today is Friday the 13^th. All I can say is pure coincidence. We looked at the market for 148 Friday the 13ths, going back to 1928, there is no particular trend.

 In the last week of January we saw oil prices drop to right around the $45 a barrel level, with intraday lows of $44.37, but the daily closing price hovering just a little above $45. And in February, prices popped up to touch $55.05; prices challenging $55 on 3 days, and could not break out. So, now we are back to challenging support at $45. And waiting to see if the trading range will break down.

The International Energy Agency says oil prices remain fragile due to unrelenting production by US shale-oil producers. There has been an expectation that oil producers would cut back production in response to lower oil prices, but the IEA  report shows oil production in the US has increased by 115,000 barrels, and now we’re running out of places to store the oil. The IEA says it doesn’t see cutbacks in production until the second half of the year; and for now at least, ballooning inventories combined with shrinking oil storage likely will drag prices lower.

Baker Hughes reported today that the oil rig count dropped by 67 last week to 1125, and that has been a trend in the oil patch, but it also means that existing wells continue to produce. At some point, the IEA says those discontinued wells could make a difference in the supply, and when it does it will make for some serious price disruption; but as of now, the cutbacks haven’t kicked in.

Meanwhile, Reuters reports a tentative deal has been reached between the United Steelworkers and oil companies to end the largest US refinery strike in 35 years. The reported deal would last four years and “wage increases would be 2.5% the first year, 3% each in years two and three, and 3.5% in the fourth year.” The strike affected 12 refineries representing a fifth of US refining capacity. The deal still needs approval from the rank and file, but it will likely lead to more refined products making the way to your local gas station, which should open up some of the storage facilities for crude oil.

Next week, European leaders meet to consider whether to prolong economic sanctions on Russia. The thinking is that they will allow most, or all of the sanctions to expire in July, and they will not be looking to add new sanctions.  And while Russia has continued to supply oil to the world markets, an easing of sanctions is likely to result in a fresh wave of Russian oil supply hitting the market; you know, to make up for lost revenue. Also, today Russia’s central bank cut its key interest rate one percent to try to stimulate its economy. That’s the trend these days; cut rates to give a jolt to the economy; it’s also a battle to devalue currencies.

Now, toss in a strong dollar. Over the past 14 sessions, the S&P has had a correlation of -0.96 to the dollar index, meaning that stocks consistently fall on days when the dollar gains. Perfect inverse correlation is -1.0.

Tokyo stocks surged through the 19,000 level today to record their highest close since April 2000. The Nikkei currently leads all major Asian markets with a 10.5% year-to-date gain. The Japanese stock market has been sparked by Bank of Japan stimulus, (known as Abenomics), which has pushed the yen down to the lowest levels against the dollar in 8 years.

And of course, the European Central Bank started its version of QE this week, and they will be buying about $66 billion dollars of bonds per month. In addition, concerns about Greece’s status in the euro bloc have weighed on the common currency. The dollar pushed to a new 12 year high today against the euro.

Also, investors are wagering that recent solid jobs data from February will persuade the Fed to send signals for a coming rate increase, perhaps as early as midyear, at its two-day Federal Open Market Committee meeting next week. The pace of the dollar’s rise against worldwide currencies suggests a number of undesirable outcomes for the US economy. First, there’s the loss in export competitiveness. In fact, the U.S. trade deficit just hit a record high (excluding oil). Secondly, corporations have to endure the disintegration of profits made in foreign currencies. Indeed, forward earnings estimates for the initial two quarters of 2015 have turned negative. But the Fed is looking at something different, and they are likely to hint at raising rates, even as it becomes harder to justify a rate hike. Still, no one wants to be short dollars going into FOMC. The Fed meets Tuesday and Wednesday, and until then we’ll just have to be patient.

One of the side effects of a strong dollar is disinflation, or maybe we could even call it deflation. Producer Prices dropped 0.5% in February. Despite the first rise in gasoline costs since last summer, US producer prices, or prices at the wholesale level, fell in February for the fourth straight month. Wholesale gas prices climbed 1.5% in February, the biggest increase since last June. Yet food prices retreated 1.6% to mark the biggest pullback in almost two years. Trade prices sank a record 1.5%. Excluding the volatile categories of trade, food and energy, core prices were flat on the month. Over the past year overall producer prices have fallen by 0.6%, the first 12-month decline on record.

The University of Michigan’s consumer sentiment index dropped to 91.2 in March from 95.4 in February. That’s the worst reading since November. We get cranky when we have to pay more for gas.

The Feds are looking into hedge fund manager Bill Ackman’s assault on Herbalife. Neither Ackman nor his fund, Pershing Square, has been served a subpoena. But The Wall Street Journal reports: “Prosecutors in the Manhattan US attorney’s office and New York field office of the FBI have conducted interviews and sent document requests in recent months in connection with the investigation, which is looking into whether people, including some hired by Mr. Ackman, made false statements about Herbalife’s business model to regulators and others in order to spur investigations into the company and lower its stock price.”

This week we learned that Wall Street bankers are struggling, and the bonus pool paid to security industry employees in New York City – that’s just in New York City – was $28.5 billion. It works out to an average bonus of $172,860. So somebody at the Institute for Policy Studies pulled out their calculator and figured that if you take 1.03 million full-time workers paid an hourly wage of $7.25 or less, the minimum wage, and multiplied by 50 hours of work per week; the total compensation would be about $15 billion dollars, more or less. A 40 hour work week would put the compensation at about $14 billion. So, the sum of Wall Street bonuses just for New York City is roughly twice the total amount paid to all the full-time workers paid minimum wage in the entire country.

It has been a busy week, which included news that most of the big banks had passed a stress test, and you might think that means the banks haven’t been getting into trouble. Not exactly. It’s time for today’s edition of “Banks Behaving Badly”. We start with Commerzbank, one of Germany’s largest lenders, which agreed to pay nearly $1.5 billion and dismiss some of its employees to resolve an array of charges in the United States. Commerzbank was accused of sending tainted money through the American financial system; siphoning funds to sanctioned Iranian corporations, facilitating accounting fraud at Olympus, the Japanese camera company; charged with Bank Secrecy Act criminal offense and institutional anti-money laundering. Eight regulatory agencies investigated the bank.

Leslie Caldwell, head of the Justice Department’s criminal division, which prosecuted the criminal part of the case said, “Financial institutions must heed this message: Banks that operate in the United States must comply with our laws, and banks that ignore the warnings of those charged with compliance will pay a very steep price.” And of course, we all know that means there were no indictments, just a fine; but in a rare breach of prosecutorial etiquette, the bank was not allowed to deny wrongdoing.

Meanwhile Bloomberg reports the Justice Department is about to get tough on banks that rigged the foreign exchange markets. Prosecutors are reportedly pressing Barclays, Citigroup, JPMorgan and the Royal Bank of Scotland to plead guilty, which would mean a fine, and the starting point for rigging the global currency markets is $1 billion, more or less. In keeping with prosecutorial etiquette, prosecutors are seeking a simultaneous settlement with the banks, which would enable the lenders to avoid being singled out for industrywide conduct.

Two weeks ago the FCC voted to approve rules on net neutrality and today they released the text on the actual rules. A couple of key points, the new rules will ban paid prioritization – so the internet cannot be divide into “haves” and “have nots”, or fast lanes and toll lanes; also the rules would ban blocking, meaning consumers must get what they pay for, unfettered access to any lawful content on the Internet.

The 400 pages of the FCC rule aren’t exactly beach reading, but if you are still trying to understand the importance of the ruling and the need for it, the first two sentences offer a nice summation: “The open Internet drives the American economy and serves, every day, as a critical tool for America’s citizens to conduct commerce, communicate, educate, entertain, and engage in the world around them. The benefits of an open Internet are undisputed.”

Tuesday, July 22, 2014 - Curb Your Enthusiasm

Financial Review with Sinclair Noe

DOW + 61 = 17,113
SPX + 9 = 1983
NAS + 31 = 4456
10 YR YLD - .01 = 2.46%
OIL - .17 = 104.42
GOLD – 4.70 = 1308.50
SILV + .04 = 21.07

We start with a couple of economic reports. The National Association of Realtors reports existing home sales were up 2.6% in June to a seasonally adjusted rate of 5.04 million, compared to 4.91 million in May. Sales in June were 2.6% higher than last month, but were 2.3% below the June 2013 rate. Total inventory rose 2.2% in June to 2.3 million existing homes for sale; unsold inventory is up 6.5% from a year ago.

At June’s pace of sales, there was a 5.5-month supply of homes for sale. The Realtors’ group considers a 6-month supply to be a balanced market. Higher supplies favor buyers and lower supplies favor sellers. The Federal Housing Finance Agency says home prices in May rose 0.4% from the prior month and were 5.5% above their level of May 2013. Distressed sales accounted for just 11% of sales in June, down from 15% last year, 25% in 2012, and 30% in 2011. Fewer distressed sales probably explain why there were fewer sales than June of last year.

The Consumer Price Index, or CPI, measures inflation at the retail level; the CPI increased 0.3% in June. The core CPI looks at prices excluding food and energy, which is important for people who don’t eat food or drive cars or use electricity; core CPI was up 0.1% in June. On a year over year basis, CPI is up 2.1%, and the core CPI is up 1.9%. The big driver for the increase in June was higher prices for gasoline.

In earnings reports:

Quarterly profit at McDonald's fell more than expected. Second quarter net income fell almost 1% to $1.3 billion, or $1.40 per share. Sales at McDonald’s restaurants in the US dropped for a third straight quarter.

Coca Cola’s 2Q net income dropped to $2.6 billion from $2.68 billion a year earlier.

Verizon reported second quarter earnings nearly doubled, but it was a confusing report because Verizon paid for Vodaphone shareholders in the quarter, plus they sold some of their wireless spectrum to T-Mobile; cutting through the clutter, Verizon added 1.4 million devices; Verizon added three tablets for every new smartphone. Earnings were just a smidge above expectations.

Comcast reported net income of almost $2 billion for the second quarter, with total revenue of $16.8 billion, up 3.5% from the same period last year. The revenue increase came from high-speed internet service. Comcast lost cable video customers, as more people bypass cable and satellite subscriptions in favor of cheaper streaming alternatives.

Credit Suisse reported a second quarter loss of $779 million, the largest loss since 2008; reflecting the charge of $2.6 billion related to the settlement with US law enforcement for a guilty plea to conspiring to aid tax evasion in helping American customers hide money in Swiss accounts. On the other hand, another way to look at it, they were one criminal conviction away from a $1 billion quarterly profit. Credit Suisse also announced it would exit the commodities trading business.

Meanwhile, it looks like bond traders are exiting the bond trading business. Trading in US government bonds has dropped 25% in the past few weeks compared to the same period a year ago. Since the end of the second quarter, trading in investment grade bonds has dropped 17% and trading in junk bonds has dropped 8%.

Last week, Fed Chair Janet Yellen talked about overvaluation in the biotech and social media sectors. One of the most common measures of value is the P/E, or price to earnings ratio; there are certainly other measures of value, but PE is common. Generally, a low PE can point toward value, while a high PE might indicate overvaluation, or even an unprofitable company. Currently the S&P 500 trades at 16.1 times forward 12-month consensus earnings per share. Therefore, you might think a PE of 165 would mean a stock was extremely overvalued, ready to crash; or not. In September 2003, Apple had a PE of 165; since then it has gained about 6,000%.

After the close of trade today, Apple posted fiscal third quarter results. Revenue came in at $37.4 billion versus $38 billion expected; EPS was $1.28 versus $1.23 expected; iPhone sales were on track; iPad sales were a little weak; Mac sales were a little better than expected. Apple posted profit of $7.75 billion, up from $6.9 billion in the year-ago period. Apple announced a new iPhone 6, not yet available, but ready to swamp stores before the end of the year; it will have a bigger screen. Curb your enthusiasm.

Also after the close, Microsoft posted profit of $4.6 billion, or 55 cents a share, on revenue of $23.4 billion. During the year-ago period, the world's largest software company earned $4.97 billion, or 59 cents a share, on $19.9 billion in sales. So, sales were up, profit was a slight miss, due to the Nokia acquisition. Bing search ad revenue is up 40%, and Bing now has about 20% of the market share for search engines. Microsoft is big in the cloud, where revenue is up almost 150%, topping 4 billion.

Hedge fund manager Bill Ackman went on CNBC yesterday and promised he would deliver the deathblow against Herbalife. Ackman has been shorting the stock for about a year; a $1 billion bet the company would crash. Then he delivered a 3-hour diatribe with 250 slides in his PowerPoint presentation, alleging that Herbalife is not just a multi-level marketing nutritional club, it is a pyramid scheme preying on minorities, and the biggest fraud since Enron. Ackman did not present a great deal of evidence. Today the stock was up 15%, for no apparent reason, other than surviving an Ackman deathblow.

There were two rulings from two federal appeals court panels on Obamacare today. The question was whether the government could subsidize health insurance premiums for people in states that use the federal insurance exchange; 36 states use the federal exchange, while the other states set up their own state exchanges. This goes back to wording in the original law that says subsidies can be applied to state exchanges.

 The United States Court of Appeals for the District of Columbia Circuit said that the government could not subsidize insurance for people in states that use the federal exchange. That decision could potentially cut off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, or marketplace.

A couple of hours later, the United States Court of Appeals for the Fourth Circuit, in Richmond, upheld the subsidies, saying that a rule issued by the Internal Revenue Service was “a permissible exercise of the agency’s discretion.”

For now, nothing changes, with the exception that there will be many more billable hours for the attorneys.

Bloomberg reports that regulators are ready to label MetLife a potential threat to the financial system, subjecting the insurer to oversight by the Federal Reserve. MetLife, the biggest US life insurer, could be subjected to stricter capital, leverage and liquidity requirements as a result of Fed supervision. A decision by the Financial Stability Oversight Council may come as early as July 31, and MetLife would have 30 days to request a hearing before the FSOC to contest the decision.

The Dodd-Frank Wall Street Reform and Consumer Protection Act is now 4 years old, even though it isn’t really in effect; just 52% of the rules mandated under Dodd-Frank have been finalized by regulators; Another 23% have been proposed but they’re still working out details, and regulators haven’t even gotten around to 24% of the rules. A recent report by consumer watchdog Public Citizen called out the Securities and Exchange Commission as a particularly egregious delayer, noting that it had pushed back the deadlines for 13 of the 23 rules it was supposed to finalize this year.

City workers and retired city workers in Detroit have agreed to pension cuts to help bailout the city from bankruptcy. General retirees would get a 4.5% pension cut and lose annual inflation adjustments. They accepted the changes with 73% of ballots in favor. Support for the pension changes triggers an extraordinary $816 million bailout from the state of Michigan, foundations and the Detroit Institute of Arts. The money would prevent the sale of city-owned art and avoid deeper pension cuts.

Most people travel to or from Israel by air, and the major airport, really the only airport is Ben Gurion in Tel Aviv; last year, 14 million people went through Ben Gurion Airport, in a country with a population of 8 million.  Yesterday a rocket from Gaza landed about one mile from the airport; we don’t have further details on that rocket; it did not hit the airport; it was a mile away. When news spread, Delta diverted a flight to Paris. United airlines cancelled flights. The Federal Aviation Administration banned all US passenger and cargo flights to and from Tel Aviv for at least the next 24 hours. European airlines cancelled flight to Israel. The possibility of a passenger jet being shot down over a war zone is a very realistic and fresh memory.

US and United Nations diplomats are in Israel, trying to broker a ceasefire of some sort. Israel continues to pound targets across the Gaza Strip. It does not appear a ceasefire is near. If there is any light at the end of the tunnel, the tunnel will be destroyed.

The European Union today threatened Russia with harsher sanctions if Russia does not cooperate in the investigation of the downing of the Malaysian flight 17 and if Russia does not stop sending weapons to Russian backed separatists in Ukraine. However, it was just a threat, and they will get together later in the week to draft proposals for sanctions.