Financial Review

Ultra Violet

Sinclair Noe — December 7, 2017

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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

Brilliance in Euphemistic Ambiguity

Sinclair Noe — September 18, 2014

Financial Review

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

DOW + 109 = 17,265
SPX + 9 = 2011
NAS + 31 = 4593
10 YR YLD + .03 = 2.63%
OIL – 1.40 = 93.02
GOLD + 1.60 = 1225.80
SILV un = 18.62

Stock moved higher for a third day. Record high closes for the Dow and the S&P 500. The Dow notched its 17th record close of the year; the S&P posted its 34th record high close for the year. The stock market is in Fed mode. The Fed wrapped up their policy meeting yesterday, and they didn’t scare anybody; they even gave added assurance that they will be overly communicative. Interest rates are probably going to go up in the future but not at any specific time that can be identified. The Fed stuck with the phrase “considerable time” which is a great way to speak words that contain absolutely no meaning. Brilliant, brilliant performance in euphemistic ambiguity.

And even if the Fed tightens, the rest of the world’s central banks are getting looser, and it just figures that some of that will spill over to Wall Street. The ECB lowered rates so much that they’ve gone negative. Just the other day, the People’s Bank of China pumped about $80 billion into five banks.

The number of investment advisors that are bearish is at the lowest level since 1987. When bears start to dwindle to extremely low levels it’s often viewed as a contrarian signal on Wall Street; the Investors intelligence sentiment index now stands at 14.1%, the lowest level of bears since January 1987, when the index stood at 13.3%. The more extreme the reading, either to the bearish side or bullish side, the greater the likelihood the market moves in the opposite direction. History warns that the lack of bears warrants attention.

The number of Americans filing new claims for unemployment benefits fell more than expected last week. Initial claims for state unemployment benefits dropped 36,000 to a seasonally adjusted 280,000 for the week ended September 13th. This hints at the idea that the weak August jobs report might be an aberration.

The Commerce Department said housing starts fell 14.4 percent to a seasonally adjusted 956,000-unit annual pace last month. But July’s starts were revised to show a 1.12-million unit rate, the highest level since November 2007.

In another report, the Philadelphia Federal Reserve Bank said its index of mid-Atlantic business activity slipped in September. Despite the drop, factory employment in the region hit its highest level since May 2011 and new orders accelerated.

So, three decent economic reports showing reasonable strength in jobs, housing, and manufacturing.

Also today, the Federal Reserve released its Flow of Funds report. Consumer credit grew by 3.6% in the second quarter, but that’s slower than the 4.2% growth in the overall economy. Overall household debt as a percent of gross domestic product has declined to about 70% from just over 90%. Other types of debt; such as credit cards, student loans and auto loans have expanded, but still not enough to offset the declines in mortgages; household home mortgage debt stood just under 55% of GDP, the smallest since 2002. Credit growth has been slower than overall growth in the economy. The same cannot be said for wealth. The net worth of Americans hit a record high in the second quarter; up 1.7 percent to $81.5 trillion, of course that does not mean the wealth was spread around evenly. So today’s climbing net worth is different from the housing bubble in one key way: from 2003 to 2007, the run-up in net worth was fueled by a binge of household borrowing. Today’s climbing net worth has happened alongside a falling debt burden. Put another way: assets are climbing even though debts are falling.

Wall Street is all a twitter about the next big IPO, Alibaba, which has priced its initial public offering at $68 a share, the top end of the expected range. At that price, the IPO, one of the largest-ever, would give Alibaba a market valuation of $167.6 billion.

The New York Stock Exchange will hold an industry conference call tomorrow morning before the open to provide operational updates on the public offering. The idea is to avoid a Facebook or Twitter type of flop, if possible.

The Justice Department is trying to get banks to rat out their employees. According to Marshall Miller, the number 2 official with the Justice Department’s criminal division, if the banks cooperate with the DOJ, they might avoid prosecution by exposing nefarious individuals. The law enforcement types want the banks to stop stonewalling investigations. For example the recent criminal case against BNP Paribas, the French bank guilty of doing business with blacklisted countries such as Iran and Cuba; BNP stalled the investigation to the point that prosecutors missed the deadline to charge individuals. In turn, rather than receive a so-called deferred-prosecution agreement, BNP was forced to plead guilty in a rare criminal action against a giant global bank. This might give us some insight into the Justice Department’s plans for prosecuting the currency-rigging investigation, an inquiry that has swept up several of the world’s biggest banks, including Barclays and JPMorgan Chase.

But there are risks to the corporate executives for ratting out the rank and file. And the problem is that the rank and file would have very little reason not to turn on their masters before their masters turn on them. For the first time, it almost looks like the DOJ almost wants to put some bankers behind bars.

The polls in Scotland have closed. We may know later tonight or maybe tomorrow whether the Scots voted for independence from the UK. The ballot asks a simple question: “Should Scotland be an independent country?”

I’ve been reading about Scottish independence, and it seems the view from London that is that independence would doom the Scots to a horrible economic collapse. Steve Forbes writes: “Both Scotland and the remnants of the UK will be poorer. Capital will flee Scotland. London will get hit as well,” and “The break-up of Great Britain would encourage all the forces of chaos, terrorism and aggression and set a terrible precedent.” So, apparently, if Scotland forms its own country through the democratic process, the terrorists win. I don’t know, but we’ll find out soon.

Yesterday the US House of Representatives voted to authorize the arming of moderate, non-jihadist Syrian rebels. The vote was tacked onto a spending bill to fund the federal government and it passed 273 to 156. As you know, this was legislation of the utmost importance because we have heard repeatedly that if the US doesn’t stop ISIS, they will come over here and chop our heads off and kill us all. The Senate will likely take it up in December, maybe.

Why the delay? Well, after spending pretty much all of August and the beginning of September on vacation, the House of Representatives is taking a Congressional recess, adjourning until after the midterm election. That means the House won’t return to session until November 12, the week after Election Day, or almost two months from now. And now they’re leaving DC after just 8 days since their last vacation, so they can campaign to keep their jobs, which apparently consists of campaigning to keep their jobs.

Maybe all these threats of terrorism are a bit overblown, after all it would be pretty tough to defeat the US, and the reason is because we are now armed to the teeth. The Associated Press reports that school police departments across the US have taken advantage of free military surplus gear, stocking up on mine-resistant armored vehicles, grenade launchers and scores of M16 rifles. The surplus program has come under scrutiny following the police response to protesters in Ferguson Missouri. It has become common practice to hand out surplus weapons to law enforcement agencies; kind of a menacing peace dividend.

And now we learn that at least 26 school districts are loading up on weaponry. Federal records show schools in Florida, Georgia, Kansas, Michigan, Nevada, Texas and Utah obtained surplus military gear. At least six California districts have received equipment. But now, cooler heads prevail, and the Los Angeles unified school district has been thinking about the appropriateness of the weaponry, and so they have decided to return to the Pentagon three grenade launchers. They’ll keep the mine resistant armored vehicles and the M-16s.

No word yet on what they plan to do with the tactical nukes.

Thursday, August 21, 2014 - Rarefied Air

Financial Review with Sinclair Noe

DOW + 60 = 17,039
SPX + 5 = 1992
NAS + 5 = 4532
10 YR YLD - .02 = 2.40%
OIL + .45 = 93.90
GOLD – 15.10 = 1277.30
SILV - .04 = 19.52
 

The S&P 500 broke two records during today's session, climbing past its previous intraday all-time high of 1,991.39 and ending above its previous record close of 1,987.98. Both had been set on July 24.

Family Dollar has rejected a $9 billion dollar buyout offer from Dollar General, opting instead for a smaller $8.5 billion dollar offer from Dollar Tree. The thinking is that a combination of the largest dollar store – Dollar General with the #2 Family Dollar, would be unlikely to win antitrust approval.

Once upon a time, Sears was the largest retailer in the nation. Today, Sears Holdings announce it lost $975 million in the first half of the year; $573 million in the second quarter. This was the 9^th consecutive quarter of losses, and the past quarter also marked the heaviest losses. Quarterly revenue dropped about 10%. The plan now is to close underperforming stores, or, in a classic example of corporate-speak “rationalizing our physical footprint.” The company successfully spun off Lands End earlier this year, to the benefit of shareholders. But its Sears Canada and Sears Automotive stores have been on the block for some time, indicating either a lack of interest on the part of buyers or an unwillingness by Sears to bend on its asking price.

Gap shares moved higher in after-hours trade after earnings topped expectations. With a few exceptions, retail earnings this quarter have been disappointing. Last week, Walmart cut its full-year earnings guidance, and a few days later, Target reported a disappointing quarter. It’s hard to get consumers to loosen their grip on the purse strings.

The National Association of Realtors said sales of existing homes rose 2.4% in July to a seasonally adjusted annual rate of 5.15 million, the fourth consecutive month of gains and the fastest rate of gain in 10 months. More people are buying homes compared to earlier in the year, but the sales pace is still down 4.3% from one year ago. The median existing-home price for all housing types in July was $222,900, which is 4.9% above July 2013. This marks the 29th consecutive month of year-over-year price gains.

In a separate report, the Labor Department said initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 298,000 for the week ended Aug. 16.

The Conference Board’s Leading Economic Index increased 0.9% last month after an upwardly revised 0.6% rise in June.

The Bureau of Economic Analysis, the BEA, has released its state by state analysis of quarterly gross domestic product. California has the biggest economy among the states, with about $2.1 trillion in GDP, followed by Texas at $1.4 trillion, and New York at $1.2 trillion. Vermont has state GDP of about $28 billion. Arizona comes in at almost $265 billion.

The latest numbers from the Census Bureau show the gap between Americans at the top of the economic ladder and those at the bottom is as wide as ever. Between 2000 and 2011, the gap expanded considerably. The net worth of the poorest 20% of US households fell by $5,124. At the same time, the wealthiest 20% posted a $61,379 increase in net worth. Looked at another way, the net worth of the richest 20% of families totaled $630,754 in 2011. The poorest had a negative net worth of $6,029. Altogether, the top 40% of households increased their net worth from 2000 to 2011. The bottom 60% lost ground.

Sentier Research has analyzed Census data on incomes. In June 2014, the median household income was $53,891, down from $55,589 in inflation-adjusted dollars when the economic expansion began in June 2009; that is a 3.1% drop in median income. Now, let’s clarify this report because you may have seen that the average inflation adjusted per-person disposable personal income is up 4.2% over the past 5 years. There is a difference between median and average; Bill Gates walks into a room with 80 other people and the average net worth of everyone in the room is about one billion dollars; while the median net worth is barely changed. The averages can be distorted by the strong income gains among the wealthiest; the median income numbers give a better sense of the majority of Americans.

And it’s not just the past 5 years; median income remains lower than back in January 2000; the middle income family is worse off than they were 14 years ago. The good news is that there has been some improvement in the past 3 years; since 2011, inflation adjusted household incomes are up 3.8%. We are starting to dig out of a hole, but we’re still digging.

The point is that the economic recovery has been pretty miserable for most Americans. Meanwhile, the Federal Reserve is holding its annual confab for the world’s most powerful financial players at Jackson Hole, Wyoming. The invitation only soiree includes central bankers, investment bankers, economists, and a various assortment of other bigwigs. Tomorrow morning, Fed Chair Janet Yellen will deliver the customary opening speech. ECB President Mario Draghi will speak at lunch. This year’s theme is “Re-Evaluating Labor Market Dynamics”.

In the mountains of Wyoming, the air is thin, and around Jackson Hole, it is rarefied: One banker was quoted as saying: "It seems that conditions reflect the best of all worlds - US economic growth that is neither too slow, which would put pressure on earnings - nor too fast, implying inflationary pressures which could lead to (price-to-earnings ratio) contraction and possibly accelerate the Fed's move towards higher interest rates."

Kansas City Federal Reserve Bank President Esther George says the time has come for the Fed to raise rates, citing improvement in the labor markets. George said: "I don't want us to be behind the curve in beginning to normalize interest rates… When you see the economy getting as close as we are to full employment, to stable inflation, it would suggest to me that the time has come to do that… I think a very natural response when you get to this point is worrying that you might derail the recovery, but then again we've seen data come in stronger than we expected."

Fed officials are convinced that the economy is gaining strength after the years of false starts, but a majority of policy makers, led by Janet Yellen, favors a slow retreat from the Fed’s efforts to encourage job creation. They note that millions of people still cannot find jobs, while inflation remains relatively weak.

The theme is the labor market, and the Fed tracks wage trends closely because they're an important inflation indicator, and they're also a reflection of how close the economy is to full capacity. Also, in a well-functioning economy, wages should be rising particularly when productivity is going up. The Fed can't really do anything to get wages up; what it can do is wait to raise interest rates until the job market is healthier and that's what they're debating now - should they wait a while longer?

The latest government data show average hourly earnings adjusted for inflation have not increased at all in the last year, even though we're told the economy is getting better and other wage measures show similar trends. The problem with Jackson Hole is somebody like Bill Gates walks into a restaurant, and all the economist believe they are billionaires.

It is shaping up to be another good year in the equity markets, not as good as last year, but not a letdown; investors have ignored the calls for a correction, and this is still a risk-on market. Typically, when risk is not given much weight, this would be a good time to hedge one’s portfolio. And the reason for “risk-on” is a Federal Reserve that keeps interest rates at historic low levels; add in the demographics of most investors who have no choice but to stick what they have into higher risk assets such as stocks; plus the corporate world that is sitting on cash and the closest idea to innovation is to buy back their own stock, thus pushing prices even higher.

In this environment, weakness in the economy and even geopolitical events are being disregarded, with both being seen as buying opportunities. Investors might not have much choice but to hang onto the bandwagon, but you also should be keenly aware of when you need to get off because the markets could switch to risk-off in the blink of an eye.

The Bank of America settlement deal was announced today. BofA agreed to pay $16.65 billion to end federal and state investigations into the sale of toxic mortgage securities during the subprime housing boom; actually, it works out to $9.65 billion that will actually be paid, plus $7 billion in soft-consumer relief; minus about $600 million in tax deductions. About $5 billion of the cash portion of the settlement is paid as a penalty to the US Treasury. Other portions will go toward compensating investors, including state pension funds. Just under $1 billion will be split among six states.

Under the out-of-court settlement, Bank of America acknowledged that Merrill Lynch told investors in subprime mortgage bonds in 2006 and 2007 that the loans generally complied with underwriting guidelines, though reviews suggested as many as 50% did not. Bank of America also acknowledged that Countrywide did not generally tell investors the extent to which it made exceptions to its own internal guidelines. The settlement also covered some post-crisis conduct, including Bank of America's admission that from 2009 to 2012 it submitted loans for government insurance under the Federal Housing Administration that did not qualify.

The statement of facts failed to identify the amount of profit the bank gained, or show how the penalty will restore losses to investor victims. No individuals were charged. Maybe we can blame robots.

Bank of America shares jumped 4.1% to $16.16; the thinking is that the worst is behind them. The bank had already set aside reserves to handle the legal problems and the thinking is that this settlement is the settlement to end all settlements. Ultimately it works out to about a half year’s profit, give or take; you know, the cost of doing business.