Financial Review

Stormy Weather

…..Waiting on the Fed. CBO has numbers on the new American Health Care Act – and they are terrible. Intel buying Mobileye to drive into the future. Lloyds outsourcing jobs to IBM. South Korea’s Park out. No Bitcoin fund. Escondida strike. Icahn loads up on Herbalife. Changes in credit scores. Nor’easter on the way.

Financial Review by Sinclair Noe for 03-13-2017

DOW – 21 = 20,881
SPX + 0.87 = 2372
NAS + 14 = 5875
RUT + 5 = 1370
10 Y + .03 = 2.61%
OIL – .07 = 48.42
GOLD – .80 = 12-04.70

 

The Dow Jones industrial average, S&P 500 and Nasdaq all turned in lackluster performance last week, with each posting declines of 0.2% to 0.5%. However, they’re still not far from all-time highs set in early March; the S&P is down about 1% from its record high. According to Ritholtz Wealth Management, the average stock in the S&P was down just 10% from its 52-week high, and the median stock was off 6% from this high. If it sounds like the math doesn’t add up, consider that the S&P is a market-capitalization weighted index; meaning the biggest stocks count for more than the smaller stocks.

 

The Federal Reserve is expected to hike interest rates when they wrap up their policy meeting on Wednesday; there are also monetary decisions due from the Bank of Japan and the Bank of England on Thursday; German Chancellor Angela Merkel will meet President Trump; and The Netherlands is holding a closely-watched election. Plus, the U.K. could formally trigger Brexit negotiations. Scotland’s First Minister Nicola Sturgeon on Monday confirmed plans for a second Scottish independence referendum.

Wednesday is decision day for the rate-setting Federal Open Market Committee (FOMC), and traders give it a 100% chance of raising the federal funds rate by a quarter point, to 0.75% to 1%. Friday’s jobs report gives policy makers a green light to hike. An additional 235,000 jobs in February, a 4.7% unemployment rate, and wage growth of 2.8% over the past 12 months tick off one box for the Fed’s mandate; and the Fed is leery of wage-push inflation. Of course, the flip side of the argument is that there is still plenty of slack in the labor market, we are nowhere near full employment, and the Fed is overly sensitive to inflation. The open question is whether the Fed will indicate they will continue with a couple more rate hikes this year, or maybe up guidance to 3 more hikes. It is a delicate balancing act for the Fed: raise rates too slowly and the inflation hawks will claim the Fed is falling behind the curve; raise rates too fast or too far and the Fed risks a shock to financial markets, a halt to hiring, and a possible recession. It looks like the Fed’s era of easy money is coming to an end – they appear set to raise rates, above historic lows, back to more normal levels; probably in a very gradual, well-communicated manner. And the Fed has been very outspoken that they will raise rates; and the markets believe them. The difference this time is that there appears to be fiscal policy that can carry the economic torch. Time will tell if there is a smooth hand-off.

 

The Fed’s action will affect almost everyone, even if you don’t invest on Wall Street. Look for higher interest rates on credit cards, car loans, and mortgages – all of which could slow down consumers. For savers, don’t expect a quick uptick in returns on CD’s and bonds – while rates are going higher, there is usually a lag time; still we have seen the rate on the 10 year Treasury note hit 2.6%, breaking out of a very long-term bond bull trendline.

 

The Congressional Budget Office projects that 14 million people will lose coverage by 2018 under the Republican ObamaCare replacement bill. 24 million would lose coverage by 2026. The CBO score is way worse than most analysts had expected. Most thought 10-15 million could lose coverage, not 24 million. The CBO estimates a disproportionate increase in people losing insurance coverage in the 50 to 64 age group with low to medium incomes. The CBO, along with the Joint Committee on Taxation, estimated that the bill would decrease the federal deficit by $337 billion over the next 10 years. The report also estimated the impact on premiums in the individual market, saying that costs would increase in 2018 and 2019 before declining thereafter. The CBO and JCT did say that provisions of the AHCA would raise premiums for older Americans “substantially” while shrinking them for younger Americans.

 

The long-awaited analysis from the nonpartisan congressional scorekeeper is sure to shake up the debate over the measure, which is already facing sharp criticism from conservatives and many centrist Republicans. The GOP bill repeals ObamaCare’s subsidies to buy coverage, replacing them with smaller tax credits. The law would also cut Medicaid. Both moves were expected to lead to coverage losses. The White House has already started complaining that the CBO analysis is flawed but remember last Friday’s jobs report; for years, Trump had complained the jobs numbers were phony, until last month came in good and then he admitted the numbers were real. And while the nonpartisan Congressional Budget Office economic estimates are not perfect, they are immensely better than any economic estimates from the White House.

 

Intel will purchase driverless technology firm Mobileye for more than $15 billion in cash. The deal values Mobileye at $63.54 a share, a 34% premium to its closing price Friday. Mobileye makes chip-based camera systems that power semi-automated driving features that are already being used in cars today and is working to put that technology in the center of self-driving cars of the future. Mobileye has supply and tech-sharing agreements with several auto makers and other auto suppliers. Intel CEO Brian Krzanich said the deal “merges the intelligent eyes of the autonomous car with the intelligent brain that actually drives the car.” Self-driving vehicles are likely to be one of the most ubiquitous technologies over the next few years, with many manufacturers committing to launching autonomous ride-hailing services, and even consumer cars, by the end of the decade. And Intel wants to be at the heart of these machines, whether with the vision systems used to see the road, or with the processors making sense of all the information cars will be receiving. When you consider that Intel missed the boat on smartphones, it seems to make sense that they would try to get an inside track on the next big thing in tech.

 

Lloyds is set to agree a £1.3-billion-pound contract with IBM to outsource many of its computer systems and shift more than 1,900 jobs to the IT services provider. The deal will see most of the transferred employees lose their jobs after four years. Lloyds hopes to cut almost £760-million-pounds of costs.

 

The federal board overseeing Puerto Rico’s finances is meeting today in New York, where it must decide on a plan for ending its chronic deficits. The island hopes to restructure more than $110 billion of debt and pension obligations, but it must first produce a credible fiscal plan. Last week, the board told Gov. Ricardo Rossello his proposal was unrealistic and asked him to make revisions.

 

South Korea’s impeached president finally left office. Park Geun-hye departed the Blue House on Sunday, her motorcade flanked by supporters as she headed to her home in the posh Gangnam district of Seoul. She could face prosecution and jail time for the corruption scandal that led to her ouster.

 

The striking union at BHP Billiton’s Escondida copper mine in Chile, the world’s largest, said it will not accept the company’s offer to return to the negotiating table, and called on BHP to clarify its negotiating positions. During the strike, which started on Feb. 9, Escondida’s 2,500-member Union has repeatedly said it has three non-negotiable demands the company must commit to before starting discussions.

 

Cameron and Tyler Winklevoss, the twins famous for butting heads with Mark Zuckerberg over Facebook, were denied permission Friday by the Securities and Exchange Commission to launch a bitcoin exchange-traded product (also known as an ETP). The SEC said it rejected the proposal because it was inconsistent with the agency’s Exchange Act rules, and the markets for bitcoin are unregulated.

 

Many tax liens and civil judgments soon will be removed from people’s credit reports, the latest in a series of moves to omit negative information from these financial scorecards. The development could help boost credit scores for millions of consumers. The three major credit-reporting firms — Equifax, Experian and TransUnion — decided to remove tax-lien and civil-judgment data starting around July 1, if that data don’t include a complete list of a person’s name, address, as well as a social security number or date of birth. Many liens and most judgments don’t include all three or four.

 

New York City is preparing for what could be the season’s worst snowstorm. The National Weather Service issued a blizzard warning for New York City, forecasting 12 to 20 inches of snow and winds between 25 and 35 mph on Tuesday. The nor’easter is expected to cripple much of the Northeast. Public schools in Philadelphia, Boston and New York City have already canceled classes for Tuesday. Flights within, into or out of the United States on Monday saw 2,613 delays and another 1,524 cancellations as of 5 p.m., ET. Another 4,779 flights originally scheduled for Tuesday were canceled. American Airlines, United Airlines and Delta Air Lines issued travel alerts and began waiving re-booking fees for flights within affected regions. Amtrak said it would operate on a modified schedule in the Northeast on Tuesday. A flood watch is expected to go into effect Tuesday for coastal regions in New York.

 

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