Financial Review

Ides of March

…Mueller subpoenas Trump Organization. Treasury sanctions Russian trolls. iHeart BK. Winn-Dixie BK. Congress wants to make life easier for bankers. Wells Fargo, again…

Financial Review by Sinclair Noe for 03-15-2018

 

DOW + 115 = 24,873
SPX – 2 = 2747
NAS – 15 = 7481
RUT – 7 = 1576
10 Y + .01 = 2.83%
OIL – .02 = 61.17
GOLD – 8.50 = 1316.70
It was just a strange day on Wall Street. The Dow Industrial Average snapped a 3-day losing streak but closing well off the session highs – the Dow had been up almost 300 points. McDonald’s gained 2.1% to lead the Dow stocks. Meanwhile, the S&P 500 and the Nasdaq dropped. The S&P 500 Index notched its longest losing streak of 2018 — four days. Two of four FANG stocks lost ground. Chip stocks moved lower. Pipeline stocks plunged after the Federal Energy Regulatory Commission ruled that master-limited partnerships can no longer recover a key income-tax allowance. New White House Economic Advisor-appointee Larry Kudlow signaled support for a strong dollar and took a tough line on China. Gold declined after Kudlow said he’d sell the metal and buy the greenback, which gained.

 

Special counsel Robert Mueller is demanding documents from the Trump Organization, the first known time he has subpoenaed documents directly related to any of Trump’s businesses.  The breadth of the subpoena was not clear, nor was it clear why Mueller issued it instead of simply asking for the documents from the company, an umbrella organization that oversees Trump’s business ventures. Word of the subpoena comes as Mueller appears to be broadening his investigation to examine the role foreign money may have played in funding Trump’s political activities. In recent weeks, investigators have questioned witnesses, including an adviser to the United Arab Emirates, about the flow of Emirati money into the United States.

 

The Treasury Department unveiled new sanctions against five entities and 19 individuals. Most of the people have ties to the Internet Research Agency, the “troll farm” that was indicted last month by Special Counsel Robert Mueller as part of his investigation into Russian interference in the 2016 elections. Thirteen of the IRA-linked individuals on Treasury’s list were indicted by Mueller, whose indictment described the IRA as the nexus of a large-scale Russian effort to influence the election via social media. The IRA itself is also on the sanctions list, as is Russia’s main intelligence agency and several individuals who work there. The sanctions will prevent the named entities from entering the US, and will freeze any assets they have on American soil. The steps announced by the Treasury Department represented the most significant taken against Moscow since Trump assumed office. The United States also joined Britain, Germany and France in demanding that Russia explain a military-grade nerve toxin attack in England on a former Russian double agent, and Trump said “it certainly looks like the Russians were behind” the incident.

 

Initial U.S. jobless claims declined by 4,000 to 226,000 in the seven days ended March 10, clinging to a 50-year low.

 

Both the Philly Fed and Empire State manufacturing indexes were well above zero indicating improving conditions. Both district reported continued high input prices.

 

Meanwhile, the import price index rose 0.4% in February following an even sharper increase in January, reflecting the higher costs Americans are paying for foreign goods and services. Import prices, inflated by the yearlong decline in the dollar, continue to offer what may prove to be an early indication of price pressures. Excluding petroleum, import prices rose 0.5 percent for a second straight month which is very hot.

 

The National Association of Home Builders’ monthly confidence gauge ticked down one point to a reading of 70 in March. The sub-gauge that measures views on current sales conditions was unchanged at 77, but the measure of sales over the next six months dipped two points to 78. The index of buyer traffic fell three points to 51. Any reading over 50 signals improving conditions.

 

Chipmaker Broadcom reported better-than-expected quarterly profit and revenue on strong demand for its chips from smartphone makers. Broadcom, whose WiFi chips are found in Apple’s iPhone and most Android phones, scrapped its hostile bid for rival Qualcomm on Wednesday after Trump blocked the attempt citing national security concerns. However, the company said it will continue with its plans to redomicile to the United States.

 

Alibaba moved higher on reports it’s considering a stock listing in China; Williams-Sonoma gained as the kitchen and housewares company beat on earnings and revenue and issued upbeat forward guidance; and Barnes & Noble shares climbed higher as the bookseller declared a quarterly dividend of 15 cents per share and said it expects growth in the coming fiscal year.

 

Dollar General scored the top advance among S&P 500 stocks, rising nearly 5% after reporting in-line earnings and weaker-than-expected revenue for Q4, but offering strong guidance, raising its dividend and launching a $1 billion stock buyback.

 

Sears Holdings jumped 17 percent in late trading after posting a rare quarterly profit. Net income amounted to $182 million in the fourth quarter, compared with a $607 million loss a year earlier, Sears got a roughly $470 million boost from the federal tax changes, which slashed corporate rates.

 

The operator of the biggest U.S. radio broadcaster, iHeart Media filed for bankruptcy protection after months of negotiations with creditors on restructuring a balance sheet weighed down by $20 billion of debt taken on when the company was taken private in a 2008 leveraged buyout by Bain Capital.

 

Southeastern Grocers, the company that owns Winn-Dixie, plans to file for bankruptcy and close 94 stores. The Florida-based company said it’s implementing “a court-supervised, prepackaged” debt restructuring agreement. It said it intends to file with the bankruptcy court by the end of March. The company, which also owns Bi-Lo, Fresco y Más and Harveys Supermarket, will continue to operate 582 stores.

 

The Senate passed bipartisan legislation Wednesday night easing bank rules that were enacted after the financial crisis to prevent a relapse. The Senate voted 67-31 for a bill that would scale back provisions of the law known as Dodd-Frank. While it is designed to ease the burden on small community banks, it will also benefit larger regional banks and credit-reporting agencies. The House has already passed more expansive legislation. Now, lawmakers will try to work out a compromise that both chambers can support. The deregulation push illustrates a role reversal for the banking industry. In the aftermath of the 2008 meltdown, they were villainized. Now they’re casting themselves as the victims of government regulation run amok.

 

U.S. regulators are preparing to sanction Wells Fargo for receiving commissions on auto insurance policies it helped force on more than half a million drivers. In July, Wells Fargo blamed a third-party vendor for wrongly layering insurance policies on its auto borrowers. Wells Fargo did not explain that it received payouts when those policies were written. The fact that Wells Fargo stood to profit from the insurance program will form the backbone of fresh sanctions against the bank. Meanwhile, Wells Fargo Chief Executive Tim Sloan took over last year after John Stumpf was fired in October 2016. The Federal Reserve in February imposed a cap on the lender’s balance sheet until it improves governance, and Wells pledged a refresh of its board. Sloan got a 35% raise, a salary bump of about $4.6 million because…

 

An investor sued Credit Suisse, alleging that bank misstatements about a complex product betting on stock market swings led to losses for people who bought in at inflated prices. A popular product offered by the bank and linked to expectations of future price swings, or volatility, in the S&P 500 stock index sank by more than 90 percent over a few hours last month following a stock market selloff. Credit Suisse later took the product, once worth $1.6 billion and known as the VelocityShares Daily Inverse VIX Short-Term Exchange-Traded Note, off the market. The lawsuit alleges Credit Suisse “manipulated” the notes by liquidating its holdings in various financial products to avoid a loss.

 

Prices of major cryptocurrencies saw a sharp downward slide Thursday, amid closer regulatory scrutiny on the space and after Google announced plans to ban advertising related to the sector.

 

Bitcoin, the world’s largest cryptocurrency by market cap, traded as low as $7,676. A number of factors have weighed on the price of cryptocurrencies. The first major one was selling by the trustees of collapsed Japanese cryptocurrency exchange Mt.Gox. It closed in 2014 and filed for bankruptcy after losing around 850,000 bitcoins. A trustee of the now-defunct exchange has been selling large amounts of bitcoin that the exchange still owned in order to pay back creditors. This has been hitting the price of bitcoin. Meanwhile, Google announced it was banning cryptocurrency-related advertising, including initial coin offerings (ICOs), wallets and trading advice.

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