…..Dow and S&P 500 hit records again. Waiting on the Fed to reverse QE. Northrop Grumman buys Orbital. Hurricane Maria eyes Puerta Rico. Obamacare repeal zombies. Justice Dept. investigates insider trading at Equifax. Bad student loans. Toys R Us R BK. Dimon’s bitcoin con.
Financial Review by Sinclair Noe for 09-18-2017
DOW + 63 = 22,331 (record)
SPX + 3 = 2503 (record)
NAS + 6 = 6454
RUT + 9 = 1441
10 Y + .03 = 2.23%
OIL + .05 = 49.94
GOLD – 12.10 = 1308.10
The Dow and the S&P 500 hit record highs. The Dow has posted gains for 7 consecutive sessions and 5 consecutive record high closes. The was the 40th record high for the Dow this year. The S&P 500 topped 2500 Friday and held that milestone level today. At the start of the year, bullish analysts were anticipating S&P 2500 by the end of the year, so take the next 3 months off, go home and relax.
Assuming nothing explodes, the big economic event this week will be the Fed FOMC meeting. The Fed is expected to begin Quantitative Tightening by beginning to sell off some of its $4.5 trillion dollar in Treasuries and mortgage backed securities. On Wednesday, the Fed will wrap up its 2-day meeting on monetary policy and likely announce that it will start selling in October – just a little bit, at first. You’ll hardly notice – they say – or at least they hope you won’t notice. Fed policymakers hope the sell-off will be like watching paint dry. The central bank is trying to avoid a repeat “taper tantrum,” the swift run up of nearly 1 percentage point on the yield of the 10-year Treasury in 2013 after then-Chairman Ben Bernanke discussed the tapering of bond purchases for the first time. And so, the Yellen-led Fed has been extremely transparent about its plans to start selling some of those bonds. It seems inevitable that such a big seller will push down prices, which would, in turn, push yields higher. And yet, that has not been the bond market response. The Fed announced plans for a sell-off in July, and since then, yields on the 10-year Treasury note have sunk from 2.28% to a low of 2.04% before bouncing back up to 2.23% today.. The 2-year note remained flat during that same time.
The plan that has been laid out calls for the balance sheet to initially shrink by only $10 billion per month. The pace of the run-down would then increase by $10 billion every quarter, up to a maximum of $50 billion per month. And the Fed is expected to keep a very sizeable balance sheet. And other central banks around the world are still buying, so there are plenty of buyers to soak up the excess. There’s momentum in the market. There’s lots of cash. Even though the Fed’s about to reduce their balance sheet, you continue to have aggressive global monetary policy.
Defense contractor Northrop Grumman said it would buy the missile and rocket maker Orbital for about $7.8 billion in cash, with plans to establish a new, fourth business sector. Orbital has billion-dollar contracts with NASA as well as the US Army. The deal, expected to close in the first half of 2018, comes as the firing of missiles by North Korea in recent months has focused attention on missile-defense systems. Northrop’s offer price of $134.50 an Orbital share represents a premium of 22% over the stock’s Friday close.
Hurricane Maria is rapidly intensifying in the Caribbean and is likely to hit some of the same areas recently devastated by Hurricane Irma. Puerto Rico appears to be directly in Maria’s path, with the Virgin Islands also projected to be near the storm’s eye. Maria is now a Category 4 as it moves closer to the islands over the next 48 hours. It is still too early to predict if Maria will hit the US mainland. Meanwhile, Hurricane Jose is traveling up the East Coast of the US and could affect an area from North Carolina to New England. The National Hurricane Center has issued a tropical storm warning for parts of New England.
The National Association of Home Builders’ index for September showed that builder confidence in the market for newly built single-family homes dropped during the month on worries that the recent hurricanes will make it difficult to find workers and materials. The NAHB/Wells Fargo housing-market index fell 3 points to 64, and August’s reading was cut by a point to 67.
Obamacare repeal is on the brink of coming back from the dead. Senate Majority Leader Mitch McConnell and his leadership team are considering voting on a bill that gets rid of the individual and employer mandates and the 2.3% tax on medical devices, and block-grants money to states, leaving reform up to governors. It would be a last-ditch attempt to repeal Obamacare before the GOP’s power to pass health care legislation through a party-line vote in the Senate expires on Sept. 30. No final decision has been made, but the GOP leader has told his caucus that if the bill written by Sens. Lindsey Graham and Bill Cassidy has the support of at least 50 of the 52 GOP senators, he will bring it to the floor – and once again the fate of repeal may rest with Arizona Senator John McCain. Democrats are demanding a Congressional Budget Office score on the latest Obamacare repeal plan. The CBO, a non-partisan fiscal analysis unit of Congress, said it will make a preliminary assessment of the bill’s impact next week. But it said it won’t be able to estimate the impact on the deficit or changes in insurance coverage or premiums for several weeks.
The Justice Department is investigating whether Equifax executives violated insider-trading laws when they sold Equifax shares before the company disclosed the hack. The three senior executives dumped almost $2 million worth of stock days after the company learned of the breach. The company’s first order of business ought to have been to create a simple way for people to figure out if their data was potentially compromised. On this count, Equifax failed and continues to fail. If you have tried to go on the Equifax site to see if your data has been compromised, you have probably been bounced from here to kingdom come and arrived at the idea that Equifax has no idea who or what has been compromised. By the way, the FTC has issued a scam alert – if someone calls you on the phone and says they are from Equifax, they are not, it is a scam, hang up.
The Consumer Financial Protection Bureau has ordered National Collegiate Student Loan Trusts and their debt collector, Transworld Systems to pay at least $21.6 million in penalties and restitution for illegally filing debt collection lawsuits. According to the agency, the companies allegedly sued borrowers without being able to prove the debt was owed or pursued collection on loans that were too old to sue over, and relied on false and misleading legal documents. A federal judge must still sign off on the judgments against the National Collegiate Student Loan Trusts, a collection of 15 trusts that own more than 800,000 private student loans.
Toys R Us, the largest toy retailer in the country is expected to file for Chapter 11 bankruptcy protection today. The timing is unusual, just before the start of the holiday shopping season. Toys R Us vendors fell on the news: Mattel dropped 6.2%, Hasbro down 1.7%. While this bankruptcy might be considered just another brick and mortar firm falling to online sales, the reality has more to do with private equity firms, KKR and Bain, loading up a successful firm with debt.
Last week, Chase Bank CEO Jamie Dimon recently rejected Bitcoin as a ‘fraud,” likely causing additional sell offs after the news of the Chinese exchange ban was released. Dimon commented that Bitcoin was in a bubble not unlike the famous Tulip bubble during the 17th century. However, in a somewhat surprising move, JP Morgan purchased a large block of Bitcoins just after the CEO’s harsh criticisms.