Waiting on the Fed and the BOJ. 3Q slows. Housing starts down. Mr. Stumpf goes to Washington. PM May goes to Wall Street. Bitcoin is money – who knew? Bayer tries to hide Monsanto name. Did I forget to tell you to buy Tobira yesterday? Mylan’s EpiPen move faces Medicare fraud investigation. Rules for Robo-cars. Bundling for mobile phone payments.
Financial Review by Sinclair Noe for 09-20-2016
DOW + 9 = 18,129
SPX + 0.64 = 2139
NAS + 6 = 5241
10 Y – .01 = 1.69%
OIL + .57 = 44.43
GOLD + 1.80 = 1315.60
The Federal Reserve FOMC has started a 2-day meeting. The Fed is likely to hold interest rates steady this week…, however, it might be a closer call than the markets expect. In the past week, the Fed has increased its portfolio. A build up in reserves supports markets. That may give added cushion to markets heading into their FOMC decision tomorrow. Before we find out what the Fed will do, we will get a statement from the Bank of Japan, which is still pushing on a string, still trying to underpin stocks and real estate, still trying to turn deflationary realities into some kind of magical 2% inflationary panacea. The BOJ will probably push interest rates even deeper into negative territory. They’ll probably buy more government bonds, more corporate bonds, and more equities if they have to. They’ll buy foreign government bonds to lower those rates to manipulate the yen down to spur export growth if they have to. At least that’s the best estimate. We have to wait for the announcement. And the Fed will probably stand pat, but they could shake things up with hawkish comments. Whatever happens, tomorrow is a big day.
The U.S. economy is on track to grow at a 2.9 percent annualized rate in the third quarter, that according to the latest update of the Atlanta Federal Reserve’s GDP Now forecast model. The latest third-quarter GDP estimate was lower than the 3.0 percent figure calculated on Sept. 15
Housing starts fell more than expected in August as building activity declined broadly after two straight months of solid increases, but a rebound in permits for single-family dwellings suggested demand for housing remained intact. Groundbreaking decreased 5.8 percent. Permits for single-family homes, the largest segment of the market, increased 3.7 percent.
Gasoline prices in the southeastern United States have seen significant increases following the shutdown of a major fuel pipeline in the region that’s heading into a second week, and prices are expected to spike even higher. Some retailers have run out of gas. According to AAA, the national average for regular gasoline is $2.20 a gallon Monday, up from $2.18 a week ago.
Wells Fargo CEO John Stumpf faced questions today from the Senate Banking Committee over the widespread creation of sham bank accounts and credit cards by Wells Fargo employees trying to meet strict sales goals. Stumpf said he, “accept[s] full responsibility for all unethical sales practices in our retail banking business and I am fully committed to fix this issue.” Last week Stumpf and other senior executives first placed the blame on certain Wells Fargo employees and denied any problem with the bank’s culture. “Underperformers” was the term they used to define the culprits. Wells Fargo has already fired 5,300 lower level employees, who, we are to believe, orchestrated a mass fraud on banking consumers. The person who was in charge of the entire consumer banking division was allowed to retire. Praised as the model of what a banker should be, by the CEO and given millions of dollars with absolutely no claw-back for the abuses. Stumpf claimed he didn’t know about the abuses until recently, even though Wells Fargo was the only major bank in the US, that broke out in its 10-Q and 10-K financial statements, filed with the SEC, how much money they were getting from these cross-selling operations. Stumpf admitted the bank will go back, and investigate banking practices from 2009 through 2011 to see if there were even more violations; which is probably something he should have done before negotiating a $185 million settlement with the CFPB. Meanwhile Stumpf is still employed.
Downing Street met Wall Street late Monday as Theresa May landed in New York to consult with some of America’s largest firms over how her country should proceed with Brexit. The prime minister held two gatherings: a roundtable discussion with big investors in the UK including Goldman Sachs, Morgan Stanley, BlackRock, IBM, and Amazon. She then hosted a reception for about 60 American executives, as well as British businesses that invest in the US. The big issue is whether UK and US banks will keep passporting rights for banking. If not, those banks will need to obtain Euro Union licenses to do business, and they will have to put personnel in the Eurozone, not the UK. Core services such as cross border lending and accepting deposits could be affected by Brexit, as well as law firms and accounting firms that support those core services. The Euro Union says it won’t cut sweetheart deals; the Brits can’t have passporting rights unless they accept the free movement of labor. The Germans have already said no to any special deals; in fact they said, “Hell no!” So Prime Minister May is talking to US banks to determine important strategic direction. Good luck with that. Three months after the Brexit vote and it doesn’t look like much progress has been made.
A federal judge in New York has ruled that bitcoin constitutes a form of money. The ruling comes from the ongoing case involving the now-defunct bitcoin exchange Coin.mx and one of its former operators. Anthony Murgio, who was indicted for money laundering, sought to dismiss the charges against him in part by arguing that bitcoins don’t count as “funds” in the context of U.S. law.
The world’s biggest IPO this year is getting off to a lukewarm start. Postal Savings Bank of China is planning to price its Hong Kong listing at the lower end of its marketed range, raising $7 to $8 billion, with around three quarters of shares going to just six anchor investors. The bank has 40,000 branches throughout China, 505 million retail customers and is the nation’s fifth largest lender by assets.
Allergan has agreed to acquire Tobira Therapeutics in a deal valued at up to $1.7 billion. Allergan will pay $28.35 per Tobira share. Tobira closed trading on Monday at $4.74 a share, with a market cap of just $89 million. But wait, there’s more. The purchase price could climb to $49.84 per share in contingent value rights, that are payable on the meeting of certain milestones. Tobira makes 2 drugs to treat liver disease. The milestone is that the drugs actually have to be approved, and if that happens, the acquisition price jumps 1,800% compared to yesterday’s close.
Speaking of high prices for drugs, you might remember Mylan, the company behind the much vilified price-hike of EpiPens, the autoinjector used to treat severe allergic reactions. West Virginia is investigating Mylan for Medicaid fraud for inflating the price of the EpiPen by 500%.The inquiry seeks to force Mylan to turn over company documents related to EpiPen. Similar requests have been made in the last month by lawmakers in Washington, and on Wednesday Mylan Chief Executive Officer Heather Bresch is to testify at a congressional hearing about the product’s price.
Bayer might drop the Monsanto name. The German drug and chemical maker is considering moving Monsanto products under the Bayer CropScience label to remove the stigma of the Monsanto name.
FedEx will raise shipping rates starting next year, including an average increase of 3.9% at its air-shipping Express division and 4.9% for its ground and home-delivery services. The hike comes after UPS unveiled an average rate increase of 4.9% to help pay for system upgrades and expansion. Starting in February, FedEx also will adjust its fuel surcharges weekly instead of monthly. Meanwhile, FedEx boosted its outlook for full-year profit after topping analysts’ estimates for first-quarter earnings on continuing growth in e-commerce.
Self-driving cars are quickly moving from science fiction to reality, and the US government is trying not to pump the brakes. In its most comprehensive statement yet on autonomous vehicles, the U.S. Transportation Department said it would consider seeking the power to approve technology for self-driving cars and said U.S. states should not issue separate rules. Regulation around self-driving cars has been patchwork at best, with some states passing laws allowing for self-driving cars to be tested on their roads, and others refusing to do so. Right now, only Florida allows autonomous vehicles to drive on its roads without a person behind the wheel, and eight other states allow autonomous vehicles to be tested in some capacity, as long as there is a human driver that can take over as needed. The DOT’s rules will aim to set a national framework through which these vehicles can be tested and deployed, while also ensuring that road rules traditionally set by states—such as speed limits—remain intact. The Transportation Department also included a 15-point set of “safety assessment” guidelines, covering issues like cybersecurity, black box recordings and how a vehicle would deal with potential ethical conundrums.
Mortgages, car loans, credit card debt – it all gets “securitized”, or package together and sold to investors. Now add to that list mobile-phone payments. Verizon has become the first company to sell a bond deal backed by monthly mobile phone payments. Verizon’s $1.2 billion sale into a broader marketplace was the first step into what many analysts believe could explode into a multi-billion dollar market within the next year.