Financial Review

Whistle Past

…Trump confirms hush money payoff. Wall Street looks away. Fed minutes point to September rate hike. More tariffs against China tomorrow. Existing home sales stall. Target earnings on target. Lowes earnings good but not strong. Facebook plays whack-a-mole.

Financial Review by Sinclair Noe for 08-22-2018

DOW – 88 = 25,733
SPX – 1 = 2861
NAS + 29 = 7889
RUT + 4 = 1722
10 Y – .02 = 2.82%
OIL + .21 = 68.07
GOLD – .20 = 1196.30


So yesterday was an eventful news day. Trump suffered one of the worst days of his presidency as Michael Cohen, his former personal attorney, pleaded guilty to a number of charges and said he had acted at Trump’s direction to make hush payments to two women in violation of campaign finance laws. The same day a federal jury convicted former Trump campaign manager Paul Manafort on tax and bank fraud charges. But the legal turmoil caused barely a ripple on Wall Street. Stocks teetered between small gains and losses. Wall Street can’t seem to figure out the severity of the legal problems, and what happens next. Give it some time.


Today, during an interview on Fox News, Trump repeatedly emphasized that the hush money payments at the center of Michael Cohen’s guilty plea were not made with campaign funds. There’s just one problem: That doesn’t exonerate him at all. In context, Trump appeared to be trying to say that this exonerates him, but the opposite is the case — you can’t just evade campaign finance rules by paying for your campaign expenses with non-campaign funds. If you could, the rules would be meaningless. One thing that politicians sometimes get into legal trouble for is illegally using campaign funds for personal expenses. The basic idea is that you’re not supposed to use campaign money as a personal piggy bank or slush fund.


A separate issue, however, is that while a private citizen is free to make a secret hush money payment to his former mistress if he likes, a political campaign is required to disclose what it’s spending money on. If Trump had reported a cash payment to Stormy Daniels to the Federal Election Commission, that would have naturally raised questions about why he was paying her and somewhat defeat the purpose of making hush money payments in the first place. So what Trump and Cohen seem to have decided to do is avoid using campaign money, thus allowing them to avoid disclosure rules. But just like lying on the disclosure form would be illegal and refusing to do the disclosure would be illegal, paying for campaign expenses out of a non-campaign account and then declining to report that as a contribution to the campaign is also illegal. Simply put, there is no legal way to spend money on your election campaign without disclosing that fact.


None of this is an ironclad court case, but it’s hard to avoid the conclusion that if Trump weren’t president, he’d be facing an imminent indictment. The US attorney has secured a guilty plea from Cohen for, among other things, campaign finance violations. And Cohen says those violations were undertaken at the direction of his boss. If the US attorney’s office doesn’t believe Cohen’s story, they shouldn’t have accepted his plea in that form. And if they do believe Cohen’s story, then his boss is also likely guilty. The fact that the boss in question can’t even deny the allegations properly only underscores how strange the situation is. It’s a matter of legal record, too, that Trump’s campaign chairman was a crook. Despite his desperate financial straits, he volunteered to work for Trump for free—and Trump accepted. Trump said the conviction of two former associates Tuesday didn’t involve collusion with Russia. That may be, but one of them, Michael Cohen, is ready to sing about “conspiracy to collude and corrupt the American democracy system in the 2016 election.” Maybe Wall Street is whistling past the graveyard. Time will tell.


For those of you who appreciate irony, the bull market in stocks just hit a record of 3,453 days. The latest leg of the bull run for the S&P has been driven by booming economic growth in the US, with renewed strength in quarterly corporate earnings. Investors have also bet that the global economy will continue to expand at a steady pace despite problems in some emerging. The gains, aided by the U.S. corporate tax cut in December, deliver a rebuttal to skeptics who have argued that everything from a slowdown in China’s growth to rising U.S. interest rates to intensifying trade tensions would dash the market’s run.


The Federal Reserve released minutes of the July 31-Aug. 1 Federal Open Market Committee meeting. Bottom line; the Fed will almost certainly raise rates again in September – and then they will think about a rate hike in December. Policymakers believe the economy is in good shape, the labor market is strong, and inflation is running right around their target of 2%. There’s little evidence that the seven quarter-point increases since December 2015 are hurting growth. The areas of concern include poorly timed fiscal stimulus that might provide too much juice to the economy. On the downside, the uncertainty of trade wars could weigh on economic growth.


Trade negotiators for the US and China returned to the table today for the first time in two months as the Trump administration readies a new round of tariffs on $16 billion worth of Chinese imports. Don’t look for a resolution to come from the current round of talks. If anything, this week’s talks may simply be helpful in identifying areas where further discussions could occur. Nor are the current talks expected to impact the new tariffs that are scheduled to take effect Thursday. The tariffs are part of $50 billion in duties the Trump administration announced earlier this summer. The first wave took effect in July and affected $34 billion in Chinese imports, including farm equipment, motor vehicles, medical equipment and products made of aluminum and steel. The second round includes a 25 percent tariff that kicks in Thursday and will impact 279 product lines including electronics, plastics and railway freight cars. China retaliated by slapping an extra 25 percent duty on 545 products from the United States including soybeans, electric cars, orange juice, whiskey, salmon and cigars. But just $34 billion of the tariffs have taken effect so far, which is a fraction of China’s overall trade with the US.


Meanwhile, the Trump administration is planning to formally announce tomorrow that it has reached a breakthrough in NAFTA talks with Mexico, clearing the way for Canada to rejoin negotiations to modernize the free trade pact.


The Trump administration revealed its new coal-plant pollution rules yesterday. The document, the so-called Affordable Clean Energy rule, acknowledges that the plan would increase pollution and lead to 1,400 premature deaths a year.


The National Association of Realtors reports existing-home sales ran at a 5.34 million seasonally-adjusted annual rate in July, down 0.7% versus June.  That was the lowest pace since February 2016. July’s selling pace was 1.5% lower than a year ago, and at the current sales rate, it would take 4.3 months to exhaust available supply, the same as in June, and well below long-time historical averages. Homes for sale were on the market for an average of 27 days in July, up a bit from 26 days in June. The median sales price in June was $269,600, up 4.5% compared to July 2017.


Whether it was visiting an actual store or clicking away on line, shoppers flocked to Target in the last quarter, making it the latest retailer to defy predictions that traditional chains are in trouble. The 6.4 percent jump in store traffic was the biggest increase Target has seen in at least a decade. And customers’ purchases led to a 4.9 percent increase in sales at stores open at least a year. Target’s various e-commerce initiatives– from increasing same day delivery to carrying online orders out to customers cars –also appeared to pay off. Online sales were up 41 percent in the quarter that ended August 4.


The home improvement retailer, Lowe’s, reported earnings that topped.  But Lowe’s cut its sales and profit outlook for the year. The retailer is playing catch-up to industry leader Home Depot, which just last week reported strong results. Sales at Lowe’s stores open at least one year rose 5.3% in the second quarter. That sounds impressive until you consider that Home Depot’s sales were up more than 8%. So, Lowe’s will try to get leaner. The company said that the 99 Orchard Supply Hardware stores that Lowe’s owns in California, Oregon and Florida, as well as a distribution center, will be shut down by the end of the fiscal year. Orchard Supply Hardware has 4,300 employees.


Facebook has taken down 652 pages, accounts and groups it identified as part of coordinated disinformation campaigns that originated in Iran and targeted countries around the world. It also found a number of new pages connected to Russia. The Iran-linked pages and groups spread misinformation in the United States, United Kingdom, Latin America and the Middle East. Some of them posed as a group called “Liberty Front Press.” Facebook said the coordinated campaigns originating in Iran included 254 Facebook pages and 116 Instagram accounts that amassed more than 1 million followers across the two services. Facebook, Twitter and other social media companies have been scrambling to protect their platforms ahead of the US midterm elections in November and prevent a repeat of the widespread disinformation seen during the 2016 presidential campaign.


Saudi Arabia has called off both the domestic and international stock listing of state oil company Aramco, billed as the biggest such deal in history with a predicted valuation near $2 trillion.


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