The Murmur of Equities

Not much to report back on this week as the financial markets moved largely sideways. Despite the Fed’s plans to raise interest rates, the bond market has behaved as though the Fed is bluffing and even moved 9 basis points lower on the week. Stocks are moving sideways as if there are consolidating for a move higher which may happen if earnings releases over the next few weeks begin to show promise.

I’ll have more to discuss as the earnings reports begin to shape the outlook for 2018. Other things to consider are new policy objectives coming from Washington D.C. (taxes, healthcare & trade policy) , changes to Fed leadership starting in 2018 and potential military conflicts (rocket man, et al).

If equities begin to ignite into the end of 2017 then this year will be reminiscent of 1997 and not 2007. Now, that would be a rocket to ride.


Economic & Central Banking Snippets

  • Wolfgang Schäuble has warned that spiraling levels of global debt and liquidity present a major risk to the world economy, in his parting shot as Germany’s finance minister. In an interview with the FT, he said there was a danger of “new bubbles” forming due to the trillions of dollars that central banks have pumped into markets. Mr Schäuble also warned of risks to stability in the eurozone, particularly those posed by bank balance sheets burdened by the post-crisis legacy of non-performing loans. (FT)
  • The International Monetary Fund singled Britain out as a “notable exception” to an improving global economic outlook on Tuesday, as it cut its forecast for UK growth and warned the long-term negative effects of Brexit were beginning to show. In its twice-yearly World Economic Outlook, the IMF reduced the UK’s growth forecast for 2017 and sharply reduced its estimate of the UK’s long-term growth outlook.
  • Minutes from the Fed’s September meeting gave a little more time to the doves than most had expected, but markets continue to have priced in about a 75% chance of another rate hike before the end of the year. Many at the Fed aren’t buying the company line that too-low inflation is due to transitory factors, according to the minutes. They would prefer waiting until the data clearly show the inflation rate moving towards its 2% target before hiking again.
  • September retail sales came in roughly in line with expectations, but upward revisions to prior months’ data and upside in sales of building materials helped raise GDP expectations. (MS)
  • Core CPI rose 0.1% in September, lowering the year/year rate to 1.6% from 1.7%. With food up 0.1% and energy up 6.1%, headline CPI rose 0.5%, lifting the year/year rate to 2.2% from 1.9%. (MS)


Politics! Politics! Politics!

  • Spanish Prime Minister Mariano Rajoy demanded that Catalonia’s leader clarify whether he declared independence, taking the first step toward potentially stripping the restive region of some of its powers and escalating his confrontation with the separatists. Mr. Rajoy accused the separatist leader, Carles Puigdemont, of deliberately sowing confusion in his statement on Tuesday evening. The formal request for clarification, Mr. Rajoy said, is the necessary precursor to an implementation of Article 155, a never-used constitutional provision that enables the government to revoke some of a region’s powers if its actions threaten Spain’s interests.
  • The US has suspended all non-immigrant visa services in Turkey after Turkish authorities arrested a US embassy employee last week, escalating a brewing diplomatic crisis between the two allies. (FT, BBC)
  • 1,000 Isis fighters have surrendered after a series of humiliating defeats in Iraq and Syria. (NYT)
  • The tax code has been very, very good to sports team owners. A little-known tweak to IRS rules in 2004 has allowed new owners to write off nearly all of the purchase price of their teams against profits over 15 years. The tax break has supercharged the increase in values of all professional sports teams, experts said. For NFL team owners, the tax break has added roughly 5% to team values according to Forbes. The tax law, long on the books, was significantly reshaped by President George W. Bush in 2004. “Without a doubt, this is the tax break they benefit the most from,” tax expert Robert Willens told The Post. Just how much? Well, take the case of fracking billionaire Terry Pegula, who in 2014 paid $1.4 billion for the Buffalo Bills. Pegula is able to deduct $93 million a year — one-fifteenth of the purchase price — against the team’s profits and his income for 15 years. The Bills, according to Forbes, made $53 million last season. If Pegula earned $40 million in 2016, the Bills’ tax deduction could reduce his tax bill to zero. Sports team owners who take the deduction have to pay it back when they sell the team — but that is likely far down the road, and may even be something children or grandchildren will deal with.


Chart Time!

S&P 500 (SPY)




Russell 2000 – Small Caps (IWM ETF)


Market Snippets

  • After 20 years, Verizon Communications Inc. (VZ) is officially shutting down AOL Instant Messenger.
  • Shares of GoPro (GPRO) fell by more than 13 percent after Google announced its Clip camera.
  •, Inc. won the rights to live stream NFL’s “Thursday Night Football” match-up, while Twitter Inc (TWTR) was on the losing end of the deal despite having held the rights last year. Now that the NFL season is underway, there are already some early indications of some viewership metrics
  • Retail bankruptcies continue to climb. (WSJ)


  • Rumors that, Inc. may soon be jumping into the pharmacy business have weighed on drug retailers. However, pharmacy benefit managers, which serve as middlemen between insurers and pharmaceutical companies, may be hit the hardest by new competition from Amazon.
  • Delta Air Lines Inc (DAL) on Wednesday said it would refuse to pay a 300% U.S. tariff on Canadian-built Bombardier C-Series jets, raising doubts about its purchase of 75 of the new aircraft at a list price of more than $5 billion.
  • In a scandal that is reverberating through global supply chains, General Motors said it is checking whether any of its cars contain falsely certified aluminum parts or components sourced from Japan’s Kobe Steel. Fresh revelations yesterday showed data fabrication at the steelmaker was more widespread than it initially said, as the company joins a list of Japanese manufacturers involved in scandals over product quality control in recent years.
  • This chart shows thirty years of securitized products outstanding (excluding agency MBS).


  • Five of the six major Hollywood studios have launched Movies Anywhere, their latest effort to give consumers a “digital locker” to store movies bought from various retailers, to be watched on any device.


International Snippets

  • China’s government regulators are pushing some of the country’s biggest tech firms to give the state a stake, and a greater role in making corporate decisions, according to the WSJ. Internet regulators are discussing the prospect of 1% stakes in a number of firms, including Tencent Holdings, Weibo and Youku Tudou – now part of Alibaba. The stakes come with the stipulation that investors appoint a government official to company boards and have say in their operations. Even with a heavy hand in existing rule-making, the regulators are concerned about the growing power of private business. The government has begun its “special management shares” project with two media start-ups, taking stakes of less than 2% in mobile news site Yidian Zixun and Beijing Tiexue Tech, which operates a “patriotic news site.” The report comes ahead of the Communist Party Congress, with the party pressing to take a greater role in Chinese society.
  • Saudi Aramco is considering shelving plans for an international listing in favor of a private share sale to the world’s biggest sovereign wealth funds and institutional investors. Talks about a private sale to foreign governments — including China — and other investors have gathered pace in recent weeks, according to five people familiar with the preparations for an initial public offering, amid growing concerns about the feasibility of an international flotation. (FT)

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.