‘If you are going to be wrong, be wrong quickly with a de minimis loss of capital’.” — unknown

1. Shakeout Comes To U.S. Restaurant Chains — in just one recent week alone, three restaurant companies filed for Chapter 11 bankruptcy protection – Cosi (OTCPK:COSIQ), Rita Restaurant (Don Pablo) and Garden Fresh Corp. (Souplantation, Sweet Tomatoes). At least five other operators have done the same this year. Rattled by so many filings in such a short time frame, industry experts now say to expect more bankruptcies, closings, consolidations and management shake-ups. Famous Dave’s of America (NASDAQ:DAVE) is in the midst of closing many of its barbecue restaurants, and last week named its fourth new CEO in four years. Late this summer, Ruby Tuesday (NYSE:RT) announced plans to close almost 100 locations, and Bob Evans (NASDAQ:BOBE) in April shuttered 27 restaurants on top of 20 closed last year.
2. Disney Dropped Interest in Twitter — Disney decided against buying Twitter recently partly due to concerns that the hate speech that’s rampant on the social network would undermine Disney’s (NYSE:DIS) family friendly image, Bloomberg reports. Another reason is that although Twitter (NYSE:TWTR) has a market cap of almost $12B. Other potential suitors to end their interest in Twitter were Salesforce and Google.
3. Chinese Growth Holds Steady at 6.7% — China’s GDP growth remained at 6.7% on year in Q3, as expected, boosted by yet more government spending, record bank lending and an over-heating property market, all of which are adding to the massive debt in the country. Industrial production slowed to +6.1% on year in September from 6.3% in August and missed forecasts of +6.4%. However, Economists Question China’s Consistent Growth Numbers.
4. Saudi Arabia Issues $17.5B Worth of Debt Amid High Demand — Saudi Arabia has raised $17.5B in the largest ever bond sale by an emerging-market country as it looks to reduce its $97B budget deficit. The government could have raised even more, with Bloomberg reporting that it received orders of $67B. The debt issue is part of Saudi Arabia’s plan to open up its $650B economy and lower its massive reliance on oil.
5. Japan Bank of Japan Governor Kuroda Puts Back 2% Target Again — Bank of Japan Governor Haruhiko Kuroda has said that the BOJ may once again push back its 2% inflation target, which currently sits somewhere in fiscal 2017. Kuroda started his job in early 2013 and began his turbo-charged asset-purchase policy that continues to this day, he originally hoped that inflation would hit 2% by late 2014 or 2015. Almost four years later, inflation has disappeared after an initial rise.

The week ahead — Economic data from Econoday.com:

“Novice Traders trade 5 to 10 times too big. They are taking 5 to 10% risks on a trade they should be taking 1 to 2 percent risks.” – Bruce Kovner.

1. U.S. Treasury Issues Final “Tax Inversion” Rules — the U.S. Treasury has issued final inversion amendment rules in its effort to tackle “earnings stripping” – a common tax-reduction technique employed by multinationals. The new rules also provide some exemptions for short-term loans and cash pools, and signal further business tax reforms are to come.
2. New Zika Zone Identified in Miami — florida officials have announced a new area of Zika transmission in Miami, which has already infected five individuals, and called on the federal government for funding to help fight the virus. It’s the third established outbreak in the city, a hot zone for Zika because it has both the Aedes mosquitoes that transmit the disease and an influx of travelers from other areas where the virus is spreading.
3. Fed September Meeting Minutes Show Split On Rate Hike — minutes from the September FOMC meeting show a split among many members thought raising rates would be warranted “relatively soon” if the U.S. economy continued to strengthen, but internal divisions remained over the timing of the next move. A few participants also raised concerns that waiting too long could trigger a recession, while more dovish officials wanted more evidence that inflation is firming before hiking interest rates.
4. OPEC Production Hits Record Highs — OPEC’s oil production rose to record highs in September, rising by 160K barrels to 33.6M bpd, underscoring the challenges the group faces as it seeks to curtail output. “At this stage, it is difficult to assess how the OPEC supply cut, if enforced, will affect market balances,” the IEA said in its latest monthly report. Yesterday, WTI pushed above $51/bbl after Vladimir Putin said Russia was ready to join an output freeze, but not one world producer has willingly taken one solitary barrel off the table this fall.

The week ahead — Economic data from Econoday.com:

“The market does not know if you are long or short and could not care less. You are the only one emotionally involved with your position. The market is just reacting to supply and demand and if you are cheering it one way, there is always somebody else cheering it just as hard that it will go the other way” – Marty Schwartz

1. Pilot Program Tests Nickel Trading Increments 15 years After Decimalization — fifteen years after the decimalization of stock trading, a pilot program will widen “tick sizes” to five-cent increments rather than pennies for some stocks. The move is a bid to increase trading in those stocks, and could benefit small investors but raise trading costs, as market makers tend to profit from wider spreads.
2. UK’s Pound Hits 31-year Low on Brexit Anxiety — the pound is down to a 31-year low as concerns over Brexit continue to weigh on investors. The sterling fell to a post-Brexit vote low of $1.2749 earlier in the day. Economists expect more volatility as the complexity of an exit from the European Union plays out.
3. Fitch Sets Stage for Wells Fargo Credit Rating Cut — Fitch has cut the outlook on Wells Fargo’s (NYSE:WFC) credit ratings to Negative, but affirmed the bank’s existing rating of AA-, which is investment-grade. In an announcement, Fitch cited “potential reputational damage from the recent regulatory actions and fines,” as well as a belief that the lender could face “earnings pressure.”
4. U.K. Delivers Landmark Ruling on Fracking — the U.K. government has approved a horizontal fracking permit at a Cuadrilla site in Lancashire, northern England, in a ruling that could have far-reaching consequences for the shale gas industry. It means, for the first time, British shale rock will be fracked horizontally, which is expected to yield more gas. A ban on fracking in the U.K. was lifted in 2012.
5. Annual Fall Meetings for the IMF and World Bank — finance officials and central bankers from around the world are gathering in Washington for the annual fall meetings of the IMF and World Bank. The talks will take up issues including weak global growth trends, the increase of anti-trade measures and concerns that many have expressed about the financial health of European banks.

The week ahead — Economic data from Econoday.com:

“One of the rarest traits on Wall Street is patience, yet patience is one of the biggest secrets of successful investing” — R.W. McNell’s book Beating The Stock Market

1. Deutsche Bank (NYSE:DB) Slumps On Capital Concerns — Germany’s Angela Merkel ruled out any state assistance for the lender, according to a report from Focus Magazine. Merkel also declined to intervene in Deutsche’s (NYSE:DB) legal battle with the U.S. Justice Department, which earlier this month announced it may seek up to $14B from the bank to resolve investigations into crisis-era mortgage securities.
2. Wells Fargo (WFC) Launches Probe – CEO Stumpf & Tolstedt Giving Up Pay & Bonuses — independent directors are launching a probe into the bank’s practices, and the two executives, Carrie Tolstedt, the former retail banking chief and CEO John Stumpf, will forfeit some awards. Stumpf will lose about $41M in unvested equity and temporarily forgo his salary, while Tolstedt, the former retail banking chief, will leave the company without severance payments.
3. OPEC Agrees to First Oil Output Cut in Eight Years — OPEC agreed to a preliminary deal that will cut production for the first time in eight years. Oil prices gained more than 6 percent as Saudi Arabia and Iran surprised traders who expected a continuation of the pump-at-will policy the group adopted in 2014. The group agreed to drop production to a range of 32.5 to 33 million barrels per day, said Iran’s Oil Minister Bijan Namdar Zanganeh, following a meeting in Algiers. While some members of OPEC will have to cut output, Iran won’t have to freeze production.
4. India-Pakistan Tensions Escalate — tensions between India and Pakistan are escalating, with investors responding by selling assets in both countries. Following Indian “surgical strikes” on suspected militants preparing to infiltrate from Kashmir, Pakistani Defense Minister Mohammad Khwaja threatened to use “tactical” nuclear weapons to “destroy” India.
5. Sector Performance Quarter And Month To Date –courtesy of BIG, the chart below shows S&P 500 sector performance so far in Q3. Of the eleven sectors, just two are outperforming the S&P 500 (Technology and Financials).

For the month of September, the S&P 500 is down 0.5%, given that September has historically been the cruelest month for equities.

The week ahead — Economic data from Econoday.com: