Happy New Year…

1. Verizon Offering Consumers Up to $650 to Switch — Verizon (NYSE:VZ) is now offering mobile users up to $650 per line to switch from another carrier. Consumers who trade in their current smartphone and buy one on a Verizon payment plan get up to $650 (through a prepaid card) to cover remaining installment balances with another carrier.
2. Buffett Faces Worst Stock Market Year Since 2009 — the Oracle of Omaha is headed for his worst year relative to the rest of the U.S. stock market since 2009, with shares in Berkshire Hathaway (BRK.A, BRK.B) down 12% YTD. While the company doesn’t have oil and gas subsidiaries, its railroad business transports oil, coal and agricultural products, and its manufacturing arm sells products to the shrinking oil industry. Berkshire has also been hit by big declines in two of its largest investments: American Express (-24%) and IBM (-13%) YTD.
3. Puerto Rico Partly Defaulting on Bonds due on Jan 4 2016 — Puerto Rico won’t be making two of its thirteen debt payments due tomorrow – a $35.9M payment on the territory’s Infrastructure Financing Authority and a $1.4M payment to its Public Finance Corporation. The rest of the nearly $1B in payments will be made, including one to general obligation bondholders (in which half of the payment comes from revenues clawed back from other bonds). Monoline insurers Ambac (NASDAQ:AMBC), MBIA (NYSE:MBI), and Assured Guaranty (NYSE:AGO), each of which have Puerto Rican exposure, are in focus.
4. Crude Heads for Second Annual Decline — Oil is set for its first back-to-back annual loss since 1998 after record U.S. inventories data last Wednesday reinforced worries about a global supply glut. Crude stocks rose by 2.6M barrels last week, the U.S. Energy Information Administration said, raising additional concerns after OPEC effectively abandoned output limits at a meeting earlier this month. WTI has tumbled over 30% in 2015 to under $37/bbl.
5. Market Action Suggests Yet Another Downside Test of the S&P’s 1990 to 2000 Support Zone.

The week ahead — Economic data from Econoday.com:

“Happy Holiday”

1. “Smart Money Indicator” Hits Most Bearish Reading in History — the “Smart Money Indicator” which tracks the number of bearish put options vs the number of call options shows the Bear Option traders open put contracts now exceed call contracts by 3:1 for the first time ever. It also gave a false warning , like it did in 2003 and 2012 and last fall, when we first went over the 2:1 line.

2. Average Stock in the S&P 500 is 20% BELOW it’s 52-week High — according to Bespoke, below is a chart that shows how far stocks in the S&P 500 and each sector are trading below their 52-week highs. In the S&P 500 as a whole, the average stock is currently 19.4% below its 52-week high. Four sectors have readings below this level — Telecom (-22%), Consumer Discretionary (-22.2%), Materials (-24.5%) and Energy (-42.5%).

3. WTI, Brent Crude Reach Parity — the West Texas Intermediate settled at a premium to its global counterpart Brent crude for the first time in more than five years, and the spread between the two benchmarks is now nonexistent.

The week ahead — Economic data from Econoday.com:

“First ask yourself: What is the worst that can happen? Then prepare to accept it. Then proceed to improve on the worst.” — Dale Carnegie

1. Saudi Arabia Forms Coalition Against Terrorist Group — Saudi Arabia has announced the formation of a 34-state Islamic military coalition to combat terrorism, according to a joint statement published on state news agency SPA. A long list of countries including Egypt, Qatar, and the United Arab Emirates were mentioned, although Iran was absent from the participants.
2. Disney’s StarWar ‘The Force Awakens’ to open in 4,100+ theaters this Past Weekend — the Force Awakens, the first film from Disney (NYSE:DIS) in the Star Wars series, will debut in more than 4,100 theaters this past weekend, a record number for a December opening. BoxOffice.com is forecasting $223M in U.S. and Canadian ticket sales in the first weekend, topping Jurassic World from Universal Pictures (NASDAQ:CMCSA), which brought in $208.8M in its debut weekend in June.
3. Junk Bonds Sell-Off Pickup Steam — after junk-bond prices posted their largest drop since 2011, investors say they are bracing for another difficult week, likely featuring hectic trading and large splits between buy and sell orders. Hedge-fund and mutual-fund managers feel that gaps as wide as 10% between the price bondholders are willing to accept and buyers are willing to pay are likely to be commonplace until at least the conclusion of the Fed’s two-day meeting.
4. Fed Hikes Interest Rates — the central bank raised rates for the first time in nearly a decade. Policymakers signaled that they ‘ll hike 4 times in 2016. Fed chief Janet Yellen said wage gains seem to be strengthening, but isn’t ready to call that a “firm trend”. She also said policymakers are aware of “important spillovers into emerging markets”.
5. Congress Extends Solar Tax Credits and Ends Oil Export Ban — congressional leaders backed a 5-year solar investment tax credit extension as part of a $1.15 tril spending deal that also ends the oil export ban. Projects set to start by 2019 will get the current 30% subsidy, with incremental cuts until 2024. Companies effected are Solarcity (SCTY), FirstSolar (FSLR), SundEdison(SUNE) and SunPower(SPWR).

The week ahead — Economic data from Econoday.com:

“I have been trading for decades and I am still standing. I have seen a lot of traders come and go. They have a system or a program that works in some specific environments and fails in others. In contrast, my strategy is dynamic and ever evolving. I constantly learn and change.” – Thomas Busby

1. Kinder Morgan (KMI) Fears Crushing Entire MLP Sector — the Kinder Morgan (NYSE:KMI) contagion triggered a selloff throughout the entire MLP space late last week as fears of a wave of yield cuts have spread throughout the market. Moody’s changed its outlook on PAA to Negative from Stable while affirming the company’s Baa2 rating, saying it is concerned about PAA’s 5.4x debt-to-EBITDA ratio and sub-1x distribution coverage ratio. The continuing slide in crude oil prices obviously is weighing on MLP prices, but year-end selling also may be playing a major role – not just tax-loss harvesting, but the “year-end liquidation of a losing trade,” says Michael Shaoul of Marketfield Asset Management. Furthermore, Kinder Morgan has slashed its 2016 quarterly dividend to $0.125/share from the current $0.51, marking the company’s first-ever dividend cut. The company said the move will enable it to use a significant portion of its cash flow to fund the equity portion of its expansion capital requirements, eliminate any need to access the equity market for the foreseeable future, and maintain a solid investment grade credit rating.
2. Carl Icahn Ups Cheniere Stake Again — activist investor Carl Icahn has raised his stake in struggling Cheniere Energy (NYSEMKT:LNG), marking the eighth time he upped his holdings in the company since taking an initial 8.2% position in August. According to a Dow Jones report, the billionaire boosted his stake to 13.8% from 12.7% previously.
3. Apple Suspends TV Service Plans as Big Media Resists — Bloomberg reported Apple (NASDAQ:AAPL) has suspended plans to offer an online TV service, and will focus for now on helping media companies directly sell content via the App Store. The news service adds that Apple (NASDAQ:AAPL) isn’t completely giving up on providing a live TV service, but notes its original plan to sell 14 or so channels for $30-$40/month has “run into resistance from media companies that want more money for their programming.” Media executives have said they expect Apple and other new entrants to pay more per channel than pay-TV incumbents.
4. Chipotle Store (CMG) in Seattle Closed Due to Health Violations — Health officials in Seattle closed down a Chipotle (NYSE:CMG) store due to “repeated” food safety violations. The store has recently re-opened after being shut down following the E. coli outbreak which impacted some Chipotle stores in the Pacific Northwest. Separately, the toll of students at Boston College who became sick after eating at a Chipotle store has risen to 141.
5. Baker Hughes Deal Will Likely Close in 2016 — Halliburton’s proposed $35B acquisition of rival Baker Hughes (NYSE:BHI) will likely close in 2016 instead of this year as talks with U.S. regulators continue, Halliburton (NYSE:HAL) CFO Christian Garcia told a Wells Fargo Energy Symposium. Both companies have already agreed to divest $5.2B in overlapping businesses to quell concerns that the merger, which would create the second-largest oilfield services company, would lead to higher prices and less innovation.

The week ahead — Economic data from Econoday.com:

FOMC Meeting Week

“Nothing created by the mind of man has ever equaled the stock market in terms of its sheer ability to frustrate people. Why is this? The answer is that the stock market frustrates because millions of traders and investors across the face of the U.S. and the world are trying to make money out of the market. Now when millions of people are trying to make money out of the market, you know right off the bat that it can’t be done. A majority of people are not fated to make money doing anything, much less beat the stock market. ‘It’s not fair’ you complain, ‘why can’t all those nice, well-meaning people make money with their trading and investing?’ There’s one simple fact that makes it difficult. And that fact is that throughout history there have always been a small number of financial winners and an army of financial losers. So when we state that the stock market is frustrating, we must qualify the statement by asking, ‘frustrating for whom?’ And the answer again is that the stock market is frustrating to the great majority of participant-losers but highly rewarding to the small minority of informed, hard-working, intelligent winners.” — Richard Russell

1. Puerto Rico Debt Payment Comes Due –Puerto Rico makes a $354M debt payment owed to creditors late last week, while a U.S. congressional hearing about the island’s fiscal crisis takes place in Washington. Analysts have warned that the debt owed by the Government Development Bank could be the first major payment skipped by the San Juan government as part of a strategy to preserve cash and force creditors to negotiate.
2. China’s Renminbi Is Approved by I.M.F. as a Main World Currency — NYTimes, the IMF added the yuan to its Special Drawing Rights basket. Effective Oct. 1, 2016, the renminbi will officially be recognized as a reserve currency, meaning central banks will have an alternative for foreign exchange reserves. The yuan also meets criteria of being “freely usable,” or widely used for international payments and in foreign exchange markets, boosting China’s influence in the global economy. The move will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power. Just four other currencies — the dollar, the euro, the pound and the yen — have the I.M.F. designation.
3. ECB Cuts Deposit Rate, Launches Fresh Stimulus — ECB President Mario Draghi said the bank would cut the deposit rate to -0.30% from -0.20%. Mr. Draghi noted the success of the bank’s existing QE program, and said it would be extended until March 2017 or “beyond if necessary.” The Frankfurt-based ECB will also extend quantitative easing by six months until at least March 2017 at the current rate of 60 billion euros a month and broaden the assets purchased to include local and regional debt, ECB President Mario Draghi said last Thursday.
4. FOMC Chairwoman Eager to Raise Rates — Fed Chair Janet Yellen said she’s “looking forward” to the first interest rate hike in nearly 10-years. She stated data since the Oct. gathering have been “consistent” with improving labor market, which should lead to 2% inflation.
5. American Association of Individual Investor (AAII) bullish sentiment — courtesy of BIG, In this week’s report, bullish sentiment dropped from 32.36% down to 29.49% for the first sub 30% reading in bullish sentiment since the early October lows. The latest survey shows investors are increasingly less willing to take a stand on the market in one way or the other.

The week ahead — Economic data from Econoday.com:

“If you have an approach that makes money, then money management can make the difference between success and failure… … I try to be conservative in my risk management. I want to make sure I’ll be around to play tomorrow. Risk control is essential.” – Monroe Trout

1. Conservative Mauricio Macri Wins Argentina Presidency — Argentina conservative opposition candidate Mauricio Macri has been confirmed as the winner in Argentina’s presidential elections, defeating the ruling Peronist party’s Daniel Scioli by a smaller margin than expected. Macri will have to deal with the difficult economic legacy of Cristina Fernandez de Kirchner, who with Nestor Kirchner, her late husband and predecessor, ruled Argentina for the past 12 years. Since taking over in 2007, Fernandez has seized pension fund assets and the nation’s largest energy company, while increasing welfare programs and battling U.S. hedge funds over defaulted debt.
2. Turkish Warplanes Shot Down a Russian Military Aircraft On the Border With Syria — Turkish Officials said the Su-24 jet was downed after it knowingly violated Turkish airspace and its two pilots ejected before it crashed. Russia has warned its former ally and trade partner that diplomatic and commercial relations between the countries are at risk, calling the downing “a stab in the back.” The incident also dims the prospects for a grand international coalition to change the course of chaos in Syria.
3. U.S. Probe into Wal-Mart Foreign Bribery Finds Possible Misconduct — WSJ reported A Justice Department probe has found evidence of possible misconduct by Wal-Mart (NYSE:WMT) in Brazil, after uncovering little to support sweeping allegations involving the company in Mexico, WSJ reports. Prosecutors have focused on $500K believed to have gone to an individual hired to secure government permits to construct two stores in Brasilia between 2009 and 2012. Investigators are now assessing whether Wal-Mart employees knew about or approved of the suspected payments.
4. China Battered as Brokerage Probe Sparks Selloff — Chinese equities dove sharply last Friday after the Chinese authorities disclosed investigations into several major brokerages over suspected trading violations. The probes into Citic, Guosen, Founder and Haitong Securities followed additional souring market sentiment that revealed lackluster Chinese industrial data in October. The Shanghai Composite Index fell 5.5% to 3,436, wiping out most of its gains this month and recording its biggest one day drop since Aug. 25.

The week ahead — Economic data from Econoday.com:

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” – Paul Tudor Jones.

1. Japan’s Economy Relapses Into Recession — Japan’s economy slid back into recession in the third quarter, marking the latest setback for Prime Minister Shinzo Abe and his “Abenomics” policies. With consumer spending still soft and businesses cutting back on investment, gross domestic product shrank at an annualized rate of 0.8%, putting policymakers under pressure to deploy more stimulus measures. The GDP figure follows a revised 0.7% contraction in April-June, which was the first decline in three quarters.
2. S&P 500 Shows Q3 Earnings With Negative Growth — with more than 90% of companies having already reported results, S&P 500 earnings are on track to close their first season of negative growth since 2009. Thomson Reuters data suggests this will occur again in Q4, predicting a bigger 2.4% contraction and setting up for a bona fide ‘earnings recession’ (two consecutive periods of declines).
3. U.S. Investigative Panel Plans Hearing on Drug Pricing — a U.S. House of Representatives investigative panel plans to hold a 2016 hearing on skyrocketing drug costs, a move that comes at a time when Valeant Pharmaceuticals (NYSE:VRX) is facing increased scrutiny into its pricing practices. Earlier this month, the U.S. Senate Special Committee on Aging launched a probe into drug pricing at Valeant and Turing, signaling growing bipartisan agreement over the need to review prescription medicine costs across the nation.
4. Fed Closer to Dec Rate Hike — minutes from the central bank’s Oct 28 policy meeting showed “most participants” think Dec’s meeting “could well be” the time to increase benchmark rates for the first time in nearly a decade. A strong jobs report and comments from Fed officials since Oct’s meeting have pointed to a Dec rate hike.
5. U.S. Sets Tax Inversion Curbs — the Treasury released new measures to limit US companies ‘ use of overseas takeovers to shift their tax domocile overseas, cutting their exposure to high US tax rates. Some of the rules are retroactive to Sept ’14.

The week ahead — Economic data from Econoday.com:

“One characteristic I’ve found among successful traders is that they function effectively when they’re not trading. When markets become very quiet and range bound, they occupy themselves with a variety of activities, from sharing ideas with peers to conducting research. Traders who do not tolerate inactivity well inevitably feel the need to trade, often when there is no objective edge present. For them, losing money is less onerous than experiencing boredom.” — unknown

1. OECD Lowers Global Growth Outlook Again — the OECD is cutting its world forecast as slower growth in emerging markets spilled over into countries such as Germany and Japan. The Paris-based organization stated “Global growth prospects have clouded this year, the outlook for emerging-market economies is a key source of global uncertainty at present.” The OECD now expects the world economy to expand 2.9% in 2015 and 3.3% in 2016, down from the 3% and 3.6% it predicted in September.
2. OPEC Policy Change Unlikely at Upcoming Meeting on Dec. 4 in Vienna — Saudi Arabia is determined to stick to its policy of pumping enough oil to protect its global market share, indicating that the country is in no mood to change tack ahead of OPEC’s Dec. 4 meeting in Vienna. “The only thing to do now is to let the market do its job,” said Khalid al-Falih, chairman of Saudi Aramco. “There have been no conversations here that say we should cut production now that we’ve seen the pain.”
3. G20 Summit on Nov. 15-16 in Turkey — at the G20 summit this week, the U.S. will likely urge leaders to use monetary, fiscal and structural tools at their disposal to offset a shortfall in global demand and will push countries with extra fiscal space to spend. Treasury Secretary Jack Lew will join President Obama and others at the summit on Nov. 15-16. The U.S. is also expected to support the inclusion of the yuan in the IMF’s benchmark currency basket, provided China meets existing criteria of the international lender.
4. Three Men Charged Over Massive Cyberfraud That Hit J.P. Morgan — U.S. prosecutors have unveiled criminal charges against three men accused of running a sprawling computer hacking scheme that included the largest ever theft of 100M customers’ data from twelve financial institutions and publishers. The cyberfraud, which began in 2007, also involved inflated stock prices, online casinos, payment processing for criminals and an illegal bitcoin exchange. Among the hack victims: JPMorgan (NYSE:JPM), TD Ameritrade (NYSE:AMTD), E*Trade (NASDAQ:ETFC), Scotttrade and News Corp. (NWS, NWSA).
5. Puerto Rico Likely to Default on Some Debt According to Moody Credit Rating Agency — according to Moody’s Investor Service, Puerto Rico is likely to default on at least some of its $355M in debt payments due Dec. 1. the U.S. commonwealth, facing around $70B in total debt, is struggling to breathe life into a stalled economy with a roughly 45% poverty rate. Moody’s, which has Puerto Rico rated at Caa3 negative, said the island “continues to operate with extremely limited internal liquidity and no access to external sources of financing.”
6. US Retail Sales Rose 0.1% in Oct vs 0.3% Rise Expected — the Commerce Department said on last Friday retail sales edged up 0.1 percent last month after being unchanged in September. Retail sales excluding automobiles, gasoline, building materials and food services rose 0.2 percent after an upwardly revised 0.1 percent gain in September. “Core” retail sales correspond most closely with the consumer spending component of gross domestic product. Core retail sales previously were reported to have dipped 0.1 percent in September.

The week ahead — Economic data from Econoday.com:

“Never follow the crowd.” ― Bernard M. Baruch

1. MSCI Prepares for Chinese A-share Inclusion Through ADRs — MSCI will begin to add overseas-listed Chinese shares to its emerging market indexes this month, which could eventually lead to mainland-listed stocks, known as A-shares, finding their way into global equity portfolios. The addition of American Depositary Receipts will be the first test of foreign demand for greater exposure to China since its stock market plunge over the summer. About $1.6T tracks the MSCI Emerging Markets Index (ETF: EEM), which will be the most affected fund by the ADR inclusion.
2. Google Plans to Start Delivering Packages By Drone in 2017 — Google disclosed a delivery drone initiative called Project Wing. Wing chief David Vos has publicized that the company aims to begin delivering packages to consumers via drones in 2017. However, details remain scant on what types of packages will be supported, where they’ll be delivered, and at what scale. The Atlantic previously reported Google’s (GOOG, GOOGL) drone design is “a hybrid of a plane and a helicopter that takes off vertically, then rotates to a horizontal position for flying around.”
3. More Car Pollution Problems at VW — VW (OTCQX:VLKAY) revealed it has understated carbon dioxide emissions for about 800K of its vehicles sold in Europe, and overstated the cars’ fuel economy, a move that could result in an estimated €2B in financial penalties. Those costs would be on top of the €6.7B the company has already set aside to address its central emissions crisis, which affects 11M diesel vehicles worldwide.
4. Facebook To Launch Notify App Next Week — Facebook’s new standalone news app called Notify is scheduled to launch next week, FT reports, featuring content from dozens of media partners including Vogue, The Washington Post, CNN and CBS. Notify, which will send out push notifications from news sources, follows a positive response from publishers and readers to Facebook’s (NASDAQ:FB) Instant Articles, which embeds stories in its mobile app.
5. U.S. Economy Added 271,000 Jobs in October, Unemployment Rate at 5% — the American economy added 271,000 jobs in October, the government reported. The unemployment rate dipped to 5 percent, from 5.1 percent in September. Average hourly earnings also bounced back, rising 0.4 percent in October after showing no increase in September; that lifted the gain to 2.5 percent over the last 12 months, the healthiest since 2009. The combination of the surge in job creation, rising wages and the falling unemployment rate, the odds of a hike by the Federal Reserve have jumped above 70%, according to the CME Group’s FedWatch tool.

The week ahead — Economic data from Econoday.com:

“Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.” — Bernard Baruch
–> Apology for the late post as we enjoyed a long weekend <--- 1. China Currency Yuan Poised to Join IMF Currency Basket — IMF representatives are set to give the all-clear for China’s yuan to be included in the lender’s Special Drawing Rights basket, laying the groundwork for a favorable decision by policymakers. Meanwhile, China took another step toward liberalizing its financial system, after the PBOC removed the cap on deposit rates. That move was paired with another cut to interest rates and banks’ reserve requirements.
2. White House, Congress Reach Tentative Budget Deal — the White House and Congressional leaders have reached a tentative deal on a two-year budget plan that would suspend the debt limit through mid-March 2017 and boost spending by $80B through September 2017. Those increases would be offset by cuts in spending on Medicare and Social Security disability benefits, and savings and revenue from other programs.
3. Walgreens Boots (WBA) to buy Rite Aid (RAD) –Walgreens Boots Alliance Inc.(WBA), said it would buy Rite Aid Corp. for $17.2 billion in an all-cash deal. The tie-up with Rite Aid(RAD), uniting two of the country’s three biggest drugstore owners, would create a drugstore giant as companies across the U.S. health-care industry look for ways to bulk up. CVS is the overall leader. Drug distributor AmerisourceBergen (ABC) is seen as a benefactor, which as a deal with Walgreens while McKesson (MCK) supplies Rite Aid (RAD).
4. Third-quarter GDP Growth Just 1.5% — Gross domestic product (GDP) the value of everything a nation produces — rose at a 1.5% annual pace from July through September, the government reported. The U.S. had grown at a crisp 3.9% rate in the second quarter. In the third quarter as companies cut back production to prevent a worrisome buildup in inventories, particularly of goods destined for foreign markets. However, consumer spending, the single largest determinant of U.S economic growth, rose at a 3.2% annual pace following an even larger gain in the second quarter.
5. FOMC Stands Pat, Drops Hints — the Central Bank left rates alone, but cut its reference to the global market turmoil that kept it on hold in Sept. The question is whether it will hike in Dec., rather than when, if ever, a rate rise will be appropriate, policymakers reported. Fed funds futures raised the odds of a year end hike.

The week ahead — Economic data from Econoday.com: