Wednesday, January 17, 2018

Markets surge after Apple plans to repatriate billions dollar to the US

Dow soared 322 to a new record, advancers over decliners about 2-1 & NAZ rocketed ahead 74.  The MLP index lost 1+ to the 297s.  Junk bond funds were little changed & Treasuries drifted lower.  Oil was up pennies in the 63s & gold fell 8 to 1328.

AMJ (Alerian MLP index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Apple (AAPL), a Dow & NAZ stock, will bring hundreds of Bs of overseas $s back to the US, pay about $38B in taxes on the money & invest 10s of Bs on domestic jobs, manufacturing & data centers in the coming years.  The company plans capital expenditures of $30B in the US over 5 years & create 20K new jobs at existing sites & a new campus it intends to open, the company announced.  “We are focusing our investments in areas where we can have a direct impact on job creation and job preparedness,” CEO Tim Cook said, which alluded to unspecified plans by the company to accelerate education programs.  In its Dec approval of the most extensive tax-code revisions since 1986, Congress scrapped the previous intl tax system for corps -- an unusual arrangement that allowed companies to defer US income taxes on foreign earnings until they returned the income to the US.  That “deferral” provision led companies to stockpile an estimated $3.1T offshore.  By switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a 2-tiered levy on that accumulated foreign income: Cash will be taxed at 15.5% & less liquid assets at 8%.  Companies can pay over 8 years.  AAPL has the largest offshore cash reserves of any US company, with about $252B in at the end of Sep, the most recently reported fiscal qtr.  The company also plans to open another site in the US focused initially on employees who provide technical support to AAPL product users.  AAPL said it will announce the location of the new campus at a later date.  The stock rose 2.91.
If you would like to learn more about AAPL, click on this link:

Apple Expects to Pay $38 Billion Tax on Repatriated Cash

Almost all of the 12 Federal Reserve districts reported “modest to moderate gains” in economic activity at the start of 2018, a Federal Reserve survey showed.  The Fed's Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks on or before Jan 8, said the Dallas Fed bank was the exception, reporting “a robust increase.”  “The outlook for 2018 remains optimistic for a majority of contacts across the country,” according to the report.  The report appears generally to support the Fed's outlook for 2018, which forecasts 2.5% economic growth & 3 interest-rate increases.  Investors, judged by prices in fed funds futures contracts, have fully priced in at least 2 more hikes.  Joblessness remained at 4.1% in Dec, a level that hasn't been bettered since 2000.  “Most districts cited on-going labor market tightness and challenges finding qualified workers across skills and sectors, which, in some instances, was described as constraining growth,” the Beige Book said.  Most districts said wages increased at a “modest” pace, while a few “observed that firms were raising wages in a broader range of industries and positions since the previous report.”  The Beige Book said most districts reported “modest to moderate” price growth.  Firms in some districts said they were able to boost selling prices.  The Fed's preferred measure for inflation, after excluding volatile food & energy components, was just 1.5%  in the 12 months thru Nov.  That measure has lagged below the Fed's 2% target for most of the past 5 years.  Central bankers raised their 2018 growth forecast to 2.5% from 2.1% in Sep, according to their estimate from the Dec meeting.  Pres Trump signed a $1.5T tax-cut bill into law on Dec 22.  Fed Chair Janet Yellen said that Fed officials “generally identified changes in tax policy as a factor supporting this modestly stronger outlook.”  Almost all contacts in the Chicago Fed's district said the tax bill would have a positive impact on their firms.  “Most respondents expected to spread the tax savings across outlays for capital, labor, debt repayment, and profit distributions to owners,” the Chicago Fed added.  After contributing almost nothing to GDP in Q4-2016, nonresidential investment bounced back in the first 3 qtrs of 2017.  “Reports indicated that some manufacturers increased capital expenditures over the reporting period,” the Beige Book said.  The report added that residential real estate activity “remained constrained” across the country, with homes sales limited by tight housing inventory.

Fed Says Almost All Districts Saw Modest to Moderate Growth

Bank of America (BAC) Q4 profits fell by nearly ½ from a year ago, as the bank had to book $2.9B in charges related to the new tax law.  But setting aside those charges, the bank is showing signs that whatever damage was left over from the financial crisis is largely healed.  The consumer banking giant EPS was 20¢, down from 39¢ from the same period a year ago.  Like many banks this qtr, BAC had to write down the value its stockpile of deferred tax assets on its balance sheet.  The assets are basically credits it could have used to pay future income taxes that built up after the 2008 financial crisis, when banks like BAC had B$s in losses from bad mortgages & other toxic investments.  Because the maximum corp tax rate was reduced from 35% to 21% under the new tax law, banks had to revalue those credits.  The bank also had to write down $946M in renewable energy investments that were also impacted by the tax law.  Longer term, BAC execs see the tax law as a positive for the bank.  The company now expects its effective tax rate to be roughly 20%, down from 29% historically.  While the bank has raised wages for some of its lowest paid, front-line employees, CEO Brian Moynihan said that he expects most of the tax savings to be channeled into stock buybacks & higher divs.  Outside of the impact of the tax law, BAC continues to benefit from rising interest rates.  When the Federal Reserve raises interest rates, that allows banks to charge more to borrowers for loans.  Net interest income at BAC rose 11% from a year earlier to $11.46B.  BAC is particularly well positioned to benefit from higher interest rates with its consumer-centric business & large mortgage banking franchise.  The bank grew deposits & loans in the qtr, compared to a year earlier, even while closing roughly 100 branches over the last 12 months.  The charge-off rate of loans remained low as well at a steady 0.68%.  In other businesses, trading revenues fell 11%  to $2.5B.  Many banks have reported declines in trading revenue for Q4 as markets were abnormally calm last year, which kept investors from actively trading.  Total revenue at the bank was $20.44B, up from $19.99B in the same period a year earlier.  The stock fell pennies.
If you would like to learn more about BAC, click on this link:

Bank of America 4Q profits fall by 48 percent due to tax law

Goldman Sachs (GS), a Dow stock, posted a $1.93B loss in Q4 as the investment bank had to record more than $4B in charges related to the new tax law.  It was the bank's first quarterly loss in more than 6 years.  The EPS lost was $5.51, compared with EPS of $5.08 in the same period a year earlier.   Excluding the one-time charges, EPS was $5.68 a share, beating estimates.  Like other banks, GS had to write down Bs in assets impacted by the new tax law, resulting in the quarterly loss.  It had $3.32B in charges related to foreign earnings now taxable under the law & $1.1B in charges for deferred tax assets it stockpiled after the financial crisis.  Firm-wide, revenue fell to $7.83B from $8.17B a year earlier.  Additionally, results were hurt by a relatively weak performance on its trading desks, typically one of its strongest businesses.  The segment inside that contains its trading operations had net revenue of $2.37B, down 34% from a year earlier.  Fixed income, currencies & commodities trading net revenue fell 50%.  The firm's advisory businesses made up for the weak performance in trading.  The stock dropped 5.08.
If you would like to learn more about GS, click on this link:

Goldman Sachs posts $1.9 billion loss due to new tax law

Stocks continue to soar to the heavens as gold retreated for a change.  Dow stock Boeing (BA) led the charge, gaining almost 16.  The Dow is solidly above 26K & up almost 8K from where it stood just before the election.  The AAPL news was a powerful signal for the bulls & the Beige Book report was like throwing fuel on a fire.  The latest word on the DC disaster is a gov shutdown should have little of no effect on the economy.  Clearly APPL doesn't care.  The Dow chart below is as pretty as they come.

Dow Jones Industrials

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