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Friday 02.27.2015

It's official: America has deflation
Prices for goods actually declined -0.1% in January from a year ago, according to the Labor Department. That means it actually cost less to buy things in America this year than it did in January 2014. It's the first time since October 2009 that the U.S. economy experienced deflation. As most consumers know, the main driver of falling prices is cheap gas. A year ago, gas was around $3.40 a gallon, on average. For much of January, the national average for a gallon of was around $2.15. Inflation is the only major yardstick of the economy going in the wrong direction. A strong and growing U.S. economy typically has inflation of around 2% a year, so a negative number is far from the mark. January's deflation could cause the Federal Reserve to hesitate on raising its key interest rate, which many expect them to do later this year. Federal Reserve Chair Janet Yellen and her fellow board members do not want to raise interest rates until the economy shows real momentum.

John Deere discusses layoffs
Hundreds of shareholders showed up Wednesday morning at John Deere world headquarters for the annual stockholders meeting to discuss the future of Deere. While they are optimistic, Deere saw a decline in numbers. According to chairman and CEO Sam Allen, Deere reported its second-highest earnings in 2014 with income of $3.16 billion in net sales and $36.1 billion in revenues. These numbers, however, hide the hurting farming economy. And, with the lack of demand for machinery, came layoffs. "Management struggled laying off every individual of the company," said John Deere spokesperson Ken Golden. "It is not easy, but it is important to manage the cost of the company." Between August of last year and January of this year, Deere has laid off roughly 2,000 employees. That's about two-thirds of the workforce in those departments. "We're balancing this both in the good and the bad time and I think out employees understand that that could happen," Golden said.

Senate edges away from Department of Homeland Security shutdown
Congress appeared to step back from the brink of a partial government shutdown Wednesday as the Senate voted overwhelmingly to move forward with a clean bill funding the Department of Homeland Security (DHS). The Senate opened debate on the bill in a 98-2 vote after Majority Leader Mitch McConnell (R-Ky.) agreed to strip out provisions that would reverse President Obama’s executive actions on immigration. The vote broke a weeks-long stalemate in the upper chamber and appeared to pave the way for passage of the clean bill later this week, potentially as early as Thursday. But while senators seem eager to stave off a shutdown of the DHS at midnight on Friday, the fate of the bill in the House remains unclear. Speaker John Boehner (R-Ohio) repeatedly declined to take a position on the bill at a brief press conference, emphasizing that it’s up to the Senate to act on funding. “Until the Senate does something, we’re in a wait-and-see mode,” Boehner said.

Still Eying Triple-Digit Silver | Kitco News

Housing Crash in China Steeper than in Pre-Lehman America
China has long frustrated the hard-landing watchers – or any-landing watchers, for that matter – who’ve diligently put two and two together and rationally expected to be right. They see the supply glut in housing, after years of malinvestment. They see that unoccupied homes are considered a highly leveraged investment that speculators own like others own stocks, whose prices soar forever, as if by state mandate, but that regular people can’t afford to live in. Hard-landing watchers know this can’t go on forever. Given that housing adds 15% to China’s GDP, when this housing bubble pops, the hard-landing watchers will finally be right. Home-price inflation in China peaked 13 months ago. Since then, it has been a tough slog. Earlier this month, the housing news from China’s National Bureau of Statistics gave observers the willies once again. New home prices in January had dropped in 69 of 70 cities by an average of 5.1% from prior year, the largest drop in the new data series going back to 2011...

IRS Begins Rule-Making for Tax on ‘Cadillac’ Plans
The Internal Revenue Service has begun the process of implementing the looming Obamacare excise tax on employer-sponsored health plans that, according to one recent analysis, could cost large companies subject to the tax $2.1 million per year from 2018 to 2024. The so-called “Cadillac plan” tax, which will start in 2018, targets overly generous employer-provided health care plans, imposing a 40% levy if the aggregate cost of “applicable employer-sponsored coverage” provided to an employee exceeds $10,200 for individuals and $27,500 for families. In a recent notice, the IRS asked for comments on proposed approaches to a number of issues involving the tax that could be incorporated in future proposed regulations. Among those issues is the definition of “applicable coverage” and the determination of the cost of applicable coverage. According to Journal of Accountancy, the IRS anticipates that employer contributions to health saving accounts and Archer medical savings accounts...

Can helicopter money be democratic?
Helicopter money started as an abstract thought experiment: money would be created and just distributed to individuals by helicopter. If we think of a consolidated government which includes its central bank, then it is clear that in technical terms this is a combination of monetary policy (the creation of money) and fiscal policy (the government giving individuals money). Economists call such combinations a money financed fiscal stimulus. With the advent of Quantitative Easing (QE), it has also been called QE for the people. Some have tried to suggest that central banks could undertake helicopter money for the first time without the involvement of governments. This is a fantasy that those who dislike the idea of government have concocted. Others who dislike the idea of fiscal policy have suggested that helicopter money is not really a fiscal transfer. That is also nonsense. Helicopter money is a particular form of money financed fiscal stimulus.

Lawsuit forces a Nevada county to return innocent people's money illegally taken through civil asset forfeiture
In November 2013, Trevor Paine was on his through Humboldt County, Nevada on his way to California when he was stopped by a deputy from local sheriff's department for driving nine miles per hour over the speed limit on I-80. The deputy who stopped him claimed that his police dog had alerted him to something in Paine's vehicle and searched it without his consent. Though he didn't find any drugs or contraband during the search of Paine's vehicle, the deputy did stumble upon $11,000 in cash in a lockbox, which he subsequently seized through civil asset forfeiture. Obviously, Paine objected to the seizure, but the deputy threatened that if he protested the seizure of his money, his vehicle would be impounded, which would have left him stranded in the desert. Paine was not arrested and charged with a crime, though he was given a warning for speeding, but his money was taken without any cause or evidence. Without question, local aw enforcement provides the public with a valuable...

Greek Finance Minister Yanis Varoufakis: We’ll Do Everything to Stay in Euro Zone

What the Latest Payroll Data Really Means for the Labor Market
A Better Indicator of Labor Demand. Outdated measurement methodologies used to calculate the unemployment rate and payroll data have encouraged the Fed to broaden its watch-list of labor data. Now the Fed is looking at other benchmarks like participation rate and wage growth. They must not realize that the best data to watch is Jobless Claims. The Initial Jobless Claims metric is the flip-side to Nonfarm Payroll. It measures labor demand by looking at firings whereas the NFP looks at hirings. The Initial Jobless Claims data is direct, unsampled, and comprehensive. The NFP data on the other hand is surveyed, sampled, and modeled. I’d much prefer to rely on reality over a model. Putting the Data to Work. Assume that the Jobless Claims data doesn’t give us insight into the Fed decision of when to raise rates (if at all). Instead, assume that the data tells us whether the Fed was right and whether there will be additional hikes.

Obama Dares GOP: Go Ahead, ‘Have a Vote on Whether What I’m Doing Is Legal…I Will Veto’
Discussing opposition to his executive amnesty orders at an immigration town hall Wednesday, Obama said he would veto the vote because his actions are “the right thing to do”: “So in the short term, if Mr. McConnell, the leader of the Senate, and the Speaker of the House, John Boehner, want to have a vote on whether what I’m doing is legal or not, they can have that vote. I will veto that vote, because I’m absolutely confident that what we’re doing is the right thing to do.” Obama argued that he has merely “expanded my authorities” – not broken any laws: “What we’ve done is we’ve expanded my authorities under executive action and prosecutorial discretion as far as we can legally under the existing statute, the existing law. And so now the question is, how can we get a law passed.” Obama called the “political process” a “separate track”: So we’re going to have to keep on with the political process on a separate track. But in the meantime, we’re going to do everything that we can to make sure...

Plunging gas lowers US consumer price index 0.7 pct., but excluding energy and food, costs up
A plunge in gas prices last month lowered consumer prices by the most in six years. But excluding the volatile food and energy costs, prices rose. The consumer price index fell 0.7 percent in January, the sharpest drop since December 2008, the Labor Department said Thursday. Tumbling prices at the pump drove nearly all of the decline. Core prices, which exclude food and energy, rose 0.2 percent. Despite the sharp drop in the overall index, economists see signs that many prices are moving higher. The cost of services, such as hotels, restaurant food and rents, all rose last month, lifting core prices. Prices for services are rising as the U.S. economy has picked up, and falling unemployment is starting to lift wages, if still only slightly. Higher prices domestically are offsetting cheaper oil and a strong dollar, which is lowering import prices. Overall consumer prices have slipped 0.1 percent over the past 12 months. It is the first year-over-year drop in five years.

Citi urges Europe's CEOs to follow U.S. share buyback trend
Citi strategists on Thursday urged European firms to use historically cheap borrowing costs to buy back their own shares, a practice embraced by U.S. companies in recent years that has also attracted criticism. What European companies should do with their trillion-dollar cash pile in a world of rock-bottom interest rates and cheap central-bank money has become a hot topic for investors, as carrying cash on balance sheets becomes costlier while borrowing funds for everything from mergers to buybacks becomes cheaper. "CEOs: This is an opportunity to use record cheap debt-funding to retire relatively expensive equity funding...use excess cash or debt to buy equity," Citi's European strategy team wrote in a note to clients, saying the cost of corporate debt funding was at record lows relative to earnings yield. While share buybacks are often hailed by some investors as a form of capital return, reducing the company's outstanding share count and usually inflating both share price and earnings per share...

The Winners And Losers Of Net Neutrality

China’s Love for Gold: You Ain’t Seen Nothing Yet
Welcome to the year 4713. Or, if you prefer, the Year of the Ram. The Chinese New Year, which [kicked off last week], is the largest and most widespread cultural event in mainland China, bringing with it massive consumer spending and gift-giving. During this week alone, an estimated 3.6 billion people in the China region travel by road, rail and air in the largest annual human migration. Imagine half a dozen Thanksgivings and Christmases all rolled into one mega-holiday, and you might begin to get a sense of just how significant the Chinese New Year festivities and traditions are. According to the National Retail Federation, China spent approximately $100 billion on retail and restaurants during the Chinese New Year in 2014. That’s double what Americans shelled out during the four-day Thanksgiving and Black Friday spending period. As I’ve discussed on numerous occasions, one of the most popular gifts to give and receive during this time is gold...

Pew study: Americans still stressed despite improved economy
Nearly six years after the Great Recession, a clear majority of American families say they feel unprepared for a financial emergency. The Pew Charitable Trusts' poll of 7,000 U.S. households finds that 57 percent don't consider themselves ready for a sudden financial setback, 55 percent say they break even or spend more than they make each month, and a third have no savings. "Despite a steady economic recovery, many Americans continue to feel vulnerable," says Erin Currier, director of Pew's financial security and mobility project. The survey does note signs of improvement: 56 percent rate their own financial situation as positive, up from 55 percent on the eve of the recession in 2007; 27 percent give the economy a positive grade, equal to pre-recession levels. Still, 51 percent considered themselves financially secure. Predictably, those with higher incomes and more education were more likely to be confident about their finances.

Fannie Mae: Strong job growth could boost economy
Despite the slate of bad news that’s started off 2015, Fannie Mae’s analysts predict that the economy is poised for a pickup in growth in 2015. Fannie’s Economic & Strategic Research Group say they expect a strengthening employment sector, rising income growth, and declining commodity prices. While many are worried about the faltering start to 2015, other analysts and economists think the down housing market is an anomaly. the year is off to a bad start for housing in terms of housing starts, completions and permits. Existing home sales tumbled in January, and mortgage applications have been spiraling downward in February, giving away most of the gains made in January. Fannie’s ESRG say the labor market has started the year on an upbeat note and is expected to lift consumer confidence, in turn helping to boost consumer spending, manufacturing activity, and the pace of the housing recovery. Economic growth may face some headwinds as a strong U.S. dollar weighs on the trade deficit.

Wal-Mart CEO: 'We have ears and we care'
When Wal-Mart CEO Doug McMillon took the top job at the world's largest retailer last year, he inherited some big problems. Wal-Mart Stores Inc., which has more than 11,000 stores in 27 countries, has struggled with two years of mostly sluggish sales due in large part to a challenging global economy and major changes in how people shop. Workers' groups have targeted Wal-Mart over its pay and treatment of its U.S. employees with protests. And overseas, the retailer is still being scrutinized nearly two years after a Bangladesh factory that made some of its clothes collapsed, killing over 1,100 workers. McMillon, whose first job at Wal-Mart was an hourly position loading trucks as a college student in 1984, has had to wrestle with these issues since he became CEO in February 2014. In the past year, he's replaced the head of the struggling U.S. division, accelerated the pace of smaller store openings and stepped up the retailer's e-commerce efforts.

Department Store J.C. Penney Tumbles After Posting Surprise Loss in Q4

You’re About to Pay Up for Obamacare
Roberta and Curtis Campbell typically look forward to tax time. Most years, they receive a refund—a little extra cash to pay off credit card bills. But this year they got a shock: According to their tax preparer, they owe the IRS more than $6,000. That’s the money the Campbells received from the federal government last year to make their Obamacare health coverage more affordable. Roberta, unemployed when she signed up for the plan, got a job halfway through the year, and Curtis changed positions. The couple’s total yearly income became too high to qualify for federal subsidies. Now they have to pay all the money back. “Oh my goodness, this is just not right,” said Roberta Campbell, who lives in the Sacramento suburb of Roseville. “This is supposed to be a safety net health care, and I am getting burned left and right by having used it.” As tax day approaches, hundreds of thousands of families who enrolled in plans through the insurance marketplaces could be stuck with unexpected tax bills...

Reforming the Fed: Who’s Right; Who’s Wrong?
The Republicans are making good on their campaign pledge to turn up the heat on the Federal Reserve. Sparks flew in the House Financial Services Committee hearing room yesterday as Fed Chair Janet Yellen appeared to present her semi-annual testimony. At times, the exchanges between Yellen and Republican members of the Committee were sharp and tense. In his opening statement to the Committee, Jeb Hensarling (R-Tx), who chairs the Committee, blamed the “anemic” recovery on Obamacare, Dodd-Frank and regulatory costs. He went on to say that “Then there’s the doubt, uncertainty and regulatory burden that grows as more and more unbridled, discretionary authority is given to unaccountable government agencies. Although monetary policy cannot remedy this, it can help.” Republicans are locked in some kind of mind warp where the remedy for every problem is to deregulate. Despite six years of books, academic studies, investigative findings, and a 600-page report from the Financial Crisis Inquiry Commission...

Puerto Rico seeks protection of federal bankruptcy code
Puerto Rican officials sought Thursday to convince U.S. legislators that the island's financially struggling public corporations should be allowed to restructure their debt under the federal bankruptcy code. The push comes after a federal judge ruled that a local debt-restructuring law pushed through last year by Puerto Rico's governor was unconstitutional. Melba Acosta, president of Puerto Rico's Government Development Bank, was among those who testified before a U.S. House Judiciary Committee hearing in Washington. "The fiscal and economic situation in Puerto Rico has reached a critical moment," she said. "If the public corporations default on their obligations and there is no clear legal regime, creditors may attempt to engage in a race to the courthouse." Puerto Rico's delegate to Congress, Pedro Pierluisi, has filed a bill seeking to allow the island's state-owned corporations to file for Chapter 9 bankruptcy if needed. It would not apply to debt issued directly by Puerto Rico's government.

Why Should the Government Deliver Mail?
In a country where people extol the virtues of free enterprise, why is the U.S. government involved in the delivery of mail? After all, it would be difficult to find a better example of a violation of the principles of free enterprise than the U.S. Postal Service. The Postal Service is a monopoly. That means that the law expressly prohibits anyone in the private sector from competing against the government in the delivery of first-class mail. If some private firm attempts to do so, the Justice Department immediately secures an injunction from a federal judge enjoining the firm from continuing to compete. If the firm persists, the judge jails the head of the firm until he agrees to cease and desist with his competition. Why should a country that prides itself on the virtues of free enterprise have a massive monopoly on mail delivery? Why not free enterprise in mail delivery? One option would be to simply repeal the postal monopoly. That would put the Postal Service in the same position as everyone else...

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