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Tuesday 11.01.2016

State Pension Systems Want Your Retirement Savings To Bail Them Out

Several state and local government employee retirement systems around the nation are seriously underfunded. Politicians overpromised retirement benefits to government workers while not collecting enough in employee contributions or taxes, then papered over the shortfall by projecting overly optimistic investment returns akin to an official Ponzi scheme.

But these same irresponsible politicians have figured out a way to bail out their government worker pension systems: forcibly enlist the general public into the underwater systems, taking their money, making them dependent on government, and compelling voters to care about rescuing those retirement systems.

California Gov. Jerry Brown just signed Senate Bill 1234 into law, a bill that makes retirement savings accounts mandatory for any business with more than four employees. Instead of requiring businesses to offer a 401(k) plan through a financial services firm, the law requires a 3 percent payroll deduction with the money going to the state for safekeeping—unless the employee opts out. It’s estimated that 7.5 million private-sector workers in California will be conscripted into the state-run system.

The money taken will be managed by California Public Employees’ Retirement System, otherwise known as CalPERS, the nation’s largest public employee retirement system with 1.8 million members. California’s state and local government retirement systems are facing a funding gap of $991 billion, according to Pension Tracker, an initiative of the Stanford Institute for Economic Policy Research.

Two percent inflation is two percent theft

With political sewage threatening to reach tsunami force, writing an article on inflation seems like posting a daydream. Yet a better understanding of money would show us how it could shield us from political as well as economic malfeasance.

When we hear inflation discussed it's usually presented as a method of price control. It’s a lever central bank “policymakers" tweak to keep IT from happening, by which I mean the infamous Bernanke IT, i.e. deflation, i.e., a general fall in prices. The Fed and its cheerleaders believe a 2% CPI inflation target (more or less) is perfect for a healthy economy. But horrors — it’s been below 2%! A recent article in the Economist exhorts the Fed to get on the stick and get busying printing (“The only thing we have to fear is fear of inflation").

It has been reckless of the Fed to allow inflation to remain so low for so long. We should be cheering the slight, recent acceleration in prices and hoping for more.

Remember, in the world of Keynesian economics, savings are bad, capital should be free, and in the long run we’re all dead. (See Ray Kurzweil for a rebuttal of this last point. Or see Henry Hazlitt.) In the real world where some people work for a living things are a little different.

Why the U.S. economy is weaker than it looks

Fresh data seem to suggest the U.S. economy is revving up, with growth rising at its fastest pace in two years. Yet a deeper look at the numbers reveals that strength may be overstated. Worse, that could spur the Federal Reserve to raise interest rates too soon.

Between July and September, the nation’s gross domestic product rose an annualized 2.9 percent, far exceeding economists’ forecast and a big jump from the tepid pace seen earlier in the year. On the surface this is great news. Expectations have been strong for a second-half bounce-back. And Wall Street has been ready for some good news, given the ongoing corporate earnings recession, fears over a Fed rate hike and frayed nerves heading into election day.

So why isn’t that headline GDP number as good as it looks? For one, consumers seem to be pulling back on spending, with consumption up just 2.1 percent, versus a 4.3 percent gain in the second quarter and less than the 2.6 percent that was expected. Also, the sudden boost in growth was driven by an unusual surge in agricultural exports (mostly soybeans, actually) and inventory accumulation, which often turns out to be a temporary boost, especially if consumers are cautious heading into the holiday shopping season).

Capital Economics estimates that a full 0.9 percent of the GDP gain in the third quarter was driven by the one-off surge in soybean exports alone -- a gain the research firm expects be reversed in the final three months of the year.

When will the great stock market crash begin?

So, when will the crash begin? When will the huge sell-off – in both shares and bonds – convulse world markets, obliterating trillions of dollars within weeks and triggering a domino-effect collapse of banks, other financial institutions, pension funds and even governments? When?

There is certainly a growing chorus of voices claiming the inevitability of this Armageddon. Many think it is nigh. You know their argument: a tsunami of money has swept through the markets in pursuit of returns. But, in a world where returns have been crushed by years of central bank intervention, the outcome has been to rocket-propel the prices of everything from government bonds to property and shares.

We’re at a point where valuations of swathes of the stock market here and elsewhere are frighteningly high in comparison with long-term average measures.

The price of government bonds issued by Britain, Germany and the United States may have fallen in recent weeks, but their yields remain as negligible as a few months ago. Sky-high valuations are in themselves worrying enough, but they come at a time when the economic outlook is uncertain at best. The ability of many British companies to maintain dividends – arguably one of the main reasons for driving their share prices to such heights – has rarely been less secure.

Zero Hedge Needs To Cut Me a Break - Gartman

Corporate America just had the biggest deal-making month ever

The value of announced U.S. mergers and acquisitions in the last few weeks makes October a record month for deals. A fresh round of deal announcements Monday morning took the month's value to about $337 billion, easily surpassing the previous high of $282.2 billion from January 2000, said Richard Peterson, senior director, S&P Global Market Intelligence. He added that the last 30 days have seen more than 20 percent of year-to-date deal value for announced U.S. M&A.

While the announced tie-ups of the year so far do lag the record levels of 2015, he said, "all deal activity will likely force (corporate) peers to consider similar action."

General Electric announced Monday an agreement to combine GE's oil and gas business with Baker Hughes for an expected combined revenue of more than $30 billion. In addition, CenturyLink announced it will acquire Level 3 Communications in a cash-and-stock deal valued around $34 billion, including the assumption of debt. Both deals are expected to close in 2017.

Analysts have generally attributed the surge in corporate deals to the rise in interest rates, as companies try to lock in lower financing costs ahead of further increases in borrowing costs. Global benchmark yields rose to multimonth highs last week as sentiment around major central banks' policies turned less stimulative than it has been.

Wells Fargo to pay $50 million to settle claims of overcharging for appraisals

It’s been a rough few weeks for Wells Fargo and things aren’t about to get any better. In the fallout from the bank’s fake account scandal, Wells Fargo lost its CEO, lost business from the state of Ohio, the city of Chicago, the state of California, the state of Oregon and maybe the city of San Francisco too, and lost its accreditation from the Better Business Bureau as well.

And now, a new report from Reuters states that Wells Fargo is set to pay $50 million to settle claims that the bank overcharged “thousands of homeowners” for appraisals conducted after the borrower defaulted on their mortgage.

According to the Reuters report, the settlement agreement is not yet finalized and awaiting approval in federal court in Oakland, California. Here are the details, courtesy of Reuters:

If approved, it will resolve nationwide claims that Wells Fargo charged much more than it paid for third-party appraisals, exploiting borrowers who could least afford it and driving them further into default.

Survey: 35% of federal workers may consider leaving their jobs if Trump wins

A new broom sweeps clean in Washington when it comes to cabinet heads and appointed officials, but what about all of the millions of federal workers on the government payroll? Their jobs are supposed to be apolitical and largely independent of which party controls the White House or the chambers of Congress. According to a new survey conducted by Government Executive, a significant number of these workers are signaling that they might “reconsider their career in government service” if Donald Trump moves in to the West Wing.

This polarizing presidential election has left many federal workers seriously rethinking their career choices.

A Government Business Council/ GovExec.com survey found that 14 percent of federal workers say they would definitely consider leaving their jobs if Donald Trump wins the Nov. 8 presidential election. Another 13 percent said they might consider leaving, while 9 percent said they did not know. That leaves just 65 percent of federal workers who say they would stay for a Trump administration.

The animus toward Hillary Clinton is less severe: Nine percent would definitely consider leaving; 7 percent might leave; 5 percent didn’t know. Nearly eight in 10 (79 percent) say they would stay for a Clinton administration.

Inflation-Racked Venezuela Turns to Company Behind U.S. Dollars for New Bills

Venezuela’s Socialist government, a vocal critic of the dollar’s global dominance, has hired the exclusive supplier of U.S. currency paper to provide the bulk of its new bank notes.

Earlier this month, Venezuela’s central bank awarded Boston-based securities printer Crane Currency the largest part of a contract for new bill denominations needed to keep up with triple-digit inflation, according to people involved in contract negotiations.

“Given their antipathy towards the U.S., I’m surprised that they would even let a U.S. firm participate,” said Owen Linzmayer, a San Francisco-based banknote expert who catalogs world currencies. The central bank and Crane, which has provided the U.S. Treasury with blank currency paper since the 1879, declined to comment.

As inflation soars, the bills in circulation across Venezuela are nearly worthless, turning the most basic transactions into logistical nightmares and saddling local banks with crippling money-handling costs. ATMs run out of cash in just a few hours and coins have little to no use in a country afflicted by a deep economic contraction and rising political turmoil.

Car-loan market suffers losses for a third straight month

Car loans—and the bonds built on repackaged loans—suffered losses in September for a third consecutive month, Fitch Ratings said Monday. Losses rose on both prime and subprime car loans, while delinquencies also moved higher, according to the latest monthly auto loan ABS (asset-backed securities) index from Fitch. The subprime car-loan market is generally understood to be loans extended to borrowers with credit scores below 600.

Fitch’s ABS index tracks the performance of $97 billion of outstanding securitized collateral, with 58.5% of the index, or $57 billion, comprising prime ABS collateral, and the remaining 41.5% tied to subprime collateral. The $97 billion total is equal to just 8.8% of the total of $1.1 trillion in auto loans outstanding.

The trend has led some lenders to push back on underwriting quality in an effort to combat declining asset performance, the rating agency said in a note.

“As a result, a number of auto ABS securitizations came to market last quarter with marginally better credit quality, including stable or marginally improved FICO scores,” said Fitch analysts led by Hylton Heard. “That said, only time will tell how long this trend will last and despite the pushback by some lenders, Fitch does not believe that these changes will have a significant positive influence on asset performance. “

Athenahealth Cuts 140 Technology Jobs in San Francisco, Atlanta

Athenahealth, a maker of cloud-based software for doctor’s offices, cut more than 140 people in two offices in an effort to control research and development costs.

The information technology firm, based in Watertown, Massachusetts, fired 102 people in San Francisco and another 40 in Atlanta, according to the Boston Business Journal. The company had employed about 5,200 workers.

Company spokeswoman Holly Spring told the newspaper that R&D functions will be focused in Watertown, Austin, Texas, and in India.

“We think by doing this we’ll be bringing our R&D teams closer to our R&D leaders and we also think we’ll be better positioned to accelerate our innovation and also achieve new efficiencies,” Spring told the newspaper.

'Duplicate' debit card payments glitch hits Barclays customers

Thousands of Barclays customers in Northern England and Scotland have been hit by a glitch in the bank's debit card system which caused a duplication of deducted payments.

While the bank admitted that some accounts have had payments wrongly deducted from their balance, a spokesperson said anyone affected should be reimbursed by the end of the working day Monday (31 October) at the very latest.

"We have detected a small number of duplicated debit card payments this [Monday] morning. We apologise for any inconvenience caused and any affected customers will not be out of pocket," the spokesperson added.

The bank insisted that only a "tiny fraction" of its 15m UK customer account base was affected by the glitch.

Trump fans flames from FBI's decision as polls tighten

It's Not Just Premiums: ObamaCare Is Hiking The National Debt, Too

ObamaCare gets costlier with every passing day—and the attempts to conceal it are getting more misleading. The Obama administration acknowledged on Oct. 24 that insurance premiums on Healthcare.gov are rising 25 percent, on average. But it also tried to downplay these hikes by highlighting the increased subsidies that most people enrolled on the exchanges will receive. According to this logic, only a few million Americans will actually be on the hook for some or all of the higher rates. No big deal, right?

There’s just one catch: We’re all paying for these skyrocketing subsidies. They’re by taxpayers like you and me.

Tax subsidies and other costly provisions of ObamaCare are running up government spending, contributing to annual federal deficits, and increasing our $19.8 trillion debt. Every American taxpayer is on the hook for ObamaCare’s higher costs. And as ObamaCare dishes out higher subsidies to pay for higher premiums, the debt will multiply that much faster.

This is the reality of the Obama administration’s deceptive claim that taxpayer subsidies cover the law’s pain. Premium subsidies were always designed to make everyone purchasing through an exchange feel like they were getting a good deal. But the costs to taxpayers are considerable. The Congressional Budget Office estimates that the government gave out $27 billion in premium subsidies this year alone. Over the next ten years, CBO expects that amount to rise to $568 billion.

Gasoline prices cheaper than they were in 1966

During the 1960s, there was no OPEC and gasoline prices were pretty much the same, month in and month out. If prices climbed over 36 cents a gallon, consumers weren't very happy. Could we be entering a similar pricing environment in the 21st century? Using an inflation calculator, we determined that 36 cents in 1966 is the equivalent of $2.71 today. So gasoline in most places is a lot cheaper than it was 50 years ago.

Today, the national average price of self-serve regular is $2.21 a gallon, according to the AAA Fuel Gauge Survey. That's the same as it was a week ago. It's also the same price as a month ago. However, it is three cents a gallon more than at this time a year ago. For most of the year, 2016 gasoline prices have stayed well below the year-over-year price.

Many analysts think prices at the pump should be lower than they are, since the summer driving season has ended and stations have switched over the cheaper winter blend gasoline. The main reason the price decline has stalled has to do with the price of oil. It's remained just under $50 a barrel in recent weeks, higher than the going price 12 months ago.

“Drivers may continue to see prices wobble up and down as traders speculate on the possibility of OPEC countries developing an output agreement over the next month,” AAA said in a release. “Additionally, planned and unplanned refinery maintenance continues across the United States and may result in regional fluctuations in gas prices.”

Are You Ready For Some Big Moves In Gold?

The rational investor seeks opportunities with the highest potential return for the lowest levels of risk, right? Rational investors in gold may want to take a break on the sidelines right now. In technical analysis parlance there is a term called "noise."

That is what the gold chart shows right now – a lot of short-term noise, or meaningless, choppy price action. There is not a strong short-term trend to trade -- day traders beware.

In noisy market conditions, it is best to take a step back, analyze the bigger picture and determine what your investment goals are. If you are a trend trader in the gold market: a small minor bull channel suggests a dip-buying approach could be considered. But, unless you have itchy trigger fingers, better trade opportunities could lie ahead.

If you are a long-term investor who buys physical gold: the latest pullback to the early October low created a lower price point for long-term accumulation. The $1,240-$1,265 an ounce zone is nearby support and gold dips toward that zone could offer a good long-term buying spot.

McDonald’s Settles Labor Lawsuit With 800 Franchise Workers

McDonald’s Corp. agreed on Friday to pay $3.75 million to settle a lawsuit with about 800 Bay Area-based franchise workers, who claimed they were owed overtime pay due to flaws in payroll systems and denied state mandated breaks, among other complaints.

The settlement is the first time that McDonald’s corporate is paying franchise workers to settle a suit, lawyers said. It must now be approved by a district judge. As McDonald’s and other fast-food workers organize for better pay and conditions, one crucial legal battlefront concerns whether McDonald’s corporate is responsible for labor violations at franchised stores, which the company does not own. Nearly 90% of McDonald’s US restaurants are owned and operated by franchisees.

Cases currently before the National Labor Relations Board and the Equal Employment Opportunity Commission both hinge on this question. If the McDonald’s company is found to be a joint-employer of workers at franchise-owned restaurants, it will be on the hook for wage-and-hour violations at stores owned by franchisees. The joint-employer status would also make it easier for workers to unionize across stores, to bargain collectively with a common employer.

Catherine Fisk, a labor law professor at the University of California, Irvine, said while “in a narrow, legal sense, the settlement has no implications for the ongoing NLRB inquiry,” the fact that McDonald’s settled the case for a substantial amount of money “does suggest that its lawyers have concluded that there is some risk” that it could have been found to be a joint employer had the case moved forward.

POLL: Three Out of Four Americans Think the Media Want Clinton to Win

An overwhelming majority of Americans think the media clearly want Hillary Clinton to be elected president. That’s according to a new Suffolk University/USA Today poll, which found that 75.9 percent of Americans feel the media want Clinton to win the election. Only 7.9 percent thought the media were pulling for Donald Trump, and just over 16 percent said “neither” or “undecided.”

The poll asked 1,000 adults the question: "Who do you think the media, including major newspapers and TV stations, would like to see elected president: Hillary Clinton or Donald Trump?"

This follows another recent poll that found a majority of Americans (55 percent) feel the media have a clear bias against Trump.

In that poll, 88 percent of Republicans said they felt the media are biased against their nominee, along with 61 percent of Independents. Only 20 percent of Democrats, however, think the media are showing bias against Trump.

Encountering Eric Holder

Baker Hughes To Merge With GE Oil & Gas Business In $32B Group

GE (NYSE:GE) and Baker Hughes (NYSE:BHI) said on Monday they had agreed to merge GE’s oil and gas business with Baker Hughes to create an oil and gas industry technology and services provider worth US$32 billion in combined revenue.

Under the terms of the agreement, GE would hold 62.5 percent in the new company, while Baker Hughes shareholders would get 37.5 percent of the “new” company.

Existing Baker Hughes shareholders will also receive at the closing of the transaction a special one-time dividend of US$17.50 per share and GE will contribute US$7.4 billion to fund the payment of that dividend.

The transaction is expected to close in the middle of next year, and to generate synergies of US$1.6 billion by 2020. It is also seen as adding US$0.04 to GE’s earnings per share (EPS) by 2018, and US$0.08 by 2020.

A Perfect Storm for the Global Economy

Since we are in totally uncharted waters, no one can know exactly how the world’s bold experiment with highly unorthodox monetary policy will end. However, judging by past experience with credit booms, there are already all too many indications that this experiment will end in tears. Indeed, it would seem that a confluence of factors spawned by years of global monetary policy largesse could very well have set the stage for a world economic and financial crisis on the scale of that which occurred in the wake of the September 2008 Lehman bankruptcy.

As an indication of how aggressively unorthodox global monetary policy has been in recent years, it is well to start with the Federal Reserve’s balance sheet. While it took the Fed some 100 years to increase the size of its balance sheet to $800 billion, it took the Fed only six years from 2008 to 2014 to more than quintuple its balance sheet to its present level of around $4.5 trillion. Meanwhile, over the past eight years, as a result of similar action by the Bank of Japan, the People’s Bank of China, the European Central Bank, and the Bank of England, the total balance sheet of the world’s major central banks has increased from around $6 trillion to almost $18 trillion.

Among the more reliable indicators of future economic turbulence is an excessive buildup of debt. For this reason, it has to be of concern that years of ultra- easy monetary policy have taken global debt levels to new peaks. According to a recent IMF study, the world debt level today stands at 225 percent of world GDP. This is a significantly higher ratio than that which prevailed in 2008 on the eve of the Great Economic Recession.

Particularly troubling has to be the recent extraordinarily rapid buildup in Chinese corporate debt and the excessive corporate dollar borrowing in the major emerging market economies. Over the past eight years, Chinese corporate debt increased by a staggering 90 percent of GDP. This constitutes a more rapid buildup in debt than that which preceded either the U.S. housing bust in 2007 or Japan’s lost decade in the 1990s.

NEWS to Disturb the Comfortable...

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