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Wednesday 11.02.2016

Janet Yellen and Federal Reserve Punt on Rate Hike Until After Election

With the 2016 presidential election just days away, it was widely expected that Janet Yellen and the Federal Reserve were not going to announce an interest rate hike at the November 2 two-day FOMC meeting. Now we know the answer: no rate hike, with Fed Funds staying in the 0.25% to 0.50% range.

The Federal funds rate target range has remained unchanged at the 0.25% to 0.50% range since December of 2015. What is up for grabs is just how high the odds are up for a December rate hike. The bias continues to point toward a December rate hike if you trust the Federal at its word (or words).

Before panicking about rate hikes, the official view is that the case for a rate hike has continued to strengthen but that the Fed is waiting for further evidence of progress. One thing that should be noted here is that the FOMC has unofficially increased its assessment of rising prices and inflation.

After 3 dissenting votes at the prior meeting, there were just 2 dissenting votes at this meeting. The use of “Moderate” was twice and the use of “Modest” was just used once.

Buy Gold No Matter Who Wins the Election, HSBC Says

There's one certain winner of next week's presidential election, according to HSBC Holdings Plc: investors in gold.

Although they deem a Donald Trump victory more supportive for the price of the metal than a win by Hillary Clinton, the bank's Chief Precious Metals Analyst James Steel says it'll enjoy at least a 8 percent jump whoever wins the race.

Both candidates have espoused trade policies that could stimulate demand, with gold offering a potential "protection against protectionism," he says. Even the relatively more internationalist Democratic candidate has argued for the renegotiation of longstanding free-trade agreements. That's positive for gold — even if "not on the scale of Mr Trump’s agenda."

If the real-estate magnate triumphs, gold could rise to $1,500 an ounce, according to HSBC, up from around $1,289 at 10:55 a.m. in New York. If Clinton wins, the price of the metal could improve to $1,400 an ounce by year end, Steel writes, adding that a Democratic sweep of Congress would further stoke demand for the metal owing to a possible boost in fiscal spending. Clinton's not alone in having suggested stimulus through channels outside of monetary policy, with Trump at one point saying he would put at least half a trillion dollars to work.

Reuters to cut 2,000 jobs

Thomson Reuters Corp (TRI.N) (TRI.TO) third-quarter earnings beat analyst expectations on Tuesday and the company said it would cut jobs worldwide, taking a fourth-quarter charge of $200 million to $250 million to streamline its business.

Thomson Reuters shares gained more than 4 percent in both New York and Toronto. The restructuring, affecting about 2,000 jobs or 4 percent of its workforce, will take place across 39 countries and 150 locations and would mainly affect the Financial & Risk business and the Enterprise, Technology & Operations Group, the news and information company said. The company employs about 48,000 people globally, a spokesman said.

The changes come as part of its multi-year effort to streamline its businesses, Chief Executive Jim Smith said in an interview.

"It's about simplification and taking out bureaucracy and taking out layers all of which have added complexity and slowed us down," he said. "These actions are not driven by any reaction to market conditions or in any way coming on the back of underperformance." Thomson Reuters is the parent of Reuters News, which competes for financial customers with Bloomberg LP as well as News Corp's (NWSA.O) Dow Jones unit. There will be no decline in headcount in the Reuters newsroom, according to a memo from Smith to employees on Tuesday.

October US Sales Fall as Auto Boom Slows

It's a chilly autumn for U.S. auto sales. Sales of new cars and trucks were expected to fall in October as consumer demand wanes. J.D. Power and LMC Automotive expect total October sales to fall by just over 7 percent, with retail sales to individual customers dropping 8 percent.

General Motors' sales fell 2 percent from last October, while Toyota's sales fell 9 percent. Honda's sales were down 4 percent and Nissan's fell 2 percent. Fiat Chrysler's sales were down 10 percent. Volkswagen's sales fell 18.5 percent.

Ford Motor Co. said its sales figures would be delayed until later in the week due to an electrical fire at its headquarters that stopped dealers from reporting sales. Kelley Blue Book estimated that Ford's sales fell 11 percent.

October would be the fifth month of year-over-year sales drops, a sign this year could fall short of the 17.5 million sales record set in 2015. "The fact that retail sales are beginning to contract despite high incentives and extremely low interest rates and gas prices is a clear indicator that this cycle has reached its peak," said John Humphrey, senior vice president of J.D. Power's global automotive practice, who does not expect a large sales decline for the year.

Gold Losses Just a Down Payment for More Returns - Peter Schiff

Mark Cuban: 'Obamacare is one of the biggest startups of all time'

Mark Cuban thinks the Affordable Care Act, the healthcare law better known as Obamacare, has its issues but nothing insurmountable.

In an interview with CNBC on Tuesday, the billionaire investor and media personality said the healthcare law had flaws but was ultimately a positive development.

"To me, Obamacare is one of the biggest startups of all time," Cuban said during an interview with CNBC's "Squawk Alley." "They made certain projections that didn't work out. That's not unusual for a startup. It doesn't help the people in the states — obviously it's very painful for them."

The current Obamacare premiums are roughly in line with the nonpartisan Congressional Budget Office's expected premium levels for 2017 from when the ACA first passed. Cuban said many startups go through growing pains and need to be retooled to be successful. Thus, given the size of the ACA, he said, it was unsurprising that there had been growing pains.

Election 2016: Too Big To Fail

We don’t like it, but certain big banks won’t be allowed to fail. When I was working on Wall Street, I saw the inner behavior of how bankers react in a crisis. Here’s the most important lesson that I can pass on to you from my time there: Bankers don’t care about how their actions impact you.

At Bear Stearns and Goldman Sachs, we never worried about how our practices might affect the world at large. The game was to do whatever was possible to make money, as quickly as possible, and stay within the legal confines.

Of course that has changed dramatically since I left the industry in 2002. Many bankers don’t worry about “legal confines” today. Why would they? Those goalposts are flimsy at best. These banksters break the law, get fined, and repeat, again and again. Yet, the rigged political-financial system continues to turn a bipartisan blind eye to those crimes. Politicians try to convince the public that supporting these banks, at any cost, is necessary to maintain the financial system we operate under.

Elite bankers always try to truncate a collapse at the earliest stage possible. This is for their benefit — not yours. These bankers lean on politicians and line up with central bankers’ dubious policy. This has been particularly true in the wake of the 2008 financial crisis. In addition, this system promotes the creation of more risk, predicated on the deposits and other bank accounts of everyday people.

Gundlach: "We Got The Bearish Signal; Stocks Are Going Down - You Can Feel It"

After nearly three consecutive years of inflows, an unheard of feat, Jeff Gundlach's $61.6 billion DoubleLine Total Return Bond Fund finally experienced its first outflow since January 2014, as investors took out $33 million from the California fund. With that the streak of 33 consecutive months of inflows was broken Reuters reports.

Repeating a position he has held for several months, Gundlach told Reuters that "bonds are headed toward outflow territory ... rising rates mean negative returns are developing. Even DoubleLine is having 'day in' and 'day out' flows. It is not an inflow day every day." Unless, of course, the market suffers a long-loverdue equity selloff, in which case the flow will be in the other direction as debt of any kind will be immediately is seen as a "flight to safety" and the cycle will begin from scratch.

According to the new bond king, a few advisers in October made allocation and model changes away from the intermediate-term sector of the bond market, resulting in a few large redemptions in the DoubleLine TRBFwhich however moved into DoubleLine's Flexible Income, Low Duration Bond and Core Fixed Income funds.

Gundlach remains skeptical on rates, and in what was - how should one put it - a humblebrag, the bond manager indirectly accused himself of causing his fund's first outflow in just under three years: "I have been vocally bearish on Treasuries for months, and, being one of the most influential in the industry, it should not be a surprise that investor behavior is influenced by me," Gundlach said modestly. "Lastly, we have had terrific performance in DBLTX since rates bottomed: we are up in a meaningfully down market."

42 Banks Join Blockchain Consortium in Japan

The name may not be catchy but “The Japan Bank Consortium to Centrally Provide Domestic and Cross-border Payments” has officially launched with 42 member banks.

As Banking Technology reported in August, SBI Ripple Asia, a joint venture between distributed ledger tech provider Ripple and SBI Holdings, announced that a Japanese consortium of 15 banks in a new network will use Ripple’s blockchain for payments and settlement.

It had anticipated about 30 member banks joining by March 2017, but it got plenty of responses from financial institutions, and so the consortium says it has been “finally launched” with 42 member banks.

Using Ripple, customers of the banks will get real-time domestic and cross-border payments, 365 days of the year. Participants include Bank of Yokohama, SBI Sumishin Net Bank (SBI Holdings owns part of it) and Mizuho. The consortium says recent changes in customers’ behaviour and social lives have “resulted in more diverse payment needs”, such as 24-hour and real-time settlement and small-value settlement.

The garbage indicator: What trash is telling us about the economy now

It is said that one man's trash is another man's treasure. It also happens that all of our trash could collectively make for a great economic indicator.

In addition to other, more conventional indicators, Deutsche Bank's chief international economist, Torsten Slok, consults freight rail waste data put out by the Association of American Railroads for a check on how the economy is doing.

Given the drop in oil prices and rise in the dollar, "a lot of economic statistics were distorted and you did see a slowdown in a lot of places. ... This indicator is an attempt to get a more pure view of where the business cycle is at the moment," Slok said Monday on CNBC's "Trading Nation."

At this point, the garbage transport gauge "is indeed suggesting that the recovery continues, or that the economic expansion is moving forward from here." Slok isn't the first to notice the connection between waste carloads and the GDP growth. Michael McDonough, an economist at Bloomberg, has followed growth in the waste carloads indicator for years.

Done in by Overcapacity, Stagnant World Trade, and China, Korean Shipbuilders Collapse on Top of Taxpayers

The ravaged shipbuilding industry in South Korea, deemed too big to fail, is getting its largest taxpayer bailout yet, totaling $9.6 billion, on top of the bailout funds already handed out last year, and on top of another $9.6 billion this year to bail out state-owned banks that were getting slammed by defaulting loans extended to the shipping industry.

Their problem: according to trade ministry, cited by the Wall Street Journal, orders for new ships to be built in South Korea have collapsed by 87% over the past nine months from the already terrible 9-month period last year, to almost nothing.

South Korean container carrier Hanjin was allowed to collapse in August. It “shattered the complacency” that TBTF carriers “are immune to failure.” It is now getting chopped into pieces to be sold off under bankruptcy court orders. Its rival, Hyundai Merchant Marine, was bailed out and restructured earlier this year. Other carriers around the globe have been sunk by two years of excruciating low shipping rates, triggered by rampant overcapacity and stagnating world trade. Larger carriers are consolidating to survive. Just on Monday, Japan’s Big Three – Nippon Yusen, Mitsui O.S.K. Lines, and Kawasaki Kisen Kaisha – announced that they would merge to form the world’s sixth largest container carrier.

These carriers have stopped ordering ships, and many have canceled orders, and Chinese shipbuilders have muscled into the market years ago to grab share by slashing prices, and they too are going bankrupt.

US Economy - Are We Approaching the Peak?

The Philly Fed Leading Economic Index for all 50 US states has weakened considerably from its 2014 highs (see above) and is getting closer and closer to reaching our first warning threshold of a possible peak in the US economy. “We’re getting more and more of these indicators that are telling us we’re in danger of going into stall speed, and the labor markets are also edging lower with fewer job formations,” Puplava noted.

Also, a lot of the stimulus we’ve seen in place over the last couple of years has started to fade, adding that long-term interest rates are starting to tighten again, which is particularly concerning.

“That is a very serious one to watch because we saw this happen in the fourth quarter of last year,” Puplava said. “As the Fed talked about raising interest rates, we saw credit spreads blow out, the Fed raised interest rates in December, and then all hell broke loose in the first part of this year.”

Employment appears to have peaked and we’ve seen the worst new business formation in any recovery since World War II, Puplava stated. “The one strength of this economic recovery has not been Capex spending by business, it’s not been investment — it’s been consumer spending,” Puplava said.

James Rickards-Huge Inflation Coming With Coming Economic Meltdown

October Gun Sales See Massive Spike, Set Yet Another Record

The FBI’s background check system for gun sales processed more than 2.3 million checks in October, setting an all-time record for the month.

There were 2,333,539 gun-related checks processed through the National Instant Criminal Background Check System, known as NICS, last month, according to FBI documents posted on Monday. That represents an increase of more than 350,000 checks over the previous October, itself a record. It’s also the 18th month in a row to set a record.

With two months to go, 2016 has already seen 22,206,233 NICS checks, making it the second highest year for checks in the history of NICS with only 2015 seeing more. NICS checks are considered to be one of the most accurate indicators for gun sales because nearly all sales made through federally licensed firearm dealers require a check by law. The number of NICS checks in a month do not represent an exact count of gun sales for a number of reasons. For instance, many states require a NICS checks for those applying for gun carry permits, and many states do not require NICS checks for sales between private parties.

“These statistics represent the number of firearm background checks initiated through the NICS,” the FBI said. “They do not represent the number of firearms sold. Based on varying state laws and purchase scenarios, a one-to-one correlation cannot be made between a firearm background check and a firearm sale.”

Living in a cashless society

Cash is king, right? But check your pockets. Almost half of us walk around with less than $20. And with so many other ways to pay, including credit and debit cards, new technologies are pushing us to abandon paper money entirely. You could already be helping to make cash obsolete if you’re using one of the 37-million electronic toll tags on the road.

Maybe you’re using a mobile wallet like Apple Pay, Android Pay, PayPal or Samsung Pay or a person-to- person payment system via Square, Popmoney, Facebook Payments in Messenger, or Venmo to pay friends in a snap.

Branded apps from companies like Starbucks, Walmart, Uber and Dunkin’ Donuts make it simple for you to pay, while building customer loyalty for the merchants. But experts at Consumer Reports say there are potential down sides. Mobile payments can generate a mountain of digital data that can tell lots about us that we may not want people to know.

And the digitalization of dollars creates an irresistible target for cybercriminals. So consider connecting any technology to a credit card rather than your bank account. You might incur some fees, but you’ll get the same protections as if you used the credit card itself, which means cashless convenience may be more secure than you think.

Giant Eagle will lay off, buy out 350 corporate employees to cut cost

Giant Eagle, Inc. will lay off corporate employees as part of a larger cost-cutting plan that involves eliminating 350 positions at the O'Hara-based grocery chain.

The company, which employs about 34,000 in more than 420 locations, announced Oct. 17 that it planned to offer buyouts to some corporate employees as part of a strategic plan aimed at reducing its overhead.

“Beyond the voluntary separation agreements that have resulted, the company has made the difficult decision that additional positions across its corporate office must be reduced,” Giant Eagle Spokesman Dan Donovan said in a statement Monday. “Considering both voluntary and involuntary actions, approximately 350 total positions have been eliminated as the company streamlines its corporate operations.”

A company representative said the “majority” of affected operations are at the grocery chain's headquarters. The company did not specify how many positions will be eliminated through buyouts as opposed to layoffs, and did not release the names of any other Giant Eagle locations where corporate employees could be affected. Timing of employee separations will vary based upon individuals' roles and responsibilities.

Why U.S. Computer Chip Makers May Need Government Help

With China ramping up government-backed efforts to manufacture more computer chips, the Obama administration is moving to respond in kind.

The first modest step came on Monday as the White House announced a new working group made up of U.S. semiconductor industry executives. The group, which includes Qualcomm executive chairman Paul Jacobs and former CEO of Applied Materials AMAT -1.27% Mike Splinter, will focus on studying what other countries have done and formulating a U.S. response.

“Some countries that are important in this domain are subsidizing their domestic semiconductor industry or requiring implicit transfer of technology and intellectual property in exchange for market access,” John Holden, director of the Office of Science and Technology Policy, said in a statement. “Such policies could lead to overcapacity and dumping, reduce incentives for private-sector R&D in the United States, and thereby slow the pace of semiconductor innovation and realization of the economic and security benefits that such innovation could bring.”

The White House didn’t name names, but China has undertaken a vast effort to increase its chip manufacturing capacity, promising to spend $170 billion over the next five to 10 years. At the same time, Chinese authorities pursued American chip company Qualcomm QCOM -1.06% for alleged antitrust violations. China imported about 90% of its semiconductor supplies in 2014, according to a report by McKinsey & Co.

Issues that matter: The federal deficit

Are markets predicting a surprise Trump win?

Democratic presidential hopeful Hillary Clinton remains the odds-on favorite over GOP rival Donald Trump. But the gap is narrowing after Friday’s bombshell announcement from the FBI that emails discovered on the laptop of Anthony Weiner, the estranged husband of Clinton aide Huma Abedin, may have gone through Clinton’s private email server.

Trump’s average in the four-way polling race is now the highest it has been all year. And that has caused Wall Street to shift its electoral outcome predictions in key markets. Some quick background: Analysts up and down the Street have proclaimed Hillary the “status quo” choice that will, at least initially, be bullish for stocks. Why?

Because she’s part of the establishment and is unlikely to throw out trade deals, slam the brakes on immigration (especially for high-skilled workers the tech sector relies on) and raise import tariffs like Trump very well could. (Specific sectors such as health care and energy, would likely be hit hard under Clinton, however.)

By this reasoning, we should expect stocks to rise and fall based on the Hillary’s polling lead. Over the past week, some nervousness has appeared. The CBOE Volatility Index, known as Wall Street’s “fear gauge” because it measures the price of option protection against a market sell-off, has climbed for five consecutive sessions through Monday and is testing two-month highs near 17.

Atlanta Fed Lowers US Fourth Quarter GDP View to 2.3 Percent

The U.S. economy is on track to grow at a 2.3 percent annualized pace in the fourth quarter on expected lower consumer spending and overall investments, the Atlanta Federal Reserve's GDP Now forecast model showed on Tuesday.

The latest fourth-quarter GDP estimate was lower than the 2.7 percent increase calculated on Monday, the Atlanta Fed said on its website. Forecasts for fourth-quarter growth rates of real consumer spending and real nonresidential equipment investment slipped to 2.1 percent from 2.4 percent and to 2.7 percent from 4.3 percent, respectively, the regional central bank said.

The Atlanta Fed's forecasts for growth rates for real residential investment and real nonresidential structures investment fell from 3.2 percent to 2.2 percent and 0.5 percent to -0.7 percent, respectively.

Atlanta Fed's downgrade on gross domestic product in the fourth quarter followed data released earlier Tuesday on domestic factory activity from the Institute for Supply Management and construction spending from the Commerce Department.

Feds probe big banks for interest rate swap rigging

Federal regulators are probing Wall Street banks for rigging the $33 trillion interest rate swaps market. The Commodity Futures Trading Commission is “conducting an investigation into the trading and clearing” of the instruments at several investment banks, according to a regulatory filing by Citigroup.

Interest rate swaps are a liquid derivative used by banks to manage how much interest they pay to borrowers. Citi, run by Chief Executive Michael Corbat, said it’s cooperating with the probe.

Wall Street rigging has preoccupied government investigators since about 2012, when it was discovered that Barclays had rigged Libor, one of the most commonly used interest rates in the world.

Since then, nearly every Wall Street bank been investigated for colluding with others to set prices, in everything from Treasury bonds to other interest rates and swaps.

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