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Friday 09.02.2016

Slower Growth in Jobs Report May Give Fed Pause on Interest Rates

Good. But not too good. That is the verdict from economists after the Labor Department reported on Friday that in August employers added 151,000 jobs, the unemployment rate was unchanged at 4.9 percent, and wage gains were modest. It was a solid performance that keeps the economy on track, but not strong enough to push the Federal Reserve to raise its benchmark interest rate when policy makers meet this month.

“It confirms that the economy is performing well, but does not provide the threat of overheating that might have caused an interest-rate increase sooner rather than later,” said Carl R. Tannenbaum, chief economist at Northern Trust.

Since the financial crisis, the Fed has raised interest rates just once, in December, from near zero. Low rates are intended to encourage businesses to borrow and invest, but Fed policy makers are now split between those who worry that reducing this economic stimulus would undermine growth and those who fear that waiting could allow inflation to take hold.

Republicans and Democrats mined the report for evidence that supported the economic arguments they will make through the November election. How to handle a recovery that has delivered steady but less than spectacular growth has not only been a flash point among Fed bankers — who will next meet on Sept. 20 and 21 — but also between the presidential candidates Donald J. Trump and Hillary Clinton.

Visa Asks Banks to Participate in Blockchain Pilot for Transfers

Visa Inc., the world’s largest payments network, invited banks to participate in a pilot program that would use blockchain to send payments between the lenders.

Visa Europe Collab, the network’s London-based innovation hub, is partnering with BTL Group to explore applications for blockchain technology in financial services, Hendrik Kleinsmiede, a co-founder of the innovation hub, said in a blog post Thursday. The firms are reaching out to “a small number of European banks” to help test whether a blockchain-based solution can reduce costs, settlement times and credit risks associated with transfers between banks, according to the post.

“Through the use of smart contracts and blockchains, I believe we can create a fast, compliant and low-cost interbank payment and settlement service,” Kleinsmiede said in the post.

Proponents of blockchain, the software ledger that powers bitcoin, say it could dramatically streamline the process of sending payments around the globe and offers the ability to safely store transactions in an immutable database. More than 50 of the world’s biggest banks have joined a consortium known as R3, which helps design a financial-industry ledger and develops ways of using the technology. Other companies exploring blockchain include Digital Asset Holdings, Chain and Symbiont.

How Governments Can Kill Cash

It’s almost as if someone hit the “start” button right around April 11 (the beginning of IMF Spring Meeting week), and the elites have been cranking out the inflation plans ever since. Of course, inflation is just one part of the global elite plan. There’s a lot else going on that is aimed at destroying your wealth to solve the global debt problem.

We write about these developments in issues of Strategic Intelligence. Here’s a quick overview to give you the picture. The inflation plans described above may take a few years to implement. The elites are discussing them now to condition the intellectual environment for action later. Still, developments such as actual changes in fiscal deficits and issuance of more special drawing rights (SDRs) will take time.

In the meantime, the global elites are using negative interest rates to do the same thing as inflation — make your money disappear. One way to avoid negative interest rates is to go to physical cash. In order to prevent that option, the elites have launched a war on cash. The war on cash has two main thrusts. The first is to make it difficult to obtain cash in the first place. U.S. banks will report anyone taking more than $3,000 in cash as engaging in a “suspicious activity” using Treasury Form SAR (Suspicious Activity Report).

The second thrust is to eliminate large-denomination banknotes. The U.S. got rid of its $500 note in 1969, and the $100 note has lost 85% of its purchasing power since then. With a little more inflation, the $100 bill will be reduced to chump change. The war on cash is old news, but there are new developments. On Wednesday, May 4, 2016, the European Central Bank announced that they were discontinuing the production of new 500 euro notes (worth about $575 at current exchange rates). Existing 500 euro notes will still be legal tender, but new ones will not be produced.

The US economy may not be as strong as it looks

With the Federal Reserve stepping up its rhetoric about a possible interest-rate hike, market watchers are using the opportunity to take a look at the health of the US economy.

Thus, the UBS macro strategy team put together a chart of major indicators for the US economy and where they stand compared with the most recent time the Fed raised rates in December and where they were two years ago.

Overall, the chart from Daniel Waldman and company does not make the US economy look very encouraging. UBS' argument is that for the Fed to raise rates, the economy has to look substantially better or at least not worse than it did when the Fed most recently hiked. Thus, the Fed should stay on hold (and the UBS team thinks it will).

The strategists believe that a strong jobs report on Friday could help cover the Fed if it does want to hike rates in September but that the rest of the economic data isn't that good. "Although labor market data is key, one additional positive employment report is unlikely to completely change investor sentiment on US growth, which has softened relative to both late 2014 (when the dollar started to rally) and late 2015 when the Fed last hiked," Waldman and co. said.

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China’s Monetary Ascension Is Paved with Gold

The world monetary order is changing. Slowly but steadily, global trade and currency markets are becoming less dollar-centric. Formerly marginal currencies such as the Chinese yuan now stand to become serious competitors to U.S. dollar dominance.

Could gold also begin to emerge as a leading currency in world trade? Over time, it certainly could. But the more immediate implications for gold’s monetary role center on its increasing accumulation by central banks such as China’s. On October 1st, the Chinese yuan is slated to enter the International Monetary Fund’s Special Drawing Right (SDR) basket of top-tier currencies. It will share SDR status with the U.S. dollar, euro, British pound, and Japanese yen.

Before the yuan officially becomes an SDR currency, the World Bank intends sell $2.8 billion in SDR bonds in Chinese markets. The rollout of SDR bonds in China began August 31st. According to Reuters, China’s promotion of SDR bonds “is part of a wider push in China to… boost demand for Chinese yuan and diminish reliance on the U.S. dollar in global reserves.”

King Dollar won’t be dethroned overnight. But the place of prominence the U.S. dollar – more accurately called the Federal Reserve Note – enjoys as the world's reserve currency will indeed diminish over time. China and Russia have mutual geostrategic interests in helping to promote de-dollarization. Toward that end, the two powers are engaging in bilateral trade deals that bypass the dollar. Annual bilateral trade between China and Russia has surged from $16 billion in 2003 to nearly $100 billion today. When China hosts the G20 summit in September, it will make Russian President Vladimir Putin its premier guest of honor.

National debt hits $19.5 trillion

The national debt hit $19.5 trillion for the first time ever this week, a little more than seven months after it hit the $19 trillion mark.

The debt clocked in at $19.51 trillion at the end of Wednesday, the Treasury Department reported Thursday afternoon. Precise debt figures on any given day are released on the following business day. The national debt hit $19 trillion for the first time ever on Jan. 29.

When President Obama took office in early 2009, the total debt was $10.63 trillion, which means it has almost doubled under his watch. The Congressional Budget Office reported in August that the debt-to-GDP ratio will match levels not seen since 1950 by the end of the current fiscal year.

The debt is the sum total of annual budget deficits, plus interest, and those annual deficits are soon expected to rise again in the coming years.

Oil Prices Crash as Traders Brace for End of Peak Demand Season

Oil prices crashed on Thursday, extending their losses from the prior session as a larger-than-expected increase in weekly oil inventories, and the approaching end of peak oil demand season had traders readjusting their positions, anticipating future losses.

Oil futures declined 3% on Wednesday, to close at a three-week low, but the commodity managed to gain 7.5% over the month of August. Oil futures rebounded in August after falling into a bear market. The rebound was sparked after OPEC members indicated that they would have an impromptu meeting at the end of September, on the sidelines of a conference in Algeria to discuss stabilizing the market. Still, there is doubt that OPEC members will actually come to an agreement to cut, or even stabilize production to calm oil’s volatility.

While there was optimism early in August about a possible OPEC production cut, this turned to pessimism after Iran repeated that it would not freeze production until it reaches its pre-sanction oil output levels, while smaller OPEC members have already communicated their unwillingness to cap output. In addition, with oil rebounding since OPEC initially announced it would meet, some of the incentive to cap production has evaporated.

After August’s advance, September could be a tough month for oil prices. If OPEC members fail to act, traders will want to unwind their bullish positions. At the same time, the Labor Day long weekend officially marks the end of peak demand season for oil, and that could also add downside pressure to the commodity.

Goldman Sachs looks at trading future done only by computers

Goldman Sachs is a money-making machine — literally. The Wall Street firm is planning for a future when more bond trading is done automatically by computers, a departure for a line of business that heretofore has been both human- and capital-intensive.

The program, called Goldman Sachs Algorithm, has been around for about a year, but the bank has started using it to execute smaller corporate bond trades, according to a report on Wednesday.

The GSA push is occurring in the wake of the greatest number of layoffs since the aftermath of the financial crisis. In New York alone, Goldman has cut roughly 420 jobs this year.

While Goldman is mum on the breakdown of those layoffs, industry watchers believe at least half of them were traders in the fixed income, currencies and commodities group. Goldman’s FICC headcount is down about 10 percent since 2012, while pay and benefits are down around 20 percent over the same period, according to a May presentation by the bank.

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Baker Hughes cuts employee pay 5 percent through furloughs

Houston-based Baker Hughes is cutting employee pay for many U.S. workers by 5 percent through a new furlough program to reduce costs and lessen the need for additional job reductions. The pay cuts, which Baker Hughes described as temporary, will stretch from the pay period beginning Sept. 11 through the final paycheck of the year. In exchange for the pay cut, employees will get holidays on Oct. 10, Nov. 23, Dec. 23 and Dec. 28, according to an internal memo acquired by the Houston Chronicle.

The memo said the furlough program is designed to “help Baker Hughes reduce the need for additional layoffs and to achieve the cost savings needed to enable profitable growth.” Among those excluded from the pay cuts are some top executives and other global operations employees in the United States; many employees in chemicals operations; some human resources workers; many sales people; and corporate security and information technology workers, among others. Most leadership is included in the furlough, according to the memo.

Baker Hughes spokeswoman Melanie Kania said in a prepared statement, “These efforts will allow us to lessen the need for additional workforce reductions while remaining focused on serving customers and maintaining safe, compliant operations.”

Baker Hughes, the world’s third largest energy services company, cut about 3,000 jobs in the second quarter, bringing the total jobs eliminated over the past 18 months to 26,000, including 23,000 through layoffs and and 3,000 via attrition. Baker Hughes previously eliminated 2,000 jobs in the first quarter and 18,000 last year. Baker Hughes employs about 36,000 people globally now, down from more than 62,000 employees before the oil bust began in late 2014. The last local headcount provided by Baker Hughes was about 5,700, but that was before the second-quarter cutbacks.

Deutsche Boerse Responds To Deutsche Bank’s Failure To Deliver Physical Gold

In the latest stunning development involving a documented failure of a bank to deliver physical gold when demanded, yesterday we reported that according to German website godmode-trader.de, a client of the Xetra-Gold Exchange-Traded Commodity was told the fund’s designated sponsor, Deutsche Bank, would be unable to deliver the requested gold. This was contrary to the explict reps and warrantiesmade explicitly in the Xetra-Gold’s prospectus, which said that investors are entitled to the delivery of the certified amount of physical gold at any time, and proudly added that “since the introduction of Xetra-Gold in 2007, investors have exercised this right 900 times, with a total of 4.5 tons of gold delivered.”

As the German article concluded: anyone who wants to easily convert their Xetra-Gold holdings into physical gold – at least for clients of Deutsche Bank – can do so only by selling their shares, and then buying gold coins or bars directly elsewhere. Which leads the author to the logical question: what is the worth of the Xetra-Gold service, which certifies the right to redeem physical gold, if said delivery is no longer possible? In other words, what was supposedly an ETC which promised physical delivery upon demand, is nothing more than yet another “paper only” play.

We asked another, more nuanced question: is the inability to deliver physical gold an issue with Xetra-Gold, or with the company’s “designated sponsor“, Deutsche Bank, and if the latter is suddenly unable to satisfy even the smallest of delivery requests by retail clients, just how pervasive is the global physical gold shortage? Our report has stirred a significant response, both at Deutsche Bank, and at Xetra-Gold, which today filed an official response:

"“The Deutsche Boerse Commodities GmbH points out that holders of Xetra-Gold shares can at any time exercise the right to delivery of securitized gold. Deliveries are made via a branch of a bank indicated by the investor. The requirement is that the branch offers this service because the delivery can take place only through the depository bank of the investor.”

Harley-Davidson Says Layoffs Are 'Necessary Changes'

Harley-Davidson HOG 0.36% , America’s largest motorcycle manufacturer, will lay off about 200 regular and casual workers this year amid declining revenues, a company spokesperson confirmed in an email to Fortune.

USA Today reported that the motorcycle maker, which employs about 6,300 people, will lay off a handful of employees at its Menomonee Falls, Wis. engine plant, and at least 35 more at its Tomahawk, Wis. windshield and plastic-parts plant.

“[Harley-Davidson] continually reacts to industry and market changes to provide the best products and services to our customers,” the spokesperson said. “As we adjust our production plan to align with 2016 guidance, we are making the necessary changes to right-size the company.”

The layoffs come at a pivotal point for Davidson: It recently lost market shares to foreign competitors, like Honda HMC -0.10% , Yamaha, and Kawasaki. Earlier this month, Davidson agreed to pay the federal government $12 million in fines after the company was accused of selling roughly 340,000 “super tuner” enabling motorcycles, which pollute the air at a rate that violates the federal Clean Air Act.

Dismal manufacturing data puts Fed on hold

Chico’s layoffs signal more trouble in the apparel sector—at least in stores

Women’s fashion merchant Chico’s FAS Inc. announced another round of layoffs this week—200 so-called corporate and field leadership positions—amid declining sales in stores and companywide.

Chico’s, No. 85 in the 2016 Internet Retailer Top 500 Guide, does not break out e-commerce in its quarterly earnings reports. Chief financial officer Todd Vogensen told analysts on the retailer’s second quarter earnings call that digital commerce is growing “at a healthy pace,” declining to specify a dollar figure or a percentage.

E-commerce growth buoyed an otherwise disappointing quarter and first half of the year for Chico’s. Comparable-store sales, which for Chico’s include e-commerce, dropped 3.1% in the second quarter and 3.7% in the first half of the year. Total sales declined 7.3% year-over-year to $334.2 million in the second quarter and 7.6% for the first six months of 2016.

This latest round of layoffs is part of a companywide restructuring aimed at reducing costs and creating what Chico’s calls a more nimble environment where the company can be more “responsive to customers’ evolving needs.” The cuts come amid what CEO Shelley Broader described to analysts on a conference call this morning as a “difficult apparel retail sales environment.” A company spokesperson said the cuts were mostly headquarters jobs and that store associates were not affected.

Lowe's is rolling out in-store robots this month

Home improvement chain Lowe's will roll out its LoweBot in select stores across the San Francisco Bay Area in September, according to Yahoo.

The LoweBot is an autonomous retail service robot that can meet the needs of both store employees and shoppers. The robots can assist shoppers by helping them navigate the store and find the products they are looking for, much like an in-store sales associate would do. For employees, the robots speed up efficiency by scanning inventory and keeping backend operations up-to-date. The LoweBot will help the company solidify its spot as a top home improvement retailer, even as it faces competition from e-commerce sites.

Lowe's Q2 2016 results demonstrated the company's strength in the e-commerce age. Total sales during Q2 2016 for Lowe's grew 5% year-over-year (YoY) totaling over $18 billion. While the company does not break out e-commerce sales, Lowe's has seemingly been immune to the "Amazon Effect," which refers to shoppers' ability to buy almost all products on Amazon at very competitive prices.

Home improvement retailers have been able to combat the “Amazon Effect” because their customers still need to physically browse products — like paint colors or appliances — in-store before making a purchase. The LoweBot will help push Lowe's into the digital space, while retaining its in-store value to customers.

America’s Rapidly Growing Wealth Gap May Kill US Consumerism

Will she or won’t she? That’s the question central bankers are asking days after last week’s symposium in Jackson Hole, Wyoming. At that meeting, Federal Reserve Chair Janet Yellen dropped several hints that an interest rate hike is in the near future.

Citing economic growth, a stronger jobs market, and increased consumer spending, Yellen told attendees, “…I believe the case for an increase in the federal funds rate has strengthened in recent months.” It’s true that current consumer spending is strong; it jumped at a 4.4 percent annual rate in the biggest bump since Q4 2014.

But new research outlines a huge threat to consumer spending. Dramatic wealth gaps along racial lines are projected to grow exponentially. The trending wealth gap between Black and White Americans would take centuries to close. And changing demographics mean that White Americans will keep earning the most substantial wealth gains even as they become the minority. Yellen has called the racial wealth gap “extremely disturbing.” A new report reinforces her worst fears.

Yellen’s case for increased interest rates was preceded this month by new economic research. “The Ever-Growing Gap” was co-authored by the Corporation for Enterprise Development (CFED), the Racial Wealth Divide Initiative, and the Institute for Policy Studies. It reviewed trends in US wealth accumulation from 1983 – 2013 to project what the next 30 years might bring.

The Bankruptcy Of A Company You’ve Probably Never Heard Of Could Make Christmas More Expensive

Unless you’re a stevedore or are involved in logistics, you’re probably not terribly familiar with Hanjin Shipping out of South Korea. So news of the company’s bankruptcy filing on Wednesday may have been slightly off your radar. But when one of the world’s largest shipping companies goes belly-up, it can have ripple effects that may mess with your holiday.

When Hanjin filed for bankruptcy protection on Aug. 31, it left the company’s dozens of mega-freighters targets for potential seizure should they reach ports. As Reuters notes, a number of Hanjin ships have already been seized at ports in China, while Bloomberg points to ships stranded at sea, and at least one port where dock workers refused to do anything with a Hanjin ship.

We’ve all seen those huge containers stacked up high at ports or railyards, but we might not give much thought to the fact that those hulking metal boxes contain just about everything we buy: electronics, furniture, clothing, food, cars, books, you name it.

If those containers don’t get to port — whether it’s because the ship it sitting idle off the coast or because a ship has been seized and can’t move on to its next destination — the items in them can’t be offloaded, broken down, trucked, railed, flown, or droned to warehouses, and then on to stores or customers.

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Survey: Nearly 110 Million Americans Have a Gun at Home

A recent survey found that 44 percent of respondents either own a gun or live with somebody who does, suggesting that some 110 million Americans live in a house with firearms.

The latest Pew Research Center poll, conducted between Aug. 9 and 16, found 31 percent of those surveyed own a gun, the highest number in the poll’s history. Another 13 percent reported living with somebody who owns a firearm. Twelve percent said they own their own firearm and live with somebody else who does. A slim majority, 51 percent, said nobody in their household owns a firearm, the lowest number in the poll’s history.

The latest United States Census Bureau estimate pegs the number of adults living in the country at 247,813,910. If Pew’s survey is correct then at least 109,038,120 Americans have a gun in their home. The general concept of gun rights also won out over the desire to tighten gun control laws. A slim majority of respondents said it was more important to protect the right of Americans to own guns than it is to control gun ownership.

Furthermore, gun rights enjoyed more passionate support, with 46 percent of supporters saying they “strongly agreed” with the importance of protecting gun rights, while only 37 percent of gun control supporters felt the same level of intensity. Fifty-eight percent of those polled said they believe guns do more to protect people from becoming victims of crime than they put people’s safety at risk. Only 37 percent of people said the opposite.

GM, Ford sales fall as U.S. autos cool off

General Motors and Ford Motor posted U.S. sales declines in August as the industry cooled off, fueling a growing perception that the auto industry topped out in late 2015 and early 2016.

Ford Motor's U.S. vehicle sales fell by 8.4% and GM's declined by 5.2%, compared with a year earlier, as the auto industry was expected to post a slower month overall. Fiat Chrysler bucked the trend, recording a 3.1% sales increase.

Analysts at Edmunds.com and Kelley Blue Book had projected an overall auto industry sales decline of 2.5% and 2.1%, respectively, in August. For Ford, analysts had expected sales declines of 9.8% and 6.8%, respectively. For GM, they were expecting declines of 5.7% and 5.4%, respectively. For Fiat Chrysler, the analysts expected sales increases of 0.6% and 0.2%. GM's sales totaled 256,429, with its flagship Chevrolet brand slipping 3.9% to 175,965 units.

Ford's luxury Lincoln brand was a bright spot for the automaker, posting a 7% increase to 9,243 vehicles sold. But Lincoln makes up a fraction of Ford's overall sales, which totaled 214,482 for the month. For Fiat Chrysler, which sold 196,756 vehicles overall, Jeep continued to lead the way. The SUV brand posted an 11.9% increase to 86,468, nearly double the company's next best-selling brand.

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