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Friday 08.05.2016

Robust Jobs Report Eases Worry Over Economic Growth

The U.S. labor market in July capped off the best two-month stretch of hiring so far this year, a sign of strength for an economy that has been showing mixed growth signals in recent months.

Nonfarm payrolls rose by a seasonally adjusted 255,000 last month, the Labor Department said Friday. Wages for private-sector workers matched their strongest annual pace of growth in seven years, more Americans entered the labor force during the month and the jobless rate held steady 4.9%.

After two months of choppy performance, the strong showing suggests employers are looking past global concerns and dismissing signs of a slowing U.S. economy. It also raises the odds of a Federal Reserve rate increase as soon as next month.

Revisions showed U.S. employers added 292,000 jobs in June and 24,000 in May, 18,000 more than previously estimated. So far in 2016, employment gains have averaged 186,000 a month, down from 229,000 a month in 2015.

MetLife to Reduce Costs 11%, Cut Jobs as Rates Hurt Returns

MetLife Inc., the largest U.S. life insurer, plans to cut expenses by 11 percent as low interest rates squeeze investment income.

The plan is to reduce annual costs by about $1 billion by the end of 2019 and will include job cuts, Chief Executive Officer Steve Kandarian said Thursday in a conference call without specifying how many workers will be dismissed by the New York-based company. The insurer had 69,000 employees at the end of 2015, according to its most recent annual report.

Central bank policies to suppress interest rates have reduced the income MetLife makes on a bond-dominated investment portfolio valued at more than $500 billion. The company said late Wednesday that second-quarter profit tumbled 90 percent to $110 million on a review of the prospects of a variable-annuity business that the CEO is seeking to exit as part of a proposed separation of a U.S. retail operation.

“In light of the significant headwinds our industry is facing, MetLife must do even more to avoid simply running in place,” Kandarian said. “We know this will require us to reduce headcount, which is never an easy step for an organization to take. Our overall goal is to be more efficient, so that we can better serve our customers and provide a fair return to shareholders.”

Bank of England action means we're in quantitative easing infinity, expert says

The world is in quantitative easing infinity now, after the Bank of England cut interest rates for the first time in over seven years. While many economists had predicted that the U.K.'s central bank would lower rates, the actions the BOE announced Thursday were slightly more aggressive than expected.

"I think we're in QE infinity now and now they're coming up with new ways of making QE because they can't cut rates anymore than they already have," Steven Dudash, president of IHT Wealth Management, said on CNBC's "Power Lunch." He added, however, that he doesn't "see how that helps banks."

"It's hard to see how that's going to help the bank world and I'd probably be avoiding them right now at least for the foreseeable future," Dudash said.

But Robert Pavlik, chief market strategist at Boston Private Wealth, said banks could potentially benefit from this economic backdrop because they're involved in trading bonds and issuing new bonds for corporations. He explained that the financial sector reaps an investment banking fee from these kinds of activities.

Banner Health huge cyberattack, up to 3.7 million people affected

Banner Health revealed that hackers may have accessed the healthcare, payment and health plan information of up to 3.7 million individuals. Attackers reportedly gained access through payment processing systems for food and beverage purchases at the Phoenix-based health system.

"On July 13, 2016, we discovered that cyber attackers may have gained unauthorized access to information stored on a limited number of Banner Health computer servers," Banner Health said in a statement. "We immediately launched an investigation, hired a leading forensics firm, took steps to block the cyber attackers, and contacted law enforcement. The investigation revealed that the attack was initiated on June 17, 2016."

Stolen information may have included names, birthdates, social security numbers, addresses, dates of service and claims information, as well as health insurance information as a current or former member of one of Banner's health plans or as a beneficiary of a Banner Health employee benefits plan.

"Most of the time these healthcare organizations have no systems in place to alert them when lots of data is being sucked out using some privileged account," said Mansur Hasib, program chair, cybersecurity technology, at the graduate school of the University of Maryland University College, and author of the book "Cybersecurity Leadership."

Are Central Banks Caught in a Rate Trap? - Gerald Celente | Kitco News

The number of people who are trying to buy guns keeps breaking records

One of the biggest measures of gun sales is setting record after record. July marked the highest number of firearm background checks ever for a July since the FBI began to handle the permit applications. This is the 15th time in a row in which the number of permits hit a record for that calendar month.

While the background checks do not measure direct gun sales, they do provide a strong indication of where sales are going and how many people are trying to make purchases.

The reading is also backed up by recent strong earnings from gunmaker Smith & Wesson, which saw a 22% jump in sales during it's most recent quarter from the same time period in 2015. Additionally, Sturm Ruger reported a 19% increase in sales during its earnings on Wednesday.

As we've noted before, mass shootings such as those that took place in San Bernandino, Orlando, and Dallas have correlated to a rise in sales, especially as gun-control rhetoric has increased during the 2016 elections. Add that up and you have record demand for guns.

Cheap oil has killed nearly 200,000 U.S. jobs

Cheap oil has fueled a massive wave of job cuts that may not be over yet. Since oil prices began to fall in mid-2014, cheap crude has been blamed for 195,000 job cuts in the U.S., according to a report published on Thursday by outplacement firm Challenger, Gray & Christmas.

It's an enormous toll that is especially painful because these tend to be well-paying jobs. The average pay in the oil and gas industry is 84% higher than the national average, according to Goldman Sachs. The cuts have occurred at a time when many other corners of the American economy have been adding jobs.

About 95,000 positions were eliminated by energy companies in 2016 alone, according to Challenger. Most of those job cuts occurred earlier this year, as oil prices crashed to a 13-year low of $26 a barrel.

But Challenger noted that there was a "resurgence" of energy-sector job cuts in July, when layoffs spiked by 796% to 17,725. Oil prices have rebounded from extreme low levels, but they're losing ground again in recent weeks, briefly slipping back below $40 a barrel this week. Expect more energy job losses to be reflected in Friday's government jobs report for July.

Going for Gold: Price of Bullion Surges as China and Russia Amass Precious Metal

Russia and China's policy of buying gold has helped the price of the precious metal to reach its highest level for more than two years, according to financial information website Marketwatch.

On August 2 the price of gold future contracts for December delivery closed at $1,372.6 per troy ounce, their highest level since March 2014.

"China and Russia, the world's No. 1 and No. 3 producers, are catching up to the big industrial countries in stocks of bullion in their official reserves," remarked Marketwatch analyst David Marsh.

According to calculations from the World Gold Council, based on IMF statistics, with 1,823.3 metric tons of gold China has the world's sixth largest gold reserves. Russia is in seventh place, and has 1,498.7 tons of gold.

Chevron To Sell Off $5 Billion In Asian Assets

The sale will begin next month, setting off divestment strategy in Asia for the California-based international energy major. The company has been looking to raise $10 billion total through global asset sales in order to adjust to the chronically low oil prices.

Chevron plans to let go of its stake in a joint offshore venture with the state-owned company Cnooc Ltd. for $1 billion, sources close to the situation said, adding that the project would likely attract bidders from the region. In Indonesia, Chevron has been marketing the sale of its geothermal energy projects worth over $2 billion and in Thailand, the company plans to dump its natural gas fields.

Natural gas fields in Bangladesh and China as well as offshore ventures in Indonesia will continue operation and preserve Chevron’s reduced footprint in Asia.

Though Chevron’s official spokesman declined to comment on the planed transactions, the company released a statement saying its “strong portfolio of projects and robust strategic position in the Asia-Pacific region ensures we are well-placed to deliver on our business plans, grow profitably in core areas, and build new legacy positions in the region.” The American company reported $1.5 billion in losses in the second quarter of 2016, though the decline proved to be less than analysts had anticipated, according to the WSJ.

The Government Transparency Punch-Line

Nike Getting Out Of The Golf Equipment Business

No more golf clubs, bags, and balls for Nike — from here on out, the athletics company says it will focus on apparel and helping golfers make those questionable fashion choices they love to make.

Nike’s golf equipment business was centered on Tiger Woods, but interest in him and the sport in general has waned in recent years. That’s led the company to announce that its focus is now on footwear and apparel, as well as spending more on partnerships with professional golfers, The Wall Street Journal reports.

“We’re committed to being the undisputed leader in golf footwear and apparel,” said Trevor Edwards, the Nike brand president.

Compared to the heyday of Tiger Woods, not as many people are playing the sport these days, as it turns out: U.S. participation rates for golf peaked at 30 million in 2003, according to the National Golf Foundation, and have leveled off in the meantime.

Obama says US does not pay ransom, defends payment to Iran

President Barack Obama expressed surprise Thursday at criticism of his administration's $400 million cash payment to Iran to settle a longstanding legal claim, adamantly rejecting claims that it was a ransom paid for the release of four Americans held in Iran.

"This wasn't some nefarious deal," Obama told reporters at the Pentagon. He pointed out that the payment, along with an additional $1.3 billion in interest to be paid later, was announced by the administration publicly when it was concluded in January, a day after the implementation of a landmark nuclear agreement with Iran. "It wasn't a secret. We were completely open about it."

Obama allowed that the one piece of new information, first reported this week by The Wall Street Journal, was that the $400 million was paid in cash. It was delivered to Iran on palettes aboard an unmarked plane.

"The only bit of news is that we paid cash," he said. "The reason is because we couldn't send them a check and we couldn't wire the money. We don't have a banking relationship with Iran which is part of the pressure we applied on them." The payment has revived allegations from critics of the Iran nuclear deal. The timing of the arrival of the cash coincided with the release of the four detained Americans as well as implementation of the nuclear deal, leading to charges that the settlement of the 35-year-old claim was a "ransom" payment.

More Proof: Raising the Minimum Wage Increases Unemployment

If more proof were needed that raising the minimum wage would increase unemployment among lesser-skilled workers, the Heritage Foundation’s latest study provides it.

For one thing, the push for a national minimum wage of $15 an hour would actually cost employers $18.61 an hour, thanks to payroll taxes, unemployment insurance and ObamaCare taxes. The proposed increase, if passed into law, would, according to Heritage, impact one-third of all American workers, and hurt the most those working in lower-cost states.

The math is simple, and deadly. The only way an employer could justify paying a worker $18.61 an hour would be if that worker can generate more than $18.61 an hour in value for that employer. That’s $37,700 a year just to break even. Most employers wouldn’t bother hiring unless his new employee could earn more than that very quickly.

The myth that the employer would just suck it up and pay his workers the new minimum wage is just that: a myth. He has many options open to him, including not hiring a new worker, or asking a present employee to take on additional duties. He could stop offering low-margin products or services altogether, or install technology (i.e., robots) to perform those duties. He could close down his business altogether, laying off those employees that he already has. Or he could move — that’s called “offshoring.”

Double dip: 2,600 state workers also got pension

Retire, collect a pension and then go back on the public payroll. About 2,600 state employees collected a salary and pension in 2015, state records show, about the same as in 2012.

The double dipping has faced ongoing criticism, with some government watchdog groups questioning why some state workers can return to public service after they retire. It can be a lucrative endeavor.

Fifty-six state workers collected more than $200,000 in salary and pension combined last year, while 430 earned more than $100,000 in combined salary and pension.

There were 14 state workers whose pension and pay each topped the $100,000 mark, the records showed. “Should we be allowing people to retire who are still capable of working when they are on the public dime?” said Tim Hoefer, executive director of the Empire Center for State Policy, a fiscally conservative group that analyzes payroll records. “It’s a question we should be talking about.”

Hillary Clinton - We are going to raise taxes on the middle class!

Higher Medicaid Expansion Costs Reveal Another Obamacare Design Flaw

Remember when the Obama administration promised that the Affordable Care Act's expansion of Medicaid would be awesome? The idea behind this part of the law was that the expansion of the pool of people eligible for Medicaid would help reduce the number of uninsured and that these new enrollees would be relatively cheap when compared with those already in the program. Well, that's not what happened.

A colleague of mine at the Mercatus Center, Brian Blase, recently reported a shocking statistic: The Department of Health and Human Services just "found that the ACA's Medicaid expansion enrollees cost an average of $6,366 in (fiscal) 2015—49 percent higher than the $4,281 amount that the agency projected in last year's report." That's quite a mistake.

If you're thinking this type of mistake is nothing new—because government officials always tend to underestimate the cost and overestimate the benefits of the programs they're pushing—you're right. In this case, the error comes from having assumed that the state officials who oversee the Medicaid program are good stewards of our money. It turns out they aren't, however, because they simply respond to the terrible incentives built into the law.

Under the ACA, states that expand Medicaid have to expand eligibility beyond the previous subset of low-income Americans—e.g., pregnant women—to cover all adults with incomes of up to 138 percent of the federal poverty level. The expectation was that the cost for these new enrollees would be much lower than the cost for the people already in the system, precisely because the original enrollees were poorer and likelier to be chronically sick.

Cash handouts are best way to boost British growth, say economists

Direct cash handouts to households would be a better way of boosting Britain’s flagging economy than the interest-rate cuts expected from the Bank of England on Thursday, according to a group of progressive economists.

In a letter to the chancellor, 35 economists have urged Philip Hammond to ditch the approach that has been followed by the government since the recession of 2008-09 and give the Bank the right to try more radical options.

The letter, to be printed in Thursday’s Guardian, suggests that the Bank should be allowed to create money to fund key infrastructure projects. Alternatively, the group says the Bank could pay for tax cuts or direct payments to households.

The letter states: “A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.” Threadneedle Street would need approval from the Treasury to adopt what the US economist Milton Friedman once described as “helicopter drops” of money on to the economy as a means of removing the threat of deflation.

Millennials doubt they'll make $1M, plan to retire at 59

Many millennial said they won't become millionaires in their lifetime and are struggling to save for retirement, a new study found, reflecting "unmanageable" student loan debt and a tough job market.

Nearly two-thirds, or 64 percent, of working millennials, those between the ages of 22 and 35, said they will never accumulate $1 million, a common "nest-egg target to help fund a multi-decade retirement," according to a Wells Fargo & Co.'s study. Some 59 percent have started saving for retirement. Of those who are not saving, 64 percent said they are "not making enough money" to save.

Millennials who earn a starting salary of $32,000 at age 25, saves 5 percent the first year and then increases their savings rate by 2 percent each year (up to 13 percent) could accumulate $1 million by age 65, the survey said. Overall, millennial cited student loan debt and the gender wage gap as some reasons for a lack of optimism.

"Saving $1 million is often noted as a nest-egg target to help fund a multi-decade retirement, so we wanted to find out if today's millennials think they can get there. A majority don't think so. Millennials may not realize that if they start saving consistently by their mid-twenties — and stay invested for the duration of their working years — they will likely accumulate $1 million by the time they retire," said Joe Ready, director of Institutional Retirement and Trust for Wells Fargo.

BofA CEO: Banks Are Big Because Our Economy Is Big

The Student Loan Default Rate Is Way Worse Than You Think

The Wall Street Journal’s Josh Mitchell recently authored an article in which he calls attention to the roughly 16% student loan debt default rate, as measured in terms of number of borrowers.

That data point, by itself, is extraordinarily high. In proper context, it’s calamitous. At $125 billion in aggregate value, these defaulted loans represent roughly 10% of all student loans that are currently outstanding — and roughly 13% of those that are government-guaranteed. Yet only about half these debts are actually in repayment (because the other half represents deferred borrowings for students who are still in school). As such, that 10% (or 13%) is really closer to 20% (or 26%).

That’s nearly double the default rate for single-family mortgages at its height, in the aftermath of the 2008 economic collapse. Here too, though, that metric is also misleading. For all other forms of consumer debt — commercial debts as well, for that matter — defaults are measured on contracts where the payments are 91 or more days past due. Only within the unique alternative universe of government-backed student loans are defaults measured at 270 or more days.

Therefore, if the Federal Reserve Bank of New York is correct at noting in its most recent Quarterly Report on Household Debt and Credit that seriously delinquent student loans (more than 90 days past due) represent 11% of all outstanding education debts, and if that metric excludes loans that have already been declared to be in default, the most accurate default rate lies somewhere between 40% and 50%.

High Cancellations Hurt July Class 8 Truck Orders

It looks like July was another off month for Class 8 truck orders as industry analysts are predicting some of the lowest numbers since 2010, according to preliminary numbers from ACT Research and FTR.

FTR is predicting Class 8 truck orders will come in at around 10,400 units while ACT Research is projecting 10,500 units for the month. Both forecasts are well below July 2015 orders and mark one of the weakest months since 2010. Compared to June, orders were down 19%, which FTR attributed to higher than normal order cancellations in the month.

“Usually there are a low number of cancellations in July, but not this year," said Don Ake, FTR's vice president of Commercial Vehicles. "The high cancellations are likely the result of fleets placing large orders at the end of 2015, for delivery a year out. OEMs are trying to confirm Q4 production, with some orders shaking out of the backlog as a result.”

Class 5-7 medium duty truck orders remained “on trend” according to ACT Research, which projects July’s orders to hit 14,500 units. This is down from June’s order numbers, which hit 15,200 units.

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