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Wednesday 07.06.2016

Fed's Williams says Brexit effect as expected, no big deal

U.S. market reaction to Britain's vote to leave the European Union has played out "more or less" as expected, and the impact on the U.S. economy is much less than other that of other events in recent years, a top Federal Reserve official said on Tuesday.

"The economic effects, on the baseline scenario, are relatively modest, but there still is the uncertainty about how things are actually going to play out," San Francisco Federal Reserve President John Williams said in an interview Friday with Market Watch that was published Tuesday.

"I don’t think it is nearly as big a deal as the euro crisis from 2011-2012," he said. Asked if his message is that "the economy is doing well. Full stop," Williams agreed.

Pointing to high valuations of real estate and stocks, he said the economy and financial system faces risks if the Fed keeps rates too low for too long. Still, Williams did not repeat his view from May that the U.S. economy could handle two or three Fed interest rate rises this year.

Low-paid workers are leading in wage gains

Low-paid workers didn’t exactly declare their independence this past weekend but they did snag another round of minimum wage hikes as part of their years-long rebellion against languishing earnings.

An unusual flurry of minimum wage increases took effect Friday in Maryland and Oregon, as well as in 13 cities and counties, including Los Angeles, San Francisco, Chicago, Washington DC and Louisville, Ky., according to the conservative Employment Policies Institute and liberal National Employment Law Project. The initiatives will boost minimum pay to as much as $13 to $14.82 an hour in parts of California.

And the latest studies underscore that their efforts have been stunningly fruitful, with the pay of low-wage workers rising far more rapidly than their higher-earning counterparts. Meanwhile, employer advocates are taking an increasingly aggressive stance against the raises, running ads to argue they’re hurting businesses and jeopardizing summer job opportunities for teens.

Kejioun Johnson, 20, who has worked at a McDonald’s (MCD) in Chicago the past year, has been earning the city’s minimum wage of $10 an hour, but typically puts in just 7 1/2 hours a week, often forcing him to skip meals. The extra 50 cents an hour he pocketed starting Friday “can be like an extra meal,” says Johnson, who also recently started a part-time job at Burger King.

Gold, Silver Rally As 10-yr Yields Hit Record Low

New Cars Are Too Expensive For Most Americans

Well, this is a nice, depressing way to start your week: according to a study from Interest.com (part of Bankrate.com), the average American can no longer afford to buy an average-priced new car.

The average price for a new car in these United States is now $32,086. The study looked at the median household income in the 25 largest metropolitan areas, and used a formula that assumed a 20 percent down payment, a loan of four years or less, and the overall cost, including insurance, coming out to no more than 10 percent of the gross income of the household.

Using these metrics, only median-income people from the Washington, D.C. area can buy a new car (with a monthly payment of $641), and you just know they’re probably going to buy something boring.

Sure, you can have a much longer-term loan, for, say, six or even more years and get the monthly payment down to something you can afford, but chances are that you’d end up being upside-down paying for that six-year old car that’s almost certainly not going to be worth the money you’re paying for it by the time it’s that old.

The collapse of the monetary system as we know it will push gold to $4,200

Here's a bold call. After the post-Brexit, face-ripping comeback in gold prices, Christopher Wood at CLSA believes that the precious metal is set up to more than triple in price.

Since the start of 2016, gold bullion has gained 24.6%, said Wood, who has been high on gold for some time now, and the risks to the global economy and safe-haven nature of the commodity will make it the go-to investment.

"A long-term bullish view is maintained on gold bullion, with the ultimate price target now set at $4,200 an ounce," Wood wrote in a note to clients on Tuesday.

What could possibly make gold go from roughly $1,350 an ounce now to a historically high price? Central banks, according to Wood. Here's his breakdown: "This is because the view here remains that central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will remain committed to ongoing balance-sheet expansion in one form or another. Such policies will ultimately discredit central banks pursuing unconventional monetary policy, threatening the stability and indeed integrity of the current fiat-paper-money system."

Deutsche Bank Says Dollar Poised for Gains as Fed Hike Possible

Deutsche Bank AG, the world’s No. 4 currency trader, says the prospects for gains in the dollar are increasing as improving financial conditions add to the case for the Federal Reserve to raise interest rates this year.

The greenback rose against all except three of its 31 most-traded peers as the fallout from Britain’s June 23 referendum to leave the European Union continued around the globe. In the U.S., traders are anticipating the June payrolls report later this week, forecast to show gains of 180,000 jobs, will shape Fed policy makers’ views after a below-forecast May report. Fed Bank of San Francisco President John Williams said Britain’s vote to exit probably won’t derail the U.S. economy and a rate increase is still possible this year.

"The dollar should be stronger against the euro and commodities currencies and emerging-market currencies," said Alan Ruskin, global co-head of foreign-exchange research at Deutsche Bank in New York. Gauges of financial conditions "have improved markedly since December and sharply since their low point. That raises the stakes for the upcoming payroll."

Ruskin forecasts the U.S. currency will strengthen to $1.05 per euro by the end of the year. That is stronger than the median estimate of $1.09 in a Bloomberg survey of analysts.

Obama Vouches For Hillary's “Judgment And Commitment” In First Joint Campaign Appearance

In his first appearance on the campaign trail for Democratic presidential hopeful Hillary Clinton, President Barack Obama backed his former secretary of state at a rally in Charlotte, North Carolina on Tuesday, which will certainly be a key state come general election time this upcoming November.

Hillary Clinton, fresh off the news that she will indeed not be charged by the FBI for using a private email server during her tenure at the State Department, seemed to be in great spirits on Wednesday as she and President Obama displayed a sense of party unity that up until today hasn’t been on public display. The Associated Press is reporting that Clinton and Obama flew to Charlotte together on Air Force One and rode to the rally together in Obama’s armored limo, “The Beast”, while looking at pictures of Hillary’s newborn grandson, Aidan.

As onlookers chanted “Hillary! Hillary!”, President Obama, once a foe of Hillary Clinton in the 2008 Democratic Party presidential primaries, fondly remembered the battles he shared with the former First Lady eight years ago. “We may have gone toe to toe, from coast to coast, but we stood shoulder to shoulder for the ideals that we share.” “She knew every fact, ever detail…. “Even when things didn’t go her way, she just stands up stronger.”

In turn, Hillary told glowing tales of her time in Obama’s administration, traveling all across the globe to represent his foreign policy and spoke of tales of being in the Situation Room during the raid that ultimately killed former Al-Qaeda leader Osama Bin Laden and crashing a meeting with the Chinese at a global climate summit. Clinton says that Obama has never received the credit that he deserves for leading the recovery of the country’s economy.

Banks Bracing for Q2 Earnings Releases

For the most part, the largest U.S. bank holding companies suffered through a dismal first quarter, as the profits of nearly every one of them took a hit compared with the first quarter of 2015.

For example, Goldman Sachs and Morgan Stanley each saw their profits decline by more than 50 percent from Q1 2015 to Q1 2016. Citi’s net income dropped over-the-year from $4.8 billion to $3.5 billion in Q1, and Bank of America’s dropped by 13 percent down to $2.7 billion. Wells Fargo and JPMorgan Chase also reported over-the-year earnings declines for Q1.

In slightly more than a week, the mortgage industry will find out if the banks were able to bounce back in Q2, starting with the release of JPMorgan Chase’s second quarter earnings statement on the morning of Thursday, July 14. The following day, Friday, July 15, the Q2 earnings statements of four financial institutions will be released: Wells Fargo, U.S. Bank, PNC, and Citi.

Bank of America and Morgan Stanley will follow with their respective Q2 earnings statements on Monday, July 18, and Goldman Sachs will release theirs on Tuesday, July 19.

Goldman Sachs tells its asset managers to tighten belts

Goldman Sachs has told staff at its asset management division GSAM to tighten their belts, amid outflows and poor performance from some of its largest funds.

Executives have issued an edict that GSAM's 2,000 employees must curtail spending, including a ban on all travel that is not associated with meeting clients and winning new business.

GSAM's flagship bond fund is languishing in the bottom one-fifth of its class on a one- and three-year view of its performance, and investors have pulled money for 15 consecutive months from GSAM's US mutual funds, according to Morningstar data.

The malaise reflects wider pressures on the industry, where actively managed funds are losing market share to low-cost index trackers. It also complicates Goldman's efforts to build a larger asset management business to balance its traditional investment banking and trading arms, where profitability is being squeezed.

America’s big companies are about to repeat a financial crisis-era losing streak

Analysts expect S&P 500 companies to report that earnings fell year-over-year in Q2, repeating a trend we haven’t seen since the financial crisis. Earnings season unofficially kicks off with Alcoa (AA), which is set to report its second quarter earnings on July 11. Early indications suggest there won’t be much to celebrate this time around.

According to a report from Factset analyst John Butters, S&P 500 Q2 earnings are expected to decline by 5.3% year over year.

“If the index reports a decrease in earnings for the quarter, it will mark the first time the index has seen five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009,” Butters said. The earnings trend hasn’t been this bad since the financial crisis — a worrisome sign. This is compounded by the fact that the market’s forward P/E ratio is 16.4, which Butters notes, is “above the 5 and 10 year averages.”

Deutsche Bank is also worried about the continued impact on US earnings from Brexit, given how much the sterling has weakened. Deutsche was expecting the Bank of England to defend the pound to a greater degree; the lack of defense has caused it to lower S&P 500 forecasts for the year.

Oil prices fall as U.S. rig count rises

Shell Warns Of Further Job Cuts

Shell may have to cut more jobs after laying off 12,500 people over the past year, CEO Ben van Beurden told The Telegraph. The new cuts would be prompted by a “continuous improvement drive,” he added.

Elaborating on what this drive would imply, Van Beurden noted jobs are becoming unnecessary as business operations get shut down, or positions being moved to another part of the world, or becoming redundant because of the drive for enhanced business efficiency.

After its US$53-billion acquisition of BG Group, which closed around six months after the start of the price rout, Shell has been struggling to make ends meet, cutting costs, slashing jobs and shelving projects, including its massive Arctic exploration project.

Now, despite a certain improvement in prices and synergies coming in from the tie-up with BG Group, the situation is still tough and layoffs are one of the easiest ways to cut costs, as demonstrated across the oil and gas board, where job losses are in six-figure territory to date, raising concerns the industry may well be in for a workforce shortage in the not too distant future.

The Gold Standard: Friend of the Middle Class

It has been theoretically demonstrated and seen in general practice that a monetary system of 100% metallic money devoid of central banking checks monetary inflation, prevents a general rise in the price level, and eliminates the dreaded business cycle while making all sorts of monetary mischief nearly impossible. A gold standard is not only economically superior to any paper money scheme, but is morally just, which is why it is hated by the politically well-connected, academics, politicians, and the rest of the Establishment.

Often not discussed, however, even by its proponents is the beneficial effect that “hard money” has for the middle class.

It is not a coincidence that since the U.S. left the last vestiges of the gold standard in 1971with President Nixon’s nefarious decision to no longer redeem international central bank payments in gold, real wages for Americans have stagnated. Nixon’s decision to put the nation on an irredeemable paper money standard set it on a course of economic ruination, which is why he should have been hounded from office not for his role in the bungled, petty cover up at the Watergate.

Stagnating wage rates have been confirmed by a number of studies, take, for instance one from the Pew Research Center which states that “today’s average hourly wage has just about the same purchasing power as it did in 1979. . . . [I]n real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.”

Most Americans distrust Wall Street

Wall Street has been a big topic on the campaign trail this election season. Marketplace was curious what Wall Street means to you, so in our latest round of polling with Edison Research, we asked whether people think Wall Street does more to hurt or help the lives of most Americans.

Fifty-eight percent said Wall Street does more to hurt most Americans, and that included majorities from all political parties, and all racial groups—although black respondents and Democrats were more likely to give that answer.

One number stood out to us: 71 percent of people who said they fear not having enough money saved for retirement a lot also said they think Wall Street does more to hurt people. Of those who aren’t worried about retirement, only 44 percent said they distrust Wall Street.

In other words, the more worried you are about retirement, the less likely you are to think Wall Street is helping people in general. Is there a meaningful relationship between the two? Lyric Crowder, age 18, is one of the people who responded to our poll and said she worries a lot about retirement and thinks Wall Street hurts more people. She just graduated from high school outside of Atlanta, Georgia, and makeup is her thing; she wants to start up her own YouTube channel doing makeovers once she has money to buy a good camera. But she has other plans too.

US Recoverable Oil Reserves Are World’s Largest

The United States can now claim to have the largest total recoverable oil reserves in the world, with an estimated 264 billion recoverable barrels, compared with 256 billion barrels for Russia and 212 billion barrels for Saudi Arabia.

The data were published July 4 by Rystad Energy and include proved and probable reserves, discoveries and undiscovered fields. Proved reserves are those that can be produced with reasonable certainty (90% is the usual yardstick) with current technology and at current prices. Probable reserves have about 50% certainty of being produced under the same limitations. Discoveries are new fields that haven’t yet been sized and undiscovered fields are places where nothing has been found yet but where recoverable amounts are likely to exist.

What gives the United States its edge is shale oil. According to Rystad Energy, more than half of U.S. remaining reserves is unconventional shale oil. The researchers’ data show that Texas alone holds more than 60 billion barrels of recoverable shale oil. Globally, unconventional oil accounts for about 30% of recoverable reserves and offshore oil accounts for a third of the total.

Rystad also estimates total global remaining recoverable oil at 2.1 trillion barrels, nearly 25% higher than the total 1.7 trillion barrels reported in this year’s BP Statistical Review. BP reports government-supplied data on proved reserves, but how those numbers are derived in each country is different. Saudi Arabia, for instance, has reported proved reserves of around 260 billion barrels for decades.

Guns Sales Have Spiked 40% Since Orlando Shooting

Gun sales have surged by about 40% in three out of six months in 2016, and we’re on track for another record-breaking year.

In June the FBI conducted about 2.1 million background checks on people attempting to purchase firearms, according to the National Instant Criminal Background Check System (NICS). That’s a 40% increase from June of last year when about 1.5 million background checks were conducted.

At this time last year, there had been about 10.5 million background checks. So far in 2016 there have already been 13.8 million, about a 32% increase. 2015 was a record-breaking year for gun sales with 23.1 million background checks and, with every month so far in 2016 breaking records, we’re on track to beat that this year.

NICS doesn’t reflect the exact number of firearms sold in the U.S.—it doesn’t account for people purchasing multiple guns at one time, gun sales that don’t involve a federally licensed dealer, or buyers who don’t pass background checks. However it does reflect trends in gun sales, and background checks tend to increase following gun-related tragedies.

Max Keiser and Stacy Herbert, turmoil in in post-Brexit markets

Goldman: Paying For Prostitutes “Inappropriate” But Did Not Influence Investment Decisions

A Goldman Sachs employee using his own funds to purchase prostitutes for a relative of the head at the Libyan Investment Authority (LIA) was a mistake, a Goldman Sachs official said. But encouraging the man to “get divorced from your wife for a weekend” didn’t influence him in purchasing $1 billion in now worthless derivatives, the investment bank contended in court.

Andrea Vella, Goldman Sachs co-head of Asian investment banking, said had he known about the incident he would have been concerned. Goldman banker Youssef Kabbaj purchased two prostitutes for a 2008 Dubai trip with Haitem Zarti, the brother of a top LIA executive. Vella called the action “inappropriate,” but said because he used his own funds “it seems more of a personal relationship at that point.”

In court the issue to watch will be if Goldman’s efforts to secure companionship for the two investment professionals altered the Libyan government’s investment decisions with its $60 billion fund or if it was just good customer service.

In addition to providing customer service with a personal touch through trips to Morocco and Dubai, Zarti participated in an 11-month Goldman Sachs internship. At some point I thought he was going to be head of the LIA in London,” Vella was quoted as saying, pointing to the bank’s motivation with Zarti. In text messages from Vella to Kabbaj revealed in court, they discuss getting “close” to Zarti and point to Goldman using their influence to scuttle meetings between the LIA and JPMorgan. Vella worked at JPMorgan until 2007.

Will Millennials Solve Truck Driver Shortage?

As the trucking industry continues to grapple with filling jobs, the Millennials could be the answer. As a group they are very diverse, which can be a benefit to the industry.

At the Truckload Carriers Association’s new WorkForce Builders Conference, held on June 30, CarriersEdge, providers of training for the transportation industry, presented the results of research indicating how age, ethnic and gender diversity can help alleviate the driver shortage.

“Millennials, the group that trucking wants to target to help with the driver shortage, represent more than one quarter of the U.S. population and have overtaken Baby Boomers as the largest generation,” said Jane Jazrawy, CEO of CarriersEdge.

“They are also the most diverse generation with 44.2% part of a minority race or ethnic group and 38% bilingual,".Jazrawy added. “Ethnic diversity is becoming a competitive differentiator. Companies with ethnic diversity have higher earnings and are better able to win top talent.”

Economic growth worries, oil slump drag Wall St. lower

Stocks fell on Wall Street Tuesday following their best weekly performance of the year as investors faced continued uncertainty in the wake of Britain's decision to leave the European Union and as tumbling oil prices weighed on energy shares.

U.S government bond yields reached record lows as investors found refuge in the perceived safety of Treasuries and uncertainty from Britain's vote to exit the EU, known as Brexit, fueled worries about a global economic slowdown.

Four of the top five decliners on the S&P 500 were bank stocks, with JPMorgan , down 2.8 percent t0 US$59.55, weighing the most. The financial sector of the S&P was down 1.5 percent. "Brexit is a friction on economic activity and that's bad for banks," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.

"Low interest rates are horrible for financials, specifically for banks. The spread between where they borrow and where they lend is getting closer together." The Dow Jones industrial average fell 108.75 points, or 0.61 percent, to 17,840.62, the S&P 500 lost 14.4 points, or 0.68 percent, to 2,088.55 and the Nasdaq Composite dropped 39.67 points, or 0.82 percent, to 4,822.90.

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