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Wednesday 09.07.2016

Fed's Williams says U.S. economy in good shape, wants rate hike

A top Federal Reserve official on Tuesday repeated his call for gradual interest rate hikes, evidently unfazed by a slowdown in U.S. job gains and sluggishness in the services sector that now has traders betting against any rate hike at all this year.

It "makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later," San Francisco Fed President John Williams said in remarks prepared for delivery to the Hayek Group.

In his prepared remarks Williams did not address the release of data on Tuesday that showed activity in the U.S. services sector had hit a six-and-a-half-year low, or government data last Friday that showed U.S. employers added fewer jobs than expected in August.

Williams said the economy was in "good shape," and he forecast unemployment, now at 4.9 percent, to fall to 4.5 percent in the coming year and inflation to rise to the Fed's 2 percent target in the next year or two. Longer-term, however, Williams made it clear he is far from comfortable with the Fed's current approach to monetary policy.

More Weakness Seen in Payrolls and Employment Trends

It was just on Friday that the U.S. Department of Labor signaled weak payroll creations in the month of August. Its report was even weaker in the private sector payrolls gains than ADP had indicated ahead of time. Now we have a third piece of confirming news from the Conference Board’s Employment Trends Index for August.

The Employment Trends Index decreased in August to 128.02, down from 128.44 in July. What stands out about this drop is that the index had actually been increasing in the prior two months. The Conference Board showed that this change represents a 0.8% gain in the index compared to a year ago.

What economists and investors need to understand here is that the Employment Trends Index is made up of an aggregation of eight labor-market indicators. The aggregation aims to filter and smooth out noise of any single indicator and aims to show underlying trends more clearly.

August’s decrease was almost unilateral. It was shown to be fueled by negative contributions from seven of the eight index components, which is far from a balanced reading.

Carl Icahn: Investors should be worried

Goldman Sachs Bans Employees from Donating to Trump

Goldman Sachs has enacted a set of rules that bans the firm’s top employees from contributing to certain campaigns, including the Trump-Pence ticket.

The rules kicked in Sept. 1 and will apply only to partners of the firm. The memo detailing the rule change was first reported by Politico. The firm says the rules were meant to remove any implication of so-called “pay to play.” Four years ago, the bank paid $12 million to settle charges that a former Boston-based banker had picked up bond underwriting business in the state while working for and contributing funds to the campaign of a then Massachusetts state treasurer and governor-hopeful, Tim Cahill.

But the people in the Trump campaign are sure to question the timing. That’s because the rules ban donations to politicians running for state or local offices, as well as donations to state officials who are seeking federal office. That makes campaign contributions to the Trump-Pence ticket a no-no. Pence is the current governor of Indiana.

n the memo, a copy of which was obtained by Fortune, Goldman specifically mentions the Trump-Pence campaign as an example of one Goldman partners can no longer support. Among the type of donations that are banned, according to the memo, are, “Any federal candidate who is a sitting state or local official (e.g., governor running for president or vice president, such as the Trump/Pence ticket, or mayor running for Congress), including their Political Action Committees (PACs).”

An Economic Mystery: Why Are Men Leaving The Workforce?

At 4.9 percent, the nation's unemployment rate is half of what it was at the height of the Great Recession. But that number hides a big problem: Millions of men in their prime working years have dropped out of the workforce — meaning they aren't working or even looking for a job.

It's a trend that's held true for decades and has economists puzzled. In the 1960s, nearly 100 percent of men between the ages of 25 and 54 worked. That's fallen over the decades.

In a recent report, President Obama's Council of Economic Advisers said 83 percent of men in the prime working ages of 25-54 who were not in the labor force had not worked in the previous year. So, essentially, 10 million men are missing from the workforce.

"One in six prime-age guys has no job; it's kind of worse than it was in the depression in 1940," says Nicholas Eberstadt, an economic and demographic researcher at American Enterprise Institute who wrote the book, Men Without Work: America's Invisible Crisis. He says these men aren't even counted among the jobless, because they aren't seeking work.

This One Chart Should Drive Investors Into Buying Gold & Silver

The U.S. financial system is in serious trouble and this one chart confirms it. Investors who understand the negative consequences of this chart would be buying physical gold and silver hand over fist. Unfortunately, Americans have been put to sleep by the Mainstream media as they continue to report that “business as usual forever and everything will be okay.”

However, the opposite is the case as the U.S. economy and the financial system continue to disintegrate under the forces of massive debt, zero interest rates and a collapsing energy industry. This is not a situation that will continue for many years or decades. This will likely collapse much sooner than most Americans realize.

Why? Because of the evidence shown in the chart below:

This chart taken from the Political Calculations blog, reveals the exponential increase in U.S. debt as well as GDP – Gross Domestic Product. Most individuals have seen charts of U.S. debt going back decades or even to the 1930’s. However, this chart goes back all the way until 1791.

Car loans now top $1 trillion as delinquency rates rise

Americans are borrowing more than ever for new and used vehicles, and 30- and 60-day delinquency rates rose slightly, according to a quarterly report by Experian Automotive.

The total balance of all outstanding auto loans reached $1.027 trillion between April 1 and June 30, the second consecutive quarter that it surpassed the $1-trillion mark.

More consumers also are turning to leases, which accounted for 31.44% of all new car and truck transactions in the second quarter, up from 26.9% a year earlier. Both 30- and 60-day loan delinquencies rose, but the combined subprime and deep-subprime share of new and used auto loans and leases dropped from 23.3% in the second quarter of 2015 to 22.8% in second quarter of 2016.

“Yes, subprime and deep-subprime loans are growing, but the entire market is growing from a volume perspective across all risk tiers," said Melinda Zabritski, Experian senior director of automotive finance. "In fact, the subprime loans have actually dropped as a percentage of the total market. That, combined with only a slight uptick in delinquencies, makes clear that the sky is not falling.”

1000s laid off: ITT shuts schools after U.S. aid cut

ITT Technical Institute of Carmel, Ind., and its locations including Center City, Marlton, Levittown, and Plymouth Meeting in the Philadelphia area, have closed, idling most of its 8,000 staff and sending more than 30,000 students home, after the U.S. Department of Education stopped giving its new students financial aid.

The for-profit school, which consumed $5 billion in U.S. aid and student loans since 2007, pulled the plug after the government said no. "ITT’s decisions have put its students and millions of dollars in taxpayer funded federal student aid at risk," U.S. Department of Education said in its statement. The government "increased our financial oversight over ITT and required the school to boost its cash reserves to cover potential damages to taxpayers and students."

According to ITT's annual student report, dated this month, 96% of ITT students received federal loans or grants, but only 36% of fulltime students completed their programs, and only 11% of parttime students remained in a program for more than a year.

Don't blame us, said ITT bosses: "The government's action" to stop giving the school and its students money "was inappropriate and unconstitutional," leaving "hundreds of thousands of current students and alumni and more than 8,000 employees" hurt, ITT says here.

Problem: Most Americans don't believe the unemployment rate is 5%

Americans think the economy is in far worse shape than it is. The U.S. unemployment rate is only 4.9%, but 57% of Americans believe it's a lot higher than that, according to a new survey by the John J. Heldrich Center for Workforce Development at Rutgers University.

The general public has "extremely little factual knowledge" about the job market and labor force, Rutgers found. It's another example of how experts on Wall Street and in Washington see the economy differently than the regular Joe. Many of the nation's top economic experts say that America is "near full employment." The unemployment rate has actually been at or below 5% for almost a year -- millions of people have found jobs in what is the best period of hiring since the late 1990s.

But regular people appear to have their doubts about how healthy America's employment picture is. Nearly a third of those survey by Rutgers believe unemployment is actually at 9%, or higher.

Republican candidate Donald Trump has tapped into this confusion. He has repeatedly called the official unemployment rate a "joke" and a even "hoax." It's not just the unemployment rate that people get wrong. Americans also greatly overestimate the number of workers who are represented by unions and how many workers are foreign born.

Tens of Thousands of Jobs Go as China’s Biggest Banks Cut Costs

China’s four biggest banks reported that staff numbers fell by the most in at least six years in the first half, highlighting the possibility that employment has peaked at the firms that are the world’s biggest providers of banking jobs.

A decline of 1.5 percent from the end of last year left 1.62 million workers at Agricultural Bank of China Ltd., Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., earnings filings showed. Agricultural Bank, the No. 1 bank employer, saw its number of employees slip below half a million.

While a fall in the first half is not unusual, the 25,000-job decline is the biggest since at least 2010 and analysts at firms including BOC International Holdings Ltd. and DBS Vickers Hong Kong Ltd. say changes to how banking is done will limit prospects for increases.

“Chinese banks went through years of expansion, adding physical outlets that helped to push their staff numbers to a peak,” said Polar Zhang, a Beijing-based bank analyst at BOC International. He expects the workforce to “dwindle” on technological advances and cost cutting.

America’s big banks are staffing up—for blockchain

IBM announced a massive internal re-organization to cater to blockchain. It is one of many recent signs that the peer-to-peer ledger technology, which first came along with the digital currency bitcoin, has serious future applications in big business. Or it is at least a sign that big companies are convinced they ought to examine it further.

The computing giant will create a new unit called Watson Financial Services to encompass Watson, cloud, and all blockchain-related offerings and strategy. Bridget van Kralingen, IBM’s senior VP of global banking services, will take on the role of building the unit, and take a new title, VP of industry platforms. To replace van Kralingen in global banking services, IBM has hired Mark Foster, a former Accenture executive.

IBM says that it has created new roles specifically devoted to blockchain, and will create more, but it declines to share how many.

Search for “blockchain jobs” on job sites like Monster.com and Indeed and you’ll find more than 100 at some, posted by companies like IBM, Fidelity, BNY Mellon, JPMorgan, Bank of America, Capital One, American Express, Citigroup, Cognizant and Infosys.

Why You Should Be Paying Attention To America’s Quiet War On Cash

Government campaigns of intimidation — like the wars on drugs, terror, and poverty — have been used to extort the public for decades. Despite the previous failures of institutional “wars,” a new war on cash is being waged that threatens freedom in a more subversive way than ever before.

Banks and governments around the world are cracking down on the use of paper money, and in turn, eliminating any anonymity left in the current system. Through strict rules on cash transactions and civil asset forfeiture laws, for example, the system has already instituted penalties for using cash. But as payments evolve into a purely digital network, the consequences of this new paradigm are being brought into the spotlight.

The ability to track, record, and mediate transactions of all individuals is a power that dictators throughout history could have only dreamed of. Those who value privacy are turning to alternatives like cash, cryptocurrencies, and precious metals, but these directly threaten central bank dominance. This ongoing tug-of-war in financial innovation will determine whether we enter an age of individual empowerment or centralized enslavement.

As mundane as it may seem, the main reason for this push to go cashless is directly tied to what the world central banks are doing to prop up their economies. The manipulation of interests rates to zero or even negative has left central banks no ammunition to fight off the next recession. Without the ability to cut interest rates even further, stimulating economic growth is nearly impossible.

Will Amazon Move Into Selling Cars?

Feds spend another $10 million to register immigrant voters

Months after the Obama administration spent $19 million to register new immigrant voters that will likely support Democrats in November, it’s dedicating an additional $10 million in a final push as the presidential election approaches, a government-watchdog group reports.

The money, fully approved by the Republican-led Congress, is distributed by U.S. Citizenship and Immigration Services, or USCIS, which is the Homeland Security agency that oversees lawful immigration. It’s distributed to organizations that help “enhance pathways to naturalization” by helping prepare immigrants for U.S. citizenship by teaching them English, U.S. history and civics, at no cost to the immigrant.

“Officially, they’re known as citizenship integration grants,” according to a report by Judicial Watch.

Since 2009, USCIS has doled out $63 million in these grants to prepare more than 156,000 immigrants in dozens of states for U.S. citizenship, according to the agency’s figures. Besides the free classes, the feds also offer immigrants free “naturalization legal services,” the latest USCIS grant announcement states.

The Fed Feedback Loop

In a word, the Fed has failed in its mission to restore robust growth to the U.S. economy. That failure has laid the foundation for the next global monetary crisis.

This failure was inevitable. The reason is that the problems in the economy are structural. They have to do with taxation, regulation, demographics and other factors beyond the Fed’s mandate. The Fed’s solutions are monetary. A policymaker cannot solve structural problems with monetary tools.

Since structural solutions are not on the horizon due to political gridlock, the U.S. economy will remain stuck in a low-growth, Japanese style pattern indefinitely. Without structural change, this pattern will persist for decades as it has in Japan already. This weak growth scenario will be punctuated with occasional technical recessions, and exhibit persistent deflationary tendencies.

That’s the best case, and not the most likely one. The likely outcome is a financial panic and global liquidity crisis caused by the Fed’s failed monetary policies. To understand why, it is necessary to understand the futile feedback loop in which the Fed, and all major central banks now find themselves.

It Might Take Coordinated Fiscal Stimulus to Mark The Top In Bonds

As we headed into the holiday weekend stocks were sitting near record highs, yields were hanging around near record lows and oil had been sinking back toward the danger zone of sub-$40. In examining the relationship of those three markets, each has a way of influencing the outcome and direction of the others.

First, the negative scenarios: A continued slide in oil would soon sink stocks again, and send yields (the interest rate outlook) falling farther. Cheap oil, in this environment, has dire implications for the energy business, which has a cascading effect, starting with banks, which effects credit and the dominos fall from there.

What about stocks? When stocks are falling, in this environment, it’s self-reinforcing. Lower stocks, equals souring sentiment, equals lower stocks.

What about yields? As we’ve seen, lower yields are supposed to promote spending and borrowing. But in this environment, it comes with trepidation. Lower yields, especially when much of the world’s government bond markets are in negative yield territory, is having a stifling effect on economic activity, as many see it as a signal of another recession coming, or worse. Now, for the positive scenarios. Most likely, they all come with intervention. That shouldn’t be surprising.

Is Apple a tax cheat?

Judge Gives Temporary OK to Protect Hanjin Shipping in US

A federal judge has temporarily granted Hanjin Shipping Co.'s request to have bankruptcy protections from its South Korean proceedings recognized in the United States.

The world's seventh largest ocean shipper is seeking protection from creditors in dozens of countries, hoping to minimize seizures of its vessels and other assets.

Judge John Sherwood in Newark, New Jersey, on Tuesday ordered a hearing on Friday to make sure that creditors are protected during the bankruptcy.

Sherwood's ruling came after Hanjin Group said it will inject $90 million to help resolve disruptions to container cargo transport caused by Hanjin Shipping's financial troubles.

Lawyer: Employers Should Take Away Workers’ Right To Sue

The Consumer Financial Protection Bureau is currently working on rules to stop banks, credit card issuers, and others from forcing customers to sign away their right to a jury trial. Opponents claim that this change will only benefit trial lawyers, but some candid advice from one lawyer shows exactly why these protections are needed — and who really stands to benefit.

As we’ve covered before, forced arbitration is the practice of requiring a consumer to agree to have all legal disputes with a company resolved outside of the courtroom through private arbitration.

More importantly, most arbitration clauses also have a so-called go-it-alone condition that prohibits the customer from joining with similarly wronged customers in a class action, even in arbitration.

Pro-arbitration organizations like the big banks — 90% of which take away the customer’s right to a jury trial — and the U.S. Chamber of Commerce have argued that class actions don’t pay, and that only class action trial lawyers make money.

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