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Monday 10.10.2016

Bank of America's recession warning: This market is scary

There's a chilling trend in the market, and it could wreak havoc on your portfolio, a top market watcher said.

"We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand," Bank of America-Merrill Lynch's head of U.S. equity and quantitative strategy Savita Subramanian recently warned on CNBC's "Fast Money."

"We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they're on, we're going to hit a recession sometime in the second half of next year."

The most unsettling thing is that this recession risk isn't discounted into the market at these levels, according to Subramanian. The S&P is 1.8-percent away from its intraday all-time high of 2,193.81, hit on August 15. Subramanian's year-end 2016 S&P 500 price target is 2000, about seven percent lower than where it's trading today. And, if she's right, it's about to get a lot worse next year.

Cash Is Not the Enemy; Central Banks Are

Ostensibly to foil terrorists, the European Central Bank intends to stop producing €500 banknotes. Getting rid of the bill, referred to by the sinister name ‘Bin Laden’, “will make life harder for criminals, raising their costs and increasing their detection risks,” Peter Sands, a former chief executive of the British bank Standard Chartered and enemy of big bills, told the New York Times.

Rogoff views the world as a giant chess game, and we are mere pawns in the all-knowing monetary mandarins’ game.However, all of the public safety blather is mere eyewash. Kenneth Rogoff writes in The Curse of Cash that central bankers know getting rid of cash “would make it easier for central banks to invoke negative interest rates either when inflation is stuck at very low levels or, far more significantly, when the economy is in deep recession and requires substantially negative real interest rates to help stimulate demand.”

Rogoff quit high school to play chess and achieved Grandmaster status, but decided to pursue economics and now teaches at Harvard after working at the IMF and the Fed. Readers of “Curse” will get the feeling Rogoff views the world as a giant chessboard, and we humans are mere pawns in the all-knowing monetary mandarins’ chess game.

Money in Rogoff’s world is the government’s tool. There is no sense in Bitcoin or anything else competing with government money, for “it can use laws, regulations, and outright coercion to come out on top: a determined government is always going to win the battle of currency supremacy, at least in the long run.”

Fed’s Fischer: Labor Market ‘Solid, Showing Continued Improvement’

Federal Reserve Vice Chairman Stanley Fischer said Sunday the decision to hold interest rates steady at the central bank’s September meeting was a “close call” and that he expected only “gradual increases” to interest rates in the future.

The labor market is recovering more slowly than it has historically following a recession, he said. And inflation has been slow to move up to the Fed’s 2% target. That prompted officials to hold off, he said.

“With labor market slack being taken up at a somewhat slower pace than in previous years, scope for some further improvement in the labor market remaining, and inflation continuing to run below our 2% target, we chose to wait for further evidence of continued progress toward our objectives,” he said in remarks prepared for a speech on the sidelines of the International Monetary Fund’s fall meetings.

“Our decision was a close call, and leaving the target range for the federal-funds rate unchanged did not reflect a lack of confidence in the economy,” he said.

Mike Maloney- Gold and Silver Will Take a Moon Shot in Next War

America’s working class is falling behind

Have you ever wondered why so many of America’s working class feel left behind and cheated? Why this country’s economic “miracle” has created such a negative feeling in so many Americans?

While this economy has been harsh to many individuals of all colors, races and ethnicities, the data in a study just put out by the Sentier Research highlight just how screwed over working-class white males with a high school education have been.

Over an 18-year period, from 1996 to 2014, white males in the working class have seen their pay fall by 9 percent, according to the study, which looked exclusively at white males.

That’s hard to accept for virtually anyone. Take, for example, those in the 40- to 44-year-old age group, commonly a parenting age. The average earnings of the working-class white male high school graduate in 1996 was $60,126; in 2014, it was $52,512. Eighteen years later, he’s making 12.7 percent less. In the 45- to 49-year-old group, it’s even worse. Their earnings fell from $62,767 to $54,303, a 13.7 percent loss in income.

Former Employees Detail Wells Fargo’s “Boiler Room” Operation

On Friday’s episode of NPR’s Planet Money, former Wells Fargo employees offered details of young salespeople being subjected to intense pressure to sign customers up for multiple accounts, ultimately leading them to engage in fraud. The report also undermines CEO John Stumpf’s claims, including those made before congressional committees, that leadership was unaware of that fraud.

A former salesperson identified only as “Ashley” recounts some familiar parts of the story, including the bank’s steep sales goals. For much of her tenure, salespeople were expected to create eight new accounts per day—though sometimes the quota was as high as 20.

When she didn’t meet her quotas, Ashley says she would be subjected to humiliating “coaching sessions” and warned that she would be fired if she didn’t do better. She describes vomiting at her desk from the stress. Another employee speaking to Planet Money describes the atmosphere as a “grindhouse.”

But it was more than just pressure. Ashley describes the sales tactics of which Stumpf pleaded ignorance as “a systemic thing that was taught. It’s the sales culture.” Stumpf, by contrast, has said that such behavior “in no way reflects our culture.”

Verizon cuts jobs in stores as wireless growth slows

Verizon has cut jobs in stores across the country as it deals with increasing competition in the wireless industry.

Union representative Tim Dubnau estimates that Verizon has cut hundreds or even thousands of jobs.

Verizon spokeswoman Kim Ancin said Friday that stores will have fewer employees but refused to specify the size of Thursday’s layoff. She says estimates of thousands of cuts are “an exaggeration.” People who lost their jobs can apply for new positions at Verizon. There are 162,000 U.S. employees.

The layoffs result from Verizon combining the roles of two store positions — inventory stockers and customer-service specialists who answer questions about gadgets and bills.

Einhorn: I think the Fed moves in December

Restaurant executives blame the election for weak sales

The election is apparently keeping enough consumers at home that it’s having a broad impact on restaurant industry sales.

So says a growing number of restaurant chain executives, who see this year’s steep decline in sales and cite uncertainty surrounding the upcoming election as a big reason. The latest was Greg Creed, Yum! Brands Inc. CEO, who suggested the election was partly to blame for consumers spending less.

“It goes without saying that people are trying to decide who to choose and what the impact will be on the economy, and I think people are maybe just hunkering down a little bit,” he said during the company’s third-quarter earnings call Thursday.

Earlier this summer, The Wendy’s Co. CEO Todd Penegor also cited the uncertainty. “When a consumer is a little uncertain around their future and really trying to figure out what this election cycle really means to them, they’re not as apt to spend as freely as they might have even just a couple of quarters ago,” he said. In August, Popeyes Louisiana Kitchen Inc. CFO William Matt struck a similar chord. “What we also see is that there is a little more uncertainty with the consumer,” he said. “We’re not too sure what’s causing that, but our speculation would be, we think there is a rather unusual election going on and we think that unusual election is causing some uncertainty.”

America Is On A Slippery Slope

It hadn’t happened before, at least not since US presidents started visiting foreign countries after the Second World War. In early September, when President Obama landed at Hangzhoi for the G-20 summit in early September, the CIA security men were told in no uncertain terms by the Chinese that they were not in charge of landing arrangements, and that the President would disembark by the rear exit. It had the hallmarks of a calculated snub, as did the obligatory photograph of the world’s leaders, where the President was placed firmly on the far left, and not near the centre, which is customary.

Barack Obama suffered a further indignity, when ahead of his visit to Laos the following week, the new Philippine President, Rodrigo Duterte, referred to him as “a son of a whore”. The official meeting between the two was cancelled, though they did meet privately. So not only are ordinary Americans showing signs of rebelling against the status quo at home, but foreigners, some of them very important, are as well.

What follows is an assessment of today’s geopolitical situation, based on a mixture of obtainable facts, background information, informed opinions, and reasoned deduction. Guesswork, eliminated as much as possible, is inevitably involved, particularly in assessing outcomes. The conclusions are not something anyone in the deep states of America and elsewhere will admit to or endorse, which paradoxically gives this article its importance.

This article assesses the failing American empire and the current state of the global power-play between China and Russia on one side, and America on the other. It summarises the importance of gold which is central to China’s financial strategy, and concludes that America is likely to be an accumulator of bullion, for strategic if not monetary reasons. It also looks at the challenges the top three major currencies will face next year, in the context of geopolitical developments to date.

Nearly 7 in 10 Americans have less than $1,000 in savings

The U.S. is often referred to as the land of economic opportunity. Apparently, it's also the land of consumption and "spend everything you've got."

We don't have to look far for confirmation that Americans are generally poor savers. Every month the St. Louis Federal Reserve releases data on personal household savings rates. In July 2016, the personal savings rate was just 5.7%. Comparatively, personal savings rates in the U.S. 50 years ago were double where they are today, and nearly all developed countries have a higher personal savings rate than the United States. In other words, Americans are saving less of their income than they should be — the recommendation is to save between 10% and 15% of your annual income — and they're being forced to do more with less in terms of investing.

However, new data emerged this week from personal-finance news website GoBankingRates that shows just how dire Americans' savings habits really are. Last year, GoBankingRates surveyed more than 5,000 Americans only to uncover that 62% of them had less than $1,000 in savings. Last month GoBankingRates again posed the question to Americans of how much they had in their savings account, only this time it asked 7,052 people. The result? Nearly seven in 10 Americans (69%) had less than $1,000 in their savings account.

Breaking the survey data down a bit further, we find that 34% of Americans don't have a dime in their savings account, while another 35% have less than $1,000. Of the remaining survey-takers, 11% have between $1,000 and $4,999, 4% have between $5,000 and $9,999, and 15% have more than $10,000.

Economic 'Recovery' Feels Weak Because the Great Recession Hasn't Really Ended

Who Will Exit the EU Next?

The European Union's future has been up for debate since the Continent's economic crisis began nearly a decade ago. But questions about the bloc's path have multiplied in recent years as Greece came close to quitting the eurozone and the United Kingdom voted to relinquish its EU membership for good. "The bloc's demise is not a matter of if, but when," Euroskeptics insisted, to which their Europhile peers replied, "The union is irreversible."

Yet like all political creations, the European Union is a momentary construction in the vast expanse of history. One day it will disappear, to be replaced by other entities, or it will continue in name only, looking and operating far differently from the European Union of today. It is impossible to know exactly when this transformation will happen or just how long the process will take.

There are some clues, however, as to how the new Europe will come about and, perhaps even more important, what the agent of change will be. If anything, the Continent's current crisis is a stark reminder that despite decades of attempts to weaken it, the nation-state remains the most powerful political unit in the European Union. And as it emerges from the rubble of the Continent's latest experiment in integration, it will play a crucial role in charting Europe's course forward.

Not all EU members are created equal. Losing a member that belongs to the eurozone, for example, poses a much bigger threat to the rest of the system than the departure of one that does not. The prospect of Greece quitting the currency area in 2015 was probably more frightening to France and Germany than Britain's decision to leave the bloc a year later. To be sure, both events would have serious consequences for the European Union, but a Grexit would have immediately shaken the financial foundation of the entire eurozone. The consequences of the Brexit, however, will be more gradual.

IMF members to push spending, revive trade to boost growth

The International Monetary Fund’s member countries on Saturday pledged to revive flagging global trade, boost government spending and remove barriers to business to fight weak growth that has left too many people behind.

The pledge came as world finance leaders fretted over a rising populist backlash against trade and globalization at the IMF and World Bank annual meetings in Washington. “The persistently low growth has exposed underlying structural weaknesses and risks further dampening potential growth and prospects for inclusiveness,” the Fund’s steering committee said in a communique.

Britain’s vote in June to leave the European Union, US Republican presidential candidate Donald Trump’s anti-trade rhetoric and a global slowdown in trade volumes have prompted policymakers to try do a better job selling the benefits of global economic integration to the general public.

The International Monetary and Financial Committee said uncertainty and downside risks to the global recovery were elevated, and that it was increasingly threatened by protectionist policies and stalled reforms. “We reinforce our commitment to strong, sustainable, inclusive, job-rich and more balanced growth. We will use all policy tools - structural reforms, fiscal and monetary policies - both individually and collectively,” it said.

Obama touts 'record job growth' despite lower-than-expected September numbers

President Obama focused his weekly White House address on advances his administration has made growing wages and creating jobs over the past eight years rather than on Friday's new jobs report, which revealed lower-than-expected results.

"We turned a recession into a record streak of job growth, creating more than 15 million new private-sector jobs and cutting the unemployment rate in half," Obama said Saturday.

September's jobs report, published Friday, revealed the U.S. economy added 156,00 jobs, but was short nearly 10 percent from the 168,000 new jobs the Bureau of Labor Statistics had predicted would be added. The report is the second-to-last before the November elections.

Underemployment also has not improved since February and is barely down over the last year, according to the bureau. But Obama said his administration has made progress through the years, including giving those employed a boost in their wages.

Honeywell Blames Business-Jet Slump for Profit Tumble

Honeywell International Inc. tumbled the most in more than a year after citing weaker-than-expected demand for business aircraft and helicopters as a reason for missing a profit forecast and cutting the top end of its 2016 earnings target.

The shares fell 7.6% to $106.87 at 3:03 p.m. in New York, after dropping as much as 9%, the largest intraday decline since August 2015. Honeywell’s slide was the third-sharpest on the Standard & Poor’s 500 Index. The stock had gained 12% for the year through Thursday.

Honeywell’s prediction that the business-jet market will remain weak next year fueled declines at other aerospace manufacturers such as Textron Inc., Bombardier Inc. and General Dynamics Corp., which produce private jets, as well as United Technologies Corp., whose Pratt & Whitney unit makes engines.

Slumps in emerging markets and the oil industry have crimped demand for business aircraft and helicopters, hurting Honeywell’s unit that sells jet engines, cockpit controls and other aerospace parts. Third-quarter aerospace sales dropped 6 percent to about $3.6 billion and the weakness will spill into 2017, Chief Financial Officer Tom Szlosek said in a conference call Friday. “We believe the conditions will remain the same or moderately worsen before the market starts to recover in 2018 and 2019,” he said.

Goldman Sachs to shift 2,000 jobs out of London if goverment pursues "hard Brexit"

The loss of Britain's prized preferential access to the single market would lead the Wall Street stalwart to move one in three of its employees to rival financial hubs across Europe, The Sunday Times reported.

At the Conservative party conference, Prime Minister Theresa May indicated single market access would be a target during the Brexit negotiations — but the government will not allow the freedom of movement required to secure it.

Earlier this month, chancellor Philip Hammond visited New York to reassure top Wall Street bankers that protecting access to Europe for financial services firms based in London was a pressing concern not only for UK businesses but also European ones that rely on London’s status as global financial hub.

However, the bank bosses told him that they would be forced to move jobs out of London unless the UK secures preferential access to the single market. Jamie Dimon, the chief executive of JP Morgan, said in the US over the weekend that Brexit would create "years of uncertainty" for banks which have large operations in London, the Financial Times reported.

Banks ponder the meaning of life as Deutsche agonizes

It wasn't just Deutsche Bank that was grappling with big questions about the future at the International Monetary Fund meetings in Washington last week.

The German bank is scrambling to overhaul its operations as it faces a multi-billion dollar fine for selling toxic mortgage-backed securities in the United States.

But many others in the banking industry are also still figuring out what they should be doing, nearly a decade after the financial crisis, as they grapple with anemic economic growth, wafer-thin returns on lending and the possibility that regulators will further hike their cost of doing business.

"This new world of low interest rates and even negative interest rates is something that is very difficult," said Frederic Oudea, the chief executive of French bank Societe Generale. "It is a game changer, not just for banks but for the whole financial industry," he told an audience from the Institute of International Finance (IIF), a trade group for big banks that holds its annual meeting alongside the IMF.

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