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Monday 07.11.2016

IMF Downgrades Eurozone Economic Outlook after Brexit Vote

The Eurozone economy will grow less than previously expected over the next three years as the impact of the United Kingdom’s vote to leave the European Union spreads across the region, the International Monetary Fund (IMF) said in its latest forecast.

The IMF now expects Eurozone GDP to grow 1.6% this year and just 1.4% in 2016, down from previous estimates of 1.7% this year and next. The IMF also downgraded its 2018 growth projection to 1.6% from 1.7%.

The Washington-based lending institution described the Eurozone’s mid-term growth prospects as “mediocre” due to rising debt and high unemployment. The UK’s decision last month to exit the EU will also have adverse consequences.

“The markdowns for the euro area reflect likely weaker investor confidence on account of heightened uncertainty, greater financial market volatility, and lower import demand from the UK,” the IMF said.

The earnings recession is ending

The "earnings recession" is ending. But will this be enough to provide an added boost to a stock market that has survived the profit downturn intact, borrowing its strength from bonds while becoming no cheaper in the process?

As reporting season gets rolling this week, the consensus forecast for S&P 500 companies' second-quarter earnings is a decline of 5.6 percent from a year earlier, according to FactSet. This would be the fifth straight quarter of lower year-over-year profits.

The "typical" quarter sees companies in aggregate report better-than-expected numbers, with the average margin of upside running around four percentage points. If the pattern persists, companies have an outside shot of ending about even with the 2015 period. The current forecasts for the third quarter are for a slight dip of less than 1 percent in profits, followed by a more notable bounce-back in the fourth quarter.

So, one way or another, the prolonged contraction in Corporate America's profitability appears set to end within either weeks or months. Most of the rebound owes to the passage of time: We are moving beyond the effects of the oil crash and U.S. dollar surge that took hold early last year.

China: G-20 Must Fix 'Grim' Global Economy

The global economic situation is grim and major economies must lead the way in tackling problems including sluggish growth and weak trade, China's trade minister Gao Hucheng said on Saturday.

Gao made the remarks at the start of a two-day meeting of trade ministers from G-20 economies in Shanghai, as uncertainty hangs over the outlook for a slow-growing global economy now beset by post-Brexit reverberations.

The global economic recovery remained "complicated and grim," Gao said.

"Global trade is dithering, international investment has yet to recover to levels before the financial crisis, the global economy has yet to find the propulsion for strong and sustainable growth.

Gerald Celente-Panic of 2016 at the Doorstep

2016’s Slowing Job Growth Might Not Be Bad News

In the days prior to the release of June’s fantastic jobs report, there were a lot of worries, from economists and analysts and even the Federal Reserve, about whether the U.S. economy was in fact stalling. But the number of jobs added in June—287,000—turned out to be a huge rebound from May’s miserly 11,000. Tom Perez, the U.S. Labor Secretary, says he believes that the economy continues to move in the right direction.

“The June report again shows what the broader trend data has shown over the last five, six years—which is that the economy is resilient,” said Perez in a phone interview Friday. “There may be aberrational months, like last month, but when you look at broader trend data, which is what we need to do to make judgments about the state of the economy, we continue to move in the right direction.”

The May jobs report remains an outlier, as the number of jobs added in that month was revised down from 38,000 to just 11,000. Part of the reason the new number was so low was a wide-reaching strike at Verizon, so a big rebound was expected for June as those workers returned to their jobs. Since 2011, there have been eight months where the U.S. economy added fewer than 100,000 jobs—which is usually considered disappointing. This latest dip was followed by a strong rebound, but May’s shortfall has defied explanation, even after accounting for a telecom strike or a sampling error.

As a counterpoint to any doubts, Perez pointed to the number of first-time unemployment claims: In the most recent data, the weekly claims are 254,000—which marks 70 consecutive weeks that they have been under 300,000, the longest streak since 1973. “That's a really important bellwether, especially when you consider that in the depths of the recession weekly first-time claims for unemployment exceeded 600,000,” said Perez.

To infinity and beyond? Why a trader argues gold has 'unlimited upside'

Gold just posted its longest weekly winning streak since July 2011, but if investors missed out on the recent rally, fear not. One trader says the commodity has "unlimited upside," and investors have the Federal Reserve to thank for it.

On CNBC's " Futures Now " this week, Tom Colvin said that gold will remain in a bull market that will only come to an end "when central banks take their hands out of the cookie jar." The Federal Reserve is unlikely to hike rates in the foreseeable future, despite a blockbuster June employment report on Friday.

"The year-to-date rally in gold has been nothing short of spectacular, benefiting from what we have seen as a 'confused Fed' or a Fed lacking action," the senior vice president of global institutional sales at Ambrosino Brothers explained.

Gold prices have rallied 28 percent in 2016, hitting a two year high earlier this week. Even as the yellow metal has pulled back from those highs in the last two sessions, Colvin expects these dips to arise as buying opportunities for investors. Gold started the year in a rally "and it hasn't looked back," Colvin said. "While the first six weeks of 2016 were slow to develop, the Fed's inability to secure more rate hikes, or even convince the market they were coming , fueled the rally we are seeing," he added.

Central Banks Have (Finally) Gone Too Far

After Friday’s market close, people remarked that both the bond market and the stock market were at all time highs. It’s not supposed to work that way. Now, it is a common misconception that bonds always are negatively correlated with stocks. Actually, over the long term, they have a correlation of zero with stocks. But they spend most of their time in one of two regimes, either strongly positively correlated or strongly negatively correlated. Over time it works out to be zero. Yet here we are, with stocks and bonds on the highs.

David Zervos, market strategist at Jefferies, commented that “Central banks may finally be taking this too far.” I think central banks started taking things too far in 1913, but yes, with nearly every financial asset in the stratosphere, you could easily come to the conclusion that there has been too much monetary easing. I am not the first to say that central banks are addicted to higher asset prices. It’s hard to imagine a scenario where they willingly let the markets deflate.

We’ve been having a lot of bubbles in recent years (a feature of a world populated with central banks), from the dot-com bubble in 2000 to the housing bubble in 2007 to what people are calling the “central bank bubble” or “the everything bubble” now. Chances are, this could be the biggest bubble of all, and perhaps the most dangerous.

So the question is: how do you invest in a world where everything is in a bubble? Well, the good news is that not everything is in a bubble. Financial assets, like stocks and bonds, are in a bubble. Hard assets, like commodities, are not. In fact, hard assets have been coming out of a 5-year bear market.

Who’s Most Afraid of Contagion from Italy’s Bank Meltdown?

Contagion is the reason Italy’s banking crisis is all of a sudden Europe’s biggest existential threat. Greece’s intractable problems are out of sight, out of mind; Brexit momentarily spooked investors and bankers; but Italy’s banking woes have the potential to wipe out investors and undo over 60 years of supranational state-building in Europe.

The last few days have seen growing calls for taxpayer-funded state intervention, a practice that was supposed to have been consigned to the annals of history by Europe’s enactment of new bail-in rules on Jan 1, 2016. The idea behind the new legislation was simple: never again would taxpayers be left exclusively holding the tab for European banks’ insolvency issues while bondholders were getting bailed out. But even before the new rules have been tried out, they are about to be broken, or at least bent beyond all recognition.

A loophole has already been found in the rules that would allow the Italian government and European authorities to raid European taxpayers in order to prop-up Italy’s third largest publicly traded bank, Monte Dei Paschi, while leaving bank bondholders and creditors whole, as Reuters reported a few days ago:

The rules, which have been in force since January, allow a state to directly acquire a stake in a bank that fails a stress test and cannot raise capital in the markets because of “a serious disturbance” in the domestic economy.

Most American families can't afford a new car, study finds

Buying a car is serious business, especially when you're buying one fresh off the assembly line. In fact, a study from Bankrate reveals that most U.S. families can't truly afford to buy brand-new vehicles.

To reach that conclusion, Bankrate used three important figures: the average price of a new car, which was $33,865 according to KBB at the time the survey was conducted; the average rate for a 48-month new-car loan, which was 4.24 percent; and average insurance rates for America's 50 largest cities.

Bankrate also assumed that consumers should follow the 20/4/10 rule when buying a vehicle. That rule states that shoppers should make a downpayment of at least 20 percent; finance a vehicle for no more than four years; and ensure that the loan principal, interest, and auto insurance total no more than 10 percent of gross household income.

For example, if you were buying a vehicle for $20,000, following the 20/4/10 rule, you'd want to make a $4,000 downpayment, leaving $16,000 to finance. If you landed an interest rate of 4 percent, using a handy-dandy loan calculator, we see that you'd pay a total of $17,340.71 over the life of the loan. If your insurance premiums ran $900 per year for four years, that would be $3,600, making for a total, four-year cost of $20,940.71, or roughly $5,235 per year. If you gross $52,350 or more annually, you'd be following the 20/4/10 rule. Unfortunately, based on all those averages--new-car prices, interest rates, and insurance--most U.S. families can't afford the average $33,865 car. Some cities did come closer than others, though.

For Too Many, the Job Market Isn't Working

For all the encouraging headlines that the strong June jobs report has generated, it also illustrates a major challenge for the U.S. economy: Too many people are still not working or not even trying to find work.

The malaise can be remedied, if we can find the political will. Despite the robust job growth of the past six years, people still aren’t participating in the labor force the way they used to. As of June, just 62.7 percent of the population had a job or was actively seeking one -- up a bit from the previous month, but still almost 5 percentage points below the 2000 peak.

One explanation is demographic: As the population ages, a larger percentage will naturally be retired. This explains about half of the decline in participation, and will keeping putting downward pressure on participation -- particularly as the baby-boom generation crosses the retirement threshold. The Congressional Budget Office expects the labor-force participation rate to decline another 2 percentage points by 2026.

Still, even if we look at people in the prime working years of 25 to 54, participation is depressed. At the beginning of 2000, 84 percent of prime-age adults were in the labor force. Today, only 81 percent are.

Keiser Report: Summer Solutions

Alan “Bubbles” Greenspan Returns to Gold

That old rascal! Before joining the feds, former Fed chief Alan “Bubbles” Greenspan was a strong proponent of gold and the gold standard. He wrote clearly and forcefully about how it was necessary to restrain the Deep State and protect individual freedom.

Then he went to Washington and faced a fork in the tongue. In one direction, lay honesty and integrity. In the other, lay power and glory.

Under the Bretton Woods monetary system, the U.S. promised foreign central banks that it would convert their dollars to gold at a fixed price of $35 an ounce. This constrained the amount of dollars the U.S. could print to the amount of gold it had in its reserves.

A smart man, Greenspan quickly realized he could not advocate for this old, tried-and-true gold standard and run the Deep State’s new credit money system. In 1987, he made his choice. He took over the top job at the Fed and faked it for the next 19 years. Since 1978, we have had four different Fed chiefs. Some were smart. Some were honest. Only Paul Volcker was smart and honest. Bernanke was honest… we believe. As near as we can tell, so is Janet Yellen. Both may mean well, but both are careful not to think out of the Deep State box.

Consumer Borrowing Increases Jumped Again in May

Consumers increased their borrowing in May with use of credit cards and the category that covers student and auto loans both showing gains.

The Federal Reserve reported Friday that total borrowing increased by $18.6 billion in May, up from a gain of $13.4 billion in April. It was the largest since a surge of $29.4 billion in March, which had been the biggest monthly increase on record.

Borrowing in the auto and student loan category climbed $16.2 billion. Borrowing in the category that covers credit cards rose $2.4 billion. The May gain pushed total consumer credit to a record of $3.62 trillion.

Consumer spending, which accounts for 70 percent of economic activity, is expected to accelerate in the current April-June period, helping boost the overall economy. Economic growth, as measured by the gross domestic product, slowed to a barely perceptible annual growth rate of 1.1 percent in the January-March quarter, in part because consumer spending slowed.

Uber happy to help Dems in Philly, Won’t do business with GOP in Cleveland

Both conventions will no doubt be ridiculous spectacles. But Uber feels that the spectacle in the City of Brotherly Love is more politically advantageous than hanging with Republicans. This despite the fact that Democrats across the nation have fought Uber’s efforts to expand at every turn and that both Clinton and Sanders have been highly critical of the company. (This is actually one of the main reasons Uber is passing on Cleveland of course. They are intimidated and figure Clinton will likely win so it’s not worth being “tarnished” at the GOP convention.) That Obama’s underling David Plouffe is a “senior consultant” AKA political fixer/crony for the company has nothing to do with anything of course.

The Dems and the GOP are both parties of cronies, but under Obama – or perhaps more specifically during the Obama era – the Dems have become an explicitly crony party where once there was at least some resistance to corporate welfare. The Dems now, those explicit advocates of big government, talk in terms of public/private partnerships all the time. It is through such partnerships that money can be given out to corporations which choose to play ball and then also the means by which to extract money from the same corporations. Uber knows this. So do the other companies that say they are not going to be in Cleveland because Trump is just too distasteful.

Trump in reality is an excuse. The corps, at least those subject to particular Dem pressure – say those based in the 1 party state of California – have their candidate and they are lining up with Clinton.

In a crony world doing the right thing, that is just doing business and providing a good service isn’t enough. One must make the right political moves. One must cover one’s bases. And when called upon one must shun the political enemies of one’s political sponsors/partners.

Oil Industry Faces Huge Worker Shortage

The rig count has rebounded from the lows seen in late May, a small indication that oil companies in the U.S. could begin drilling anew. Shale drilling is a short-cycle prospect, requiring only a few weeks to drill and bring a well online. Because of this, the collective U.S. shale industry has been likened to the new “swing producer”: low oil prices force quick cutbacks but higher prices trigger new supplies. In essence, shale could balance the market in the way OPEC used to.

While that notion was always a bit simplistic, one reason that U.S. shale production won’t necessarily spring into action in short order is because the people and equipment that were sidelined over the past two years can’t come back at a moment’s notice.

Oilfield service companies have gutted their payrolls and warm or cold stacked rigs and equipment (temporarily or more permanently idling rigs). An estimated 350,000 workers have been laid off in the oil industry around the world, and the rig count in the U.S. is a tiny fraction of what it was two years ago.

Bringing back all of that equipment and personnel is no easy task. The Wall Street Journal, using data from IHS, estimates that roughly 70 percent of the fracking equipment across the shale industry has been idled. Also, about 60 percent of the field workers that are needed to frack shale wells have been handed pink slips. It is not as if those workers are sitting around waiting for the call to go back to work; many have moved on to other industries and won’t come back.

The American Race War Has Begun - Alex Jones

The Venezuela 'Death-Watch' Continues

In the markets, the Venezuela “death-watch” goes into a new phase. It’s dire straits time now.

Looting is on the rise. Inflation is on the rise. Venezuelans are crossing into Colombia to buy groceries. President Nicolas Maduro and his entire government will need a miracle to turn things around.

Social and economic indicators are all terrible. The monthly (if not weekly) events of looting has become a leading indicator for monthly food inflation as well as an indicator for monthly food production. It all feeds back into a vicious circle, a negative feed back loop that will repeat itself until the government either gets a handle on the situation, or admits defeat and calls for new elections sooner rather than later. The looting and lackluster food production causing higher food costs all show a new and worsening phase of the social and economic crisis gripping Venezuela.

Monthly food prices have risen 15% in the first quarter to now 30% currently. The annualized inflation rate is now close to four digits as forecast by the International Monetary Fund. Food production based on the Camara Venezolana de Industria de Alimentos, best known as CAVIDEA, shows a 25% year over year collapse in food production between January and May. What are those farmers doing down there?

26 Million Americans Are Now "Too Poor To Shop" Study Finds

A new study finds that roughly 26 million Americans remain "too poor to shop". The study, performed by America's Research Group, found that about 26 million Americans work on average two or three jobs at a time which, when added together, nets just shy of $30,000 in annual income. All while supporting anywhere from two to four children.

The chairman of ARG, Mr. Britt Beemer, said in an interview with the NY Post that he first started looking into data when he was tracking a different indicator. Beemer first started tracking a group and surveying roughly 15,000 people to determine who had not finished Christmas shopping in 2014. During that year, the number was 21 percent but recently ran as high as 29%. From there Beemer decided to analyze the data further and learned American's are seeing increasing numbers of fellow citizens who are simply just too poor to shop.

Beemer told the Post: "The poorest Americans have stopped shopping, except for necessities" and "It's scary when you start to see things that you've never seen before"..."People are so pessimistic about their future"

Just this past April we wrote: "most Americans' savings continue to decline, and millions of US households not only don't have any money left over to save away, but are forced to resort to credit to fund day to day expenses."

NEWS to Disturb the Comfortable...

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