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Friday 04.15.2016

Most Americans think economy is 'getting worse'

Consumers have been the missing link in the U.S. economic recovery and are likely to remain so absent a major change in sentiment. Despite the seemingly endless stream of Wall Street economists who believe the U.S. is about to snap out of its malaise, most Americans think the economy is bad and getting worse, according to several recent surveys.

One of the more glaring examples of how strong pessimism has become is Gallup's U.S. Economic Confidence Index. The measure gauges the difference between respondents who say the economy is improving or declining. The most recent results are not good.

Fully 59 percent say the economy is "getting worse" against just 37 percent who say it is "getting better." That gap of 22 percentage points is the worst since August, according to Gallup, which polled 3,542 adults. The index carries a sampling error of plus or minus 2 percentage points.

Those numbers come amid a moribund retail sales climate, with March showing a 0.3 percent decline, worse than even the modest 0.1 percent uptick the Street had been expecting. Consumer prices showed only modest 0.1 percent gains across the board, while producer prices were down 0.1 percent. Gross domestic product likely grew little if at all in the first quarter, with the Atlanta Fed's latest forecast anticipating a 0.3 percent increase.

Federal Reserve: better wages, low unemployment fueling US economic growth

Things are still on the up and up for the US economy.

According to a report released Wednesday by the Federal Reserve, the economy continued to grow in the early part of the year, punctuated by a modest rise in consumer spending and increasing wages.

That report, known as the Beige Book is a survey of economic conditions in the 12 Federal Reserve "Districts" located around the United States. It's published by the Fed eight times per year. Wednesday's edition expressed cautious optimism that the modest economic growth seen from February through early April may continue.

“Most Districts said that economic growth was in the modest to moderate range and that contacts expected growth would remain in that range going forward,” the report states. Economic growth was helped in part by consumer spending, which continued its upward trajectory during the early part of the year. The report cites low fuel prices as a contributing factor that encouraged consumers to get out and spend more. The lower cost of gasoline also prompted an increase in business and leisure travel to places like Atlanta, Boston, and Chicago.

The Winter of Discontent

The Winter of 2015-2016, which came to an end a few weeks ago, has been officially designated as the mildest in the U.S. in 121 years according to NOAA. While this fact will certainly add a major talking point in the global warming debate, it should also be front and center in the current economic discussion. The fact that it isn’t is testament to the blatantly self-serving manner in which economic cheerleaders blame the weather when it’s convenient, but ignore it when it’s not. If economists were consistent (and that’s a colossal “if”), the good weather would be taken as a reason to believe the economy is weaker than is being reported.

The two previous winters were much harsher. 2013-2014 brought the infamous “Polar Vortex,” an unusual descent of frigid polar air that brought temperatures down significantly throughout most of the United States. The next winter was almost as bad, with colder than usual temperatures combined with record snowfalls in much of the country. These conditions were cited again and again by many economists to explain why Q1 GDP growth was so disappointing both years. Annualized growth came in at just -.9% and .6% respectively (Bureau of Economic Analysis). As both 2014 and 2015 got underway, economic optimism had been riding high. When both started off with such resounding stumbles, excuses were needed to explain why the forecasters were so wrong. The snow and cold provided those fig leaves.

As I quantified in a commentary on the subject two years ago, a bad winter can indeed put a chill into the economy, at least temporarily. In general, first quarter (which corresponds to the winter months of January, February, and March) shows annualized GDP growth that is roughly in line with the average of each of the other quarters. Since 1967, average annualized 1st quarter growth was 2.7%, not too far below the average 2.8% full year growth, based on BEA figures. But when winter gets nasty, the economy does slow noticeably in the first quarter.

The average annualized GDP growth for the 10 snowiest winters (not counting 2014) as reflected in Rutgers University Global Snow Lab (Seasonal Extent graph) was just .5%. While this phenomenon did not fully account for the poor results in 2014 and 2015, which missed the average by more than 2%, at least it provided a strong argument as to why we struggled unexpectedly. But that excuse is unavailable this year when the Q1 performance may be equally bad.

Huckabee: Why settle for 15 dollars per hour?

Deutsche Bank Confirms Silver Market Manipulation In Legal Settlement, Agrees To Expose Other Banks

Back in July of 2014, we reported that in an attempt to obtain if not compensation, then at least confirmation of bank manipulation in the precious metals industry, a group of silver bullion banks including Deutsche Bank, Bank of Nova Scotia and HSBC (later UBS was also added to the defendants) were accused of manipulating prices in the multi-billion dollar market in a lawsuit filed on Friday.

The lawsuit, which was originally filed in a New York district court by veteran litigator J. Scott Nicholson, a resident of Washington DC, alleged that the banks, which oversee the century-old silver fix manipulated the physical and COMEX futures market since January 2007. The lawsuit subsequently received class-action status. It was the first case to target the silver fix.

Many expected that this case would never go anywhere and that the defendant banks would stonewall indefinitely: after all their legal budgets were far greater than the plaintiffs. Which is why we were surprised to read overnight that not only has this lawsuit against precious metals manipulation not been swept away, but that the lead defendant, troulbed German bank Deutsche Bank agreed to settle the litigation over allegations it illegally conspired with Bank of Nova Scotia and HSBC Holdings Plc to fix silver prices at the expense of investors, Reuters reported citing a court filing on Wednesday showed.

Terms were not disclosed, but the accord will include a monetary payment by the German bank, a letter filed in Manhattan federal court by lawyers for the investors said. It goes without saying, that there would have been neither a settlement nor a payment if the banks had done nothing wrong.

Lloyds warns of Brexit 'uncertainty'

Lloyds Banking Group has warned a UK vote to leave the EU would cause short term "economic uncertainty". However, the bank said the long term impact was "unclear" because there was no certainty over how the UK's position outside the EU would evolve. "The board is mindful that the future of the UK's relationship with the EU is a matter for the UK electorate, and that for many the debate is about more than just economics," it added.

The EU vote is on 23 June. It's the first bank to speak out officially on the impact of the EU referendum vote, although in October its chairman Lord Brackwell said in the Lords there weren't "compelling arguments" for staying in the EU without "significant" reforms. He made it clear, however, that he was making the comments in a personal capacity.

Other bank bosses, including RBS chief executive Ross McEwan, Barclays boss Jes Staley and HSBC's chief executive and chair Stuart Gulliver and Douglas Flint have spoken out in favour of Britain staying in the EU, although all have emphasised that they were speaking in a personal capacity.

Lloyds said it had issued the statement following a board discussion earlier on Thursday, but said its view was based on "a range of third-party economic analysis". It said it currently had no plans to discuss it any further at their AGM.

There's a $1 trillion bubble that's ready to burst

There's a huge bubble at the bottom of the bond market, and when it pops it could put $1 trillion at risk.

"In short, we believe there is a corporate credit bubble in speculative grade credit. And the structural downside risks for high yield bonds and loans are material, with non-negligible downside risks to growth," UBS' Matthew Mish wrote in a note to clients.

Mish argued that below the surface of corporate bonds, all the way down at the bottom-most levels of junk, there is a bubble forming.

"We believe roughly 40% of all issuers are of the lowest quality, and roughly $1tn which will end up 'distressed debt' in this cycle," Mish wrote. "Much of the debt was bought to pick-up yield linearly, but the default risk is exponential." So how did we get here?

Poll: Americans Prefer Low Prices To Items 'Made In The USA'

The vast majority of Americans say they prefer lower prices instead of paying a premium for items labeled "Made in the USA," even if it means those cheaper items are made abroad, according to an Associated Press-GfK poll.

While presidential candidates like Donald Trump and Bernie Sanders are vowing to bring back millions of American jobs lost to China and other foreign competitors, public sentiment reflects core challenges confronting the U.S. economy. Incomes have barely improved, forcing many households to look for the most convenient bargains instead of goods made in America. Employers now seek workers with college degrees, leaving those with only a high school degree who once would have held assembly lines jobs in the lurch. And some Americans who work at companies with clients worldwide see themselves as part of a global market.

Nearly three in four say they would like to buy goods manufactured inside the United States, but those items are often too costly or difficult to find, according to the survey released Thursday. A mere 9 percent say they only buy American.

Asked about a real world example of choosing between $50 pants made in another country or an $85 pair made in the United States — one retailer sells two such pairs made with the same fabric and design — 67 percent say they'd buy the cheaper pair. Only 30 percent would pony up for the more expensive American-made one. People in higher earning households earning more than $100,000 a year are no less likely than lower-income Americans to say they'd go for the lower price.

U.S. Receives Record Number of Petitions for H-1B Visas

The increase in the number of visa petitions signals that companies feel confident enough about the economy to hire more foreign workers. The United States received a staggering 236,000 petitions for H-1B visa in a space of just five days, although the country can issue only 85,000 visas this year.

The report comes at a time when the concept of offshoring jobs has become a political hot potato in the current presidential election campaign, with presidential hopeful Donald Trump accusing India and China of stealing American jobs.

U.S. companies, particularly in technology, say they need the visas to fill vacant positions. But some worker-advocacy groups counter that the companies are using the visa program to hire cheaper foreign labor.

U.S. Citizenship and Immigration Services, the federal agency that oversees the H1-B program, said it had completed the computer-generated lottery selection for the visas. Out of the total 85,000 visas available, 20,000 are allocated to foreign workers with advanced degrees from U.S. universities. The H-1B visa, popular among Indian techies, is used by U.S. companies to employ foreign workers in occupations that require highly specialized knowledge in fields such as science, engineering, and computer programming.

Shoe Company: Obama Admin Pressured Us to Stay Quiet on TPP

The Boston Globe is reporting that U.S.-based shoe manufacturer New Balance has come out hard against the Trans Pacific Partnership trade deal. The odd thing, though, is that "the Boston company had gone quiet [on TPP] last year." Now, apparently, we know why:

New Balance officials say one big reason is that they were told the Department of Defense would give them serious consideration for a contract to outfit recruits with athletic shoes. But no order has been placed, and New Balance officials say the Pentagon is intentionally delaying any purchase. New Balance is reviving its fight against the trade deal, which would, in part, gradually phase out tariffs on shoes made in Vietnam. A loss of those tariffs, the company says, would make imports cheaper and jeopardize its factory jobs in New England.

Tariffs on shoes are steep, and New Balance is one of a handful of shoe companies that still manufactures shoes in the United States. (Though, 75 percent of their shoes are made abroad.) The company's leaders appear to disagree that the now-broken deal was underhanded. "There was no quid pro quo deal," Rob DeMartini, CEO of New Balance told WMTW. "We wanted to compete for a big piece of business that we are very confident we can win in."

Matt LeBretton, VP of public affairs for the company, tells the Globe that: We swallowed the poison pill that is TPP so we could have a chance to bid on these contracts,...We were assured this would be a top-down approach at the Department of Defense if we agreed to either support or remain neutral on TPP. [But] the chances of the Department of Defense buying shoes that are made in the USA are slim to none while Obama is president.

IMF Says Greek Debt Numbers Don't Add Up as EU Defends Its Plan

The International Monetary Fund raised doubts about Greece’s ability to keep up repayments under a plan being negotiated with its European creditors, who insisted they’ve already provided plenty of debt relief.

“Currently, as envisaged, the debt is not sustainable and what is required is a debt operation,” IMF Managing Director Christine Lagarde said Thursday in Washington, where finance ministers and central bankers are attending the fund’s spring meetings.

Lagarde said she’s skeptical about Greece’s ability to meet the budget surplus target set under an 86-billion-euro ($97 billion) bailout by euro-area governments, who are reviewing whether to release the loan’s second installment. Under the EU program, Greece is committed to posting a fiscal surplus before interest payments of 3.5 percent of gross domestic product within two years.

The IMF has said it might be willing to pitch in a new loan itself, but Lagarde said the fund wants the country’s recovery plan to be based on “realism and sustainability.” “We cannot have far-fetched fantasy hypotheticals concerning the future of the Greek economy,” said the IMF chief, who was reappointed in February for a second five-year term. She said debt relief by euro-area countries doesn’t necessarily have to involve a “haircut” on principal, and could take the form of maturity extensions, interest reductions or a “debt holiday.”

Fed Can't Admit Economy's Weak While Obama Tries to Elect Hillary Clinton

Why Americans are some of the world’s worst savers

Americans are some of the worst savers in the developed world. Americans don’t save much compared to several other countries, according to the monthly Global Finance Magazine, but those in the U.S. aren’t the worst savers the magazine tracked. Global Finance compared 25 different countries that are members of the Organisation for Economic Co-operation and Development, or OECD, an association that formed after World War II. (But because the magazine wanted to keep the comparison succinct and limited to 25 countries, not all the OECD countries are included.)

To make the graphic, the magazine compared the countries’ GDP per capita, also taking into account their purchasing power parity, the rate a currency would have to be converted into another to buy the same amount of goods and services in each country. The magazine found that the countries with the highest savings rates weren’t necessarily the countries with the highest GDPs.

Notably, the U.S., which has a GDP of $56,300 per capita, has a household savings rate of just 4.9%. On the other hand, Hungary, which has a GDP of $26,000 has a savings rate of 9.0%. (Household savings rate was defined as the difference between household disposable income, from wages and net property income, and consumption.)

Some differences the map shows are cultural. Several countries on the list boast high savings rates even though they also have many government-provided services, including France, Germany and Sweden. What makes the United States different isn’t a lack of government services but other factors that discourage ordinary people from saving small amounts, said Sheldon Garon, a history professor at Princeton and the author of “Beyond Our Means: Why America Spends While the World Saves.”

Rocket launcher United Launch Alliance expects another 400 to 500 job cuts

United Launch Alliance's quest to become more nimble and agile in order to compete effectively in the space industry will include workforce reductions beyond the 375 job cuts confirmed last week.

CEO Tory Bruno on Wednesday said Centennial-based ULA plans to reduce its workforce by another 400 to 500 people next year. "We have this year's 375," Bruno said. "There will be another one at the end of next year that's a bit larger but along the same order of magnitude. And then we're done."

The reductions in 2017 will be spread across all five of ULA's sites, he said. Those are in Colorado, California, Texas, Alabama and Washington, D.C. ULA currently employs 3,400 people, with about 1,500 in Colorado.

After the second round of reductions, ULA will move forward with the "size of workforce that we need," Bruno said, adding that "as we are competitive with that, I expect to expand our market share and start growing back from there." Next year's job cuts, like the 375 targeted for the end of this year, will be voluntary, he said. "These kinds of actions, even when they're voluntary, they're kind of hard on the workforce," he said. "You want to just get it over with so you can move ahead and be back to business as usual. I would do it in one step, but we can't because of the really busy manifest we have. So we've had to spread it over these two years. My plan is for that to be the end."

‘We need to start using helicopter money’

What’s so Bad about the Gold Standard?

Last week Paul Krugman argued that Ted Cruz is more dangerous than Donald Trump, because Trump is merely a protectionist while Cruz wants to restore the gold standard. I’m not going to weigh in on the relative merits of Cruz and Trump, but I have previously suggested that Krugman may be too dismissive of the possibility that the Smoot-Hawley tariff did indeed play a significant, though certainly secondary, role in the Great Depression. In warning about the danger of a return to the gold standard, Krugman is certainly right that the gold standard was and could again be profoundly destabilizing to the world economy, but I don’t think he did such a good job of explaining why, largely because, like Ben Bernanke and, I am afraid, most other economists, Krugman isn’t totally clear on how the gold standard really worked.

Here’s what Krugman says: "[P]rotectionism didn’t cause the Great Depression. It was a consequence, not a cause – and much less severe in countries that had the good sense to leave the gold standard."

That’s basically right. But I note for the record, to spell out the my point made in the post I alluded to in the opening paragraph that protectionism might indeed have played a role in exacerbating the Great Depression, making it harder for Germany and other indebted countries to pay off their debts by making it more difficult for them to exports required to discharge their obligations, thereby making their IOUs, widely held by European and American banks, worthless or nearly so, undermining the solvency of many of those banks. It also increased the demand for the gold required to discharge debts, adding to the deflationary forces that had been unleashed by the Bank of France and the Fed, thereby triggering the debt-deflation mechanism described by Irving Fisher in his famous article.

"Which brings us to Cruz, who is enthusiastic about the gold standard – which did play a major role in spreading the Depression." Well, that’s half — or maybe a quarter — right. The gold standard did play a major role in spreading the Depression. But the role was not just major; it was dominant. And the role of the gold standard in the Great Depression was not just to spread it; the role was, as Hawtrey and Cassel warned a decade before it happened, to cause it. The causal mechanism was that in restoring the gold standard, the various central banks linking their currencies to gold would increase their demands for gold reserves so substantially that the value of gold would rise back to its value before World War I, which was about double what it was after the war.

The Myth of Full Employment and Why the Fed Won't Raise Rates This Year

Despite what you've heard, the Federal Reserve won't raise interest rates again this year. Inflation is below target; the economy isn't growing quickly enough; and full employment, one of the metrics Fed Chair Janet Yellen has been watching and citing as cause to raise rates, is a myth. Other than the understandable impetus to finally depart from zero-bound interest rate policy, there is no macro data supporting the move toward tightening.

The mandate of the Federal Open Markets Committee (FOMC) established by the Federal Reserve Act is to achieve maximum employment, stable prices, and moderate long-term interest rates. As to the full employment objective, the federal funds rate has been increased on several historical occasions when unemployment exceeded 7%, as this factor seems particularly idiosyncratic over time. In short, rates have been increased historically despite high unemployment because of other objectives deemed weightier at the time (e.g., the Volcker/Reagan war on inflation). I will explain here why the real unemployment rate is near 7.5%, and the FOMC surely knows this -- and why, as I wrote in January of this year, the Fed won't raise rates again in 2016.

GDP growth is a leading or coincident indicator of inflation rates. The FOMC has never implemented rate increases in the presence of below average GDP growth and low inflation -- until December 2015. The Fed's stated desire to implement "moderate" increases in rates appears to be solely motivated by the desire to normalize after seven years of zero-bound interest rates, given the third leg of its congressional mandate to "moderate long-term rates." The Fed wants to have some levers to pull in the event of another recession and is surely wary of risk apathy in markets.

But, for now, let's look at the only leg that the Fed has to stand on in regards to raising rates: the myth of full employment. As Yellen recently stated, "We're near full employment or maximum employment ... but there remains some margins of slack in the labor market ...." Well, which is it?

‘America First’ – The Trump Slogan the Establishment Hates

Why do they hate Donald Trump?

Why has the Establishment pulled out all the stops in an effort to smear him, stop him, and crush him underfoot? Every single day the “mainstream” media unleashes a foam-flecked fusillade of fury at the GOP front-runner: he’s a “racist,” he’s “corrupt,” his campaign manager is a “bully,” he “incites violence,” etc. etc. ad nauseam.

Of course the media is going to attack any Republican candidate. However, this time the GOP elite is joining in, and the level of ferocity is something we haven’t seen since 1964. That was the year Barry Goldwater’s trip to Germany provoked a report by Daniel Schorr on the CBS Evening News that falsely linked the GOP candidate to German neo-Nazis – while Nelson Rockefeller denounced Goldwater’s delegates as “extremists” who “feed on fear, hate, and terror.” Yes, “terror”!

The same violence-baiting hysteria is being deployed against Trump, but one has to wonder what’s behind it. I was watching Bill O’Reilly the other day, and he was saying that it has to do with the elite’s visceral dislike of Trump as a personality. They think he’s a “vulgarian” who appeals to the rubes in flyover country. Well, there’s something to that: these consumers of arugula and “artisan” cheese no doubt disdain the hamburgers-and-beer crowd embodied by Trump’s persona, but there’s more to it than that. And I can sum it up in two words: foreign policy.

Fed Charm Offensive: 'We're For Main Street, Not Wall Street!'

Microsoft is suing the US government for secretly searching customers’ personal info

Microsoft has filed a lawsuit against the US Department of Justice. In the landmark filing Microsoft takes a direct stand against federal agents who are routinely asking for customers’ personal information in complete secret.

Microsoft says the federal government has taken an unconstitutional policy for examining Microsoft customers’ data while forcing the company to operate under a gag order. The company says in just 18 months federal judges have approved 2,600 secret searches of Microsoft customer data.

In two-thirds of those cases, Microsoft was not allowed to notify their customers that they’ve been searched. There is no expiration date on these judicial orders which means many Microsoft customers will never learn of their invasion of privacy.

“Microsoft brings this case because its customers have a right to know when the government obtains a warrant to read their emails, and because Microsoft has a right to tell them,” the lawsuit says.

How White Castle Will Adjust to a $15 Minimum Wage in New York

"This is something that’s become a bumper sticker,” Jamie Richardson tells me. “But it hasn’t really been thought through. There is a better way to get people out of poverty than hiking the minimum wage.”

Richardson is a vice president at White Castle, the chain of famously white-painted and turreted burger joints specializing in slider-style hamburgers in the Midwest and Mid Atlantic. White Castle, established in 1921 in Wichita, Kan., now operates more than 400 locations, with many in the New York City metropolitan area, which makes the news of New York governor Andrew Cuomo’s signing a bill that steeply hikes the minimum wage deeply personal. The wage will go from $9 to $15 an hour by 2018 in New York City, with the rest of the state seeing a more gradual phase-in schedule.

“We’ve been in New York for a long time,” Richardson says. “Castle No. 2 over on Fordham Road opened in 1930.” Unfortunately, despite the Castle’s Empire State history, the road ahead may be difficult: “We’re disappointed. What this means for White Castle is we really have to evaluate how we manage our business,” Richardson tells me. “About 30 percent of every sales dollar covers the pay of our hourly workers, and that doesn’t include management.”

“It’s our biggest investment, our biggest cost. And it’s one that if we see increase dramatically through fiat, and we don’t do anything — it’s unsustainable,” Richardson says. “We are in uncharted waters.” Of course, Cuomo, California governor Jerry Brown, Hillary Clinton, and minimum-wage activists across the country think that dramatically raising the minimum wage will be a boon to workers and that business can handle the cost increases without too much trouble. “By moving to a $15 statewide minimum wage and enacting the strongest paid-family-leave policy in the nation, New York is showing the way forward on economic justice,” Governor Cuomo said after signing the minimum-wage legislation on April 4. “These policies will not only lift up the current generation of low-wage workers and their families, but ensure fairness for future generations and enable them to climb the ladder of opportunity.”

Friday 04.15.2016

NEWS to Disturb the Comfortable...

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