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Monday 05.16.2016

Trump will scare the hell out of the market, but that's OK: Stockman

Former Reagan administration aide David Stockman has a message for the next president: The markets are going down for the count and you can't do anything about it!

President Ronald Reagan's director of the Office of Management and Budget said in a recent CNBC interview it doesn't matter if Hillary Clinton or Donald Trump gets elected in November — neither will be able to stop the economic meltdown that's looming.

Wall Street seems to have its mind made up about which candidate it prefers. More than 70 percent of respondents to a recent Citigroup poll of institutional clients said the former secretary of state, first lady and New York senator would likely become the U.S.'s 45th president. Just over 10 percent gave Trump the nod, and small business owners appear to be divided between the GOP and Democratic standard bearers.

Stockman, however, doesn't believe either one can prevent what may be on the horizon. "There's no way the next president can stop a recession that's already baked into the cake," Stockman said Thursday in the "Futures Now" interview. Stockman has been calling for a major market downturn and global recession for some time, but he is more certain than ever that it could happen during this political cycle.

Never Has The Bank of Japan Done So Much for So Little Benefit

Even after arranging a record stimulus program and reducing a key interest rate to less than zero, the central bank has failed to boost inflation to its goal of 2 percent. Stocks are trading lower than when Governor Haruhiko Kuroda expanded his package of asset purchases in 2014. Exports are declining. One measure of bank lending is at a 14-year high, though loan growth is slowing compared with a year ago. While most sovereign bond yields have turned negative, corporate borrowing costs are lagging behind.

A central bank using up its policy tools doesn’t bode well for a nation with the world’s largest debt burden, according to Fitch Ratings Ltd., which reduced Japan’s credit rank in 2015. The BOJ’s decision to hold off on adding stimulus last month, as it evaluates the impact of negative rates, sent the yen surging and stocks slumping.

“Japan might be starting to run out of road a bit on the monetary policy front,” said Andrew Colquhoun, the head of sovereign rankings for the region at Fitch in Hong Kong. That “would tend to undercut one of the sources of support that the sovereign ratings have had.”

Kuroda reiterated on Friday that the BOJ will “take additional easing measures without hesitation in terms of three dimensions -- quantity, quality, and the interest rate -- if it is judged necessary for achieving the price stability target.”

Global Silver Supply Deficit Surges On Revised Data

If the cumulative global silver deficit since 2004 of one billion ounces wasn’t large enough, a data revision published by the Silver Institute shows the actual figure was much higher. How much higher? A great deal when the additional revised amount would totally wipe out all the silver at the Comex and Shanghai Futures Exchange warehouses.

The Silver Institute receives its figures from the GFMS Team at Thomson Reuters. The GFMS Team also puts out the World Silver Surveys. Some of the data from the World Silver Surveys are published on the Silver Institute website.

Before I get into the details of this deficit revision, I want to discuss the notion put forth by many precious metals investors that “NONE” of the information from the Silver Institute should be trusted. These folks claim that “ALL” the data is manipulated.

While I agree that this data is being researched, quantified and published by Thomson Reuters, one of the largest data-news organizations in the world, there is a lot of good information in these World Silver Surveys. Matter-a-fact, much of the silver mine supply data is taken from government sources such as the USGS in the United States.

Trump warns of U.S. attack by refugees

Here’s Why China’s Economy Cooled Down in April

China’s economy continues to remain under pressure as latest economic indicators suggest the economy is undergoing a slump, reviving growth concerns among policymakers. The country’s production output, retail sales, and investment all saw decelerated growth last month.

National Bureau of Statistics (NBS) on Saturday said in a statement that industrial production rose 6% year-over-year (YoY) compared to 6.8% recorded in March. Retail sales in April climbed 10.1% from a year earlier, compared to 10.5% YoY incline in the prior month. From January till April, fixed-asset investment increased 10.5%, missing analysts’ expectation of 11%.

Analysts believe weak economic indicators are proof that recovery in the economy was not as strong as expected. The economy was in correctional phase last month after solid economic rebound in March, they add.

The Chinese economy has been under pressure over the past few months as local demand drops. Beijing has employed several stimulus measures to underpin growth in the economy but little to nothing seems to have changed, as economy slows down further in the first quarter of the year.

‘I’ll Never Retire’: Americans Break Record for Working Past 65

Almost 20 percent of Americans 65 and older are now working, according to the latest data from the U.S. Bureau of Labor Statistics. That’s the most older people with a job since the early 1960s, before the U.S. enacted Medicare.

Because of the huge baby boom generation that is just now hitting retirement age, the U.S. has the largest number of older workers ever.

When asked to describe their plans for retirement, 27 percent of Americans said they will “keep working as long as possible,” a 2015 Federal Reserve study found. Another 12 percent said they don’t plan to retire at all. Why are more people putting off retirement?

Three in five retirees surveyed by the Transamerica Center for Retirement Studies said making money or earning benefits was at least one reason they had retired later than they planned to. Almost half said financial problems were their main reason for working past 65. The financial crisis, and the tech bust before it, devastated many baby boomers' retirement savings. That's if they had any to begin with. Today, 60 percent of U.S. households have no money in a 401(k) or similar retirement account, and the benefits of 401(k)s are skewed toward the wealthiest Americans, a recent report by the Government Accountability Office found.

Venezuela crisis: Maduro orders seizure of closed factories

The Venezuelan president, Nicolas Maduro, has ordered the seizure of factories that have stopped production and the jailing of their owners.

In a speech to supporters in the capital Caracas, he said the country had to recover the means of production, to counter its deep economic crisis. On Friday, he introduced a new, nationwide state of emergency. Opposition protesters have been rallying in Caracas to push for a recall vote to eject him from power.

Mr Maduro said the state of emergency was needed to combat foreign aggression, which he blamed for Venezuela's problems. And he said military exercises would take place next weekend to counter "foreign threats".

Venezuela has the world's largest oil reserves but its economy has been severely hit by falling global oil prices. Its economy contracted by 5.7% last year and its official inflation rate is estimated to be topping 180%. There are severe shortages of food, medicines and basic goods which Mr Maduro argues are due to business leaders and the US waging an economic war against his government.

Moody’s Downgrades Saudi Arabia on Lower Oil Prices

Saudi Arabia’s credit rating has been downgraded by Moody’s because of the long and deep slump in oil prices.

Moody’s Investors Service said Saturday that it also downgraded Gulf oil producers Bahrain and Oman. It left ratings unchanged for other Gulf states including Kuwait and Qatar.

Saudi Arabia is the world’s largest oil exporter. Moody’s cut the country’s long-term issuer rating one notch to A1 from Aa3 after a review that began in March.

Crude prices fell from more than $100 in mid-2014 to under $30 a barrel in February, although they have recovered into the mid-$40s. Benchmark international crude settled Friday at $47.83 a barrel.

Gold: The Ultimate Insurance

In my ZIP code of Darien, Connecticut, it’s not unusual to bump into a billionaire every now and then. When I ask what they own, they’ll start to list stocks and bonds of various types. At that point in the conversation, I’ll interrupt and say, “You don’t own stocks; you own electrons.”

Most wealth today is in digital form recorded on hard drives and transferred through routers and servers in dispersed locations. What if those servers were hacked and your electronic wealth were erased? Where would you go to get it back? If you think this can’t happen, guess again.

SWIFT is a “secure” global messaging network used by banks and other financial institutions to send payment instructions. It’s become a vital part of the global payments system, serving 11,000 banks. And it’s been hacked, as has the “safest” bank in the world, the New York Federal Reserve. So the most secure financial message traffic system in the world and the safest bank in the world were both hacked, and $81 million disappeared into thin air.

If it can happen to them, it can happen to you. The solution is to own physical gold. It’s one asset that can’t be hacked, erased or made to disappear. That’s not to say you should call up your broker and tell him to sell all your stocks. Not at all. Stocks form an important part of a well-balanced portfolio. And I strongly recommend select gold stocks right now, as an example. But you should also have physical gold as insurance. Below, I show you why gold might be the best form of insurance you can buy.

Reasons Why Goldman Is Suddenly Warning About A “Large Drop” In The Market

After recent (and in some cases very dramatic) bearish conversions by the likes of JPM, BofA, Citi and UBS, the only bank that steadfastly held a bullish view on stocks during the recent market squeeze higher was Goldman Sachs.

Not any more. On Thursday, Goldman strategist David Kostin appeared on CNBC, where he too join the bearish crowd and said that based on the threat of margin collapse (“35 out of 53 tech companies had margin declines”) and record-high stock valuations this year, it’s time to play defense in “a tough market.”

He also hinted that with 80% of fund managers underperforming their benchmark, the probability of irrational capital allocations increases, and as a result there is a “reasonably high probability” of a large drop (or “drawdown” as a sudden plunge is called in polite circles) in the S&P500 ahead of his year-end 2100 price target.

Then overnight, Kostin dedicated his entire weekly kickstart piece to just the topic of a drawdowns, saying that “Unbalanced distribution of upside/downside risks suggests “sell in May” or buy protection.” He adds that “we continue to expect S&P 500 will end 2016 at 2100, roughly 3% above the current level. However, a shift in investor perception of various risks could easily trigger a drawdown.” Goldman’s stark and unexpected warning is driven by risks which include “elevated valuation, investor positioning, money flow trends, uncertain interest rate policy, weak economic growth, and election year politics. A 5%-10% drawdown in S&P 500 during the next few months implies an index level of 1850 to 1950 and a forward P/E of 15x-16x based on bottom-up consensus EPS.”

“V” the “Guerilla Economist” 2016 Next Phase of Economic Evolution

Nearly 500 New Yorkers’ offshore accounts exposed by Panama Papers

These are some of the New Yorkers who have parked their cash offshore or set up companies in farflung island nations to shelter their holdings. Nearly 500 people and companies with New York addresses turned up last week in a searchable “Panama Papers” database reviewed by The New York Post.

They range from moguls to art-world luminaries to an East Village psychiatrist and a young television ­actress. The International Consortium of ­Investigative Journalists put out the database containing information on nearly 320,000 offshore entities from the so-called Panama Papers and Offshore Leaks investigations.

The data dump is just a fraction of the more than 11 million leaked files from the Panama-based law firm Mossack Fonseca, a leader in creating difficult-to-trace companies. Other data come from two additional companies that specialize in setting up offshore ­entities.

Offshore companies are often created in tax havens, such as the British Virgin Islands and the Caymans, used to hide assets from authorities around the world or to maintain privacy. Last month, U.S. Attorney Preet Bharara sent a letter to the ICIJ saying he had “opened a criminal investigation” ­regarding Panama Papers issues. Officials in Panama raided Mossack Fonseca’s offices there.

Why has America stopped shopping?

By all measures, America has stopped shopping. Last week, many of the largest retailers reported recession-like earnings and watched their stocks suffer devastating declines.

The American consumer can see things far more clearly than the DC numbers-crunchers. While the Beltway bureaucrats say jobs and wages are on the upswing, shoppers are voting by increasing their savings. In July 2005, the last time we saw unemployment this low, the savings rate was 1.9 percent of personal disposable income. Today the savings rate is 5.4 percent. Nobody is spending because today’s job quality is so low.

Nowhere in the job numbers assembled by the Census Bureau and the rest of Washington’s finest minds is there a category for those taking a job for less money and fewer benefits. From DC’s point of view, there is statistic to show the economic downside of leaving a high-paying job that, say, moved overseas, and accepting a lower-paying gig.

A job is a job to Washington. But Main Street households know the downside and are cutting spending and boosting savings. Just in case, you know? And these families appear to be right. There was a tremendous amount of economic volatility in the first quarter as markets cratered around the world, the US gross domestic product came in at an embarrassingly limp 0.5 percent, and April’s job numbers came in well below estimates.

Our National Debt Expected To Grow To $31 Trillion By 2023

It just seems like human nature to ruin a good thing. As much as I am a strong proponent of free market capitalism, and against complex regulations and central planning, I understand government’s role in all this. Capitalism and democracy teamed up in the late 1700s to form the big bang in economics, or what I call “When Harry met Sally.”

They’re opposites that balance each other – capitalism rewards people for their contributions, and democracy ensures that greed doesn’t take over. We took Adam Smith’s theory of the “invisible hand,” limited government and laissez faire politics… and combined it with Alexander Hamilton’s doctrine of a stronger government to enhance capitalism. We invested in common infrastructures, established a central bank with uniform monetary policies, and implemented financial and legal systems – things free market capitalism can’t do alone.

That’s why, together, these two ideologies complement each other – so long as they don’t get in each other’s way. But, John Maynard Keynes screwed that up when he came out with the worst economic theory in history during the Great Depression.

His brilliant idea was that the government should fight downturns with deficit spending to offset declines in the private sector. He literally said that if it would help, the government should pay people to dig ditches and then fill them back up! How uneconomic is that? I’ve realized by studying history that it helps to get government involved when it comes to nurturing a developing country. They need infrastructure and export industries as such countries are rapidly urbanizing. It works – if government doesn’t overdo it!

1 in 6 young American men are either jobless or in jail

What Is the Average Income in the U.S.?

The average American's income is falling, and according to a recent report from Pew Research, the middle class is shrinking. Stagnant income paints a pretty grim picture for retirement savings, but before we get too nervous, let's take a closer look at how you stack up against your peers.

Median income across every state in the U.S. is $62,462, but because income varies widely. it may be more useful to see how your income stacks up against others by specific income ranges.

Pew Research calculated income figures for three income groups: lower-income, middle-income, and upper-income earners. Lower-income households earn less than 67% of the median income, middle-income households earn two-thirds to double the national median income, and upper-income households earn more than double the median national income.

Breaking up income into these groups reveals that the median income for lower-income Americans is $23,811 and the median income for middle-income and upper-income Americans is $72,919 and $173,207, respectively. However, the size of a household can significantly impact how far income stretches so it's also important to take that into consideration. After adjusting for household size, Pew Research determined that a single American earning $24,042 is considered a middle-income earner. However, a household of four members would need an income of $48,083 to be considered middle income.

Recession Watch: Freight Volume Drops, Worst Level since 2010

Freight shipments by truck and rail in the US fell 4.9% in April from the beaten-down levels of April 2015, according to the Cass Transportation Index, released on Friday. It was the worst April since 2010, which followed the worst March since 2010. In fact, shipment volume over the four months this year was the worst since 2010.

This is no longer statistical “noise” that can easily be brushed off. The Cass Freight Index is based on “more than $26 billion” in annual freight transactions by “hundreds of large shippers,” regardless of mode of transportation, including by truck and rail. It does not cover bulk commodities, such as oil and coal and thus is not impacted by the collapsing oil and coal shipments. The index is focused on consumer packaged goods, food, automotive, chemical, OEM, heavy equipment, and retail.

In a similar vein, the Association of American Railroads reported last week that loads of containers and trailers fell 7.5% in April year-over-year. “Intermodal” is a direct competitor to trucking. Combined, they’re a measure of the goods-based economy.

May is usually a relatively strong month for freight shipments, but given the high inventories with ever slower turnover rates and the decline in new production orders, May could be another soft month.

Obamacare's 2017 Insurer Rate Requests Are Starting to Stream in, and the Figures Are Scary

It's been more than two years since the Affordable Care Act, which you probably know better as Obamacare, went into full effect for individual consumers, and in that time the new health law has enrolled about 12.7 million people. Note that this doesn't take into account the millions of Americans who've been able to get health insurance through the expansion of Medicaid and CHIP within their respective states. In total, 31 states chose to accept federal money and expand their Medicaid program to provide healthcare to low-income individuals and families.

On the surface, Obamacare has led to a statistically meaningful reduction in the number of people who are uninsured. Gallup's most recent survey in the first quarter pegged the uninsured rate at 11%, which is down 90 basis points from the fourth quarter, and is 6.1% lower than Q4 2013, the quarter prior to the full implementation of Obamacare. The program has presumably opened the door for millions of lower-income Americans and those with pre-existing health conditions to get the medical care they need.

But Obamacare has also opened the door to another set of problems that question its ongoing survival. For instance, UnitedHealth Group (NYSE:UNH), the largest insurer in the U.S., recently announced that it would be vacating a majority of the 34 states it's currently operating in beginning in 2017. The reason? Higher member utilization rates and the ease with which consumers can change health plans are set to cause UnitedHealth to lose around $500 million on its Obamacare individual marketplace plans in 2016.

Mind you, we're talking about the largest U.S. health insurer -- a company that's versed in how to sustain profitability -- waving the white flag in most states.

Monday 05.16.2016

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