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Wednesday 05.18.2016

U.S. problem: I work three part-time jobs

For 15 years, Erlinda Delacruz had a full-time manufacturing job in rural Winters, Texas. It gave her health benefits and four weeks of paid vacation along with a salary that supported a good life. Then the rug was pulled from under her in 2009, when the plant closed. Since then, it's been a battle of survival as Delacruz worked a string of part-time jobs. Last summer, she even lost her home to foreclosure.

Delacruz, 55, still works part-time. Except at three different places -- Monday through Wednesday she works eight hours a day at a senior citizens center serving meals, and Thursday through Sunday Delacruz divides her time between two other jobs as a cashier at Walmart (WMT) and the Wes-T-Go convenience store.

She barely has time for herself. In all, Delacruz says she works roughly 60 hours a week between her three part-time jobs. "There's no such thing as a Friday," says Delacruz. "I live paycheck to paycheck." In all, she typically makes $1,600 a month before taxes. It's lesser than what she made at her manufacturing job, where she took home $2,000 a month.

Delacruz is one of 2.1 million Americans working multiple part-time jobs, matching the all-time high set in 2014. What's unclear is how many of these workers choose to work multiple part-time jobs or feel forced to by their circumstances. The evidence suggests the latter. Part-time work has become a huge worry for experts who watch the U.S. economy. There are 6 million part-time workers who want full-time jobs. It's well above its pre-recession average of about 4 million workers.

Undeniable Evidence That The Real Economy Is Already In Recession Mode

You are about to see a chart that is undeniable evidence that we have already entered a major economic slowdown. In the “real economy”, stuff is bought and sold and shipped around the country by trucks, railroads and planes. When more stuff is being bought and sold and shipped around the country, the “real economy” is growing, and when less stuff is being bought and sold and shipped around the country, the “real economy” is shrinking. I know that might sound really basic, but I want everyone to be on the same page as we proceed in this article. Just because stock prices are artificially high right now does not mean that the U.S. economy is in good shape. In fact, there was a stock rally at this exact time of the year in 2008 even though the underlying economic fundamentals were rapidly deteriorating. We all remember what happened later that year, so we should not exactly be rejoicing that precisely the same pattern that we witnessed in 2008 is happening again right in front of our eyes.

During the month of April, the Cass Transportation Index was down 4.9 percent on a year over year basis. What this means is that a lot less stuff was bought and sold and shipped around the country in April 2016 when compared to April 2015. The following comes from Wolf Richter…

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.

Of course this was not just a one month fluke. The reality is that we have now seen the Cass Shipping Index decline on a year over year basis for 14 consecutive months. Here is more commentary and a chart from Wolf Richter… The Cass Freight Index is not seasonally adjusted. Hence the strong seasonal patterns in the chart. Note the beaten-down first four months of 2016 (red line):

The Shift To A Cashless Society Is Snowballing

Love it or hate it, cash is playing an increasingly less important role in society. In some ways this is great news for consumers. The rise of mobile and electronic payments means faster, convenient, and more efficient purchases in most instances. New technologies are being built and improved to facilitate these transactions, and improving security is also a priority for many payment providers. However, there is also a darker side in the shift to a cashless society. Governments and central banks have a different rationale behind the elimination of cash transactions, and as a result, the so-called “war on cash” is on.

The Federal Reserve estimates that there will be $616.9 billion in cashless transactions in 2016. That’s up from around $60 billion in 2010. Despite the magnitude of this overall shift, what is happening from country to country varies quite considerably. Consider the contradicting evidence between Sweden and Germany.

In Sweden, about 59% of all consumer transactions are cashless, and hard currency makes up just 2% of the economy. Yet, across the Baltic Sea, Germans are far bigger proponents of modern cash. This should not be too surprising, considering that the German words for “debt” and “guilt” are the exact same. Within Germany, only 33% of consumer transactions are cashless, and there are only 0.06 credit cards in existence per person.

The shift to a cashless society is even gaining momentum in Germany, but it is not because of the willing adoption from the general public. According to Handelsblatt, a leading German business newspaper, a proposal to eliminate the €500 note while capping all cash transactions at €5,000 was made in February by the junior partner of the coalition government. Governments have been increasingly pushing for a cashless society. Ostensibly, by having a paper trail for all transactions, such a move would decrease crime, money laundering, and tax evasion. France’s finance minister recently stated that he would “fight against the use of cash and anonymity in the French economy” in order to prevent terrorism and other threats. Meanwhile, former Secretary of the Treasury and economist Larry Summers has called for scrapping the U.S. $100 bill – the most widely used currency note in the world.

Trump eyes economic dream team

Gold is insurance against the bad guys hitting the reset button

It used to be that when I spoke about gold, the folks that listened would look at me as if I were speaking in some ancient foreign language that nobody could understand. Lately, as I stand at my spot on trading floor of the New York Stock Exchange, willing to talk the financial markets or baseball with anyone who's also willing—more and more am I asked about gold. Several times a week in fact.

In case you missed it, when the World Gold Council released its Q1 data, total demand for gold was up 21% year-over-year, largely due to demand for investment purposes. There were yearly declines in demand from Q1 2015 to Q1 2016 for jewelry, technology purposes, and even purchases made by central banks. Demand for investment purposes was up 122% year-over-year. That says something. It says that I am not alone in my thoughts. If the central banks (huge buyers in recent years) get started again, watch out.

So, what is it about this barbarous relic that it refuses to just go away quietly? Is it money? Is it a commodity? Quite frankly, I think it is both. There certainly are characteristics that even the most impure of monetarists can not deny: store of wealth, divisibility, and even at times of crisis, a medium of exchange.

If you follow my notes, you know my current allocation toward gold is 7.5%. We took it to that level from 5% in late December, and we've flirted with taking it even higher in recent weeks, though we have dragged our feet. My thought is that if the physical (which is the best way to own) were to make another run at $1,300 an ounce that you may want to be at 10% for the long haul. Conversely, if the yellow metal were to run the other way, I think you lighten up at $1,210 before throwing away your profits from Q1.

Lower Bonuses, More Job Cuts In Store For Wall Street In 2016: Study

Job cuts and constrained hiring are expected to continue on Wall Street in 2016, with bonuses likely to be lower than in 2015 due to difficult market conditions, according to a study by compensation consultant Johnson Associates.

The study said market activity, the U.S. presidential elections and uncertainty about interest rates and world markets would play key roles in deciding incentive pay. The forecast for 2016 follows a year in which Wall Street added jobs for the first time in five years and the bonus pool increased 3 percent.

Wall Street banks have had a brutal start to 2016, with the KBW Global Nasdaq Bank index down nearly 19 percent on concerns about profitability. Almost 70 percent of major global banks are trading below tangible book values, or what they would be worth if liquidated. Analysts say if this continues, banks will need to further cut costs.

Wall Street banks have been slashing employee compensation and cutting jobs as the commodities market downturn and near-zero interest rates have limited their ability to boost profits.

How much gold is there in London - and where is it?

The world's biggest bank has agreed to buy a vault for gold and precious metals in London. But how many of these vaults are there, and how much gold do they hold, asks Claire Bates?

The streets of London may not be paved with gold, but there is certainly a huge amount stored underneath them. About 6,500 tonnes is stored in seven vault-systems under the city.

The largest by far lies in the Bank of England. It holds three-quarters of the gold in London, or 5,134 tonnes. Most of the gold is stored as standard bars weighing 400 troy ounces (12.4 kg or 438.9 ounces) - there are about 500,000 of them, each worth in the region of £350,000. But the official reserves of the UK Treasury account for less than a tenth of this.

"Just 310 tonnes of the gold in the Bank of England is from the UK Treasury, the rest is mostly commercial," says Adrian Ash of BullionVault.com. The gold is held in a system of eight vaults over two floors under Threadneedle Street in the City. This is to spread the weight and prevent the vaults from sinking into the London clay beneath the bank. There are six smaller commercial vaults inside the M25, owned by banks like JP Morgan and HSBC. Three are around Heathrow Airport.

Keiser Report: Revolutions

Here's how much more CEOs earn than average workers

It's no surprise that the people running the nation's largest corporations take home hefty paychecks. Possibly more eye-opening is the ever-widening gap between what CEOs earn and what their workers are paid.

Last year, the average chief executive of a company listed on the S&P 500 made $12.4 million, or 335 times the $36,875 paid to average workers. That ratio stood at 107-to-1 in 1990 and 42-to-1 a decade earlier.

"Corporate CEOs have rewritten the rules of our economy," Heather Slavkin Corzo, director of the office of investment at the AFL-CIO, which used regulatory filings and Department of Labor statistics to compile its findings, said in a news conference to discuss the union's compensation findings. "They are also looting their companies and the public purse so they can keep getting richer. And they are squeezing workers and outsourcing jobs."

In addition to offering an accounting of what Corporate America's head honchos make, the AFL-CIO's annual PayWatch analysis looks at how CEO pay may relate to corporate income tax avoidance. Chief executives overseeing companies with the most cash held overseas to defer paying taxes are paid 79 percent more than other CEOs, it concludes.

Sports Authority’s Stores Have Been Sold To A Trio Of Liquidators, All Will Close

While regular customers and employees may have hoped that the competitors of bankrupt sporting goods chain Sports Authority would bid on its stores and inventory, taking over and keeping the branches open so they could expand into new markets. While Dick’s Sporting Goods and Modell’s did bid, ultimately the winner of all remaining stores was a group of three notorious liquidators bidding together: Tiger Capital Group, Hilco Global, and Gordon Brothers.

Yes, this means that all Sports Authority stores will close, and the brand will die out. Their leases will sell later to raise more cash for lenders, and it’s possible that other sporting goods stores could take over those leases. The liquidators are more interested in the merchandise: they reportedly bid 101% of the original cost of the stores’ inventory, plus $1.8 million, a source told the Wall Street Journal.

At least one of the members of that trio has probably run a particularly annoying liquidation sale that you’ve attended at some point. Hilco and Gordon Brothers together have handled liquidation sales for CompUSA, Circuit City, Linens-N-Things, Borders, Hollywood Video, Coldwater Creek, and Deb.

The three liquidators together worked with one of RadioShack’s lenders to bid on all the remaining RadioShack stores and liquidate them. Instead, the bankruptcy judge in RadioShack’s case allowed a different lender to use the retailer’s debt as currency for their bid, winning 1,740 stores and the company’s trademarks and intellectual property. That lender, Standard General, kept the RadioShack brand going by teaming up with Sprint to keep stores open and preserve thousands of jobs.

Peabody Energy Gets Go-Ahead for $800 Million Bankruptcy Financing

Peabody Energy Corp. won final bankruptcy-court approval for an $800 million financing package after lenders made concessions to appease creditors. Peabody said final approval on the chapter 11 financial arrangements ensures the company can continue operating as usual while it works through a load of debt that it can’t support given the declines in coal demand and prices.

Existing lenders have offered to fund the turnaround of one of the world’s largest coal-mining operations, but the terms of the deal had junior creditors up in arms. Peabody was surrendering too much and getting too little under the financing, according to the official committee that represents unsecured creditors.

In court papers, Peabody defended the financing, saying all the benefits of the financing justified the cost of the deal. Creditors reckoned that fees and interests on the financing meant Peabody was getting minimal new money. Peabody’s bankruptcy financing includes a $500 million term loan, $200 million earmarked to cover environmental obligations and a $100 million letter of credit.

In the face of criticism, senior lenders agreed to consider changes to the financing, including more time for Peabody to stabilize in bankruptcy before having to face financial tests. Unsecured creditors will have more time and a bigger budget to investigate the validity of Peabody’s top-ranking loans under the agreed changes.

Trump vs. Clinton Contest Weighing on Consumers Says Economist

S&P Cuts Carl Icahn's Rating to Junk

U.S. ratings agency Standard & Poor’s on Tuesday cut the credit rating of billionaire investor Carl Icahn‘s Icahn Enterprises to junk status after the portfolio absorbed declining investment values and higher leverage in the last few months.

S&P dropped the long-term issuer credit rating and senior unsecured debt rating of Icahn Enterprises IEP -0.47% to double-B-plus from triple-B-minus, the agency said in a statement. Additionally, S&P said it removed all of Icahn Enterprises’ ratings from “CreditWatch” with the outlook at “Stable.”

There was no immediate response to an email to Icahn‘s office seeking comment. The downgrade reflects Icahn Enterprises’ elevated loan-to-value ratio, which S&P now expects to remain between 45% and 60% over the next 12 months, said S&P Global Ratings credit analyst Clayton Montgomery.

“While part of this increase in leverage has come as the portfolio (most notably CVR Energy, Federal Mogul, and the investment segment) has deteriorated in value over the past year, it has also resulted from a substantial decrease in the amount of cash at IEP, which we net against debt in our [loan-to-value] calculation,” Montgomery said.

'The Big Short' investor no longer likes bank stocks

Monday marked the deadline for investment managers to report their holdings to the Securities and Exchange Commission on form 13F. As such, financial journalists and investors will be poring over the reported holdings of some the most successful and best-known investors — names such as Soros, Buffett, or Icahn.

One name that won't get much attention is Michael Burry. He was one of a few contrarian investors profiled in Michael Lewis' movie The Big Short who predicted a horrific end to the housing and credit bubble — and reaped huge returns by betting against rotten mortgage-backed securities and the banks that put them together.

Burry then returned his investors' money in order to manage his own assets through Scion Capital, which began reporting its holdings starting with the fourth quarter of last year.

At the end of 2015, Burry was heavily invested in financials, which represented nearly a third of his reported assets, including a 7% position in Bank of America and a 6.8% position in Citigroup. However, his latest filing shows he closed his position in both of those banks in the first quarter (along with Bank of New York Mellon and PNC Financial Services Group).

As Brexit vote looms, U.S. banks review their European commitments

If Britain votes to leave the European Union in June, some U.S. banks could give up parts of their business in the bloc altogether. The option is an extreme scenario under consideration by some Wall Street firms if the terms of an exit, currently a matter of speculation, leave financial services companies in Britain unable under their current set-ups to do business inside the EU, according to discussions Reuters had with several U.S. banks and their lawyers.

The scenarios being studied by taskforces at U.S. banks underscore the extent to which the London operations of non-European banks are linked to business on the continent. In particular focus are the banks' market operations, as trading of most European securities is regulated at the EU level but conducted by many investment banks mainly out of London.

The five largest U.S. banks employ 40,000 people in London, more than in the rest of Europe combined, taking advantage of the EU "passporting" regime that allows them to offer services across the bloc out of their British hubs.

Having to reorganize business in order to set up new continental European outposts — which U.S. banks say is a worst-case scenario that they are being forced to consider — would be so costly that it would make some rethink their commitment to the bloc altogether. "The costs may lead some banking groups to reassess how important Europe is in the context of their global business and what sort of presence they wish to maintain post-Brexit," said Edward Chan, a partner at the law firm Linklaters, which has been advising banks on contingency arrangements.

Rising gas prices are driving a surge in inflation

Rising gas prices helped drive a surge in inflation last month, according to government data released Tuesday, with the cost of goods rising at the fastest pace in three years.

The Labor Department reported that the consumer-price index, a closely watched gauge of inflation, rose 0.4 percent in April compared with the previous month, beating analysts’ expectations. The increase was largely due to a jump in energy prices that included an 8.1 percent spike in gasoline.

Prices rose across a broad array of other sectors as well, albeit not as dramatically. Food prices were up 0.2 percent, and housing and medical services rose 0.3 percent.But the cost of cars and clothing dipped slightly after big gains earlier in the year.

Excluding the volatile food and energy sectors, prices rose a more modest 0.2 percent in April, a measurement economists often refer to as core inflation. Compared with a year ago, that figure has risen 2.1 percent. “That confirms the trends we have seen since the start of the year: Inflation has firmed but is not flaring,” said Diane Swonk, head of DS Economics.

Are these the golden days for gold?

Central banks are pushing the outer limits of monetary policy. This has had many odd side effects, not the least of which is a significant portion of sovereign debt today is trading at a negative yield. If you buy government bonds from Japan today, you’d have to pay interest. Welcome to a world in which investors pay for the privilege of lending money.

Although central banks have been the primary architect of this surreal state of affairs, even if they decide to reverse course, real borrowing costs are likely to remain low relative to the historic norm. Factors such as demographics and tepid economic growth are contributing to the unusually low level of real interest rates (i.e. after inflation). All told, this is a serious problem for yield starved investors. Ironically, one potential remedy is to take a second look at an asset class that provides no income: gold.

Even more than other asset classes, making predictions about gold is a dubious exercise. For starters, investors can barely agree on what gold is: commodity, currency or “barbaric relic.” Even investors like myself, who see a legitimate role for gold in a portfolio, need to admit that gold is extremely difficult to value. There is no cash flow to discount and, unlike oil or even other precious metals like silver or platinum, gold has few industrial uses.

That said, some environments have been more kind to gold than others. As gold pays no interest or dividend, the opportunity cost of holding the precious metal is a critical driver of returns. During periods of low or negative real rates, when the opportunity cost is low, gold has generally performed better than in periods when real rates are higher. My colleague Heidi Richardson also mentioned this in a recent post. According to Bloomberg data, since 1971, the level of real U.S. 10-year yields has explained roughly 35 percent of the annual change in the price of gold. In those years in which real rates were above average (roughly 2.50 percent), gold rose by an average of 0.50 percent. However, in those years when rates were below the historical average, gold rose by an average of 21 percent.

Consumer Prices in U.S. Climbed in April by Most Since 2013

The cost of living in the U.S. climbed in April by the most in three years an indication that inflation may be picking up toward the Federal Reserve’s goal.

Consumer prices increased 0.4 percent, the biggest gain since February 2013, following a 0.1 percent advance in March, a Labor Department report showed Tuesday in Washington. The so-called core measure, which strips out food and energy costs, rose 0.2 percent after a 0.1 percent gain the prior month.

The biggest jump in gasoline prices in almost four years is leading a rebound in fuel costs that is laying the groundwork for overall inflation to climb higher, while a slight weakening in the dollar will support a pickup in core prices to a level near the Fed’s 2 percent target. A strengthening job market is also helping boost pay, which may prompt companies to raise prices to prevent profits from weakening.

“We’re seeing budding, but by no means in full bloom, inflation,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, Pennsylvania, who correctly forecast the increase in consumer prices. “Some of that is just a reversal of the huge fundamental decline in oil and gasoline that we’ve seen, and the other part is the service side of the economy.”

Survey: Most Americans have financial regrets, particularly about saving

It's hard to get through life without at least one major financial regret. That's the conclusion from a new Bankrate nationwide survey that finds only 17% of Americans say they have no money decisions they'd want to take back.

When we asked people to pick their biggest regret from a list of possibilities, "not saving for retirement early enough" was the most popular choice, with 18% of Americans saying that's their top reason for face-palming over finances.

Patti Wood, a body language expert, trainer and consultant in Atlanta wishes she had started saving earlier -- she waited until age 33 -- and that she had put more away once she got going. As with most financial regrets, Wood's started with a confluence of life events.

"My father passed away while I was in college, so I was supporting myself. I went through 7 years of grad school. I worked multiple jobs, but I had a certain amount of student loan debt," she says. Rather than start saving for retirement then, she decided to focus on retiring her debt instead, "I didn't feel like I had the money to put in retirement," she explains.

Obama’s Upset Congress Doesn’t Like His $10 Tax On Oil Barrels

The White House said Monday it was “disappointed” Congress chose not to include President Barack Obama’s plan to fund green infrastructure projects with a $10 tax on barrels of oil in a Senate amendment to a transportation appropriations bill.

Administration officials said “the bill does not support the President’s full vision for a 21st Century Clean Transportation Plan that expands transportation options for American families, while reducing carbon emissions, cutting oil consumption, and creating new jobs.”

Namely, the bill does not include the most controversial piece of Obama’s transportation plan: a $10 tax on every barrel of oil to pay for green infrastructure projects.

While the administration supports some aspects of the Senate bill, it wants Obama’s oil tax to be considered as an option to help the U.S. meet its United Nations pledge to cut carbon dioxide emissions. “The Administration urges the Congress to consider strategic opportunities to enhance revenue and investments to support a new, clean, sustainable transportation system and increase the competitiveness and productivity of the economy,” the White House said in a statement.

Wednesday 05.18.2016

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