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Tuesday 10.18.2016

The odds of a 2017 recession are 15-20%, says economist

A 2017 recession is not outright impossible, but with consumer confidence, 10-year yields and earnings growth all steadily improving, it is unlikely, economist Anthony Chan said Monday. Chan, who is a chief economist for Chase Private Client, said that October's University of Michigan consumer survey put consumer confidence five points above where it usually is before a recession.

More reductions in consumer confidence could increase chances of a recession, he said. Chan added that going into 2017, he sees an inflection point approaching for what has been five consecutive quarters of negative earnings growth for the S&P 500.

"Moving into next year, I see that higher energy prices, stabilization in commodity process, will in fact start to raise earnings given that the energy sector is still a little over 7 percent of the market weight," Chan told CNBC's "Squawk on the Street."

Jeff Kleintop, chief global investment strategist at Charles Schwab, said that five quarters without positive earnings growth renders the market especially volatile. "It's been two years since we've seen any earnings growth, valuations are slightly above average — I think we're more vulnerable than we've been in a while," Kleintop told "Squawk on the Street" on Monday.

Rexnord Bearing Moving Jobs To Monterrey, Mexico

Another Indianapolis company has "tentatively decided" to move jobs to Monterrey, Mexico. Rexnord Bearings announced to its employees Friday that some jobs were going to be moved out of the country beginning in 2017, according to the union that represents those employees.

The move comes just 8 months after Carrier workers found out their jobs were being phased out of an Indianapolis manufacturing plant and instead moved to Carrier's facility in Monterrey.

Rexnord's Indianapolis plant is located on the city's west side, at 7641 Rockville Road. The Indy plant makes ball bearings, roller bearings and other associated products.

The union says 350 Indianapolis-based employees are affected by the move, which will happen between April and June of 2017. A Rexnord spokesperson released the following statement about the decision: Rexnord has tentatively decided to relocate its Indianapolis, Indiana manufacturing operations to an existing Rexnord manufacturing facility with capacity in Monterrey, Mexico.

Fed's Fischer:The US economy could enter 'deeper recessions' if interest rates stay low

The U.S. economy may face longer and deeper recessions in the future if interest rates remain stuck at current low levels, Fed Vice Chair Stanley Fischer said on Monday as he mapped out a world in which low growth hamstrings central banks from effective recession-fighting.

Though officials would still have tools such as quantitative easing and forward guidance if rates remain low, he said, "these alternatives are not perfect substitutes for conventional policy. The limitation on monetary policy imposed by low trend interest rates could therefore lead to longer and deeper recessions when the economy is hit by negative shocks."

However it is "not that simple" for the Fed to coax interest rates higher in a world that central bankers increasingly believe is one where an aging population, weak demand and low investment may have undercut the country's and indeed the world's economic potential, Fischer said.

Many of the forces holding down growth, such as demographics, are beyond the reach of policy. And hopes of boosting productivity or investment may rest more with other branches of government that could boost spending at their discretion, Fischer said.

It’s Not All About The Fed When Talking Gold

Why Are So Many Restaurant Chains Closing Locations, Filing For Bankruptcy?

Bob Evan’s, Old Country Buffet, Cosi, Ruby Tuesday, Logan’s Roadhouse: these are just a few of the large restaurant chains that have closed locations and/or filed for bankruptcy protection in 2016 alone. These eateries generally have two factors working in their favor: name recognition and stores in high-traffic areas. So why are they doing so poorly?

Over-saturation, new fast-casual entrants, and customers’ desire to just eat at home have something to do with it, the Wall Street Journal reports, suggesting that the already announced closures are likely just the beginning of what could be a major restaurant industry shakeup.

Having a variety of food options at your disposal is great for hungry consumers, but you eventually get to the point where there aren’t enough people eating out to support all of those restaurants.

Analysts with NPD Group have charted the growth and retraction of this industry, saying that the number of restaurants in the U.S. grew by 7.3% between 2006 and 2014, peaking at more than 638,000. Since then, the trend has reversed, with a slight decline in restaurants to 624,000. Analysts say many of the closed stores come from independent restaurant chains. The WSJ reports that the closures have often coincided with younger consumers choosing not to eat out. For example, in the past 10 years, customers aged 18 to 35 have scaled back on their visits, making fewer than 50 trips to restaurants each year.

Deutsche Bank looks to shrink US operations

Deutsche Bank — the troubled German bank facing a possible $14 billion Department of Justice fine over the sale of toxic mortgage bonds — is looking at paring US operations.

Reports out of Germany say a change of business strategy might be part of a settlement with the DoJ, in addition to paying the fine, possibly by giving up its investment banking in the United States.

A Deutsche Bank spokeswoman declined to comment on the report. Progress is also slow on steps to cut staff, overheads and the selloff of non-core businesses that chief executive John Cryan announced when he took on his job last year.

The bank’s CFO last month told staff that job cuts could be double those planned, in a step possibly removing a further 10,000 employees, a source with direct knowledge of matters said Friday.

Caterpillar CEO to Retire Amid Commodities Slump

Caterpillar Inc.’s Doug Oberhelman will retire after 41 years at the largest maker of construction and mining equipment, leaving his replacement to finish the job of steering through a commodities slump.

The 63-year-old will be replaced as chief executive officer on Jan. 1 by company veteran Jim Umpleby, who is currently a group president for energy and transportation, the Peoria, Illinois-based company said in a statement Monday. The shares fell 0.4% at 11:17 a.m. in New York.

Since overseeing an expansion that led to record sales in 2012, Oberhelman has been navigating a slowdown in demand for engines, giant trucks and shovels. He reorganized mining and energy segments, shutting down dozens of factories and eliminating thousands of jobs. A years-long initiative to streamline the company’s supply and distribution network has yielded results as its gross margin has climbed annually since 2013, even as revenue slumped.

The new CEO will face a more formidable global competitor after Komatsu Ltd., the second-biggest mining and construction equipment maker, agreed to buy Joy Global Inc. for $2.89 billion in July. That deal gives the Tokyo-based manufacturer the largest independent maker of underground-mining equipment and the heft to better compete with Caterpillar beyond Komatsu’s dump-truck and excavator businesses.

Inflation Above Target For Five Straight Years and Counting

Ben Bernanke first set an official inflation target in January 2012, aiming at 2%. Since then the Fed has claimed that it would begin to normalize interest rates when the target was reached and unemployment fell below 5%. The latter goal has long been met, but what about the inflation target?

Well, it depends on how you measure inflation. And I’m not talking about private measures that actually reflect reality like David Stockman’s Flyover CPI. I’m talking about official measures.

There are many to choose from. Lo and behold, surprise surprise, the Fed has chosen the one that is most suppressed and furthest from the experience of most American households. That is the personal consumption expenditure (PCE), which has gone up by just 1% over the past year and has averaged. 1.2% over the past 5 years. So the Fed can pretend that inflation is “too low,” whatever that means.

My favorite official measure of inflation, which the mainstream media never reports, is the Producer Price Index (PPI) for Finished Consumer Goods minus food and energy. It represents the price changes that retailers pay for their finished goods inventory. It has persistently outrun the widely followed consumer price index (CPI) and the Fed’s favorite, the PCE, by a wide margin ever since inflation began to rebound from the pits of the recession in 2009.

This Las Vegas Gun Store Is Banking on a Clinton Victory

A Las Vegas gun store, having resigned itself to a Democratic presidential victory on Nov. 8, has launched a “Pre-Hillary Sale,” sparking a modest media sensation reaching as far away as New York and Washington, D.C.

The store, Westside Armory, bought an ad last weekend in the sports section of the Las Vegas Review-Journal saying, “Don't wait! Prices will skyrocket after Crooked Hillary gets in.” The ad—for a Smith & Wesson AR-15 military-style rifle priced at $699.99—echoes a favorite put-down by Republican nominee Donald Trump of his rival Hillary Clinton. It also picks up on a theme that we’ve reported on in the past: that the gun industry has counted on fear of a Clinton victory to drive firearm sales. The conventional wisdom—proven repeatedly during the Obama administration, especially following gun massacres in Newtown, Conn., and Orlando—is that gun owners who fear Democratic politicians will tighten firearm laws are prone to run out and buy another weapon.

Westside Armory owner Cameron Hopkins said via e-mail: “I was acutely aware the ad would be controversial, so I had to be very careful to imply we are not in favor of Hillary winning, even though we acknowledge the certainty of it.” He also noted the influence of the National Rifle Association: “As a retail business, we are apolitical except for the ‘gun issue’ and for that we must follow the candidate(s) and positions supported by the NRA,” which has endorsed Trump.

Trump has falsely accused Clinton of seeking to “get rid of all guns” and abolish the Second Amendment (which only Congress and three-quarters of the states could do). What she has proposed, among other measures, is reestablishing a ban on “assault weapons” that could include the type of large-capacity rifle that Westside Armory put on sale. The Smith & Wesson advertised by the Las Vegas shop accommodates ammunition magazines containing 30 rounds.

Touchscreen voting machines prompt concerns of voter fraud

Financial crisis 2.0?

While everyone fixates on the U.S. election, developments in the world economy threaten to create problems for the next president and, possibly, trigger a major financial crisis. A little-noticed study by the International Monetary Fund (IMF) delivers the bad news. It finds that global debt — including the debts of governments, households and nonfinancial businesses — reached a record $152 trillion in 2015, an amount much higher than before the 2008-2009 financial crisis.

What’s worrisome about this is that the global economic recovery has assumed widespread “deleveraging” — the repayment of debt by businesses and households. Initially, the theory went, these repayments would slow the economy. To reduce their debts, households would cut consumption and companies would cut investment. But once debts had receded to manageable levels, consumer and business spending would bounce back. The economy would accelerate.

It hasn’t happened. With a few exceptions, little deleveraging has taken place, the IMF shows. One exception is the United States, where there has been some deleveraging among households. But generally, just the opposite has occurred. Many countries have become more indebted. On a worldwide basis, the $152 trillion of debt (again: both private and governmental) is up from $112 trillion in 2007, before the financial crisis, and $67 trillion in 2002.

Recall that the pre-crisis economy relied on debt-driven growth. People and firms could spend more, because they’d borrowed more. This was not just true in the United States with its housing bubble. Borrowing financed housing booms in Europe (Spain and the United Kingdom), consumer goods and investments in factories and machinery. Government debt has played a bigger role since the crisis, but private debts — borrowings by firms and people — represent two-thirds of all debt.

Political Uncertainty Hampers Economy

Concern and uncertainty about elections affect the economy, and a researcher says their effect on business has been increasing. Data show stock markets more volatile during election season, while other research shows both consumers and corporate leaders delay purchases, decisions and investments when the path ahead is unclear. But there is some debate about how to gauge the impact that political uncertainty has on the overall economy.

What happens on the campaign trail, with conflicting promises on taxes, trade, and other issues, has a real impact on markets, according to the research firm, Macroeconomic Advisers.

The S&P 500 has changed throughout the campaign as the fortunes of the candidates changed. Joel Prakken said via Skype that markets seemed to prefer a Hillary Clinton victory.

"As the odds of a Clinton victory rose, at least as recorded in the polls, we saw the market rally, and if the odds of a Clinton victory receded, we saw the market retreat," said Prakken. The market and economic impact of politics and political uncertainty has grown, according to University of Iowa finance professor Art Durnev, who spoke via Skype. "Politics affects financial markets much, much more now than, let’s say, 10, 20 or 30 years ago," said Durnev.

‘Fiscal stimulus’ chatter is reason to be defensive: Gundlach

No matter who wins the election in November, bond guru Jeffrey Gundlach thinks the idea of fiscal stimulus is here to stay, and he’s taken defensive positions in both stocks and bonds as a result.

“I think we’re heading to a fiscal stimulus regime no matter who wins,” DoubleLine Capital CEO Gundlach said in an interview on CNBC. “I think Trump would do more of it than Mrs. Clinton but I think either way you’re heading in that direction.”

Following a speech from Federal Reserve Vice Chairman Stanley Fischer on Monday where he outlined that several factors are at work in keeping interest rates low, and Chairwoman Janet Yellen’s speech last week that she’s open to running the economy hot for a while, Gundlach doesn’t see the Fed all that enthusiastic about raising rates although a small hike is likely in December.

“Pretty much every maturity in the U.S. Treasury bond market has a yield that’s about at or above its 200-day moving average,” Gundlach said. “So it seems to me that something’s going on in the bond market and that’s why I turned negative on most assets during July and frankly that’s been the right position to be in ever since then.”

'Campus Craziness': Starbucks pumpkin spice lattes too white

Retirement at Age 80? How This Could Happen to You

Eighty is the new 65, at least when it comes to retirement. More than a third of middle class Americans surveyed by Wells Fargo said they’d need to work until age 80 or beyond before they could retire comfortably. For young workers, retirement after 70 may be the norm. The average member of the class of 2015 will need to work until age 75, an analysis by financial website Nerdwallet found. Some may end up working until they hit their eighth decade, which could give them just a handful of years in retirement. (The average 23-year-old today can expect to live into their early to mid-80s.)

Many Americans have come to accept the inevitability of a late retirement. Since 1991, the number of people who expect to retire at or before age 65 has fallen from 84% to 46%, according to the Employee Benefit Research Institute (EBRI). Twenty-five years ago, 9% of people expected to work past age 70. Today, 26% do.

Anticipating a retirement date in your 70s or 80s isn’t necessarily a bad thing if you love your job. But for many, delayed retirement won’t be a matter of choice. Millennials will have to stay in the workforce longer because high student debt, rising rents, and a hesitancy to invest will make it difficult for them to save enough money to quit their jobs, according to NerdWallet. Many other workers find themselves reaching 60 or 65 with paltry nest eggs and big expenses, like mortgage payments or college for the kids, still hanging over their heads. Those financial pressures leave many no choice but to stick it out at the office for a few more years until they feel retirement is within reach.

Who’s to blame for our ever-increasing retirement age? A number of factors are at play. Pensions have largely disappeared, leaving workers to figure out how to fund their retirements on their own. Many people don’t have access to retirement plans at work, which makes it harder to save. Stagnant wages are also a problem for people who want to save. In 2013, middle-income workers were earning just 6% more than they did in 1976, an increase of less than 0.2% per year, according to the Economic Policy Institute. For others, the very idea of retirement has changed. Rather than rounds of golf and long RV trips, they might be open to the idea of a phased retirement, or willing to put off retirement in exchange for better work-life balance during their younger years.

GM invests millions in Mexico while Trump bashes Ford

After more than a year of watching Republican presidential candidate Donald Trump bash Ford Motor Co. for moving jobs to Mexico, General Motors Co. has pushed ahead with its own expansion. It just hasn’t said as much as Ford.

GM is advancing on an $800 million investment for its global small-car lineup that includes a factory retooling in San Luis Potosi state. That plant and another facility in Mexico will also build the all-new Chevy Equinox sport-utility vehicle next year, people familiar with the matter said.

The automaker has only said that the new Equinox will be built in a factory in Canada and two other sites, keeping mum about Mexico and avoiding both attention from Trump and the chance that the news might have roiled labor talks in Canada last month, said the people, who asked not to be identified because the matter is private.

Taking a lower profile has kept GM out of Trump’s cross-hairs and helped the Detroit-based company reach an agreement with its Canadian union, even as the Republican candidate singled out Ford’s latest Mexican factory plan as “an absolute disgrace.” For Mexico, GM’s tight-lipped approach hints at how U.S. companies might operate if Trump wins the election after campaigning against the North American Free Trade Agreement.

Wells Fargo vows to fight for Ohio business after Kasich dumps bank

Over the last few weeks, the body blows came fast and furious for Wells Fargo. First, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the city and county of Los Angeles fined the bank $185 million for more than 5,000 of the bank’s former employees opening more than 2 million fake accounts to get sales bonuses.

Then, the city of Chicago, the state of California, and the state of Oregon suspended ties with Wells Fargo in the wake of the scandal. And last week, the state of Ohio became the latest to dump Wells Fargo, as Ohio Gov. John Kasich announced Friday that he is barring Wells Fargo from participating in future state debt offerings and financial services contracts initiated by state agencies for one year.

But Wells Fargo isn’t content to just accept Kasich’s actions and move on. The bank is vowing to fight for Ohio’s business. “Wells Fargo values the State of Ohio’s business and will fight to earn it back,” the bank said in a statement released late Friday.

According to Wells Fargo, the bank’s business with the states of Ohio is conducted in a different division than its retail bank, where the fake account scandal took place. “Wells Fargo manages its business with the State of Ohio in business lines that are separated from our retail bank: Wells Fargo Securities, which provides the state with access to U.S. capital markets, and Government & Institutional Banking, which specializes in commercial banking,” Wells Fargo said.

Analyst: Tech Layoffs Will Go From Bad to Worse as Bubble Bursts

Job cuts in the technology industry will only get worse next year with the bursting of a bubble similar to the dot-com crash of 16 years ago, an analyst says.

“When you see the large companies laying off, that is an indication that the customer base is struggling,” Trip Chowdhry, analyst at Global Equities Research in Redwood Shores, Calif., told the IEEE Spectrum. “And the startups have the same set of enterprise customers as the bigger companies. The only thing protecting them now is that they have funding that takes them to the end of this year or the middle of next year, but by March or April it’s going to get very bloody.”

He predicted this year that major technology companies would cut 330,000 jobs as the industry shifted to mobile and cloud-based computing. That number was later revised upward to 369,000 as Intel Corp. started shedding jobs. “The layoffs I predicted have been occurring,” he said. “They will always remain unemployed. Their skills will be obsolete.”

He says funding for startups is drying up, leaving companies with dim prospects for survival. “The bubble will burst,” he said. “The impacts on the tech industry will last two years.” Technology companies in the U.S. have shed about 63,000 jobs, outplacement consultancy Challenger, Gray & Christmas Inc. told Reuters in August.

Boom Bust at BRICS 2016

World’s Central Banks Deserve Harsh Judgement

History will judge the world’s major central banks harshly. It will do so not only for their responsibility in setting the stage for the next global economic and financial crisis. Those central banks will also be indicted for their role in making politics in the world’s major economies as divisive as they are today.

Since the Great Global Economic Recession in 2008-2009, highly unorthodox monetary policies have been pursued by the world’s major central banks in an effort to promote economic recovery. Clearly the most important of these policies has been massive quantitative easing, or effective money printing, by the Federal Reserve, the Bank of Japan, the Bank of England, and the European Central Bank.

As an indication of the unprecedented path on which the world’s major central banks have been embarked, it is instructive to reflect on how rapidly those central banks’ balance sheets have expanded. As an example, one may consider that whereas it took the Federal Reserve almost 100 years from its founding in 1913 to increase the size of its balance sheet to $800 billion, it took only six years to expand that balance sheet from $800 billion to its present size of around $4.5 trillion. Similarly, one may consider that whereas in 2006 the combined size of the world’s six major central banks’ balance sheets was $5 trillion, by end- 2015 those balance sheets had swollen to around $17 trillion.

The basic reason why the world’s major central banks resorted to quantitative easing is that once interest rates had been reduced to zero, those banks ran out of room to reduce interest rates further. At that point it was thought that by buying long-dated bonds, the central bank could stimulate economic growth by driving long-term interest rates down and by encouraging economic actors to take on more risk.

Your Share of the National Debt is More Than Twice the Size of Your Student Loans

According to analysts at Bloomberg, the per capita share of the $19.7 trillion national debt is now about $60,679 per person, and is expected to be $66,000 per person in ten years. Compare that to the average student loan debt upon graduation of just under $30,000, and you would be right to be alarmed.

Four years ago Ron Paul declared, “We’re broke and already over the fiscal cliff.” We’ve been able to stave off a free fall because the Federal Reserve has kept interest rates artificially low for the past eight years, purportedly to stimulate the economy into a recovery. But if there has been a recovery, it has been weak, and the Fed has run out of tricks to cure our economic ills.

Some economists believe we can outgrow our debt by reducing it to a smaller percentage of GDP. Yet after years of low interest rates and quantitative easing, our economic growth is still anemic, and this idea is like telling David he ought to wait until he grows up a little more before attempting to slay Goliath.

In 2014, the folks at the Congressional Budget Office sharpened their pencils and made a slew of proposals to eliminate half of the debt within ten years. They recommended about $1.5 trillion in additional annual revenue and only $178 billion in annual spending cuts. And their numbers do not include money that may be spent on upcoming military adventures the U.S. may undertake.

Illegal immigration surged 23 percent over last year

The southwest border has cracked open over the last year as illegal immigrants into the U.S. spiked some 23 percent, according to the latest Homeland Security numbers released Monday.

Nearly 409,000 illegal immigrants were nabbed at the border in fiscal 2016 — up from about 331,000 a year earlier — and Homeland Security officials say the increased arrests also means an increase in the number that are sneaking by them.

Worse yet, the number of illegal immigrants traveling as families, fleeing rough conditions in Central America and enticed by the promise of lax enforcement in the U.S., reached a record high of 77,674. Unaccompanied minors — those children traveling without their parents — also rose to nearly 60,000, though that was still shy of the record set in 2014.

“Unaccompanied children and families have presented new challenges in our immigration system,” Mr. Johnson said in a statement announcing the numbers. He’s made significant progress in 2015, as the number of unaccompanied minors, families and overall illegal immigration across the southwest border dropped significantly. Total apprehensions fell to their lowest point since the 1970s.

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