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Thursday 05.19.2016

Fed signals interest rate hike firmly on the table for June

U.S. Federal Reserve officials said it would appropriate to raise interest rates in June if economic data points to stronger second-quarter growth as well as firming inflation and employment, according to minutes from their policy meeting last month. That view, expressed by most of the Fed's policy-setting committee at the April 26-27 meeting, suggests the U.S. central bank is closer to lifting rates again than Wall Street had expected.

The policymakers said recent data made them more confident inflation was rising toward the Fed's 2 percent target, and that they were less concerned about a global economic slowdown, according to the minutes, which were released on Wednesday.

"Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor markets continued to strengthen, and inflation making progress toward the committee's 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June," according to the minutes.

Prices for futures contracts on the Fed's benchmark overnight lending rate implied that investors saw a 34 percent chance of a rate increase next month, up from 19 percent shortly before the release of the minutes, according to CME Group. U.S. stocks pared gains and the dollar .DXY extended gains against a basket of currencies after the minutes were released. Treasury yields rose, with the yield on 30-year U.S. government debt rising to a two-week high.

Huge Trend Changes Point To Something Big In The Gold Market

Very few precious metals investors realize how recent trend changes will greatly impact the gold market going forward. The reason many investors fail to grasp the huge change in the gold market is that they look at data or information on an individual basis. To really understand what is going on, we must look at how all segments of the market compare to each other… a BIRD’S EYE VIEW.

Let’s start off with one segment of the gold market that has changed significantly in the past 15 years. The Global Gold Hedge Book hit a peak of nearly 3,100 metric tons (mt) in 1999:

Here we can see that after the Global Gold Hedge Book peaked in 1999, it fell to a low at a little more than 100 mt in 2013. Not only was this a significant change in the hedging strategy of the gold mining industry, it also was impacted by the price change from an average price of $279 in 1999 to $1,411 in 2013.

So, as the price of gold jumped five times from 1999 to 2013, the Global Gold Hedge Book fell 96%. Even though it increased a bit in the first quarter of 2016 to the present 253 metric tons, it’s still a fraction of the massive hedge book the gold industry held in 1999. Now, if we add another segment of the gold market, we will see another large trend change. Global Gold Bar & Coin demand increased significantly since 2000.

War On Savers Update—-Negative Rates Are Nothing More Than An Un-legislated Stealth Tax

Central banks have slashed interest rates to nothing. They have printed money on a vast scale. Where that has not quite worked, and if we are being honest that is most places, they now have a new tool. Negative interest rates. Across a third of the global economy, money you put in the bank does not only generate nothing in the way of a return. You actually get charged for keeping it there.

That is already producing strange, Alice-in-Wonderland economics, where nothing is quite what it seems. Governments want you to delay paying taxes as long as possible, the mortgage company pays you to stay in the house, and cash becomes so sought after there is even talk of abolishing it. But the real problem with negative rates may be something quite different.

As a fascinating new paper from the St. Louis Fed argues, they are in fact a form of tax. They impose a levy on the banking system that has to be paid by someone — and that someone is probably us. That may explain why central banks and governments are so keen on them. Hugely indebted governments are always in the market for a new tax, especially one that their voters probably won’t notice. But it also explains why they don’t really work — because most of the economics in trouble, especially in Europe, are already suffocating under an impossible high tax burden.

Negative interest rates have, like a fast-mutating virus, started to spread across the world. The Swiss first tried them out all the way back in the 1970s. In June 1972 it imposed a penalty rate of 2% a quarter on foreigners parking money in Swiss francs amid the turmoil of the early part of that decade, but the experiment only lasted a couple of years. In the modern era, the European Central Bank kicked off the trend in June 2014 with a negative rate on selected deposits.

What Can Gold Do for Our Money?

One of the chief virtues of a gold standard is that it serves as a restraint on the growth of money and credit. It makes runaway government deficit spending and major monetary catastrophes such as hyperinflation practically impossible. Opponents of a gold standard can’t defend the political malpractices that are enabled by a fiat currency regime. So instead they spin a narrative about how gold supposedly hampers the economy. According to Keynesian economics, spending boosts the economy while savings contracts it.

Keynesians put the cart before the horse. Savings and investment drive the economic productivity that enable consumers to enjoy a high standard of living. But Keynesians believe the economy only booms when demand is artificially pumped up by debt, government spending programs, and perpetual currency depreciation (inflation) engineered by central bankers.

A gold standard produces deflation, its opponents charge, which incentivizes consumers to save money rather than spend it. Of course, what they call “deflation” is really just price stability. Over time, gold (and gold-backed money) maintains its purchasing power – neither gaining nor losing real value against other raw materials. When the U.S. pursued sound money policies from the post Civil War period into the early 1900s, consumer price levels were virtually flat; yet real economic growth soared. The Great Depression was caused not by gold but by a series of policy blunders from the recently established Federal Reserve.

The claim that people pull back on consumption when their currency retains value is a red herring. The real distinction between sound gold money and inflationary fiat money is that under a sound dollar, individuals (and governments) are less apt to take on large debt loads. The reason why debt is so alluring under an inflationary monetary system is that the real value of an existing debt gets eaten away over time. Inflationary fiat money is a tool for governments, banks, and Wall Street to siphon off greater shares of the economy.

Marc Faber Sees Gold & Trump's Potential

Apple's loss is four times worse than Enron

Apple's (AAPL) market losses have hit epic proportions - explaining why big investors like Warren Buffett and Carl Icahn disagree if the stock is damaged goods - or a steal.

Investors have seen $240 billion in wealth evaporate in their Apple holdings since the stock hit its closing peak on Feb. 23, 2015, says S&P Global Market Intelligence. That's a staggering loss rivaling some of the biggest implosions in stock-market history - even exceeding stock investors' losses on failed energy firm Enron, which many think of as the epitome of a terrible investment.

Investors simply looking at Apple's price, which has fallen 29% from its all-time high to $95 a share, might miss the gravity of the decline given Apple is one of the most widely followed and owned stocks by individuals and professionals alike. When a company once worth more than $700 billion drops this much, it's a massive event that signals how the company is transitioning to different owners with different objectives.

Some hope the big losses in Apple's market value will attract back investors who see it as a value. "Yes, we're in a funk (with Apple stock) but you have to look at it long term," says Anil Doradla, analyst at William Blair. The sheer amount of stock market wealth erased by Apple is staggering.

Trump Sets Sights On Dismantling Dodd Frank

After a fund raising trip to the influential SALT hedge fund conference in Las Vegas nearly a week ago, Republican presidential candidate Donald Trump on Tuesday suddenly has dismantling Dodd Frank financial regulation on his mind.

In the aftermath of the 2008 derivatives crisis – derivatives were a much larger percentage of what caused bank losses than bad consumer loans – the Dodd Frank Act emerged as a method to confront the problem. It wasn’t perfect, as lobbyists hacked and manipulated as much as they could. But what emerged was the toughest regulation of the large banks since and their destructive derivatives. Yesterday, in an interview with Reuters, Trump said he would dismantle nearly all of the legislation if elected president.

On May 5, 2014 hedge fund manager Carl Icahn, like many inside the financial system, were aware of the increasingly destructive nature of noncleared derivatives. Speaking on CNBC nearly two years ago, the man who Trump has cited as an economic thought leader, warned about big bank derivatives that were causation of the last financial crisis.

Fast forward to today and it seems like a different set of people have gained influence over Trump. Nearly six days after his campaign fundraisers went to the SALT hedge fund conference and were reported looking for campaign contributions, Trump has taken the most aggressive stance to date by any presidential candidate on rolling back Dodd Frank while he also flip-flopped on his pledge to audit the U.S. Federal Reserve. “Dodd-Frank is a very negative force, which has developed a very bad name,” Trump told Reuters reporters Steve Holland and Emily Filter, saying he would mostly dismantle the regulation.

Reality Check: U.S. Economy Is Not Ready for Interest Rate Hike

A top Federal Reserve official says there are good arguments for raising rates in June. And, the longer the Federal Reserve delays hiking rates, the more the U.S. economy falls behind. While many think the Federal Reserve needs to start making up ground, the fact of the matter is that the average American can’t afford a rate hike. In fact, any such hike could further cobble the already fragile U.S. economy.

Back in December, Federal Reserve Chair Janet Yellen raised rates for the first time in nearly a decade, by a razor-thin 0.25%. While not a major hike, the increase did show that the Federal Reserve thought the U.S. economy was strong enough to start to stand on its own two feet.

Her optimism was a little premature. A couple weeks later, we entered 2016 and stocks were hammered with their worst start to a year ever. Stocks crashed, gold soared, and investors tightened their belts on fears the U.S. would slip back into a recession.

Here we are, four months later, and interest rates have stayed put. In April, Yellen kept the Fed’s key lending rate unchanged in the range of 0.25% to 0.50%, noting that the U.S. economy had slowed and consumer spending had dried up. This, coupled with a weak global economy, was more than enough reason for Yellen to remain cautious about the U.S. economic recovery. (Source: “Federal Reserve Statement,” Board of Governors of the Federal Reserve System, April 27, 2016.) Not everyone is so downbeat on the U.S. economy though. Jeffrey Lacker, president of the Federal Reserve of Richmond, said recently that there are more than enough compelling reasons for raising rates next month. Plus, a rate hike has been a long time in the making.

Workers’ pay could decline under new overtime rules

Getting paid more for doing more work sounds like a great deal. But new regulations governing overtime work done by salaried employees could end up leaving workers with lower starting salaries and fewer benefits, economists warn.

The White House on Wednesday announced the new rules, which will require employers to pay time-and-a-half for overtime work done by salaried employees making less than $47,476, up from the old threshold of about $23,000. The Department of Labor says the new overtime rules will affect 5 million workers and maintains the changes will lead to higher paychecks.

“This is a step in the right direction to strengthen and secure the middle class by raising Americans’ wages,” President Barack Obama said in an email to supporters.

Obama said the new rules will “put $12 billion more dollars in the pockets of hardworking Americans over the next 10 years.” Not so fast, say some economists. Employers required to pay extra for overtime work will offset those costs in other ways, including lower starting salaries and reduced benefits. “The empirical research on overtime regulations suggests that employers will lower the base salaries to offset the anticipated cost of paying overtime,” said Liya Palagashvili, an assistant professor of economics at SUNY-Purchase College and co-author of a recent study of overtime pay regulations.

Obamacare Insurer Highmark Sues Feds for $223 Million

Insurer Highmark Inc. has filed suit against the federal government, saying it owes the company almost $223 million under the Affordable Care Act program's "risk corridors," which are set in place to limit the risks undertaken by companies taking part in Obamacare marketplaces. "All we're asking is for the federal government to do what they promised," Highmark Health chief executive, David Holmberg, told The Wall Street Journal.

He noted the company filed the lawsuit out of fiduciary responsibility to its policy holders. Highmark is the insurance arm of Highmark Health, a nonprofit based in Pittsburgh, and is a major marketplace provider for three states.

Several other insurance companies have also suffered shortfalls in risk-corridor payments, reports The Wall Street Journal. Ana Gupte, an analyst with Leerink Partners LLC, said that there will other publicly traded companies that could come under "pressure from shareholders to file their own suits."

Highmark Health lost $85 million last year from revenue of about $17.7 billion, with most of the losses coming from its Obamacare business. Last fall, the Department of Health and Human Services announced that insurers would only get 12.6 percent of risk-corridor losses for 2014, when the program began, but Highmark is seeking the full amount it says it has coming, minus $27 million it already has received.

Return Of The Gold Standard? Why Now?

Puerto Rico Transportation Agency Under Emergency State

Puerto Rico's governor on Wednesday again used a state of emergency decree to protect one of the island's struggling public agencies from lawsuits and preserve dwindling liquidity as the U.S. Congress works on a bill to restructure the island's $70 billion public debt.

The order allows Puerto Rico's Highways and Transportation Authority to suspend the transfer of toll revenues to bondholders and imposes a stay on legal claims, Gov. Alejandro Garcia Padilla said. That will allow the government to pay contractors and avoid paralyzing safety and improvement projects, he said.

The agency, which runs and maintains the U.S. territory's highways and bridges, has about $4 billion in debt and faces a $233 million bond payment in July that it expects to make. Garcia said the order does not impose a moratorium on the agency's debt payments, though government agencies have defaulted on an increasing number of multimillion-dollar bond payments.

An analysis released this week by the Center for the New Economy, a Puerto Rico-based think tank, says the island's economy has shrunk 14 percent since 2006, while its population declined 9 percent and total employment dropped nearly 20 percent. Garcia said the transportation agency needs nearly $25 million a month to operate and more than $150 million to pay contractors.

Publisher of LA Times and Chicago Tribune sends IT jobs overseas

Tribune Publishing Co., a major newspaper chain, is laying off as many as 200 IT employees as it shifts work overseas.

The firm, which owns the Los Angeles Times, The Baltimore Sun, Chicago Tribune, Hartford Courant and many other media properties, told IT employees in early April that it's moving work to India-based Tata Consultancy Services.

Interestingly, the Tribune IT employees were notified within weeks of a similar announcement involving IT employees at the McClatchy Company, another major newspaper chain. McClatchy, which owns the Miami Herald, The Sacramento Bee and many other newspapers, is laying off between 120 and 150 IT employees. That company hired Wipro, an IT service provider also based in India.

The impact of these IT outsourcing decision may go beyond the job losses. It could affect coverage of this controversial issue. The Los Angeles Times, in particular, in columns and editorials, was critical of Southern California Edison's offshore outsourcing of IT jobs. The utility hired India-based vendors, including Tata Consultancy Services, and then cut some 500 IT jobs.

Homes planned for Aspen affordable housing complex cost $1.3 million each.

Four single-family homes slated for the Burlingame Ranch affordable-housing complex will be sold at cost, provided they attract qualified buyers, for more than $1.3 million each.

During a work session Tuesday, members of the Aspen City Council agreed to not subsidize the homes that would be built as part of the second phase of the Burlingame development, which is located west of town across Highway 82 from the Buttermilk ski area.

One general contractor placed a bid on the project. The council could have elected to extend the bidding period but determined the estimated cost is reasonable given the current market forces. “The market is incredibly tight, resources are maxed and it’s difficult to get any depth of requests for proposals,” said Jack Wheeler, the city’s capital asset director.

The city has subsidized previous affordable-housing residences, typically for Category 1 through 7 units that are sold to eligible, full-time residents based on their household incomes. But the council decided the four single-family homes would be sold as resident occupied to qualified buyers having no more than $900,000 in assets. The resident occupied program is intended for residents who can’t qualify for Category housing but don’t have the means to buy a home on Aspen’s free-market, where the average price for a single-family home in 2015 was $5.87 million, according to Land Title Guarantee Co.

Rob Kirby-Dollar Going to be Kicked Off its Perch

Retailers Clueless on Why U.S. Consumers Are on Life Support

The U.S. economy is creating jobs at a steady clip and stock prices have stabilized after a rocky start to the year. So why aren't more Americans out in malls and discount stores shopping? Don't put that question to execs at the nation's top retailers, who have generally been at a loss for explanations on why U.S. consumers went into a foxhole in the first quarter, and in the process damaged their sales.

"We have seen a noticeable slowdown post-Easter," Target Chief Financial Officer Cathy Smith said on a call with reporters Wednesday, adding that first-quarter sales were below the company's expectations. Target's CEO Brian Cornell, who was also on the call, blamed the slowdown on unfavorable weather in the Northeast and volatile economic trends.

The Minneapolis-based chain reported first-quarter earnings of $1.29 a share, handily beating estimates of $1.19. Total sales clocked in at $16.2 billion, compared with forecasts for $16.3 billion. Same-store sales increased 1.2%, spurred by strength in the kids, women's apparel and health and wellness departments. Target pointed out it saw a slowdown in the number convenience trips by consumers to its stores toward the end of the quarter, leading it to take a cautious stance on its second-quarter outlook.

Second-quarter sales may drop as much as 2% from the prior year. Earnings should be $1 to $1.20 a share, compared with Wall Street estimates of $1.19. Target's dreary commentary on the health of the U.S. consumer and subdued outlook echoed those made by other retailers recently.

1 in 5 Title Loan Borrowers Forfeit Their Car, Report Finds

About one in five drivers who take out a title loan ultimately have their vehicle seized by the lender, federal regulators said Tuesday when issuing a report on the high-cost, short-term lending practice.

Title loans are similar to payday loans, but are secured by a car or truck, meaning the borrower risks losing her vehicle if she falls behind. More than four out of five borrowers fail to pay off the loan in the initial borrowing period, and two-thirds renew the loan at least seven times, according to the Consumer Financial Protection Bureau. A high percentage of those who renew repeatedly ultimately lose their cars and trucks, the CFPB warned.

Nationwide, the title loan industry is roughly the same size as the payday loan industry, amassing $3.9 billion in fees each year from consumers, according to the Center for Responsible Lending. However, in some states, the title business far exceeds the payday business. In Mississippi, for example, title loans brought lenders $297 million in fees, compared with $230 million for payday loans. In Alabama, title loans totaled $357 million, compared with $125 million. Both states are in the top six for short-term loan fee volume, along with Ohio, California, Illinois and Texas.

The 20% seizure rate is higher than previously reported estimates, such as this one from a team of university researchers and this one from the Mercatus Center, which pegged the rate at about 10%. The median car title loan is about $700, and the average is $959 — larger than payday loans since it’s based on the value of the collateral. The typical annual percentage rate is about 300%, the CFPB says. While the loans are advertised as one-time stopgaps for strapped consumers to pay bills, only 12% of borrowers manage to be “one-and-done – paying back their loan, fees and interest with a single payment without quickly reborrowing,” the CFPB said.

More than 25,000 Madoff victims now eligible for $4 billion fund

The overseer of a $4 billion U.S. Department of Justice fund for victims of Bernard Madoff's Ponzi scheme said he expected to recommend payouts for at least 25,280 claimants with nearly $4 billion in fraud losses.

Richard Breeden, special master of the Madoff Victim Fund, said in an update on his website this week that his office was "substantially" finished with the initial claims review process, having analyzed 63,580 claims covering $67.8 billion of alleged losses.

While there is no timetable for payouts, the announcement suggests that many Madoff victims may soon see the end of their 7-1/2-year wait to recoup at least some losses. Madoff's fraud was uncovered in December 2008. The swindler, now 78, pleaded guilty three months later, and is serving a 150-year prison term for running what federal prosecutors called a $64.8 billion Ponzi scheme.

"It sounds like it is good news for claimants," said Daniel Krasner, a partner at Wolf Haldenstein Adler Freeman & Herz in New York, whose clients have submitted dozens of claims to Breeden. "They could end up with a significant portion of their claims." Payouts would be separate from those being made by Irving Picard, a court-appointed trustee liquidating Bernard L. Madoff Investment Securities LLC, to the swindler's former customers.

Immigration is a key issue in Brexit debate

Housing experts fear impact of Trump, Sanders presidency

Come November, some percentage of the U.S. population will choose the next president of this country. Who wins the election is still a big mystery and what happens after that is an even larger mystery.

Regardless of who wins, whether its presumptive Republican nominee Donald Trump, former Secretary of State Hillary Clinton, or Sen. Bernie Sanders, I-VT, the next president will have an impact on housing.

But just what kind of impact? If the American people choose President Trump or President Sanders, the impact on housing would be decidedly negative, according to survey results released Wednesday by Zillow.

In an effort to determine the potential impact of each of the presidential challengers, Zillow surveyed more than 100 housing experts about their expectations for the housing market, and specifically about how each presidential candidate would impact the housing economy. The experts were asked for their view on the impact each candidate would have on home values, housing finance reform, and the overall economy. Both Sanders and Trump do not fare well in the experts’ eyes.

The Death of the Great American Sporting Goods Store

"Sports apparel was really cool," the 23-year-old Columbia University graduate student recalls. "We wore sweats, track pants, you name it. We even had a phase where everyone was wearing these white spandex Under Armour shorts underneath our regular shorts. My dad was our soccer coach, and he had coach coupons to Sports Authority, so I loved shopping there. For training, both on and off the field, we subscribed to the idea of ‘look good, feel good, play good,' and we were always buying things for the new season."

These days, when she's looking for workout gear and sporty clothes, Hermina finds herself at brand stores. "I'm a big Nike person now," she says. "Sports Authority always had older styles, and its prices are more or less the same as a Nike outlet, so I'm more likely to shop where I have more options from the brand."

Hermina isn't the only once-devoted shopper eschewing her favorite childhood store in favor of other options, judging by Sports Authority's current status. In early March, the 29-year-old sporting goods retailer revealed it has almost $1.1 billion in debt and filed for Chapter 11 bankruptcy protection. Citing "the changing dynamics in the retail industry," CEO Michael Foss announced the company would close 140 locations — a third of the company's 450 stores — as well as two distribution centers. He said the company would use its new status to "streamline and strengthen our business both operationally and financially."

Three weeks ago, though, Sports Authority decided to liquidate instead of restructure; a spokesperson told Racked it was "pursuing a sale of some or all of the business." On Monday, the sports giant began auctioning off its assets. The winning bid belonged to a trio of liquidators (Hilco Global, Gordon Brothers, and Tiger Capital Group; Tiger Capital is also liquidating 41 Aéropostale stores in Canada), which will operate the company's going-out-of-business sales at all of its locations. Sports Authority isn't alone. Last month, Vestis Retail Group, the parent company of Eastern Mountain Sports, Bob's Stores, and Sport Chalet, filed for bankruptcy. With $500 million in liabilities, the company plans to close 56 stores, including all 47 Sport Chalet locations. Six months ago, the East Coast-based City Sports filed for bankruptcy and closed eight of its 26 stores. Although City Sports is currently being revived by Brent and Blake Sonnek-Schmelz, brothers who own the Soccer Post retail chain, Brent recently admitted to the Philadelphia Inquirer that the sporting goods industry "is in a state of upheaval."

Thursday 05.19.2016

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