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Wednesday 04.20.2016

Intel announces 12,000 job cuts in global restructuring initiative

Intel will cut up to 12,000 jobs globally by mid-2017, the company announced on Tuesday, equivalent to about 11% of the company’s staff. Employees found out about the initiative when they received an email from the company’s chief executive Brian Krzanich.

“Our results over the last year demonstrate a strategy that is working and a solid foundation for growth. The opportunity now is to accelerate this momentum and build on our strengths,” Krzanich wrote. “These actions drive long-term change to further establish Intel as the leader for the smart, connected world. I am confident that we’ll emerge as a more productive company with broader reach and sharper execution.”

The reduction will be a combination of voluntary and involuntary departures. Affected employees will be informed over the next 60 days. According to Intel, at the end of 2015, it had about 112,000 employees after it completed acquisition of Altera, which was to be part of Intel’s programmable solutions group.

All reductions are expected to be completed by mid-2017 and are expected deliver $1.4bn in savings by that time. The reduction in staff was announced at the same time as the company reported first-quarter revenue of $13.7bn. Earning for the first quarter came in at 42 cents a share, below the analysts expectations of 48 cents a share.

Goldman Sachs sees 'upside risk' for US economy

Remember last year when China devalued its currency and the market went nuts? Well, so much for that.

The subsequent tightening in financial conditions that came with the bold currency move has vanished, according to Goldman Sachs. The bank said its proprietary Financial Conditions Index has returned to its August 2015 level, providing a bright spot in an economy that otherwise has been lackluster.

"Each of the key components (in the index) — long rates, the dollar, equity prices and credit spreads — has retraced most or all of its prior deterioration," Goldman economists Jan Hatzius and Chris Mischaikow said in a note to clients. "The implications for U.S. growth are quite positive."

At a time when markets have been prone to quick shifts, banking on a longer-term prospects is risky. Goldman, though, sees reason for optimism. "We think financial conditions have turned from a significant downside risk to our growth forecast in early 2016 to a moderate upside risk at present," Hatzius and Mischaikow said. Whereas the tightening conditions were subtracting a full percentage point from Goldman's U.S. gross domestic product outlook, the change could add a half to a full percentage point.

Economy Is Much Weaker Than Believed While The Stock Market Ignores Fundamentals

There has been a significant amount of discussion by both politicians and the financial media about the strength of the United States' economy and about how much it has improved since the end of the Great Recession. However, a much closer look reveals that the true conditions are nowhere near as bright as we are being led to believe and in fact many indications show that the United States is on the verge of a recession if it is not already in one. As a result, the stock market as a whole may be considerably overvalued currently and may be on the verge of a decline.

One of the most accurate, if widely ignored, measures of economic strength is factory orders. This makes sense. After all, in a strong economy, businesses will seek to expand their operations in order to increase their profits. In many cases, they will require the use of manufactured goods in order to do that. However, they have not been doing that. In fact, factory orders have declined for the past 16 months when measured on a year-over-year basis.

It is worth noting that this has not happened in the past 60 years unless the United States has been in a recession. Admittedly, at least one reason why factory orders are down is the decrease in the price of energy. This is due to the highly capital-intensive nature of the energy industry. The extraction of oil and gas from the ground, especially unconventional oil and gas, requires highly sophisticated machinery along with the manufactured infrastructure to transport that oil and gas. In addition, the broader decline in commodity prices has weakened the mining sector, another capital-intensive industry. As a significant proportion of the equipment used by these industries is manufactured domestically, the weakness in these industries has adversely affected the manufacturing sector as companies in the energy and mining sectors have reduced their demand for equipment.

Numerous commentators have been stating that the strength of the jobs market is a sign that the economy is quite strong. However, there are numerous signs that the jobs market is nowhere near as strong as we are being led to believe. As of the time of writing, the official unemployment rate is 5.0%. However, the method used to calculate this rate is flawed. This is because the official unemployment rate excludes "discouraged workers," or those individuals who want to work but are not actively seeking employment for whatever reason.

Dissecting Wall Street's upward momentum

Goldman posts weakest results in four years, revenue tumbles 40 percent

Goldman Sachs Group Inc reported the worst quarterly results in more than four years on Tuesday as volatile markets kept clients from trading, investing or issuing new securities. Goldman's report wrapped up a dismal quarter for big U.S. banks. The previous day, its most comparable rival, Morgan Stanley, also said its profit fell by more than one-half due to tough markets.

Goldman's first-quarter revenues tumbled 40 percent, hit by sliding commodity prices, worries about the Chinese economy and uncertainty about U.S. interest rates. Profit fell even more sharply, emphasizing Goldman's reliance on the capital markets business, particularly bond trading which can be volatile.

Analysts peppered Chief Financial Officer Harvey Schwartz with questions about Goldman's commitment to bond trading as well as its unusually low returns during the quarter, and his outlook for the rest of the year.

"I certainly would not sit here and tell you we were happy about this quarter," he said. "But we will do what it takes over time to make sure that we deliver for our clients and maximize the returns for shareholders." Goldman executives have repeatedly said they believe difficulties in trading are short term and that the business will come back. But as Wall Street approaches its sixth year of weak volumes and unexpected price swings that are hurting results, some investors are wondering how long the pain will last.

Are out-of-pocket medical costs too high?

Many health-insurance premiums rose again this year, sometimes by double digits. A lot of the increases were accompanied by higher deductibles as well. Insurers say the increases are justified because their costs have risen as more people with health problems have signed up for insurance in the wake of the Affordable Care Act.

Some policy experts see the higher out-of-pocket costs as a positive development. When patients have a bigger stake in the cost of their care, the argument goes, they can drive prices down by spurning providers and services that are overpriced and inefficient.

Others argue, however, that it’s unfair to put the responsibility for reducing health costs on patients — particularly those with lower incomes, for whom quality health care is increasingly out of reach. Lynn Quincy, associate director of health policy at Consumers Union, the policy and advocacy arm of Consumer Reports, says consumers bear too much of the cost of health care. Grace-Marie Turner argues that when consumers assume more out-of-pocket costs of health insurance, it can help bring down costs overall. Turner is president of the Galen Institute, a nonprofit research organization focusing on free-market ideas for health care.

We all deserve the health care we need at the right time, and from the right provider. But for many Americans, this basic right is out of reach because of high out-of-pocket medical costs. Myriad studies show that lower- and middle-income consumers are struggling to afford health care. It’s no wonder that affording health care is a top concern for Americans. About 23% of Americans ages 19 to 64 were considered underinsured in 2014 because of high deductibles, according to a survey by the New York-based health-policy research group the Commonwealth Fund.

Why Are So Many Sporting Goods Stores Going Bankrupt?

196. That’s the number of sporting goods stores that are set to close after two retail companies filed for bankruptcy in recent weeks. While the failures of Vestis Retail Group — the operator of retailers Eastern Mountain Sports, Sport Chalet, and Bob’s — and Sports Authority were accelerated by mountains of debt both incurred in recent years, there’s more at work when it comes to the apparent demise of sporting goods retailers.

While retailers like Dick’s Sporting Goods and REI seem to be riding the top of the sporting good hierarchy with billions of dollars in sales each year, other retailers like Sports Authority and Sport Chalet are being pushed out of what has become a more saturated market.

Analysts say that several factors have played into the success of some retailers and the faltering sales — and eventual closures — of others. For starters, financial health plays a large role in the viability of retailers. Both Sports Authority, which is closing 140 stores, and Sport Chalet, which is closing all 48 stores, were burdened with unsurmountable debt after being purchased by other firms, the Los Angeles Times reports.

Rather than go further into debt — in the hope of seeing a long-term turnaround — by investing in improvements to their outdated business models, these stores seem to have focused primarily on cutting costs to reduce red ink. “If a retailer’s got a lot of debt, it means they’re not spending money on stores, they’re not spending money on systems, they’re not spending money on the kinds of things they need to do to drive the business forward,” Matt Powell, an industry analyst at market research firm NPD Group, tells the L.A. Times.

UC Berkeley Forced to Cut 500 Jobs After $15 Minimum Wage Hike

The $15 minimum wage hike in California has sent financially troubled UC Berkeley into decision making mode, and "the people who clean buildings, who work in food services or health clinics,” says Todd Stenhouse, will be the ones without a job.

Stenhouse, a spokesman for the American Federation of StateChancellor, also said “There’s a very clear need for those front-line services. But the question is whether there really is a need to hemorrhage resources on executives.”

Nicholas Dirks sent a memo to employees Monday informing them of the job reductions and said they will amount to “a modest reduction of 6 percent of our staff workforce.”

Berkeley employs about 8,500 staffers, from custodians to administrators. Departments on campus were reportedly also told to reduce their budgets by 10 percent in whatever way they wish.

Keiser Report: Systemic Nature of Corruption

Chinese Economy: Back To The Future

In a bid to revive its flagging economy, China has gone back to its old ways, with rapid credit growth sparking a pick-up in the “old economy” sectors of construction, housing and manufacturing. However, keeping the good times rolling by delaying reforms could yet bring bigger problems for the world’s second-largest economy, according to analysts.

On Friday, Asia’s economic heavyweight reported a 6.7 percent increase in gross domestic product (GDP) in the first quarter compared to a year earlier. Despite being its slowest expansion in seven years, the rise was in line with economists’ median projections and in range of the government’s stated target of 6.5 percent to 7 percent GDP growth for the full year.

Industrial production expanded by 6.8 percent, retail sales by 10.5 percent and fixed asset investment by 10.7 percent, all exceeding the previous quarter’s results and beating analysts’ forecasts in what economists described as a “stabilization of the old economy.” The housing market has responded accordingly, with property sales up 54 percent by value in the first quarter and investment rising by 6.2 percent. The GDP data also followed stronger-than-expected trade data released earlier in the week, with exports rising by nearly 19 percent in March compared to the previous quarter’s 20 percent fall, while imports improved from an 8 percent drop in February to only a 1.7 percent decline in March.

“The economy has stabilized thanks to a flood of liquidity and improved sentiment in the property market,” Credit Suisse economist Tao Dong told Bloomberg News. “It is not clear whether the momentum is sustainable. So far, the government seems to be the solo singer. It is critical to re-engage private investment.”

Deutsche Bank Settles Lawsuit for Price Rigging, Turns “State’s Evidence” on Other Banks

Prior to last week, Deutsche Bank made headlines for a string of huge losses and massive exposure to risky derivatives. The last time the firm’s shares traded at prices this low, the world was in the midst of 2008’s financial apocalypse.

Deutsche Bank didn’t need more bad news, but a group of investors who brought suit against the massive German bank for cheating them by rigging the London “fix” price for gold and silver certainly must be smiling. Last week, the bank offered to settle their class action suit for an undisclosed amount.

Perhaps more importantly, DB promises to provide evidence to help the plaintiffs in their suit against the other banks who participated in manipulating the fix: Bank of Nova Scotia, Barclays, HSBC and SocGen. In a letter to U.S. District Court Judge Valerie Caproni, the plaintiff’s attorney said, “In addition to valuable monetary consideration, Deutsche Bank has also agreed to provide cooperation to the Plaintiffs, including the production of instant messages and other electronic communications, as part of the settlement.”

If the information DB provides is incriminating, as the plaintiff’s expect, it won’t be the only recent example of bankers getting caught talking smugly amongst themselves about swindling investors and clients. A year ago Citigroup, JPMorgan Chase, Barclays, and RBS pled guilty to criminally rigging the foreign exchange markets following the leak of some embarrassing communiques.

The US really might stop producing pennies

It’s getting serious. The Wall Street Journal’s Nick Timiraos reports that in a March 2015 memo to US president Barack Obama, Treasury Secretary Jacob Lew said he planned to suspend production of the venerable penny.

While the existence of the memo had not been disclosed previously, the idea of ditching the one-cent piece has been a perennial debate for a few decades now. Among the arguments for: Pennies fall out of circulation almost immediately, forcing the US mint to continually stamp out more, and they cost almost twice as much to produce as they’re worth, according to the most recent data from the US mint.

But unless you’re a card-carrying member of the US zinc lobby—pennies have been 97.5% zinc since 1982—Lew’s proposal shouldn’t be a big deal to you.

Study finds People over 40 are way more productive when they work part-time

Researchers have backed the popular belief that working less could be better for your brain. New research from the University of Melbourne has found working part-time for about 25 to 30 hours a week had a positive impact on the cognitive function for Australians aged over 40.

But for those working more than three days a week, research found stress and fatigue could erase those positive impacts.

The study analysed the work habits and brain-testing results of 3,000 men and 3,500 women over the age of 40 in Australia. Specifically, the participants' results in three different cognitive skill areas were tested, which included a memory score test, a reading test and a perceptive ability test.

"In all three cases [tests] it was found around 25-30 hours of work per week will maximise your cognitive skill," said Professor Colin McKenzie at Keio University who took part in the study. "And going for less hours or more hours reduces your cognitive skills."

Ingalls Shipbuilding to receive $45 million from state taxpayers

One of the nation’s biggest shipyards is about to get another handout from Mississippi taxpayers, paid for with borrowed money. Ingalls Shipbuilding, a subsidiary of Huntington Ingalls Industries, will receive $45 million this year from taxpayers if Gov. Phil Bryant signs House Bill 1729 into law.

The conference report on the bond measure, approved by the legislature Monday night, includes money for the shipyard, capital improvement projects at the state’s universities and other projects.

The bill sailed through, passing the Senate 46-6 and the House 108-9. During debate, state Sen. Chris McDaniel (R-Ellisville) blasted the measure. He said the state is about $4.4 billion in debt, and makes annual interest and principle payments of about $484 million. The new borrowing would bump that figure to $500 million.

He said that amount could have funded the difference between what the Mississippi Adequate Education Program funding formula requires for K-12 education and what the legislature appropriates (which is usually less) for two years. “We’re borrowing $45 million to give to a Fortune 500 company,” McDaniel said. Huntington Ingalls was ranked 390th in the annual Fortune 500 in 2015, an annual ranking by Fortune magazine of company revenues.

Are we doomed to be trapped in a bubble economy?

Growth expectations for 2016 are falling. The International Monetary Fund cut its forecast to 3.2 per cent from 3.4 per cent, and the World Bank to 2.5 per cent from 2.9 per cent. The global economic elite are again advocating more stimulus. Negative interest rates are being marketed as the new medicine.

Since 2008, quantitative easing has been sold as a cure for reviving growth. It has led to a gigantic debt bubble in commodities and emerging markets. Their bursting is triggering the current downturn. And the fallout will weigh on the world for years to come. Considering the steep costs of the market bubble, whatever growth it generated before was not worth it.

Before 2008, holding interest rates low in the name of inflation targeting led to a credit bubble in the US and Europe. Today, there is enough evidence to demonstrate that an activist monetary policy for targeting growth or inflation does more harm than good. It is astonishing that the same economic elite continue to advocate the same thing after all these years.

It appears that the world needs a political revolution to change the people at the top. Without wholesale personnel changes, the world will continue on its slippery slope of stagnation, rising inequality and more financial crises. Activist monetary policy was used aggressively in the 1970s to revive growth against the headwinds of surging oil prices. It led to stagflation. The experiment discredited the efficacy of activist monetary policy and paved way for the rise of Paul Volcker. He vanquished inflation by holding interest rates high enough to restore the US Federal Reserve’s credibility in fighting inflation.

Report Shows Mexico’s IT Sector "talent pool is enormous" and Growing Rapidly

Mexico’s IT outsourcing industry will buck the regional economic headwinds and grow at a rapid pace in the months and years to come, according to Nearshore Americas’ latest report. The study, titled “Mexico: Nearshore Leadership Amid Shifting Realities,” discusses the sector’s massive real-world potential during the transformation currently taking place in the global market.

The report answers why international business leaders favor the country despite negative portrayals of Mexico by international media outlets. It cites the nation’s large population and highly skilled professionals as one key draw.

“Mexico’s talent pool is enormous,” said Sean Goforth, director of research at Nearshore Americas. “Mexico’s universities regularly graduate more than 100,000 engineers each year. And that talent spreads out across the country, a key differentiator for Mexico. The depth of talent across Mexico City, Guadalajara, and Monterrey — as well as smaller cities like Mérida, Tijuana, and Aguascalientes — gives plenty of options for sourcing talent.”

Mexico shares a border and time zones with the United States. More important still, it has business and cultural affinity with its northern neighbor. Today, given technological changes like the shift towards Agile software development, these factors are more important than ever, says the report.

Desperately seeking workers: The looming job crunch

Students are frequently exhorted to study programming and computer science to find a high-paying job, but it turns out that the most in-demand careers might be elsewhere. The U.S. is facing a pending labor shortage in the next two decades, but the occupations that will need workers the most aren't many so-called STEM subjects (science, technology, engineering and mathematics), according to a new study from the corporate-research organization the Conference Board. That's partly due to demographics, while the nature of tech jobs is also to blame, given that they're easy to outsource to other countries.

While it may be hard to believe that the country is facing a labor shortage given the difficulty many workers are still facing in finding work, demographic shifts over the next several years will tip the scales. Millions of Baby Boomers are retiring each year, and while millennial generation is slightly larger than the Boomer group, they've largely already entered the labor market. The next age group, Generation Z, is smaller than the millennials.

"When it's a tight labor market, all workers benefit to some degree," said Gad Levanon, the chief economist, North America, for the Conference Board. Wages, for instance, tend to rise, and discouraged workers are more likely to reenter the labor market.

Because of the demographic shifts, the native population of the U.S. will be virtually unchanged over the next 15 years, the report noted. At the same time, employers will be looking to fill more jobs than there are workers, although not every profession will face labor shortages. The industries facing the most dire shortages include the health-care industry -- thanks to the aging U.S. population -- and skilled trade labor. The good news for American workers is that some jobs in these industries don't require a bachelor's degree, although many require post-high school training and licensing, such as electricians.

UnitedHealthcare to exit most Obamacare exchanges

UnitedHealthcare, the biggest health insurer in the United States, said Tuesday that it plans to exit most of the Affordable Care Act state exchanges where it currently operates by 2017.

The health insurer had already indicated that it was dropping coverage of the plans, more commonly known as Obamacare, in Arkansas, Georgia and Michigan. But during a conference call with analysts Tuesday, CEO Stephen Hemsley noted that "next year we will remain in only a handful of states."

Hemsley explained that UnitedHealth will leave most states by 2017 because the markets for these exchanges are relatively small and also have higher risks for the company over the short-term. As such, he said UnitedHealth (UNH) could not serve these exchanges on an "effective and sustained basis."

It shouldn't come as a huge surprise. UnitedHealth had previously said that it lost $475 million on the ACA exchanges last year and could lose another $500 million this year. But Hemsley said that the company will "continue to remain an advocate for more stable and sustainable approaches to serving this market and those who rely on it for their care."

Katie Pavlich Explains The Reasons Why No One Trusts The Media

Low Income Living: Can You Really Survive on $20,000 a Year?

As the discussion about minimum wage continues and evolves, the topic of how much money Americans actually need to survive also rises to the surface. California recently signed a law that will raise the minimum wage to $15 statewide by 2022, with Governor Jerry Brown saying it would bring about “economic justice” for people on the lowest rungs of the pay scale. Several presidential candidates have also said they would consider raising the national wage, and about 87% of Americans say they’re in favor of raising the national $7.25 minimum wage.

One person working full-time hours earning the federal minimum wage will earn about $21,008 in gross income (before taxes are taken out). But the question of whether $20,000 is enough to survive depends on a lot of factors. No family or living situation is the same, and it would be foolish to assume that $20,000 of income per year is the same for one person as it is for another. Still, there are some similar challenges for people who live on this level of income. According to the Federal Reserve, even an income up to $40,000 can be a challenge. “Among respondents in households making less than $40,000 per year, 53 percent indicate that they are either finding it difficult to get by or are just getting by,” the Fed notes in its Report on the Economic Well-Being of U.S. Households in 2014.

The short answer to surviving on $20,000 a year: It can be done. But there are often steep financial consequences and setbacks, and overall well-being definitely relies on individual family characteristics. Who lives on $20,000 per year? We know you can survive on an income of $20,000 per year, because a significant portion of Americans are already doing it. According to the Social Security Administration, about 38% of wage earners — or about 60.2 million Americans — earned $20,000 or less in net compensation in 2014 (money that actually goes into their pockets). About 14% of Americans are currently living below the poverty line, according to a report from The Atlantic.

Poverty, as defined by the government, takes into account income and the number of people in the household. At around $20,000, families of three or larger are considered impoverished. (The poverty level is $11,880 for one person and $16,020 for two people.) People living on $20,000 a year or less can make ends meet, but they spend a much larger portion of their income to do so. According to the U.S. Department of Agriculture, the lowest-income families in America spent 34% of their income on food in 2014, compared to the middle-income families who spent 13.4% of their income on food. That’s despite the fact that low-income families spent significantly less on food than the middle-income families in the first place — more than $2,300 less.

Why Don’t Americans Save More Money?

It is a myth that Americans cannot save. For decades, they did. When personal-finance columnists explain America’s poor saving habits, they sometimes start with the aspects of the human mind that make it challenging to plan for the future. Behavioral psychology is a useful scapegoat for many foibles. But the decline in savings is recent, and the human brain hasn’t evolved since the Ford administration. The bottom 90 percent of households saved 10 percent of their income in the first Reagan administration. By 2006, their savings rate was nearly negative-10 percent.

Other writers suggest that the country’s low saving rate is purely a matter of American exceptionalism. But it is also a myth that the U.S. is alone in its turn against saving in the last three decades. The personal savings rate has fallen in Canada, Germany, and Japan, as well.

Still, there is something about the U.S.: Nearly half of Americans would not be able to come up with $400 in savings in an emergency, according to a Federal Reserve study cited in The Atlantic's cover story this month.

America’s poor and its middle class live on the razor’s edge of financial security through their working years and are uniquely ill-prepared for retirement. The United States finished 19th for three consecutive years in a global analysis of retirement security, behind Australia, New Zealand, Japan, South Korea, Canada, and 13 European countries.

Wednesday 04.20.2016

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