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Tuesday 06.21.2016

Amid uneven economic growth, Fed's Yellen says cautious approach still appropriate

Global risks and a U.S. hiring slowdown warrant a cautious approach to raising interest rates as the Federal Reserve looks for confirmation that the country's economic recovery remains on track, Fed Chair Janet Yellen said on Tuesday.

In prepared testimony before the Senate Banking Committee, Yellen outlined how the central bank was thrown off course within weeks of raising rates last December by a slowdown in domestic growth and international events, including concerns over China's economy and a further collapse in oil prices.

Some of those clouds remain, Yellen said in comments that seemed to signal no pressing need for the Fed to raise rates.

Before a further tightening of monetary policy, she said, the Fed needs to be sure U.S. economic growth and hiring have rebounded and there is no shock from the outcome of Britain's June 23 vote on whether to leave the European Union. "The pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach ... remains appropriate," Yellen said.

Fed’s Kashkari says effort to end too-big-to-fail banks has not succeeded

Minneapolis Fed President Neel Kashkari on Monday said he sees “broad agreement” that current efforts by the White House and Congress to end too-big-to-fail banks has been unsuccessful.

In a speech in Washington, Kashkari said he has found “broad agreement” that massive structural changes in the financial system and among large banks are needed.

At the beginning of the year, Kashkari said he didn’t think the Dodd Frank bank reform law had gone far enough to solve the “too big to fail” issue and that he would explore the issue and release an action plan by the end of the year.

Since he launched his campaign, “not surprisingly we have received significant criticism from big banks and their lobbyists who would like to discredit this important initiative,” Kashari said in a speech at the start of his third seminar on the issue. “But one of the main takeaways from our symposiums was the relatively broad agreement with some of the central parts of our effort,” Kashkari said.

In the shadow of a murder, Britain to vote on EU membership

Britons will shape the future of the United Kingdom and Europe on Thursday when they decide whether to stay in the European Union following a campaign that has shown the potency of anti-establishment feeling in the West.

The vote comes a week after the murder of a lawmaker in the street left many voters wondering whether the campaign rhetoric on both sides - warnings of economic disaster versus uncontrolled immigration - had gone too far in a country considered a paragon of stability.

Whatever the outcome, the referendum could force the EU to rethink how it governs 500 million citizens and - along with the rise of Donald Trump in the United States - have far-reaching implications for the future configuration of the West.

Allies such as U.S. President Barack Obama and German Chancellor Angela Merkel have implored Britain to stay in the bloc, which they say has given Europe decades of prosperity after centuries of bloodshed. Investors, chief executives and central bankers are bracing for what could be one of the most volatile events for financial markets since, at least, the 2008 collapse of Lehman Brothers.

Goldman Sachs: China's 7-year debt boom is one of the biggest and fastest in history

The rapid buildup of Chinese debt between 2008 and 2015 was nothing short of historic.

In that time, the country's debt-to-GDP level nearly doubled from 154% to 249%. That "ranks in the 98th percentile of debt buildups in modern history," according to a note from Andrew Tilton and Jonathan Sequiera at Goldman Sachs, published on Monday.

There are few comparable examples outside of war time. Goldman Sachs, adjusting for the sheer size of China's economy said there were parallels with "Japan in the first decade of the 1900s during and after the Russo-Japanese War, Canada and several European countries during and after World War I, and the United States during and after World War II."

When it comes to the nominal amount of debt added, coupled with the sheer size of China's economy, there really is no precedent since 1960, according to Goldman Sachs, which calls the buildup an "outlier in the historical record."

Gold To Breakout Higher As Brexit Still Likely

Why America’s men aren’t working

The national unemployment rate has fallen by more than half since the nation emerged from the worst economic crisis since the Great Depression. It peaked at 10 percent in 2010 and stood at just 4.7 percent last month.

That’s mostly good news: Private employers have added more than 14 million jobs. About 2 million people have been out of a job for six months or longer, far too many but only about a quarter of the number of long-term unemployed people seven years ago. By almost every measure, the labor market has made incredible progress.

But there’s one statistic that has been vexing economists. The size of the nation’s workforce -- known as the labor force participation rate -- continues to fall. Since the start of the downturn, the percentage of that population that has a job or is looking for one has dropped more than 3 percentage points, to 62.6 percent, a level not seen since the 1970s.

The problem is particularly pronounced among men between the ages of 25 and 54, traditionally considered the prime working years. Their participation rate has been declining for decades, but the drop-off accelerated during the recession. The high mark was 98 percent in 1954, and it now stands at 88 percent. A new analysis from the White House’s Council of Economic Advisers, slated for release Monday, found that the United States now has the third-lowest participation rate for “prime-age men” among the world’s developed countries. In other words, Greece, Slovenia and Turkey have a larger share of men in their workforces than the United States does. The United States beats only Italy and Israel.

Report: Struggling Neiman Marcus Sniffing Around For A Buyer

It looks like peddling $425,000 Oscars-themed luxury packages isn’t doing much for Neiman Marcus’ bottom line: a new report says the luxury department store company, which also owns Bergdorf Goodman, is looking around for potential buyers or an investor with deep pockets, to help it get out from a $5 billion debt load.

Neiman Marcus, like other retailers, has been struggling to attract customers to its brick-and-mortar stores in the face of online competitors like Amazon. Then there’s that $5 billion debt hanging over its head and sluggish sales to boot, prompting Chief Executive Karen Katz to travel to China to meet with potential buyers, according to a source who spoke to the New York Post about the situation.

Katz reportedly met with folks from Anbang Insurance Group, also known as the company who tried (and failed) to buy Starwood Hotels & Resorts a few months back, and paid $1.96 billion to buy the Waldorf Astoria Hotel in New York City. Anbang passed on buying the company, the source told the NYP.

Making matters worse in a retail environment that’s already posing problems for many companies, Neiman has a slew of stores in Texas, where a sharp drop in oil prices has perhaps kept wealthy customers from shopping.

A storm is brewing in the real-estate market, Pimco warns

Pacific Investment Management Co. is pointing to gathering clouds in the roughly $3 trillion commercial real-estate market. “…[A] confluence of factors—volatility in public markets, tightened regulations, maturing loans and uncertain foreign capital flows—is creating a blast of volatility for U.S. commercial real estate,” said Pimco’s John Murray, in a report jointly written with Anthony Clarke.

That volatility could lead to prices falling by as much as 5% in the coming year for so-called commercial mortgage-backed securities associated with the financing of properties, including shopping malls, apartment complexes and office buildings, according to Pimco’s “U.S. Real Estate: A Storm Is Brewing.

Since the financial crisis, commercial mortgage-bond prices, which got whacked along with a broad swath of complex mortgage-related debt during the 2008 housing-market implosion, have recovered. Pimco attributes improvements in performance to demand for commercial bonds and warns that appetite is likely to peter out in coming months.

“Capital flows have grown unstable over the past year due to fears over interest rate hikes and, more recently, events such as political and economic uncertainty in China,” Murray wrote. “While this instability began in the public CRE markets, it has blown in to private CRE as well, particularly in non-major markets.” Hundreds of billions of commercial bonds originated 10-years ago are set to mature over the next three years and appetite for higher-yields than CMBS offers is putting pressure on borrowers’ ability to obtain fresh financing and that’s pressuring bond prices.

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.

Rajan’s RBI reign comes to an end

Obama takes turn as 'America's pitch man' to help sell TPP trade deal

President Barack Obama made a plug on Monday for the Trans-Pacific Partnership trade deal to a group of 2,400 investors looking at locating business in the United States, saying the deal would help boost the global economy.

Trade has become a hot-button issue in the Nov. 8 presidential election campaign, with presumptive candidates from both parties voicing objections to the 12-nation TPP deal that Obama wants the U.S. Congress to sign off on before his time in office ends on Jan. 20.

Both the Republican and Democratic presidential campaigns have tapped into populist skepticism about the benefit of trade deals on jobs and wages, particularly in the manufacturing sector.

Obama tried to dispel the economic gloom-and-doom coming from the campaign trail, extolling the recovery of the United States from recession. "I don't mind being America's pitch man," Obama said in a speech at the SelectUSA Summit. "In seven months or so, I'll be on the job market, and I'm glad I'm going to be here. I'm going to get on LinkedIn and see what comes up," he quipped.

Walmart buys stake in Chinese online retailer

Walmart is taking a big stake in a prominent Chinese e-commerce company. But it's not Alibaba. The Arkansas-based retail giant said Monday it will buy about 5% of Alibaba rival JD.com -- an investment worth about $1.5 billion. JD is the second-largest retailer in China.

Shares of JD (JD) were up more than 8% before they were halted ahead of the official news announcement. (The Wall Street Journal originally reported about the deal earlier Monday morning.) The stock was still up around 6% once it resumed trading.

Walmart's stock was up a bit too Monday, but it was lagging the broader market's larger gains. That may be because the news could be viewed as a sign that Walmart is sort of throwing in the towel on China.

As part of the deal, Walmart is also selling its own Chinese e-commerce site -- Yihaodian -- to JD. Walmart (WMT) said that it will continue to sell goods on Yihaodian and that it will work closely with JD on ways to grow the Yihaodian brand. Walmart will also set up a flagship store for its Sam's Club China warehouse unit on JD's marketplace.

Gold Reserves a Key Strategy Again

Up until the second half of the 20th century, the most important factor that determined the strength of a country’s monetary system was how much precious metal it could stockpile in the form of gold reserves. To some economists, this regime was decried as simplistic, inflexible—even “barbarous.” Nonetheless, such a system that relied upon a gold standard worked remarkably well in terms of maintaining order and stability across the international landscape.

Now, in the face of unprecedented uncertainty and economic fragility, nations are once again building up their gold reserves in order to insulate themselves from another potential global financial meltdown.

It’s not a fluke that the greatest period of economic growth in human history (i.e. the postwar years that followed WWII) occurred under a de facto gold standard known as the Bretton Woods system. One of the clear-cut reasons that the U.S. economy thrived during this period—aside from a giant labor pool, vast natural resources, and a culture of innovation and an entrepreneurial spirit—was because it held virtually all of the world’s gold when the dust settled. This strategic gold was the bedrock that made the dollar the world’s reserve currency. Likewise, it’s no accident that economic stagnation has been the norm ever since this arrangement was abandoned by President Nixon is the early 1970s.

When a country’s money supply is not backed up by anything other than fiat (government decree), the public confidence and purchasing power of that currency erodes over time. This has been proven repeatedly throughout human history with a 100% rate of success (or failure, depending on how you look at it).

Russia May Sell Stakes in Oil Giant Rosneft to China, India

Foreigners Gather in Droves at Border to Illegally Enter U.S.

Illegal immigrants from Central American countries continue to arrive to the Mexican border city of Reynosa. Their hope is to be smuggled illegally into the U.S. by the leading criminal organization in the region known as the Gulf Cartel.

Mexican authorities caught a group of 17 Central American individuals inside a house in the border city of Reynosa last week. Police responded to an anonymous tip of kidnapped individuals at a human stash house in the Valadeces neighborhood, information provided to Breitbart Texas by the Tamaulipas government revealed.

A task force of state and federal law enforcement officials responded to the house and found 11 individuals from El Salvador and six from Guatemala. Four of the individuals were under 18-years-of age. Once in custody of law enforcement, the group told authorities that they had not been kidnapped. The members of the group said were in Mexico illegally and were waiting for their turn to cross into the U.S. with the help of human smugglers.

Mexican authorities caught a similar group of 16 individuals earlier in the week. They were also hiding in a human stash house waiting for their turn to illegally enter Texas. In that case, the Mexican Army responded to an anonymous tip of individuals who had been kidnapped. The group was allegedly being held at a house in the Esperanza (Hope) neighborhood, information provided to Breitbart Texas by the Tamaulipas government revealed.

Tax Foundation: ‘It Takes America 8.9 Billion Hours to Comply with IRS Paperwork’

According to the Tax Foundation, it will take Americans 8.9 billion hours to comply with IRS tax-filing rules in 2016, which equals a compliance cost of about $409 billion.

In addition, the Tax Foundation reported that the U.S. tax code has grown from 409,000 words in 1955 to 2.4 million in 2015 – an increase of 486%.

The 8.9 billion hours of tax-filing, added the Tax Foundation, “is equal to nearly 4.3 million full-time workers doing nothing but tax return paperwork.” Also, the $409 billion loss to the U.S. economy in IRS compliance is greater than the gross product of 36 states.

The Tax Foundation further reported that estate and gift taxes generate $20 billion annually for the U.S. government, but the opportunity cost of compliance is $19.6 billion, which reduces the net value of those taxes to only $4 million.

Venezuela – How to Guide for Creating Starvation in 2016

One of the great achievements of the human mind is having produced a solution to the single greatest challenge of life on earth: getting enough to eat. Shelter and clothing are no brainers by comparison. You find a cave, you snag a pelt, and you are good to go.

But finding food to eat is a daily issue for human beings, never finally solved. You need more than a stock of food; you need a system that produces a continual flow. In 2016, we finally have such a system in place, one capable of supporting 7.4 billion people. It’s so robust at this point that the developed world has the opposite problem of obesity, which, in the course of social evolution, is a nice problem to have.

The creation of this system – which you can see on display at any grocery store in your own neighborhood – defied the expectations of legions of doubters in the 19th century. Population was booming beyond belief. How would they be fed? Most intellectuals couldn’t imagine how it could happen.

And yet it did. So complex, well developed, and productive is the global market for food that it turns out to be extremely hard to break the system. To create starvation in 2016 requires extraordinary effort. It requires a comprehensive system of coercion that attacks all the institutions that make abundance possible: ownership, international trade, an adaptive price system, the right of commercial innovation. Such a system does exist, however. It goes by the name “socialism.” It is being tried today in a country that was once wealthy, comfortable, and civilized: a country with the largest oil reserves in the world.

More older Americans are working than at any time since the turn of the century

More older Americans are working than at any time since the turn of the century. 18.8% of Americans aged 65 and up — about 9 million people — report being full-time or part-time employees, according to a new report by Pew Research Center.

By comparison, back in 2000, only 12.8% of those aged 65-and-up were working — about 4 million people. For the most part, these workers are men. Although men make up less than 45% of the over-65 population, about 55% older workers are male.

Moreover, these workers are more likely to hold jobs in management, legal, and community/social service jobs than the overall workforce, and less likely to be food preparation, construction, and math/computer jobs.

Still, the most interesting thing about this rise in older workers is that it's basically the opposite of what's happened with the rest of the population in the US. The employment-population ratio of the adult population as a whole has yet to bounce back to pre-financial crisis levels. As of May 2016, the ratio was around 59.9% — below May 2008's 62.5%, and May 2000's 64.4%.

James Rickards-Gold Shortages, Bank of Gold, Paper Money Collapse, BREXIT

Dell is selling its software business for $2 billion

Dell is selling its software business for more than $2 billion. The software division is being acquired by Francisco Partners and the private equity arm of activist hedge fund Elliott Management.

All parties have confirmed the sale but have not revealed any further details. Dell has been working hard to refocus its tech portfolio while bolstering its balance sheet ahead of its $67 billion buyout of EMC. That company already owns a controlling stake in VMWare, a cloud-based virtualization software company.

Dell will retain its ownership of Boomi, it’s very own cloud-based software integration company.

Dell is selling most of its software options including Quest Software, which helps with information technology management, and SonicWall, an e-mail encryption, and data security provider, sources say.

Fannie Mae: Economic growth will probably stay slow and stable

Despite an increase in housing activity and consumer spending, Fannie Mae’s economic and Strategic Research Group’s full-year economic growth forecast remains unchanged at 1.7% in June.

The shockingly low jobs report that recently came in showed the uneven nature of the economic expansion, therefore keeping the forecast from increasing from last month.

“Housing activity is gaining strength heading into the summer, with pending home sales rising to a decade high,” Fannie Mae Chief Economist Doug Duncan said. “In addition, new home sales surged to an expansion best, a positive for single-family homebuilding, especially since only a small share of new homes for sale are completed and ready to occupy.”

“However, recent pullbacks in construction hiring, likely due to a shortage of skilled workers, could weigh on the outlook for the sector,” said Duncan. “With little improvement in the current housing supply picture so far, we expect only moderate housing expansion this year.”

Employers Are Cutting Back on Some Wellness Programs

Wellness programs have been a growing hit with employers over the past 20 years—but recent evidence suggests companies are starting to scrutinize which ones are most effective while lopping off the fat.

A wide-ranging new survey by the Society for Human Resource Management (SHRM), the world’s largest human resources trade organization, details how employer benefits have shifted since 1996. Wellness benefits have seen a clear boom: 78% of surveyed businesses offered wellness benefits (including health resources and information) in 2016 compared to just 54% two decades ago.

But certain wellness programs have been on the decline over a more recent time frame. “Onsite seasonal flu vaccinations, a 24-hour nurse line, health and lifestyle coaching, and health care premium discount for not using tobacco products and for participating in a weight loss program have all decreased compared with 2012 and 2015,” wrote the study authors.

However, other benefits, like incentives to complete certain health programs and offering resources such as standing desks, fitness centers, and nap rooms, have become more popular. SHRM says this “could be an indication that organizations are being more strategic in selecting effective wellness programs for their employees.”

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