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Wednesday 09.21.2016

Fed leaves rates unchanged in September meeting

Federal Reserve officials lowered their expectations for rate hikes in the years ahead Wednesday but teed up a likely move before the end of 2016.

In a statement from the Federal Open Market Committee after this week's meeting, the central bank expressed confidence in economic growth, but not enough to make a move this month.

"The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives," the statement said.

The tipoff for what could be a December move came at what appeared to be a remarkably divisive FOMC meeting, judging by the statement and an accompanying summary of economic projections.

Sen. Warren to Wells Fargo CEO: "You should resign." (C-SPAN)

Fed faces a credibility problem

Federal Reserve leaders are facing renewed criticism about their credibility. Often, a few top officials speak publicly in favor of increasing interest rates. Then days later, another one of them talks down a rate hike. These conflicting messages from the Fed's top leadership continue to hurt public confidence in the Fed, experts say.

"This is a disaster in terms of credibility," says Dan North, chief U.S. economist at Euler Hermes. Investors "don't think there's any credibility in what [Fed officials] say because there's too many voices."

The Fed has kicked off its two-day meeting on Tuesday. All eyes will be on Chair Janet Yellen when she speaks shortly after the Fed's makes its announcement at 2 p.m. ET Wednesday.

Wall Street sees a very low chance of a rate hike on Wednesday, placing the odds of a rate increase at just 12%, according to CME Group. The minority who are betting that a hike will happen may have been encouraged by from the fact that some Fed officials recently had talked up the chance of a September move. Boston Fed president Eric Rosengren and Chicago Fed president Charles Evans made speeches in late August, arguing the Fed should raise rates sooner rather than later.

Microsoft plans $40 bln stock buyback

Microsoft Corp. announced plans to buy back up to $40 billion in stock and boost its dividend to 39 cents from 36 cents.

The tech giant said it is on track to complete by year's end the current $40 billion repurchase program, which it established in September 2013. The company's new $40 billion repurchase plan represents about 9% of Microsoft's current market value of $442.7 billion.

Microsoft tends to announce dividend increases in September. The 8% increase announced Tuesday is a smaller rate of increase than those of recent years. Last year, the company raised its quarterly payout by 16% to 36 cents from 31 cents, after an 11% increase in 2014.

This year's increase raises Microsoft's dividend yield to 2.7% from 2.3%. The dividend is payable Dec. 8 to shareholders of record Nov. 17. Shares of Microsoft, up 31% over the past year, rose 1.1% to $57.48 in after-hours trading.

Wells Fargo’s Fake Account Scandal: CEO Vows to ‘Make it Right’ but Doesn’t Explain How

A group of senators just spent about an hour and a half grilling John Stumpf, the CEO and chairman of Wells Fargo, about 2 million unauthorized accounts that were opened under his watch and how Wells Fargo was going to make it up to customers. Stumpf’s answers to many of those questions was some variation of, “We’re working on it” and “Let me get back to you on that.”

It’s perhaps unsurprising that the members of the Senate Banking Committee appeared unsatisfied with the answers.

A quick recap: Wells Fargo was fined $185 million by the Consumer Financial Protection Bureau in early September for opening about 2 million unauthorized credit card and deposit accounts. Wells Fargo previously implemented (and touted the results of) ambitious cross-selling goals, in which a banker gets an existing customer to open additional Wells Fargo accounts. The bank incentivized cross-selling with bonuses. Those who didn’t meet sales goals were written up and could ultimately lose their jobs. About 5,300 employees were fired for opening accounts and moving consumers’ money to them without the knowledge or consent of the customers. That happened between 2011 and 2015 — in 2013, now-retired reporter E. Scott Reckard wrote about it for the Los Angeles Times, giving the practices national exposure.

Now, in 2016, Stumpf testified that Wells Fargo has just begun the process of making affected consumers whole, including refunding customers who were charged fees on unauthorized accounts and confirming with customers that the open accounts in their names are in fact products the consumers want. Wells Fargo will also extend the investigation to see if the practices occurred in 2009 and 2010 (thus far, the probe has gone back only to 2011).

PHH Mortgage Corporation announces layoffs due to HSBC mortgage servicing portfolio loss

PHH will cut one-third of its local workforce in Amherst, New York, where it currently employs 294 people, according to an article in Buffalo Business First by Allissa Kline. The article explained that PHH is “evaluating (its) long-term need” to maintain a local presence."

From the article: "Details about the company’s facilities plan and the future of its workforce in Western New York remain unknown. The New Jersey-headquartered company entered the market in 2013 when it began handling mortgage processing operations for HSBC Bank USA N.A. PHH plans to eliminate 91 jobs on Dec. 31 or within 14 days of the new year. The article added that the cuts stem from a reduction in certain mortgage servicing business for HSBC and a shift in origination work from Amherst to Florida."

At the end of August, PHH announced that it recently received notice from HSBC Bank that it plans to sell the mortgage servicing rights on approximately 139,000 mortgage loans currently subserviced by PHH Mortgage Corporation, a wholly-owned subsidiary of PHH, on behalf of HSBC.

In an 8-K filing with the Securities and Exchange Commission, PHH said that HSBC informed the company that the purchaser of the mortgage servicing rights does not plan to continue using PHH as a subservicer.

O, Captain, My Robot? Autonomous Boat Fleet Sets Sail in Amsterdam

MIT has signed an agreement to engage in research collaborations with the Amsterdam Institute for Advanced Metropolitan Solutions (AMS) in the Netherlands. The collaboration’s flagship project, led by researchers from multiple departments at MIT, will be to develop a fleet of autonomous boats for the city’s canals.

Based in Amsterdam, the AMS Institute brings together a consortium of public and private partners to tackle complex urban challenges such as water, energy, waste, food, data, and mobility. MIT joins with two research institutions in the Netherlands — the Delft University of Technology and Wageningen University and Research Center — as the core academic partners who will use the city as a living laboratory and test bed.

An interdisciplinary team from MIT has assembled to lead the collaboration’s first project: ROBOAT, an effort to develop a fleet of autonomous boats, or “roboats,” to investigate how urban waterways can be used to improve the city’s function and quality of life.

The ROBOAT project will develop a logistics platform for people and goods, superimposing a dynamic infrastructure over one the world’s most famous water cities. “This project imagines a fleet of autonomous boats for the transportation of goods and people that can also cooperate to produce temporary floating infrastructure, such as on-demand bridges or stages that can be assembled or disassembled in a matter of hours,” says Carlo Ratti, professor of the practice of urban technologies in the MIT Department of Urban Studies and Planning (DUSP).

Companies borrowed a record $207 billion during August: Moody’s

Companies borrowed a record $207 billion during August, the highest value of debt issuance ever recorded according to a September 15 Moody’s Analytics Capital Markets Report.

August’s borrowing binge reversed the slowdown in debt issuance for 2016. In the run-up to August, debt issuance for the year had been running behind last year’s total but since Brexit, corporates have taken the plunge, deciding to make the most of low-interest rate before central banks begin to tighten monetary policy.

As of September 9, year-to-date US dollar-denominated corporate and financial bond issuance amounted to $1.3 billion, within 1% of the comparable period from one year prior. Back in March, bond issuance was trailing the prior year’s volume by as much as 21%, during an uptick in risk aversion.

The yield on Moody’s Long-Term Corporate Bond Index was 3.8% at the end of last week, within 20 basis points of the lowest monthly average yield since 1956. As it is unclear when the Federal Reserve will decide to hike interest rates again, it would appear that companies are looking to take advantage of this yield trough while investors are still eager to snap up credit at any cost. Of the $207 billion in debt issued during August, $171 billion was rated investment-grade and $36 billion was high-yield. Both of these totals were also records for their respective categories.

Deutsche Bank: All of our recession indicators are flashing red right now, but ...

Deutsche Bank's top European equity strategists published a big note on Tuesday examining the risks of a US recession. In short, all the warnings signs that preceded the previous three recessions are here. This time, however, there may not be reason for all-out panic.

"We agree with our economist's projection of a 30% recession probability over the coming 12 months," Sebastian Raedler, head of European equity strategy, and his team wrote in the note. Here are the four indicators that popped up before the recessions in 1990, 2001, and 2008, according to Deutsche Bank:

1. There's already a recession for US profits. They've been sliding since they peaked in the second quarter of 2014. 2. The Fed's Labor Market Conditions Index, a tracker of multiple indicators, turned negative in August. A subzero reading was followed by a recession five times in the last 40 years. 3. Capital-expenditure growth has turned negative, down 2% over the past year. 4. Default rates are rising.

Like Deutsche Bank's strategists, the rest of the market is not worried that these things would cause an immediate recession either. In fact, they are pricing in a 1986-style scenario. That year, all the same recession indicators were present, but the recovery continued for another four years. The consensus forecast is for US earnings growth to rebound next year, and measures of stock-market volatility are low.

Obama urges leaders to open hearts to refugees

Central banks have been buying gold with a vengeance

Central bankers are creatures of habit, especially when it comes to dealings in gold, no longer formally part the monetary system, yet still imbued with almost mythical significance by many investors around the world.

Not for nothing is the yellow metal still regarded in many ways as a bedrock of world money. Around 20% of all the gold ever mined is held by central bank and governments, with the biggest official holdings at the U.S. Treasury with 8,134 tons.

So it is significant that central banks are turning back to annual gold purchases in line with a century of practice between 1870 and 1970. This appears to be restoring gold as a central element of monetary management after four decades of attempted demonetization, according to reserve statistics compiled by the Official Monetary and Financial Institutions Forum, the financial research group.

Annual net gold purchases of 350 tons a year by world central banks over the past eight years have returned to the 100-year average up to 1970 — reflecting gold’s renewed attractiveness as a safe-haven asset in an environment of uncertainty and low or negative interest rates. An OMFIF research document — the “Seven Ages of Gold” — contains detailed statistics plotting long-run changes in central banks’ policies on buying and selling gold over seven distinct periods during the past two centuries, each lasting an average of around 30 years.

Feds Lent $18 Billion to Failed Businesses

The Small Business Administration spent $18 billion over 15 years on taxpayer-financed loans to businesses that ended up failing, according to a report from Open the Books, a nonprofit group that focuses on government transparency.

The agency accumulated a loan portfolio that totaled $24.2 billion and included 160,000 individual loans between 2000 and 2015. Of that amount, $18 billion had to be written off, indicating that the recipients had become delinquent on their debts.

Some of the $18 billion in defunct loans went to failed auto dealers, country clubs, jewelers, boat dealers, and restaurants. The report found that $191.7 million in defaulted loans went to dealers of luxury cars like Lamborghinis and BMWs, $44.5 million went to country clubs and golf courses, $49.3 million went to jewelers, $41.5 million went to boat dealers and marinas, and $2.2 billion went to restaurants, bars, breweries and wineries.

“Restaurants and lodging are by far the biggest culprits of Small Business Administration defaults, amounting to a combined $3.3 billion,” the report states. “Taxpayers—through the Small Business Administration—underwrote the national rollout and distribution plans of these companies.”

Mexican Police Find Van Equipped with Bazooka for Launching Drugs Over the Border

Drugs are smuggled into the U.S. from Mexico via cargo, secret tunnels, drug mules, and even cannons. Mexico’s National Security Commission announced in a press release on Saturday that federal police officers found a van with a homemade bazooka they believe was used to launch drugs over the border and into the U.S., reports Fox News Latino.

Mexican authorities discovered the van abandoned in the town of Agua Prieta, across the border from Douglas, Arizona. It was found without a license plate and its doors wide open. The vehicle had been reported stolen in the town of Hermosillo on July 1, some 220 miles south of Agua Prieta.

“When inspected inside, an air compressor, a gasoline engine, a tank for storing air, and a metal tube about 3 meters long (bazooka homemade) was located,” writes the commission.

"The van has a cut in the roof toward the back," the press release reads, "to allow the tube to be used to launch projectiles, possibly from the edge of the border of Mexico into the United States."

George Soros Is Investing $500 Million in Refugees

Billionaire businessman and philanthropist George Soros announced on Tuesday his intention to invest $500 million in startups, existing businesses and initiatives founded by migrants and refugees.

In an essay for the Wall Street Journal, Soros criticized the “collective failure to develop and implement effective policies” to address the global migration crisis, and argued that although governments have the leading role to play in finding solutions, “harnessing the power of the private sector is also critical”.

The announcement coincides with the UN Summit for Refugees and Migrants in New York, and follows President Obama’s Call to Action earlier this summer for private sector engagement on the global refugee crisis.

“I have decided to earmark $500 million for investments that specifically address the needs of migrants, refugees and host communities,” Soros wrote. “I will invest in startups, established companies, social-impact initiatives and businesses founded by migrants and refugees themselves. Although my main concern is to help migrants and refugees arriving in Europe, I will be looking for good investment ideas that will benefit migrants all over the world.”

Slovakian PM: EU will make Brexit ‘painful’ for UK

Gold Bugs Rejoice – Central Banks Think You’re On To Something

Central banks have got the economy and markets covered. They know what they’re doing. Their theories are backed up by decades of academic research and expert advice.

Expert advice, as we all know, is completely apolitical, changes rarely, and never, ever does a complete U-turn, like – I don’t know – telling us all to start eating butter after years of telling us not to, or something crazy like that. So why worry? I mean, what kind of deluded neurotic doom-monger would keep hanging onto gold (as insurance, of all things!) in their portfolio with people of this calibre in charge? Well, I hate to break this to you, but…

Guess who’s buying lots of gold? Central banks are piling into gold. They have been ever since the financial crisis blew up in 2008. In fact, says a new report from the OMFIF (Official Monetary and Financial Institutions Forum) research group, central banks have been buying gold at a rate of 350 tonnes a year for the last eight years. That takes us back to the sorts of levels we saw in the pre-1970 era.

OMFIF has looked at central bank behaviour and gold buying going back over more than a century (back to 1871, in fact). It’s broken it down into seven “ages of gold’. There’s some interesting stuff in there, but I’ll only go back as far as post-World War II this morning, as that’s the most relevant to today’s topic. So the fourth age of gold – 1945 to 1973 – covers the Bretton Woods era, during which gold reserves were rising, notes David Marsh of OMFIF, “with European countries and Japan amassing sizeable new post-war holdings as central banks exchanged surplus dollars for gold from the US Treasury”.

Mylan CEO's mother used position with education group to boost EpiPen sales nationwide

After Gayle Manchin took over the National Association of State Boards of Education in 2012, she spearheaded an unprecedented effort that encouraged states to require schools to purchase medical devices that fight life-threatening allergic reactions.

The association’s move helped pave the way for Mylan Specialty, maker of EpiPens, to develop a near monopoly in school nurses’ offices. Eleven states drafted laws requiring epinephrine auto-injectors. Nearly every other state recommended schools stock them after what the White House called the "EpiPen Law" in 2013 gave funding preference to those that did.

The CEO of Mylan then, and now, was Heather Bresch. Gayle Manchin is Heather Bresch’s mother. Mylan is the subject of congressional investigations related to huge price hikes the company announced last month. It also faces an antitrust probe by the New York attorney general stemming from its EpiPen sales contracts with schools.

Bresch is testifying before the House Oversight and Government Reform Committee on Wednesday at a hearing called by Republican and Democratic members of the panel. In October 2012, Mylan sponsored a morning of health presentations at the association’s annual conference. The presentations included a panel described as being on three of the biggest school health concerns, including food allergies.

Silver Returns to Its Historic Role

Do you have a flashlight, spare batteries and some duct tape stashed away for home emergencies like power outages or hurricanes? Of course you do. How about 100 ounces of silver coins? If not, you should.

In an extreme social or infrastructure breakdown — where banks, ATMs and store scanners are offline — silver coins might be the only way to buy groceries for your family. This is one of many reasons why sales of silver coins and bullion are set to skyrocket. Once that happens, shortages will appear and the price of silver could soar to $60 per ounce or higher, a 200% gain from current levels of about $20 per ounce.

As you know, I write and speak frequently on the role of gold in the monetary system. Yet, I rarely discuss silver. Some assume I dislike silver as a hard asset for your portfolio. That’s not true. In fact, in an extreme crisis, silver may be more practical than gold as a medium of exchange. A gold coin is too valuable to exchange for a basket of groceries, but a silver coin or two is just about right.

Silver is more difficult to analyze than gold because gold has almost no uses except as money. (Gold is widely used in jewelry, but I consider gold jewelry a hard asset, what I call “wearable wealth.”) Silver, on the other hand, has many industrial applications. Silver is both a true commodity and a form of money.

Could The 'Family Car' Be Driven To Extinction?

All signs point to what could be the eventual demise of the family sedan. The familiar four-door car is losing ground at an accelerated pace these days, both in terms of market share and in the minds of moms and dads across the U.S., to larger and taller crossover SUVs and – surprise – minivans.

To put it bluntly, size once again matters when it comes to picking a family’s primary mode of transportation. According to a study conducted by the autos website CarGurus.com, 21% of sedan-driving parents with multiple children say their cars do not sufficient meet their needs, as opposed to just 7% of kid-toting SUV and minivan owners. Of those having issues with their rides, a whopping 62% of respondents said it’s because their autos are just too darn small.

Sales statistics bear this out. According to Motor Intelligence, midsize sedan deliveries dropped 8.4 percent over the first eight months of 2016, compared to the same period a year earlier, with small cars losing 6.9% of market share, and luxury cars at minus 12.4 percent.

It’s a much different story at the other end of the showroom, with crossover SUV sales up by a healthy 8.6% through the end of August. And, likely fueled by this year’s introduction of the all-new Chrysler Pacifica, minivan sales have skyrocketed by 23.3 percent. Though minivan volume remains relatively small at around 400,000 units sold so far this year (versus over 3.2 million crossover SUVs) this is a segment that’s all but been left for dead following its meteoric rise and eventual fall as the family ride of choice following the genre’s introduction in the mid-1980’s.

Reality Check: When Obama Can't Blame Terrorism On Guns

Barclays to axe 248 jobs

Barclays has announced plans to axe almost 250 call-handler jobs at its Coventry base. The banking giant said it had made the "strategic decision" to improve "customer service" and "efficiency" at the Westwood Business Park office. It said it was trying to find alternative jobs for those affected.

It comes just three years after Barclays announced plans to close its contact centre at Walsgrave in the city with the loss of 350 jobs.

Trade union Unite said it was a "serious blow" because many of those workers had transferred to the Westwood site. National officer Dominic Hook said: "This centre has around 200 permanent roles plus many more agency and contractor workers. "This announcement will bring tremendous worry and anxiety to these staff."

A total of 248 jobs will go by the end of December, including 63 temporary roles. There are 1,500 Barclays workers based at the office in total. Mr Hook added: "The union's entire focus will be on pressing Barclays to find suitable alternative roles for staff within Barclays at Westwood and in Birmingham."

Nomura First Major Bank to Predict China Default; BIS Sounds Alarm

When Jim Chanos called China Dubai times 1000 in 2010 many chuckled. Now that opinion has slowly become the consensus or at least a matter of serious debate. What is perhaps most interesting about Nomura’s September 14 report, “China: Solving the debt problem,” is the fact the solutions involve a China default. It is rare – if not a historic first – for a major bank to say the world’s second-largest economy is likely to default on its debt.

Discussing government and corporate debt peril in public forums is typically muted if not outright censored. Although hedge funds have addressed the China default debt topic, for a major establishment-bound bank to actually discuss the grotesque details and predict a default in a major economy is something unusual. But that’s just what Nomura’s research team, led by Yang Zhao, did.

Nomura estimates China’s total debt – government and corporate – is RMB211.8 trillion or 309% of GDP. The vast majority of this debt is corporate, which from a leverage perspective looks better. The non-financial sector accounted for RMB158.5trn (231% of GDP, up by 92pp from 2007) and the financial sector for RMB53.3trn (78% of GDP, up by 49pp).

The debt is up nearly 141% since 2007, which leads Nomura to conclude “a rising default rate is inevitable.” “There is essentially only one practical way to reduce the stock of outstanding debts: defaults,” the report concluded. “As the debt-to-GDP ratio reaches a tipping point, it becomes harder for borrowers to meet the interest payments on their debt. A high debt-to-GDP ratio makes the economy more vulnerable to volatility in asset prices…”

Volvo Group Trucks plant to lay off 143

Officials say the Volvo Group is laying off 143 people at its truck manufacturing plant in Hagerstown.

Company spokesman John Mies told news outlets in a statement Friday that the layoff will be effective Monday, and is in addition to 138 workers who were laid off during the first quarter of the year

The group says that 2015 was the second best year ever for the company, in terms of demand for heavy­duty trucks, with over 300,000 vehicles sold. The projected demand for this year has dropped and will be about 240,000

Mies says about 1,500 people work at the powertrain­manufacturing facility. He says the layoffs at Volvo will be in production positions.

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