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Tuesday 11.22.2016

Deutsche Bank: Trump Could Push the U.S. Economy and Stock Markets to New Records

It's looking more likely that President-elect Donald Trump will preside over a continuing U.S. expansion that could take its place as the longest among American business cycles, according to Deutsche Bank AG. And Chief U.S. Equity Strategist David Bianco predicts that by the time the real estate mogul takes office in January, the S&P 500 Index will eclipse 2,250.

Investors are under-appreciating the "much higher chance now of a long lasting economic expansion that rivals the 10 year U.S. record," the strategist writes "We're more confident now that the S&P will reach 2,500 in 2018 before suffering its next bear market."

The longest U.S. expansion on record stretched from 1991 until 2001, a span of 120 months. That streak will be broken if the American economy makes it until 2019 without a recession.

The structural decline in potential growth means that it doesn't take as large a negative shock as it used to in order to precipitate a downturn in U.S. activity. Conversely, the rising portion of retirees on Social Security increases the stickiness of consumption, dampening the variability of the largest component of GDP.

Cash chaos after shock move targeting India's "black money"

Almost two weeks after the Indian government banned the largest bills of the nation’s currency, people are still struggling to exchange their old cash and get their hands on the new bills.

More than 85 percent of India’s circulating currency was made instantly illegal on November 8, when Prime Minister Narendra Modi in a sudden and surprise televised address announced that 1,000 and 500 Rupee notes, worth about $15 and $7.50 respectively, would cease to be legal tender the next morning.

Since that moment, there have been long lines outside banks and at ATMs, and the government is struggling to help people facing the sudden cash crunch.

Thousands of people have spent up to six hours outside banks to get small amounts of new notes that the government is still in the process of printing. ATMs are still being re-calibrated to dispense new 2,000 Rupee notes. Some people line up before dawn with the hope of getting cash early when the bank opens in the morning.

The War on Cash is Not Over… It’s About to Intensify

The Trump Presidency has distracted from the next major move to be implemented by Financial Elite. That move is a cash ban. Cash, particularly physical cash (as in bills and coins) is a huge problem for insolvent banks. Indeed, it is the ONLY problem they have yet to address.

If you’re a large bank and you’re overleveraged due to excessive assets to capital ratios (particularly assets that are at risk of losing value or default) there are three key issues you need to control.

You need to be able to value your assets however you please. You need access to liquidity without lowering you asset to capital ratios. You need to be able to stop bank runs or capital flights.

The Central Banks have already fixed #1 and #2 by suspending “mark to market” accounting standards and implementing QE, respectively. And thanks to rehypothecation, banks can sell assets to Central Banks via QE and still use those same assets as collateral on their derivatives trades.

Forget the Narrative, Time Is On Gold’s Side - Rick Rule

St. Louis Fed head is confident Trump will not interfere

A top monetary policy-maker has a thinly veiled message for Donald Trump: Keep your paws off the Fed.

James Bullard, president of the St. Louis Federal Reserve, said this weekend he’s confident the president-elect won’t follow through on campaign rhetoric that had him trying to meddle in the Fed’s affairs.

Then-candidate Trump, in a September debate, said Chair Janet Yellen’s Fed was too political and was keeping rates low to boost electoral prospects for the Democrats and presidential nominee Hillary Clinton.

But Bullard, who has been hawkish on an interest rate hike, said Sunday he has received assurances from Trump’s transition team that he will not interfere with the Fed. “President-elect Trump’s transition team has said that it wants to protect Fed independence,” Bullard said. “I take them at their word.”

Amazon to Sell Fiat Chrysler Cars Online: End of Car Dealerships?

Despite a massive switch from big box retailers to online shopping, car sales are still done the old-fashioned way, via a network of franchised dealerships, typically selling a single manufacturer’s lineup of cars.

Tesla does sell its own cars directly, but some states do no permit such sales. Now Amazon is entering the fray. Instead of buying from a dealership, or from the manufacturer, customers can directly buy three different Fiat Chrysler models right over the internet.

Initially, this is available only in Italy, but the practice is sure to spread. As reported by Gizmodo, Amazon is getting closer and closer to that 1-click car buying future we’ve all wanted. Fiat Chrysler announced today that it will be be partnering with the shopping giant sell cars online at discount. Before you get too excited, it’s important to know that this will only be offered to buyers in Italy (for now), and it will be limited to three models, the Panda, the 500, and the 500L.

A new Reuters report explains how it will work: “So, after making their clicks online, buyers will be contacted by Amazon to decide on a dealer where they can finalize their purchase and pick up the car. The vehicle should be ready within two weeks of the initial click.”

Barclays' new ATMs withdraw money with a tap of your phone

Sure, you can already use your smartphone to pay for things, but soon you'll be able to use a mobile device to withdraw cash at the ATM. Barclays (AGRPY) bank is rolling out a new ATM system in branches across the U.K. that lets Android users take out money with just a tap of the device.

The service, called Contactless Cash, requires NFC-enabled Android phones to facilitate communication between the ATM and the device in close proximity. It's the same tap-to-pay tech used by Android Pay and Apple Pay.

The company says the method is faster and safer than traditional ATM transactions that require physical banking cards. "Whether using your smartphone or card, it removes the risk of magnetic card skimming and distraction fraud, as the device never needs to leave your hand," the company said.

After a user taps the NFC reader on the ATM, he or she will use the Barclays Android app to enter the withdrawal amount -- up to £100 at a time -- and the account's pin number. There's no need to type anything directly into the ATM. The app also lets people pre-select withdrawal amounts ahead of time. After typing in the pin number, the user will have 30 seconds to tap their phone against the ATM's NFC-enabled spot to complete the transaction.

Michael Wolff: Donald Trump Most Extraordinary Story Of Our Time

Tech Industry H-1B Work Visa Program Could Be Clipped Under Donald Trump

The main U.S. visa program for technology workers could face renewed scrutiny under President-elect Donald Trump and his proposed Attorney General, Senator Jeff Sessions, a long-time critic of the skilled-worker program.

H-1B visas admit 65,000 workers and another 20,000 graduate student workers each year. The tech industry, which has lobbied to expand the program, may now have to fight a rear-guard action to protect it, immigration attorneys and lobbyists said.

Trump sent mixed signals on the campaign trail, sometimes criticizing the visas but other times calling them an important way to retain foreign talent.

Sessions, however, has long sought to curtail the program and introduced legislation last year aiming to make the visas less available to large outsourcing companies such as Infosys. Such firms, by far the largest users of H-1B visas, provide foreign contractors to U.S. companies looking to slash information technology costs. “Thousands of U.S. workers are being replaced by foreign labor,” Sessions said at a February hearing.

1,500 Per Day: Border Patrol Opens Temp Facility to Accommodate Border Surge

Immigration officials at the U.S. Mexico border have been forced to open a new temporary facility in Texas to accommodate a recent surge of illegal alien border crossers, a wave of nearly 1,500 people per day that once again threaten to overwhelm border patrol and create a housing crisis for thousands of alien families and children.

In October alone, Customs and Border Protection apprehended 46,197 illegal aliens crossing into the United States unlawfully via the Southwest U.S. border, including 13,124 members of family units and another 6,754 unaccompanied children. In fact, the number of family unit members apprehended in the first month of FY2017 is already 118 percent higher than those who were caught in October of last year.

Averaged out, border patrol caught about 1,490 illegal aliens per day in October. Immigration officials said they’re currently housing about 41,000 illegal aliens in detention centers that typically accommodate between 31,000 and 34,000 people.

To try and keep pace, border officials said the new facility will hold up to 500 additional people who illegally cross over the El Paso sector of the border.

Two Billion-Dollar Buzz Saws

What an amazing month. Not only did Donald Trump win the U.S. presidential election two weeks ago (something I predicted in advance would happen), but markets exhibited wild swings. Investors got whiplash based on secret middle-of-the night trades by two of the richest men in the world.

Carefully constructed election trading strategies ran into a pair of billion-dollar buzz saws, wielded by legendary stock trader Carl Icahn and hedge fund maven Stan Druckenmiller. Their combined predawn raid on the markets produced shocking results.

When the dust settled, the stock market was in an expected place by an unexpected path, and gold was in an unexpected place. The good news is that with these shocks behind us, we have much greater clarity on the path ahead. In fact, the opportunities for profit, especially in precious metals, are the best since late 2015. A review of the price dynamics of the past two weeks will explain why.

Going into Election Day, Nov. 8, I said the following: “Trump would win despite overwhelming odds and universal opinion to the contrary; stocks would sell off on the Trump victory, but then bounce back based on consideration of his pro-growth policies; and gold would surge and hold those gains at a new, higher level.”

Hackers Program ATMs to Shoot Out Cash

“Dodd-Frank was a grave mistake”

Taking a break from the housing sessions that ran through the morning, attendees at the Housing America’s Families Forum in Dallas at the George W. Bush Presidential Library on Friday gathered for a light lunch and to listen to one of the most eagerly anticipated speakers for the day, House Financial Services Committee Chairman Rep. Jeb Hensarling.

As a republican representative for the Dallas area, Hensarling didn’t have to travel too far for the event and even quipped about needing to get home to do some stuff for his wife. But before heading back home, Hensarling shared his hope for the future of housing in America.

While the event was hosted by the J. Ronald Terwilliger Foundation for Housing America's Families, a bipartisan group, everyone did share one common goal, affordable housing, regardless of what political party they fell into.

“I am here to talk about housing, but there can’t be a sound housing market in this country without robust economic growth,” he said. “The best program of affordable housing is a growing and healthy economy built from Main Street up, not Washington down. I believe getting growth up to speed will be the highest priority for Congress and the new President in January.” The timing for Hensarling’s speech was all too perfect given that the Trump administration is currently rumored to be considering him as Secretary of the Treasury.

HUD Gives Poor More Rent Money to Live in “Higher Opportunity” Areas With “Lower Poverty”

To help “very low-income families” live in better neighborhoods, the Obama administration has issued a sweeping order requiring the government to pay more for their housing so they can move to areas of higher opportunity and lower poverty. The final rule was announced in the federal register this month by the U.S. Department of Housing and Urban Development (HUD), the agency that annually spends tens of billions on rent for the poor.

A chunk of the money, an estimated $18 billion according to the Congressional Budget Office, goes to a program called Housing Choice Voucher (HCV), which is funded by HUD and administered by local public housing agencies. It allows recipients to choose housing in the private market and pays a set amount based on fair market rent for a metropolitan area. Under the new rule, which goes into effect in January, fair market rents will now be calculated by ZIP code so Uncle Sam will pay a lot more for people to live in nicer areas. Here’s an excerpt of the new regulation: “This final rule establishes a more effective means for HCV tenants to move into areas of higher opportunity and lower poverty by providing the tenants with a subsidy adequate to make such areas accessible and, consequently, help reduce the number of voucher families that reside in areas of high poverty concentration.”

HUD Secretary Julián Castro said in an announcement that the goal is to “offer these voucher-holding families more opportunities to move into higher opportunity neighborhoods with better housing, better schools and higher paying jobs.” The agency decided to spend more money to house the poor after a group of Ivy League social scientists published a study on the effects of moving families away from neighborhoods with deeply concentrated poverty to low-poverty environments. They found that children who moved to low-poverty neighborhoods before the age of 13 did better as adults, had significantly higher earnings and a greater likelihood of attending college. To keep with one of the agency’s key missions of “fostering opportunities for economic mobility,” American taxpayers will foot the bill for the higher rent in more upscale neighborhoods.

To justify the added expense HUD is playing the race card, asserting that the current method of doling out vouchers “has not proven effective in addressing the problem of concentrated poverty and economic and racial segregation in neighborhoods.” The agency fully expects that when the new system kicks in it will be “more effective in helping families move to areas of higher opportunity and lower poverty.” To some this may sound like social engineering and yet another Obama administration example of spreading the wealth around. For instance, the “better jobs” argument is a huge red herring, particularly in the area surrounding the capitol, which will be deeply impacted by the new rule.

America is a nation that sees itself as badly divided, Gallup finds

America is far more divided on key issues than usual, a new Gallup Poll released Monday finds. President-elect Donald Trump “prepares to take office as a record number of Americans perceive the nation as divided and less than half believe his actions will help unite the country,” according to a Gallup analysis. Trump did call for unity in his election night victory speech, urging people to “bind the wounds of division.”

Seventy-seven percent of Americans think the nation is divided on its most important values. Forty-nine percent thought Trump would do more to divide the country than unite it. Forty-one percent saw him being a unifier.

“All major subgroups of Americans share the view that the nation is divided,” the Nov. 9-13 survey found. About two-thirds of Republicans, 78 percent of independents and 83 percent of Democrats feel that way.

While it’s not unusual for the winning party’s backers to see the country as more unified, Gallup found that Presidents Barack Obama and George W. Bush “made unifying the country key goals of their campaigns and administrations, and Americans perceived each as likely to do more to bring the country together than drive it apart.”

The Credit Bubble Peak was Marked by “Totally Crazy Lending.”

Debt is good. More debt is better. Funding consumer spending with debt is even better – that’s what economists have been preaching – because the consumed goods and services are gone after having been added to GDP, while the debt, which GDP ignores, remains until it is paid off with future earnings, or until it blows up.

Corporations too have gone on a borrowing binge. Unlike consumers, they have no intention of paying off their debts. They issue new debt and use the proceeds to pay off maturing debts. Funding share-buybacks and dividends with debt is ideal. It’s called “unlocking value.”

Debt must always grow. For that purpose, the Fed has manipulated interest rates to rock bottom. Actually paying off and reducing debt has the dreadful moniker, bandied about during the Financial Crisis, “deleveraging.” It’s synonymous with “The End of the World.”

At the institutional level, “debt” is replaced with more politically correct “leverage.” More leverage is better. Particularly if you can borrow short-term at near zero cost and bet the proceeds on risky illiquid long-term assets, such as real estate, or on securities that become illiquid without notice.

We Are Being Set Up For Higher Interest Rates, A Major Recession And A Giant Stock Market Crash

Since Donald Trump’s victory on election night we have seen the worst bond crash in 15 years. Global bond investors have seen trillions of dollars of wealth wiped out since November 8th, and analysts are warning of another tough week ahead. The general consensus in the investing community is that a Trump administration will mean much higher inflation, and as a result investors are already starting to demand higher interest rates. Unfortunately for all of us, history has shown that higher interest rates always cause an economic slowdown. And this makes perfect sense, because economic activity naturally slows down when it becomes more expensive to borrow money. The Obama administration had already set up the next president for a major recession anyway, but now this bond crash threatens to bring it on sooner rather than later.

For those that are not familiar with the bond market, when yields go up bond prices go down. And when bond prices go down, that is bad news for economic growth. So we generally don’t want yields to go up.

Unfortunately, yields have been absolutely soaring over the past couple of weeks, and the yield on 10 year Treasury notes has now jumped “one full percentage point since July”…

The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July! The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.

Will Trump inherit a new financial crisis?

Goldman: $200 Billion Overseas Cash Stash Will Be Used for Stock Buybacks

Get ready for more buybacks. Companies in the S&P 500 Index will spend most of their sizable cash hoard buying back stock next year, analysts at Goldman Sachs Group Inc. write in a new note. If so, it would be only the second time in the past 20 years that buybacks have accounted for the largest share of cash usage. Much of this, Goldman says, would be due to the enacting of plans President-elect Donald Trump proposed on the campaign trail, such as a tax holiday for overseas income and changes to the corporate tax code.

"A significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004," the team, led by Chief U.S. Equity Strategist David Kostin, write. They estimate that $150 billion (or 20 percent of total buybacks) will be driven by repatriated overseas cash. They predict buybacks 30 percent higher than last year, compared to just 5 percent higher without the repatriation impact.

Other areas that will see a boost include capital expenditures, research and development, as well and mergers and acquisitions. Here's a broader look at how the analysts see firms allocating their cash in 2017.

Other Wall Street banks have started looking at the potential impacts of repatriation as well. A new note from Morgan Stanley analysts Todd Castagno and Snehaja Mogre says that this is one of the top questions they are receiving from clients, and that most are overestimating how much cash will be brought back from overseas.

The U.S. labor force's guy problem: Lots of men don’t have a job and aren’t looking for one

As the recovery from the Great Recession continues, job growth is solid and the labor force is growing at close to its fastest pace since 2000 because more unemployed workers are coming off the sidelines.

Still, the percentage of working-age Americans in the labor force remains stuck near its lowest level since the late 1970s. Although retiring baby boomers are the main reason, there’s another troubling factor that experts predict won’t be solved by stronger economic growth.

Too many men in their prime don’t have a job and aren’t even looking for one. Experts trying to figure out the reasons are probing the roles of criminal background checks, painkillers and even video games.

In all, about 7 million men ages 25 to 54 are neither employed nor “available for work,” putting them outside the labor force. Their growing numbers worry and puzzle economists. A little more than half of the men reported they were ill or disabled, according to the Bureau of Labor Statistics. About 14% are going to school. And about 20% said they were either retired or handling home responsibilities.

More Than Half of Consumers Have Already Started Holiday Shopping

With the middle of the holiday season approaching and shoppers eager to take advantage of early promotions from retailers, more than half of consumers have already started making dents in their holiday gift lists, according to the annual mid-season survey released today by the National Retail Federation and Prosper Insights & Analytics.

“Consumers are looking for great prices and promotions earlier than ever, and retailers answered that demand by offering Black Friday deals as soon as the day after Halloween,” NRF President and CEO Matthew Shay said. “This time of year is about finding the right gifts while staying on budget. For those looking for anything from toys to apparel at retailers large and small, in-store or online, retailers are ready with great merchandise at affordable prices.”

The survey found that 55.7 percent of shoppers have already started buying holiday gifts, the second-highest level in the history of the survey, down slightly from the record 56.6 percent at the same time last year. Only 3 percent said they were finished shopping.

Clothing and accessories remain the most popular gifts this year, given by 61 percent of shoppers; 56 percent will give gift cards. Nearly half of shoppers, 44 percent, will give books, CDs, DVDs, videos or video games; 42 percent will give toys, 31 percent food or candy and 30 percent will give electronics.

NEWS to Disturb the Comfortable...

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