Barclays Talks Down Helicopter Money
With democracy being one of the messiest and least efficient forms of decision making known to man, Barclays notes that helicopter money could be a tool to break the gridlock. But a central bank taking such action to usurp the authority of elected leaders “in major currency areas that concern us” is unlikely, as the bank opposes the concept and has been among a growing library of research on the topic.
The primary difference between central bank “stimulus,” and affectionate term, and the more crudely presented “helicopter money,” is the stimulative target. While helicopter money is defined at a simple level to mean government providing direct payments to people to boost the economy, in the context of more recent discussions it has centered on targeted spending.
Whereas current central bank stimulus policies, also known by the alas “quantitative easing,” primarily purchase bonds and interest rate products and have had the side effect of raising stock prices, helicopter money, in the current mainstream discussion, targets infrastructure spending: roads, bridges and other projects normally financed through issuing bonds or government spending.
The problem for political leaders is that fiscal spending creates debt. With government debt to GDP levels reaching levels of concern in some quarters, alternatives such as helicopter money were central banks are the financing mechanism are considered. “Under normal circumstances, monetary finance of government spending very obviously creates more room for fiscal maneuver than would be available to a government that is forced to rely only on debt finance alone,” Barclays analyst Michael Gavin wrote in a November 21 report. “Most notoriously, fiscally driven inflation episodes typically result from an incompatibility between fiscal imbalances that are politically expedient and those that debt markets are willing to finance voluntarily.”
Trump may be ready to make a big impact at the Federal Reserve
President-elect Donald Trump appears ready to mold the future of the Federal Reserve.
According to a report from Bloomberg, citing two transition team sources, Trump plans to fill the two open seats on the Fed's Board of Governors within the first three months of his presidency.
These seats have remained open throughout much of President Barack Obama's administration due to political wrangling between the president and Congress.
Members of the Fed's Board of Governors are permanent voting participants of the Federal Open Markets Committee, which decides monetary policy for the US. As noted by former Minneapolis Fed President Narayana Kocherlakota, Trump can also appoint two more members of the Board of Governors at the end of Fed Chair Janet Yellen and Vice Chair Stanley Fischer's term in 2018 given that they vacate their seats. If that were to happen, a third of Trump appointees would be FOMC voting members.
Health care stocks tumble as stock market hits records
While the major U.S. stock indexes hit all-time highs Tuesday, health care stocks traded lower on disappointing earnings and gave back some of a post-election relief rally that had lifted the sector.
"Medtronic certainly had a pretty tough quarter and [is] driving down medical devices" stocks, said Mike Bailey, director of research and chair of FBB Capital Partners, which has a "very small" position in the stock.
He attributed Tuesday's decline in health stocks broadly to a pullback after recent gains, and some uncertainty on the effect of President-elect Donald Trump's health care policies.
Medtronic shares plunged more than 9 percent after the company reported disappointing quarterly revenue and cut earnings guidance for the fiscal year ending April 2017. The stock was the second-worst performer in the S&P 500 health care sector, followed by Edwards Lifesciences, which makes replacement heart valves.
Greece to continue bailout talks, aiming to finish before December 5
Greece will continue talks with international creditors on fiscal and labor reforms, aiming to wrap up the second review of its bailout program by early next month ahead of a euro zone finance ministers' meeting, government officials said on Tuesday.
Mission chiefs of the creditor institutions overseeing the program's implementation - the euro zone's ESM rescue fund, the European Central Bank, the International Monetary Fund and the European Commission - left Athens on Tuesday, leaving remaining issues to be resolved by technical staff and via teleconference.
Germany's Sueddeutsche Zeitung reported that the finance ministers of Germany, France, Italy, Spain and the Netherlands planned to meet in Berlin on Friday with IMF officials for talks on Greece's debt crisis, ahead of a euro zone ministers' meeting on Dec. 5 to discuss short-term debt relief for Greece.
Government spokesman Dimitris Tzanakopoulos told reporters: There is potential for a political deal by Dec. 5... but it is clear that strong political will is required from all sides". He said Athens could not compromise on labor reforms or adopt new austerity measures.
Goldman Sachs drops out of controversial R3 blockchain
Goldman Sachs has dropped its membership in an influential Wall Street blockchain consortium after losing a power struggle to influence the direction of the new bitcoin-like technology.
Lloyd Blankfein’s bank bailed out of R3, a group of 73 financial companies developing one of the most high-tech — and controversial — technologies in finance aimed at making transactions across Wall Street faster, cheaper and more secure.
Goldman backed out on Oct. 31, according to two people familiar with the group, although the exit was not known until Monday.
Turnover is expected, an R3 spokesman told the Wall Street Journal, which first reported on Goldman leaving the group. The bank, which helped form the R3 group, is invested in several other companies developing bitcoin-like technologies aimed at making Wall Street transactions more efficient. It let its R3 membership lapse after it was denied both a bigger stake than other banks and a board seat.
Italian Referendum Next Test of Global Populism
The next step in the global populism trend could be felt December 4. This is when the Italian referendum to change the constitution, a measure supported by the political establishment, will be voted up or down. A Moody’s report notes that rejecting the referendum could “contribute to global financial market uncertainty, and greatly add to the concerns surrounding the restructuring of the Italian banking sector.” A Deutsche Bank report, however, only handicaps a 40% chance of the vote succeeding. To various degrees, bond markets are already moving in anticipation of a rejection of the measure, but the real concern is a populist victory leading to rejection of the European Union in 2018.
With its banking sector on the edge of instability, Italy is facing high unemployment and economic stagnation amid chronic government waste problems; government bond yields have been spiking on a relative basis. Solving the problem won’t be easy and may require less, not more, democracy. This is both the problem and primary concern behind the Italian constitutional referendum.
“The great hope behind the Italian referendum is that its success can lay the groundwork for structural reforms and stimulus spending that would boost the moribund economy,” said a November 15 Moody’s report titled “Will Italy Get Trumped?”
Italian Prime Minister Matteo Renzi has placed his political future on the line with measures designed to streamline what Moody’s analyst Benjamin Garber calls “the notoriously chaotic Italian Parliament” with the goal to consolidate power and reform the system.
Obama grants 79 more commutations to federal inmates, pushing the total past 1,000
President Obama granted commutations to another 79 federal drug offenders Tuesday, pushing the number of inmates he has granted clemency past 1,000.
Obama’s historic number of commutations was announced as administration officials are moving quickly to rule on all the pending clemency applications from inmates before the end of the year. The Trump administration is not expected to keep in place Obama’s initiative to provide relief to nonviolent drug offenders.
“The President’s gracious act of mercy today with his latest round of commutations is encouraging,” said Brittany Byrd, a Texas attorney who has represented several inmates who have received clemency since Obama’s initiative began in 2014. “He is taking historic steps under his groundbreaking clemency initiative to show the power of mercy and belief in redemption. Three hundred and forty two men and women were set to die in prison. The President literally saved their lives.”
The White House and the Justice Department were criticized by sentencing reform advocates earlier this year for moving too slowly in granting commutations to inmates serving harsh sentences who met the criteria for clemency. The administration has greatly picked up the pace, but advocates still want them to move faster before time runs out.
How Trump could impact the tech community
Feds Give Up Trying To Hold Bank Of America Accountable For Countrywide’s “Hustle” Mortgage Scam
A nasty four-year legal battle between the Justice Department and Bank of America over a massive mortgage-related scam run by Countrywide Financial has come to a whimpering conclusion, with the DOJ opting to not appeal its most recent defeat in the case.
Let’s take a quick spin back a decade to the final years of the adjustable-rate mortgage boom, when shady mortgage lenders — Countrywide being the most prominent — were writing home loans to applicants who would likely be unable to keep up with the payments, and then reselling those poorly underwritten loans to Fannie Mae and Freddie Mac without disclosing that they might as well have been signed by kittens using invisible ink.
Countrywide had a name for this process — the High Speed Swim Lane (HSSL or “Hustle”) — that deliberately removed many of the underwriting roadblocks intended to prevent lenders from writing toxic loans, and resulted in Fannie and Freddie buying billions of dollars in loans from the company.
As you probably heard, many of those mortgages went into default, Countrywide failed and Bank of America snatched it up for a song. The Countrywide executive — the former Rebecca Mairone — went on to snag a nice job at JPMorgan Chase running, of all things, the bank’s foreclosure review division.
A Cash Ban is Coming to the US
India’s decision to ban Rupee notes above 500 has become the financial media’s topic du jour. However, India is in fact just the latest in a series of countries to ban physical cash in higher denominations. The war on cash has been going on since at least 2014 if not earlier.
To that end, France has banned any transaction over €1,000 Euros from using physical cash. Spain has banned transactions over €2,500. Uruguay has banned transactions over $5,000. Outside of these countries Canada, Norway, Denmark, Australia, New Zealand, Ireland, Mexico and other nations are currently either proposing or rolling out programs that will ban cash from certain transactions if not completely.
And if you think this is impossible in the US, think again. A campaign is already underway to do precisely this. Indeed, the number of high profile financial “experts” who have called to ban higher bill denominations if not banning cash altogether grows almost weekly.
As former Chief Economist for the IMF, Harvard’s Ken Rogoff is one of the most listened to economists in the US. Rogoff’s current book is literally titled The Curse of Cash. Then there’s former Secretary of the Treasury Larry Summers. Summers has called repeatedly to stop producing large denominations of cash in the US.
Less Than a Quarter of Americans Plan to Shop in Stores on Black Friday
It would have been hard not to notice that Black Friday sales promotions started earlier than ever this year. The bottom of the bowl of Halloween candy wasn’t even visible when retailers began advertising early Black Friday deals.
There are a couple of things at work here. First, consumers react positively to the words “sale” and “Black Friday” in the same sentence. The day after Thanksgiving has been the traditional kick-off to the holiday season for a long time now and as competition for consumer dollars has increased, shoppers have come to expect the best prices of the year on Black Friday.
Retailers have tried to take advantage of this mindset by pulling sales in earlier in an effort to maximize their chances to escape with a bigger share of shoppers’ budgets. The net effect has been to lower anticipation among shoppers for Black Friday deals and to reduce the number of shoppers who hit the malls and stores. In fact, according to a new survey by Bankrate, just 23% of U.S. adults plan to shop in stores on Black Friday this year. That’s a drop of 5 percentage points since Bankrate last conducted the same survey two years ago.
The survey also indicates that more consumers — 26% — plan to shop online this Black Friday than plan to visit stores. But the in-store shoppers are expected to spend about 79% of the day’s dollars.
Dallas to Declare Bankruptcy?
The New York Times just reported that the Dallas police and firefighters pension plan is $7 billion short of meeting its obligations and needs an immediate bailout of $1 billion just to stay afloat. The problem is that Dallas’ annual budget is $3 billion.
Three years ago Dallas wasn’t on anyone’s “watch” list. Barron’s worst 10 cities included Charleston, West Virginia; Omaha, Nebraska: and Portland, Oregon, but not Dallas. Pew Charitable Trusts identified nine cities in trouble, including Charleston, Chicago, Fargo, Jackson, Mississippi, and Little Rock, Arkansas. But Dallas didn’t make that list.
The Heartland Institute’s “watch” list of states with underfunded pension liabilities included Illinois, California, West Virginia, Oklahoma, and others, but not Texas. The think tank State Budget Solutions said the five most poorly funded states were Illinois, Connecticut, Kentucky, and Kansas, with Mississippi, New Hampshire, and Alaska tied for fifth. Again, Texas was nowhere to be found.
But in January Dallas’ pension plan trustees will open the 2017 legislative session with demands for $1 billion to keep the plan from defaulting. “It’s a ridiculous request,” said Dallas Mayor Michael Rawlings, but according to Moody’s, Dallas has more pension debt, relative to its balance sheet, than any other major American city except Chicago.
Carl Icahn: We have done nothing to grow business in eight years
National debt is growing faster than you think
Most people think of the national debt as a huge amount of money the government owes, which grows each year because of the budget deficit, which is the amount of new money the government has to borrow to maintain current spending levels.
But the national debt is growing much more quickly than that. Over the last decade, the debt has expanded by more than $3 trillion beyond the sum of the government's budget deficits over that same period of time.
In most years, in fact, the government's reported budget deficit is lower than the actual growth in the national debt. Fiscal 2016 was a perfect example.
Just weeks ago, the Treasury Department reported a $587 billion budget deficit for the fiscal year. But according to the government website that tracks the total U.S. debt "to the penny," the actual national debt grew by about $1.4 trillion. Why such a big difference? Some of it has to do with politics and timing, and most years weren't as skewed as 2016.
Fischer Drives Home Fed's Advice to Trump: Lift Productivity
The Federal Reserve’s advice to President-elect Donald Trump on the U.S. economy, repeated by Vice Chair Stanley Fischer, is crystal clear: Use the power of the public purse to make American workers more productive.
Fischer’s remarks followed similar comments last week from Chair Janet Yellen and New York Fed President William Dudley, hammering away at the message that fiscal stimulus should be crafted not just to give the economy a short-term boost, but to address a longer-term trend that appears to be sapping growth in developed economies.
Fischer also said the economy had moved “back to the vicinity” of the central bank’s targets on employment and inflation, reinforcing the message the Fed is likely to raise interest rates when officials gather in Washington Dec. 13-14. Investors see a 98 percent probability of a quarter percentage point increase at that meeting, according to pricing in federal funds futures.
“Unease with the economy reflects a number of longer-term challenges, challenges that will require a different set of policy tools than those used to address nearer-term cyclical shortfalls in growth,” Fischer told the Council on Foreign Relations in New York.
Venezuela President Maduro threatens to sue JPMorgan
Venezuelan President Nicolas Maduro is accusing JP Morgan of trying to sabotage Venezuela’s state oil company, and he’s threatening legal action.
JPMorgan analysts said on Monday that state oil company PDVSA was delaying $404 million in payments on 2021, 2024 and 2035 bonds. Maduro says on his national radio show that the delay is due to Citibank, which he says allowed a backlog to interfere with payments.
The terms of the bonds permit PDVSA to put off payment for 30 days before being considered in default.
Maduro said JP Morgan committed a crime should at least apologize. The company hasn’t responded to an email request for comment.
Trump: I’ll kill TPP in first 100 days
A Look at Caterpillar, Inc.'s Retail Sales Over the Years Is Depressing
Since I started writing for The Motley Fool in 2012, investors have constantly asked the same question regardingCaterpillar, Inc.(NYSE: CAT): Is it time to buy low? My answer has been the same since 2012: Caterpillar is a business with real scale and industry leadership, but there's nothing on the horizon to suggest things are about to improve.
Fast-forward to October's sales release, and absolutely nothing has changed. With that said, let's do more than just look at October's results, which is merely a glimpse -- let's put retail sales on a long-term graph and see what the story really is.
If you glance around the internet, a common theme is that Caterpillar's retail sales are falling, but at a slower rate. That's true: The machines retail statistics segment's total -- which includes two segments, resource industries and construction industries -- was down 12% during October, which was better than the prior three months.
The truth is, Caterpillar's rolling-three-month sales in resource industries -- which revolves around the mining industry -- have plummeted at double-digit rates since late 2015, and they only posted declines of less than 10% in five individual months since 2014. The average decline is a staggering 27%.
Venezuelans Used To Cross Borders For Luxuries; Now It's For Toilet Paper
The town of Maicao, in Colombia's Guajira Desert, just a few miles from the Venezuelan border, used to be jammed with visiting Venezuelans snapping up TVs, computers and 12-year-old Scotch. On good days, Jaider Heras, who owns a liquor warehouse, sold up to 300 cases of whisky and rum. But amid Venezuela's worst economic crisis in modern history, Heras is struggling.
Venezuelans' buying power has evaporated due to the collapse in the currency, the bolivar. The 100-bolivar note, the largest denomination, is now worth about six cents.
The country is also grappling with triple-digit inflation as well as critical shortages of medicine and food. Now Venezuelans shoppers in Macao stock up on basic foods, toilet paper and other staples that are hard to get in their country.
"Look how I have had to change my store," Heras says as he points to boxes, bags and canisters of food. "I now sell rice, sugar and cooking oil, which is what Venezuelans are looking for." Heras's profits have shrunk, but at least he's still in business. More than 150 Maicao stores employing about 1,500 people have shut down, says Grace Aguilar, the No. 2 town official who oversees commercial and security issues.
Harold Ford Jr. being considered for job in Trump administration
Former Tennessee Rep. Harold Ford Jr. — a black Democrat who was chairman of the Democratic Leadership Council — is in the running to get a transportation or infrastructure post in the Trump Administration, according to a source.
The source said Ford is a good friend of Donald Trump Jr., Ivanka Trump and her husband Jared Kushner, and is itching to get back in government. Ford served in Congress for five terms until 2007.
He’s now working at Morgan Stanley. “Harold is happy with what he’s doing,” a friend of Ford told The Post.
“But if the president-elect of the United States calls, you take the call and listen carefully. Anyone would,” he added. Ford, 46, is a frequent political commentator on MSNBC’s “Morning Joe,” a show watched by the president-elect.