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Tueday 05.24.2016

The U.S. is 'basically at full employment'

America's job crisis is over, says one of the nation's top economists. "We're basically at full employment," said San Francisco Federal Reserve President John Williams on Monday. "That's very good news."

Williams believes the U.S. economy is "back on track," and the Fed deserves a lot of the credit for the dramatic turnaround. (President Obama too has been trying to take a "victory lap" on the economy). Unlike presidential candidates Donald Trump and Bernie Sanders, Williams sees a lot to be happy about. He points to "good" growth of about 2% a year, and an unemployment rate that went from 10% at the worst of the Great Recession back down to just 5% now.

America has been adding roughly 200,000 new jobs a month for about two years. It's a rapid pace of job growth not seen since the boom days of the late 1990s. The hiring is so strong that even some people who had given up looking for work have jumpstarted their search again.

So why are American voters so gloomy about the U.S. economy? It's by far the top issue on the campaign trail. Not only are voters worried about the situation right now, but over half believe the next generation will be worse off financially. Williams says he understands the frustration on Main Street. "The fact that income inequality is rising is real," he says, but he doesn't think the Fed can do much more about that. It's a problem Congress and the White House are better positioned to handle.

United Launch Alliance expects another 400 to 500 job cuts

United Launch Alliance’s quest to become more nimble and agile in order to compete effectively in the space industry will include workforce reductions beyond the 375 job cuts confirmed last week.

CEO Tory Bruno on Wednesday said Centennial-based ULA plans to reduce its workforce by another 400 to 500 people next year. “We have this year’s 375,” Bruno said. “There will be another one at the end of next year that’s a bit larger but along the same order of magnitude. And then we’re done.”

The reductions in 2017 will be spread across all five of ULA’s sites, he said. Those are in Colorado, California, Texas, Alabama and Washington, D.C. ULA currently employs 3,400 people, with about 1,500 in Colorado.

After the second round of reductions, ULA will move forward with the “size of workforce that we need,” Bruno said, adding that “as we are competitive with that, I expect to expand our market share and start growing back from there.” Next year’s job cuts, like the 375 targeted for the end of this year, will be voluntary, he said.

GE is creating over 2,000 new jobs -- in Saudi Arabia

General Electric just made a big bet on Saudi Arabia's attempt to end its oil addiction. The iconic American company announced $1.4 billion worth of investments in Saudi Arabia Monday as part of the kingdom's "Vision 2030" plan to diversify its economy.

The big GE move will create more than 2,000 new jobs in Saudi Arabia, doubling the company's workforce in the OPEC country. "We will create quality jobs for Saudi youth," GE CEO Jeff Immelt said in a statement released during his visit to Saudi Arabia to tout the new investments.

Saudi Arabia desperately needs those jobs. The Middle East country is grappling with youth unemployment of 29%, according to International Labor Organization stats. Those numbers could rise as cheap oil forces Saudi Arabia to make painful budget cuts, including slashing spending on key construction projects.

Saudi Binladin Group, a big construction company founded by the father of late al Qaeda leader Osama bin Laden, has fired at least 50,000 mostly foreign workers alone. Some of those workers protested the layoffs earlier this month by setting buses on fire. The trend is clearly worrying the House of Saud. Last month the Saudi deputy crown prince Mohammed bin Salman announced a strategy to end what he called the kingdom's "dangerous" addiction to oil. The Vision 2030 plan calls for ramping up non-oil revenue and turning the Public Investment Fund into a $1.9 trillion public fund to invest at home and abroad.

Why the Fed is worrying too much about the markets

Consumers increasing levels of credit card and auto debt

Consumers have been on a spending spree in the last few months. And since wages haven't grown much in the last eight years, they've gone deeper into debt to do it.

The Wall Street Journal reports that the total U.S. credit card debt will likely surpass $1 trillion before the end of the year. It would be close to a record level. The record is $1.02 trillion in July 2008, just before the financial crisis.

Consumers have also borrowed huge sums to buy cars and trucks. Experian Automotive reports open automotive loan balances rose 11.1% in the first quarter of the year, going over $1 trillion for the first time ever. But balances on auto leases grew more than twice as much. Open leases hit an all-time high of $76.9 billion, up a staggering 27.55% from the first quarter last year.

“Automotive financing certainly has started off the year with a bang, seeing steady growth in balances and loan volumes throughout the first quarter,” said Melinda Zabritski, senior director of automotive finance for Experian. Zabritski notes there is nothing inherently troubling about the rising financing totals. As long as consumers can make the payments and manage their debt, their spending can benefit the economy.

Deutsche Bank Post-Crisis Mortgage Positions Probed by SEC

The U.S. Securities and Exchange Commission is investigating whether Deutsche Bank AG inflated the value of securities in its mortgage-bond trading business and masked losses around 2013, according to people with knowledge of the matter.

Investigators are looking at positions overseen by Troy Dixon, who at the time ran the bank’s trading for U.S. government-backed mortgage bonds known as agency pass-throughs, said the people. The SEC is asking whether the bank delayed recording losses on those securities over an extended period of time, said the people, who asked not to be identified because the matter is private.

"We are cooperating with this investigation, which is looking into previously recognized losses on certain positions," said Amanda Williams, a spokeswoman for Deutsche Bank. She declined to comment further. Dixon and an SEC spokeswoman declined to comment.

Losses from the securities could have run into the hundreds of millions of dollars, separate people with knowledge of the matter said. Any delays in writing down bonds may have bolstered the bank’s earnings for at least a few quarters in 2013, when fixed-income markets cratered after then-U.S. Federal Reserve Chairman Ben S. Bernanke started talking about the Federal Reserve slowing its program of quantitative easing.

J.P. Morgan Private Bank Lays Off Nearly 100 Employees

J.P. Morgan Chase & Co.’s private bank announced internally another round of layoffs affecting nearly 100 employees, people familiar with the matter said. The unit shared the news within the bank Monday. The moves, which affect employees in a range of positions and locations, follow previous rounds of layoffs across the country in recent months.

J.P. Morgan has been recalibrating its private bank this year. The Wall Street Journal previously reported that J.P. Morgan’s private bank clients later this year will be required to have at least $10 million in investible assets, twice the current minimum of $5 million.

The shift is one of the boldest yet among banks that are increasingly focused on managing the money of wealthy clients, who generate more fees and entail less risk than middle-class and lower-income customers. However, because wealthy clients typically require more attention, banks are being more discriminating when deciding who qualifies for such personalized service.

Every year the division reviews its employee ranks and culls underperformers, one of these people said. The private bank, which has around 12,000 people, continues to actively hire, this person added.

Brexit 'shock document' warns 820,000 jobs at risk if Britain leaves the EU

Up to 820,000 jobs would be lost if Britain leaves the EU as the economy tumbles into recession, a major Government report warns today. And average wages would be at least £800-a-year lower under the doomsday scenario set out by the Treasury.

'Vote Leave' supporters instantly dismissed the report as “deeply biased”, insisting Treasury reports on the economy are frequently wrong. But speaking in Hampshire this morning Chancellor George Osborne will describe the report as a “detailed and rigorous analysis” of the two years ahead if we vote to leave the EU on June 23.

“It's the working people of Britain who will pay the price if we leave the EU,” Mr Osborne will say. Parts of the report released over the weekend included claims that house prices would be up to 18% lower if we vote to leave, while mortgage costs would rise.

Inflation is also predicted to soar, leaving household bills for food and clothes £220-a-year higher on average. And last night Mr Osborne revealed the Treasury's central prediction – that Brexit would trigger a year-long recession across the UK. The full report published this morning reveals the full devastating impact of the predicted economic crash. The Treasury's best-case scenario is a short-term economic shock that costs 500,000 jobs across Britain – with 100,000 in the north of England alone.

Gold's Rally is Fading But It's a Great Buying Opportunity

Gold Fever: Why Investors Rush to Buy Gold

Demand for gold rose by 21 percent in the first quarter of 2016. Recently, billionaire George Soros invested nearly $390 in gold stocks, having decreased investments in other assets. Shortly after, large hedge-funds followed the example of the legendary US investor.

Between January and March 2016, Soros Fund Management established by George Soros increased investments in gold market assets, according to the company’s data. Particularly, the fund bought shares worth $264 million in Canada’s company Barrick Gold, one of the world’s leading gold producers. It also bought an option for nearly 1.05 million shares ($123 million) in SPDR Gold Trust, the world’s biggest gold exchange fund.

Soros also made bets on a drop in the US stock market, having decreased investments in stock assets. In the first quarter, the value of Soros Fund’s exchange-traded assets dropped by 37 percent, to $3.5 billion.

Other big investors have followed Soros’ course toward the yellow metal. Former Soros partner billionaire trader Stanley Druckenmiller said in early-May that gold became his favorite asset in a time of low interest rates. According to media reports, Druckenmiller, whose net worth is estimated at $4.4 billion, is making long-term investments in gold while holding short positions on US companies’ shares. In January-March, investment fund Jana Partners managing assets worth $11.6 billion invested in gold for the first time in 12 months, having bought shares in SPDR Gold Trust for $5.9 million.

Bank Of America Won’t Have To Pay $1.2 Billion For Countrywide’s “Hustle” Mortgage Scam

Nearly eight years after Bank of America bailed out Countrywide Financial, a federal appeals court has ruled that BofA should not have been held liable for Countrywide’s “Hustle” scam in which the company sold Fannie Mae and Freddie Mac a ton of poorly underwritten mortgages knowing that they were worthless.

Before Countrywide’s disastrous collapse, it sought to approve and resell as many mortgages as possible, so the lender launched a program it dubbed the High Speed Swim Lane (or HSSL, or Hustle) that effectively removed all the regular underwriting roadblocks in the mortgage approval process.

“Move forward, never backward,” was the directive, meaning trained underwriters sometimes never even saw mortgage applications. Instead, according to the Justice Department, loan review was handed off to mere processors who “were previously considered unqualified even to answer questions.”

Billions of dollars in Hustle loans were sold off to Fannie Mae and Freddie Mac before anyone realized that about half of these mortgages were about to be worthless. Because the government had bailed these two mortgage-backers out, it meant taxpayers were on the hook when these loans failed. Meanwhile, the executive in charge of the Hustle went on to run JPMorgan Chase’s foreclosure review program.

It’s the end of Goldman Sachs as we know it

Goldman Sachs is spreading its wings after years of attempting to retreat from Wall Street's limelight in the wake of the global financial crisis.

That means exporting the bank's brand into new markets, making deals and striking partnerships, and probably using competitors' weaknesses against them. Now, its next challenge comes not from the traditional businesses upon which the bank has built its reputation, but Goldman Sachs' quiet push into consumer businesses long occupied by its Wall Street competitors.

"For Goldman Sachs, the question is: What will they become when they grow up," said CLSA banks analyst Mike Mayo. It's also a matter of how the bank grows up. While Goldman is going digital, it is not expected the bank will make any big deals in a financial technology sector that has generated outsized valuations recently. The bank already acquired online wealth manager Honest Dollar in March. The build-out of its online lending program, for now dubbed "Mosaic," is an internal priority for the bank.

For Goldman Sachs, which has already placed various early-stage investments into fintech companies, partnerships may be more common than mergers and acquisitions. Two sources said Goldman had selectively spoken with companies, including online lenders, about expanding its network of partnerships among fintech start-ups. The bank declined to comment regarding digital plans. But, last week, Goldman announced plans to sell investments developed by online investment platform Motif.

20,642 New Regulations Added in the Obama Presidency

The tide of red tape that threatens to drown U.S. consumers and businesses surged yet again in 2015, according to a Heritage Foundation study we released on Monday.

More than $22 billion per year in new regulatory costs were imposed on Americans last year, pushing the total burden for the Obama years to exceed $100 billion annually. That’s a dollar for every star in the galaxy, or one for every second in 32 years.

The consequences of this rampant rulemaking are widespread: Restricted access to credit under the hundreds of rules unleashed by the Dodd–Frank financial regulation statute. Fewer health care choices and higher medical costs from the Affordable Care Act. Reduced Internet investment and innovation under the network neutrality rules dictated by the Federal Communications Commission.

These are just a few of the 2,353 regulations of 2015—and there have been 20,642 since Obama took office in 2009. The worst of last year’s wave—in terms of cost, at least—was the Environmental Protection Agency’s “Clean Power Plan.” The rule represents the first direct regulation of so-called greenhouse gas emissions from power plants, at a cost of $7.2 billion a year (and far more according to critics). Despite the huge costs, the plan will do nothing to mitigate global warming.

IMF calls for ‘unconditional’ Greek debt relief

The International Monetary Fund has called on European creditors to provide upfront and “unconditional” debt relief for Greece, in its latest incendiary intervention in the country’s bailout talks. In its first official debt sustainability analysis since last summer, the IMF said Greece should receive immediate concessions on its new loans, through longer maturity dates, payment deferrals and fixed interest rates, writes Mehreen Khan.

This would “provide a strong signal to markets about European partners’ commitment to deliver on all the elements of the restructuring”, said the IMF.

But in perhaps the most incendiary suggestion, which is set to meet opposition in creditor states such as Germany, the IMF also called for a fixed interest rate cap of 1.5 per cent on Greek loans from the eurozone’s rescue funds until 2040. Such a measure, which would replace current floating market rates with a fixed rate, “would in effect require a commitment by member states to compensate the ESM for the losses associated with fixed interest rates on Greek loans”, said the IMF.

The fund admitted that such a proposal to effectively guarantee Greek debt payments, would face opposition in member states: This would clearly be highly controversial among member states in view of the constraints—political and legal—on such commitments within the currency union.

How Bad is Offshore Oil Right Now? Seadrill Ltd. Is Getting Paid $61 Million to Stop Drilling

On May 23, offshore drilling specialist Seadrill Ltd. (NYSE:SDRL) announced that it had been notified that the contract for its semi-submersible drilling vessel West Hercules was being canceled. The contract wasn't scheduled to expire until January 2017. This adds another to the list of Seadrill's idle vessels, and is a further indicator that the offshore drilling environment remains on a downward trajectory. But what's the real impact, both in the short- and longer-term for the company?

Here's a clue: It's getting paid $61 million to stop drilling. That's not a good sign for the drilling industry in the short term, and weakens investors hopes for Seadrill to have a quick recovery.

The West Hercules had been under contract with Norway-based Statoil ASA, at a day rate of $445,000; Statoil had planned to utilize the vessel in the Aasta Hansteen gas field off the Canadian coast starting this summer. If the vessel had worked for the entire remaining period of time on the contract -- assuming it ended on Jan. 1, 2017 -- that's roughly 220 days of income lost. Based on the $445,000 day rate listed in the company's fleet status report for this vessel, that's $94.8 million in missed revenue.

However, the terms of the contract apparently allow for an early cancellation, with Statoil set to pay Seadrill $61 million, plus additional reimbursements for costs to demobilize the vessel. In other words, this pulls a total of $34 million out of Seadrill's potential operating revenues for the remainder of this year. It also says a lot about the state of offshore when an oil producer is more willing to give a company $61 million to stop drilling than it is to pay $95 million to drill for oil.

Middle class shrinks in 90% of US metro areas

Detroit paid $1.27M for tutoring that wasn't provided

A woman who retired from Detroit Public Schools after nearly 40 years created several companies and billed the struggling district for at least $1.27 million for tutoring services that weren't provided, authorities said Monday.

The case against Carolyn Starkey Darden is more bad publicity for the district, which is pleading for a financial rescue from state lawmakers. Separately, a dozen former or current principals are charged with accepting kickbacks from a longtime contractor. Darden, a former director of grant development, is charged with theft. She retired from the district in 2005. For seven years, through 2012, she submitted fraudulent invoices for services, according to the government.

The charge was filed in federal court as a "criminal information," which is a negotiated charge that typically leads to a guilty plea. A message seeking comment from Darden's attorney, Gerald Evelyn, wasn't immediately returned.

"Detroit students were cheated twice by this scheme," said David Gelios, head of the FBI in Detroit. "Students that needed tutoring never received it, and money that could have been spent on other resources was paid to (Darden) as part of her fraud scheme." Agents trying to recover any assets have identified nearly $1 million in a variety of accounts linked to Darden.

Cashless Britain advances as contactless and debit cards thrive

Britain has passed another milestone on the path to a cashless society, with 2015 the first year that cash was used for less than half of all payments by consumers. Cash usage will be eclipsed by debit cards and contactless payments by 2021, according to Payments UK, which represents the major banks, building societies and payment providers.

In 2015 cash made up 45.1% of payments, compared with 64% in 2005, and is expected to fall to just a quarter by 2025. It will largely be replaced with payments by contactless cards, which have soared in popularity. Contactless payments grew threefold in 2015, with more than a billion “wave and pay” transactions over the year. Since the start of 2016 contactless use has gathered pace, particularly on the London Underground network. On the high street, one in six card purchases are now contactless, with Tesco leading the way.

But Payments UK’s annual review of how households pay for goods and services reveals that the death of the cheque has been much exaggerated. It said that 546m cheques were written in 2015, despite the fact most retailers now refuse to accept them.

The Payments Council, the predecessor to Payments UK, provoked a storm of protest in 2009 when it proposed a complete withdrawal of cheques by 2018. Following a consumer revolt the plans were abandoned, and today the body says cheques remain a “convenient and secure method” for making payments.

The Boomer economy

A lot has been written about Baby Boomers, who are doing a lot more to boost the economy than they are given credit for – a lot more – says author Lori Bitter. Bitter, author of “The Grandparent Economy: How Baby Boomers are Bridging the Generation Gap,” says Boomers are not only taking in their parents, but sometimes several generations of family members who have not recovered from the Great Recession.

The problem, she says, is that they are doing it all at great peril to their own retirement. “The real story is they may have two or three generations of people living in their homes that they were working their butts off to support,” she says. “This generation just gets bashed. When you see what is really happening. It is more interesting that the headlines and misunderstood labels.

“They are literally holding up the economy by taking care of families who haven’t made it through the recession too well, taking care of their elders and grandchildren,” she says. “Even if they aren’t totally supporting them, they are contributing to all those households.” Not only are they endangering their own retirement by supporting family members, but they are also doing it at the expense of their own health, she says.

“Fifty is typically is where you have your personal health concerns,” she says. You look at your health in a different way. Middle-age people are managing a number of chronic conditions of their own. While caring for people at the older end of the spectrum or younger end, they’re managing doctor appointments of others, and push their own health care needs to the bottom of the list. They can see the decline of person they are they are taking care and simultaneously ignore their own health. We urge this population to take care of their own health. If their health problems get worse, the whole system breaks down.”

Americans’ Retirement Income Falls Short

In order for Americans to enjoy a financially comfortable retirement, a rule of thumb from financial advisors is that they will need about 70% of their pre-retirement income in order to have comfortable life. Residents of just three states meet that target, and in the United States as whole the ratio is just over 60%.

Using data from the Census Bureau’s American Community Survey, Bankrate divided the median annual household income for those who are 65 and older by the median annual household income for those in their later working years, between ages 45 and 64.

The three states where residents meet or exceed the 70% ratio are Hawaii (72.6%), Alaska (71.1%) and South Carolina (70.2%). The states where the income ratio is lowest are Massachusetts (48.2%), North Dakota (49%) and New Jersey (52%). Bankrate cites the chief investment officer at a South Carolina financial services firm: Americans are facing a shortfall of retirement income (because) their saved assets are not enough to fund their desired or even current lifestyle.

In the three states where retirement income ratios are highest, each state has a few unique factors contributing to retirement income. In Alaska, for example, the public employees pension system pays a 10% annual bonus to retired state employees who remain in Alaska. In addition, each resident receives an annual payment from the state fund that accumulates oil and gas royalty payments. In 2015 that amounted to $2,072, the largest dividend ever.

Sheriff David Clarke: Don’t Outsource Your Safety To The Government

Share Buybacks Now Bought Out, American Enterprise in Decline

I have pointed out in previous articles how most of the growth in stocks over the past few years has been due to stock share buybacks. Without this hideous (and at one time illegal) practice, there would have been no bull market over the last few years.

That’s right. Research from no other place than Wall Street, itself, indicates that almost all of the returns since 2009 have been due to stock share buybacks!

Liz Ann Sonders, chief investment strategist and perma-bull at Charles Schwab, recently acknowledged that “… there has not been a dollar added to the U.S. stock market since the end of the financial crisis by retail investors and pension funds….” Since every buyer has a seller (and vice versa), what group or groups had enough of a buying presence to push the S&P 500 14.2% off of the February closing lows? Corporations.

Most people assume what has kept the market afloat this year after sinking 11% at the start of the year was a mixture of better news out of China, oil prices stabilizing, and indications that the Fed won’t raise rates as much as thought. But the real thing bouying the market could be something else: Stock buybacks…. The stock buybacks come at a time when major investors including individuals, foreign investors, and pension funds have been selling off their shares, according to a note from Goldman Sachs, amid market volatility and weak oil prices.

Tuesday 05.24.2016

NEWS to Disturb the Comfortable...

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