Yellen: Case For Raising Rates Has Strengthened 'in recent months'
In a much-anticipated speech Friday at the central bank's annual Jackson Hole summit, Fed Chair Janet Yellen voiced optimism about the economy and an expectation that interest rate hikes are ahead.
Speaking as the market wonders when the Fed will resume a policy tightening that began in December, Yellen issued some cautionary tones, but pointed to more increases on the horizon.
The Federal Open Market Committee "continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives," Yellen said in prepared remarks.
More pointedly, she added, "Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months." James Bullard, another voting member of the FOMC, told CNBC earlier Friday that the Sept. 20-21 Fed meeting might be a good time to raise rates. And Loretta Mester, who is also a voting member, told CNBC before Yellen spoke that she expects to some signs of strengthening in the U.S. economy in the second half of 2016.
Spoiled Rotten by the Fed, Hedge Funds See Worst Outflows since Financial Crisis
The toxic mix of crummy performance and high fees are having some impact. And it’s big money: The hedge fund industry has over $3 trillion under management. And some of this money is getting antsy.
In July, hedge funds experienced net outflows of an estimated $25.2 billion, the largest monthly net redemption since February 2009 ($28.2 billion), according to an eVestment report cited by Bloomberg. In June, hedge funds got hit with net outflows of $23.5 billion. In March, redemptions had hit $7 billion, and in January $20 billion. With some inflows in the remaining three months, total outflows for 2016 so far amount to $55.9 billion.
“Unless these pressures recede, 2016 will be the third year on record with net annual outflows,” according to eVestment’s report. The other two years were 2008 and 2009. During the first seven month, when the S&P 500 rose 7.6%, hedge funds industry-wide had gains of only 1.2%, according to Bloomberg. The 10 funds with the largest redemptions lost on average 4.1%.
So how bad is this compared to 2008 and 2009? In 2008, according to the Credit Suisse/Tremont’s annual summary (released in early 2009), an estimated 29%, or $582 billion, of the industry’s assets evaporated, the majority due to plunging prices of financial assets: the Hedge Fund Broad Index was down 19.1% in 2008, the first double digit loss in the history of the index going back to 1994.
3.2 Million Workers Lost Long-Term Jobs Due to Closings, Business Failings
Millions of workers lost jobs they had held for at least three years due to business closings and failings from 2013 to 2015, according to data released Thursday from the Bureau of Labor Statistics.
“Displaced workers are defined as persons 20 years of age and older who lost or left jobs because their plant or company closed or moved, there was insufficient work for them to do, or their position or shift was abolished,” the bureau states.
A plurality of displaced workers, or 37.4 percent, said they lost their job because their company closed down or moved. An additional 37.1 percent said their position or shift was abolished, and 25.6 percent reported that there was insufficient work for them to do.
Of the 3,191,000 workers who lost long-time jobs from 2013 through 2015, 34.5 percent remain unemployed or out of the labor force, which means they have given up looking for a job, while 65.5 percent have found new jobs. A majority of workers who found new jobs after being let go had to accept a pay cut or part-time work. There were 810,000 displaced workers who took a part-time job or pay cut, while there were 649,000 workers who found a job that pays the same or more than what they were earning before.
The U.S. budget deficit blame game
Subprime Auto Delinquencies Jump 17% In July, Net Losses Soar 28%
There was a troubling development at the end of July, when as we noted at the time, the largest US subprime auto lender delayed its Q2 earnings released due to "Accounting matters", an event which promptly raised red flags not only over the fate of the company (whose stock plunged as a result), but the entire US subprime auto space. This is what SC said as justification for its 10-Q filing delay:
Santander Consumer USA Holdings Inc. (NYSE: SC) ("SC" or the "Company") announced today that it will delay the release of its Q2 2016 financial results, previously scheduled for Wednesday, July 27, 2016, because the Company's financial statements for the quarter have not yet been completed.
The Company is in discussions with its current and previous independent accountants regarding certain accounting matters, primarily related to the Company's discount accretion and credit loss allowance methodologies. The resolution of these matters may impact prior period financial statements and the timing of the filing of the Company's quarterly report on Form 10Q for the quarter ended June 30, 2016 (the "Form 10Q").
One month later, the accountant discussions continue, as yesterday the company provided the following terse update in which it said that it delays its 10Q past the August 15 deadline, adding that "the Company will file the Form 10Q as soon as possible" and that "the aforementioned accounting matters relate only to noncash items in our financial statements ."
Australian Man Just Found A Massive 4kg Gold Nugget
A lucky Aussie prospector has found a 4.1kg gold nugget at the far southern edge of Central Victoria’s Golden Triangle, in South Australia, which he has named “Friday’s Joy.”
But the huge nugget was not the only one unearthed by the man, who chose to remain anonymous, as the previous day he recovered a 9-ounce tennis ball-shaped gold nugget more than two feet deep, using Minelab’s flagship GPZ 7000 metal detector. He then decided to go back for more.
“I thought it was rubbish at first, maybe an old horseshoe,” said the prospector. “About 12 inches below the ground, I could just barely make out the top of something.” As he began to scrape away the clay and dig deeper, he said he really couldn’t believe his eyes. “It wasn’t an old piece of steel in front of me. I had just unearthed a colossal gold nugget – a once in a lifetime find! (…) I didn't think nuggets of this size were still around.”
Prospecting on weekends for over ten years in search of coins, relics and gold, he had made a pact with a couple of his closest friends to split the proceeds on any large gold finds found when the group went prospecting together. After alerting his cohorts and having a few celebratory beers, the next order of business was to decide what to do with the nugget. “It’s like catching a big fish and not knowing what to do with it! Where do we put it? I washed it in water, covered it in aluminum foil and kept it in my oven on the first night.”
Uber Bleeds More Than $1 Billion In Six Months
Uber may be the most valuable privately held company in the world, but that doesn't mean it's making money. The company lost at least $1.27 billion in the first half of this year, according to Bloomberg News. Uber declined to comment on the report, but Bloomberg reported that Uber's head of finance Gautam Gupta shared the losses during a call with shareholders on Friday.
Uber is said to have lost $520 million in the first quarter, and $750 million in the second quarter of 2016. The vast majority of its second quarter losses were a result of subsidies in China, according to a source familiar with the matter. But those won't continue to show up on Uber's income statement.
Earlier this month, Uber sold its China operations to rival Didi Chuxing. Uber got nearly an 18% stake in Didi as a result of the deal, becoming its largest shareholder. Uber launched in China in 2013 and expanded its operations to roughly 60 cities. But while the market was a top priority, it was also an incredibly costly one. In February, CEO Travis Kalanick said that Uber was losing $1 billion a year in China.
"Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there," Kalanick wrote in an announcement about the Didi deal. While Uber said it was profitable in the U.S. during the first quarter of this year, Bloomberg reported that it lost roughly $100 million in the U.S. during the second quarter.
ITT Tech Banned From Enrolling New Students Using Federal Financial Aid
And just like that the foundation of ITT Education Services is beginning to crumble. Today, the Department of Education took a series of actions that bans the company behind the for-profit chain of ITT Technical Institutes from enrolling new students using federal financial aid funds.
The DOE notified ITT of its decision in a letter [PDF] on Thursday, noting that the decision was made after nearly two years of monitoring the school’s operations and finances.
According to the DOE letter, the ban was made after the Accrediting Council for Independent Colleges and Schools — which is facing its own issues — determined that ITT was “not in compliance” and is “unlikely to become in compliance” with accreditation criteria.
ACICS announced in a recent Continue Show-Cause Directive Letter that it continues to question ITT’s compliance with a number of the agency’s accreditation standards, finding that ITT has not demonstrated full compliance.
Why Major Job Cuts Could Be on the Way at Google Fiber
Customer sign-ups have fallen far short of initial projections, one report says. Google’s ambitious effort to wire up homes with fiber optic connections to offer gigabit speed Internet and cable TV service has been regrouping of late. After expensive deployments in a few cities, Google has been delaying new rollouts while its explores cheaper methods, such as wireless, to connect customers.
Now comes word, via a report on The Information, that the entire fiber effort has fallen far short of expectations. Initial plans in 2010 under then-CFO Patrick Pichette contemplated attracting five million customers within five years, the web site reported citing anonymous sources.
But by the end of 2014, only 200,000 customers had signed up and the current total remains “well short” of the early expectations, though exact figures were unavailable, the web site reported.
In addition to previously reported delays and the search for cheaper installation strategies, Google has also ordered current Fiber CEO Craig Barratt to cut half of the effort’s 1,000 person team, the web site said. The expense of connecting new customers has also come in far above early projections, the web site said.
Why The Workforce Is Likely To Get Older
There are several take-aways from the latest Transamerica Center for Retirement Study (TCRS), including the fact that Baby Boomer workers aren't going anywhere. If you're a Gen-Xer waiting for your Baby Boomer boss to retire so you can move up, you might have a long wait.
“Baby Boomers are the generation that has re-written societal rules at every stage of their life,” said Catherine Collinson, president of TCRS. “Now, Baby Boomer workers are redefining retirement by planning to work until an older age than [the] previous two generations.”
Collinson cites numbers which show that 66% of Boomers are either already working past age 65, or plan to. And it's not entirely because their work is their life. Most who plan to keep working indefinitely say they need the income or the health benefits.
Many Boomers – 34% in fact – are counting on Social Security to be their primary source of income once they do retire – hence the large number who plan to keep working. Eighty-seven percent expect Social Security to at least be a part of their income once they stop working. But at this point, Boomers may be better off financially than the two younger generations in the work force. One-third say they expect to get income from a traditional pension plan while 78% say they have retirement accounts they can draw on. Even so, there are still plenty of Boomers who haven't saved enough for a comfortable retirement.
Apple Boosts iPhone Security After Spyware Find
Minimum Wage Increase Puts 1,400 D.C. Restaurant Employees Out of Work
D.C. restaurants have lost 1,400 jobs in the first half of the year. This loss—the steepest drop since the 2001 recession—follows a significant minimum wage hike.
Data suggests that the D.C. restaurant industry has been unable to absorb the higher cost of labor without reducing employment opportunities. Since mandating a base wage of $10.50 in July 2015 and another increase to $11.50 in July 2016, D.C. has seen employment in the restaurant industry trend downward, for a 3 percent job loss in 2016.
“Cities and states around the country that are considering a hike in their minimum wages to $15 an hour might want to take a look at how that’s working out in the nation’s capitol,” writes Mark Perry of the American Enterprise Institute.
While D.C. has not yet increased its minimum wage to $15, the wage hikes it has implemented have put it well on that path. And, according Perry, even these more modest increases have had negative effects. Using the neighboring suburbs in Maryland and Virginia as a “natural experiment,” Perry compared the employment rates in D.C., where the minimum wage had been raised, to the rates in states with lower minimum wages—$8.75 and $7.25 respectively.
Illinois Officials: Pension Change Could Be 'Devastating'
Gov. Bruce Rauner's administration says a pending move by Illinois' largest public-pension fund would increase the state's required payment by hundreds of millions of dollars, potentially leading to higher taxes or massive cuts to education and social services already suffering amid a budget crisis.
The board of the Teachers Retirement System, which serves more than 400,000 teachers outside of Chicago, is scheduled to vote Friday on whether to lower its expected rate of return on investments. A reduction would trigger a larger contribution from the state, where the Republican governor and Democrat-led Legislature have gone more than a year without agreeing on how to close a multibillion-dollar budget hole or address a $111 billion unfunded pension liability.
The retirement system won't make public the recommended change or its impact on Illinois' payment for the next fiscal year until Friday's meeting, spokesman Dave Urbanek said Wednesday. When the system last changed its assumption — from 8 percent to 7.5 percent in 2014 — it cost Illinois an additional $200 million. That's almost the total combined state funding for six public universities last year, Rauner's senior adviser for revenue and pensions warned.
"Unforeseen and unknown automatic cost increases will have a devastating impact on the state's ability to provide adequate resources to social service programs and education," Michael Mahoney stated in a memo sent Monday to Rauner's chief of staff.
Who Really Owns the U.S. Gold Reserves?
Earlier this month, presidential hopeful Donald Trump announced his new 13-member economic advisory team. Among those selected was Dr. Judy Shelton, a senior fellow and co-director of the Atlas Sound Money Project. This collaboration works to raise awareness about and develop a set of resolutions for what its mission statement calls “the inherent problems of our current monetary system.”
Dr. Shelton first became recognized after she authored The Coming Soviet Crash in 1989. In this book, Shelton claimed that the Kremlin's finances were in much worse shape than generally thought and accurately predicted the collapse of the USSR — which occurred less than 24 months after the book was published. In September 2015, Dr. Shelton published an article in the New York Sun titled “How a Gold-Backed Bond Could Open an Avenue To Monetary Reform.” In this article, she wrote: "For people who think it would be wise to start restoring the link between money and real value – and who believe the cost of capital should be decided by free-market forces rather than central bankers – it’s time to consider how we might begin to move toward a gold standard."
Dr. Shelton ultimately proposes the U.S. Treasury should issue gold-backed bonds that could be redeemed at maturity in either dollars or gold. She argues that: "...it [gold-backed bonds] would send an important signal that America recognizes the need to reverse the trend toward financialization of the economy in favor of encouraging genuinely productive output."
I personally really like Dr. Shelton's idea. But if the proposal is to use America's gold reserves as the backing for such bonds, there could a major roadblock in the way of such a plan... And that's simply because the U.S. gold reserve stockpile has a bit of a liability attached to it. Only very few Americans really understand this. But here's what happened...
Sears Loses $395M in Another Grim Quarter
Sears Holdings posted another large loss and a 5.2% decline in same-store sales during a grim second quarter that cast more doubt on its efforts to return to profitability. The retailer reported Thursday that it lost $395 million, or $3.70 a share, for the period ended July 30, compared to profit of $208 million in the year-ago quarter. Kmart same-store sales declined 3.3%, and Sears domestic same-store sales fell 7%.
At a $2.03 loss per share, adjusted earnings beat analyst estimates for a loss of $3.48, and the total same-store sales decline of 5.2% improved on the first-quarter drop of 5.9%.
But the results did little to soothe investors, driving Sears shares down 4.3%, to $14.07, in trading Thursday. The stock has now lost more than 30% so far this year. “We continue to face a challenging competitive environment,” Sears Chief Executive Edward S. Lampert said in a news release.
CFO Rob Schriesheim noted that through property sales and the termination of certain loans, Sears was able to generate $1.4 billion in financing in the first half of this year. But the company also announced Thursday that it had accepted a $300 million loan from Lampert’s hedge fund, ESL Investments.
Buybacks Tank - Will Stocks Follow?
Our recent reports have worried about “short-term” stock market froth in August as indicated by options trader sentiment showing relatively heavy call buying. The additional anxiety over the contrasting US presidential candidates may also send investors and business deals to the sidelines making the fear of lower stocks and a weaker economy a reality, at least temporarily.
The new wrinkle is that Trim Tabs Investment Research indicates that corporate buybacks have suddenly plunged. We show the estimated repurchase levels below in dark blue that mirror the lowly levels of 2012. Share buybacks always rise during equity bull markets.
With paltry organic economic growth since the 2009 recovery, share buybacks become a critical source of buying power to maintain rising stock prices. When repurchases fall sharply, stock prices, in general, are more likely to fall as well.
We can theorize this drop is due to (1) anxiety over anti-business policies discussed by both Presidential candidates or (2) uncertainty over the Federal Reserve desire to raise rates making corporate debt issuance for stock buybacks more costly. Corporate debt issuance has receded about 8% from the record 2015 levels and is still quite high. We suspect that once we get past the November 8th US presidential election, share buybacks will normalize. However, if they remain weak, then expect stock prices to be valued with far more risk.
Rousseff impeachment trial kicks off in Brazil
Recovering From the Post-Great Recession "Recovery"
By popular measures, the U.S. economy is in the midst of one of the longest economic recoveries in its history. After all, the current economic expansion — now 85 months and counting — is the fourth-longest since 1857. As reported by the Bureau of Labor Statistics, the U3 unemployment rate was 4.9 percent in July, less than half the level seen during the depths of the Great Recession. Meanwhile, the housing market is booming and the stock markets are hovering near their all-time highs.
So why does the Real Clear Politics “Direction of Country” polling average indicate that Americans believe the United States is on the wrong track by a margin of more than 2:1? Quite simply, because it is.
In finance, the traditional means by which to determine the probable value of a stock is through fundamental analysis. Investopedia defines the term as follows: Fundamental analysis is a method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts study anything that can affect the security's value, including macroeconomic factors such as the overall economy and industry conditions, and microeconomic factors such as financial conditions and company management. The end goal of fundamental analysis is to produce a quantitative value that an investor can compare with a security's current price, thus indicating whether the security is undervalued or overvalued.
Fundamental analysis can be incremental, exacting, and tedious, and frequently flies in the face of investor exuberance, but the process is critical. Without it, speculators tend to follow a herd mentality: Assets increasing in value must be worth buying. The faster things rise, the greater the demand.
12 Jobs Being Lost to China
Since the beginning of the 21st century, millions of U.S. jobs have been displaced or eliminated due to cheaper foreign labor. Trade balance changes in China alone have displaced over 3 million jobs in roughly the last 15 years, the majority of which were in the manufacturing sector. According to projections from the Bureau of Labor Statistics, many more jobs are going to be lost to outsourcing and offshoring in the coming years.
Based on BLS projections of overall employment change by occupation between 2014 and 2024, 24/7 Wall St. identified the 12 jobs that will shed more than 10% of their workforce due, at least in part, to foreign labor. In keeping with historical patterns, manufacturing jobs are the most likely to be outsourced in the coming years.
Even as labor costs in countries such as China are on the rise, they remain lower than in the United States. In China, labor costs 5% less, according to research conducted by management consulting firm Boston Consulting Group. With companies citing lower labor costs as the primary reason for moving jobs outside of U.S. borders, they will likely continue this move in the foreseeable future.
Most jobs at risk of being outsourced are low-skilled positions that require little to no training. Businesses invest relatively little in such employees and are therefore able to shift operations to a different country, where not much training and investing is required to realize the lower labor costs. Outsourcing is not the only way cheaper foreign labor is undercutting U.S. employment in certain fields. Foreign companies are also benefitting from lower production costs and passing the savings onto consumers. The increased competition from foreign companies making the same products for less is also negatively affecting demand for American products and therefore workers.
Government: New 700,000-Word Regulation is Good for You
The nine-second video of two federal bureaucrats the White House posted on its blog last week was notable for something it omitted. That something was very big -- and putting it on display might not have fit with the apparent propaganda purpose of the video. The video itself starred EPA Administrator Gina McCarthy and Transportation Secretary Anthony Foxx, who sat side-by-side at a table. The video starts with McCarthy and Foxx simultaneously scratching their signatures onto separate and apparently singular sheets of paper.
Eight seconds into the nine-second clip, when McCarthy has finished signing her name, she looks up and declares: "Done." Foxx, who signed even faster than McCarthy, spreads his arms in a gesture that appears to say: That's it, folks. Then he echoes McCarthy: "Done." So, what exactly had these two bureaucrats done?
McCarthy and Foxx published a blog text that accompanied the video on the White House website. In it, they explained that -- as part of President Obama's "Climate Action Plan" -- they had approved a regulation that imposes new "greenhouse gas emissions and fuel efficiency standards" on vehicles ranging from heavy-duty pickup trucks to tractor-trailer combinations used to haul cargo. A copy of the final regulation is posted as a PDF on the EPA website. The top of each page carries this disclaimer: "This document is a prepublication version, signed by the Secretary of Transportation, Anthony R. Foxx, and the EPA Administrator, Gina McCarthy, on August 16, 2016. We have taken steps to ensure the accuracy of this version, but it is not the official version."
The regulation is 1,690 pages long. Page 1,689 is the signature page for Secretary Foxx. Page 1,690 is the signature page for Administrator McCarthy. When Foxx and McCarthy signed the regulation -- as recorded in the video on the White House website -- they did not place the first 1,688 pages anywhere within view of the camera.