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Monday 06.27.2016

Post-Brexit global equity loss of over $2 trillion worst ever: S&P

The $2.08 trillion wiped off global equity markets on Friday after Britain voted to leave the European Union was the biggest daily loss ever, trumping the Lehman Brothers bankruptcy during the 2008 financial crisis and the Black Monday stock market crash of 1987, according to Standard & Poor's Dow Jones Indices.

Global markets skidded following the unexpected result from the June 23 referendum, in which Britons voted to withdraw from the EU by a 52 percent to 48 percent margin.

Markets in mainland Europe were hit the worst, with Milan .FTMIB and Madrid .IBEX each down more than 12 percent for their biggest losses ever. Britain's benchmark FTSE 100 .FTSE was down nearly 9 percent at one point on Friday, but rallied to close down 3.15 percent.

The route started in Asia, with the Nikkei .N225 down 7.9 percent, and carried over into Wall Street as the S&P 500 fell 3.6 percent. Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital LLC in New York, said the severity of the sell-off was partly due to investors misreading the outcome and betting the wrong way.

Brexit is Just What the Dr. Ordered By: Peter Schiff

Janet Yellen should send a note of congratulations to Nigel Farage and Boris Johnson, the British politicians most responsible for pushing the Brexit campaign to a successful conclusion. While she’s at it she should also send them some fruit baskets, flowers, Christmas cards, and a heartfelt “thank you.“ That’s because the successful Brexit vote, and the uncertainty and volatility it has introduced into the global markets, will provide the Federal Reserve with all the cover it could possibly want to hold off on rate increases in the United States without having to make the painful admission that domestic economic weakness remains the primary reason that it will continue to leave rates near zero.

For months the corner that the Fed has painted itself into has gotten smaller and smaller. It continues to say that rate hikes will be appropriate if the data suggests the economy is strong. Then its representatives continually cite (arguably bogus) statistics that suggest a strengthening economy, which cause many to speculate that rate hikes are indeed on the horizon. But then at the last minute the Fed conjures a temporary reason why it can’t raise rates “right now,” but stresses that they remain committed to doing so in the near future. But each time they conduct this pantomime, they lose credibility. Sadly, Fed officials are discovering that their supply of credibility is not infinite, even among those who would like to cut them a great deal of slack.

But the Brexit vote saves them from all this unpleasantness. Now when critics question the Fed’s unwillingness to deliver on the suggested rate hikes, given what they believe to be a strong economy, all the Fed needs to do is point to the “uncertainty” that will be in play now that the world’s fifth largest economy is disengaging from the European Union. And since this process is bound to be long, messy, and fraught with uncertainties (as there is no precedent for a country leaving the EU), this will be a handy excuse that the Fed will be able to rely on for years.

Brexit could also place severe strains and uncertainties on the global currency markets. The fear of financial losses could encourage investors to seek safe haven assets like gold and, at least for now, the U.S. dollar. Given that there is already much concern that the dollar is valued too highly against most currencies, and that this has created imbalances in the global economy, any surge in the dollar that results from Brexit may have to be fought by the Federal Reserve through lower interest rates and quantitative easing. This would rule out the potentially dollar-strengthening interest rate hikes that they supposedly planned on delivering. So as far as Janet Yellen is concerned, the British have given her the gift that keeps on giving.

Europe’s Trouble Is Good for Gold.

“Now the catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible. The financial markets worldwide are likely to remain in turmoil as the long, complicated process of political and economic divorce from the EU is negotiated.” — George Soros

UK voters voted narrowly to exit the European Union on June 23rd, 52:48 percent, confounding complacent stock markets, currency markets and the UK and Europe’s politicians, who nearly all smugly assumed that Prime Minister Cameron’s Project Fear campaign would intimidate GB’s voters to vote to remain in the EU. The prospect of unlimited future immigration from Romania, Bulgaria and eventually Turkey and Ukraine appears to have trumped Prime Minister Cameron’s Project Fear campaign. Now in the aftermath, it is lose-lose all around, except in the precious metals sector, where the massive uncertainty generated, will boost the role of physical gold and silver as safe havens to the fiat euro and fiat British Pound, for months if not years to come.

So when will Great Britain exit the EU? The real question is will GB exit the EU even with the referendum outcome? Europe’s Great leaders all met on Saturday and demanded that GB get on with triggering Article 50 of the Lisbon Treaty, and start the process of a two year UK-EU negotiation that ends in GB leaving the EU. This massive uncertainty is bad for all, say the EU leaders. But on Friday, Prime Minister Cameron announced his resignation to take effect after his Conservative Party elects a new leader in October. It will be for that new Prime Minister to start the Article 50 process, sometime in October – December, if at all. However, it is by no means certain that GB will actually get to leave the troubled European Union. John Bull checked in, but checking out is hard.

The UK Parliament has two chambers, an unelected House of Lords, aka the House of Horrors, where only a tiny fraction of the members are anti-EU. The elected chamber is the House of Commons, where roughly three quarters of the existing members are on record as wanting to remain in the EU. Neither House is bound by the result of the referendum. Even if the next Prime Minister is pro leaving, it’s by no means certain he could get leaving legislation through either House, even assuming generous terms from the EU27.

Bo Polny-Poverty, Hunger, Joblessness, Anger and then War

The Buyback Menace: How Share Repurchases Are Pushing Us To A Recession

The S&P 500 has bounced back from its February lows in the high 1800s. So, despite the huge Brexit dip Friday, the index has regained about 11 percent since winter 2016. Many credit the uptick to stabilizing Chinese markets, a Federal Reserve bank that’s been far less hawkish on interest rate hikes than expected, but the one aspect of economic activity propping up the value of the market issues is stock buybacks.

Yahoo! Finance reported buybacks have hit a new record high during the last 12 months, with companies spending $589.4 billion buying back their shares. A total of $161.4 billion of that was in the first quarter alone. Here’s what’s scary about that: The last time one financial quarter saw that much buyback spending was in 2007, right before the country began tilting toward the Great Recession.

Shareholders, frustrated with absurdly low dividend yields compared with historic averages, have pressured boards to increase their returns. Corporate boards have basically two ways of returning profits to shareholders: raising dividends or repurchasing shares. Buying shares reduces the amount of common stock, effectively increasing the value of shares that remain outstanding by reducing the supply, as long as demand stays consistent.

This means a couple of things; for starters, investors must sell their shares to actually realize the positive effect intended. But another consequence could be interpreted as an artificial inflation of the market values of public companies. Earnings are also distorted, as earnings are reported on a per share basis, and when there are fewer shares, earnings per share (EPS) will necessary be higher, rather actual profits have improved substantially or not.

Be careful about what we shouldn’t automate - even if we can, says futurist

The world is obsessed with efficiency and technology to make things cheaper, which is “not a bad thing” – but futurist Gerd Leonhard warns that businesses are losing sight of their customers; and society, the things that make us human.

“For example, it may be efficient to have an artificial intelligence, a robot, offering financial advice or insurance brokering. But that lacks the human factor of relationship,” said the CEO of The Futures Agency, a global consultancy that advises businesses on how to prepare for the future.

“The goal of business is not efficiency. We’re confusing the goal of business, which is customers’ happiness, right? And a customer’s happiness is created by many more things than numbers and efficiency and algorithms.” Mr Leonhard, one of the world’s leading voices on digital transformation, is noted for not simply advocating its inherent benefits, but also urging caution about the impact that these advances will have on humanity.

One of the things he cautions against is surrendering the assessment of all things human to the computers. These days, the use of algorithms that analyse people and their behavior through all kinds of data points – their location, search terms used, email, and so on – is widespread. But what they pick up is still not “our reality”. For instance – a computer might surmise that an employee is useless because he “doesn’t sell anything, doesn’t email anybody”. “But maybe there’s another function the computer doesn’t know,” said Mr Leonhard.

Bad News For Glut As US Offshore To Hit Record In 2017

Companies pumping oil from the Gulf of Mexico will ramp up production in coming months, propping up American output, despite efforts to curb production and raise barrel prices. The United States currently produces 8.7 million barrels a day - a half a million less than where the figure stood last year, according to data from the Energy Information Administration (EIA).

Low prices caused by the high output levels have kept oil exploration efforts at a minimum. Around 500,000 more barrels of crude from Mexico’s namesake gulf will go online by 2017, according to analysis by the Wall Street Journal that included government and private sector sources.

"The projects are coming faster and sometimes bigger than expected,” Roger Diwan of IHS Energy told Dow Jones. "The ramp-up seems to have accelerated during low prices.” A handful of sizable fields had been funded for construction years prior, when prices were higher. The projects completed construction as scheduled and will begin production in the coming months.

Once the fields become operational, the U.S. Department of Energy predicts offshore oil production will set a record in 2017 with 1.91 million barrels - 24 percent more than in 2015 - flowing out of surrounding bodies of water by next December.

Americans Struggle To Swallow Higher Drug Prices

People Are Spending Less At Restaurants — And It's Ominous News For The Economy

The restaurant industry is providing some ominous insight into how Americans are feeling about the economy.

Restaurant sales are virtually flat, and they're expected to remain weak for the rest of the year, according to The NPD Group, an industry research firm.

Weak growth in the restaurant industry is a warning sign for the entire economy, Nomura analyst Mark Kalinowski told Business Insider.

People need to eat, and when they pull back on restaurant spending, it's a clear sign that they aren't feeling confident about the economy. "The whole restaurant industry in aggregate is pretty lackluster," Kalinowski said. "It's not impossible for things to get better, but it does look like the odds are against a rebound."

Poll: Half of Voters Distrust Government on Gun Control After Orlando Terror Attack

An NBC News/WSJ polled conducted after the Orlando terror attack shows half of voters distrust the government on gun control.

The start date for conducting the poll – June 19 – was one week after the attack that killed 49 people at the Pulse Orlando nightclub. According to NBC News, 50 percent of voters believe the government “will go too far in restricting gun rights” while 47 percent believe the government “will not do enough.”

And despite the relentless Democrat push to ban “assault weapons” in the wake Orlando, 49 percent of voters said such a ban is “NOT worth it because it will not stop the attackers from getting the weapons they need.” A smaller group of voters – 45 percent – believe the ban is “worthwhile.”

Think about it: One week after Omar Mateen entered Pulse Orland0 with an AR-15 and a handgun and killed 49 people, half of voters expressed distrust regarding the government’s attempt to use the incident to secure more gun control. Moreover, the percentage of voters who believe an “assault weapons” ban is not worthwhile is larger than the percentage who believe otherwise.

Keiser Report: Your Special Brexit Coctail

They Are Putting Armed Guards On Food Trucks In Venezuela

We are watching what happens when the economy of a developed nation totally implodes. Just a few years ago, Venezuela was the wealthiest nation in all of South America, and they still have more proven oil reserves than anyone else on the entire planet including Saudi Arabia. But now people down there are so hungry and so desperate that some of them are actually hunting dogs, cats and pigeons for food. Just a few days ago, I gave a talk down at Morningside during which I warned that someday we would see armed guards on food trucks in America. After that talk was done, I went back up to my room and I came across a New York Times article which had been republished by MSN that explained that this exact thing is already happening down in Venezuela…

With delivery trucks under constant attack, the nation’s food is now transported under armed guard. Soldiers stand watch over bakeries. The police fire rubber bullets at desperate mobs storming grocery stores, pharmacies and butcher shops. A 4-year-old girl was shot to death as street gangs fought over food. Venezuela is convulsing from hunger.

Hundreds of people here in the city of Cumaná, home to one of the region’s independence heroes, marched on a supermarket in recent days, screaming for food. They forced open a large metal gate and poured inside. They snatched water, flour, cornmeal, salt, sugar, potatoes, anything they could find, leaving behind only broken freezers and overturned shelves.

All over the country, people are standing in extremely long lines day after day hoping to get some food. Sometimes the food trucks don’t bring anything, and sometimes it is just scraps like fish heads and rotten fruit.

London-Based Gold Seller Says 'Phones Are Ringing Off The Hook'

A British gold broker says sales are at an all-time high since UK voters decided to leave the EU. "There has been record online sales on the GoldCore website . . . the phones are ringing off the hook," says GoldCore founder Mark O'Byrne in a news release.

On the day Brexit results were announced spot gold popped $70 per ounce peaking at $1,330. Other gold sellers like BullionVault, CoinInvest.com and The Royal Mint all reported a surge in sales.

On the same day the Brexit results were announced, "buy gold" Google searches soared 400% in the United Kingdom, according to Google Trends.

O'Byrne says there has also been sizable selling but "sellers are vastly outnumbered by buyers." "We have had more sales than during the Lehman crisis and at the height of the Eurozone debt crisis. It is nearly all buying with a preference for gold over silver. We may have to restrict trading to existing clients if we continue to see this level of demand."

How To Decide When Your Self-Driving Car Should Kill You

Self-driving cars have a lot of learning to do before they can replace the roughly 250 million vehicles on U.S. roads today. They need to know how to navigate when their pre-programmed maps are out of date. They need to know how to visualize the lane dividers on a street that's covered with snow.

And, if the situation arises, they'll need to know whether it's better to mow down a group of pedestrians or spare their lives by steering off the road, killing all passengers onboard. This isn't a purely hypothetical question. Once self-driving cars are logging serious miles, they're sure to find themselves in situations where an accident is unavoidable. At that point, they'll have to know how to pick the lesser of two evils.

The answer could determine whether self-driving cars become a novelty item for the adventurous few or gain widespread acceptance among the general public. In other words, the stakes are huge.

Nearly 34,000 people die in car crashes in the U.S. each year, and another 3.9 million people are injured badly enough to go a hospital emergency room, according to the Centers for Disease Control and Prevention. The National Highway Traffic Safety Administration says 93% of traffic accidents can be blamed on human error, and the consulting firm McKinsey & Co. estimates that if humans were taken out of the equation, the savings from averted crashes would add up to about $190 billion a year. "Us having to drive our own cars is responsible for a tremendous amount of misery in the world," said University of Oregon psychologist Azim Shariff, who studies the factors that prompt people to make moral decisions.

Time Warner Cable & Charter Overcharged Customers $7.2 Million a Year

A U.S. Senate investigation just gave consumers a reason to cut the cord. According to a report released Friday, TWC overcharged customers nationwide an estimated $639,948 between January and April this year, with the projected yearly total pegged at $1,919,844.

On top of all that, Charter, TWC’s new parent company as of May, told the Senate’s Subcommittee that it “over-billed customers by at least $442,691 per month,” which works out to $5,312,292 per year. That’s $7.2 million in faulty charges. So what caused it?

Over the course of a six-and-a-half year timeframe analyzed by the subcommittee, “Time Warner Cable and Charter made no effort to trace equipment overcharges to their origin unless customers specifically asked them to and did not provide notice or refunds to customers,” they said in the report. Worse still, “Time Warner Cable and Charter did not automatically refund or credit customers for equipment overcharges they discovered.”

Fortunately, TWC and Charter have agreed to amend their policies. However, for its part, TWC said it “will not investigate when it began overcharging those customers unless customers bring specific concerns to the company’s attention.” The new policies will alert customers to overcharges and help them decide whether to take a credit or refund.

The Absurd Concept of Negative Interest Rates

750,000 Californians Past The Age Of 65 Are Still Working

Regular readers are well aware that residents are rushing out of California in droves for many reason, least of which is the high cost of living. For those older California residents that choose to stay however because they simply can't uproot their lives and start "fresh" somewhere else, the reality is even more gruesome as they have no choice but to continue working into their retirement years. More than 740,000 Californians between the ages 65 and 74 are still employed or looking for work the Sacramento Bee reports, and the reasons are largely attributable to money.

As the Sacramento Bee reports, more than 740,000 California residents between ages 65 and 74 are employed or looking for work, roughly double the number from 15 years ago, according to a Sacramento Bee review of the latest census data.

Much of that growth reflects a swell of baby boomers entering retirement age. But the proportion of California seniors between ages 65 and 74 still working or looking for work also has risen, going from 20 percent in 2000 to 26 percent in 2014.

Californians are working longer for a number of reasons. Some do not have enough money to retire or are among a growing number of seniors living in poverty. Others are waiting to collect their full allotment of Social Security payments as the federal retirement age gradually rises from 65 to 67. Many are simply in good health and want to keep working as life spans increase.

Obamacare Premiums Are Expected to Go Up by This Much in 2017

Stop me if you've heard this one before: Uncertainty surrounding the Affordable Care Act is beginning grow once again.

The ACA, better known as Obamacare, has been fully implemented on an individual basis for about two-and-a-half years now, and the results of its implementation show a mix of positives and negatives.

On the plus side, about 12.7 million people chose to enroll via Obamacare's marketplace exchanges in 2016, and a near-equal number of individuals and their families have gained coverage via the expansion of Medicare in 31 states. Having so many people gain access to health insurance over such a relatively short period of time has pushed the uninsured rate to a new low. Gallup's latest poll pegged the uninsured rate at 11% in the first quarter of 2016, down from 17.1% in the quarter immediately preceding Obamacare's implementation, whereas the Centers for Disease Control and Prevention listed the uninsured rate at just 9.1% (although the CDC includes Medicare patients in its tally).

Conversely, Obamacare has also made life tougher for millions of Americans. The individual mandate, which requires individuals to purchase health insurance, has led non-compliant Americans to pay a growing penalty come tax time. Beefed-up minimum benefit requirements on Obamacare marketplace exchanges also caused millions of people to lose their longtime health plans and/or required them to change primary care physicians.

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