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Thursday 07.28.2016

The Bloodsuckers Are Coming for Your Cash

A monetary “Frankenstein” birthed by central bankers has broken free from its chains. Many thought the monster would be contained to the eurozone and Japan. But fast-moving developments show that its effects are now being felt in the U.K. Now, it’s only a matter of time before the U.S is smacked upside the head WWE-style. And you can bet most Americans aren’t prepared for what’s coming down the pike…

On Monday, more than 1.3 million Royal Bank of Scotland and Nat West commercial accountholders in the U.K. were notified that they may be hit with negative interest rates on their accounts. That’s right… they’ll actually lose money by keeping a balance with those banks.

Not content with eliminating interest income that working folks have relied on for decades with zero interest rate policy, the bloodsucking central bankers are after even more of everyone’s hard-earned savings with negative interest rate policy (NIRP).

And that has U.K bank customers up in arms. They thought the perverse effects of negative rates were only for those poor saps in the EU and Japan, where it’s official policy. But in our globalized world, bad ideas spread quickly. And the horror of NIRP has now spread to the Bank of England (BoE)… Yesterday, influential BoE policymaker Martin Weale called for more interest rate cut stimulus. And an immediate move to negative has not been ruled out. Banks like Royal Bank of Scotland and Nat West see the writing on the wall. So they’ve started covering their asses by warning their customers. And when the BoE eventually does go negative, all U.K. banks will follow suit. If you think this can’t happen in the U.S., you’re comatose.

Fed rate hike dithering signals still struggling economy

It's no surprise that the Federal Reserve opted to keep rates unchanged at the July Federal Open Market Committee meeting; the Fed will maintain the current range of 0.25 percent to 0.50 percent.

Also as expected, the Fed improved its assessment of the labor market, noting that conditions have "strengthened." While recognizing that payroll growth was "weak" in May, the Fed specifically highlighted the strength in the June employment report that followed. On balance, however, the Fed noted that labor market indicators suggest just "some increase" in labor utilization – a positive but hardly robust endorsement of recent labor market activity.

According to the July FOMC statement, household spending is "strong," however, business investment is "soft." Without strength in business investment and development resulting in robust job and income creation, going forward, there is little hope of maintaining even a moderate pace of spending let alone gaining momentum in consumer activity from here.

Additionally, in the July statement, the Fed continued to acknowledge the still-sluggishly low level of inflation continuing to "run below the committee's 2 percent longer-run objective," and that market-based measures of inflation compensation remain "low." While some may argue the Fed's mandate of full-employment is nearly met, the other half of the equation, stable prices, remains unequivocally unachieved.

Public pension returns could be worst in 15 years

Public pensions are having a rough time of it. Retirement plans for public employees, like teachers and police officers, are facing a $1 trillion funding gap. Meanwhile, large U.S. pensions are expected to report their worst long-term results in 15 years.

The median annual return for public pensions, over 20 years, is expected to hit about 7.5 percent for the 2016 fiscal year, according to an estimate from Wilshire Trust Universe Comparison Service. That’s down from more than 12 percent in 2001.

The two recent recessions have taken a toll on long-term results, said Jean-Pierre Aubry, with the Center for Retirement Research at Boston College. “Even though you have a bull market in the last three or four years, the last 15, the performance has been pretty low, really due to the 2008-9 crisis, and the 2002 dot-com burst,” he said.

Persistently low interest rates haven’t helped. About a quarter of pension fund holdings are in bonds, Aubry said. To close funding shortfalls, pension systems have three main options, said Keith Brainard, research director at the National Association of State Retirement Administrators. “Contributions will have to go up for some, benefits will be lowered, and we are seeing – and we have continued to see over the last number of years – changes in the way the assets are invested,” he said.

Gregory Mannarino-We Are Existing in Fantasy Land

Gold Makes A Great Hedge Against Market Uncertainty - Goldman Sachs

Goldman Sachs, known for its bearish outlook on gold, which was partly credited for initiating gold’s three-year bear market, appears to be changing its tone, with one prominent economist saying he sees gold as a “strategic hedge against problems in the world.”

“We like to say that being long gold is the same as being short politicians and being short politicians is something that you would want right now,” said Jeffrey Currie, head of commodities research at the bank, in an interview with Bloomberg Wednesday

While interest rate expectations and negative bond yields have been a significant driver of gold prices so far this year, Currie is taking monetary policy out of the equation for gold prices. His comments came ahead of the Federal Reserve monetary policy decision.

Instead of focusing on monetary policy, Currie said there are other geopolitical risks that could potentially propel gold higher. “Let’s say China is put in a situation and capital controls are put in place, then you get real physical demand for gold,” he said. “Which is why we like gold as a strategic hedge but we don’t like it tactically,” he said.

1 in 3 Americans Aren’t Taking a Vacation This Summer

If you feel summer means it’s time to pack your bags and cash in those two tickets to paradise, you aren’t alone.

According to a new Harris Poll, 42% of Americans have already taken at least one vacation this summer. And 55% have at least one trip coming up before the end of August, whether it’s their first of the season or not.

But about 35% of respondents, or 1 in 3 Americans, are not planning to vacation at all this summer, which the survey defined as traveling at least 50 miles away from home (one way) and/or including an overnight stay.

Turns out, more than two out of five adults (42%) are spending time off right at home with a staycation. This is especially true of people in rural or urban areas or single adults, Harris said. Of those Americans who have taken a vacation during the warm and sunny months or plan to do so before the brisk autumn season comes, they average two vacations per summer traveler, according to the survey.

Deutsche Bank promises that this is the last year it will waste so much money on legal fines

Deutsche Bank has shelled out €10 billion ($11 billion) in fines and other legal charges over the past three years. But never fear, long-suffering shareholders—the bank has pledged to resolve its biggest pending cases by the end of this year, including a significant one in the US related to mortgage-backed securities sold in the run-up to the subprime crisis. A similar case that Goldman Sachs settled with American authorities earlier this year cost it more than $5 billion.

For its part, Deutsche Bank has set aside €5.5 billion in provisions to cover the costs of future litigation. For years, legal charges have dogged the German lender, explaining the ups and downs in its earnings as much as the actual business of banking.

The bank’s latest quarterly earnings, released today (July 27), beat analysts’ (low) expectations in part because of reduced litigation charges. Still, the bank’s report spent nine pages and more than 6,000 words to explain all of its various ongoing legal entanglements. The word “litigation” was mentioned on the conference call with executives this morning more times than “profit” and “income” combined.

The bank generated a net profit of €256 million for the first half of this year, a drop in the bucket compared with its record-setting loss of nearly €7 billion in 2015.

Global Banks Are Staging a Bank Run in China

The more debt the merrier, the saying goes, at least until the party stops and the hangover starts. This is true for the debt situation inside China, as well as for international lending to China.

According to the Bank for International Settlements (BIS), total cross-border bank lending to China decreased $63 billion to $698 billion at the end of the first quarter of 2016. Over the year, this measure is down 27 percent.

“Since hitting its all-time high at the end of September 2014, cross-border bank credit to China has contracted by a cumulative $367 billion (–33 percent), with interbank and inter-office activity leading the decline,” the BIS writes in a recent report.

The total stock of outstanding cross-border bank credit was $27.5 trillion at the end of March 2016. This is important because that money is not coming back. Once the loan or debt is paid off, it vanishes and can’t be used to fuel other financial or economic transactions. It is part of the reason why many economies in the world are teetering on the edge of a recession with only bank lending to Western governments balancing out the emerging market credit decline.

Top-paid CEOs aren't very good at their jobs

Investors should be wary of CEOs that take home excessive paychecks and bonuses. A new report from MSCI has found that better paid CEOs tend to run worse performing companies, while their underpaid peers achieve significantly better results.

The authors, who studied 429 large U.S. companies over a 10-year period, summarized their findings this way: "Has CEO pay reflected long-term stock performance? In a word, 'no.'" The report found that average shareholder returns over the decade were 39% higher when a company's CEO was in the bottom 20% of earners compared to a CEO in the top 20% of earners.

The trend even holds across sectors. Companies where CEOs were paid above the average in their sector "significantly underperformed" companies where chief executives were paid below average, according to the researchers.

Even when a CEO receives a greater proportion of their compensation in the form of company stock incentives, it doesn't lead to better performance. The average CEO gets about 70% of their annual pay from stock incentives.

A New Normal for the U.S. Economy: Slow and Steady

For the first time since 2009, all sectors of the economy are chugging along at normal rates: The housing industry pulled out of its nosedive, the government sector ended its downturn, and as of this quarter, the industrial recession is over. Policy makers face a new challenge, building on an economy in which no major sector is in contraction. But first, the U.S. deserves some recognition for the feat it just accomplished.

The downturn from 2014 to 2016 was the first time in history when the U.S. had an industrial recession that didn't turn into a broad-based recession.

This month showed that the industrial recession's threat has passed. A key indicator for manufacturing industry sentiment, the ISM Manufacturing Index, is at its highest level in 16 months.

Job losses in the "mining and logging" industry, which includes energy, improved for the fourth straight month, indicating that the big job cuts in energy are probably behind us. Capacity utilization in the mining sector, after falling to its lowest level in history, has bounced sharply two months in a row. United Rentals, an industrial equipment rental company, said in its quarterly earnings call this week that rental rates increased sequentially in June for the first time in 16 months.

WikiLeaks founder says 'a lot more' campaign material could come soon

It looks like the email scandal facing the Democratic National Committee amid the presidential race is not likely to go away.

In an interview with CNN about the dump last week of 20,000 internal DNC emails, WikiLeaks founder Julian Assange said his organization has "a lot more material" concerning the US presidential election and might publish it soon.

"This is having so much political impact in the United States," he told CNN Tuesday, also denying to confirm or deny allegations that Russia is to blame for hacking the DNC. Assange, speaking from the Ecuadorian embassy in London, added that the Hillary Clinton presidential campaign is trying to distract focus from the content of the emails by blaming the Russians.

"Perhaps one day the source or sources will step forward and that might be an interesting moment some people may have egg on their faces. But to exclude certain actors is to make it easier to find out who our sources are," he said.

Bond King's message to the Fed

State Street Bank Fined $382M Over Hidden Markups

State Street Bank and Trust Co. has agreed to pay $382.4 million to settle allegations that it charged custody clients hidden markups on foreign currency exchange trades.

According to the U.S. Securities and Exchange Commission, the Boston-based bank used the markups to realize “substantial revenues,” misleading customers by telling them it priced FX transactions at prevailing interbank market rates, provided “best execution” on FX transactions, or guaranteed the most competitive rates available.

“State Street instead set prices largely driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients,” the SEC said Tuesday in a news release.

To settle the SEC’s investigation, State Street agreed to pay $167.4 million in disgorgement and penalties. It will also pay a $155 million penalty to the Department of Justice, and at least $60 million to ERISA plan clients in an agreement with the Department of Labor. “State Street misled custody clients about how it priced their trades and tucked its hidden markups into a corner where they were unlikely to notice,” Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said. “Financial institutions cannot mislead their customers about their trading costs.”

The Smithsonian Will Pay Someone $64,000 a Year to Drink and Research Beer

Beer nerds, it may be time to dust off your resume: The Smithsonian is hiring a beer historian.

The hoppy gig, which will pay $64,650 a year and includes benefits, is a new role for the Museum of American History, the Washington City Paper reported. Funded by the Brewers Association, the position lasts for three years and seeks someone who’s interested in “research, documentation and collecting American brewing history.”

The museum has long collected information on food history, and in the course of its research, staff members became curious about the origins of the craft beer movement. “We were looking at wine, coffee, cheese, artisanal bread, and farmers markets,” museum curator Paula Johnston told the Washington City Paper. “Well, this movement with small-scale, local regional beer is part of the ethos.”

It’s undeniable that craft beers are on the rise: The number of craft breweries in the U.S. grew by 15% in 2015, to an all-time high of 4,269 establishments, according to data from the Brewers Association. Even major retailers like Wal-Mart are stocking their shelves full of craft brews.

“Housing Bubble” Liar Housing Loans Redux?

Is this a Back to the Future moment for the U.S. housing market? It certainly feels that way. It’s as if Marty McFly took Doc Brown’s DeLorean, fired up the flux capacitor and punched 2007 (instead of 1955) into the dashboard control panel. I mean, we’d all like to forget what 2008 and 2009 felt like, right? But 2006 and 2007? Ah, we can all remember the good times…

When Mom and Pop could get rich just by flipping a house or two… When houses sold in days, not months… When regular Joes could get a NINJA (no income, no job or assets) loan… Well, the good times are rolling again, baby! All three of the above trends are back in play, as if — what did we used to call it? Oh, yeah — the financial crisis never happened.

Let’s talk about house flipping first. Last month, the folks at RealtyTrac, a respected data analysis leader in the industry, issued their quarterly U.S. Home Flipping Report. (I’m serious, that’s what it’s called.) When they ran the numbers, they found that 6.6% of all single family home and condo sales were “flips” (defined as an arm’s length sale of a property for the second time within a 12-month period.)

That’s not quite back to the “good old days” of 2006, when 9% of all such real estate transactions were flips, but it’s getting there — fast. According to RealtyTrac, flipping activity in the first three months this year rose by 20%, compared to 2015’s fourth quarter. It’s running at a pace that’s 55% above the third quarter of 2014. Then there’s the pace of home-purchasing activity. According to Redfin, a national brokerage and research firm, June marked “the fastest, most competitive housing market” since 2009, when the housing bust finally brought in a massive flurry of bargain hunters.

Crude Rally Unwinds Completely – Expect $40 Oil

Oil prices plunged on Wednesday as the EIA shocked traders once again, raising the possibility that the oil markets are not as close to “balance” as once thought.

The EIA revealed several worrying signs for the oil markets. First, crude oil inventories actually increased by 1.7 million barrels for the week ending on July 22, the first increase in over two months. Oil stocks rose to 521.1 million barrels. And in another worrying sign for product markets, gasoline inventories also increased for the week, rising by 0.5 million barrels, the fifth increase in the past six weeks. Gasoline inventories are now sitting largely unchanged from March levels, despite hopes and expectations that the summer driving season would cut down on the high levels of supply. Citigroup now estimates that gasoline inventories around the world have topped 500 million barrels.

The figures came as a surprise, with analysts’ expecting a drawdown in crude oil stocks. Judging by the reaction in the markets, oil traders did not like the data. As of midday trading on July 27, WTI dropped more than 2.5 percent and Brent was down more than 3 percent. WTI is now moving close to the $40 per barrel threshold, a level not seen since April.

"The bottom line is the street has gotten it wrong are far as the oil markets achieving supply-demand balance this year," Tariq Zahir, crude trader and portfolio manager at Tyche Capital Advisors, told Reuters. "We will likely break through the $40 levels in days and weeks to come."

USDA Spends $51,000 To ‘Integrate Art Into Farmers Markets'

Two farmers markets in Kentucky may have more art and music thanks to a grant from the U.S. Department of Agriculture (USDA). The USDA has awarded $51,000 to the Kentucky Arts Council in order to “integrate art” into farmers markets, according to a news release from the USDA Tuesday.

The Arts Council will use the taxpayer money to equip local artists “enormous talent” gain the technical knowledge “required to sell their work at farmers markets,” Thomas Fern, state director for the USDA’s Kentucky Rural Development office, said in the statement.

“Discovering unique skill sets inside these counties, and determining how those skills can be used, provides the potential to generate revenue from sales,” Lori Meadows, director of the Kentucky Arts Council, said.

As outdoor community gatherings, farmers markets have long been synonymous with local arts. Painters and craftsmen have set up booths to sell their wares alongside local farmers for decades, but the USDA wants to make sure the artists and farmers are being entrepreneurial. According to Meadows, “it makes sense to pair local artists, entrepreneurs in their own right, with farmers markets to broaden the reach of those essential community gatherings,” she said in the statement.

Alabama is so broke it may start a state lottery

The governor of cash-strapped Alabama wants to implement a state lottery to keep the lights on. "The state of Alabama has not and cannot at this time pay for the most basic services that we must provide to our people," said Governor Robert Bentley in a video message. "The time has come for us to find a permanent solution."

"This solution will provide funding that we can count on year after year without ever having to raise your taxes or put one more Band-Aid on our state's money problems," he said.

Bentley is calling for a special session by state lawmakers to allow a vote by the general public. The vote would be for a constitutional amendment allowing a lottery that would help plug the hole in the state's dismal finances. He said this could bring in $225 million in annual state revenue.

Bentley said prior efforts like "right-sizing" the government, cutting "wasteful" spending, borrowing money and shifting the management of Medicaid to the private sector haven't been enough to fix the problem.

Reality of Uncertainty

Starbucks Denies Reports That It’s Slashing Hours Chain-Wide

While Starbucks announced planned raises for employees and a loosened dress code, those changes came in the middle of rampant chain-wide unhappiness among baristas. More pay per hour doesn’t help if you can’t actually get scheduled to work, and employees complain that hours have been cut at the stores where they work.

Workers have shared their woes with food reporter Venessa Wong over at Buzzfeed, and their complaints explain why you may have noticed some long lines lately when waiting for a latte.

Starbucks uses scheduling software like many retailers, which calculates how many workers a store might need based on past traffic and other factors. These predictions can be hard to get right even if you’re not trying to fill hours with the fewest workers possible, but workers complain that the company is squeezing them so stores are under-staffed and everyone stressed out and unhappy. Including customers.

Managers told Buzzfeed that the system suddenly began giving them fewer hours to budget for similar forecasts, and it’s front-line workers and customers who are suffering. The change was as if someone on high “flipped a switch on the labor model,” one longtime manager said.

Labor Dept. Orders $1 Million Back Pay for Underpaid U.S. Senate Cafeteria Workers

Hundreds of cafeteria workers who help feed senators and others in the Capitol and nearby office buildings will get back pay totaling more than $1 million because their private employers illegally underpaid them, the Labor Department said Tuesday.

The department's Wage and Hour Division said it is reviewing whether the two federal contractors — Restaurant Associates and its subcontractor, Personnel Plus — should be barred from future government contracts. "Workers in the restaurant industry are among the lowest-paid workers in our economy," David Weil, the division's administrator, said in a written statement. "Most struggle to afford life's basic expenses and pay their bills. They shouldn't have to deal with paychecks that don't accurately reflect their hard work."

The division said the contractors were classifying Senate cafeteria workers for lower-paid jobs than they should have and forced them to report to work before their scheduled start times, without pay. It said they were not paying required health and welfare benefits, paying proper overtime or keeping complete records.

The required minimum wage for federal contractors is $10.15 hourly, and many of the cooks, waiters, janitors and others have been paid less than $11 hourly. Some workers have not been paid when Congress is in recess, and many have second jobs. Top Senate Democrat Harry Reid of Nevada said the Senate should no longer do business with the company.

Orders For Durable Goods Plunge By Largest Amount In Nearly Two Years

Orders to U.S. factories for long-lasting manufactured goods fell in June by the largest amount in nearly two years, reflecting a big decline in the volatile category of commercial aircraft and broad weakness across a number of other areas. The key category that tracks business investment eked out a small gain.

Demand for durable goods dropped 4 percent in June, the biggest setback since an 18.4 percent drop in August 2014, the Commerce Department reported Wednesday. Excluding the volatile transportation area, orders would have still been down but by a smaller 0.5 percent.

The new report was weaker than analysts had been expecting and indicates manufacturing remains under stress from weak global demand and a strong dollar. "It is a tale of two economies," said Chris Rupkey, chief financial economist at MUFG Union Bank. "Consumer expenditures are strong with the economy at full employment but companies are pulling back as the strong dollar and slower world growth are taking a toll on exports."

The orders report prompted some analysts to lower their forecasts for overall growth in the April-June quarter. Economists at Barclays Research trimmed their forecast to 2.3 percent growth, down from 2.4 percent.

NEWS to Disturb the Comfortable...

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