Only Days Until World Money Changes Forever
The International Monetary Fund (IMF) has established a plan for its special drawing rights (SDR) valuation basket to be revised at midnight on September 30. This IMF plan has laid the foundations for a new monetary standard based on world money.
While these SDR plans might seem complex, they’re actually not complicated. People will make it complicated or make it sound confusing but the Federal Reserve has a printing press, they can print dollars. The IMF also has a printing press and can print SDRs. It’s just world money that could be handed out and could be used to cause inflation. I am often asked, “What’s an SDR? If I had 100 SDRs how many dollars would that be worth? How many euros would that be worth?”
There’s a formula for determining that, and as of today there are 4 currencies in the formula: dollars, sterling, yen, and euros. Those are the 4 currencies that comprise in the SDR calculation. As of the close of business on September 30th, or in effect when we wake up October 1st, there’s going to be a fifth currency added, which is the Chinese yuan.
The Chinese yuan does not meet the typical SDR criteria, so it would not normally qualify. However, this is a political decision by the IMF attempting to get China on the bus. In the 1960s we had an expression, “you’re either on the bus or off the bus,” and right now China’s off the bus but as of September 30th they’re going to be “on the bus.” They’re going to be part of the SDR.
Wells Fargo CEO Stumpf to forfeit $41 million in unvested equity amid independent probe
Wells Fargo CEO John Stumpf will forfeit about $41 million in unvested equity and temporarily forgo his salary, as the company's independent directors launch an investigation into the company's retail banking practices.
The bank also said on Tuesday that Carrie Tolstedt, the former head of the community banking division, had left the company and would not receive a severance payment. She forfeited about $19 million in outstanding unvested equity awards and would not exercise her outstanding options during the investigation, Wells Fargo said.
Neither Stump or Tolstedt would receive a bonus for 2016, the bank said in a statement. Wells Fargo said that the actions announced on Tuesday "will not preclude additional steps being taken with respect" to Stumpf and Tolstedt.
The announcement comes after Wells Fargo was hit with $185 million in penalties for opening fee-generating accounts without authorization. Over a five-year period, 5,300 Wells Fargo employees were fired over the practice cited by the Consumer Financial Protection Bureau, CNBC confirmed with Wells Fargo. The activity occurred in the company's community banking division.
World’s 200,000 Richest People Hold 12% of World’s Wealth
Of the estimated 7.6 billion people on earth, just 0.004% (212,615 individuals) control some $30 trillion in wealth. That’s slightly more than the 2015 GDP of the United States and China combined, and 12% of the world’s total wealth.
Based on an estimated compound annual growth rate of 8.4%, that total will rise to $46.2 trillion by 2020 according to a new report released Tuesday by Wealth-X. The Wealth-X report includes only ultra-high net worth individuals (UHNW) who claim at least $30 million in net assets.
The Americas account for 43% of the UHNW population, Europe, the Middle East, and Africa (EMEA) account for 32.8%, and the Asia-Pacific region accounts for 24.2%. Year-over-year changes, however, favored Asia-Pacific which saw rise of 3.9% in total wealth compared with a rise of 1.5% in the Americas and a decline of 2.4% in EMEA.
The number of UHNW individuals in the Americas increased by 1.9% year over year and rose 1.4% in Asia-Pacific. EMEA saw a drop of 1.5% in the number of people in the UHNW class. A UHNW individual’s average wealth is $141 million and the average age of these individuals is 59. More than 87% are men and nearly 13% are women, but men have nearly 89% of the wealth while women have just over 11%.
Deutsche Bank Drops Further as Merkel Gives No Sign of Help
Deutsche Bank shares are down further after German Chancellor Angela Merkel gave no indication that her government might help the group with a U.S. demand for a $14 billion legal settlement.
Merkel told reporters in Berlin on Tuesday that “we naturally hope, even if there are temporary difficulties, that things will develop positively.” But she refused to say if she’d consider stepping in over the U.S. government’s demand for a settlement in its investigation of the bank’s sales of mortgage-backed securities.
Deutsche Bank shares fell another 2.3 percent to 10.31 euros and are off 55 percent for the year as the bank struggles with weak profits and legal concerns like the U.S. investigation. Investors took huge losses on mortgage-backed securities in 2007-2008 when they turned out to be riskier than thought, helping kick off a global financial crisis.
Deutsche Bank says it hasn’t asked for help with the U.S. authorities. It says it expects to pay less than $14 billion after negotiations. And it says it is not seeking financial assistance from the government. In any case, a government bailout could run into new EU rules aimed at protecting taxpayers from troubled banks and forcing shareholders and bondholders to take losses before taxpayers pay. And 2017 is an election year in Germany.
IRS to eliminate more than 7,000 jobs as fewer people file paper tax returns
In Covington, Ky., a small city of 40,000 just outside Cincinnati, times could be better. Median household income is just around $35,000. Twenty percent of the population doesn’t have health care. And twenty-five percent of residents live in poverty.
But Covington has at least one reliable industry: processing tax returns filed by individuals and businesses by paper. At an Internal Revenue Service facility there, 1,800 employees, including 700 seasonal workers, deal with the glut of dead trees the agency receives daily. They sort mail. They hunt for checks. They send incorrectly completed Affordable Care Act forms back to taxpayers. And they put the analog data they get into computers.
Until now. The Internal Revenue Service said it will eliminate more than 7,000 jobs related to the processing of paper tax returns by 2024 in a move that will reduce its workforce by more than 8 percent — and Covington is the first in the firing line. Citing the growth of electronic tax return filing, the 84,000-person agency will eliminate the jobs in what it refers to as “submission processing” in Austin, Fresno, Calif., and Covington.
By 2019, 1,800 of 4,100 jobs in the Cincinnati region will be eliminated in Covington. By 2021, 3,000 jobs will be eliminated in Fresno. And by 2024, 2,400 jobs will be eliminated in Austin. The IRS will consolidate submission processing work in Kansas City and Ogden, Utah, it said, saving $266 million by 2029.
Do You Really Own Your Gold?
What does it mean to “own” something? It’s a question you should be asking … especially if that something is gold. The Oxford English Dictionary defines ownership as “the act, state, or right of possessing something.” That sounds about right. But what does it mean to “possess” something?
After all, you can own something that’s in someone else’s legal possession. For example, I own a house in Cape Town. My tenants have formal right of possession under a lease. I sleep at night because the sheriff of the Simon’s Town Magistrates’ Court will enforce my superior right of possession under South African law if needed — say, if they stop paying rent.
In other words, the “state or right of possessing something” that isn’t under your physical control depends on contracts and on law. That in turn depends on the ability and willingness of those who honor contracts — and enforce laws — to do so. If you “own” precious metals under certain types of arrangements, you may be shocked to find that you’re in a legal limbo where ownership and possession are hazy at best. It’s not a place you want to be.
German mega bank Deutsche Bank is in serious trouble. The International Monetary Fund (IMF) has publicly called it one of the greatest threats to the global financial system. The Russian government (no doubt crying crocodile tears) is investigating its role in rampant money laundering. And the U.S. government has just announced a fine related to its behavior before the 2008 crisis that is more than the bank’s current market valuation.
“Negative Growth” of Real Wages is Normal for Much of the Workforce, and Getting Worse: New York Fed
The New York Fed published an eye-opener of an article on its blog, Liberty Street Economics, seemingly about the aging of the US labor force as one of the big economic trends of our times with “implications for the behavior of real wage growth.” Then it explained why “negative growth” – the politically correct jargon for “decline” – in real wages is going to be the new normal for an ever larger part of the labor force.
If you’re wondering why a large portion of American consumers are strung out and breathless and have trouble spending more and cranking up the economy, here’s the New York Fed with an answer. And it’s going to get worse.
The authors looked at the wages of all employed people aged 16 and older in the Current Population Survey (CPS), both monthly data from 1982 through May 2016 and annual data from 1969 through 1981. They then restricted the sample to employed individuals with wages, which boiled it down to 7.6 million statistical observations.
Then they adjusted the wages via the Consumer Price Index to 2014 dollars and divide the sample into 140 different “demographic cohorts” by decade of birth, sex, race, and education. As an illustration of the principles at work, they picked the cohort of white males born in the decade of the 1950s.
Economic forces that can turn protests into riots
So far in 2016, more than 700 people have been shot and killed by police. Why do some cases lead to social unrest, such as last week’s riots in Charlotte, North Carolina, while most result in peaceful protests or none at all?
The key may reside with cities’ underlying economic structures, with some harboring a combustible kindling resulting from a combination of segregated neighborhoods, widening income inequality and oppressive financial and policing policies. Since 2009, the country has witnessed riots in cities including Oakland, California; Baltimore; and Ferguson, Missouri.
Rioting may have a political impetus, in which rioters direct their actions toward creating societal change, but economic undercurrents are also at play. While traditional economic theory holds the belief that people won’t harm others without the opportunity to gain something for themselves, more recent research has found that a majority of people will opt to destroy other people’s money if it shrinks inequality, and poorer groups are more likely to take such action.
While Charlotte has been held up as an example of the economic growth of the “modern South,” the city is bifurcated according to race, income and opportunity. As one protester told McClatchy, “We’re not somewhere where you have great opportunities.”
Do the presidential debates impact the market?
Hundreds laid off at Chicago-based Motorola Mobility
Chicago-based Motorola Mobility is shrinking again: Lenovo said Monday it was laying off hundreds of its 55,000 employees, with the majority of the cuts at Moto. Beijing-based Lenovo said in a statement the cuts affect "less than two percent" of its global employees and are part of its ongoing integration with its Motorola smartphone business. Two percent of its workforce would be 1,100 people.
Lenovo would not comment on which teams or global locations were affected by the cuts. Moto's Chicago office had more than 1,600 employees in March 2016, but the company did not say how many local employees it had before Monday's cuts.
Lenovo acquired Moto from Google for $2.91 billion in 2014. At the time, the majority of Motorola’s 3,500 employees were based in Chicago. A year later, Lenovo cut 500 Moto employees — a quarter of its Chicago workforce. A spokeswoman said the Monday job reductions in Chicago were less than than last year's cuts.
”Lenovo is absolutely committed to Chicago and we plan to maintain our Motorola Mobility headquarters there,” the statement said. “Chicago has a well-deserved reputation for technical excellence and as the hub of our global (research and development) for our smartphone business we expect to take advantage of local talent to continue developing Moto products there.”
The Donald Nailed It: “We Are In A Big Fat Ugly Bubble”
Most of the 90 minutes last night was a waste—with both candidates lobbing well-worn clichés, slogans and sound bites at the audience and each other.
But there was one brief moment that made it all worthwhile. That was when Donald Trump peeled the bark off the Fed’s phony recovery narrative and warned that the stupendous stock market bubble it has created will come crashing down the minute it stops pegging rates to the zero bound.
“……Typical politician. All talk, no action. Sounds good, doesn’t work. Never going to happen. Our country is suffering because people like Secretary Clinton have made such bad decisions in terms of our jobs and in terms of what’s going on.
Now, look, we have the worst revival of an economy since the Great Depression. And believe me: We’re in a bubble right now. And the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful. And we have a Fed that’s doing political things. This Janet Yellen of the Fed. The Fed is doing political — by keeping the interest rates at this level. And believe me: The day Obama goes off, and he leaves, and goes out to the golf course for the rest of his life to play golf, when they raise interest rates, you’re going to see some very bad things happen, because the Fed is not doing their job. The Fed is being more political than Secretary Clinton.
First up: a Gold depository in Texas. And then?
A gold depository in Texas is just the first step. After work begins on the state’s first bullion depository — and proposals to create it are due by the end of the week — then officials hope to bring more commodity markets to the state. “Gold is just the first thing,” said state Rep. Giovanni Capriglione, R-Southlake, who asked lawmakers last year to create the depository. “We have been talking to other commodity players, asking if we can create a bigger platform.
“This is just the beginning of something we are starting.” After a gold depository is up and running, he said, officials should look at cattle, oil, gas and more. “We want to say Texas is a place where you can go and not only buy and sell commodities, but you can receive a shipment of those products as well,” Capriglione said. “I see us being able to start turning this into something much more.” But first things first.
Companies interested in creating the Texas Bullion Depository must turn in their proposals by Friday. State officials will choose the winning proposal and a schedule already laid out calls for work on the depository to be under way by Dec. 1.
The depository, under the new Texas law, would give Texans a place to store their gold and other precious metals. But it wouldn’t be just for residents. Financial institutions, cities, school districts, businesses, individuals and countries could do business there as well. Storage fees will be charged to generate revenue for the state.
This is where oil could go if OPEC goes home empty-handed
Oil prices could quickly dive to $40 or lower if OPEC members leave Algeria without any promise of a deal. Ministers were scheduled to meet Wednesday at the end of a three-day energy conference, after several days of on-again, off-again headlines on a possible deal to cut oil production by a reported million barrels a day.
"I think it really comes down to how they manage the message. It looks like they're not going to get any kind of hard agreement but can they keep hope alive for something on Nov. 30," said Helima Croft, global head of commodity strategy at RBC Capital Markets. "They have to go out and broadly say they're all on the same page, and they just have to work out the details."
Another factor for the oil market Wednesday could be U.S. crude inventory data, expected at 10:30 a.m. EDT. According to Platt's, analysts expect a build of 3.2 million barrels of crude. However, the American Petroleum Institute reported a draw of 752,000 barrels in its weekly report late Tuesday afternoon.
But the OPEC meeting could be the bigger driver of prices. West Texas Intermediate crude futures settled down 2.7 percent to $44.67 per barrel Tuesday as the prospect of a deal in Algeria faded. Brent fell nearly 3 percent to $45.94 per barrel.
Houdini's Magic Tricks in Modern Economy & Politics
Greece passes new reforms for fresh batch of bailout aid
Greek lawmakers on Tuesday passed reforms sought by the country's creditors to cut pension spending and expedite privatisations in exchange for financial aid under the country's latest international bailout.
Signalling the conclusion of a first review of bailout terms, parliament voted by a majority to reform the country's electricity market and transfer state assets into an umbrella sovereign wealth fund. The reforms were passed by a majority vote in the 300-seat parliament by members of Prime Minister Alexis Tsipras' leftist-led government. Passage of the reforms may unlock 2.8 billion euros of loans when deputy euro zone finance ministers meet this week.
Greece signed up to an international bailout worth up to 86 billion euros in mid-2015, its third financial lifeline from lenders since 2010. Greece's public sector union (ADEDY) opposed the transfer of assets into the fund, saying it opens the way for the fire-sale of strategic state-controlled companies to private investors.
"Health, education, electricity and water are not commodities. They belong to the people," the union said in a statement. Workers at the country's listed water utilities in Athens and Thessaloniki also walked out on Tuesday to protest at the transfers of the government's stakes to the new fund.
Can the Rally in Silver Continue?
Commodities like gold and silver have surged this year, thanks to geopolitical uncertainty like "Brexit," the Federal Reserve's reluctance to raise its main interest rate and foreign buyers. But with the price of silver up nearly 40% year-to-date, investors are wondering whether it can continue. Experts say it may have more room to run, particularly as global interest rates continue to stay negative.
"I think there are several driving forces, but the rampant rise in the amount of negative interest rate sovereign debt around the world is a major factor," said Andrew Chanin, CEO of Pure Funds, of the rise in silver. "People haven't wanted to own precious metals in the past, because they don't yield anything -- well something that yields zero is better than something that has a negative yield."
An ounce of silver cost $14.32 at the beginning of 2016, fresh off an increase in the federal funds rate from the Federal Reserve in December 2015. Since then, the price of silver has risen to nearly $19.50 an ounce, according to PMBull.com, which tracks gold and silver prices. This comes as the Fed has pushed back interest rate hikes and concern about the U.S. presidential election has weighed on investor sentiment around the world.
In late August, Federal Reserve Chairman Janet Yellen said the case for an increase in the federal funds rate had "strengthened," thanks to a strong jobs market, which has averaged more 200,000 jobs add over the past twelve months and an unemployment rate of 4.9%. Inflation has started to tick up as well, with the consumer price index (CPI) rising 0.2% in August, as the price of shelter and medical care rose.
Bank of England begins corporate debt purchases
The Bank of England on Tuesday (Sep 27) began buying £10 billion of corporate debt under a wide-ranging stimulus programme aimed at propping up the economy after Britain voted to exit the EU. The BoE last month announced it would buy company bonds worth the equivalent of US$13 billion or €11.6 billion over an 18-month period.
It came as the BoE slashed its key interest rate by a quarter-point to a record-low 0.25 per cent and expanded its main quantitative easing (QE) bond-buying scheme by £60 billion to £435 billion. At the same time, it unveiled in August a scheme worth up to £100 billion to encourage banks to lend to households and businesses.
The BoE is meanwhile purchasing debt from non-financial companies which make a "material contribution" to Britain's economy, while foreign firms such as Apple, German rail operator Deutsche Bahn and French oil giant Total as eligible to participate in the scheme.
Britain voted Jun 23 to quit the European Union under the so-called Brexit referendum, causing BoE governor Mark Carney to believe that the country could fall into recession. Economic data since the vote has been mixed, while markets await upcoming releases for a clearer idea of what the future holds.
SpaceX CEO: Are you OK with dying? You can go to Mars
U.S. senators accuse Yahoo of 'unacceptable' delay in hack discovery
Six Democratic U.S. senators on Tuesday demanded Yahoo Inc explain why hackers' theft of user information for 500 million accounts two years ago only came to light last week and lambasted the company's handling of the breach as "unacceptable."
The lawmakers said they were "disturbed" the 2014 intrusion, disclosed by the company on Thursday, was detected so long after the hack occurred. "That means millions of Americans' data may have been compromised for two years," the senators wrote in a joint letter addressed to Yahoo Chief Executive Officer Marissa Mayer. "This is unacceptable."
Yahoo did not immediately respond to a request for comment about the letter, which was signed by Senators Patrick Leahy, Al Franken, Elizabeth Warren, Richard Blumenthal, Ron Wyden and Edward Markey.
Yahoo has faced mounting questions about exactly when it knew about the 2014 cyber attack that exposed the email credentials of users, a critical issue for the company as it seeks to prevent the breach from affecting a pending takeover of its core business by Verizon Inc. The internet firm has said it detected the breach this summer after conducting a security review prompted by an unrelated hacking claim that turned out to be meritless. Yahoo has not given a precise timeline explaining when it was made aware of the 2014 attack, or if it knew of the breach before announcing the deal with Verizon in late July.
Understanding the Many Crises of Student Loans
“There’s a lot of talk about the student-debt crisis, and I’m going to tell you that I don’t think there really is a student-debt crisis,” said Debbie Cochrane, the vice president at The Institute for College Access and Success. “What there are are multiple student-debt crises.”
And though the federal government and the private sector are in various stages of implementing debt-relief programs meant to ease these crises and the strain felt by many people making monthly payments, not all borrowers are created equally, reporters learned at a recent higher-education conference hosted by the Education Writers Association.
In fact, for borrowers with the lowest debt loads, relief can be harder to attain than it is for those graduates with debts exceeding $100,000. To better understand this paradox of student debt, it’s important to address what’s likely not an actual crisis: the $1.3 trillion total debt load for all college-loan borrowers. That astronomical and oft-repeated number masks the many considerable and counterintuitive risks the nation’s college-goers assume by pursuing a postsecondary degree.
Case in point: A former student with debt of $10,000 is more likely to default on her loans than a student owing $100,000, according to federal data. That’s because the lower debt total signals the student probably dropped out before completing school. And evidence suggests that taking some college courses without ever earning a degree gives workers a paltry wage boost compared to those who actually graduate. The obverse is also telling: Students with heavy debt loads are more likely to have earned graduate degrees that often lead to much higher incomes.
Survey Says: Your Bills Are Going Up, But 82% Of Households Still Pay For Cable
It may seem like the golden age of cable and the age of internet TV is upon us, but when you get right down to it, a whole lot of households still subscribe to monthly pay-TV. That said, the latest edition of an annual survey does indeed find that both cable prices and cord-cutting are on the rise — a completely coincidental pair of facts, we’re sure.
The firm that published the data, Leichtman Research Group, has been running annual pay-TV subscriber studies for 14 years. That gives it a decent set of data — from a time when ordering rental DVDs online through Netflix was a new and novel idea, to the present day.
For all that cord-cutting is a true trend, it’s a slow one. The study finds that about 82% of households are subscribing to a traditional pay-TV (cable, satellite, or fiber) service. That’s still a drop of several million viewers from the 2011 high of 87%, but it’s comparable to subscriber numbers from 2005, before the economy crashed or internet TV became a thing.
The study looks at consumers who identify as new to pay-TV, and also those who identify as new to not having pay-TV — basically, consumer growth and cord-cutting.