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Wednesday 11.30.2016

Fed’s Powell Says Case for Rate Hike Has ‘Clearly Strengthened’

Federal Reserve Governor Jerome Powell signaled his readiness to raise interest rates, as unemployment and inflation approach the central bank’s goals.

“The case for an increase in the federal funds rate has clearly strengthened since our previous meeting earlier this month,” Powell said in the text of a speech he is scheduled to deliver Tuesday in Indianapolis. He was referring to the Nov. 1-2 session of the Federal Open Market Committee.

“The committee has been patient about raising rates,” he said. “That patience has paid dividends. But moving too slowly could eventually mean that the committee would have to tighten policy abruptly to avoid overshooting our goals.”

Policy makers are widely expected to lift the Fed’s benchmark borrowing rate when they gather next month in Washington, which would mark only the second increase since the economic expansion began in 2009. Chair Janet Yellen indicated in testimony to Congress earlier this month a rate increase could happen “relatively soon” if the economy continues to show further progress.

Venezuela's currency is in 'free fall'

Venezuela's currency continues to collapse. Just in November, the bolivar has lost 55% of its value. It's the latest sign of Venezuela's extreme economic, political and humanitarian crisis. Sky high food prices -- or massive shortages of basic food and medicine -- have plagued Venezuelans for years and have gotten worse this year. Inflation in Venezuela is expected to rise 1,660% next year, according to the IMF. The country has been in recession for three years now.

One dollar fetched 1,567 bolivars on November 1. On November 28, a dollar was worth 3,480 bolivars on the widely-used unofficial exchange rate monitored by Dolartoday.com.

"It's a currency that's going down the toilet," says Russ Dallen, managing partner at Caracas Capital Markets, an investing firm in Miami. "No one wants to hold on to something that's going to be worth 50% less in a month."

A few factors are behind the bolivar's most recent plunge. The government has been forced to pump cash into its system because the money in circulation isn't enough to pay for goods that cost a lot more.

Royal Mint offers gold trading based on blockchain

The Royal Mint has paired up with the markets operator CME Group to build a gold market using nascent blockchain technology, in a bid to broaden London’s appeal as a place to buy and sell bullion.

The state-owned Royal Mint hopes to start accepting trades from the middle of next year on its Royal Mint Gold platform, which will log each transaction using blockchain, a transparent and so-far tamper-proof method of keeping records.

The market will be underpinned by up to $1bn in gold bars, or around two tonnes at current prices, which will be stored in the Mint’s vaults near Cardiff. Blockchain is best known as the open technology that was used to build Bitcoin, the online payment system that can be used anonymously.

CME and the Royal Mint have spent about a year trying to adapt the technology to use in the gold market, where the methods of physically buying and selling the commodity have remained largely unchanged for hundreds of years. “We were looking for a solution that was efficient in handling trading. We didn’t set out with blockchain in mind but we wanted to address the problem that it costs money to vault gold. This is a digital solution to physical gold trading,” said David Janczewski, director of new business at the Royal Mint.

India's cashless companies win in rupee ban

Yale's Robert Shiller: US Voters Backed Trump Due to Economic Powerlessness

Nobel laureate economist Robert Shiller of Yale University says to those with average and low incomes, Donald Trump's simple slogan "make America great again" sounded like "make you great again."

And that, simply, is why Trump won, says the 2013 Nobel laureate in economics, professor of economics at Yale University and the co-creator of the Case-Shiller Index of U.S. house prices.

Trump campaigned in part "on a proposal to cut taxes dramatically for those with high incomes, a group whose members often have elite educations as well. And yet his most enthusiastic support tended to come from those with average and stagnating incomes and low levels of education," Shiller wrote for Project Syndicate. "What gives?" he asked.

"Trump’s victory clearly appears to stem from a sense of economic powerlessness, or a fear of losing power, among his supporters. To them, his simple slogan, 'make America great again,' sounds like 'make you great again.' Economic power will be given to the multitudes, without taking anything away from the already successful," Shiller said.

CalPERS Weighs Pros/Cons Of Setting Reasonable Return Targets Vs. Maintaining Ponzi Scheme

In just a couple of months, the largest pension fund in the United States, the California Public Employees' Retirement System (CalPERS), will have to decide whether they'll rely on sound financial judgement and math to set their rate of return expectations going forward or whether they'll cave to political pressure to maintain artificially high return hurdles that they'll never meet but help to maintain their ponzi scheme a little longer. The decision faced by CALPERS is whether their long-term assumed rate of return on assets should be lowered from the current 7.5% down to a more reasonable 6%.

As pointed out by Pensions & Investments, the decision has far-reaching consequences. First, a lower rate of return will equate to higher contribution levels for municipalities throughout California, many of which are on the verge of bankruptcy already. Second, given that CALPERS is the largest pension fund in the United States, a move to lower return hurdles could set a precedent that would have to be followed by other funds around the country in even worse shape (yes, we're looking at you Illinois).

The stakes are high as the CalPERS board debates whether to significantly decrease the nation's largest public pension fund's assumed rate of return, a move that could hamstring the budgets of contributing municipalities as well as prompt other public funds across the country to follow suit.

But if the retirement system doesn't act, pushing to achieve an unrealistically high return could threaten the viability of the $299.5 billion fund itself, its top investment officer and consultants say. “Being aggressive, having a reasonable amount of volatility and (being) wrong could lead to an unrecoverable loss,” Andrew Junkin, president of Wilshire Consulting, the system's general investment consultant, told the board at a November meeting. CalPERS' current portfolio is pegged to a 7.5% return and a 13% volatility rate.

Consumer confidence surges to 9-year high

Consumer confidence soared to a nine-year high in November despite Donald Trump’s upset victory in the presidential election, which was expected to intensify political uncertainty and roil markets.

A closely watched index of Americans’ outlook increased to 107.1 from an upwardly revised 100.8 in October as their views of both current conditions and the next six months improved significantly, the Conference Board said Tuesday. That’s the highest level since July 2007, five months before the Great Recession began.

Most consumers were surveyed before the election. “It appears from the small sample of post-election responses that consumers' optimism was not impacted by the outcome,” said Lynn Franco, the Conference Board’s director of economic indicators. “With the holiday season upon us, a more confident consumer should be welcome news for retailers.”

Some economists said uncertainty over the presidential election was dampening consumer sentiment, with investors particularly worried about a Trump win that would signify a change from the status quo and spark a potential selloff in stocks. But markets surprisingly rallied strongly after his upset victory on anticipation of massive government infrastructure spending and tax cuts.

Eight Italian Banks Risk Failing Following Next Week’s Referendum

After the UK voted to leave the European Union in June, populist movements throughout the Eurozone have gained popularity. Though no other European countries are set to vote on leaving the EU, the strength of populism threatens the passage of an Italian constitutional referendum set to take place this upcoming Sunday, December 4th.

The December referendum, championed by current Prime Minister, Matteo Renzi, seeks to greatly reduce the power of the nation’s Senate as well as its regional governments, making the executive branch significantly more powerful. Renzi has staked his position on Prime Minister on the referendum’s outcome, vowing to resign if the referendum fails.

However, Renzi is not the only one who could suffer if the referendum fails. Not one, but eight of Italy’s largest banks “may fail” if Italians vote against the measure, according to senior bankers who spoke to the Financial Times. Many of Italy’s largest banks have been in crisis for quite some time and largely considered to be completely insolvent as Italian banks, overall, hold €360 billion in bad debt yet only have €225 billion of equity. Renzi’s hands have been tied regarding how to address the crisis thanks to new EU banking regulations and has since championed a “free market” solution, which unfortunately has proven near impossible due to the magnitude and prevalence of bad debt among Italian banks.

As a result, fear has shot through the Italian banking sector, causing Italian bond risk to spike. However, the uncertainty of Italian banks is not a localized phenomenon, European banking stocks have now erased of all their gains following a jump in stock prices after the US presidential election. Investors are also pulling their money out of Italy in record numbers, which is also a bad sign.

A couple of strange and terrible things are happening to the Chinese economy all at once

A few strange and terrible things are happening to the Chinese economy all at once.

The Chinese yuan is falling against the dollar — down a whopping 5% in the last 6 months. Capital outflows are increasing as people pull their money out of the country. Outflows jumped to $206.7bn in 3Q from $98.5bn in 2Q. And, despite the yuan's weakness, Chinese exports are not getting a boost.

This is all bad news for Chinese policymakers. For months they have been trying to ease the yuan's natural decline in value as market forces have guided it down. Capital outflows make this already "impossible mission" — as Societe Generale economist Wei Yao calls it — even more precarious.

The Chinese government is trying to move its economy from one based on manufacturing and foreign investment to one based on the services sector and domestic consumption. It's the way the entire world is going, but for China to keep up, its people need to have purchasing power — their currency needs to be strong.

Commercial Bank of Dubai to launch digital-only bank

Commercial Bank of Dubai (CBD), will launch ‘CBD NOW’ next year, which it claims to be the nation’s “first” digital-only bank targeting millennials and “digitally connected” customers. However, two other banks in the region have also said the same thing.

As Banking Technology reported in June, Emirates NBD is planning to launch the UAE’s “first” digital bank targeted at millennials. The new bank is part of its three-year AED 500 million ($136 million) strategy to improve its processes, products and services.

While in October, Banking Technology reported that Abu Dhabi Islamic Bank (ADIB) partnered with Fidor Bank to launch the region’s first “community-based digital bank”.

Back to CBD’s first or third launch, depends on your view. Walter Lironi, general manager digital transformation at CBD, says its research shows that “digitally connected customers” want an experience “whereby everything can be done via smartphone”.

Organization In Greece Help Refugees With Prepaid Cards

Currently more than hundreds of thousands of refugees are stranded in refugee camps in Greece. After several Balkan countries sealed their borders, some of these refugees are trapped on Aegean Islands, but more are enduring the unsanitary and at times dangerous camps. In an attempt to bring hope and better conditions, e-money firm Prepaid Financial Services (PFS) launched a prepaid card program through international relief organization Samaritan’s Purse to help financially support those refugees living under these conditions.

For the past year, Samaritan’s Purse has been working in Greece, focused on the refugee issue to improve conditions from offering water and sanitation help, to shelter options, emergency food, as well as critical relief items and even asylum services. The organization sees PFS’ prepaid cash card as a secure and beneficial way for refugees to access what they need in the local markets.

“Until recently, our main support was provided through in-kind distributions,” Sally Morson, cash program manager for Samaritan’s Purse, said in a release. “Now, we are moving toward a cash-based response where the refugees and migrants will be given the freedom of choice, which promotes dignity and resilience.”

The cards, which each have a unique PIN code, ATM and Point of Sale (POS) capabilities, will be distributed to refugees and migrants across Greece. Experts say this method of distributing cash is most appropriate for the context. “We are confident that this new method of distributing funds will alleviate pressure on Samaritan’s Purse, letting them focus on continuing to improve conditions and support people in camps,” said Noel Moran, CEO of PFS.

How Trump could replace Obamacare

40 is the new 20 when it comes to roommates

Middle age, mid-career and living with roommates in apartments is not exactly the American dream that Generation X was taught to expect, but it's the reality for an increasing number of people over 40 — and it might not be such a bad thing.

Almost one in five roommates (19%) are now over 40 years old, an increase of 23% in two years, according to a study by roommate-matching service SpareRoom. The percentages are even steeper in several high-cost cities.

About a quarter seek an apartment — and roommates — after being divorced or widowed. The arrangement can provide unexpected financial and social benefits, said Matt Hutchinson, communications director of SpareRoom. Roommates can help keep renters over 40 socially active and healthy during a major lifestyle change. They can also put city living and the entertainment and career opportunities it affords in financial reach, as the cost of rent has ballooned in recent years.

“If you live in a city, you want to feel like you live in a city," Hutchinson said. "If you’re spending all your money on rent to live by yourself, and commute in and out of a city, you’re not going to have that feeling."

India’s Economic Suicide; Quantitative Vs. Qualitative Research

Indian Prime Minister Nahendra Modi has declared 500 and 1,000 rupee notes illegal for exchange. Since these are worth a mere $7.26 and $14.53, he has de facto ended paper currency for use in all major transactions.

Half the population do not have bank accounts, and consumer trade has come to a screeching halt. That is because the highest permitted denomination fetches only about one US dollar, and exchanging the larger notes requires long waits and government identification, which a quarter of Indians do not possess.

Beyond the self-inflicted economic crisis, Jayant Bhandari says India is becoming a police state. She is on a fast track to banana-republic status, before fragmentation into smaller political units.

The gold market in India is in chaos, as people rid themselves of the domestic fiat currency: the price per ounce has skyrocketed to above $2,000, and tax authorities are blocking the retailers. This means the black market is set to boom, as smugglers adapt to the new opportunity, but import demand from India has dropped momentarily, since the formal markets are under the gun.

Feds Warn Banks: High-Pressure Incentives Can Lead To Another Wells Fargo Fiasco

As Wells Fargo continues to dig itself out of a years-long — if not decade-long — fake account fiasco perpetrated by employees under strain from high-pressure sales goals, federal regulators are warning other financial institutions that these sorts of programs could harm consumers and possibly lead to stiff penalties.

The Consumer Financial Protection Bureau issued a compliance bulletin Monday urging supervised financial companies to take steps to ensure their incentive programs for employees and service providers to meet sales goals do not lead to improper — and illegal — actions.

According to the CFPB bulletin [PDF], tying bonuses or employment status to unrealistic sales goals or to the terms of transactions may intentionally or unintentionally encourage illegal practices such as unauthorized account openings, unauthorized opt-ins to overdraft services, deceptive sales tactics, and steering consumers into less favorable products — all practices that Wells Fargo employees were found to engage in for nearly a decade as a means to meeting sales goals and keep their jobs.

While the Bureau recognizes that incentive programs have been used for years by financial institutions to reward and retain employees, it is concerned that if left unchecked, such programs could lead to additional Wells Fargo-like fiascos.

Why Gold Is "Close To That Rejection Level"

Overtime rule freeze likely too late for restaurants

Impending changes to federal overtime regulations were frozen last week by a federal judge in Texas. But many restaurant companies likely complied with the new rules this week anyway.

Hospitality attorneys across the country say many of their clients at all levels — whether independent restaurants or large chains — had already announced to employees plans to adjust salaries this week as a result of new Department of Labor overtime rules that were scheduled to go into effect on Dec. 1. Some made changes months ago in anticipation of the impending implementation deadline.

Rather than roll back what for many was a salary increase, employers are complying with the new rules as written, despite the legal challenges. “You put an expectation in employees’ heads that they’re going to get a raise, and if you don’t follow through on that, you’ll be creating a lot of animosity,” said Glenn Grindlinger, a partner and labor and employment specialist at Fox Rothschild LLP.

The preliminary injunction last week put a hold on the implementation of long-expected rules by the DOL that raised the salary threshold under which workers would be eligible for overtime pay from $23,660 annually to $47,476.

Self-driving truck tests begin in Ohio

Ohio transportation officials will begin a program this week to test a self-driving truck on state roads. The initiative is part of a set of transportation investments and may provide data that guides policy-making and improvements for driverless technology for use in the trucking industry.

The project is supported by autonomous truck manufacturer Otto, owned by Uber, and Gov. John Kasich, who will release the vehicle on a 35-mile stretch on U.S. 33 between Dublin and East Liberty. That piece of land is a part of the Transportation Research Center, which acts as an independent automotive testing facility allowed to test vehicles on public roads.

Next year, the corridor is slated to be equipped with a sensor system and fiber-optic cable network for added data collection. State officials said a human driver will be on board to ensure additional safety for motorists sharing the roadway.

The testing program is one of many in states and cities across the nation as the public and private sectors look to driverless technologies to ease burdens on the environment, roadway infrastructure and labor costs for shipping and distribution.

Thanksgiving Weekend Spending Drops 3.5%

The number of shoppers over the four-day weekend hit a record 154 million but steep discounts put a dent in the average spend. Consumer spending over the Thanksgiving weekend took a hit from retailers’ early holiday promotions and bargain hunters taking advantage of discounts.

In its annual survey of spending over the four-day weekend, the National Retail Federation found that a record 154 million people made purchases, up from 151 million a year ago. But the average spend fell 3.5% to $289.19 from $299.60 over the same period a year earlier.

Growing competition at both online and brick-and-mortar stores has pushed retailers to offer steep discounts. More than one-third of customers surveyed by the NRF said that all of their purchases were on sale, up 11% from a year ago.

“It was a strong weekend for retailers, but an even better weekend for consumers, who took advantage of some really incredible deals,” NRF Chief Executive Officer Matthew Shay said in a news release. As Reuters reports, Black Friday no longer marks the start of the season, with more retailers starting holiday promotions as early as October and running them until Christmas Eve.

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