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Tuesday 05.02.2017

A $50,000 Chrysler Minivan Explains Slowing U.S. Auto Sales

To understand why the U.S. auto market isn’t growing, consider a top-of-the-line minivan from Fiat Chrysler Automobiles NV now costs about $50,000. With twin second-row touch screens, reclining third-row seats, a vacuum and automated parallel parking, the Chrysler Pacifica packs plenty of features to justify a hefty expense. But this big a price tag puts the prototypical family vehicle out of reach for most Americans.

After U.S. auto sales fell in each of the first three months of the year, the annualized sales pace, adjusted for seasonal trends, probably slowed in April to about 17.1 million, from 17.4 million a year earlier. With marginal buyers beginning to balk due to sticker shock, Ford Motor Co. cautioned last week it’s not going to be able to count on price increases to boost North American profits the rest of this year.

“At some point that will be one of the aspects that will continue to drive down the volume,” Bob Shanks, Ford’s chief financial officer, said in an interview. “It will become tougher.”

The average new-car price in the U.S. rose about 2 percent over the past year, according to data from TrueCar Inc.’s ALG. That’s an increase more consumers may have been able to stomach when borrowing costs were low and loose credit made pricier trucks and sport utility vehicles more attainable. Industrywide sales have declined 1.5 percent this year through March, according to researcher Autodata Corp.

You'll probably pay at least $57,000 to send your kid to college

Each college charges a different price for tuition and some tack on a variety of fees. But there's a bigger problem: Many students at the same college will pay different prices to attend. Some receive scholarships based on merit and others receive need-based grants, largely depending on how much their parents earn.

And there's another thing that makes it hard for families to plan. You often won't see the final first year's bill until your child has already committed to enrolling. Parents have little to rely on besides average costs before they know where their child wants to enroll. So what are the average costs?

Start with those from The College Board, which provides the nationwide net average cost to students. This calculation takes into consideration the financial aid award students receive, making it more accurate than simply looking at the sticker price.

Here's what most families actually paid, including the price of tuition, fees, room and board for full-time undergraduate students during the 2016-2017 school year: - Two-year community colleges: $7,560 - Public colleges for residents: $14,210 - Private non-profit colleges: $26,100

DOJ subpoenas three European banks on Treasury rigging

The Justice Department expanded its two-year-old probe into Wall Street’s rigging of US Treasury markets, and sent subpoenas to three European banks.

The DOJ is seeking documents and communications from BNP Paribas, Royal Bank of Scotland, and UBS, sources told The Post.

The subpoeanas, which were sent out in the last few weeks, signal that the investigation has expanded beyond the scope of Goldman Sachs and Deutsche Bank — the two companies that have so far been at the center of the DOJ’s probe. The investigation into rigging the Treasury has been one of the most secretive probes in Washington, sometimes to the frustration of other agencies who are seeking similar information.

The Securities and Exchange Commission, the Commodities Futures Trading Commission, the New York Department of Financial Services and the European Commission are all looking into collusion to rig the $14 trillion market.

As Expected, A 'Bipartisan' Budget...More Spending! - Ron Paul

Are American Debt Slaves Getting in Trouble Again?

American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up? Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.

Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.

Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. So this is happening.

Other worries about consumer debt in the US are piling up. The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Mortgage debt is still hanging in there, given the surge in home prices that make defaults unlikely. But of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.

Trump Open to Raising Gas Tax and Negotiating Tax Overhaul Plan

President Donald Trump said he’s willing to raise the U.S. gas tax to fund infrastructure development and called the tax-overhaul plan he released last week the beginning of negotiations.

“It’s something that I would certainly consider,” Trump said Monday in an interview with Bloomberg News in the Oval Office, describing the idea as supported by truckers “if we earmarked money toward the highways.”

Trump released a tax plan on April 26 that would cut the maximum corporate tax rate to 15 percent from the current 35 percent. The same reduced rate would apply to partnerships and other “pass-through” businesses. He said he is willing to lose provisions of his tax plan in negotiations with Congress but refused to specify which parts. He also repeated his call for a “reciprocal tax,” which would be aimed at imposing levies on imports to match the rates that each country charges on U.S. exports.

“Everything is a starting point,” Trump said of his tax plan. The Trump proposal also would eliminate the alternative minimum tax and the estate tax, cut individual income-tax rates and repeal an investment-income tax for high earners, fulfilling a conservative wish list from the past several years.

Mnuchin Says Reaching 3% U.S. Economic Growth May Take Two Years

Treasury Secretary Steven Mnuchin said an overhaul of the tax system, regulatory reform and better trade deals will help produce 3 percent U.S. economic growth within two years.

Returning health in the U.S. job market, a 12 percent rise in stock prices since Trump’s election and consumer sentiment at the highest in 16 years are painting an optimistic picture of the economy. Even so, the economy expanded at its slowest pace in three years at 0.7 percent in the first quarter-- underlining the challenges of an administration aiming for 3 percent or higher annual growth.

It’ll probably take two years to reach 3 percent growth “and then we can have a sustained level,” Mnuchin said in a conversation with Fox Business Network editor Maria Bartiromo at the Milken Institute Global Conference on Monday in Los Angeles.

The Trump administration has placed an overhaul of the tax system -- describing it as the biggest reform in history -- at the top of its legislative agenda. A blueprint released last week includes proposals to slash taxes for business and individuals, simplify the system for filers and close loopholes for the rich, relying on faster economic growth to offset the losses from tax cuts. The goal is for a tax-reform package to be signed into law this year.

We’re getting closer to ‘yes’ on a health care bill

The billionaire founder of a $74 billion fund had a brutal assessment of brick-and-mortar stores

TPG's David Bonderman just struck down on why retail is hurting. "There are more store fronts than the country needs," Bonderman said May 1 panel at the Milken Institute Global Conference held at the Beverly Hilton.

Bonderman is the billionaire founding partner of TPG, an alternatives firm with $74 billion in assets. According to Business Insider's Hayley Peterson, more than 3,200 store closures have been announced in 2017.

"The guys that are having the most trouble are selling other peoples' brands," Bonderman said, citing department stores. "You can get those brands over the internet on many different sites. You can get them in retail stores on many different sites," he added. "The internet has proven much more resilient than many of us thought."

Bonderman highlighted many online retailers' ability to offer free returns and convenient services like Amazon Prime, which offer 24-hour free delivery, as challenging brick-and-mortar stores.

Target Cuts CEO Cornell's Pay by One-Third After Difficult Year

Target Corp. Chief Executive Officer Brian Cornell got no bonus and saw his pay cut by one-third after a year marred by disappointing sales, customer defections and executive departures.

Cornell’s compensation declined 33 percent last year to $11.3 million, most of which came from stock awards valued at $9.65 million, according to a proxy statement filed Monday. The company said management fell “well short” of sales and profit targets.

Cornell has grappled with the aftermath of a poor holiday season, when customers increasingly chose to shop at rivals like Wal-Mart Stores Inc. or online through Amazon.com Inc. Target’s heads of marketing, digital, grocery and innovation have all left during the past year. To cope with the slowdown, Cornell is reducing prices, refurbishing stores and introducing new brands in areas like apparel. The plan hasn’t appeased investors, who have pushed the shares down 23 percent this year.

While Cornell’s pay declined in each of the past two years, rival Wal-Mart CEO Doug McMillon earned $22.4 million in 2016, up 13 percent from the previous year. Wal-Mart has posted 10 consecutive quarters of positive U.S. same-store sales.

The Health Care Version of “Too Big to Fail”

During a frenzied Friday afternoon, on March 25, House Speaker Paul Ryan trudged over to the White House, head bowed in apparent humility. He was there to tell the big boss that they weren’t going to get the 216 votes needed to pass the legislation that would “repeal and replace” Obamacare. The GOP bill wouldn’t pass even though they controlled the House.

It was obvious the House Democrats weren’t going to let any part of Obamacare go (despite its many flaws). What was less apparent before March 25 was the extent to which sub-factions within the Republican Party felt the same way, although for different reasons.

The more conservative House Freedom Caucus (with about 30 members) thought that the proposed American Health Care Act, dubbed “Ryancare,” was Obamacare-lite. If it had passed, health insurance companies would have received an estimated windfall of $1 billion or more.

But it didn’t extinguish the biggest thorn of Obamacare for the Freedom Caucus: required participation. The plan would still have banned discrimination against individuals with pre-existing health conditions, as a concession to voters. The Tuesday Group of Republicans (50 moderate GOP House representatives) were also worried about the loss of coverage to their constituents. And the quickly drafted piece of legislation did not address loss of coverage.

Steve Forbes: Trump’s tax reform will be good for Apple

Could Millennials Living With Parents Threaten the Economy?

The U.S. Census Bureau recently reported that the number of 18- to 34-year-olds living in their parents’ home has increased in the past decade — to the most on record. So what’s the harm of sticking around with mom and pops a few more years?

Saddled with massive student loan debt, it might seem smart for them to live rent-free while working to pay down that debt, solidifying their financial footing before flying the coop. But there could be lasting implications on the economy and, unfortunately, on millennials, too.

The census report shows that 24 million lived in their parents’ home in 2015, the most on record. But here’s the kicker: of those living in their parents’ home, one in four are idle, meaning they neither go to school nor work. The latest numbers don’t really help the reputation of a cohort already dubbed the “basement generation” for their predominant living arrangement.

But to be fair, millennials are still struggling to find jobs. The millennial unemployment rate stands at an average of 13.1 percent since 2000, compared to an average of 5 percent for other age groups. And by many measures, millennials may be the hardest hit from the Great Recession compared to other generations, when you consider wage stagnation and how that will affect their ability to catch up.

Businesses aren't spending. Can tax reform change that?

The sweeping tax overhaul plans from President Trump and House Republicans attempt to address an enduring mystery of the economic recovery: Why are U.S. businesses, flush with cash, so unwilling to spend it?

By investing more in factories, stores, equipment and new employees, companies could provide a sorely-needed boost to the lackluster U.S. economy. But many business owners have been hesitant to open their wallets. They are wary of another downturn, and some sectors are struggling against low oil prices and a rising dollar that makes exports more expensive.

Business investment has been weak for the last couple of years, dragging down economic growth. “We’ve seen resurgence in business sentiment more recently, but you still see a lot of people running companies who are somewhat scarred from the Great Recession, so there’s still a lot of caution out there,” said Sarah House, an economist at Wells Fargo Securities.

Major tax changes — such as slashing the corporate rate, changing how companies deduct capital expenditures and luring billions of dollars of foreign earnings back to the United States — could spur businesses to spend more here, analysts and business executives said. But the issue is complex. And aside from the difficult politics of enacting a major tax overhaul, the proposed changes might not be enough to get hesitant businesses to open their wallets.

Next recession will hit during Trump’s first two years

A recession in the United States is likely to come within the next two years. It is difficult to determine when a recession will occur based solely on economic activity. Economists argue about the precursors to a recession as a matter of course. I am not making the case that one will happen because I believe I am competent to enter that debate. Rather, I am making the case that a recession is increasingly likely simply by looking at the frequency with which they occur.

The last recession started in 2007 and ended in 2009. The one before that started and ended in 2001. The two previous recessions ran from 1990 to 1991 and from 1981 to 1982. In these cases, the time between the end of one recession and the start of another was about eight years on average. Between 1945 and 1981, recessions were much more frequent, but obviously something has happened to extend the time between them.

Eight years have passed since the last recession, and the U.S. is in the zone for one based on its experience since 1980. A recession is likely sometime between now and 2019. It is always possible that we will set a new post-war record for expansion, but that is unlikely simply because periodic recessions are necessary. During expansions, economies tend to accumulate inefficiencies. Low interest rates allow businesses to survive despite their inefficiency, and this will continue if a recession does not occur. In the current expansion, we have had extraordinarily low interest rates, so even with relatively low growth rates, pruning is needed.

Recessions are unpleasant and hurt some people disproportionately. However, the U.S. recession will likely hurt other countries more. When combined with other global economic problems, the recession will likely weaken Europe’s anemic recovery and strike another blow at the Chinese. It will also put further downward pressure on commodity prices, considering that the United States is the world’s largest importer and has been, to some extent, the engine stabilizing the international system.

Pension fights in Dallas, Houston raise fears of police, firefighter shortages

The bruising battles over legislative fixes to failing pension systems in Dallas and Houston could eventually evolve into a statewide war over the kind of retirement funds public employees should be offered.

For decades, cities have used the promise of lucrative and dependable pensions as a way to help recruit for public safety jobs. They also use differences in pension benefits as a way to pull more experienced officers from other cities’ departments. Michael Mata was already a cop when he heard that Dallas’ pension benefits could help him retire a millionaire. “I was specifically told that when I was hired from San Antonio,” the Dallas police sergeant told the Texas Tribune last week.

During legislative testimony and interviews in recent months, first responders have repeatedly said that cities have long managed to avoid paying them higher salaries for dangerous jobs by promising solid, attractive pension plans.

Yet now that the Dallas and Houston pension problems have become financial crises threatening catastrophic fallout in two of America’s biggest cities – a situation that has driven some first responders to retire or change departments – some business leaders and conservatives are pushing for a sea change in public employee retirements.

Income inequaltiy

Clouds Gathering Above America’s Shopping Malls

The recent dominance of Amazon.com and dismal department store sales figures seem to suggest the suburban shopping mall’s days are numbered. A confluence of factors is driving this trend. For years, the financial health of large department stores have been deteriorating largely due to growing popularity of online shopping.

While weak department store sales are nothing new, there’s increasing concern of economic contagion affecting malls in general. Wall Street traders have placed bets on failures of mall owners and operators, and widespread defaults on commercial real estate debt.

Is the mall, an American icon, truly doomed? Or—to quote another American icon—are reports of its demise greatly exaggerated? The truth is a bit more nuanced. The typical suburban mall begins life with a plot of land bought by a commercial real estate developer or real estate investment trust (REIT). While under construction, the developer must acquire tenants such as department stores and other retailers, who sign long-term leases.

A shopping mall features one or more anchor stores and dozens or hundreds of smaller retailers. Anchors are usually famous department stores such as Nordstrom, Sears, or Macy’s that serve as the headline, or anchor, tenant of the shopping mall to attract consumer traffic. The importance of anchor stores cannot be understated. They not only pull in the most customers, but their presence also affects the fortunes of all other stores within the mall, and serve as a major draw for other retail tenants to lease adjacent space.

Wells Fargo CEO sees benefits to putting employees before shareholders

Wells Fargo & Co Chief Executive Officer Tim Sloan said recruiting and retention have improved dramatically in the wake of a sales scandal, as the third-largest U.S. bank has made big changes to how it pays and evaluates employees in its branches.

The bank's reputation took a severe hit last year after employees created as many as 2.1 million accounts without customer authorization to hit aggressive sales targets. Scrambling to contain the fallout, Wells Fargo stopped paying branch workers based on how many products they sold and increased its minimum pay rate to between $13.50 and $17 per hour, depending upon the market in which they work.

"Turnover now in our retail bank is the lowest it's been, that I can recall, in my 30 years at the company," Sloan said Monday at the Milken Institute Global Conference in Beverly Hills, California.

Sloan, who got a battlefield promotion to the top job in October after his predecessor, John Stumpf, resigned under fire, said the bank has not had trouble attracting new employees since it changed its policies. "When you put your shareholders first – I hope Warren Buffett isn't listening by the way – but when you put them first, then you're going to make mistakes. Because you're going to make short-term decisions that aren't focused on creating a long-term, successful company," Sloan said.

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