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Thursday 04.13.2017

Government Collects $1.47 Trillion in First Half of Fiscal 2017

The federal government collected $1,473,137,000,000 in taxes in the first half of fiscal year 2017, but still ran a $526,855,000,000 deficit during that time, according to the latest monthly Treasury Department statement.

Treasury receipts include tax revenue from individual income taxes, corporate income taxes, social insurance and retirement taxes, unemployment insurance taxes, excise taxes, estate and gift taxes, customs duties, and other miscellaneous items.

In the first half of fiscal 2017, which included the months of October, November, December, January, February, and March, the government collected a slightly lower amount of taxes than in the same period seen last year. The 2017 fiscal year begins on Oct. 1, 2016, and runs through Sept. 30, 2017. In the first half of 2016, after adjusting for inflation, the government collected $1,498,336,020,000 in taxes, which is roughly $25 billion more than the government collected this year.

In the first half of 2016, after adjusting for inflation, the government collected $1,498,336,020,000 in taxes, which is roughly $25 billion more than the government collected this year.

Trump says Yellen may stay on as Fed chair after her term expires in 2018

Janet Yellen may not be done as the Federal Reserve chair just yet. President Donald Trump told The Wall Street Journal that he was undecided to bring Yellen back as Fed Chair after her term expires in 2018, saying she is "not toast."

"I like her, I respect her," Trump said. "It's very early." Trump called out Yellen multiple times during his campaign, saying the Fed's low interest rate policy was hurting the economy, in addition to accusing the central bank of colluding with former President Obama, Hillary Clinton, and the Democratic Party.

Trump told the Journal that he has talked to Yellen in the Oval Office since his term began in January. Yellen also mentioned a meeting between the two at the last Federal Reserve monetary policy meeting in March.

Yellen's term will expire on February 3, 2018, after which she would have the option to take a term as a member of the Fed's Board of Governors, which past chairs have typically not done. In terms of Fed policy, Trump admitted to the Journal that he is a fan of low interest rates. "I do like a low-interest rate policy, I must be honest with you," the president said.

Fed's Kaplan says balance sheet plans won't shift rate hike path

Dallas Federal Reserve Bank President Robert Kaplan on Wednesday joined many of his colleagues in saying that the U.S. central bank could start shrinking its $4.5 trillion balance sheet later this year, even as it raises rates "gradually and patiently."

"My view is we could start that process as soon as later this year," Kaplan said in Fort Worth, Texas, at the Cornerstone Credit Union League Annual Meeting, adding that he would prefer the Fed phase in the reductions to its portfolio so as to manage the impact on markets.

He told reporters later that he still sees three rate hikes this year as his "baseline" case, and that plans to shed the Fed's assets do not change that view.

The Fed acquired trillions of dollars' worth of Treasurys and mortgage-backed securities during years of quantitative easing designed to push down long-term borrowing costs and pull the economy out faster from the Great Recession. Now that the labor market is nearly healed and inflation is rising toward the Fed's 2 percent goal, Fed officials want to start shrinking that portfolio.

Fed Deliberately Created Bubbles to Save Itself

Payless Delays Severance Pay For Employees Until At Least May 9

Employees of Payless ShoeSource who lost their jobs before the company’s bankruptcy filing have received some really difficult news: They won’t be receiving their severance payments for at least another month, as the company waits for its next hearing in federal bankruptcy court.

Back in January, the chain began preparations to slim down its operations, which included layoffs at the corporate office and outsourcing of information technology work. However, the Topeka Capital-Journal reports that severance payments for 265 former employees, most of whom worked at the company’s headquarters in Topeka, have to meet the approval of the bankruptcy court and the ubiquitous retailer’s many, many creditors.

“To give creditors and parties in interest appropriate notice of the relief requested in the wages motion, the Court will review and address requests for severance and other similar matters at a hearing that is scheduled for May 9, 2017,” a company spokeswoman explained to the Capital-Journal.

In bankruptcy proceedings, even routine expenses must be approved by the court. While the court has already approved some important expenses and “key vendors,” those expenses didn’t include severance payments to employees. The proposed sale of hhgregg, for example, fell apart over the condition that the company consider its advertising agency a key vendor and pay off its bill in full instead of paying, say, suppliers to provide the chain with appliances.

Americans have become lazy and it's hurting the economy

Americans have become lazy, argues economist Tyler Cowen. They don't start businesses as much as they once did. They don't move as often as they used to. And they live in neighborhoods that are about as segregated as they were in the 1960s.

All of this is causing the U.S. to stagnate economically and politically, Cowen says in his new book: "The Complacent Class: The Self-Defeating Quest for the American Dream." Growth is far slower than it was in the 1960s, 70s and 80s and productivity is way down, despite everyone claiming they are working so hard.

"Innovation is painful. That's why we don't do more of it," Cowen, a professor of economics at George Mason University, told CNNMoney. His book makes the case that all of the upheaval of the 1960s and 70s caused people to strive for safety and the status quo in the decades after that.

"Just look at how people bring up children today. Often they won't even let children go outside," he says. Even technology, the one area that has seen some innovation in recent years, has been mostly aimed at making us want to stay home and relax.

Why the Fed Might Have to 'Live' With a Large Balance Sheet

What can the U.S. Treasury’s attempts to keep paying the nation’s bills tell us about the Federal Reserve’s quest to reduce its balance sheet after years of stimulus?

Quite a lot, according to Zoltan Pozsar, research analyst at Credit Suisse Group AG in New York. He suggests that by focusing on the ambitions of most Fed officials to begin reducing the central bank’s asset holdings this year, investors may be missing a crucial -- often over-looked -- role of the U.S. government in driving global money supply.

“Big is beautiful. Big is necessary,” Pozsar writes. “Learn to live with it.” Because of a deal struck to avoid a debt-ceiling showdown during the presidential elections, the Treasury has been cutting its cash balances at the Federal Reserve Bank of New York, helping to boost liquidity and forcing a retreat in the metric the Bank for International Settlements recently crowned the market’s new fear gauge.

The measure of how much it costs to convert local payments into dollars from Japanese yen for example -- called the cross-currency basis spread -- has cheapened recently in part because the Treasury has tapped cash balances. That has freed-up more funds to be used for arbitrage opportunities, providing a conduit for foreign banks and investors to procure dollars more cheaply and keeping global monetary conditions relatively loose.

Is the US Workforce Nearing Full Recovery?

The closely watched headline unemployment rate is a calculation of the percentage of the Civilian Labor Force, age 16 and older, that is currently unemployed. Let's put this metric into its historical context. The first chart below illustrates this monthly data point since 1990.

In the latest report, this indicator dipped to 4.5%. The age 16+ population increased by 168 thousand, and the labor force (the employed and unemployed actively seeking employment) rose by 145 thousand. The number of employed jumped by 472 thousand while the ranks of the unemployed fell by 326 thousand. In other words, the growth in the labor force was mostly attributable to unemployment contraction and a jump in the number employed.

Let's look at the same statistic for the core workforce, ages 25-54. This cohort leaves out the employment volatility of the high-school and college years, the lower employment of the retirement years and also the age 55-64 decade when many in the workforce begin transitioning to retirement ... for example, two income households that downsize into one-income households.

In the latest report, this indicator dropped to 3.9% (to one decimal place) from the previous month. The cohort population increased by 5 thousand and the labor force jumped by 47 thousand. The breakdown of the growth is an increase of 28 thousand employed and a 186 thousand increase in the unemployed. Most of the subdued labor force growth was due to the small increases in the number employed and population.

Warning: Chip cards may still leave you vulnerable

The credit card with the chip in your wallet is supposed to be safer than the old magnetic swipe version. Skimming devices are a gold mine for thieves. One swipe and they can access all of the private details stored on the magnetic strip of your credit or debit card.

That’s why the credit card companies introduced the new chip card with promises of greatly improved security. No matter how smart the chip cards are supposed to be, experts said some even smarter thieves may already be outwitting them, CBS New York reports.

“I think the key thing to know is no technology is perfect,” consumer advocate, Abraham Scarr said. Consumer Pat Heidkamp found out the hard way when she uncovered several mysterious transactions on her supposedly more secure chip card. “There were five that we were suspicious,” she said, “It was for about $2,300.”

Cyber security professor Jeremy Hajek said it’s totally possible that her chip card was hacked. It only takes small modifications to skimming devices to bypass the chip and enable unauthorized uses of these cards, just like with the magnetic cards.

Walmart Cuts Jobs And Drops Prices, Does This Signal The Death Of Retail?

Walmart is cutting “hundreds” of jobs. The largest big box retailer in the United States is also about to offer discounts on online purchases for customers willing to come pick up their items at a brick-and-mortar store instead of having the goods shipped to their home.

Keeping up with Amazon appears to be quite a daunting challenge for a multitude of long-standing and previously successful chains. Sears, Kmart, and HHGregg are among the most recent nationwide retailers to close stores or shut their doors forever. As Yahoo Finance noted, big changes are happening not just at Walmart but throughout the retail world, in an attempt to compete with Amazon.

Macy’s, JCPenney, Target, Payless, Tiffany jewelry stores, and Ralph Lauren have all reportedly faced similar financial obstacles when competing Amazon and other online shopping outlets. Yesterday Walmart announced it would be cutting more jobs by the end of April. This cost-saving move comes amid plans to enhance the retailer’s online, or e-commerce operations. The big box chain wants to improve its online shopping platform to regain the low-cost shopping advantage which made it one of the most lucrative and successful retailers in the United States, Reuters reports.

The hundreds of Walmart jobs cut will include positions at its Sam’s Club warehouse stores as well, Reuters reports. “As we said in January, to fuel our growth and our investments we have to manage our costs and our capital decisions with discipline,” Walmart representative Randy Hargrove said. “This means we will continue to find ways to operate more efficiently and effectively.”

Data: Higher minimum wage costs San Diego 4,000 restaurant jobs

Young workers tend to love the idea of higher minimum wage laws — until they lose their job. This famously happened in Seattle, when pizza shop worker Devin Jeran was excited about the new $15 minimum wage, until he found out it cost him his job.

Now, thousands may be joining Jeran down in San Diego. In January, the city upped their minimum wage from the statewide $10 per hour to $11.50. The data shows the increase may have already killed thousands of restaurant jobs. Lynn Reaser, chief economist of the Fermanian Business & Economic Institute at Point Loma Nazarene University, told The San Diego Union-Tribune, “If job growth in the restaurant sector had just kept pace with the state’s performance… the industry could have created 5,200 jobs instead of the 1,300 that took place.”

Reaser added that while the higher wage is great if you keep your job, those who are hurt most are in the most vulnerable populations. “Although restaurant employees who are able to retain their jobs or secure employment will be better off, others will find it more difficult to find work. People with any kind of criminal record, unskilled, uneducated, or any homeless job seekers will find it more difficult,” he said.

The Union-Tribune also reported business owners are “studying changes like eliminating bussers and greeters, and requiring servers to also clear dishes in smaller sections while keeping an eye on the entrance to help customers.”

Gold Rallies Above $1,285; Is Market Ahead of Itself?

Will Summer Bring $60 Oil?

U.S. refiners are picking up activity as the summer driving months approach, encouraging markets to increase the number of long bets on oil. Utilization is expected to increase further during the summer months which should help to draw down growing crude oil stocks. Stronger seasonal demand in the U.S., along with a growing thirst for U.S. crude abroad, should help to strengthen the price of oil.

Hedge funds increased bets on higher West Texas Intermediate crude prices for the first time in six weeks, shrugging off rising U.S. supplies, as the coming driving season is expected to help ease the glut, according to Bloomberg.

The downstream sector reached 90.8 percent utilization in the week ended March 31, the most since January 6, according to the Energy Information Administration. The EIA’s report also showed gasoline inventories have fallen almost 8 percent since mid-February even as crude oil stockpiles continue to grow.

In addition to refiners preparing for the coming summer driving months within the U.S., increased demand for exported crude oil from the U.S. is boosting investor confidence. Crude exports rose to a record in February as China displaced Canada as the U.S.’s biggest customer, Census Bureau data showed.

Warren Buffett is dumping 9 million shares of Wells Fargo to avoid Federal Reserve regulations

Berkshire Hathaway is dumping 9 million shares of Wells Fargo worth around $480 million in order to get around possible Federal Reserve regulations.

Warren Buffett's company owned more than 10% of the bank after Wells repurchased a large chunk of its shares in 2016. Any entity owning more than 10% of a bank like Wells is subject to increased regulation from the Fed.

"These sales are not being made because of investment or valuation considerations," said the release of Berkshire. "Rather they are solely motivated by the desire to return to a percentage ownership below the 10% notification threshold under the Change in Bank Control Act of 1978 and Regulation Y (Bank Holding Companies and Change in Bank Control)."

The release said that Berkshire consulted with the Fed regarding the additional regulations and decided it did not want to deal with the trouble. From the release: "After several months of discussions with representatives of the Federal Reserve, we have concluded that the commitments that would be required of us by the Federal Reserve to retain ownership of 10% or more of Wells Fargo’s outstanding common stock would materially restrict our commercial activity with Wells Fargo. Therefore, it would be simpler to keep our ownership below 10%. Accordingly, on April 7, 2017, we informed the Federal Reserve that we were withdrawing our filing and that we intend to reduce our ownership in Wells Fargo common stock below 10% within 60 trading days."

Gold Overcomes Fed’s Headwinds

Gold has moved in stages from the post-election low of $1,128 per ounce on Dec. 15, 2016 to its current level of $1,276 per ounce. That’s a solid 13% gain in 15 weeks. The only significant pullback was a 4% dip from March 1 to March 9, 2017. But gold has regained all of that lost ground since then. Gold had a huge day yesterday, spiking over $20 on the day.

Gold’s recent spike was fueled in part by geopolitical concerns surrounding the Syria missile attack by the U.S. and rising tensions in North Korea. Neither of these situations will be resolved soon, and both have the ability to escalate into war for the United States. Geopolitics will continue to keep a floor under gold prices.

That said, what’s most impressive about gold’s multi-month rally is that the macro environment has not been particularly good. The Fed raised rates on March 15, and has been preparing markets for another rate hike on June 14. The path toward higher rates is set in stone. The only debate is whether there will be two or three more rate hikes this year, but no one expects a pause of any length.

Fed tightening has supported a strong dollar, which is typically a headwind for the dollar price of gold. If you think of gold and the dollar as two forms of money, which I do, then it’s unusual for both to be getting stronger at the same time. But that’s exactly what’s happening. And therein lies a mystery. Increases in the fed funds rate, controlled by the Federal Reserve, are supposed to be negative for the dollar price of gold. After all, gold has no yield and competes with interest-bearing investments that do.

Are American Living Standards Truly Stagnant?

It may turn out that the widespread belief that most Americans' incomes have stagnated for years is, well, false or at least overstated. Say what? No doubt, many Americans feel that, except for the rich and segments of the upper middle class, they've been treading water economically for years. To take a prominent piece of evidence: In 2015, the average "real" (inflation-adjusted) wage of workers was about $21 an hour, almost exactly what it was in 1975. That's nearly half a century without a wage increase! Or is it?

In a provocative new study, economist Bruce Sacerdote of Dartmouth College reviewed the material well-being of the poorest 50% and 25% of Americans. What he concluded was that even these families had achieved a "meaningful growth in consumption ... (despite) a prolonged period of increasing income inequality ... and a decreasing share of national income accruing to labor."

To reach this counterintuitive finding, Sacerdote relied on three types of evidence. The first was personal observation. "If you spend time working with high school students, you notice that even in low-income areas, many of the students have cellphones and have access to cable TV and internet service at home," he writes. In the 1970s, few if any of these services existed.

This suggests improved living standards but is hardly conclusive. Families might have cut other purchases to afford the new electronic gadgetry. To confirm broader gains, Sacerdote turned to his second class of evidence: other improvements in well-being.

Is the Euro Doomed?

A Record High 40% Tell CNBC Economy is ‘Good or Excellent’

Many Americans think the economy is going to be great again. A new CNBC poll indicated record high optimism about the the economy under President Donald Trump. CNBC senior economics reporter Steve Liesman told Squawk Box viewers on April 12, that 40 percent of respondents said “the economy is good or excellent right now.”

Liesman added that was “the highest in our survey history.” He also reported high levels of economic optimism. “But the amazing part about this, and I mean truly amazing, is the optimism inspired by President Trump,” Liesman said. The poll showed “some of the highest numbers we have seen in the ten years of this poll's existence.”

The respondents attributed their optimism to Trump proposals. Liesman said, “67 percent of those who say the economy will get better say it's because of the coming policies of the president.” Business readers, like NYSE President Tom Farley, recently praised Trump’s agenda as “unquestionably” the cause of good economic momentum.

Trump’s actions toward improving the economy have often been ignored by the news media. In fact, between 97 percent of evening news reports about the president’s meetings with business leaders failed to include reactions from those executives. Between Jan. 20, 2017 and April 4, 2017, those news programs quoted just three of at least 99 CEO’s and business leaders with whom Trump had met with.

Hunt for Barclays whistleblower tests strength of new UK regime

Barclays chief executive Jes Staley's attempts to unmask a whistleblower will be a test case for a regime put in place last year that aims to hold bank bosses to account if they fail to defend reinforced standards.

At stake is not just the image of a bank whose chief executive promised to reform its aggressive culture but also the efficacy of the fledgling Senior Managers Regime, which aims, among other things, to protect those who risk their jobs bringing wrongdoing to light.

Earlier this week, Barclays said it had reprimanded Staley and would cut his bonus after he twice attempted to identify the author of a letter that revealed "concerns of a personal nature" about an unnamed senior employee.

Britain's Financial Conduct Authority and the Bank of England's Prudential Regulation Authority, which vetted Staley's appointment as CEO, are investigating the bank and Staley to see what other penalties might be warranted.

America's high corporate taxes make it a loser on the global stage

Many people in both parties agree that the United States needs corporate tax reform, but we have a harder time passing tax reform than our international competitors. Will we succeed this year?

The United States has been blessed with a system of checks and balances that require the House, Senate, and Executive Branch to sign off on new laws. This has the benefit of ensuring that legislation has broad appeal. It prevents much damaging legislation from passing, but it also makes it harder to pass worthwhile legislation.

In contrast, other countries can announce new tax laws and they pass right away. British Prime Minister Theresa May can announce that the top U.K. corporate rate will decline to 17 percent in 2020, and she has the power as leader of the ruling Parliamentary party to make it happen.

Prime Minister May and other leaders can lower their tax rates without having to prove revenue neutrality. Canada has steadily reduced its tax rates over the past 20 years without signoff from a Congressional Budget Office—because they do not have one. In contrast, our Congress must consider numerous points of order while passing tax and revenue bills. These rules stem from the Congressional Budget Act of 1974 and later budget resolutions and statutes.

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