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Wednesday 03.15.2017

Fed raises rates for 3rd time in 15 months, hike forecast unchanged

Don’t look now, but nearly eight years after the Great Recession ended, it’s finally starting to feel like a normal economy again, at least judging by the Federal Reserve’s third interest rate hike in fifteen months.

Citing increasing inflation, the Fed on Wednesday raised its benchmark short-term rate by a quarter percentage point to a range of 0.75% to 1% and stuck to its forecast of two more such increases this year and three in 2017. Some economists expected Fed policymakers to modestly step up the pace.

The move is expected to filter through the economy, slightly pushing up rates for everything from mortgages and car loans to credit card debt and bank savings accounts.

By historical standards, the new rate is still very low rate and the projected increases are gradual. But they represent a veritable sprint based on recent experience and come amid a dwindling supply of available workers and accelerating wage growth. Those developments are raising concerns among some economists that the Fed is at some risk of falling an eventual surge in inflation.

1.1 Million More Americans Defaulted on Federal Student Loans in 2016

In 2016, there were 1.1 million more Americans who defaulted on their federal student loans, the Wall Street Journal reported.

According to data from the Department of Education, there were more than 3,000 individuals a day who defaulted on their student loans and up until Dec. 31, there were 8 million who owed $137 billion.

Individuals are considered in default if they haven't made payments for roughly nine months after they were supposed to. The Journal notes that this is happening at a time when unemployment is low and employers are continuing to hire.

"Despite an improving economy, the number of defaults is way too high," Rohit Chopra, senior fellow at the Consumer Federation of America, told the Journal. In addition to defaulting on loans, the article finds that many of these borrowers haven't found work or earned a degree.

Credit Card Debt Tops $15,000 in More Than Half of US Households

U.S. households added a total of $226 billion in debt during the fourth quarter of 2016, with credit card balances rising by 4.3%, the largest increase for any type of debt. Americans added $46 billion to credit card balances in 2016 (up 6.3% year over year) and now owe a total of $779 billion in credit card debt.

A recent online survey by the National Foundation for Credit Counseling (NFCC) found that 56% of U.S. households reported credit card debt of $15,000 or more. Just 4% of households reported being debt-free.

According to the Federal Reserve Bank of New York’s fourth-quarter report on household debt and credit, published last month, total household debt by the end of this year will reach a previous peak set in 2007, just ahead of the housing collapse and financial crisis.

Total U.S. household debt at the end of 2016 stood at $12.58 trillion, of which $8.48 trillion (67% of total debt) were mortgage balances. Student loans accounted for 10% of total debt, with auto loans at 9%, credit card debt at 6% and revolving home equity lines-of-credit (HELOC) at 4%. There are far more credit card accounts (more than 450 million) than any other loan type: more than double the number of auto loans, triple the number of mortgage loans and about 10 times the number of HELOCs. And while the total credit card loan balance of $779 billion is large, unused credit card limit totals about $2.5 trillion.

CEOs' hiring, spending plans soar on Trump agenda

The nation’s top CEOs sharply stepped up their hiring and investment plans in the first quarter amid a burst of confidence in President Trump’s pro-business agenda, showing no signs that early political roadblocks have dimmed their optimism.

Meanwhile, small business sentiment pulled back slightly but remained near its recent record high. “CEOs are increasingly positive about the direction of U.S. economy,” Business Roundtable CEO Joshua Bolten told reporters Tuesday on a conference call. “I think it’s fair to say that CEOs see the business environment as improving with the President’s focus on jobs and growth.”

Forty-one percent of CEOs plan to increase hiring in the next six months, up from 35% in the fourth quarter, according to a Business Roundtable survey. Just 18% expect to reduce employment, down from 30% late last year. And 46% of the top executives intend to increase capital spending, up from 35%, while just 13% plan to rein in such investment, down from 21%.

Their more expansive plans are rooted in an optimistic outlook. Seventy-eight percent of those surveyed believe sales will rise in the next six months, up from 67% in the prior quarter. Just 4% expect sales to fall, down from 14%. The Business Roundtable’s overall index, which combines all these elements, jumped from 74.2 to 93.3, the first time it cleared its historical average of 79.8 in nearly two years.

Trump to Review Fuel-Economy Rules for Automakers

Investors Betting That Mall Owners Will Default On Mortgages

Nearly a decade ago, some investors scored big payouts by predicting that the housing boom’s glut of mortgage-backed securities would turn out to be toxic. Now there are investors betting on the hope that more mall owners will soon be letting their properties go into foreclosure.

The question for the firms betting against malls is how long it will take for that to happen. Anchors like Macy’s, JCPenney, and Sears are helping some malls along by accelerating their closings across the country in the hope of staying in business and finding a functional business model.

For malls that are able to keep enough rent coming in to survive, though, the demise of their department stores may not kill them off in the way that some investors predict. Shoppers are no longer all that interested in shopping at department stores anyway, and as traditional anchors close, non-traditional ones like supermarkets, party spaces, and fast fashion clothing stores are taking their place.

What investors are realizing, though, is that when a mall fails, it is a multimillion-dollar failure. Bloomberg reports that investors interested in betting against malls pay premiums every year that will pay off in the event that enough malls fail and the value of the mortgage-backed securities plummets.

Neiman Marcus says it is exploring options, including a sale

Luxury fashion retailer Neiman Marcus Group Ltd LLC said on Tuesday that it was exploring strategic alternatives, including changes to its capital structure or a sale of the company, as it seeks relief from its swelling debt pile.

The announcement follows a Reuters report earlier this month that the company had turned to investment bank Lazard Ltd to explore ways to bolster its balance sheet. Neiman Marcus has total liabilities of $6.4 billion, including $1.2 billion of deferred income taxes. Hudson's Bay Co, owner of the Lord & Taylor and Saks Fifth Avenue retail chains, is in exploratory talks about acquiring Neiman Marcus, according to people familiar with the matter.

The Wall Street Journal reported earlier on Tuesday that Hudson's Bay was seeking a deal that would give it control of the business without having to assume Neiman Marcus' debt. It did not provide details as to how this can be achieved.

It was not immediately clear how the company's capital structure could allow for a sale that would be in compliance with its debt obligations without some arrangement with creditors. Hudson's Bay and Neiman Marcus declined to comment. Neiman Marcus also said it made changes to its corporate structure, including naming subsidiary online store My Theresa and some of its properties in Virginia and Texas "unrestricted," meaning not subject to the same rules under credit agreements as other units of the company.

Is OPEC headed for a showdown with U.S. shale?

A new report from OPEC shows the group slashed production further in February as its members largely fulfilled promises to reduce output. Meanwhile, higher prices are luring American shale producers back into the market.

OPEC production dropped by 139,500 barrels during the month, according to the group's monthly report. Saudi Arabia, the cartel's de-facto leader, cut its production by 68,000 barrels a day compared to January.

For the first time since 2015, the group's total output fell below 32 million barrels a day. That's roughly 500,000 barrels a day below the level OPEC pledged to cut production as part of a six month agreement with other major producers including Russia.

The agreement to cut production, which took effect in January, is designed to support prices by limiting supply. There are reasons, however, to think the plan is on shaky ground. Higher prices have in recent months helped to lure American shale producers back into the market and some OPEC members have continued to pump above their quota.

U.S. taxpayers procrastinate on filing returns this year

Tax season in the United States is off to a slow start. The number of people filing their taxes with the Internal Revenue Service is running well below last year. The number of returns received by the agency was off 8.5 percent from Jan. 23 through March 3. And refunds were down 7.1 percent in dollar terms.

These numbers are usually flat year to year, so a significant drop in tax filings means something unusual is going on. One simple reason is a fluke of the calendar. The tax deadline is April 18 instead of the traditional April 15, which falls on a Saturday this year.

The most significant reason, however, and one cited by the IRS, is that a new regulation delayed refunds by taxpayers claiming an Earned Income Tax Credit or an Additional Child Tax Credit until Feb. 15.

This caused a slowdown among Andy Stadler's tax preparation clients in Terre Haute, Indiana. His office typically prepares 7,000 returns a year. The Path Act, as the new regulation is known, affected about 70 percent of the people in his area. Now that the delayed refund date has passed, Stadler expected a flood of late filers in April. In higher-income areas, some of the procrastinators are waiting for brokerage statements or paperwork known as K-1s, which details income from partnerships, trusts or S corporations.

McConnell: We will raise debt ceiling, but timing unclear

With the federal government's power to borrow money to pay its bills set to expire Thursday, Senate Majority Leader Mitch McConnell said Tuesday that the Senate will definitely raise the debt limit. But he couldn't say exactly when.

"We'll be talking to the secretary of the Treasury about timing, but obviously we will raise the debt ceiling," the Kentucky Republican told reporters. The debt limit, also called the debt ceiling, is the legal amount that the U.S. Treasury can borrow to pay the government's bills, including Social Security and Medicare benefits, military salaries, tax refunds, interest on the national debt, and other obligations. The limit is set by Congress and must be raised by both the House and Senate. Congress needs to reset the limit to about $20 trillion to reflect the nation's current debt.

Senate Minority Leader Chuck Schumer, D-N.Y., said Democrats have never opposed raising the limit, which allows the government to pay its existing debts, not create new ones. "Democrats have always been for saying that we cannot default (on our debts)," Schumer said. "Our OMB secretary (former Republican congressman Mick Mulvaney) was the leader in trying to urge default (in the past). So we're going to have to have some of our Republican colleagues step up to the plate on this issue ... Let's see if there are enough Republicans who will vote to raise the debt ceiling now that they're in charge."

In the House, some conservative Republicans want to tie any increase in the debt limit to legislation to reduce the nation's $441 billion deficit. But House Minority Leader Nancy Pelosi, D-Calif., has said that Democrats will only support a "clean" debt limit increase with nothing else attached to it.

'Pension advance' company is unmasked

It was an unusual lawsuit. A mysterious business, identifying itself only as “John Doe Company” and “organized under the laws of the State of California,” sued the Consumer Financial Protection Bureau in January to keep its name and a pending investigation under wraps.

The company claimed in the suit that its operations “would be irreversibly damaged” if the public were to learn it was under scrutiny for possibly “unfair, deceptive, abusive and illegal” practices.

On top of that, the company wanted the court to declare that the CFPB was unconstitutional and had no authority to go poking its nose into the firm’s affairs, which involve offering cash for people’s future pension payments. That’s known as “pension advances,” and it’s a twist on payday loans, except the company is targeting a person’s retirement funds. Typically, a lump sum is offered in return for all or part of future pension checks, with total payments running considerably higher than the initial amount given.

John Doe lost its case and the CFPB wasted no time in unmasking the company last week. Say hello to Future Income Payments, which was based in Irvine until state officials issued a cease-and-desist order a couple of years ago, charging that the company was issuing loans without a license. “They insisted that they weren’t making loans, that what they were offering were ‘sales agreements,’” said Tom Dresslar, a spokesman for the California Department of Business Oversight. “That was wrong. They were loans.”

Ami Horowitz: What’s wrong with socialism?

The stock market is looking a lot like 1929

This is the most dangerous and overvalued stock market on record — worse than 2007, worse than 2000, even worse than 1929.

Or so warns Wall Street soothsayer John Hussman in his scariest jeremiad yet. “Presently, we observe the broadest market valuation extreme in history,” writes the chairman of the cautious Hussman Funds investment group, “with the steepest median valuations on record, and the most reliable capitalization-weighted measures within a few percent of their 2000 peaks.”

On top of such warning signs as “extreme valuations, bullish sentiment, and consumer confidence,” he adds, “market action has deteriorated in interest-sensitive sectors … As of Friday, more than one-third of stocks are already below their 200-day moving averages.”

Don’t be fooled by the booming headline indexes. More NYSE stocks hit new 52-week lows last week than new 52-week highs, he notes. OK, so, it is always easy to criticize. Hussman, a professional economist and well-known Wall Street figure, has been here before. He’s been warning about stock-market valuations for several years. He’s in that camp that the permabulls, wrongly, call “permabears.”

GM isn't done pruning

After pulling the trigger on a sale of its European operations, General Motors signaled that it's willing to cut off more vestigial corners of its business in a decidedly unsentimental drive to improve its profit margins and stock price.

CEO Mary Barra made clear last week that the Opel deal is not the end of the automaker's effort to pare its portfolio, though other moves under consideration are unlikely to have the sweeping impact of effectively abandoning one of the world's largest and most mature markets.

"There's a little bit more work that we're doing in the international markets," Barra told reporters on a conference call from Paris, after announcing Opel's sale to PSA Group of France in a deal that shrinks GM's global volume by 12 percent. "Our overall philosophy is that every country, every market segment has to earn its cost of capital."

That level of accountability -- after previous regimes tolerated more than $20 billion in losses in Europe since 1999 -- encapsulates how dramatically Barra and her leadership team are shaking up a company that for decades coveted its status as the world's largest automaker. It also has sparked concern among employees at GM's other far-flung and lower-margin units that they could be next, according to people within the company.

JPMorgan's Dimon: Repatriation will create 'QE4'-like stimulus

JPMorgan Chase CEO Jamie Dimon thinks there could be another stimulus coming to the market — but it wouldn't come directly from government.

Speaking on Tuesday to reporters on behalf of the Business Roundtable, an advocacy group Dimon currently chairs, he said the act of repatriating corporate cash held outside the U.S. back into the country would spur substantial economic growth, regardless of how companies use those funds.

"If all companies did [with repatriated funds] was pay dividends and buy back stock, think of that as QE4 ... and far cheaper, in my opinion," Dimon said, comparing the stimulative effect to that of the Federal Reserve's multiyear monetary easing. "The shareholder will decide what to do with it. It's not like it disappears after that. It is fuel to the system."

Dimon warned that putting restrictions on how repatriated funds could be used might preclude the U.S. from economic activity that would remain abroad instead. "That money that isn't brought back is going to be reinvested in a foreign country, in a plant or acquisition, which has been happening, and never to return," he said.

In Australia ATM use hits 15-year-low as cashless society gathers momentum

ATM withdrawals have slumped to their lowest levels in 15 years and the number of Australians taking cash out during debit card transactions is falling at the fastest annual rate on record.

The new figures provide an insight into the wider shift towards a cashless economy, as electronic payments such as Paypass transform habits and consumers shy away from ATM withdrawal fees and bricks-and-mortar branches.

According to Reserve Bank of Australia figures released on Monday, the number of ATM withdrawals in January fell by 7.7 per cent compared to last year. The total value was down by 3.9 per cent. It follows two consecutive years of ATM withdrawals falling by more than 6 per cent.

"Cash is no longer king," said CommSec chief economist Craig James. "Use of both credit and debit cars is soaring with more people using the cards for small purchases." The RBA's credit card figures also showed the number of transactions were at 13-year highs, while the average credit card balance declined by $84 to $3083.30 in January

Consumers even less optimistic now about retirement

The stock market is at record highs, in the eighth year of a bull market, but consumers contemplating retirement aren't sharing in the confidence. Capital One Investing's latest Financial Freedom Survey, which measures sentiment, found only 62% of participants think they're saving enough for a comfortable retirement. It's part of a downward trend, with 64% feeling confident last year and 72% the year before that.

Despite the declining confidence, even fewer are doing something about it. The survey found only 49% of participants have set up a long-term financial plan. Specifically, the survey found that people thinking about their retirement years want to sock money away but aren't doing much to accomplish it. About 65% of consumers who are still working say they are putting away some money for retirement, but fewer than half are following a financial plan.

For example, 39% have embraced the idea they should be saving 15% or more of their income for retirement but only 13% are actually doing it. More distressing, about one-third aren't saving at all. According to the Labor Department, fewer than half of Americans have calculated how much money they need in retirement. It found that in 2014, 30% of workers in private industry, with access to a defined contribution plan such as a 401(k), did not participate.

Government economists say the first step is to start saving money each month, but soon after it is important to put together a plan. They say retirement is more expensive than most people think – that they will need about 70% of their current income to get by.

Is Britain dragging Scotland out of the EU against its will?

Ruby Tuesday considers sale

Ruby Tuesday Inc. said on Monday that it is exploring strategic alternatives — including a potential sale of the company — as it looks for ways to recover from more than a decade of sales and stock price declines.

The Maryville, Tenn.-based bar-and-grill chain has retained UBS as its financial advisor to assist in the process. The company said it would explore all options, including options other than a sale.

“Ruby Tuesday is an iconic American brand with a 45-year legacy of serving local communities great American fare,” Stephen Sadove, non-executive chair at Ruby Tuesday, said in a statement. “We believe now is the right time to explore strategic alternatives that have the potential to position the business for long-term success and to carry that legacy forward.”

Ruby Tuesday stock surged 15 percent in after-hours trading on Monday. The company said it is in the beginning stage of the strategic and financial review and could not give any assurance on timing of the review’s completion. Ruby Tuesday preannounced a same-store sales decline of 4 percent for the company’s fiscal third quarter ended Feb. 28.

You can now pretend to be popular by hiring people to take selfies with you

Fancy making your ex jealous by filling up your Tinder profile with photos of yourself surrounded by attractive strangers? Well, a Japanese company called Family Romance is making that possible with its new service which has been named ‘Real Appeal‘.

Real Appeal will make sure you never have to take selfies alone again – as it will dispatch you staff members who will turn up ready to cover your Facebook and Instagram feeds with nothing but popularity. Where you decide to snap the photos is absolutely your choice – and so is the sort who people who turn up to accompany you.

That’s right, you’ll be able to select age, gender and appearance of your companions for large and small events ranging from just a photo to drinks or a large birthday party. Yes people, this app actually allows you to be shallow for your own gain.

Though of course, the shallowness isn’t always in regards to your love-life – as some customers use the app to make it look as though they have a ‘nice network of connections’ for their professional lives, according to the website. The service includes ‘unlimited pictures for social networking, free of charge’ – but don’t get too comfortable, because using the company most certainly isn’t for free.

NEWS to Disturb the Comfortable...

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