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Thursday 05.18.2017

Cisco to cut 1,100 more jobs amid a worse-than-expected business outlook

Cisco said on Wednesday that it will cut an additional 1,100 employees as part of an expanded restructuring plan. The cuts come on top of the 5,500 job cuts, or 7 percent of its workforce, announced in August 2016, the enterprise technology company said.

Cisco said it plans to recognize hundreds of millions of pretax charges related to the restructuring, which will end around the first quarter of the 2018 fiscal year.

The announcement came as the company reported better-than-expected earnings for the fiscal third quarter, but worse-than-feared forward guidance. Shares fell more than 5 percent after hours. Cisco posted adjusted earnings of 60 cents per share, excluding items, on revenue of $11.94 billion. That's higher than the 58 cents per share on $11.89 billion revenue expected by a Thomson Reuters consensus estimate.

But the future isn't quite as bright as Wall Street hoped: Cisco said it expects revenues to fall 4 percent to 6 percent year-over-year in the fourth quarter, with earnings of 60 cents to 62 cents per share, adjusted.

As Household Debt Hits New Highs in 2017, Serious Delinquency Rates Are Rising

The Federal Reserve Bank of New York has released its Household Debt and Credit Report for the first quarter of 2017. While the economy has been recovering and while things feel better on the business front, there are some very troubling internal metrics when it comes to debt levels and delinquency rates.

According to the report, household debt has now reached an all-time high. Gains in mortgage debt, auto debt and student debt were all cited. This all-time high now stands at $12.73 trillion and was $149 billion higher than in the fourth quarter of 2016. What stands out here is that it is about $50 billion above the previous peak reached back in the third quarter of 2008 — right before the recession kicked into overdrive.

While the New York Fed showed that aggregate delinquency rates were roughly flat in the first quarter of 2017, some 4.8% of outstanding debt was listed as being in some stage of delinquency. Of that total, $615 billion of debt listed as is delinquent, some $426 billion is listed as seriously delinquent — at least 90 days late or “severely derogatory.”

Debt balances climbed in several areas. Mortgage debt rose 1.7% (up $147 billion) to $8.63 trillion. Balances on home equity lines of credit fell slightly in the first quarter, down $19 billion to $456 billion. Car loans were up 0.9% (up $10 billion) and student loans were up 2.6% (up $34 billion).

American Eagle plans to be more aggressive in store closings

American Eagle Outfitters Inc. plans to accelerate its store closings as it navigates what continues to be a challenging environment for apparel retailers.

The Pittsburgh-based American Eagle Outfitters (NYSE: AEO) shuttered three stores and opened six in the first quarter and estimated between 25 and 40 store closings for the fiscal year ending in April 2018, with between 32 and 37 stores opening across its various brands including the flagship AE brand and aerie women’s apparel location.

There were 1,053 stores as of April 29, up three overall from the beginning of the year. But that could be changing soon. One of the stores closed in January was in the SouthSide Works in Pittsburgh, about a block from American Eagle's corporate headquarters.

“We are looking to get more aggressive with store closings,” said CFO Bob Madore during American Eagle Outfitters’ first-quarter conference call with analysts. American Eagle missed analyst expectations in the first quarter, with profit of $25.2 million, 14 cents a share, compared to $40.5 million, 22 cents a share, a year ago. Analysts polled by FactSet expected 17 cents a share profit.

Ron Paul on why Trump’s credibility is at risk

10-Year U.S. Treasury Yield 50% Spike an Economic Omen?

Over the past 10 months, the yield on the 10-year U.S. Treasury has increased by 50%. And the U.S. Federal Reserve expects to increase interest rates two more times this year. Why do 10-Year U.S. Treasury yields matter? The yields on 10-Year U.S. Treasuries matter because interest on most debt instruments is based on the 10-Year U.S. Treasury.

As interest rates rise, companies will not borrow at the rate they used to. And their cost of maintaining their current debt (their interest expense) will rise sharply; in many cases, doubling. This hurts bottom-line profits and, of course, stock prices. Corporate America and the government have borrowed and spent like drunken sailors. While corporate America has borrowed billions of dollars to buy back shares in their own companies, the government keeps spending more than it brings in.

In 2008, $41.8 billion of junk bonds were issued in the United States. In 2016, this amount was $236.9 billion. That’s an increase of 467% in a matter of eight years! Total U.S. corporate bonds issued in 2008 amounted to $710.6 billion. In 2016, it was $1.51 trillion. And, of course, federal government debt has gone from $10.0 trillion in 2008 to $20.0 trillion today.

Our world became addicted to cheap interest rates. Now that rates are rising, it will put a strain on our economy. Aside from corporate America and governments paying sharply higher interest rates, American consumers will be paying more interest on their credit card balances, their car loans, their mortgages, and their other debts. These are real strains on American consumers, whose spending makes up two-thirds of our gross domestic product (GDP).

Department Store Closures Are Just Getting Started, Say Real Estate Expert

Anchor store mainstays like Sears, Macy’s, and JCPenney have already been closing stores to cut costs and adapt to shoppers’ changing needs, but one prominent real estate analyst says this culling of department stores is far from over, and that even the most popular malls will likely end up with just one or two traditional anchor retailers.

This is according to research firm Green Street dvisors, whose latest retail report is the subject of a story in today’s Wall Street Journal. The firm had previously estimated in 2016 that 800 major department store locations would need to be shut down for these chains to remain afloat.

Department stores are indeed trimming their retail footprint, but Green Street believes that additional closures will likely be needed.

“Just a year later, the 800 number looks much too light on a strict sales productivity standpoint and is much lower than what will ultimately be needed as the industry will likely need to massively rationalize its store count as it reinvents its business model,” writes Green Street, which also predicts a drastic change in the standard model for how malls are structured.

Banks Tighten Subprime Auto Lending As More Borrowers Fall Into Default

The rising auto loan delinquency rate is nothing for investors to be concerned about – not yet, says a UBS report. Yet stretched households are “one minor hiccup away” from dramatically increasing the subprime default rate and spilling into the general economy, Bloomberg View columnist Danielle Dimartino Booth recently noted on the “What’d You Miss” cable television program, is it time to be worried about subprime auto lending, or is UBS right?

With the new car market softening in Europe – April sales fell to 6.8%, the biggest drop since 2013 – and US manufacturers announcing plans to layoff workers, the market is softening. Nearly 4 million cars coming off lease in 2017 and used car prices are dropping, Booth noted, meaning that subprime borrowers could be holding an increasingly depreciating asset.

Bloomberg’s Conor Sen doesn’t think this nearly the risk that the subprime mortgage market was in 2008, pointing to a shorter loan duration and the rapid paying down of principal as reasons the loans are not a major issue. UBS Matthew Mish and Stephen Caprio want to determine the nature of the problem in a May 17 article titled “How idiosyncratic are auto loan borrowers (and related credit stress)?”

After looking at the demographics, they conclude the risk is not yet a concern, but that risk hasn’t been priced in to bond yields yet as investors reach for yield. “While rising auto loan delinquencies are not yet a financial stability concern, they do expose broader consumer stress which will manifest itself in structurally higher consumer (non-mortgage) loan defaults ahead,” they wrote.

Gregory Mannarino-Price of All Assets is Fake

Employers Beware: 63% of U.S. Workers Are Open to Leaving

The ever-tightening job market holds a message for U.S. employers: work harder to hold on to employees, or they’ll be gone. Almost two of every three workers at mid-sized employers are open to leaving for another job, according to a just-released 2016 survey from the ADP Research Institute. While a 13% increase in pay would be a trigger to move, 46% of employees said they’d consider another job even at the current salary or less, provided other expectations such as a better career path were met.

Employers, already having a hard time finding new hires of the kind they want, also need to focus more on retention amid the lowest jobless rate since 2007. The theme was reinforced by three other reports this week: Subdued firings kept unemployment claims last week near a four-decade low; job openings reached an eight-month high in March; and in April, the proportion of small firms citing job openings as hard to fill was the highest since 2000.

Seventeen percent of workers are actively engaged in a job search and another 46% would consider moving if a tempting offer came along, amounting to 63% of the staff being open to leaving, according to ADP’s survey, taken in September, of 2,156 employees and 800 mid-sized businesses with 50 to 999 workers.

It also showed employers have only a partial grasp of how much of their workforce they risk losing to the competition. Firms overestimated the share of active searchers, and underestimated the share of those who were passively looking for a switch.

Hundreds of Thousands Strike in Greece as Cuts Near Approval

Hundreds of thousands of Greeks walked off the job on Wednesday, heeding the call of labor unions to join a 24-hour general strike to protest a new round of austerity measures nearing approval in Parliament.

The effects of the strike, which came in response to pledges from the leftist-led government of Prime Minister Alexis Tsipras to Greece’s international creditors, were widespread: Flights and public transportation were disrupted, ships remained anchored in ports, government offices were closed and hospitals operated with limited staff.

Greece has been struggling for years to dig its way out of an economic crisis, and even though there has been progress, unemployment is at 23 percent and the country is largely dependent on outside help.

Demonstrations were held in Athens and in other major cities, including Thessaloniki, Patras and Iraklio, against the new round of belt-tightening, which calls for pension cuts starting in 2019 and tax increases beginning in 2020 that together would save about 5 billion euros, or $5.5 billion.

Bill Gross: Tax cuts & repatriation definitely be delayed

Chinese state media says U.S. should take some blame for cyber attack

Chinese state media on Wednesday criticized the United States for hindering efforts to stop global cyber threats in the wake of the WannaCry “ransomware” attack that has infected more than 300,000 computers worldwide in recent days.

The U.S. National Security Agency (NSA) should shoulder some blame for the attack, which targets vulnerabilities in Microsoft Corp systems and has infected some 30,000 Chinese organizations as of Saturday, the China Daily said.

“Concerted efforts to tackle cyber crimes have been hindered by the actions of the United States,” it said, adding that Washington had “no credible evidence” to support bans on Chinese tech firms in the United States following the attack. The malware attack, which began on Friday and has been linked by some researchers to previous hits by a North Korean-run hacking operation, leveraged a tool built by the NSA that leaked online in April, Microsoft says.

It comes as China prepares to enforce a wide-reaching cyber security law that U.S. business groups say will threaten the operations of foreign firms in China with strict local data storage laws and stringent surveillance requirements. china’s cyber authorities have repeatedly pushed for what they call a more “equitable” balance in global cyber governance, criticizing U.S. dominance.

Atlanta Fed Raises GDP Growth View Above 4 Percent

The U.S. economy is forecast to expand at a 4.1 percent annualized pace in the second quarter following the release of April figures on housing starts and industrial output, the Atlanta Federal Reserve's GDP Now forecast model showed on Tuesday.

Domestic factory production increased 1.0 percent last month for its biggest monthly gain in over three years, but housing starts unexpectedly fell 2.6 percent, government data showed on Tuesday.

The latest second-quarter gross domestic product estimate was faster than the 3.6 percent reading calculated on May 12, the Atlanta Fed said on its website. The latest estimate was still below the initial figure of 4.3 percent calculated by the Atlanta Fed model on May 1.

The forecast of second-quarter residential investment growth climbed to 8.3 percent from 6.0 percent following the latest housing starts data, the regional Fed said.

Ringling Brothers Circus closes on Sunday after 146 years

Sunday will mark the last time the Ringling Brothers Circus will send in the clowns. After 146 years of entertaining audiences with clowns and animal acts, "The Greatest Show on Earth" will host its last and final performance on Sunday, when one of its two traveling circuses will perform its final show in New York. The other closed this month, in Providence, Rhode Island, and with it, the end to a way of life few others have experienced. The Associated Press was allowed to observe it extensively.

An elephant stretches its trunk through a window to soothe a sick child. A woman gives birth and three months later is back performing on the high wire. A handler of big cats weeps as the beasts lope out of the ring for the last time.

These stories could come only from circus performers, and in particular one famous circus, the one immortalized as "The Greatest Show on Earth": the Ringling Bros. and Barnum & Bailey Circus. Faced with declining ticket sales, the circus earlier this year announced it would pack up its tent.

Tickets to the last show, which will be held , are sold through Ringling's website. The circus said it's also livestreaming the performance on Facebook. While the show goes on in other circuses around the world, Ringling is special. The size, the spectacle and the history — stretching back to P.T. Barnum and his traveling museum in the 1800s — set it apart.

Why Amazon May Be Looking To Fill Your Prescriptions

You could look it up, the old-fashioned way, in the hardcover PDR (the Physician's Desk Reference, $97.95 for the 2017 edition) or the Merck Manual ($62.49 for the 3,754-page 19th edition), or you could do a search on your kindle for acetylsalicylic acid, generically known as aspirin. The compound was synthesized from willow bark in 1890s by scientists at Bayer, in northern Germany, and is used to treat headaches and fevers. Not protected by patents or trademarks in most countries, aspirin is one of the most widely used medicines in the world.

Can you see where this is going? Amazon CEO Jeff Bezos can. According to CNBC, Amazon is considering entering the fray with pharmacies to sell prescription drugs.

We know that Bezos understands that the company needs to get into new markets in order to keep growing. Books were the foundation, followed by appliances and furnishings, among many other categories. The biggest prizes would be the places Americans spend the most money, food and clothing.

Amazon Fresh is the company's growing business in the food sector, carefully watching the efforts of the big grocery chains and online companies like FreshDirect and Pangea.

Trucking, railroad industries wrestle with each other as technology bears down on both

Uber service for pallets of lumber, crates of fruit and boxes of bolts? Last week, the company’s embattled CEO Travis Kalanick tweeted an image of an “Uber Freight” truck, a product of the company’s still-gestating foray into the trucking industry. Amazon, reportedly, is also working on an app that will connect truckers and shippers — and other companies are in the on-demand freight fray, too, all wanting a piece of the trucking pie. No wonder: In 2015, the industry amassed a record $726 billion in gross revenues, moving 10.5 billion tons of freight.

Disruptors are everywhere in the current economy, but the trucking industry also continues to contend with one of its timeless enemies: Railroads. The two have long vied for shares of the freight economy and fought pitched policy battles in Washington to create favorable conditions for their interests.

Railroads, too, are staring down the barrel of changing technology. With automated railway systems proliferating around the world, the future increasingly seems to be one without drivers and conductors.

Some on Capitol Hill are eager to prevent, or at least stall, that possibility. In January, Rep. Don Young (R-Alaska) introduced the Safe Freight Act, a bill intended to mandate that a crew of at least two people — one locomotive engineer and one conductor — operates trains at all times. The bill has received the support of unions like the International Association of Sheet Metal, Air, Rail and Transportation Workers; transportation unions have given Young nearly $860,000 in contributions over the course of his career, his third-greatest source of donations. The Federal Railroad Administration has also recommended two-person crew requirements, but various railroad operators, including Union Pacific, and the industry’s main trade group, the Association of American Railroads (AAR), have opposed such a plan.

Reverse Mortgages

OPEC is dead

Oiil prices have plummeted since the Great Recession. The price of a barrel of oil peaked at nearly $150 in the summer of 2008. Today, the price has skidded below $50. It's an understatement to say that this is a major development. It has had enormous financial consequences, helping to juice an otherwise sputtering global economy. It has had environmental consequences, of course. And it has had geopolitical consequences, since many countries depend on oil for a big chunk of their revenue, particularly authoritarian countries that use oil money to keep the people happy despite the authoritarianism.

It's the last point that really counts. The countries that most benefit from high oil prices are not happy about the new normal. Indeed, the slide in oil prices has plunged Saudi Arabia, Russia, and Venezuela into economic crises that could have major political consequences.

The follow-on effects are manifold: It's a good bet that part of the motivation for Vladimir Putin's troublemaking around the world is to shore up his popularity at home, which has taken a beating because of the economic crisis (not to mention Russia's rampant corruption). Meanwhile, Saudi Arabia is opening up and reforming its financial system and its economic governance, since it can no longer afford to keep everyone in the country on the dole.

Venezuela is in a state of utter collapse because the Chavez regime had replaced a functioning economy with a house of cards of handouts, with largesse both for the poor and for regime insiders — all funded by oil money. The point is, a lot of countries want to prop up global oil prices. And they used to have a way to do that: OPEC.

Stock Market Crash?

The correction has begun with the uneasiness of the two political scandals surrounding Trump – Russian meeting and now a Comey memo saying Trump asked him to kill the investigation into Flyn. The first is not really an issue legally, but the second could fuel the quest to impeach Trump which is really led by McCain and Graham behind the curtain in league with Schumer. McCain is already calling this a Watergate demonstrating he is out to get rid of Trump and protect the establishment.

The impeachment of Trump is being talked about behind the curtain as a positive move for then Pence would take up the Presidency and then the tax reforms would become possible. That is an interesting twist on things.

We are showing choppiness for three months and big volatility its in August. The likelihood of getting any tax reform now before the August Congress holiday is fading very fast. This is taking the icing off of the Trump rally. Forget the infrastructure expenditures for that is matching funds and states will just raise taxes for that one which is detrimental not bullish other than from the companies who will overcharge government fix stuff.

The Daily Bearish Reversals in the Cash S&P500 lie at 237900 and 234450. A Weekly closing below 233500 will tend to warn a serious correction becomes possible. The fact that the Dow has been unable to make new highs and the Global Market Watched on the monthly level labeled April when it closed for the month as IMPORTANT HIGH. Our Capital Flow Models models are showing that there has been some European selling of equities, which is the reason the Dow has not followed the S&P500 or the NASDAQ. There has been a flight to quality moving into the US Treasuries, but also the hot money has been selling the dollar after the French election. Here we still see a Weekly closing below 20000 will confirm a more serious correction. The Daily number remains at 20204.

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