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Friday 12.02.2016

With 178,000 Jobs Added In November, The U.S. Unemployment Rate Drops To 4.6%

The results of the November 8 presidential election may have been a surprise, but one thing in November came in almost exactly as expected: the number of jobs the U.S. labor market added during the month.

Employers in the U.S. added 178,000 non-farm jobs in November, the Bureau of Labor Statistics reported on Friday. The unemployment rate dropped to 4.6% from 4.9%. This marks the 74th consecutive month of job growth.

On the jobs-added front, the 178,000 figure was close to the analyst consensus: Economists expected to see the addition of 180,000 jobs -- roughly what the job market has been averaging for 2016 -- and for the unemployment rate to remain steady 4.9%. The Labor Department attributed the 0.3% drop to a decline in the number of unemployed persons, which in November fell by 387,000 to 7.4 million.

The 4.6% unemployment rate is the country's lowest since August of 2007.

IBM is continuing its blockchain push

Tech giant IBM has been working on making itself a global leader in developing blockchain use cases for financial services, and on Wednesday, it announced yet another project.

IBM will develop a blockchain-based supply chain finance solution with Mahindra Group, one of India's largest conglomerates, according to Bezinga.

The new platform will use a permissioned blockchain and be designed to optimize processes involved in supply chain finance, with particular emphasis on invoice discounting.

Supply chain financing is typically laborious. Many transactions between suppliers, buyers, and any financing parties involve paper invoices that have to be mailed and require the manual inputting of documents into each participant's respective system. This greatly increases processing times and the risk of human error.

Going back to banking's bad old days is a 'terrible, terrible idea'

Former Council of Economic Advisers chairman Austan Goolsbee told CNBC on Wednesday that it would be a "terrible, terrible idea" to gut banking regulations and go back to the days before the financial crisis.

"You can't look back at the worst financial crisis of our lifetimes that started in 2008 and not have some important lessons about the critical nature of oversights in financial markets and institutions," said Goolsbee, who served on the Council as part of the Obama Administration. "It probably won't blow up the world in the next six months, but it puts you on a track where within a decade, we'd be very likely to have another financial crisis."

Many on Wall Street believe that repealing or weakening the Dodd-Frank banking regulations, which were put in place following the crisis, could boost the economy. One of those voices is Steve Mnuchin, Donald Trump's choice for Treasury secretary, who told CNBC that he wants to "strip back parts of Dodd-Frank" that prevent banks from lending.

Specifically, Mnuchin said he opposes parts of Dodd-Frank that put smaller and regional banks under similar scrutiny as the biggest Wall Street banks. Asked whether he believes that Trump's picks, such as Steve Mnuchin or Wilbur Ross, could repeal the law, Goolsbee said Congress would actually play a bigger role regarding the future of Dodd-Frank.

New EPA rules push regulatory costs past $1 trillion, $3,080 per person

The new implementation of EPA rules on heavy trucks has boosted the 10-year regulatory burden on America past $1 trillion, 75 percent of which have been imposed by the Obama administration.

That amounts to a one-time charge of $3,080 per person, or an annual cost of $540, according to a new analysis from American Action Forum. "In other words, each year every person, regardless of age, in the nation is responsible for paying roughly $540 in regulatory costs. These burdens might take the form of higher prices, fewer jobs, or reduced wages," said AAF's Sam Batkins, director of regulatory policy at the watchdog group.

The staggering amount is likely to surge even higher as President Obama scrambles to lock in several environmental regulations before leaving office. He has already broken records for new regulations and added red tape this year and still has 50 days in office.

Incoming President-elect Trump has promised to kill two current regulations for every new one he adds. The new high in regulatory costs, said Batkins, came after new fuel standards for trucks were implemented. His study goes back to 2005, when George W. Bush was president, and said that Obama is responsible for about three-quarters of the added regulatory costs.

Carrier Employee Trump Referenced: "Thank You for Keeping Your Promise"

Fallout from Italy's referendum will be both financial and political

The eurozone crisis never went away; it was just overlooked in the Brexit upheaval. But you can rely on Italy to trigger thoughts of catastrophe and, sure enough, the arrival of this weekend’s referendum on constitutional reform has spooked markets.

The yield on 10-year Italian debt has doubled from 1% to 2% since August, outpacing the rise in yields on most other eurozone sovereign debt. The euro has even weakened against the supposedly down-and-out pound.

In the grand scheme, these are not enormous moves. Back in 2011-12, when the Greek debt crisis was in full swing, Italian 10-year yields hit 7%; and the euro is still 10% stronger against sterling since the UK referendum. But Italian risks – for the short, medium and long-term – are real.

The immediate danger will arrive if PM Matteo Renzi loses the referendum and then honours his pledge to resign. His departure would make it harder to resolve a crisis in the Italian banking system that should have been addressed half a decade ago and is now intense. It even got a special mention in the Bank of England’s UK financial stability report this week. The detail is extraordinary: bad, or non-performing, loans in Italy exceed the total provision for losses and the banks’ core capital.

Fed may face unnerving shake-up under Trump administration

Change at the Federal Reserve could come quickly with President-elect Donald Trump's team pledging to promptly fill high-level central bank jobs and roll out a tax and fiscal plan that could rewrite policymakers' core economic assumptions. Fed officials already say their plan to gradually increase interest rates may need to be accelerated to accommodate the new administration's economic proposals, which could push inflation higher.

The concerns for Fed Chair Janet Yellen are broader as she faces a 14-month window to preserve her legacy and try to ensure the central bank's independence in the face of a possible four or more Trump appointees to its seven-member Board of Governors.

Yellen's term as Fed chief expires in February 2018, and Trump is likely to name a successor in synch with his desire to cut financial regulation, lower corporate taxes, reorder fiscal policy, and possibly impose some of the constraints on the Fed that Republicans in Congress have long advocated.

Yellen, 70, a ranking Fed official for the past 12 years and the top U.S. central banker since 2014, laid out a long list of concerns during recent questioning before Congress: that any fiscal boost not blow up the deficit and be tailored to improve growth and productivity; that the regulations crafted after the 2007-2009 financial crisis not be trashed; that the Fed not be hamstrung by policy rules or political pressure.

What Is The Unemployment Rate Telling Us About The Next Recession?

Many people know the official unemployment rate that the Federal Reserve feeds us is not an accurate depiction of how many people are truly unemployed. For example, this highly manipulated number does not take into account the millions of people who have given up looking for work because of the dismal prospects. It also does not take into account the people who are working part-time jobs that want to be working full-time jobs or overall quality of the jobs that have been added to the economy. As flawed as the official unemployment number may be, there is still valuable information to be derived.

With almost all data sets, we can learn more by examining the entire time-series instead of the most recent data point. Let’s take a look at the unemployment rate from January 1948 to October 2016 to see if we can derive any valuable information.

As you can see, the unemployment rate is highly cyclical. It swings quickly from high to low and even quicker from low to high. It should be no surprise that during recessions (highlighted in grey) the unemployment rate surges much higher. The most telling thing about this time-series is what occurs right before a recession (circled in red).

The recovery periods in between recessions are accompanied by a consistently falling unemployment rate. Sometimes it goes sideways during the initial stages of a recovery, but it resumes its descent until the latter stages of the recovery when another recession becomes imminent. We are currently in our 8th year of economic expansion, which means we are well over the average recovery time of about 5 years in the modern era (1945 to 2009). This means that the unemployment rate is not only moving sideways, it means that the unemployment rate is bottoming out.

McDonald's Automation is the Fault of Wage Demands, Says Ex-Exec

Has the fight for an increase in minimum wage led to increased automation at businesses? According to Ed Rensi, former President and CEO of McDonald’s Corp. (MCD) USA, that might seem to be the case. In an opinion piece on the Forbes site, Rensi lists two undesirable consequences of a rise in minimum wage across the country.

First, he points to increased automation efforts undertaken by businesses to offset rising labor costs as a negative consequence of the fight for increased wages. Rensi points to his former company as an example. The Oakbrook-based company has already rolled out self-service kiosks in 45% of its total number of locations in Europe and has plans to introduce similar ones in USA. “In a video the company released to showcase the new customer experience, it’s striking to see employees who once would have managed a cash register now reduced to monitoring a customer’s choices at an iPad-style kiosk,” writes Rensi.

Second, Rensi attributes the shuttering of small businesses to the increased operational costs due to higher wages. According to him, a quarter of restaurant closures in the Bay Area were due to a rise in minimum wages that made it difficult for such businesses to remain profitable due to shrinking margins.

Rensi also castigates the Service Employees International Union (SEIU), which led the fight for an increase in wages, as a left-wing organization that manufactured the fight, as opposed to the fight being a grassroots affair. While Rensi makes valid points regarding the problems faced by businesses due to an increase in wages, he does not provide the broader context and nuance associated with the discussion.

6 million borrowers are 90 days late on their car loans

The hazard lights are flashing on subprime car loans. Roughly six million auto borrowers with shoddy credit scores are at least 90 days late on making their loan payments, according to new figures released by the New York Federal Reserve. The percentage of delinquent subprime auto loans has raced to the highest level since 2010.

Since the end of the Great Recession, there's been an explosion of auto loans, growing to more than $1.1 trillion. That, along with a far stronger economy, has helped fuel a boom in U.S. auto sales.

While Detroit's sales slowed down earlier this year due to rising prices, General Motors (GM) and Ford (F) on Thursday said sales accelerated in November. The industry is now back on track for record sales in 2016. It could be the eighth-straight year of increases.

But part of those sales may have been fueled by easy availability of credit for borrowers with poor credit, who are evidently now struggling to pay off those loans. While the majority of auto loans are still performing just fine, the New York Fed said it has witnessed a "pronounced worsening" over the past year of subprime car loans that are late.

Michigan Recount Could Cost Taxpayers $4 Million

Green party candidate Jill Stein filed a request for recount Wednesday in the state of Michigan, following through on her promise to pursue recounts in three states that delivered the election to President-elect Donald Trump.

Stein requested a hand recount of the state’s presidential election ballots, a process that will take a tremendous amount of resources in order to a Dec. 13 deadline.

Michigan’s Secretary of State Ruth Johnson said that the cost of a recount of the 4.8 million ballots could total $5 million. Stein’s attorneys submitted a $973,250 check at the state Bureau of Elections Wednesday (the legally required fee for a recount), leaving the remaining cost on state and county governments.

Michigan election officials released the official vote totals Monday, after a lengthy process to certify the Nov. 8th results. Donald Trump received 2,279,543 votes, while former Sec. of State Hillary Clinton, the Democratic nominee, received 2,268,839 votes. Libertarian candidate Gary Johnson received 172,136 votes, while Green Party candidate Jill Stein hauled in 51,463 votes.

The FBI gets unprecedented hacking power

Food-stamp cuts contribute to Dollar General’s woes in Q3

Reductions in food-stamp benefits and falling grocery prices took a toll on Dollar General Corp.’s third-quarter performance which came in below expectations and included an unexpected drop in same-store sales. The company reported a profit of $235 million, or $0.84 per diluted share, in the quarter, compared to net income of $253 million, or $0.86 per diluted share, in the year ago period. Its profit included a charge of about 5 cents per share for store relocation costs and disaster-related expenses.

Net sales edged up 0.5% to $5.32 billion, compared to $5.07 billion last year. Same-store sales decreased 0.1%, primarily due to a decline in traffic partially offset by an increase in average transaction amount. Same-store sales were driven by positive results in the consumables category offset by negative results in the seasonal, apparel and home products categories.

“The challenging retail environment that we experienced in the 2016 second quarter continued into the third quarter, contributing to weakness in our same-store sales and our financial performance,” said Todd Vasos, Dollar General’s CEO. “In the 2016 third quarter, we invested in gross margin with the goal of driving traffic and sales over time. Many of these actions are gaining traction with our core customers, and we are encouraged by the early results. As expected, the full benefit on our same-store sales will not be immediate.”

Vasos said the chain was challenged by average unit retail price deflation and reductions in SNAP (Supplemental Nutrition Assistance Program) benefits in the third quarter as compared to the same period last year. Among the states that implemented SNAP changes this year were Florida, Georgia, Alabama and Tennessee, all of which have a high concentration of Dollar General stores.

Caterpillar says Wall St. 'too optimistic' on 2017 profit estimate

Caterpillar Inc (CAT.N), the world's largest construction and mining equipment maker, said analysts' earnings expectations for 2017 were "too optimistic" as oil prices continued to remained volatile.

The company, however, said it was encouraged by the potential of a U.S. infrastructure bill, tax reforms, commodity prices and the recent announcement by the Organization of the Petroleum Exporting Countries (OPEC) to curb production.

Oil prices soared more than 10 pct on Wednesday as some of the world's largest producers agreed to curtail production for the first time since 2008 in a bid to support prices. Analysts on average expect Caterpillar to report 2017 earnings of $3.25 per share, according to Thomson Reuters I/B/E/S. The company said the consensus sales estimate of $38 billion was a reasonable midpoint expectation.

Caterpillar, considered a bellwether for global industrial demand, cut its 2016 revenue outlook for the second time in October, hurt by weak demand for new heavy machinery partly due to slowing global economic growth and weak oil prices.

Straight Talk About Pension Bail Outs

Many state and local public pensions are on life support. Public officials are negotiating with unions, taxpayers, pensioners, the courts and electorate to come up with a solution. Everybody wants a bail out at the expense of others.

The Brookings Institute recent study indicates a huge problem: “As of 2014, state and local governments sponsored nearly 4,000 pension plans that covered almost 20 million retirees, employees, and former employees who have not yet claimed benefits.

… Many states and municipalities are struggling to fund defined benefit pension plans for their employees. … (I)n order to improve their pension status, almost every state implemented some combination of lower benefit accruals and higher employer or employee contributions.

But underfunding problems have not disappeared, and they are likely to become more difficult in the future, putting pressure on other state and local spending programs and taxes.”

Self-Driving Truck Cruises the Highway in Ohio

Global cash war has crippled India’s economy

The global war on cash has devastated India and its economy as the central bank attempts to crack down on black market transactions. Last month the Central Bank of India decided to abolish 500 and 1,000 rupee bank notes.

The banned bills made up more than 80 percent of the currency in circulation, leaving millions of people without cash and bringing the cash-driven economy to a halt.

Thursday market the first payday for much of the country since the government crackdown. Millions of Indians stood on lines outside of banks attempting to cash, what may fear may be worthless paper checks as banks run out of small denominated bills. Since the Nov. 8th decree, scores of Indian farmers have committed suicide as a result of being unable to pay debts associated with planting for the coming growing season.

There are numerous reports of tempers flaring as hundreds of thousands of people queued up for hours outside the country’s banks. “There’s chaos everywhere,” said Delhi Chief Minister Arvind Kejriwal, a rival of Prime Minister Narendra Modi, accusing the premier of wreaking havoc on poor and working Indians while the wealthy found ways to skirt the new rules.

Portland Anti-Trump Protests Cost Nearly $600K in Overtime for Police

The anti-Donald Trump protests in Portland, Ore. have cost the city nearly $600,000 in overtime pay for police officers. According to OregonLive, the police officers protecting the city from burning property, smashed windows, and blocked highways racked up $563,139 in overtime pay in the week following the election. The pay will come out of the city’s $9.1 million overtime budget.

The Portland police tried to keep the peace while still allowing people to voice their outrage, even after the protests became riots. In one tweet, the police encouraged peaceful protesters to separate from the rioters, saying, “Those not wanting to be associated w/anarchists should leave the area immediately. Peaceful protests encouraged to go to Pioneer Square.”

Approximately 120 people were arrested during the Portland protests. OregonLive’s survey of the arrested protesters found the vast majority of the protesters are Democrats, and that the average age of the protester was 26.

Although the violent and damaging protests against Trump occurred in Portland, the greater Portland area voted overwhelmingly for Hillary Clinton.

Keiser Report: The Memewar Has Started

Is the Student Loan Bubble Getting Ready to Pop?

For a few years I have been warning that higher education costs have escalated uncontrollably as wages for the masses have flat lined. As with autos and housing, the stop gap that enabled prices to vault well beyond income and productive utility, has been the availability of credit underwritten by the government and often packaged into securities sold by Wall Street.

Not surprisingly, a growing number of students are now defaulting on these loans because they have insufficient income to make the payments. In the process, investors are facing mounting risk in the so-called “AAA bonds” that securitized these loans. See: $40 Billion of AAA loans at risk of becoming junk. With $1.3 trillion+ in student loans now outstanding, risk-repricing here is just getting started and the ramifications will be widely felt.

Here again, policies and practices that have grossly enriched administrators and corporations running this self-imploding financial model, are leaving our economy weakened in the process, with consumers struggling under crushing debt. Alert to older folks: this is also holding young people back from forming households and starting families, and buying all that expensive real estate that Baby Boomers are hoping to off-load.

Another Ponzi-like financial fiasco that ends up enriching a few at the front end of the origination process, at the expense of everything else. These self-destructive models must end. Costs need to move back down in line with incomes to be sustainable.

Baltic Dry Index showing some life after making a multi-decade low at the start of 2016

When the Central Bankers started printing money in 2009, I knew they wouldn’t be able to stop before they took things to an unimaginable extreme. When you’re in government and your policy isn’t working, you keep pushing harder—like your career is at stake if you fail. When China embarked on a massive infrastructure binge to re-ignite economic growth in 2008, it was obvious that once started, this would also continue for quite some time. What they’ve learned is that US $1 trillion a year just doesn’t kick-start an economy like it used to. This is why I don’t think Trump’s US $1 trillion infrastructure spending plan will stop at that. What’s $100 billion a year over ten years when the Chinese are doing a trillion a year? It just won’t create the sort of job growth needed.

With Trump at the helm, we can be proud that America is leading the western world in a new trend. You cannot fix an overleveraged economy with artificially low rates—you need spending on infrastructure. Trump realizes that. When America starts spending others will follow—just like they followed us with QE. What happens when everyone starts spending? Well, you’re going to need a lot of stuff and someone has to move that stuff around.

Last week, the Baltic Dry Index (BDI) hit a two year high following one of the worst bear markets in the index’s history. This bear market was caused by a crushing glut of ships that were ordered during the bull market of 2006 to 2012, but delivered en masse from 2010 onwards. The last of this glut should come in online in 2017.

After that, there are almost no ships on the order book, meaning almost no more new deliveries until 2020—as it takes about 2 years to build a ship. So, a sector that has seen double digit tonnage growth crushing charter rates will now enter a period of no tonnage growth or even contraction as older boats are scrapped. At the same time, more stuff will suddenly need to be moved around on its way towards becoming infrastructure.

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