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Wednesday 08.03.2016

Venezuela is selling oil for food to Jamaica

Venezuela is selling oil to Jamaica in exchange for food, medicine, farming materials and building supplies. Jamaica announced last week that it would provide up to $4 million in the form of goods and services to Venezuela.

"You could say that it's goods and services for oil," Dr. Wesley Hughes, CEO of the Jamaican government's PetroCaribe Development Fund, told CNNMoney on Tuesday. "It's going to be up to Venezuela to decide what they need."

This form of payment is part of a trade pact between the two nations. Venezuela is desperately short on food and medicine. People wait hours outside supermarkets to buy basic goods like milk, eggs and flour, often only to find empty shelves. Others are dying in ill-equipped hospitals.

Despite the chronic shortages, the Venezuelan government has refused the help of international humanitarian groups like United Nations and Amnesty International. "For them, accepting the humanitarian assistance is in some way recognizing that the crisis is being created by the government," Erika Guevara Rosas, Americas director at Amnesty International, told CNNMoney's Maggie Lake on Monday.

Fragile U.S. Economy Now Facing a Slowdown in Building Boom

At a quarry in Bridgeport, Texas, where rock is crushed, sorted and cleaned, it’s hard to tell that the nation’s construction boom may be hitting a wall. Workers maneuver front-end loaders to fill a long line of rail cars and trucks with up to 25 tons of washed stone each. The destination: one of many construction projects that dot the Dallas-Fort Worth area 70 miles away.

“We’re moving a lot of rock,” said Dean Gatzemeier, who runs quarries in North Texas and Oklahoma for Martin Marietta Materials Inc. Construction has been one of the few pockets of strength in the U.S. economy — until recently. Construction payrollshave declined since March and spending in May rose less than 3 percent from a year earlier, the lowest rate since 2011. Coming after super-charged growth of 10 percent last year, the question now is whether the sputtering is just a blip or something more lasting that portends a significant drag on the economy.

“It’s a deceleration process after two years of fairly decent growth,” said Robert Murray, chief economist of Dodge Data & Analytics, which gathers data on construction. Last year’s boom was spurred by housing and office construction. Residential spending alone contributed almost 0.3 percentage point to the U.S. economy’s 2.4 percent growth rate. New industries, such as e-commerce, also drove construction work, including twoAmazon fulfillment centers in California that will be 1 million square feet each.

Yet construction may be a victim of its own success. A torrid pace of apartment building has saturated some markets. Foreign investment, looking for returns, has poured into high-rise condos in Miami and hotels in New York, creating some overcapacity. In one example, Pollack Shores Real Estate Group, a privately held group, put on hold plans to build a 315-unit apartment complex in the Atlanta area as several new buildings cropped up.

Japan may never see inflation again

The Bank of Japan’s struggle to generate inflation has been well documented, and it looks as if Governor Kuroda isn’t going to be able to achieve the bank’s targeted inflation rate of 2% anytime soon without adopting extreme measures.

Japan’s government has stepped in with a massive fiscal stimulus package to help the central bank try and reach its inflation target of 2% but analysts at Source Reach, the multi asset research firm believe that Japan is trying to fight a war it cannot win.

According to Source analysts (who worked with Albert Edwards at SocGen prior to starting the firm) , there is a clear correlation between the growth of the working age population and inflation. Source presents a chart comparing the working age population and GDP deflator (a measure of general inflation) by country between 1980 and 2015, which shows a clear trend between these two metrics. For countries that have seen working age population growth of 2% or more per annum, the GDP deflator has been more than 6% per annum. However, for countries that have seen working age population growth of between 0.5% per annum and 1.5% per annum, the GDP deflator has been reported as being between 2% and 4% per annum.

UN data shows that Japan’s working age population grew at a rate of around 1.5% between 1950 and the end of the 1980s bubble. The working age population peaked at 78.3 million in 2000 and has since fallen to 71 million, an annualised decline around 0.7%. Between 1980 and 2015 the country’s working age population growth on an annualised basis has been around zero and over the same period, the country’s average annual GDP deflator has also been around zero.

A huge part of the economy is hitting a wall

Credit keeps the US economy moving. Loans allow businesses to build factories and hire workers, for people to buy homes, and for developers to build retail spaces. So when the spigot of credit gets shut off, the US economy tends to seize up.

According to the most recent Senior Loan Officer Opinion Survey report, it does appear that the tap is being shut, albeit slowly.

The survey conducted by the Federal Reserve asks lenders at financial institutions various questions about their lending practices. Most importantly, the survey asks whether these officers are tightening standards, thus making is harder for businesses and consumers to access credit, or easing standards.

According to the survey, there continues to be higher standards demanded for businesses trying to get commercial and industrial (C&I) loans, the all important category that includes everything from loans for purchasing large equipment to expanding to a new location. "Banks have now tightened standards for commercial and industrial (C&I) loans for four straight quarters, although the tightening in the latest survey was more modest than in the previous one," wrote Daniel Silver, an economist for JPMorgan, in a note after the release of the report.

Macy’s, Kohl’s Fall on Concern About Slow Department-Store Sales

Shares of Macy’s Inc., Nordstrom Inc. and Kohl’s Corp. fell on Tuesday after reports about weak summer sales reignited fears of a department-store slump.

Macy’s, the biggest department-store company, suffered a sales downturn in July, following improving trends in late May and June, Cleveland Research said in a note. The slowdown has forced the retailer to be more aggressive with markdowns, the firm said. Nordstrom, meanwhile, is getting less of a bump from its famous Anniversary sale, according to Detwiler Fenton.

While the National Retail Federation is predicting a rise in back-to-school budgets this year, Commerce Department data from June showed that households are dipping into savings to fuel their spending. That could mean current levels can’t be maintained. “It’s not sustainable, and items like clothing are among the first things that are going to get cut out of that spending,” said Bridget Weishaar, an analyst at Morningstar Investment Service.

The retailers suffered their biggest intraday declines since May, with Macy’s dropping as much as 5.9 percent. Kohl’s fell 6.8 percent, while Nordstrom slid 6.9 percent. At Nordstrom, there were early signs that its annual sale was generating strong traffic. But sales may have slowed more recently, Detwiler Fenton said in a note to clients. Nordstrom also added a sale at its off-price Rack chain. That’s the first time the two brands have run simultaneous events, a sign of increasing reliance on promotions.

Aetna latest insurer to question Obamacare's future

Aetna (AET) said Tuesday it is canceling plans to expand into more states next year and will reassess its involvement in the 15 states where it currently offers coverage on the individual exchanges. It expects to lose $300 million (pre-tax) on its Obamacare business this year.

"...in light of updated 2016 projections for our individual products and the significant structural challenges facing the public exchanges, we intend to withdraw all of our 2017 public exchange expansion plans, and are undertaking a complete evaluation of future participation in our current 15-state footprint," said CEO Mark Bertolini in a second-quarter earnings statement.

A growing number of insurers on the Obamacare exchanges are voicing concerns about the viability of the program as they run up big losses. Many say that their premiums were too low and didn't cover the cost of care because their consumers are far sicker than anticipated.

Some 11.1 million people are enrolled in Obamacare this year, according to the latest federal statistics. UnitedHealthcare (UNH), the nation's largest insurer, is exiting most Obamacare exchanges in 2017. Others, including several Blue Cross Blue Shield companies, are also scaling back. And more than half of the co-op insurers, created and funded by the health reform law, have failed. To cover these sicker patients, many insurers are requesting big premium hikes for 2017, some in the high double digit percentages.

International Shipholding Sinks Into Chapter 11

Cargo shipper International Shipholding on Monday filed for bankruptcy protection after it was unable to generate enough cash through asset sales to satisfy its creditors.

The company said its financial position and weak conditions in the shipping industry have made it “impossible for International Shipholding to refinance all of its existing indebtedness in the near term, come into compliance with its existing facilities, or generate necessary liquidity.”

According to court papers, International Shipholding owed lenders $124 million as of March 31. It has been negotiating for more than a year with lenders to fix its balance sheet. “Today, we took a critical step toward right-sizing the company’s balance sheet,” CEO Erik Johnsen said in a news release. “While the company is facing challenges with its debt and capital structure, we believe our core business segments are performing satisfactorily.”

International Shipholding, which was founded in 1947, operates a fleet of 21 ships that transport cargo for commercial and government customers primarily under medium- to long-term contracts. Like other dry-bulk shippers, it has been hit hard by the slump in commodity prices.

Industrial tool maker Kennametal to slash 1,000 jobs

Kennametal, the Pittsburgh-based industrial tool maker that Monday reported a loss for the second consecutive year, is cutting 1,000 jobs, or about 8 percent of its global workforce as part of a broad restructuring program.

The jobs cuts include layoffs and a voluntary separation program. Kennametal, which has been hit hard by declines in oil and gas markets, said sales for the fiscal year ended June 30 fell 19 percent to $2.1 billion, from $2.6 billion in 2015.

The company narrowed its net loss to $224 million, or $2.83 per share from $371 million, or $4.71 per share the prior year.

Ron De Feo, president and chief executive, said the “operating environment remained challenging” and that the company is “aggressively executing” its cost-reduction programs.

Thousands of Syrians granted temporary amnesty in U.S.

The auto boom may have finally run out of gas

After six straight years of rising sales, there is a new reality settling in at dealerships around the country: Sales may have finally peaked.

"I think we're going to settle into a period with a more relaxed buyer attitude," said Karl Brauer, senior director of automotive industry insights at Kelley Blue Book. "It's going to be harder for the auto companies to pull buyers in without using more creative incentives."

Indeed, July's auto sales figures show automakers did spend more to win over buyers. The amount of money spent on incentives as a percentage the average price paid for a new vehicle hit 9.9 percent last month, according to RBC Capital Markets. That's the highest level since November 2010, the firm said.

And TrueCar said the average industry incentive in July was $3,225 — a year-over-year increase of $159 per vehicle sold. Rising incentives have long been a concern for investors, who are worried automakers will return to the days of massive discounting. That was one reason why these firms struggled to consistently post profits in the late '90s and early 2000s.

AIG Announces $3 Billion Buyback as Asset Sales Boost Profit

American International Group Inc. said it will buy back $3 billion of stock after second-quarter profit climbed 6.3 percent, helped by asset sales. The insurer climbed in extended trading in New York.

Net income advanced to $1.91 billion, or $1.68 a share, from $1.8 billion, or $1.32, a year earlier, New York-based AIG said Tuesday in a statement. Operating profit, which excludes some investment results, was 98 cents a share, beating by 6 cents the average estimate of 20 analysts surveyed by Bloomberg.

Chief Executive Officer Peter Hancock has been selling assets and slashing jobs to boost margins after posting losses for three straight periods through the first quarter. He announced a plan in January to return $25 billion to shareholders over two years. The next month, AIG agreed to give board representation to Carl Icahn and John Paulson, the activists who pressured Hancock to split up the company and focus on property-casualty operations. Icahn said last week that he’s had friendly discussions with the CEO about speeding up asset sales.

“AIG’s second-quarter results show strong improvement towards all the goals the board and I announced in January,” Hancock said in the statement. The insurer advanced 2.7 percent to $55.60 at 4:21 p.m. in New York. The insurer, which reported results markets closed, had slipped 13 percent this year as of 4 p.m. in New York, compared with a 5.5 percent gain in the S&P 500 Index.

The Price Of Oil Is Crashing Again, And That Is Very, Very Bad News For The U.S. Economy

This wasn’t supposed to happen. The price of oil was supposed to start going back up, and this would have brought much needed relief to economically-depressed areas of North America that are heavily dependent on the energy industry. Instead, the price of oil is crashing again, and that is really bad news for a U.S. economy that is already mired in the worst “recovery” since 1949. On Monday, U.S. oil was down almost four percent, and for a brief time it actually fell below 40 dollars a barrel. Overall, the price of oil has fallen a staggering 21 percent since June 8th. In less than two months, the “oil rally” that so many were pinning their hopes on has been totally wiped out, and if the price of oil continues to stay this low it is going to have very seriously implications for our economy moving forward.

One of the big reasons why the price of oil has been declining is because the OPEC nations continue to pump oil at very high levels. The following comes from CNBC…

Production in July by the Organization of the Petroleum Exporting Countries likely rose to its highest in recent history, a Reuters survey found on Friday, as Iraq pumped more and Nigeria squeezed out additional crude exports despite militant attacks on oil installations.

Top OPEC exporter Saudi Arabia also kept output close to a record high, the survey found, as it met seasonally higher domestic demand and focused on maintaining market share instead of trimming supply to boost prices.

NAFTA Explained

Weak Business Spending Is Choking Economic Growth

On Friday we learned that the economy grew at a measly 1.2% rate during the 2nd quarter, about half of what most economists were expecting. Worse, growth figures for the previous two quarters were lowered as well.

The economy supposedly expanded at a 0.8% rate during the first quarter of 2016 (revised downward from 1.1%), and at a 0.9% rate during the fourth quarter of 2015 (revised downward from 1.4%). But here’s the kicker: this means that over the past year, the economy has only grown by 1.2%.

For awhile now, nearly everyone has assumed we’ve been in a 2% economy. No one was enamored, but at least it was sustained growth. Now, with the economy having expanded 1.2% over the last 12 months, and at a 1.2% rate over the last 3 months, it would appear things are worse than previously thought. So what’s causing the tepid growth? And does this mean we could be heading toward recession?

A deeper look into the GDP report reveals one primary pocket of strength and one primary area of weakness. The strength is stemming from the resilience of the U.S. consumer. Consumer spending accounts for roughly 68% of the economy, and it grew at a 4.2% nominal rate during the second quarter. At face value, that presents a relatively good picture of strength and stability for the U.S. economy. But unfortunately, robust consumer spending continues to be offset by weak business spending.

Yahoo 'Aware' Hacker Is Advertising 200 Million Supposed Accounts on Dark Web

A notorious cybercriminal is advertising 200 million of alleged Yahoo user credentials on the dark web, and the company has said it is “aware” of the hacker’s claims, but has not confirmed nor denied the legitimacy of the data.

On Monday, the hacker known as Peace, who has previously sold dumps of Myspace and LinkedIn, listed supposed credentials of Yahoo users on The Real Deal marketplace. Peace told Motherboard that he has been trading the data privately for some time, but only now decided to sell it openly.

“We are aware of a claim,” a Yahoo spokesperson told Motherboard in an email, before the data was made public. The company did not deny that the customer details were Yahoo users, despite being asked if it corresponded to the company's own records.

“We are committed to protecting the security of our users’ information and we take any such claim very seriously. Our security team is working to determine the facts. Yahoo works hard to keep our users safe, and we always encourage our users to create strong passwords, or give up passwords altogether by using Yahoo Account Key, and use different passwords for different platforms.”

The Big Squeeze: This election year, it’s all about the money

Two years ago, Judy Konopka and Craig Diangelo lost their jobs in the IT department of what was then known as Northeast Utilities (NYSE:ES), a regional electricity provider, when the company decided to replace about 220 employees with guest workers from India. In order to receive a more lucrative separation package, they had to train their foreign replacements both here and overseas.

Both had trouble finding new work. Konopka, 56, is still looking. Diangelo, 64, is working as a contractor for a company that provides no benefits, making substantially less than he did before. He views himself as a victim of globalization, a casualty of offshoring—and he credits Donald Trump, the presumptive Republican presidential nominee who has cast himself as the champion of displaced and disaffected U.S. workers, for bringing the issue to light.

“I’ll vote for him,” says Diangelo, over dinner at a Thai restaurant on this town’s Main Street. Two others at the table murmur in assent. He continues, his voice rising: “I wasn’t planning on retiring early. I wasn’t planning on making $35,000 less. I’ve had to cut back a lot. I basically live paycheck to paycheck.”

“I could never vote for Hillary Clinton,” Diangelo says, citing Clinton’s support of the North American Free Trade Agreement, passed while her husband, Bill, was president, as well as her advocacy of the proposed Trans-Pacific Partnership, a trade pact that’s still being negotiated by the Obama administration.

Millions of Student Loan Defaulters Have Stopped Payments

The Looming Financial Crisis Nobody Is Talking About, But Should Be

The world has been captivated by a continuous stream of disturbing and shocking headlines. Seemingly every other day, different terrorist attacks, police assassinations or political stunts ignite the public into an emotional frenzy. But as fear shuts down critical thinking, banks that control Europe’s financial system are entering a death spiral. Despite what establishment media narratives push, the most dangerous threat to our way of life isn’t a religious ideology or political divide.

The real risk is a contagion that is undermining the core of the financial system, and the interconnectedness of the globalized economy we live in makes containing the problem nearly impossible. Concerns that used to be isolated to the failing state of Greece have now engulfed the rest of the PIIGS nations. If these dominoes continue to fall in Europe, the momentum could carry the destruction to every corner of the globe.

Italian banks are the latest on the chopping block in the wake of Brexit. For years, they have been acknowledged as a weak link in the economic chain, but they now face stress tests that could expose the scope of their internal problems. The oldest bank in the world, Monte Dei Paschi, is at the center of the controversy, with an expected shortfall of over 3 billion euros.

Other big names, like UniCredit, are in equally bad shape. Wells Fargo recently found that nearly 15% of all loans held by Italian banks could be at risk of default, a staggering figure to attempt to unwind. Further, England’s departure from the E.U. has sparked questions over the future of the euro — and Italy could be the catalyst for an all out breakdown of confidence. If panic begins to grip the Italian people, things could escalate quickly, potentially triggering bank runs.

CBS, NBC Still Silent on Obama’s VA Spending $18 Million on Artwork

When the evening newscasts wrapped up on Monday night, ABC was still the only network of the “big three” to cover the latest saga in the scandal at the Department of Veterans Affairs. It recently came to light that the VA had spent roughly $20 million dollars on art for its facilities. “But while the administration was spending more than ever on veterans it was also spending more of your tax dollars on art for veteran facilities,” reported Fox News Correspondent Kevin Corke Monday evening.

“And we’re talking about millions like the $6 million spent on art at a facility in Palo Alto California; including more than $1 million doled out for a decorative rock,” Corke said in his report. According to Corke the VA also spent, “$21,500 for a 27 foot artificial Christmas tree; that one delivered to a facility in Ohio.”

The sheer cost of the expenditures is staggering: In all, nearly $20 million spent between 2004 and 2014. The spending, laid out in a report by the watch dog group Open the Books, alleged the VA Spent $18 million of the $20 million during the Obama administration alone. Including millions spent on art during the VA scandal in Phoenix where dozens of veterans died waiting for care.

In his report Corke interviewed Adam Andrzejewski, the Founder and CEO of Open the Books, and he condemned the VA’s extravagant expenditures. “No blind veteran can see a fancy sculpture and every veteran deserves to be able to see a doctor,” he exclaimed, “The VA is violating the sacred social bond to care for the warrior who fought so hard for us. And that’s why rooting out of waste, fraud, and duplication is so important.”

The Oil Bull is Dead. Here's What Happens Next...

July was a month of epic market comebacks across the globe. Then there’s oil. As the major averages dance with the bulls, oil finds itself in a new bear market. Crude slipped to its biggest monthly decline in a year, dropping 14% after briefly topping $50 a barrel. It’s now more than 20% off its June highs after toppling another 3.7% to start the week.

Pick your narrative. No matter where you look, oil news is bleak. Bloomberg reports that fuel stockpiles are at their highest seasonal level in at least 20 years. Baker Hughes data shows drillers added to the number of active rigs for the fifth straight week— which should help add to the oil glut as we approach the end of summer.

Weak demand isn’t helping the situation. We’re at the time of year where strong demand should help lower inventories. But it just isn’t there…“As the uncertainty of Brexit and Fed hawkishness worsen the macroeconomic picture, observers should say goodbye to prospects of industrial led demand growth,” writes Barclays’ Michael Cohen. “The hope for a clear rebalancing may have to wait a couple more months, since oil’s drain is clogged in the meantime.”

Sure, that sounds pretty bearish. But if there is a clog, then how the heck is crude’s spot price running down the drain? We warned you that crude’s short-lived jaunt above $51 was a warning sign for the oil comeback all the way back on June 17th. Crude only had a few hours to savor life above $51 before everything started to fall apart. Despite a strong move higher, oil couldn’t even hold a fraction of its gains. It’s breakout to 11-month highs failed almost immediately.

NEWS to Disturb the Comfortable...

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