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Friday 11.04.2016

October jobs miss: Economy adds 161,000 new jobs, unemployment at 4.9 percent

The U.S. economy added 161,000 new jobs and the unemployment rate ticked down to 4.9 percent in October, the Bureau of Labor Statistics announced Friday in an overall encouraging jobs report released just days ahead of the presidential election.

October's payroll job gains fell short of the expectations of private-sector forecasters, which were for 178,000 new jobs, but other aspects of Friday's report, especially strong wage gains, signaled ongoing labor market resilience and will likely be enough to keep the Federal Reserve on track to resume tightening monetary policy next month as expected.

Job creation has tapered in 2016 as the ranks of the unemployed have thinned, but recently it has stayed strong enough to keep unemployment trending down. Federal Reserve economists reckon that the U.S. only needs 50,000 to 100,000 new jobs a month to keep up with population growth. Including upward revisions to the previous two months, job gains have averaged 176,000 a month for the past three months.

And details of Friday's report suggested underlying strength. Average hourly earnings rose by 2.8 percent annually, the strongest such wage growth since 2009 and a sign that labor markets are tightening enough to accelerate wage gains.

Government Pension Plans Are Headed For Disaster

The combined debt held by U.S. public pension plans will top $1.7 trillion next year, according to a just-released report from Moody’s Investors Services.

This “pension tsunami” has already forced towns like Stockton, California and Detroit, Michigan into bankruptcy. Perhaps no government mismanaged their pension as badly as Puerto Rico, where a $43 billion pension debt forced the commonwealth to seek protection from the federal government after having defaulted on its obligations to bondholders — a default which is expected to spread to retirees in the form of benefit cuts.

While the disastrous outcome of Puerto Rico’s pension plan — which is projected to completely run out of assets by 2019 — represents the worst-case scenario, the same series of events that led to its demise can be found in most public pension plans nationwide.

There are three primary culprits that can be found in nearly every state suffering from a public pension crisis: 1. The use of accounting gimmicks that are designed to shift costs onto future generations — an approach outlawed for private pension plans and rejected by both public and private plans in Canada and Europe. 2. Lawmakers, acting in their political self-interest, who have catered to the past demands of government unions to enrich their members’ benefits while passing the costs onto future generations. 3. A broken governance structure where public pension board members are actually penalized in tangible ways for acting responsibly, and are rewarded by choosing to delay the day of reckoning.

Greek Taxes Are So High That People Are Turning Down Inheritances

In 2008, government spending consumed 50.9 percent of economic output in Greece according to OECD fiscal data. That same year, Greece’s score from Economic Freedom of the World was 7.12 (on a 0-10 scale), which was rather poor for a supposedly developed country and only #60 for all nations.

Then the fiscal crisis hit and Greece supposedly has atoned for its profligacy and gone through a tough period of “austerity” to reduce the burden of government spending and cut back on onerous levels of bureaucracy and red tape.

How much progress has occurred? Have Greek politicians, with the help of the European Commission, International Monetary Fund, and European Central Bank (the infamous “troika”), scaled back government and freed up the private sector? Nope. The tax burden is so oppressive that people don’t want to inherit property.

The OECD data shows that the burden of government spending is now 53.1 percent of economic output. And the latest data from Economic Freedom of the World shows that Greece’s score has dropped to 6.93 (dropping the country to #86 in the rankings). In other words, Greece suffered a crisis caused by too much government and too much statism and the politicians (along with outside “experts”) decided that the solution was to….drum roll, please…increase the relative size and scope of government.

U.S. Corporate Cash Balances Set to Rise 5% to $1.77 Trillion by End of 2016

When tallying up the total cash sitting inside corporations in America, there are a few things to consider. First is that this generally pertains to non-financial companies because banks and other regulated financial companies have to keep so much cash in reserves. Then there is the notion of what amount of a company’s total cash balance that is actually domiciled in the United States.

A fresh look from Moody’s Investors Service is forecasting that non-financial companies which are U.S.-based and which are rated by Moody’s will end 2016 with roughly $1.77 trillion. That would be up from a total cash balance of $1.68 trillion at the end of 2015. This would mark a gain of more than 5.3% if it works out that way.

As you have probably heard, most of this cash is being held overseas. Moody’s estimates that the amount of overseas cash will reach about $1.3 trillion, which is roughly 74% of this total cash. That would be versus $1.2 trillion, or 72% of total cash, in 2015.

24/7 Wall St. would point out here how easy this is to turn into a political bash, or a bash about corporate greed. This is one of those situations where the public view, and the politicians debating these in the public, are universally neither right nor universally wrong.

CVS Health Inc. to Eliminate 600 Jobs

CVS Health Inc. is eliminating 600 corporate jobs as the company battles headwinds in the health care environment.

CVS is eliminating the jobs at corporate offices in Rhode Island, Illinois and Arizona over the next two months. The company didn’t disclose from which divisions the cuts will come. The company employs more than 240,000 people in the U.S., with many of those store level positions at 9,600 pharmacies.

“We have determined that changing market dynamics and the increasingly competitive environment require us to operate as a more lean and efficient organization,” the company said in a statement.

CVS, which reports third-quarter results next week, said that affected employees will be given a chance to apply for other positions at the company. People not placed in new positions will receive severance packages.

UK’s high court puts the brakes on Brexit

Gold’s fundamentals perfectly aligned for constantly rising price

Gold’s long-term fundamentals are perfectly aligned for a constantly increasing price, starting six to nine months out. This is because the gold mining industry has gone ex-growth.

An increasing number of analysts are reaching the conclusion that new gold supply is under threat and some forecasts show 2025 as having 30% less gold – 20 t of gold instead of 30 t.

“That’s great for gold,” Randgold Resources CEO Dr Mark Bristow commented to Creamer Media’s Mining Weekly Online from London on Thursday, after his company delivered an outstanding set of results for the three months to the end of September.

At $77.3-million, Randgold’s third-quarter profit was 58% higher than the third-quarter profit of 2015, with all of the London-listed company’s gold mines designed to be profitable at a gold price of $1 000/oz. “It’s only upside for us,” said Bristow. Even the short term is a dynamic time for the gold price.

Big Trouble At ExxonMobil

The era of the mighty U.S. major oil industry is coming to an end as the country’s largest petroleum company is in big trouble. While ExxonMobil has been the most profitable U.S. oil company in the past, it suffered its worst year on record.

For example, just four years ago, ExxonMobil enjoyed a $45 billion net income profit in 2012. Now compare that to a total $5 billion net income gain for the first three-quarters of 2016. If Exxon continues to report disappointing results for the remainder of the year, its net income will have declined a stunning 85% since 2012. Actually, the situation at Exxon is much worse if we dig a little deeper.

To understand the real profitability of a company we have to look at its cash flow, or what is known as free cash flow. Free cash flow is calculated by deducting capital expenditures (CAPEX) from the company’s cash from operations. ExxonMobil’s free cash flow declined from $24.4 billion in 2011 to $1 billion for the first nine months of 2016:

So, here we can see that Exxon’s free cash flow of $1 billion (2016 YTD) is down 95% from $24.4 billion in 2011. The reason for the rapidly falling free cash flow is due to skyrocketing capital expenditures and falling oil prices. But, this is only part of the picture.

Central Banks Gold Buying Picks Up In September To 13 Tonnes

Although central bank gold purchase has been uninspiring this year, one research firm remains optimistic that this segment of the market will continue to grow.

According to Capital Economics, quoting data from the World Gold Council, central banks, were net gold buyers last month, purchases totaling 13 tonnes.

Once again, a prevalent theme for the las three years, the Russian central bank was the biggest gold buyer, purchasing 16 tonnes last month. The People’s Bank of China bought almost 5 tonnes of gold last month and Kazakhstan bought slightly more than 4 tonnes. Simona Gambarini, commodities economist at the UK based firm, noted that the buying from the three central banks out weighed 13 tonnes of gold, sold by Turkey.

However, Turkey’s official gold reserves are extremely volatile as the nation also includes commercial holdings from banks in its reserves. Gambarini noted that so far this year central banks have bought a total of 52 tonnes of gold so far this year, well be below officials purchases seen during the same time frame last year. However, she added that she still sees an opportunity for gold to play an important role in central bank reserves.

Layoffs begin at Angie's List

The layoffs that Angie’s List officials alluded to on Tuesday are already under way at its Indianapolis operations, sources inside the company told IBJ on Thursday.

After announcing Tuesday that the company had hired investment bankers “to explore strategic alternatives”—terminology that companies often use before they sell themselves—officials said the firm would lay off employees as part of an effort to find between $15 million and $20 million in cost savings.

Specifically, it would target "non-revenue generating headcount,” according to a spokeswoman. As of Thursday, some of Angie’s 1,800 employees in Indianapolis already had been terminated, according to three current employees and two former employees who still have ties to current workers. None wished to be identified by name.

On Thursday, Angie's List officials informed employees at The Landmark Center at 1099 N. Meridian St. about job losses. Angie's List began leasing space in the building in 2014, and also maintains a sprawling campus on the near-east side of downtown. A group of people in Landmark Center's parking lot declined to comment about the layoffs on Thursday morning when asked by an IBJ reporter. Two uniformed authorities then asked the reporter to leave the property to respect the privacy of those being terminated.

Why health care eats more of your paycheck every year

Millions of Americans are finding out this month that the price of their health insurance is going up next year — as it did this year, last year, and most of the years before that.

And it's not just that the price is going up, it's that it goes up faster than wages and inflation, eating away at our ability to pay for other things we want (beer, televisions, vacations) or need (rent, heat, food).

Does it have to be this way? Why does health care grow so much faster than almost any other spending category so consistently? And will it ever stop? "At some point it's not going to be worth it to have less food, less travel in order to spend money on health care," said Louise Sheiner, a health economist at the Brookings Institution. "That's what really stops it."

Insurance premiums, which reflect spending on medicines, doctor visits, tests and hospital stays, have climbed 213 percent since 1999 for family coverage purchased through an employer, according to the Kaiser Family Foundation, which studies health care. Wages, by comparison, have risen 60 percent, while inflation is up 44 percent.

Will self-driving cars put cab drivers, truckers out of business?

Ronald De Feo has watched robots take factory jobs for years. Now he sees them threatening a new class of worker: People who drive for a living.

“I am in Pittsburgh; it’s a test market for Uber’s autonomous vehicle,” says De Feo, CEO of the industrial materials firm Kennametal. “We see all these (automated) Ubers running around the streets of Pittsburgh, a confusing and difficult place to navigate. If they can make that work, what do you think happens to the job of being a taxi driver?”

Computer scientists and economists say the threat isn’t merely theoretical: Automated cars pose an existential threat to the many Americans who drive for a living: 2.9 million truckers and delivery drivers, 674,000 bus drivers, 181,000 cab drivers and chauffeurs.

The big question is how long it will take auto and tech companies to clear the technical hurdles to turning the streets over to driverless cars. “I don’t see herds of robotic trucks running down the highway in the next few years,” says Vern Meyerotto, a 61-year-old truck driver in Denver. “There’s an awful lot of development that needs to be done on it.”

How Obamacare could be the Achilles heel of Clinton

Want to work for Uber but don't have a car? GM will rent you one.

Well, this is weird. Earlier this year, General Motors invested $500 million in ride-sharing service Lyft. Two months later, GM said that it would rent cars to prospective Lyft drivers for cheap--in some cases, even for free.

Now, the automaker is making a similar offer to people who want to work for Lyft's biggest competitor, Uber--at least for short periods of time. The cars up for grabs will be provided by Maven, GM's Zipcar-ish car-sharing subsidiary. Registered Uber drivers can rent cars from Maven's fleet of GM vehicles for $179 per week, which includes insurance and unlimited mileage. Renters are free to use the vehicles for personal use when they're not Ubering complete strangers around town.

The program will begin as a 90-day pilot in--where else?--San Francisco, featuring Chevrolet models like the Cruze, Malibu, and Trax.

For GM, this Maven/Uber partnership could be a big win. The automaker is essentially offering extended test drives in GM vehicles, and we'd be truly surprised if renters weren't offered some kind of break should they choose to purchase the rides they've been borrowing. In other words, not only does this new program broaden GM's portfolio of mobility offerings by strengthening the Maven network, but it could also boost conventional sales.

Sears Will Shrink 12 Stores To Make Space For More Tenants

One way that Sears Holdings has been raising cash recently has been to take advantage of its vast portfolio of retail real estate, selling store buildings to an affiliated real estate investment trust and using the proceeds to keep the rest of the company going. That’s how the chain even posted a profit last year for the first time since 2012. Now its new landlord, the trust, is asking Sears to shrink down its living space and take on some roommates.

Before and after sales to the trust, which is a joint venture with commercial real estate company General Growth Properties, Sears Holdings has been seeking tenants for parts of Sears and Kmart stores. Even if you don’t take the company’s financial troubles into account, changes in the retail business mean that the company doesn’t need all of that space, and it’s put to better use rented out to Primark or Whole Foods.

The trust has been moving that process along, and now Sears has announced that it will be shrinking down a dozen stores across the country by 2018, including one in the Chicago suburbs near-ish its headquarters.

You’re here to find out whether your local store is on the list of stores scheduled to shrink, though: here that is. Sears Holdings hasn’t said what the exact assortment of products will be in the shrunken stores, but some of them will be shrunk all the way down to becoming appliance-only stores.

ING plan to cut 7,000 jobs

ING Group's plans to shed 7,000 jobs and invest in its digital platforms to make annual savings of 900 million euros ($1 billion) by 2021, drew swift criticism from unions of the Netherlands' largest financial services company on Monday.

The layoffs represent slightly less than 12 percent of ING's 52,000 workforce because nearly 1,000 are expected to come at suppliers rather than the bank itself.

But they are the heaviest since 2009, when ING was forced to restructure and spin off its insurance activities after receiving a state bailout during the financial crisis. Labor unions were highly critical of the decision.

"I don't think this was the intention of the (government) when it kept ING afloat with bailout money," Ike Wiersinga of the Dutch CNV union said.

Metro Bank lets customers choose Mr, Ms, Mrs and Mx

The high street lender is now offering the non-binary "Mx" prefix on its forms. It said the option will be available to customers opening products such as current accounts, as well as staff.

Metro said it has made the changes in response to feedback from staff and customers and that it could react quickly because it was relatively new. Danny Hamer, its chief people officer, said "making sure our customers and colleagues feel comfortable and accepted is a real priority for us".

A spokesperson for LGBT lobby group Stonewall said: "The changes that Metro Bank has made to its forms give important and much-needed recognition to people who do not identify as either male or female. It's great to see them taking proactive steps to ensure their needs are met and that they are accepted and included."

Mr Hamer hoped that Metro's move would encourage others to follow suit.

Norwalk-Based Frontier Communications Announces 1000 Layoffs

Television, phone and internet company Frontier Communications announced it will layoff about 1,000 workers as part of a restructuring effort following a disappointing fiscal quarter, the company announced.

The Norwalk-based company, which acquired territories in California, Florida and Texas this year, lost a net of 155,000 residential customers last quarter.

The layoffs address redundancy in the company's operations following the purchase of those former Verizon territories, according to Frontier CEO Dan McCarthy, reports The Hour.

Among the divisions to experience job losses include marketing and engineering.

A Blow to Brexit

The U.K. High Court’s ruling Thursday that the government does not have the authority to invoke Article 50 of the Lisbon Treaty—the formal mechanism that would begin negotiations for the country’s departure from the European Union—is a blow to Prime Minister Theresa May. The ruling, which the government says it will appeal to the Supreme Court, contends that doing so without seeking parliamentary approval, which May had argued was within her power, would effectively erode parliament’s sovereignty, which is enshrined in U.K. law. In other words: U.K. lawmakers must vote on whether to invoke Article 50.

This puts the government in an awkward position. Her predecessor as prime minister, David Cameron, had staked his political future letting voters decide on the U.K.’s continued membership in the EU. And despite dire warnings about the economic and social costs of Brexit, polls remained close and tightened during the final days. Still, Cameron and others—even those championing Brexit—suspected the “Remain” side would eventually triumph in the June 23 referendum.

But it wasn’t even close: 52 percent voted to leave versus 48 percent who wanted to stay. Cameron resigned as prime minister and, subsequently, as a member of Parliament. After much political jockeying, and backstabbing, among the more high-profile proponents of Brexit within Cameron’s Cabinet, May, who had tepidly supported “Remain,” emerged as the candidate to replace him. As prime minister, she said she would respect the wishes of the voters, stacked her Cabinet with prominent “Leave” campaigners, and said that she would invoke Article 50 in March 2017, thereby setting in motion an expected two-year process to negotiate the U.K.’s future relationship with the EU.

But a legal challenge, which was partially crowdfunded, on whether the government had the authority to do so complicated that plan. The government’s position was that Parliament had, in fact, assented to the government’s authority on Article 50 when it approved the European Communities Act in 1972. That’s the law Parliament passed to allow the U.K. to join what would eventually become the EU. Not so fast, the High Court said Thursday: “[W]e decide that the government does not have power under the Crown’s prerogative to give notice pursuant to Article 50 to withdraw from the European Union.” Furthermore: “Parliament is sovereign and can make and unmake any law it chooses.”

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