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Friday 05.06.2016

US rate rise chances recede as jobs growth slows

Hiring by American employers decelerated in April to the slowest pace since September, taking some of the shine off the US labour market following months of robust growth and adding to the Federal Reserve’s dilemma over when next to lift short-term interest rates.

Nonfarm payrolls increased by 160,000 in April, a weaker figure than the 200,000 predicted by analysts before the data were released. Pay growth picked up, however, as employers lift wages to attract and retain workers. The jobless rate remained unchanged at 5 per cent, according to the data from the Bureau of Labor Statistics.

America’s unprecedented private sector hiring streak has been the central driver behind the Federal Reserve’s plans for gradual increases in short-term interest rates. The latest more subdued hiring numbers are unlikely to shake policymakers’ conviction that the US is at or close to full employment, with unemployment still hovering just above most officials’ estimates of the longer-term rate.

However the figures chime with a number of other indicators suggesting the US economy has lost some momentum in the early months of 2016, bolstering the case for the Federal Open Market Committee to wait beyond June before lifting rates again as it assesses the economic soft patch.

China Is Laying The Foundation For The Next World Gold Standard System

On April 19, the Shanghai Gold Fix officially began. The pricing mechanism is intended to be a replacement for the London Gold Fix, the primary price-discovery mechanism for gold bullion today. The London “bullion” market is not a market in bullion. Rather, it is a market in “unallocated” gold, defined as an unsecured liability of banks.

In short, it looks suspiciously like an exercise in paper-hanging. The London Bullion Market Association claimed 21.95 million ounces of “net” clearing per day on average in 2013, worth about $27 billion. Estimates of “gross” trading are considerably higher than this. Supposedly, one might be able to call in these unsecured liabilities of banks, and receive real bullion. However, when people actually try this, banks have a pattern of shunting clients into cash settlement.

The Shanghai Exchange appears to be a real market in bullion, with immediate physical delivery on every contract. Curiously, the opening of the Shanghai gold fix coincided with a dramatic admission by Deutschebank that it had been rigging the London gold and silver markets, accompanied by promises that it would help authorities identify other market manipulators.

Many have considered the phony “paper gold” markets, including the U.S. Comex futures market and also, potentially, gold ETFs, to be a significant impediment to using gold as a standard of currency value. Is China laying the framework for a new world gold standard system? One Chinese analyst called it “the culmination of a two-year plan to move away from a U.S.-centric monetary system.” China’s longer-term intentions were perhaps made more apparent by an essay by Dr. Zhou Xiaochuan, governor of China’s central bank, in March 2009.

Fed's Williams: 2 or 3 rate hikes reasonable this year, but dependent on data

Two or three Federal Reserve interest rate increases this year would be "reasonable," but the central bank will continue to watch economic data, San Francisco Fed President John Williams said Thursday. "We should stay on our basic strategy of gradually reducing accommodation," he told CNBC from the sidelines of a conference on monetary policy at Stanford University's Hoover Institution.

Williams does not vote on the Fed's policymaking committee this year. Last month, the Federal Open Market Committee voted to keep its target range for the federal funds rate at 0.25 to 0.5 percent as it monitored global economic developments and progress toward its 2 percent inflation target.

Williams' comments came ahead of the release of the government's April jobs report on Friday morning and after a weak initial first-quarter gross domestic product reading last month. Williams urged caution about "overreacting" to the data but said the Fed will watch whether GDP sluggishness persists.

"I'm not taking too much of a signal from the first-quarter GDP," he said. Williams touted progress in the labor market and said concerns about a global slowdown have dissipated somewhat. He also addressed comments earlier Thursday by presumptive Republican presidential nominee Donald Trump, who said he would "likely" replace Janet Yellen when her term as Fed chair ends in 2018. Williams said he is "100 percent in full support" of Yellen, adding she is "doing an absolutely terrific job."

Gas Prices Near $3 in California

The average price for a gallon of gasoline has reached $2.97 in San Francisco. Several other large cities in the state have prices nearly as high. If oil prices continue their upward trend, $3 gas will be back for the first time in over a year.

Currently, the average price for a gallon of gas is $2.22 nationwide, up from $2.05 a month ago. However, the price is well below $2 in a number of cities, mostly in oil-rich or refinery-rich Oklahoma, Texas and Missouri. The total count of these major cities with the price below this level is 19. The lowest among them in Kansas City, Mo., where the price is only $1.91, according to GasBuddy.

The cities with gas prices close to $3 in California are spread well up and down the Pacific Coast and also well inland. The price in Santa Barbara and Los Angeles is $2.86. In Bakersfield it is $2.83.

California has several disadvantages that press prices higher. The average price in the largest state by population is $2.81. California sits relatively far from large refineries, which means the cost of transporting gas there is high.

The Historic Dow Jones-Silver Ratio Points To $300 Silver

That’s correct. Going by the historic Dow Jones-Silver ratio, it points to $300 silver. This may seem outlandish or a play on hype, but it isn’t. While many precious metals analysts have forecasted high three-digit silver prices, I didn’t pay much attention to them. However, after I looked over all the data, $300 silver is not a crazy figure at all.

Let me explain. The U.S. economy suffered a fatal blow in the 1970’s as its domestic oil production peaked and inflation soared. To protect against the ravages of inflation, investors moved into gold and silver in a big way. Yes, it’s true that the Hunt’s bought a lot of silver during the 1970’s, but who was buying gold to push its price to $850 in 1980 versus $35 in 1970. Furthermore, who was buying all the oil to push its price up to $36 in 1980 from $1.80 in 1970??

As U.S. oil production and the EROI- Energy Returned On Invested continued to decline in the following decades, the American economy transitioned away from its high-paying manufacturing economy to what I call a LEECH & SPEND SERVICE ECONOMY. Thus, each new decade brought about a new bubble to keep the facade of a growing economy alive.

We had the Department of Defense Military spending Bubble in the 1980’s, the Tech Bubble of the 1990’s, the Housing Bubble of the 2000’s and now we have the Auto, Housing, College, HealthCare, Stock Market, Retirement and U.S. Treasury Bubble. The present highly-leveraged bubble will end all bubbles.

Is a Cash Ban and Carry Tax Coming to the US?

Europe has banned the use of €500 bills. The reason? They claim these bills are used in money laundering and for drugs. And if you believe that is the concern, you probably believe the earth is flat. The fact of the matter is that Europe is now the center for misguided Central Planning for monetary policy. ECB President Mario Draghi has cut interest rates not once, not twice, not even thrice, but FOUR times into NIRP.

The end result has been two items: 1) A barely noticeable blip in EU inflation and GDP growth (the former has already rolled over while the latter began to move up even before NIRP) 2) Savers and investors to begin to hoard cash rather than go out and spend it or even better (according to Draghi’s thinking) take out loans and spend them too.

NIRP is highly DE-flationary. It is a current tax on capital as well as a future tax on interest income payments. NIRP, in a vulgar fashion, is telling you that you are “screwed” no matter what you do. Even a basic understanding of human nature suggests that the natural reaction to this is to panic and begin hoard cashing. If you KNOW that the bank is going to charge you for having a deposit, why not take the money out of the bank and put it in a safe where it won’t be charged?

This, not drug money and certainly not money laundering, is why the EU decided to ban €500 bills: to stop people from taking their money out of the banks. After all, if you’re moving €20,000 or more into cash, you don’t want small denominated bills. It’s much too large a pile to comfortably move around. This is just one weapon in the growing War on Cash. If you think this sounds like some kind of conspiracy theory, consider that France has banned any transaction over €1,000 Euros from using physical cash. Spain has already banned transactions over €2,500. Uruguay has banned transactions over $5,000. And on and on. The next step, if this fails, will be to implement a carry tax on actual physical cash.

Vicente Fox on why he apologized to Donald Trump

Rail Traffic Depression: 292 Union Pacific Engines Are Sitting In The Arizona Desert Doing Nothing

We continue to get more evidence that the U.S. economy has entered a major downturn. Just last week, I wrote about how U.S. GDP growth numbers have been declining for three quarters in a row, and previously I wrote about how corporate defaults have surged to their highest level since the last financial crisis. Well, now we are getting some very depressing numbers from the rail industry. As you will see below, U.S. rail traffic was down more than 11 percent from a year ago in April. That is an absolutely catastrophic number, and the U.S. rail industry is feeling an enormous amount of pain right now. This also tells us that “the real economy” is really slowing down, because less stuff is being shipped by rail all over the nation.

One of the economic commentators that I have really come to respect is Wolf Richter of WolfStreet.com. He has a really sharp eye for what is really going on in the economy and in the financial world, and I find myself quoting him more and more as time goes by. If you have not checked out his site yet, I very much encourage you to do so.

On Wednesday, he posted a very alarming article about what is happening to our rail industry. The kinds of numbers that we have been seeing recently are the kinds of numbers that we would expect if an economic depression was starting. The following is an excerpt from that article…

Total US rail traffic in April plunged 11.8% from a year ago, the Association of American Railroads reported today. Carloads of bulk commodities such as coal, oil, grains, and chemicals plummeted 16.1% to 944,339 units. The coal industry is in a horrible condition and cannot compete with US natural gas at current prices. Coal-fired power plants are being retired. Demand for steam coal is plunging. Major US coal miners – even the largest one – are now bankrupt. So in April, carloads of coal plummeted 40% from the already beaten-down levels a year ago.

Fed Williams, asked about Trump’s Fed comments, calls Yellen ‘great leader’

San Francisco Fed President John Williams on Thursday defended Fed Chairwoman Janet Yellen’s performance after presumptive Republican presidential candidate Donald Trump said he would replace her at the end of her term.

“Personally, I think Chair Yellen is doing an absolutely terrific job. She’s been navigating the Fed though very difficult and challenging times and I think she is not only a great economist, great policy-maker, she’s a great leader,” Williams said in a CNBC interview.

When it comes to presidential politics, Williams said his goal is “to keep my head down,” focus on the economy, and be apolitical. Earlier, in a CNBC interview, Trump said while he didn’t have anything “against” Yellen, he would “most likely replace her” when her term is up in 2018.

Williams said he remained upbeat about the economic outlook and that the Fed should continue to raise rates gradually. In March, most Fed policy makers penciled in two or three rate hikes this year, he noted.

Zimbabwe will print $200 million worth of its own version of US dollars

Zimbabwe is introducing its own version of US dollars to deal with its worsening cash crunch. John Mangudya, governor of the Reserve Bank of Zimbabwe, said the bank will introduce “bond notes” of $2, $5, $10, and $20, which will hold the same value as their US dollar counterparts, according to a statement yesterday.

Ever since declaring its own currency defunct in 2009, Zimbabwe has relied on a basket of currencies that includes the US dollar, the South African rand, the British sterling, and most recently the Chinese yuan. A strengthening dollar has made Zimbabwe’s trade deficit worse—Zimbabwe imports everything from cooking oil to bath soap—imports for the first quarter of the year stood at $490 million, compared to $167 million in exports.

And that has made cash shortages in the country worse. “We’re importing more than we’re exporting and we can’t print money because we use mainly the U.S. dollar,” said Sam Malaba, the chief executive officer of Agricultural Bank of Zimbabwe.

The government is struggling to pay its workers. Some banks have closed their ATMs, worried about long lines of anxious depositors. Workers are going unpaid, or else receiving their wages “bit by bit,” according to a farmhand in central Zimbabwe. And parents are struggling to pay school fees, cutting down on groceries, and taking on more debt to pay their bills.

Housing market on the verge of another crisis?

Today’s market may seem to be improving: distressed sales are down, home prices are up and less needs to be saved to make a down payment, but could these factors ultimately lead to the next housing crisis?

Some believe the market may be on the verge of another crisis as it seems to be showing the same signs as were seen in 2005 to 2007, according to an article by Michael Brush for MarketWatch. One of the major factors is the high price for smaller homes, according to the article. In New York, a small tool shed was sold for $500,000 in Brooklyn.

Here are some other troubling anecdotal signals on the housing market: 1. A major financial website recently ran a guide to the best cities to “flip” houses in. (I don’t want to encourage the behavior.) Real estate speculation via house “flipping” was another early sign of trouble ahead. 2. A few days later, news arrived that home prices in the Bronx had shot up by an astonishing 30% in the first quarter. Crazy advances in home values were, a decade ago, also a signal of trouble ahead. 3. Ads, then as now, were running on TV for “quick mortgages.”

Back in February, Bank of America unveiled a new affordable mortgage program that offers consumers the option of putting as little as 3% down and requires no mortgage insurance.

Gold To Trade Like It's 1999? Oppenheimer Says History is Repeating Itself

Wal-Mart Brings Back Greeters at the Store Door

Those smiley door greeters are back at Wal-Mart. The nation's largest retailer said in a blog post this week that it's bringing back door greeters to a majority of its 5,000 stores by mid-summer to improve customer service. For stores which have been selected as higher risks for thefts, Wal-Mart will position a "customer host," who will not only greet customers but also check receipts to prevent theft. That was flagged as a growing problem last year. Those workers will be trained to help deter potential shoplifters.

The rollout follows a successful pilot program. Four years ago, the discounter decided to remove the workers at the front of the store and relocated them to other areas.

Greeters were a tradition that its late founder Sam Walton started. The move comes as the Bentonville, Arkansas-based retailer is working to improve sales and service amid fierce competition from outlets ranging from dollar stores to online leader Amazon.com. The company has seen gains for a key revenue measure for six straight quarters at its Wal-Mart U.S. division, but the increases have been mostly small.

"Providing customers with an excellent first impression is part of Wal-Mart's broader strategy to ensure simpler, more convenient shopping," wrote Mark Ibbotson, executive vice president of central operations for Wal-Mart's U.S. division on the blog. "Focusing more on our greeters is one of a whole host of details we're looking at — it just happens to be a very visible one."

Companies are playing it safe, and it’s killing the economy

Companies are taking less risks, and that's making the economy perilous for every one. According to Luke Hickmore, co-manager of Aberdeen Asset Management's Strategic Bond Fund, a monumental shift in investing behavior is beginning to weigh on the managements of companies, impacting the way they think about building their firms.

In turn, a more cautious approach to investing is holding back the global economy from achieving higher growth. The shift in investing is something we've highlighted before. As traditionally "safer" investors move from relatively stable assets like government debt to corporate debt and dividend-paying equities, they are taking on more risk in order to get the same return.

Hickmore said that this long-term distortion of investor behavior is now seeping into boardrooms. "These investors that are used to returns through bonds are looking for that yield and in some cases getting into equities," Hickmore told Business Insider. "They want these companies to reward them like a bond, but also be safe like one as well."

The symptoms are showing up in how companies allocate capital. Instead of investing in long-term capital expenditures, companies are instead raising dividend payouts and buybacks in order to reward yield-starved investors. On the one hand there is a push effect towards buybacks and dividends. "If I'm a company manager and I go on a roadshow or to a shareholder meeting, it's more likely that I'm going to hear a desire for more of these shareholder-friendly moves," said Hickmore. "These people, the shareholders, are quite literally the owners of my business, why would you not listen to their demands?"

A Big Bank Suggests Wealth Taxation

There is a two-word phrase which is virtually never heard within the vacuous propaganda machine known as the mainstream media: “ wealth taxation ”. There are very obvious reasons for such conceptual censorship. To begin with, the corporate media is merely one of the subsidiaries of the financial crime syndicate which readers know as “the One Bank” . The One Bank exists for one purpose, to steal wealth. Any form of wealth taxation would effectively claw back significant amounts of these ill-gotten gains; therefore, discussion of this concept is verboten.

This is why we have an “income taxation” system, the most inefficient, complex, and economically destructive form of taxation system which could be inflicted upon us. We have income taxation for one, and only one reason: it provides a taxation “free ride” for the Ultra Wealthy, the proprietors of the One Bank. How, then, is it possible that Deutsche Bank, one of the Big Bank tentacles of the One Bank, could have recently and openly suggested implementing wealth taxation? It is both a putrid and delicious display of irony.

Our governments have already been bankrupted, and our public treasuries have been emptied (via the“bank bail-outs” of 2008). The masses have already been virtually squeezed-dry of their wealth. Our overallstandard of living has already plummeted by more than half. The Middle Class is virtually extinct , having devolved into the Working Poor. But the bankers’ masters are still hungry. Thus, their psychopathic minions have been encouraged to dream up new-and-innovative ways to steal more. One form of systemic theft which has been gaining momentum is “the negative interest rate”: borrowers literally stealing from lenders (and savers). It is in this context that we see the two-word phrase which is a “four-letter word” to all bankers: wealth taxation.

…the ECB and BoJ should move more strongly toward penalizing savings via negative retail deposit rates or perhaps wealth taxes . Here it is necessary to point out the extreme perversity which is implicit in this suggestion. Why is a Deutsche Bank mouthpiece suggesting “negative retail deposit rates or perhaps wealth taxes”? The answer is to (supposedly) stimulate our economies. Of course, another, obvious way to characterize negative interest rates on bank deposits is as a tax on bank deposits. That is why negative interest rates are suggested interchangeably along with wealth taxation – they are both a form of taxation.

Swiss citizens may soon be guaranteed monthly income

Job cuts top 65,000 in April

The pace of job-cutting surged in April as US-based employers announced plans to reduce their workforces by 65,141. According to the figures from outplacement consultancy Challenger, Gray & Christmas (CG&C), that's an increase of 35% over March and 5.8% higher than the total for April 2015.

In the first four months of this year, planned job cuts -- at 250,061 -- are up 24%from the same period in 2015 and the highest January-April total since 2009. “We continue to see large scale layoffs in the energy sector, where low oil prices are driving down profits,” said John A. Challenger, chief executive officer of CG&C. “However, we are also seeing heavy downsizing activity in other areas, such as computers and retail, where changing consumer trends are creating a lot of volatility.”

Another 19,759 jobs disappeared in the energy sector in April, bringing the year-to-date total to 72,660, up 26% from first four months of 2015. Computer firms cut 16,923 positions -- the highest total among all industries. Approximately 12,000 of those were from chipmaker Intel, which is shifting away from the traditional desktop and laptop market and toward the mobile market. To date, computer firms have announced 33,925 job cuts, a whopping 262% above a year earlier.

“For all intents and purposes, the economy remains strong,” Challenger noted. “The nation’s payrolls have experienced 66 consecutive months of net job gains, a trend that is likely to continue with the new report out Friday.”

Government Spent Billions Turning 45% Of American Corn Into Ethanol

Roughly 45 percent of American corn is now used to produce biofuels like ethanol due to enormous levels of taxpayer support, according to an infographic published Wednesday by a global warming researcher.

America supports ethanol via billions in subsidies and federal programs like Renewable Fuel Standard, which requires gasoline sold in the U.S. to contain a certain amount of ethanol. America’s ethanol mandates cost motorists $10 billion annually in additional fuel costs, according to a study published in March 2015 by the Manhattan Institute.

The original justifications for the enormous taxpayer financial-support ethanol has received was reducing America’s dependence on foreign oil and to lower carbon dioxide (CO2) emissions, according to the Congressional Budget Office, but new research has shown that ethanol hasn’t helped the U.S. meet either goal.

Federal programs were not responsible for America’s declining dependence on foreign oil according to a report published in March by the Institute for Energy Research (IER). In 2005, when America became the world’s largest producer of ethanol, the country imported 60.3 percent of its oil. These days, the U.S. only imports 24.2 percent of its oil. The enormous increase in U.S. oil-production is roughly five times the output of all the ethanol distilleries in the country. The decline in oil imports is mostly due to increases in American oil product due to new technologies like hydraulic fracturing, or fracking, and horizontal drilling.

Blackstone CEO: China wants the American Dream

Insurers Planning big Obamacare Price Hikes Next Year

It's still early days for the Affordable Care Act, so it's perhaps no surprise that insurers and Americans are figuring out how to make it work. But it may be dismaying to some consumers to learn that it appears 2017 may bring another year of big rate hikes for health insurance coverage.

The first two states to release insurers' premium proposals for next year hint suggest that individual insurance premiums could rise by as much as one-third. In Oregon, the steepest requested rate hike is from Moda Health Plan, which wants to raise individual plan premiums by 32.3 percent. In Virginia, five of the biggest insurers are asking for increases of 9.4 percent to 37.1 percent for individual policies, according to Virginia's Daily Press.

The proposed rate hikes follow an average increase of 8 percent for 2016, and are being driven by some of the same factors: higher pharmaceutical costs and sicker-than-expected patients. On Wednesday, the health insurer Humana (HUM) said it may exit some state ACA health insurance exchanges "to retain a viable product."

That echoes UnitedHealth Group's decision earlier this year to pull back from selling insurance plans through the ACA in most of the states where it had offered its services. While some insurers are struggling to figure out how to make a profit on plans sold through the ACA, some consumers say they're having a tough time finding plans that fit the "affordable" description of the ACA. Almost six out of 10 people who visited an ACA marketplace, but didn't enroll, said it was because they couldn't find a plan they could afford, according to a survey published last year by the Commonwealth Fund.

The surprising force behind gold’s rally

After a few years of losses, gold prices have risen 17% year-to-date as of April 25, making it one of the best-performing investments this year. Perhaps more remarkably, gold mining stocks are up nearly 78% during the same period, according to Bloomberg data. The question now is: can the rally continue?

To begin, let’s take a look at the catalysts for the rally. Market expectations of slower global growth, a dovish Federal Reserve (Fed) and weakness in the U.S. dollar have been some of the major drivers behind the current rally. Earlier in the year, when WTI oil prices dropped to a 13-year low, according to Bloomberg data, it dragged many other commodities with it. Gold, however, showed resiliency, and regained its status as a “safe haven” asset in turbulent times.

At the same time, gold has benefited from central bank policies and the level of real interest rates (in other words, the interest rate after inflation.) According to Bloomberg data, gold has typically performed best in environments in which real interest rates were low to negative.

We are seeing stark examples of this with the current environment of negative interest rates in Japan and many parts of Europe. When rates are rising, there is an opportunity cost for investors of gold since it doesn’t produce an income stream or pay a dividend. However in a negative rate environment, investors are paying money to issuers to “hold” their money. Rather than pay for that privilege, many investors opt for traditional stores of potential value like gold.

Economic fallout of Fort McMurray wildfire could be big, if history is any guide

From floods to wildfires to ice storms, natural disasters have a history of large­scale economic fallout in Canada. The latest disaster economists are watching unfold is the raging wildfire near Fort McMurray, which has forced the evacuation of the entire city and has led oil giant Shell to shut down one of its operations. Economists say it is too early to tell just how much the fire could hurt the economy, but looking at past natural disasters can give some scope.

Robert Kavcic, senior economist at BMO Capital Markets, notes that the 2011 Slave Lake wildfire caused gross domestic product to drop five per cent in the oil and gas sector, while pulling the overall economy down in the month. There was a minor impact in second quarter GDP, but a strong rebound followed in the third quarter

While the two events cannot yet be compared, that disaster led to insurable damage of $700 million, making it one of the costliest natural disasters in Canada’s history. The town of Slave Lake had a population at the time of roughly 7,000, compared to Fort McMurray’s 80,000 people.

Other natural disasters have hurt Canada’s economy, only to lead to a strong rebound in the following months as rebuilding spurred growth. The Great Ice Storm of 1998 led to widespread damage in Ontario and Quebec, shaving off somewhere between 0.2 to 0.3 percentage points from Canada’s economy.

Friday 05.06.2016

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