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Thursday 04.07.2016

Fiat Chrysler laying off 1,300 Workers at Michigan Car Factory

Fiat Chrysler Automobiles NV said it’s eliminating a shift of workers and indefinitely laying off 1,300 employees at a Michigan factory that produces the Chrysler 200 mid-size sedan, which has seen U.S. sales plunge 63 percent this year.

The furloughs at the Sterling Heights plant begin July 5 “to better align production with demand,” Fiat Chrysler said in a statement Wednesday. “The company will place indefinitely laid off employees in open full-time positions as they become available within the Detroit labor market based on seniority.”

Chief Executive Officer Sergio Marchionne said in January that he was moving away from building cars in the U.S. as auto buyers shift to more sport utility vehicles and pickups. Fiat Chrysler has resorted to offering zero percent financing on 84-month loans for the 200 and the Dodge Dart, a slow-selling small car in the company’s lineup.

Norwood Jewell, a United Auto Workers vice president, said the Sterling Heights shift reduction is unfortunate but not unexpected, because of the sales decline. “The company has been planning to increase its capacity to build more trucks and SUVs,” he said. “I believe that in the long term this move will be a positive one for our members and the company.”

Fed Minutes Show Officials Wary of April Rate Hike

Federal Reserve policymakers were split at their last meeting over how to respond to a slowing global economy, with two officials supporting a rate hike in March even as an opposing group felt that even raising rates in April would be too soon.

Minutes of the Fed's March 15-16 meeting released Wednesday showed that several participants argued for "proceeding cautiously" with future rate hikes because of global risks such as weaker growth in China. This group said that even raising rates in April "would signal a sense of urgency they did not think appropriate."

That view stood in contrast with two officials who said they could support a March rate hike and expressed concerns that waiting too long could force the Fed to move more quickly in the future, risking economic instability.

The Fed ended up voting 9-1 to leave its key rate unchanged. Fed Chair Janet Yellen last week signaled concerns about raising rates too quickly given headwinds facing the U.S. economy. Most economists forecast no rate hike in April. The sole dissenting vote came from Esther George, president of the Fed's Kansas City regional bank. Loretta Mester, president of the Cleveland Fed bank, said in a speech last week that she decided not to dissent. But it was unclear who the second Fed official might have been who favored a rate hike last month. The minutes do not identify the participants by name in the recounting of the discussion.

Chance for $1 Gas Disappears

As national gasoline prices fell below $1.70 three months ago, based on the average for a gallon of regular, several areas had $1 gas, and in states like Oklahoma, the price for the entire state was headed in the $1 direction. The chance that gas will be below $1 anywhere in the United States has disappeared.

The lowest price for a gallon of gas is in the Oklahoma City area, where several stations have gas prices of $1.48. All 50 of the locations with the cheapest gas in America are in Oklahoma, with prices from $1.48 to $1.53.

It is no surprise that Oklahoma has the locations with the cheapest gas because as a state it has the lowest average prices among all states at $1.77. Contrast that to California, which has the most expensive average at $2.80 a gallon, according to GasBuddy.

Obviously, the primary mover in gas prices is the cost of crude oil. The price of oil is about $37, up from a 52-week low of just below $30 three months ago. The figure is still below the 52-week high of just above $65. Another critical factor is proximity to refineries. Oklahoma has its own refineries, but the state is also close to the huge refineries south of Houston and on the Gulf of Mexico, which is dotted by deepwater oil drilling platforms.

James Rickards-Gold $10,000 to $50,000 per Ounce

Here comes the worst earnings season since Great Recession

The recession in corporate profits is about to get even uglier. Blame the oil crash and strong dollar. Wall Street is bracing for a 7.9% plunge in first-quarter profits in S&P 500 companies as earnings season kicks off next week. That would be the deepest decline since 2009, according to S&P Global Market Intelligence.

It's part of a broader profit erosion gripping U.S. companies due to the dramatic drop in oil prices, currency turmoil and just plain slow global growth. S&P said profits are on track to decline for the third-straight quarter, the longest losing streak since the Great Recession. None of this is good for the stock market, which has risen dramatically over the past two months as economic fears have eased.

"This earnings season does have the potential of upsetting a rather fragile apple cart," Peter Kenny, an independent market strategist, wrote in a recent report. Earnings season unofficially kicks off next week when Alcoa (AA), JPMorgan Chase (JPM) and Citigroup (C) all report first-quarter numbers.

Despite the recent rise in stock prices, first-quarter earnings estimates plunged by 9.6% since the start of 2016. That's the largest decline also since 2009, according to FactSet Research. Cheap oil deserves a chunk of the blame for the bleak profit outlook. The S&P 500 energy sector is on track to post a loss in the first quarter for the first time since S&P began tracking these numbers in 1999. Keep in mind these estimates are based on non-GAAP numbers, meaning they exclude "all the bad stuff" like one-time restructuring costs. Still, this would be just the second time any of the S&P 500's sectors suffered a quarterly loss. The last time? During the financial crisis in 2009 when the financial sector was melting down.

The US government has a $20.4 trillion retirement problem

The US government has nowhere near enough money to pay retirees. The credit-rating agency Moody's says state, local, and federal governments are about $7 trillion short in funding coming pension payments.

"The unfunded liabilities of the various federal employee pensions systems, covering civilian and military employee benefits, amount to about $3.5 trillion, or 20% of US GDP," a release from Moody's said Wednesday.

"Additionally, Moody's estimates that unfunded state and local government pension plan liabilities are of the same magnitude, bringing the total shortfall to 40% of GDP." Moody's also said the public pensions were only one piece of the growing retirement problem in the US.

"The bigger challenge to the US comes from the unfunded liabilities for the Social Security and Medicare programs," the report said. "The Social Security funding gap is estimated at $13.4 trillion, or 75% of GDP, while the shortfall from the Hospital Insurance component of the Medicare program amounts $3.2 trillion, or 18% of GDP." That means between the pension shortfall and the benefits shortfall, the US government is $20.4 trillion short in funding for retirees. The combination of all these factors has led some, including Blackstone president and COO Tony James, to call this sort of shortfall in retirement funding the "hidden crisis" facing America.

Cash Ban Isn’t Anti-Crime—-It’s Designed To Enable The State Crime Of Savings Confiscation

Some politicians want to ban cash, arguing that cash is helping criminals. The first steps in that direction are the withdrawal of big denomination notes and the limits imposed on cash payments.

Proponents of a ban on cash claim that this will help fight criminal transactions — involved in money laundering, terrorism, and tax evasion. These promises of salvation are used to get the general public to agree to a society without cash. But there is no convincing proof for the claim that the world without cash will be a better one. Even if undesirable behavior is indeed financed by cash, you still need to answer the question: will the undesirable behavior disappear without cash? Or will those who commit the undesirable acts take to new ways and means to reach their goal?

Take the example of the 500 euro note. If we do away with it, won’t those who wish to use cash pay with five 100 euro notes instead? Or ten 50 euro notes? And what about the costs imposed on the large majority of respectable people, if you put a ban on their cash? Using the same logic, should we ban alcohol, because some can’t handle it properly?

The plan to restrict the use of cash, or to abolish it step by step, has nothing to do with the fight against crime. The real reason is that states (and their central banks) want to introduce negative interest rates. Although central banks have long pursued inflationary policies that devalue the debt owed by governments, negative interest rates offer a new and powerful tool to do this. But, to make negative interest rates work well, you have to get rid of physical cash.

Obamacare for Your IRA Is Here

This administration can’t see a private market transaction it can keep its hands off. The latest example is a new regulation with the snooze-inducing title of “the fiduciary rule.” This new rule, from those well-known financial experts at the Department of Labor, broadens the legal definition of who is a fiduciary, mandating a broad swath of financial professionals who service 401(k) plans and individual retirement accounts to only serve the “best interest” of savers when providing investment guidance—with the definition of “best interest” to be decided by regulators.

While at first sight this may sound perfectly reasonable, the rule will put middle class investors at risk of losing access to investment advice. That’s what happened when the UK introduced its version of the rule – since some portfolios were too small to justify the cost of even a management fee, brokers stopped servicing them. A June 2013 study by the Cass Business School at City University London found that brokers had largely stopped serving British savers with portfolios below £150,000 ($240,000), because the fees alone would not pay for servicing the accounts. This study and other research estimates that this “guidance gap” will see 85 percent of British savers lose their brokers or get reduced services for their retirement accounts.

Center-Left economists Robert Litan and Hal Singer argue that similar effects would take place here if the mandates of the proposed rule, virtually unchanged by the final rule, take effect. They estimate that savers could lose $80 billion over 10 years because of it. Of course, they were excoriated by Senator Elizabeth Warren for pointing this out, who attacked their integrity rather than their methods.

Why is the Labor Department proposing this rule? Because of our old friend, the computer model. The Department put together a model that suggested that American savers could be losing $8 billion to $17 billion a year because of bad advice. However, according to Politico, when pressed for specific families who’ve lost savings due to the conflict of interest that the fiduciary rule is designed to eliminate, the Labor Department can cite only a handful. That $8 billion to $17 billion in annual losses is a statistical estimate, not a tally of observed financial losses.

Americans Must Work 114 Days Into 2016 Just to Afford Nation’s Tax Bill

Tax Freedom Day will fall on April 24 this year, meaning that Americans must work 114 days into the year before being able to afford their total tax bill, according to a report from the Tax Foundation.

The Tax Foundation defines Tax Freedom Day as the day when the nation has earned enough money to pay its total tax bill for the year and calculates it by taking all federal, state, and local taxes and dividing this by the nation’s income.

This year, Americans will pay nearly $5 trillion in taxes, which includes $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes. This amounts to almost a third of national income. “This year, Americans will work the longest to pay federal, state, and local individual income taxes (46 days),” states the report. “Payroll taxes will take 26 days to pay, followed by sales and excise taxes (15 days), corporate income taxes (nine days), and property taxes (11 days). The remaining seven days are spent paying estate and inheritance taxes, customs duties, and other taxes.”

Tax Freedom Day is one day earlier than last year because projected federal tax collections are lower than they were in 2015. However, if you included federal borrowing, which represents future taxes owed, Tax Freedom Day would fall on May 10. The report also finds that Americans will spend more on taxes than they will on food, clothing and housing combined.

The Big Short may have damaged sub-prime bonds, says Morgan Stanley

The American financial services firm Morgan Stanley has blamed Oscar-winning film The Big Short for a reluctance among investors to sign up for sub-prime bonds, reports Bloomberg.

Adam McKay’s acclaimed drama is about the housing bonds sold to investors prior to the 2008 financial crisis that were largely based on sub-prime loans to risky borrowers. While new financial rules have improved the quality of such packages, Morgan Stanley notes in a new briefing that investors remain suspicious of similar-looking car-based bonds.

“Concerns about growing recessionary risks – and perhaps even the popularity of the recent movie The Big Short – have motivated investors to investigate any potential source of weakness,” reads the firm’s briefing.

“Consumer sectors that involve large initial outlays, such as housing and autos, provide a natural place to start,” it continues. Morgan Stanley nevertheless says it does not believe car-based sub-prime bonds will go the way of their housing equivalent, whose failure helped trigger the financial crisis. “The current credit structure of these auto deals remains fairly resilient,” the briefing states.

Growing US Debt to 'Hasten Demise' of Dollar as World Reserve Currency

The growth of the public debt in the United States, now approaching $14 trillion, could cause the US dollar to lose its global reserve currency role, career diplomat and Council on Foreign Relations President Richard Haass said on Wednesday.

"Mounting debt will hasten the demise of the dollar as the world’s reserve currency," Haass told members of the US Senate Foreign Relations Committee in testimony on the strategic implications of the US debt.

Haass warned that a "post-dollar world" will be more financially costly for the United States and will negatively impact the country’s political leverage to impose dollar-related sanctions. Since the end of World War II, the US dollar has been the dominant currency in world trade. At the end of 2015, the Chinese yuan was included in the International Monetary Fund’s basket of currencies, a critical determinant of world currency valuations.

Haass argued that the demise of the US dollar would occur as a result of a "loss of confidence in US financial management." Such development can come because of concerns about the ability of the United States to do "what it should be doing to manage the US and indirectly world economy," Haass explained.

The Markets Still Believe the Recovery and Rate Hike talk are Real

The Fed Can't Fix The Economy On Its Own--No Matter What It Does

Last year, the Federal Reserve finally showed some restraint. It raised an interest rate and tied off “quantitative easing,” the big buying of Wall Street’s housing-market paper which former Fed chair Ben Bernanke had been so fond of. The initial results came in a little harrowing. Stocks dived and the hiring of full-time workers across the economy fell well below norms.

After six years of paltry 2% national economic growth since the trough of the Great Recession in 2009, it appeared, in 2015 and early 2016, that the Fed had to concede semi-stagnation. The monetary blowouts of the previous years had done nothing to prompt real economic expansion. Now it was time for the Fed to make small moves in the opposite direction, to ward off the danger that Bernanke’s actions had always been courting: a collapse of confidence in the dollar. If the result of successor Fed chair Janet Yellen’s policies had to be a stock-market haircut and more tiny job and wage growth, so be it. Such an outcome would be consistent with the mediocre new normal of the previous six years under President Obama.

And yet how odd it is that the Fed of recent years, through Bernanke and Yellen, has been nothing but ineffective. It uses its apparently awesome powers to the max, and crickets chirp. The Fed’s labors are full of sound and fury and signify nothing.

Big-time monetary infusions: slow growth. A lurch toward monetary probity: slow growth. Weakness against major currencies and gold (through 2013): slow growth. Strength against the same (through 2016): slow growth. Isn’t the Fed supposed to be—powerful? In this puzzling era of ours, the Fed puts on a show of trying vastly different things, while we have to endure the same result: mediocrity in the economy.

McDonalds Responds To Minimum Wage Hikes, Launches McCafe Coffee Kiosk

When it comes to jobs growth in the US, all one can say is thank god for waiters and bartenders: after all, a Starbucks barista is precisely what a recently fired oil chemical engineer making half a million dollars really wants to do with their life. However, the days of easy job gains for the BLS may be coming to an end (even if on a seasonally adjusted, goalseeked basis the trend has a long way to go).

According to Brand Eating, fast food king McDonald's has been spotted testing a self-serve McCafe coffee station/kiosk out in downtown Chicago. The station is located in the restaurant but apart from the counter and looks to be a theoretically more convenient way for those who just want a cup of coffee to skip the regular line (while also freeing employees from having to make each drink in the back).

In essence, this is the company's latest venture to make employees responsible for one less task as corporate HQ slowly but surely responds to minimum wage hikes sweeping all states, and in the process, outsource its minimum wage workers to simple machines which will never unionize or have any demands aside from being cleaned occasionally. The coffee station includes a touchpad for ordering and paying (it appears to take credit card only), a beverage spout, and a dispenser for cups.

According to Brand Eating, "drink options include lattes, mochas, and cappuccinos that are customizable with various flavorings, types of milk, and amount of espresso. There doesn't seem to be an option for drip coffee. The price for the drinks is $2.99. The concept and set up is very similar to McDonald's Create Your Taste customized ordering available at some restaurants.

Pfizer tax inversion cancelled amid Panama Papers fallout

Puerto Rico Passes Law That Freezes The Island's Debt Payments

Puerto Rico's governor has signed a bill that puts the island's debt payments on hold until January 2017. Gov. Alejandro Garcia Padilla says the island's first priority is covering payments for essential services.

Puerto Rico acted this week following reports that a key financial institution, the Government Development Bank, is nearly insolvent. A group of hedge funds went to court to block public agencies from withdrawing funds from the bank. Within hours, the Legislature moved to pass the debt moratorium by approving the measure.

The law suspends all bond payments, including general obligation bonds, which are guaranteed by the island's constitution. It also limits activity at the government bank and allows it to enter into receivership if necessary. The bank is facing a May 1 deadline, when a $400 million-plus payment is due.

While the Legislature was meeting, a group of creditors who hold general obligation bonds were in San Juan to pursue a deal to restructure some $5 billion of the island's debt. The head of the Government Development Bank rejected their proposal, saying, "It is exactly the type of 'Wall Street' solution that led us to the precipice we are now looking over."

Is the American Dream Dead?

The American Dream that has existed in this country for over 50 years is on life support. For some Americans, it may already be dead.

While recent consumer confidence surveys indicate that Americans seem somewhat optimistic about the overall economy, most polls and studies show that we are anxious about our own economic futures.

Many Americans no longer seem to believe that they will ever be financially secure or stable. The belief that you can succeed financially with hard work and determination has been a core tenet of the American Dream. Now more than three-quarters of all Americans believe that downward mobility is more likely than upward mobility.

Are the foundational elements of our collective dream and middle-class lifestyle—owning a home, having stable employment and retiring debt-free and financially secure—now out of reach for most of us, especially the young? And has the problem of the vanishing middle class now reached a group that had seemed entrenched, suburban white Americans? I’ve been researching these themes recently while writing a book on the topic. In part I’m trying to understand what these disturbing trends—including stagnant wages and runaway debt—mean for the American Dream, a term first coined by writer James Truslow Adams 85 years ago: ..that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.

What is an H-1B visa?

There really are too many stores. Just ask the retailers

On your most recent shopping trip, there’s a good chance you noticed that one of your favorite stores is shuttering its doors. Walmart has said it will close 154 U.S. stores this year. Macy’s is in the process of axing 40 locations. By June, department store Kohl’s will shutter 18 stores.

Some of this is surely cyclical, as retailers routinely look to the beginning of the calendar year as a moment to prune underperforming stores. But this year, it’s hard not to look for deeper meaning in the wave of closures: The retail industry recorded a disappointing holiday shopping season, delivering only 3 percent sales growth, far below the 3.7 percent increase it had expected. Meanwhile, our shopping dollars continue to march online, and young, affluent consumers are moving back into big cities instead of taking up in America’s mall-dotted suburbs. That confluence of factors poses a tough question: Do some of the biggest names in retail simply have too many stores?

In industry jargon, this is called being “overstored,” and it’s a position that more and more retailers — especially the large ones — are likely to find themselves in as shopping and demographic patterns change.

Of course, some malls are still thriving: Upscale behemoths like Tysons Corner Center and outdoor, “town center”-type destinations are drawing plenty of visitors and dollars. But the retail landscape is changing, as individual retailers rethink their store portfolios. The pullback has many shopping center owners looking more broadly for tenants, targeting restaurants, health clubs and other so-called lifestyle businesses.

Manufacturing Job Losses At Six-Year High

The U.S. manufacturing sector saw its highest level of monthly job losses in more than six years in March, but recent indicators suggest that lagging employment could be short-lived. The latest numbers from the Bureau of Labor Statistics showed the country gaining 215,000 jobs in March as the unemployment rate held steady at 5 percent.

Manufacturers, however, lost 29,000 jobs last month, the largest total since December 2009, when the nation was just beginning to emerge from the Great Recession. The monthly Institute for Supply Management report also reflected sluggish hiring in the manufacturing sector. The ISM's Employment Index for March, at 48.1 percent, was down 0.4 percentage points compared to February and marked the fourth consecutive month of employment contraction.

But the broader ISM report showed a Purchasing Managers' Index of 51.8 percent, a 2.3 percentage point increase from the previous month and the first rating of more than 50 — a sign of an expanding manufacturing economy — since August.

Manufacturers endured a largely difficult late 2015 amid a strong dollar and low inventories, but the ISM report showed three consecutive months of growth in both new orders and in production. The ISM's Bradley Holcomb said that the growth in orders likely represents pent-up demand from previous months and that "people are now going to the store and making their purchases."

Thursday 04.07.2016

NEWS to Disturb the Comfortable...

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