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Friday 04.08.2016

Money Printing Gone Wild

The Bank of Japan is running out of government bonds to buy. The central bank’s would-be counterparties have become increasingly unwilling to sell the debt that monetary policymakers have pledged to buy, and the most recently issued 30-year Japanese bond didn’t record a single trade during a session last week as existing owners opted to hoard their holdings.

The central bank in the land of the rising prices sun has set a target of 80 trillion yen ($733 billion) in government bond purchases per year in its continued attempts to slay deflation, an amount that’s more than double the pace of new bond issuance planned by the Ministry of Finance and about 16 percent of gross domestic product.

But safe assets like government debt aren’t just attractive to central banks looking to force investors into riskier asset classes and push down the cost of borrowing or to pensioners looking for a reliable source of income—they’re also in high demand by financial institutions for use as collateral.

That’s because where there is a dearth of safe assets, there is also an incentive and tendency for them to be manufactured; that is, improperly labeled as such. Past results certainly haven’t been pretty. As the Bank of Japan begins to rub up against the technical constraints of its asset purchase program, Jefferies Group LLC Chief Global Equity Strategist Sean Darby proposes a radical solution: consolidate some of the Bank of Japan’s existing holdings of debt into a perpetual bond—that is, one with no maturity and therefore no principal repayment—with a coupon of zero.

Chevron cutting 655 Houston jobs amid oil bust

Chevron Corp. is planning to shed 655 jobs in Houston soon as part of a broader payroll cut across its upstream division announced last October, the latest round of industry layoffs amid a two-thirds drop in crude prices since mid-2014.

The No. 2 U.S. oil company confirmed the cuts Thursday and has previously said it would cut its workforce by 4,000 this year, on top of last year’s reduction of 3,000. Those 7,000 jobs made up about 10 percent of the oil major’s workforce at the end of 2014.

“In light of the current market environment, Chevron continues to take action by revising organizational structures, increasing efficiencies and reducing expenses,” Chevron spokesman Cam Van Ast said in an emailed statement, confirming the 655 local job cuts.

Chevron said it would pay laid-off employees at least six weeks transition pay, severance and provide them career transition services. The job cuts coincide with a 24-percent reduction in Chevron’s investment budget this year to $26.6 billion, as it copes with cheap oil.

How Badly Does China Want Gold?

U.S. consumer credit climbs 5.8% in February

Americans added to their debt at a steady solid pace in February, suggesting that consumer spending will continue to prop up the economy. Consumer credit grew at a seasonally adjusted annual rate of 5.8%, for a gain of $17.2 billion, in February, the Federal Reserve said Thursday. The gain was above market expectations of a $14 billion gain.

Consumer credit has been consistently solid over the past year with no monthly gains below 5%. Total consumer borrowing, which does not include mortgage debt, is now $3.57 trillion.

Credit growth in January was revised up sharply, to a $14.9 billion gain from the prior estimate of $10.5 billion. The gain in February reflected a 6.6% gain in the category that covers auto loans and student loans. This was a bit below the 7% gain in January.

Pent-up demand for new vehicles and the need to increase educational credentials has been two big driver of this new strength in consumer credit, according to economists.

Gold Outshines the Market in Q1 2016

Gold returned to favor with investors in the first quarter of 2016, rising 17% for its best performance in nearly 30 years. The yellow metal outperformed most other asset classes in the first quarter, according to a report released Thursday by the World Gold Council (WGC).

The WGC believes that uncertain markets and expansionary monetary policy are set up to support continued investment and central bank demand for gold. Demand for U.S. Mint gold coins rose 51% year over year in the first quarter, and gold-backed exchange traded funds (ETFs) experienced their second-strongest quarter ever. Both retail and institutional investors are believed to have been behind the increased investments in gold.

The council noted five factors that contributed to the rally in gold: 1. Ongoing concerns about economic growth and financial stability in emerging markets 2. A hiatus in the rise of the US dollar 3. The implementation of negative interest rate policies by leading global central banks 4. The return of pent up investment demand for gold 5. Price momentum (i.e. investors following gold’s upward trend)

The WGC is also bullish on a continuation of the gold run in the second quarter and the beginning of a new bull run for the yellow metal.

Gun background checks surge 36% this year

FBI background checks for gun purchases have surged by more than a third this year, compared to the first quarter of 2015. This puts 2016 is on track to surpass last year's record of 23 million background checks.

The FBI reported record monthly tallies for March, February and January. Background checks, also known as NICS, for National Instant Criminal Background Check System, totaled 7,682,141 in the first quarter this year.

That's an increase of 36% from the same period last year, when there were 5,644,866 background checks. Gun sales are still being propelled by last year's mass terrorist shootings in France and California, according to Rommel Dionisio, a gun industry analyst with Wunderlich Securities.

"The NICS background check data began to accelerate sharply in December, after the San Bernardino and Paris incidents," Dionisio said. He added that the spike in checks was driven primarily by purchases of handguns, as opposed to rifles and shotguns. Political rhetoric from the presidential campaign is also spurring as Hillary Clinton pushes for stronger gun control.

Candidates blast the Fed

Fed's Williams eyes two 2016 rate hikes: Fox Business Network

San Francisco Fed President John Williams can support at least two interest-rate hikes this year as uncertainty over the global outlook fades, Fox Business Network reported on Thursday, citing an interview conducted earlier in the day.

"(Uncertainty) about global growth seems to have stepped down a bit, but it is an important factor affecting the U.S. economic outlook and monetary policy," Williams said in a portion of the interview aired by the network.

Williams also said he sees risks to his outlook for the economy as "pretty well balanced with some strong upside potential," Fox Business Network reported. That portion of the tape was not aired, though the network said it would release more of the interview later on Thursday.

The Fed raised its benchmark policy rate in December, the first increase in nearly a decade, but has left it since at between 0.25 percent to 0.5 percent amid worries that slowing global growth and volatile financial markets could undercut the U.S. recovery.

Draghi: ECB Will Do 'Whatever Is Needed' to Raise Inflation

Pushing back against critics who argue he has backed too much stimulus, European Central Bank head Mario Draghi says the top monetary authority for the eurozone will do "whatever is needed" to lift dangerously low inflation. Draghi's remark Thursday underlines the bank's willingness to step up its stimulus efforts — even though they were increased as recently as its last meeting on March 10.

His speech indicated a readiness to rebut criticism from some media and politicians in Germany, the eurozone's biggest member, who say the ECB's stimulus is excessive, hurts savers and risks destabilizing the financial system.

Draghi coupled that statement with a call for national governments to take steps to make their economies grow faster, producing more demand for goods and services and raising inflation and employment. He said in a speech prepared for delivery in Lisbon that "the ECB has and will continue to do whatever is needed to comply with its mandate." Its mission is to get inflation, which is minus 0.1 percent, to just under 2 percent.

"We have solid evidence that the monetary policy measures that we have taken since mid-2014 are being effective in delivering their intended impact," he said. He cited figures showing that borrowing costs have fallen steeply for both businesses and consumers.

Why Gold is the Ultimate Hedge Against Hackers

On August 22, 2013, the NASDAQ was shut down for half a day. Investors have never been given a credible explanation as to what happened. If there were a benign or technical explanation, NASDAQ NDAQ -1.06% would have told us about it by now. They could have said there was a bad piece of code or an engineer blundered while updating software or an installation didn’t go well. NASDAQ has never provided information of any substance except a few vague references to an “interface problem.”

Why not? NASDAQ itself must know. One likely answer is that the cause of the shutdown was nefarious, and it was probably caused by criminal hackers or, worse yet, Chinese or Russian military cyberbrigades. Investors should have no doubt about the ability of a number of foreign cyberwarfare units to close or disrupt major stock exchanges in the United States and elsewhere.

In 2014, Bloomberg Businessweek broke a story with a cover article titled The NASDAQ Hack. The incident referred to in the title goes back to 2010. Yet it was only in late July 2014 that the media were able to report on what happened: with help from the FBI, NSA, and Department of Homeland Security, the NASDAQ actually found a computer virus in its operating systems, traced it back to its source, and determined it was an attack virus. It wasn’t put there by a criminal gang; it was planted by the Russian state.

Stories of this type are often served up to reporters from official sources with an agenda. Why did this particular story come out four years after the incident? The reporting is timely, but why did the source wait four years? One surmise is that an administration official wanted to reveal the extent of the Russian invasion of U.S. financial exchanges as a way to alert investors to the possibility of worse to come. It was a warning.

Millennials hoping for Sanders win to avoid student loans

Victoria's Secret is laying off hundreds of workers

Victoria's Secret is cutting jobs. Parent company L Brands has officially announced in a release that Victoria's Secret will be "streamlining the organization through the elimination of approximately 200 Columbus and New York home office associates."

This is part of an overall restructuring plan. Victoria's Secret will be split into three divisions, according to the release: Victoria's Secret Lingerie, Victoria's Secret Beauty, and PINK.

Meanwhile, sales at Victoria's Secret continue to soar. Comparable sales for March were up 2%. This news also comes on the heels of a record-shattering fiscal 2015. "Coming off a record year, now is the best time to make improvements … going from best to even better," recently appointed CEO Les Wexner said in the release.

"We are making these changes to accelerate our growth and to strengthen the business for the long term by narrowing our focus and simplifying our operating model. I am certain that these changes are necessary for our industry-leading brands to reach their significant potential … nonetheless, decisions about people are the most difficult ones to make, and we are taking care to support associates who are being affected by these changes," he added in the release.

Presenting The "Boiling Frog" Slowdown

Whenever the topic of recession comes up, the mainstream and especially economists (redundant) become quite defensive about the possibility. Just a few days ago, presidential candidate Donald Trump claimed the US was headed for “a very massive recession” and that it was “a terrible time right now.” The Washington Post, as you would expect, was skeptical of the claim because orthodox economics will have none of it, writing that Trump is “embracing a distinctly gloomy view of the economy that counters mainstream economic forecasts.”

While the Post was serious in its counter, they should not be so confident given past history of mainstream forecasts, economic as well as anything else. As retired Dallas Fed President Richard Fisher correctly pointed out (at least in all likelihood), the staff at the Fed was put to shame by his dry cleaner. Still, part of the problem is lost context in that nobody actually seems to remember what recovery and growth is truly like. We see story after story claim that the economy is strong or consumers resilient when whatever economic account bears no resemblance at all to past occurrences of “strong” or “resilient.”

The issue of recession, however, is only somewhat separate. Because of this reduction in standards, the mainstream accepts only a binary proposition anymore – the economy is either growing or it is in recession. Further, any economic circumstance that doesn’t fit the traditional pattern of recession is then used to confirm the interpretation that there cannot be recession.

It used to be convention that 2% GDP growth represented an intermediate danger zone akin to “stall speed” in aeronautics. Now, as we traverse past and even out of the “new normal”, 2% GDP is somehow used to justify “overheating.” Because labor market statistics are so robust, the balancing act to GDP must be the same even if the very definition of “overheating” has to be reduced to what at one time was universally accepted as dangerous.

Keiser Report: Planning is everything

Fannie Mae: Consumer confidence in housing falls to 18-month low

Despite the fact that mortgage interest rates just fell to the lowest level since February 2015, consumers haven’t felt this poorly about the housing market in 18 months, according to new survey results released Thursday by Fannie Mae.

Fannie Mae’s Home Purchase Sentiment Index, which reflects consumers’ current views and forward-looking expectations of housing market conditions, fell by 2.5 points in March to 80.2, the lowest reading in the last 18 months.

According to Fannie Mae, four of the six HPSI components fell in March, as consumers displayed a more negative outlook on the future of the economy. The largest decrease of the HPSI components was in the net share of consumers who think now is a good time to sell a home, which fell by 8 percentage points and now sits at negative 1% – meaning that more people feel that now is a bad time to sell a home rather than a good time to sell for the first time in more than a year.

And that wasn’t the only big drop among the HPSI components. Survey respondents also said that their confidence about not losing their job decreased by 7 percentage points, falling from an all-time survey high in February, despite the Bureau of Labor Statistics’ March employment report showing strong job creation and continued expansion of the labor force. Additionally, the HPSI’s Household Income component fell by 4 percentage points as fewer consumers reported that their income was significantly higher than it was 12 months ago.

Nationwide Layoffs Sweep U.S. Steel

Pittsburgh-based U.S. Steel (NYSE: X) is laying off around one-quarter of its salaried workers nationwide. Our partners at The Times of Northwest Indiana report the cuts include operations in Gary and Portage.

The employees affected are non-union. The publication says of the estimated 3,000 salaried positions company-wide, some 750 have likely be laid-off.

In an annual report filed to the U.S. Securities and Exchange Commission in December, the company reported 2015 losses of approximately $1.6 billion. U.S. Steel is continuing to take steps throughout all operations to streamline processes and return to profitability called "The Carnegie Way."

Indiana is the country's largest steel-producing state and has been hit hard in recent years by a global market being flooded with cheaper, foreign-made steel that is pinching profits of American companies.

US economy is about to be "swept away by a tidal wave of corporate default"

A Societe Generale analyst has predicted the US economy is about to be “swept away by a tidal wave of corporate default”. Albert Edwards has not shied away from bearish comments in the past and has been dubbed an "uber bear". In February 2014, amid turmoil in emerging markets, he described the unravelling as "the final tweet of the canary in the coal mine".

And today he highlighted figures showing US corporate profits are suffering a "gut wrenching slump". He said: "Whole economy profits never normally fall this deeply without a recession unfolding.

"And with the US corporate sector up to its eyes in debt, the one asset class to be avoided – even more so than the ridiculously overvalued equity market - is US corporate debt.

"The economy will surely be swept away by a tidal wave of corporate default." Edwards also said of recent recovery in the S&P 500: "Ignore this noise.

Big Gulp and taxes - Pay the IRS at 7-Eleven

Cash Banned, Freedom Gone

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.

Are Robots Taking Our Jobs?

If you put water on the stove and heat it up, it will at first just get hotter and hotter. You may then conclude that heating water results only in hotter water. But at some point everything changes—the water starts to boil, turning from hot liquid into steam. Physicists call this a “phase transition.”

Automation, driven by technological progress, has been increasing inexorably for the past several decades. Two schools of economic thinking have for many years been engaged in a debate about the potential effects of automation on jobs, employment and human activity: will new technology spawn mass unemployment, as the robots take jobs away from humans? Or will the jobs robots take over release or unveil—or even create—demand for new human jobs?

The debate has flared up again recently because of technological achievements such as deep learning, which recently enabled a Google software program called AlphaGo to beat Go world champion Lee Sedol, a task considered even harder than beating the world’s chess champions.

Ultimately the question boils down to this: are today’s modern technological innovations like those of the past, which made obsolete the job of buggy maker, but created the job of automobile manufacturer? Or is there something about today that is markedly different? Malcolm Gladwell’s 2006 book “The Tipping Point” highlighted what he called “that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire.” Can we really be confident that we are not approaching a tipping point, a phase transition—that we are not mistaking the trend of technology both destroying and creating jobs for a law that it will always continue this way?

Friday 04.08.2016

NEWS to Disturb the Comfortable...

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