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Monday 05.09.2016

"OPEC is Dead" Says Official After Riyadh's Major Shift in Thinking Widens Cartel's Cracks

A fundamental shift in the way Saudi Arabia perceives the oil market has caused an Organization of the Petroleum Exporting Countries (OPEC) official to declare that the cartel "is dead."

The declaration, reported to Reuters by two sources who were present or briefed during OPEC's Vienna meeting, was voiced by a delegate from a non-Gulf Arab country and directed at a Saudi representative as they argued over whether OPEC should keep targeting prices. Riyadh believes that targeting prices is now pointless because the weak global market is not a temporary trend, according to sources.

Mohammed al-Madi, a Saudi governor, told his counterparts at the meeting, "OPEC should recognize the fact that the market has gone through a structural change, as is evident by the market becoming more competitive rather than monopolistic.

"The market has evolved since the 2010-2014 period of high prices and the challenge for OPEC now, as well as for non-OPEC (producers), is to come to grips with recent market developments."

Greece passes tax and pension reforms

Greece's parliament has passed a package of tax and pension reforms, ahead of a crucial meeting of Eurozone finance ministers on Monday. Controversial austerity measures could unlock more international bailout money for the country, allowing it to access a loan instalment of €5bn (£4bn).

Before the vote, protesters in Athens threw petrol bombs at police, who responded with tear gas. Trade unions say the country cannot bear another round of austerity.

Prime Minister Alexis Tsipras said the bill aimed for a "sustainable" system that would "have social justice as its core principle", as only 7.5% of pensioners would see a cut in the money they got. He said the finance ministers' meeting meant Monday would be "a very important day" as debt relief for Greece was on the agenda after "six long years" of austerity discussions.

The debate in Greece's parliament lasted two days as MPs debated whether or not to install the unpopular pension and tax reforms. They will reduce some pension payouts, merge several pension funds, increase social security contributions and raise taxes for those on medium and high incomes. Thousands of people demonstrated, mostly peacefully, in Athens and in the country's second-largest city, Thessaloniki.

This "Recovery" Has Been Worse Than The Recession For Most People

2016 turning out to be record year for failed mergers

For deal makers, 2016 is set to be another record year, just not the type of record anyone wants.

Last week Halliburton Co. HAL, -1.25% and Baker Hughes Inc. BHI, +1.84% called off their nearly $35 billion deal after facing resistance from regulators. The transaction’s failure brought the value of withdrawn U.S. deals to $378 billion. That is not only the highest level year to date for U.S. withdrawn deals, it is the highest total for a full year, according to Dealogic.

World-wide buyers have canceled $489 billion of deals so far this year, according to Dealogic, the second highest year-to-date level since the $505 billion in 2007.

The failure of the Halliburton-Baker Hughes deal comes after Pfizer Inc. PFE, +0.03% called off its $150 billion tie-up with Allergan PLC AGN, -4.13% after the Treasury introduced new rules further curbing inversions. Other deals were abandoned for more traditional reasons: Honeywell International Inc. HON, +0.14% and Canadian Pacific Railway Ltd. CP, -0.84% dropped unsolicited bids to buy United Technologies Corp. UTX, +0.83% and Norfolk Southern Corp. NSC, +0.80% , while China’s Anbang Insurance Group Co. walked away from a $14 billion proposal to buy Starwood Hotels & Resorts Worldwide Inc. HOT, -0.02%

Jim Grant: Central Bankers Have Lost Their Marbles, Government Debt Is A Short

April 15 comes and goes but the federal debt stays and grows. The secrets of its life force are the topics at hand— that and some guesswork about how the upsurge in financial leverage, private and public alike, may bear on the value of the dollar and on the course of monetary affairs. Skipping down to the bottom line, we judge that the government’s money is a short sale.

Diminishing returns is the essential problem of the debt: Past a certain level of encumbrance, a marginal dollar of borrowing loses its punch. There’s a moral dimension to the problem as well. There would be less debt if people were more angelic. Non-angels, the taxpayers underpay, the bureaucrats over-remit and everyone averts his gaze from the looming titanic cost of future medical entitlements. Topping it all is 21st-century monetary policy, which fosters the credit formation that leads to the debt dead end. The debt dead end may, in fact, be upon us now. A monetary dead end could follow.

As to sin, Americans surrender, in full and on time, 83% of what they owe, according to the IRS—or they did between the years 2001 and 2006, the latest period for which America’s most popular federal agency has sifted data. In 2006, the IRS reckons, American filers, both individuals and corporations, paid $450 billion less than they owed. They underreported $376 billion, underpaid $46 billion and kept mum about (“nonfiled”) $28 billion. Recoveries, through late payments or enforcement actions, reduced that gross deficiency to a net “tax gap” of $385 billion.

This was in 2006, when federal tax receipts footed to $2.31 trillion. Ten years later, the U.S. tax take is expected to reach $3.12 trillion. Proportionally, the 2006 gross tax gap would translate to $607.7 billion, and the net tax gap to $520 billion. To be on the conservative side, let us fix the 2016 net tax gap at $500 billion.

Panama braces for online release of Panama Papers

The Panama Papers scandal promises to deepen around the world on Monday (May 9) when a journalists' group with access to the digital cache of documents is to put many of them online.

The International Consortium of Investigative Journalists (ICIJ) is to release the documents in a searchable database at 1800 GMT on Monday accessible to the public. The US-based organisation said the release "will not be a 'data dump'" of the sort the Wikileaks group became known for. But it will reveal names and information on 200,000 offshore entities set up by wealthy individuals around the world.

The documents are from 2.6 terabytes of data given to a German newspaper, Sueddeutsche Zeitung, over a year ago by an anonymous source using the name "John Doe."

The data came from nearly four decades of digital archives of one Panamanian law firm specialized in creating and running offshore entities, Mossack Fonseca, which says its computer records were hacked from abroad. The German newspaper gave access to the trove to the ICIJ, and through it to hundreds of journalists in different countries.

Americans Want U.S. to Let Other Countries ‘Deal With [Their] Own Problems’

In the face of global threats such as Islamic extremism, Americans have grown wary of international involvement. According to a recent study by the Pew Research Center, most Americans (57 percent) want the U.S. to let other countries deal with their own problems.

In addition, 41 percent say that the U.S. does “too much” in terms of solving issues abroad. Support for defense spending is also on the rise, especially among Republicans. “Public support for increased defense spending has climbed to its highest level since a month after the 9/11 terrorist attacks, when 50% favored more defense spending,” Pew reports.

“Currently, 35% say the U.S. should increase spending on national defense, 24% say it should be cut back and 40% say it should be kept about the same as today. The share favoring more defense spending has increased 12 percentage points (from 23%) since 2013.”

The percentage of Republicans who favor higher defense spending rose to 61 percent, a 24 percent increase from 2013. According to the study, Americans are not only skeptical of global involvement, but many also view the U.S. as a less dominant world leader than it was a decade ago.

China “Encourages” Economists To Be More “Positive” About The Economy

As if there were any doubts that China’s economic stats were a tad “Shady”, let those worries rest. China is reportedly issuing verbal warnings to economist, analysts and business journalists that are making less than rosy predictions for the future of the country’s economy.

Officials from securities regulators, media censors and other authorities have taken to warning those who make public remarks that do not fit with the government’s official line. Sources claim that outspoken economist Lin Caiyi is one person that has received a warning in the past few weeks, writes Lingling Wei for The Wall Street Journal.

Lin is chief economist at Guotai Junan Securities Co and has spoken out on rising corporate debt, oversupply of housing and the weakening of the Chinese yuan. She had previously received a warning from the securities regulator before the latest one,which came from the Guotai compliance department. Guotai is owned by the Chinese state. The compliance department apparently warned against “overly bearish” remarks.

Other stories of a clampdown come from analysts at brokerage firms and think tanks. For the moment the evidence is purely based on these accounts, but it seems fairly widespread. Until recent economic struggles information about the economy was largely unaffected by state censorship. However volatility in the stock market and badly received exchange-rate policies have made investors question the competence of the government in managing the economy. In recent months the ruling Communist Party has been making optimistic noises in a bid to reassure markets. However by exercising this control over information the government could knock investor confidence even further.

Why Citi Is Worried: "This Is The Tipping Point"

In his latest must read presentation, Citigroup's Matt King continues to expose - and be very concerned by - the increasing helplessness (and cluelessness) of central bankers, something this website has done since 2009, fully aware how it all ends.

Take Matt King's September 2015 piece in which he warned that one of the most serious problems facing the world is that we may have hit its debt ceiling beyond which any debt creation is merely pushing on a string leading to slower growth and further deflation.

Or his more recent report which explained why despite aggressive easing by the BOJ and ECB, asset prices continue to fall as a result of quantitative tightening by EM reserve managers and China, which are soaking up the same liquidity injected by DM central banks.

Or his February 2016 report, in which his bearishness was practically oozing from every page, and which started off with the stunned observation, that "none of this is "supposed" to be happening" - inflation and economic growth are supposed to be rising in a world as manipulated by central bankers as this one. Instead, the opposite is taking place." He then went on to say that "maybe it will all fizzle by itself"... "but if it doesn't, then we have a problem." It wasn't just one problem: as we laid out it was at least 8 problems, of which the last one was the most dire one: "if there is a next phase, it's likely a crisis of confidence in central banks." Because if central bank confidence goes away, so do the asset price gains of the past 7 years, all of which have been on the back of an unprecedented push by central banks to preserve the system if only that much longer.

Puerto Rico Has Become America’s Version of Greece

Puerto Rico has now firmly established itself as America's analogue to Greece. To get back to fiscal sanity, Puerto Rico is going to need some combination of debt forgiveness, political reform, and privatization. Congress may be in a position to help, but it will have to face down powerful special interests to do so.

After missing relatively small bond payments last August and this January, Puerto Rico's public sector defaulted on at least $367 million of principal due May 1. As a consolation, investors did receive $9 million in interest from the defaulting entity, Puerto Rico's Government Development Bank.

The fact that Puerto Rico even has a Government Development Bank should raise an eyebrow. State-owned banks are not a major feature of the mainland US economy, perhaps because failures of state banks contributed to a number of state bond defaults in the 1840s. Since the US didn't take over Puerto Rico until 1898, the island was not around to learn that lesson. The GDB is one of over fifty public corporations dominating Puerto Rico's economy. Others control the island's electricity, water, and sewer services.

Public corporations date back to the 1940s and largely owe their existence to the efforts of Rexford Tugwell. "Red Rex" was a Columbia University economist who was sold on the virtues of the Soviet way when he visited Stalin's Russia in 1927. He went on to play a leading role in implementing Roosevelt's New Deal. In 1941, FDR appointed Tugwell as Puerto Rico's governor, where he applied a similar state-led economic model. While much of the New Deal was unwound on the mainland, Puerto Rico's public corporations persisted on the strength of borrowed funds.

Voices of the campaign: the coal miners

Sears Will Close Its Oldest Operating Store, Which Opened In Chicago In 1925

Corporate cutbacks mean losing company history, and the next store on Sears Holdings’ closing list is historic: having opened in 1925, it’s the oldest still-operating store in the chain. The store, which is in Chicago’s Ravenswood neighborhood, will begin its liquidation sale in two weeks, on May 19, and will ultimately close in August.

The store wasn’t the first department store location that Sears opened, but it was the first standalone location: the first store was part of the company’s headquarters complex. The store, in the Ravenswood neighborhood, opened at the end of 1925, the first year that the company began opening its first downtown department stores in Chicago.

Other stores in Chicago from the same era that closed in 2013 remain standing but empty, and a local politician expressed worry to DNAinfo that the same could happen to this neighborhood store.

“We can’t have that hulking building sitting empty,” Alderman Ameya Pawar said, but at the same time he said that the distinctive architecturally significant building should have landmark designation instead of being torn down.

US Commercial Bankruptcies Skyrocket

One of the big indicators of the end of the “credit cycle” is the number of bankruptcies. During good times, so earlier in the credit cycle, companies borrow money. Then, overconfident and lured by low interest rates and overoptimistic rosy-scenario rhetoric emanating from all sides, they do what the Fed and Wall-Street firms want them to do: they borrow even more money. Then reality sets in, and they buckle under this pile of debt.

The bankruptcy filings of Ultra Petroleum and Midstates Petroleum on Friday and Saturday brought oil & gas bankruptcies of companies rated by Fitch and other ratings agencies to 59. These two companies piled $3.1 billion in defaulted junk bonds and another $1.5 billion in defaulted loans on top of the growing mountain of defaulted oil & gas debt.

With these two bankruptcies, Fitch Ratings raised its high-yield energy default rate to an all-time record of 13% and now projects that by the end of 2016, this default rate will jump to an even more glorious record of 20%. But it’s not just oil and gas. And it’s not just companies whose bonds and loans are traded and are rated by Fitch and other ratings agencies. These are the larger outfits – big enough to have bondholders and big enough for the financial media to report.

But bankruptcies of all kinds and sizes and in a wide variety of sectors are now soaring. Total US commercial bankruptcy filings in April rose 3% from March and soared 32% from a year ago, to 3,482, the American Bankruptcy Institute just reported. It was the sixth month in a row of year-over-year increases.

Hungry Venezuelans Hunt Dogs, Cats, Pigeons as Food Runs Out

Ramón Muchacho, Mayor of Chacao in Caracas, said the streets of the capital of Venezuela are filled with people killing animals for food. Through Twitter, Muchacho reported that in Venezuela, it is a “painful reality” that people “hunt cats, dogs and pigeons” to ease their hunger.

People are also reportedly gathering vegetables from the ground and trash to eat as well.

The crisis in Venezuela is worsening everyday due in part to shortages reaching 70 percent. This to go along with the world’s highest level of inflation. The population’s desperation has begun to show, with looting and robberies for food increasing all the time. This Sunday, May 1, six Venezuelan military officials were arrested for stealing goats to ease their hunger, as there was no food at the Fort Manaure military base.

The week before, various regions of the country saw widespread looting of shopping malls, pharmacies, supermarkets and food trucks, all while people chanted “we are hungry.” The Venezuelan Chamber of Food (Cavidea) said many businesses only have 15 days worth of inventory. Production has been effected as a result of a shortage of raw materials, as well as exhausted national and international supply resources.

Keiser Report: Destructive Force in US Elections

Economic fallout of Alberta wildfire could spread beyond closed oil operations

The oil-production shutdowns caused by the huge Alberta wildfire pack plenty of potential for broader consequences across the entire Canadian economy, experts say. The growing emergency near Fort McMurray has forced several oil companies in the area to shutter operations that, combined, produce hundreds of thousands of barrels of crude each day. Observers will be watching a key factor that will determine the magnitude of any fallout: the duration of the closures.

Experts say it’s too early to know exactly what lies ahead, but past events offer some clues. BMO senior economist Robert Kavcic noted Thursday how real gross domestic product in Canada’s energy sector fell 4.2 per cent in May 2011 after an Alberta wildfire roared through the community of Slave Lake. “That was big enough to pull Canadian growth down into negative territory temporarily, at least, for one month,” he said.

At the time, Statistics Canada highlighted the mining, oil and gas sector as the “main source” behind the overall real GDP decline in May 2011. For the second quarter of 2011, Statistics Canada once again pointed to the wildfires, along with maintenance shutdowns, as a contributing factor to the headline real GDP figure for Canada, which contracted by 0.1 per cent.

A decrease of 3.6 per cent in real GDP that quarter in oil and gas extraction contributed to the reversal, Statistics Canada said at the time. At the moment, experts are still trying to get a handle on the spreading wildfire near Fort McMurray. The nearby oilsands represent the world’s third-largest reserve after Venezuela and Saudi Arabia.

Why April's Hiring Slowdown May Show Caution on US Economy

American employers signaled their caution about a sluggish economy by slowing their pace of hiring in April after months of robust job growth. At the same time, companies raised pay, and their employees worked more hours — a combination that lifted income and, if sustained, could quicken the U.S. expansion.

As a whole, the government's report Friday pointed to an American job market that continues to generate steady hiring, though at a rate that may be starting to slow. Employers added 160,000 jobs in April, well below the average gain of 243,000 in the prior six months. But the unemployment rate remained a low 5 percent, roughly where it's been since last fall.

"Employment was never going to continue rising at more than 200,000 a month indefinitely," said Paul Ashworth, an economist at Capital Economics, a consulting firm. "Those monthly gains are simply unsustainable" at a time of tepid economic growth. Over the past six months, the economy has expanded at an annual pace of just 1 percent. Anecdotal evidence suggests that some employers have become concerned that sluggish growth could weaken customer demand and limit the need for more employees.

Still, most economists said they were not worried about the weaker hiring in April. In large part, it reflected declines in retail and construction hiring, an expected pullback after hiring in those areas surged in the first quarter of 2016. And job gains have slipped before — most recently in January — without signaling any persistent slump. "The figures are a yellow light, not a red flag," said Andrew Chamberlain, chief economist at Glassdoor, an employment website.

Monday 05.09.2016

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