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Monday 09.12.2016

Deutsche Bank: The US May Now Be In A Recession

Three months ago, we presented an analysis which showed something disturbing: according to Deutsche, the “current business cycle is already the fourth longest in the post- WWII period, and the corporate debt-to-GDP ratio suggests that imbalances are building”, and that worse, as a result of soaring corporate debt and rolling-over profit margins, “a recession could hit as soon as the second half.”

Overnight, and three months since its last such analysis, Deutsche Bank has published an update. It shows that, as illustrated in the chart below, profits per worker have generally trended higher over time. This is a function of productivity gains and inflation. However, this has changed in recent years. “In the current business cycle, margins peaked at $18,752 per worker in Q4 2014. This compares to a ratio of $16,487 per worker as of Q2 2016. Margins have fallen because corporate profits have declined -6.3% annualized over the past six quarters, while private sector job growth over this period has been very steady at around 2.1%.”

This is what JPM said: “This morning’s employment report also raised the recession probabilities, although for counterintuitive reasons. We do not include the payrolls number in the recession model because it is subject to larger revisions than other labor market data. But the unemployment rate enters the model in two ways. As a near-term indicator, we watch for increases in the unemployment rate that occur near the beginning of recessions. So this morning’s move down in the unemployment rate lowered the recession probability in our near-term model. But we also find the level of the unemployment rate to be one of the most useful indicators ofmedium-term recession risk. So the move down in unemployment raises the model’s view of the risk of economic overheating in the medium run and raises the “background risk” of recession.”

So we have unemployment. However, a far bigger risk to the US economy is a topic we have flagged since last fall: peak, and now sliding, profits.

Tent Cities Full Of Homeless People Are Booming In Cities All Over America As Poverty Spikes

Just like during the last economic crisis, homeless encampments are popping up all over the nation as poverty grows at a very alarming rate. According to the Department of Housing and Urban Development, more than half a million people are homeless in America right now, but that figure is increasing by the day. And it isn’t just adults that we are talking about. It has been reported that that the number of homeless children in this country has risen by 60 percent since the last recession, and Poverty USA says that a total of 1.6 million children slept either in a homeless shelter or in some other form of emergency housing at some point last year. Yes, the stock market may have been experiencing a temporary boom for the last couple of years, but for those on the low end of the economic scale things have just continued to deteriorate.

Tonight, countless numbers of homeless people will try to make it through another chilly night in large tent cities that have been established in the heart of major cities such as Seattle, Washington, D.C. and St. Louis. Homelessness has gotten so bad in California that the L.A. City Council has formally asked Governor Jerry Brown to officially declare a state of emergency. And in Portland the city has extended their “homeless emergency” for yet another year, and city officials are really struggling with how to deal with the booming tent cities that have sprung up…

There have always been homeless people in Portland, but last summer Michelle Cardinal noticed a change outside her office doors. Almost overnight, it seemed, tents popped up in the park that runs like a green carpet past the offices of her national advertising business. She saw assaults, drug deals and prostitution. Every morning, she said, she cleaned human feces off the doorstep and picked up used needles.

“It started in June and by July it was full-blown. The park was mobbed,” she said. “We’ve got a problem here and the question is how we’re going to deal with it.”

Apple is moving beyond smartphones by creating a world where you never take off your headphones

Like it or not, the iPhone 7 won't have a headphone jack.

There are lots of extremely cynical theories over why this might be, not least because driving demand for Lightning-based headphones would be a very good thing for Beats, an Apple subsidiary.

Regardless, Apple insists that removing the headphone jack was an act of "courage;" a bold willingness to sacrifice the comfortably familiar and push us toward the wireless-headphone future. Plus, ditching the classic 3.5 mm jack apparently makes room for bigger batteries and better cameras inside the iPhone 7 and 7 Plus.

So let's take Apple at face value here. Apple's move toward wireless headphones is a super-important signal of how the Cupertino company is looking at the next wave of technology — and hints at the next wave of computing to come. But first, it's in Apple's best interests (and maybe your own) that they teach you to never take your headphones off, ever.

Michael Krieger-Next 4 Years Will Be Worst in US History

US Corporations Debt Levels Soar And Cash Is Lacking

Debt is the issue: While the headlines of Valeant’s negative plunge centered on wrongdoing and price increases resulting from mergers, some short sellers who were critical of the stock looked at the corporate debt load with concern. Once the Valeant machine reached a certain negative revenue to debt point, the debt would subsume the organization, was the thesis.

With this in mind a new CLSA piece is showing that corporate debt as a whole is set to get much larger – as much as 50% larger – and could reach $75 trillion by 2020, up from nearly $50 trillion currently. When compared to estimated GDP growth, the growth in corporate debt is moving at nearly a five times as fast a rate. This presents problems for not only stock, but high yield debt investors and it is not just the US that has the problem.

There is a perception of the American corporation as the cash-rich uncle who never runs out of money. The reality is different. “Corporate America is increasingly indebted and not as cash-rich as widely perceived,” Absolute Return Partners was quoted as saying.

To support their thesis, they back out the top 1% of cash-rich companies – which hold nearly 50% of all corporate cash — to note that the cash holdings of the 99% are 6% lower than 2015. These companies have $900 billion in cash versus $6.6 trillion in debt. Among US corporates that S&P covers, debt overall has risen 80% since 2007, the CSLA report noted, pointing to a compounding burden.

Wells Fargo fake accounts fiasco proves big banks don't learn

For many people, their trust in the country’s financial system was broken (perhaps irreparably so) by the financial crisis.

In the aftermath, the financial services industry needed to take steps to repair that broken trust. Steps were indeed taken by the financial industry, while other steps were taken upon it by federal and state regulators, all to ensure that a similar fate didn’t befall our economy again in the future.

First there was the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the agency it spawned, the Consumer Financial Protection Bureau, tasked with the mission of, as its name says, protecting consumers from being taken advantage of by the financial services industry.

Then came a raft of regulations and oversight on everything from consumer banking, mortgage lending, mortgage servicing, credit cards, credit reporting, debt collection, student loans, and a number of other financial products.

Negative 2% Rates, Cash Bans And Monetary Voodo

Looking for group think, extrapolation of extreme silliness, linear thinking, and belief in absurd models? Then look no further than Fed presidents, their advisors, and academia loaded charlatan professors.

Today’s spotlight is on Marvin Goodfriend, a former economist and policy advisor at the Federal Reserve’s Bank of Richmond, and Ken Rogoff, a chaired Harvard economics professor, a one-time chief economist at the International Monetary Fund.

Goodfriend says the Fed Might Need to Cut Rates to Minus 2 Percent. The U.S. Federal Reserve might need to cut interest rates to as low as negative 2 percent, far lower than levels other global central banks have tested, a former Fed economist said.

That’s what would likely be needed to engineer a recovery if the U.S. economy were to fall into a recession in the next couple of years, Marvin Goodfriend, who was an economist and policy advisor at the Federal Reserve’s Bank of Richmond from 1993-2005, told CNBC’s “Squawk Box” on Thursday. Goodfriend, who is currently a professor of economics at Carnegie Mellon University, pointed to data on the eight recessions in the U.S. since 1960.

TThe Bubble Burst You Didn’t See Coming

I keep saying that in the next great crash, everything will get swept up in the onslaught – with virtually no exceptions. And that goes too for what we eat!

The 30-Year Commodity Cycle peaked in mid-2008 and has been the first major bubble to crash and burn. The CRB (Commodity) Index has been down as low as 67%, with the potential for 74% or lower in the next few years. Among individual commodities, oil has been down as much as 82% in early 2016. It looks set to revisit its late 2011 low – $18, or down 88%. And meanwhile, iron ore and steel have been down 76% with a potential for 88%.

That all goes without saying. When my Commodity Cycle turns down, these are all likely to follow. And the commodity bubble proves that when bubbles burst, they don’t just correct in a gentlemanly manner – they crash and burn so that the downside is more like 80%, not 50% as in more normal, long-term corrections.

That said… I would have thought the last thing people would do in tough times is eat less! The biggest surprise in the commodity crash to me has been that even agricultural commodities like corn have crashed. It’s down 62% with a potential for 70%-plus.

Doctor: Clinton receiving treatment for pneumonia

Obamacare Rates Are Slated to Rise by at Least 30% in 4 States

If you thought the first year of the Affordable Care Act was challenging, then you may not have seen anything yet.

Obamacare, as the ACA is more commonly known, is nearing its fourth open enrollment season with far more questions than answers. While the law helped to push the uninsured rates in the U.S. to their lowest level on record according to both Gallup and the Centers for Disease Control and Prevention, the longevity and "affordability" of the Affordable Care Act remain very much in question.

Front-and-center among the concerns is the fact that three of the five largest insurers in the U.S. have begun paring back their offerings in a big way leading up to the 2017 launch of open enrollment. This began with UnitedHealth Group (NYSE: UNH), the largest insurer in the U.S., announcing that it would reduce its ACA-based offerings to just three states in 2017 from the 34 states it was offering coverage through in 2016. The move is understandable considering the roughly $500 million UnitedHealth anticipates losing from its Obamacare plans in 2016. UnitedHealth's CEO Stephen Hemsley had previously cited higher-than-expected medical use rates (presumably from adverse selection, which is the process of accepting sicker patients as members) and the ease of changing plans each year as reasons why his company has been losing so much on its Obamacare plans.

More recently, Aetna (NYSE: AET) and Humana (NYSE: HUM), which had been planning to merge, followed UnitedHealth Group's lead. Once the Justice Department announced its intent to block the merger plans, both Humana and Aetna made their intentions clear. Humana is reducing its coverage to 11 states in 2017 from 19 in 2016, but more importantly it's cutting coverage to approximately 88% of the 1,351 counties it operated in during 2016 in the upcoming year. Aetna is reducing its county coverage by nearly 70%. Both Aetna and Humana are making the move to reduce ACA-related losses.

Tens Of Millions Of Older Americans Lack Adequate Retirement Funds

If you said workers in our land of plenty haven’t saved enough for retirement, you’d be making a serious understatement. According to a recent report by the Government Accountability Office (GAO), among families with members fifty-five and older, twenty-nine percent lack retirement savings or a traditional savings plan.

Among those who have managed to save, the median size of their nest egg amounts to $104,000 in households with members between 55-64, and $148,000 with members between 65-74. According to the GAO, if invested in an inflation-protected annuity, those savings would generate a measly $310 and $649 per month respectively. Either of these numbers plus a Social Security check of any amount adds up to much less than a decent retirement income.

In a report just released by Pew Charitable Trusts, thirty million American workers fifty-five and older don’t have access to a retirement savings plan at work. But some states offer better odds than others. In fact, depending on which demographic you happen to fall into, you could be considerably better or worse off.

The percentage of workers eligible for a plan through work is twenty points higher in Wisconsin than it is in Florida, for example. But retirement plan eligibility and participation in this country also varies according to the industry in which a worker happens to be employed. 69% of workers in manufacturing and 68% in financial activities, for instance, have access to an employer-sponsored savings plan.

Student loan forgiveness can come with a ticking tax bomb

As currently structured, July 2019 is the earliest any borrower may receive loan forgiveness under an income-based repayment plan and a tax bill from the IRS.

However, unexpected tax bills have already arisen for people who have had their student debt discharged after death or because they are permanently disabled.

In April, a bipartisan group of U.S. senators introduced a bill to eliminate the tax penalty levied on student loans forgiven for death or permanent disability.

"Families grieving the loss or permanent disability of a child did nothing wrong, and they should not be punished by the federal government with a massive tax bill," Republican Sen. Rob Portman of Ohio said in a statement when he co-sponsored the bill.

Dick Morris: Hillary Could Be Replaced by Biden

Hillary would not have left the 9/11 ceremony unless she absolutely had to. She has always made 9/11 her signature issue and, amid concerns about her health, she would not have left unless she had no alternative.

As she got into her car, she appeared to faint, losing a shoe as she was virtually carried into the car. She won't withdraw unless he has to. But anxious Democrats will be so worried if she fails to be able to campaign and her health escalates as an issue that they might bring unbearable pressure on her to step aside.

If that happened, the Party rules state that the Democratic National Committee -- two from each state -- would be empowered to nominate a new presidential candidate. Tim Kaine would have no special claim on the nomination and, if there were a switch in the presidential nominee, would remain as the VP candidate.

Democrats are getting more and more nervous about Hillary's campaign now that she has blown her August lead and settled into a tie with Trump. If she is sidelined for much of the campaign, their worry is likely to reach a crescendo.

The Call To Rebuild America

Every month the number of jobs added to the economy gets a lot of publicity. Recently, the economy has added about 200,000 jobs a month which sounds and feels good combined with headline unemployment of 5 percent. But there is a story these numbers do not tell and a darker reality that is less publicized.

According to various estimates there are between 2 and 7 million Americans who are not working and have stopped looking for employment. According to the American Enterprise Institute, just counting men, there are 7 million in this category.

These folks live in deep and dire poverty. Many are homeless and lack access to a computer or transportation, which they need to apply for jobs, training or housing. They are not included in the official unemployment numbers.

According to the Bureau of Labor Statistics there are 7 million officially unemployed and nearly 6 million people who are working part-time but want to work full-time. Together the total unemployed and underemployed number around 20 million.

Ship company bankruptcy could impact holiday shopping

For nearly two weeks, dozens of cargo ships belonging to Hanjin Shipping have been stuck at sea, after the South Korean company filed for bankruptcy. A judge has cleared the way for some of those ships to unload.

Docking at the port of Long Beach, California, the Hanjin Greece is finally starting to unload millions of dollars in merchandise. Ships were left stranded, after the company couldn’t cover its fuel bills or guarantee it could pay its employees.

“There’s another ship that’s out on the sea, we don’t know what’s happening with that, we don’t know what the conditions are of those workers on those ships,” said Patrick Kelly who represents impacted workers.

At its worst, the South Korean based company had dozens of cargo ships floating at sea, filled with $14 billion in product from companies like Samsung, Nike and Forever 21. On Friday, a U.S. bankruptcy judge allowed four ships to dock, but so far only one has.

Keiser Report: Leprechaun Economics

CIA Chief Warns of Russia's 'Sophisticated' Hacking Ability

CIA Director John Brennan warned Sunday of Russia's "exceptionally capable and sophisticated'' hacking capabilities, and said the U.S. must be on guard.

"I think that we have to be very, very wary of what the Russians might be trying to do in terms of collecting information in that cyber realm as well as what they might want to do with it," Brennan said Sunday on CBS's Face the Nation.

When asked whether Russia is trying to manipulate the U.S. presidential election, Brennan didn't say. But he noted that the FBI is investigating the hacking of Democratic National Committee emails, and he cited Moscow's aggressive intelligence collection and its focus on high-tech snooping.

"We've known this for quite a while. Their intelligence services are quite active around the world," he said. "And this is something that we have to make sure that we're on guard for, not just for our national security purposes, but also for making sure that our system of government here is going to be preserved."

U.S. Rate Hike Won’t Spoil Appetite for Gold, State Street Says

Is the Federal Reserve poised to spoil the gold bulls’ party? For the manager of the largest exchange-traded fund backed by the metal, not even a surprise increase in U.S. borrowing costs this month would be enough to damp investor appetite for gold.

“We’re still going to be in an environment where rates in the U.S. are still very low,” David Mazza, the head of ETF and mutual-fund research at State Street Global Advisors, which manages SPDR ETFs, said in an interview Friday at Bloomberg headquarters in New York.

Holdings in gold-backed ETFs are heading for a third quarterly gain, the longest streak since 2012, even as the odds of a rate increase in September rise, data compiled by Bloomberg show. Investors have already poured $12.4 billion into SPDR Gold Shares this year, the biggest inflow among more than 7,000 ETFs tracked by Bloomberg.

“There are still opportunities for investors” to own gold, Mazza said. A surprise rate hike may trigger a temporary sell-off, “but not one that’s causing a bear market.” Gold has rallied 26 percent this year, poised for the biggest annual gain since 2010, just a year before prices surged to a record. Money poured back in after three straight years of losses, as the Fed held off raising rates, while accommodative monetary policies from Japan to Europe helped push some bond yields below zero. Lower borrowing costs boost the investment appeal of commodities, which don’t offer yields or dividends.

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